G.R. No. L-37331 – 58 Phil. 141 – Mercantile Law – Corporation Law – Proper Action Against Corporation Allegedly in Violation of the Corporation Code
In 1927, Benguet Consolidated Mining Company, registered as a sociedad anonima (type of legal entity with two or more shareholders) under the Spanish Law, agreed to invest and build capital equipment in favor of Balatoc Mining Company, a corporation registered under the then relatively new Corporation Law of 1925. In exchange, Balatoc Mining agreed to give Benguet Mining 600,000 shares.
The venture proved to be profitable and Balatoc Mining earned and so did its stockholders, and of course, Benguet Mining was earning big too because it now owns 600k shares. This prompted, Fred Harden a stockholder of Balatoc Mining who also owns thousands of shares to sue Benguet Mining on the ground that under the Corporation Law a corporation like Benguet Mining which is engaged in the mining industry is prohibited from being interested in other corporations which are also engaged in the mining industry like Balatoc Mining.
ISSUE: Whether or not Harden’s suit should prosper.
HELD: No. The Corporation Law of 1925 subjects sociedades anonimas to its provisions “so far as such provisions may be applicable.” In 1929, the Corporation Law was amended and the prohibition cited by Harden was so modified as merely to prohibit any such corporation from holding more than fifteen per centum of the outstanding capital stock of another such corporation.
Further and more importantly, the Corporation Law of 1925 provides that if the person who allegedly violated the provisions of said law is a corporation, the proper action is a quo warranto which should be initiated by the Attorney-General or its deputized provincial fiscal and not a private action as the one filed by Harden.
