CARLOS PARDO DE TAVERA vs .

EL HOGAR FILIPINO

FIRST DIVISION
[G.R. No. 45963. October 12, 1939.]
CARLOS PARDO DE TAVERA and CARMEN PARDO DE TAVERA
MANZANO, plaintis-appellants, vs. EL HOGAR FILIPINO, INC.,
defendant-appellee. TAVERA-LUNA, INC. , defendant-appellant;
VICENTE MADRIGAL, defendant-appellee.

Carlos P. de Tavera and E. Voltaire Garcia for plaintiffs and appellants.

Pedro Sabido and Jose Avancea for defendant and appellant.
Camus & Zavalla for appellee El Hogar Filipino.
Vicente Madrigal in his own behalf.
SYLLABUS
1.
CORPORATIONS; LOAN ON PUBLIC BUILDING. Under section 171
of the Corporation Law, a loan given on a property which may be considered as a
public building, is not, in itself, null and void. It is unlawful to make loans on that
kind of security, but the law does not declare the loans, once made, to be null
and void. The unlawful taking of the security may constitute a misuser of the
powers conferred upon the corporation by its charter, for which it may be made
to answer in an action for ouster or dissolution; but certainly the stockholders
and depositors of the corporation should not be punished with a loss of the
money loaned nor the borrower be rewarded with it.
2.
ANTICHRESIS; FORECLOSURE OF SECURITY. Stipulations in a
contract of antichresis for the extra-judicial foreclosure of the security may be
allowed in the same manner as they are allowed in contracts of mortgage and of
pledge. (El Hogar Filipino vs. Paredes, 45 Phil., 178; Peterson vs. Azada, 8 Phil.,
432, 437.)
DECISION
MORAN, J :
p

On January 17, 1931, defendant corporation, Tavera-Luna, Inc., obtained a

loan of P1,000,000 from El Hogar Filipino, Inc., for the purpose of constructing
the Crystal Arcade building on its premises at Escolta, Manila. To secure this loan,
the corporation executed a rst mortgage on said premises and on the building

proposed to be erected thereon. On February 11, 1932, Tavera-Luna, Inc.,

secured from El Hogar Filipino an additional loan of P300,000 with the same
security executed for the original loan. The A, Tavera-Luna, Inc., thereafter,
defaulted in the payment of the monthly amortizations on the loan; whereupon,
El Hogar Filipino foreclosed the mortgage and proceeded with the of extra-judicial
sale of the Crystal Arcade building, at which it was the highest bidder for
P1,363,555.36. One day before the expiration of the period of redemption, Carlos
Y. Pardo de Tavera and Carmen Pardo de Tavera Manzano, in their capacity as
stockholders of the Tavera-Luna, Inc., instituted the present action against
Tavera-Luna, Inc., and El Hogar Filipino, Inc., to annul the two secured It loans as
well as the extra-judicial sale made in favor of the latter. Vicente Madrigal was
included as party defendant because of his having signed the second contract of
loan as holder of a second mortage on the property. in Tavera-Luna, Inc., led a
cross-complaint against its co-defendant El Hogar Filipino, seeking also to annul
the two loans aforementioned. From the judgment dismissing the complaint and
cross-complaint, plaintiffs and cross-complainant took the present appeal.
The most important question raised by appellants is whether or not the two
secured loans are null and void. It is contended that they are, on the ground that
the Crystal Arcade building, given as security for the loans, is a public building.
This contention is predicated upon section 171 of the Corporation Law which
reads as follows:
"It shall be unlawful for any building and loan association to make any
loan after the date when this Act, as amended, shall become eective upon
property that is suitable for use only as a manufacturing plant, theater,
public hall, church, convent, school, club, hotel, garage, or other public
building. To facilitate the investment of the idle funds of a building and loan
association, however, the Bank Commissioner, with the approval of the
Secretary of Finance, may, in special instances, waive the provisions of this
paragraph."

We nd it unnecessary to determine, in the instant case, whether the

Crystal Arcade is or is not a public building, for, even if it is, the loans are valid. It
may be said, in passing, that the evidence is sucient to show that the '
Secretary of Finance and the Bank Commissioner had knowledge of the loans
and of the security given therefor, and that they have impliedly approved the
same. On the other hand, under the legal provision above quoted, a loan given
on a property which may be considered as a public building, is not, in itself, null
and void. It is unlawful to make loans on that kind of security, but the law does
not declare the loans, once made, to be null and void. The unlawful taking of the
security may constitute a misuser of the powers conferred upon the corporation
by its charter, for which it may be made to answer in an action for ouster or
dissolution; but certainly the stockholders and depositors of the corporation
should not be punished with a loss of the money loaned nor the borrower be
rewarded with it. As held by the Supreme Court of the United States, in a similar
case:
"The statute does not declare such a security void. If congress so
meant, it would have been easy to say so; and it is hardly to be believed that
this would not have been done, instead of leaving the question to be settled

by the uncertain result of litigation and judicial decision . . . .

"We cannot believe it was meant that stockholders, and perhaps
depositors and other creditors, should be punished and the borrower
rewarded, by giving success to this defense whenever the oensive tact
shall occur. The impending danger of a judgment of ouster and dissolution
was, we think, the check, and none other contemplated by congress.
"That has been always the punishment prescribed for the wanton
violation of a charter, and it may be made to follow whenever the proper
public authority shall see t to invoke its application." . . . (Union Nat. Bank of
St. Louis vs. Matthews, 98 U. S., 621; 25 L. ed., 188.)

In the same case it has been likewise held that:

"Where it is a simple question of authority to contract, arising either
on a question of regularity of organization or of power conferred by the
charter, a party who has had the benet of the agreement cannot be
permitted, in an action founded upon it, to question its validity."

Fletcher on this matter says:

"There is a direct conict in the decisions as to the eect of a charter
or statutory prohibition against discounting or lending money on certain
securities. If the statute expressly declares that securities taken in violation
of the prohibition shall be void, such securities cannot be enforced. Some
courts have gone further and have held that the mere fact of prohibition
renders them unenforceable; but this construction is not supported by the
weight of authority. The better opinion is that where the charter of a
corporation or some other statute prohibits it from lending money on
certain kinds of security, but does not declare that prohibited securities
taken by it shall be void, they are not void, and may be enforced by it. The
taking of such security is a misuser of the powers conferred upon the
corporation by its charter, for which the state may enforce a forfeiture, but
the misuser cannot be set up by the borrower to prevent the corporation
from enforcing the security. In case of a state statute prohibiting savings
banks from lending their funds on the security of names alone, it has been
held that a savings bank may enforce payment of a promissory note taken
for money loaned in violation of the statute." (Vol. 7, Fletcher Cyc. Corp.,
sec. 3616, pp. 744, 745.)

It is contended that the contracts in question are not of mortgage, but of

antichresis. The distinction, however, is immaterial, for even if the contracts are
of antichresis, the extra-judicial foreclosure of the security is valid. Stipulations in
a contract of antichresis for the extra-judicial foreclosure of the security may be
allowed in the same manner as they are allowed in contracts of mortgage and of
pledge. (El Hogar Filipino vs. Paredes, 45 Phil., 178; Peterson vs. Azada, 8 Phil.,
432, 437.)
Appellants contend that El Hogar Filipino has been given the possession and
administration of the Crystal Arcade building, so that it may apply the rentals
thereof to the payment of interest and the capital owed by Tavera-Luna, Inc., and
that due to the negligence of El Hogar Filipino, no rentals sucient to cover the
monthly amortizations on the debt had been realized therefrom. The alleged
negligence is made to consist in the failure of El Hogar Filipino to advertise the

rooms of the Crystal Arcade building for rent and to employ agents to solicit and
attract tenants. But the evidence presented to this eect has been suciently
contradicted by the evidence adduced by defendant-appellee. Besides, it appears
that El Hogar Filipino appointed Jose V. Ramirez as its representative in the
management and administration of the Crystal Arcade building, and the
appointment was made in agreement with Tavera-Luna, Inc. The ability of
Ramirez to do the work entrusted to him is not disputed. As a matter of fact,
Ramirez, during his management of the building, was a stockholder and director
of the Tavera-Luna, Inc., and was serving that corporation as its secretary and
treasurer. Under all these circumstances, we see no reason to disturb the ndings
of the lower court.
Judgment is affirmed, with costs against appellants.

Avancea, C. J., Villa-Real, Imperial, Diaz, and Concepcion, J.J. concur.