Gov't v. Philippine Sugar Estates

Govt of Phil. Islands v. Phil. Sugar Estates o PSE to get shares from proceeds (on top of utang.
PSE to get shares from proceeds (on top of utang. Dun sila
G.R. No. L-11789 | April 2, 1918 | Johnson, J. (Vince) kikita)
o PSE said this was merely a loan
SUMMARY:  Court said features of agreement were not of a loan.
This is an action in the nature of quo warranto brought by the Attorney-
General for and in behalf of the Gov’t for the purpose of having the charter ISSUES:
of the defendant corporation declared forfeited. Petitioner alleged that Did the defendant engage in the business of buying and selling land or was
defendant had misused its corporate authority, franchises and privileges this transaction merely a loan to a partnership, which was engaged in the
AND had assumed privileges franchise not granted by engaging in the business of buying and selling land? BUYING AND SELLING LAND.
business of buying and selling real estate.
Assuming that the defendant was engaged in the business of buying and
Basically what the respondent did was to purchase the lands along the right selling land, does the law require that it be dissolved or is the prohibition of
of way of the Manila Railroad Company through the Province of Tayabas and future acts of this nature sufficient? FRANCHISE TO BE WITHDRAWN AND
RESOLD the same to the Manila Railroad Company AT A PROFIT. ANNULLED AND DISALLOWED TO DO BUSINESS UNLESS IT
DISSOLVES RELATIONS WITH TAYABAS WITHIN 6 MONTHS.
FACTS:
 Defendant was a corporation duly organized. [PSE = Phil. Sugar RATIO/DOCTRINE:
Estates] In the case of State of Minnesota vs. Minnesota Thresher Manufacturing Co.
 Tayabas Land Company was a partnership (3 L.R.A. 510) the court said (p. 518):
 Contract was entered into between the defendant and Tabayas, by The scope of the remedy furnished by its (quo warranto) is to
virtue which defendant delivered to Tayabas Php304,459.42 forfeit the franchises of a corporation for misuser or nonuser. It is
o Plaintiff argued that this amounted to a contribution by the therefore necessary in order to secure a judicial forfeiture of
def. to the capital of Tayabas respondent's charter to show a misuser of its franchises justifying
o Defendant contended that this amounted to a loan such a forfeiture. And as already remarked the object being to
 Lower court rendered judgment ordering the defendant to abstain in protect the public, and not to redress private grievances, the
the future from engaging in the business of buying and selling lands misuser must be such as to work or threaten a substantial injury
and to pay the costs of the action to the public, or such as to amount to a violation of the
 PSE: the contract entered into between PSE and Tayabas fundamental condition of the contract by which the franchise was
constituted a partnership agreement. granted and thus defeat the purpose of the grant; and ordinarily
o Court: It was a contract of cuentas en participacion. It was to the wrong or evil must be one remediable in no other form of
the effect of PSE carrying on the business of buying and judicial proceeding.
selling land.
Courts always proceed with great caution in declaring a forfeiture of
 PSE authorized to: Buy shares, engage in mercantile or industrial
franchises, and require the prosecutor seeking the forfeiture to bring the case
enterprises, but such powers are necessarily limited by Sec. 75 of
clearly within the rules of law entitling him to exact so severe a penalty.
the Act of Congress of Congress of July 1, 1902, reproduced in Sec.
(People vs. North River Sugar Refining Co., 9 L.R.A., 33, 39; State vs.
13 of Act 1459, to what may be reasonably necessary to enable it
Portland Natural Gas Co., 153, Ind., 483.)
to carry out the purposes for which it is created.
o May loan funds upon real estate, security, and purchase real
While it is true that the courts are given a wide discretion in ordering the
estate when necessary…, but shall dispose of real estate so
dissolution of corporations for violations of its franchises, etc., yet
obtained within 5 years after receiving title.
nevertheless, when such abuses and violations constitute or threaten a
 PSE and Tayabas contract: substantial injury to the public or such as to amount to a violation of the
o Grant Tayabas the credit applied for, up to P400,000 fundamental conditions of the contract (charter) by which the franchises were
o Money to be used to purchase land granted and thus defeat the purpose of the grant, then the power of the
o Land may be sold, but if at a lower price, consent of PSE to courts should be exercised for the protection of the people
be obtained

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Govt of Phil. Islands v. Phil. Sugar Estates o PSE to get shares from proceeds (on top of utang.

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