1. CORPORATIONS; MUTUAL BUILDING AND LOAN ASSOCIATIONS; PROVISION OF BY-LAWS, NULL AND VOID. — The provision in article 68 of the original by-laws of the defendant corporation relating to the sum of P200,000 is null and void on the ground that said article does not constitute a contract between the deceased A. B. and the corporation. All the by- laws and amendments thereto were adopted and ratified at general meetings of stockholders who, according to the law, were not authorized to enter into a contract for nor bind the corporation. In view whereof, the provision relating to the sum in question was ultra vires.

2. ID.; ID.; ID. — It is of no consequence that both the by-laws and amendments thereto have been signed by the directors of the corporation in their capacity as such. The truth is that, at that time, they all attended the meeting in their capacity as stockholders and, strictly speaking, that was a stockholders’ and not a directors’ meeting. For this same reason, the appellants’ contention that the act of the directors, in connection with said by-laws, constitutes a ratification or confirmation of the alleged contract, is untenable.

3. ID.; ID.; ID. — There is another fundamental reason why article 68 of the original by-laws should be declared illegal and null and void. It is obvious that the provision relating to the amount of concession was due to the desire of the stockholders to remunerate the services rendered by the general manager before the incorporation.

4. ID.; ID.; ID. — Bearing this in mind, it becomes obvious that the concession stated in the afore-cited article is in conflict with the spirit of the law creating mutual building and loan associations and completely destroys the cooperation and mutuality among the stockholders, which characterize all associations of this kind.

On February 11, 1926, La Previsora Filipina, a mutual building and loan association, was organized and incorporated by Antonio Ma. Barretto y Rocha, Alfonso Rocha, Antonio M. Opisso, Jose A. Barretto y Moratinos, Vicente L. Legarda, Henry Herman, George C. Sellner, Vicente Delgado, Enrique Massip, Alexander Bachrach and Pedro Mata, in accordance with the provisions of the Corporation Law. On the said date the incorporators had subscribed for 1,560 accumulative shares, series A, E and I of the par value of P200 each, paying a total sum of P337 on account of their subscriptions, which was the sum required to be paid by the articles of incorporation. The aforesaid incorporators were appointed directors of the association at the same time. On February 25th of the same year, a general meeting of the stockholders was held, during which there was submitted a draft of the proposed by- laws of the association, prepared by Antonio Ma. Barretto y Rocha, which were approved. It appeared later that said Antonio Ma. Barretto y Rocha was the largest shareholder and, as such, was almost in absolute control of the affairs of the corporation. A copy of the said by-laws of the corporation is marked in the records of the case as Exhibit A. Article 68 thereof, as translated, reads as follows:jgc:chanrobles.com.ph

"ART. 68. Taking into account the preliminary work performed by Mr. Antonio Ma. Barretto and considering the acquisition of the ’Combined Tables of Triple Transaction’, prepared by him and which were the result of his labors, indispensable to the operation of its business, and inasmuch as Mr. Barretto has consented to transfer all his property rights over the aforesaid tables for its exclusive use and benefit, the corporation, in consideration of such sale, cession and transfer of the aforesaid tables in its favor by said Mr. Antonio Ma. Barretto, and in return for all other services rendered by him in the founding and organization thereof, obligates and binds itself to pay to said Mr. Barretto, his heirs and successors in interest, the sum of two hundred pesos (P200,000), Philippine currency. This sum shall not bear interest and shall appear on the books of the corporation as organization expenses, to be paid to Mr. Barretto in installments, under the following conditions:chanrob1es virtual 1aw library

At the end of the operation for the first year P20,000.00

At the end of the operation for the second year 30,000.00

At the end of the operation for the third year 50,000.00

At the end of the operation for the fourth year 50,000.00

At the end of the operation for the fifth year 50,000.00

"Notwithstanding the periods above stipulated, no payment for any year shall be made to Mr. Barretto, his heirs and successors in interest, unless the corporation declares a dividend of not less than 12 per cent of the paid-up capital in favor of the accumulative shares during such year. Provided, however, That in case said Mr. Barretto, his heirs and successors in interest fail to receive payment, either full or partial, of the sum corresponding to him for any of the periods above stipulated, the sum uncollected by him shall be carried over to the year following and thus successively until the aforesaid amount of two hundred thousand pesos (P200,000), Philippine currency, is paid."cralaw virtua1aw library

Article 72, the translation of which appears below, bears a close relation to the foregoing article inasmuch as it prohibits modification or discussion of the aforesaid article 68.

"ART. 72. These by-laws shall only be modified or amended in whole or in part by resolutions approved at general or special meetings by a concurrence of a majority vote representing not less than 4/5 of the total number of shares issued: Provided, however, That article 68 hereof shall never be subject to modification or discussion."cralaw virtua1aw library

The amount of P200,000 thus granted to Antonio Ma. Barretto y Rocha was immediately entered on the books of the corporation as part of the assets thereof under the item "Organization Expense" and said Barretto was credited with the same amount, which thenceforth appeared on the books as a contingent obligation of the corporation. The Insular Treasurer, who has supervision of all corporations, under the law, became aware of such transaction and of articles 68 and 72 of the by-laws, and without loss of time notified the officers of the corporation that the said entries in the account books as well as the afore-cited articles were null and void and in violation of the clear and express provisions of the Corporation Law, relative to mutual building and loan associations. Antonio Ma. Barretto, who had already assumed office in his multiple capacity as founder, stockholder, and managing director, called another general meeting of stockholders on July 22, 1926, which, after being informed of the objections of the Insular Treasurer, proceeded to amend article 72 by substituting it with the following:jgc:chanrobles.com.ph

"ART. 72. These by-laws shall only be modified or amended in whole or in part by resolutions approved at general or special meetings, by a concurrence of a majority vote of not less than one half plus one of the total number of votes corresponding to the shares of stock issued and entitled to vote." On that same date, the same stockholders assembled at a general meeting, repealed the original article 68 and substituted it with the following:jgc:chanrobles.com.ph

"ART. 68. Beginning with the second year of the existence of the corporation until the dissolution thereof, as provided for in the by- laws, there shall be set aside annually an amount equal to 2