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[G.R. No. 25400. January 14, 1927. ]

THE PHILIPPINE NATIONAL BANK, Plaintiff-Appellee, v. THE PHILIPPINE VEGETABLE OIL CO., INC., Defendant-Appellee. PHIL. C. WHITAKER, Intervenor-Appellant.

Jose Abad Santos for Plaintiff-Appellee.

No appearance, for Defendant-Appellee.

Ross, Lawrence & Selph, Thomas Cary Welch and Paredes, Buencamino & Yulo for Appellant.


1. MORTGAGES; RIGHT OF STOCKHOLDER TO HAVE MORTGAGE OF CORPORATION SET ASIDE. — One W as intervenor is permitted to ask that the mortgage contract executed by the corporation V be declared null and void, since he was one of the largest individual stockholders of the corporation, was until the inauguration of the receivership of the corporation exercising control over and dictating its policy, was the one who asked for the appointment of a receiver, was the one who was the leading figure in the formulation of a creditors’ agreement, and was the one who pledged his own property to the extent of over P4,000,000 in an endeavor to assist in the rehabilitation of the corporation V.

2. ID.; RECEIVERS; VALIDITY OF N BANK AND CORPORATION V MORTGAGE. — A mortgage was executed on February 20, 1922, before the termination of the receivership of corporation V, by corporation V by its secretary-treasurer and by N Bank by its general manager, but was not ratified before a notary public until March 8, 1922, and was not recorded in the registry of property until March 21, 1922, after the termination of the receivership on February 28, 1922. Held, on these and other facts which are set forth in the decision, that the N Bank Corporation V mortgage has not been legally executed by the V corporation, and consequently cannot be given effect.

3. ID.; ID.; ID. — A mortgage executed by a corporation and a creditor while a receiver is in charge of the corporation is a nullity.

4. ID.; ID.; ID. — A mortgage executed by a corporation under receivership and a creditor while the corporation was in the hands of a receiver, but not definitely perfected until after the lifting of the receivership, pursuant to implied promises that the creditor would continue to operate the corporation, at a time when the creditor was a dominating influence in the affairs of the corporation and the hands of the other creditors were tied cannot be considered the free act of the corporation.

5. PLEADING AND PRACTICE; STATUTE OF FRAUDS; SECTION 335 OF CODE OF CIVIL PROCEDURE CONSTRUED. — The broad view is that the Statute of Frauds applies only to agreements not to be performed on either side within a year from the making thereof. Agreements to be fully performed on one side within the year are taken out of the operation of the statute.

6. ID.; ID.; ID. — The Statute of Frauds was enacted for the purpose of preventing frauds. It should not be made the instrument to further them.

7. CORPORATIONS; PHILIPPINE NATIONAL BANK; POWER OF BOARD OF DIRECTORS AND GENERAL MANAGER OF PHILIPPINE NATIONAL BANK. — In conformity with the Charter of the Philippine National Bank, Act No. 2612, as amended, the general manager of the bank can only enter into valid contracts on behalf of the bank with the advice and consent of its board of directors.

8. ID.; ID.; ID.; DAMAGES. — In the present instance, it is found that the board of directors of the Philippine National Bank had not consented to an agreement for practically unlimited backing of the V corporation and had not ratified any promise to that effect made by its general manager.

9. ID.; ID.; ID.; ID. — All the evidence, documentary and oral, pertinent to the issue considered and found to disclose no binding promise, tacit or express, made by the N Bank to continue indefinitely the operation of the V corporation. Accordingly, intervenor W is not entitled to recover damages from the N Bank.

Per JOHNSON, J., dissenting:chanrob1es virtual 1aw library

10. REAL PROPERTY; MORTGAGE; "CUSTODIA LEGIS." — A mortgage executed in conformity with the provisions of articles 1867 and 1875 of the Civil Code upon property, after the discharge of the receiver and the return of the property to the owner, cannot be held to be a mortgage on property in custodia legis.

11. ID.; ID. — WHEN A PUBLIC DOCUMENT EVIDENCING AN INDEBTEDNESS BECOMES A MORTGAGE. — A contract evidencing an indebtedness cannot be considered a mortgage until the same has been registered in accordance with the provisions of article 1876 of the Civil Code.



This appeal involves the legal right of the Philippine National Bank to obtain a judgment against the Philippine Vegetable Oil Co., Inc., for P15,812,454, and to foreclose a mortgage on the property of the Philippine Vegetable Oil Co., Inc., for P17,000,000, and the legal right of Phil. C. Whitaker as intervenor to obtain a judgment declaring the mortgage which the Philippine National Bank seeks to foreclose to be without force and effect, requiring an accounting from the Philippine National Bank of the sales of the property and assets of the Philippine Vegetable Oil Co., Inc., and ordering the Philippine Vegetable Oil Co., Inc., and the Philippine National Bank to pay him the sum of P4,424,418.37.

In 1920, the Philippine Vegetable Oil Co., Inc., which will hereafter be called the Vegetable Oil Company, found itself in financial straits. It was in debt to the extent of approximately P30,000,000. The Philippine National Bank was the largest creditor. The Vegetable Oil Company owed the bank P17,000,000. Over P13,000,000 were due the other creditors. The Philippine National Bank was secured principally by a real and chattel mortgage for P3,500,000. On January 10, 1921, the Vegetable Oil Company executed another chattel mortgage in favor of the bank on its vessels Tankerville and H. S. Everett to guarantee the payment of sums not to exceed P4,000,000.

This was the precarious situation which in the latter part of 1920 and the early part o
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