1. CORPORATIONS; MINING CORPORATION; PROHIBITION AGAINST OWNING INTEREST IN OTHER MINING CORPORATION; RIGHT OF ACTION. — Inasmuch as the Corporation Law contains, in section 190 (A), provisions fully penalizing the violation of subsection 5 of section 13 of Act No. 1459, — which prohibits the acquisition by one mining corporation of any interest in another, — and inasmuch as these provisions have been enacted in the exercise of the general police powers of the Government, it results that, where one mining corporation, the shareholders of the latter cannot maintain an action to annul the contract by which such interest was acquired. The remedy must be sought in a criminal proceeding or quo warranto action, under section 190 (A), instituted by the Government. Until thus assailed in a direct proceeding the contract by which the interest was acquired will be treated as valid, as between the parties.

This action was originally instituted in the Court of First Instance of the City of Manila by F. M. Harden, acting in his own behalf and that of all other stockholders of the Balatoc Mining Co. who might join in the action and contribute to the expense of the suit. With the plaintiff Harden two others, J. D. Highsmith and John C. Hart, subsequently associated themselves. The defendants are the Benguet Consolidated Mining Co., the Balatoc Mining Co., H. E. Renz, John W. Haussermann, and A. W. Beam. The principal purpose of the original action was to annul a certificate covering 600,000 shares of the stock of the Balatoc Mining Co., which had been issued to the Benguet Consolidated Mining Co., and to secure to the Balatoc Mining Co. the restoration of a large sum of money alleged to have been unlawfully collected by the Benguet Consolidated Mining Co., with legal interest, after deduction therefrom of the amount expended by the latter company under a contract between the two companies, bearing date of March 9, 1927. The complaint was afterwards amended so as to include a prayer for the annulment of this contract. Shortly prior to the institution of this lawsuit, the Benguet Consolidated Mining Co. transferred to H. E. Renz, as trustee, the certificate for 600,000 shares of the Balatoc Mining Co. which constitute the principal subject matter of the action. This was done apparently to facilitate the splitting up of the shares in the course of sale or distribution. To prevent this, the plaintiffs, upon filing their original complaint, procured a preliminary injunction restraining the defendants, their agents and servants, from selling, assigning or transferring the 600,000 shares of the Balatoc Mining Co., or any part thereof, and from removing said shares from the Philippine Islands. This explains the connection of Renz with the case. The other individual defendants are made such merely as officials of the Benguet Consolidated Mining Co. Upon hearing the cause the trial court dismissed the complaint and dissolved the preliminary injunction, with costs against the plaintiffs. From this judgment the plaintiffs appealed.

The facts which have given rise to this lawsuit are simple, as the financial interests involved are immense. Briefly told these facts are as follows: The Benguet Consolidated Mining Co. was organized in June, 1903, as a sociedad anonima in conformity with the provisions of Spanish law; while the Balatoc Mining Co. was organized in December, 1925, as a corporation, in conformity with the provisions of the Corporation Law (Act No. 1459). Both entities were organized for the purpose of engaging in the mining of gold in the Philippine Islands, and their respective properties are located only a few miles apart in the subprovince of Benguet. The capital stock of the Balatoc Mining Co. consists of one million shares of the par value of one peso (P1) each.

When the Balatoc Mining Co. was first organized the properties acquired by it were largely undeveloped; and the original stockholders were unable to supply the means needed for profitable operation. For this reason, the board of directors of the corporation ordered a suspension of all work, effective July 31, 1926. In November of the same year a general meeting of the company’s stockholders appointed a committee for the purpose of interesting outside capital in the mine. Under the authority of this resolution the committee approached A. W. Beam, then president and general manager of the Benguet Company, to secure the capital necessary to the development of the Balatoc property. As a result of the negotiations thus began, a contract, formally authorized by the management of both companies, was executed on March 9, 1927, the principal features of which were that the Benguet Company was to proceed with the development and construct a milling plant for the Balatoc mine, of a capacity of 100 tons of ore per day, and with an extraction of at least 85 per cent of the gold content. The Benguet Company also agreed to erect an appropriate power plant, with the a