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[G.R. No. 44451. December 16, 1938. ]

VICENTE L. LEGARDA, Plaintiff-Appellant, v. LA PREVISORA FILIPINA, a Mutual Building and Laon Association, Defendant-Appellant.

Harvey & O’Brien,, for Plaintiff-Appellant.

E.P. Revilla,, for Defendant-Appellant.


1. CORPORATIONS; BOARD OF DIRECTORS. — The board of directors is the directing and controlling body of the corporation. It is a creation of the stockholders and derives its power to control and direct the affairs of the corporation from them. But the board of directors, or a majority thereof, in drawing to themselves the powers of the corporation, occupies a position of trusteeship in relation to the stockholders in the sence that the board should exercise not only care and diligence, but utmost good faith in the management of corporate affairs. This is fundamental and elementary.

2. ID.; ID.; INTEGRITY AND MORAL RESPONSIBILITY REQUIRED OF DIRECTORS AND OFFICERS OF A CORPORATION. — The rule of strict integrity and moral responsibility required of directors and officers of a corporation is especially to be exacted from them in the case of building and loan associations because of the semi-philanthropic character of these organizations. Building and loan associations are peculiar and special corporations; they are founded upon principles of strict mutuality and equality of benefits and obligations, and they stand in a trust relation to the contributors in respect to the funds contributed.

3. ID.; BUDGET OF A CORPORATION. — A budget is a guide to business operations and "is intended to accomplish two definite purposes: (a) to supply the management with a means of control over financial expenditures, by planning them in advance to correspond with the estimate of current and prospective outlays of the corporation; and (b) to center the attention of department heads, whose reports form the basis of the estimates, upon the probable financial programs and reasons therefor" (Hoagland, Corporation Finance, p.186). Approval of the budget should not be construed as tender of employment which, if accepted, places the corporation under the contractual obligation to all those whose names are indicated in the budget. Upon the other hand, the resolution of the approval of the budget provides expressly that the same" puede ser modificado si las circunstancias lo exigen."



In his amended complaint filed July 24,1934, in the Court of First Instance of Manila, the plaintiff claims from the defendant building and loan association various amounts under divers causes of action: (a) P 48,300 and interests thereon from the date of filing of the original complaint, for unwarranted cancellation of the contract, Exhibit C. which is hereinbelow inserted and for his wrongful discharge as manager of the defendant corporation; (b)p3,250 and interests, for the suppression, as of March 1, 1932, of the position of consulting architect theretofore held by him; (c) P 1,760 and interests, for his discharge, as of March 1, 1932, as president of the appraisal committee for the year 1932; (d) P230.41 and interests, for inspection work undertaken by him, which amount, it is alleged, was being retained by the defendant corporation. In addition, and under the fifth cause of action, plaintiff seeks the immediate delivery of thirty shares of stock of the par value of P200 each, or the payment of their retirement value in the aggregate sum of P6,000, with the corresponding interests.

The defendant building and loan association, on February 27, 1935, filed its answer and also a counterclaim and a cross-complaint. In the answer, as amended on February 27, 1935, a general denial is set up. Specific denial is made as to the existence of an agreement to employ plaintiff as defendant’s consulting architect and president of its assessment committee for the year 1932. As special defenses, it is averred (a) that the officer of the defendant corporation who executed the contract, Exhibit C, did not have the authority to so act the association; (b) that the contract was fraudulent; (c) that the contract was illegal and void; (d) that the plaintiff was guilty of breach of trust; and (e) that the shares of stock referred to under the fifth cause of action were deposited by the plaintiff to secure faithful performance of plaintiff’s obligations towards the corporation, said shares being retained to answer for damages occasioned to the defendant. By way of counterclaim, the defendant alleges that plaintiff received under a void contract, Exhibit C, P14,100 and that it also suffered P10,000 damages and asks for the refund and payment of both amounts.

On the issues thus joined, trial was had, and on June 29, 1935, the lower court rendered its decision the dispositive part of which is as follows:jgc:chanrobles.com.ph

"Por las consideraciones arriba expuestas, se dicta sentencia:jgc:chanrobles.com.ph

"(A) Sobreseyendo el primero (1.
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