G.R. No. 37331; March 18, 1933
FRED M. HARDEN, et al., plaintiffs-appellants, vs. BENGUET CONSOLIDATED MINING COMPANY, et al., defendants-appellees.

FACTS

Plaintiffs, stockholders of Balatoc Mining Company, sued to annul a contract dated March 9, 1927, between Balatoc and Benguet Consolidated Mining Company, and the issuance of 600,000 shares of Balatoc stock to Benguet. The contract required Benguet to develop Balatoc’s mining property and construct a milling plant in exchange for the shares. Benguet completed the work, spending over P1.4 million, and received the shares. After the development proved successful and Balatoc’s stock value increased, plaintiffs filed suit, arguing that Benguet, as a mining corporation, was prohibited by law from holding an interest in another mining corporation under Section 75 of the Philippine Bill of 1902.

ISSUE

Do the plaintiffs, as private stockholders, have a right of action to annul the contract and the issuance of shares based on an alleged statutory prohibition against a mining corporation holding an interest in another mining corporation?

RULING

No. The Court affirmed the dismissal of the complaint. The prohibition in Section 75 of the Philippine Bill is a public statute designed for the protection of the state and the general public, not for the benefit of individual stockholders. A violation of such a statutory prohibition does not give a private right of action to annul the contract or the corporate acts in question. The right to assail the transaction for illegality belongs exclusively to the state, through a direct proceeding instituted by the government (e.g., by the Attorney General). Since the plaintiffs are private parties and not the state, they have no standing to sue on this ground. The Court therefore did not reach the question of whether Benguet, organized as a sociedad anonima under Spanish law, is a “corporation” within the meaning of the prohibition.

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