2. BARRETTO VS.
LA PREVISORA FILIPINA
(G.R. No. 34719, December 8, 1932)
DOCTRINE: Contracts between a corporation and third persons must be
made by or under the authority of its board of directors and not by its
stockholders.
FACTS
 Alberto Barretto, Jose Barretto, and Jose de Amusategui were
directors of La Previsora Filipina, from its incorporation up until
March 1929. They filed a case against the corporation with the CFI
to recover a sum of money.
Note: They were previously directors, but starting March 1929
they were no longer directors
 They wanted to recover from defendant corporation La Previsora
Filipina, a mutual building and loan association, 1 percent to each
of the plaintiffs of the net profits of said corporation for the year
1929.
Note: La Previsora Filipina was a mutual building and loan
association. (SC discusses the corporation’s nature in detail)
 The above 1 percent of the net profits amounted to 50,727.53
pesos, in accordance with an amendment to the by-laws of the
defendant corporation made on a general meeting of the
stockholders on February 1929.
Note:
1) There was an amendment to the by-laws 1 month before the
petitioners were removed as directors.
2) The amendment was made during a general meeting of
ONLY the stockholders. (The board of directors were not
present)
LOWER COURT RULINGS: (Not important, but just in case)
 The case was set for trial, and defendant corporation filed a motion
to dismiss for lack of cause of action by plaintiffs.
 Court ruled that the plaintiffs showed a cause of action, and denied
the motion to dismiss.
 Plaintiffs petitioned the court to decide on the matter in accordance
with the prayer of the complaint.
 Court claims that since the defendants filed a motion to dismiss,
they waived the right to present evidence. They ruled in favor of
plaintiffs Barretto.
 Defendants filed a motion for reconsideration with the Trial Court,
but it was denied.
 It then filed a motion for new trial, on the ground that the
decision was contrary to law and the weight of the evidence.
The same was denied.
 Case was brought to the SC by way of bill of exceptions.
ISSUE
WON amended by-laws and the obligation which arose from it are valid?
NO.
HELD
 The SC ruled in favor of La Previsora Filipina.
 The amendment of the by-laws of the corporation does not create
any legal obligation on its part to pay to the persons named therein,
including the plaintiffs such a life gratuity or pension out of its net
profits.
Note: The 1% of net profits asked for by Barretto is like a
pension where they receive money even though they are no
longer directors of the corporation. Clearly, this is illegal.
  Although the corporation law allows mutual building and loan
associations, such as defendant corporation, to create by-laws, the
same expressly limits such authority to the adoption of by-laws
which are consistent with the provisions of the law.
Note: Court cited Fleischer vs. Botica Nolasco, where an article
in the by-laws was considered invalid. Again, the pension-like
stipulation is illegal.

 Building and loan associations are founded upon principles of strict

mutuality and equality (A.K.A. Trust Companies). There is an
implied contract with its members that it shall not divert its funds
or powers for purposes other than those for which it was created.
Note: This amendment in the by-laws and the pension betrays
this principle

 Ruling on the validity of the by-law amendment: Contracts

between corporations and third persons must be made by or under
the authority of its board of directors and not by its stockholders.
Hence, the action of the stockholders is only advisory and does not
in any way bind the corporation.
Note: Remember, I mentioned earlier that the amendment was
made during a mere stockholder meeting.

 It is clear that the amendment was an attempt to give in the future

to certain directors compensation for past services gratuitously
rendered by them to the corporation. Such a provision is without
consideration, and imposes no obligation on the corporation which
can be enforced by action at law.
Note: The whole thing was a scheme so that directors can
continue to get compensation even after they’re no longer
directors of the corporation.

PETITION DENIED