Facts: This is an action to recover from the defendants the value of four bonds with due and unpaid interest thereon, issued by the Mindoro Sugar Company and placed in trust with the Philippine Trust Company. Mindoro Sugar Company is a corporation constituted in accordance with the laws of the country. According to its articles of incorporation one of its principal purposes was to acquire and exercise the franchise granted by Act No. 2720 to George H. Fairchild, to substitute the organized corporation. Philippine Trust Company is another domestic corporation its principal purpose, then, as its name indicates, is to engage in the trust business. The board of directors of the Philippine Trust Company, adopted a resolution authorizing its president, among other things, to purchase the bonds in the Mindoro Sugar Company that was about to issue, and to resell them, with or without the guarantee of said trust corporation, at a price not less than par, and to guarantee to the Philippine National Bank the payment of the indebtedness to said bank by the Mindoro Sugar Company. Pursuance of this resolution, the Mindoro Sugar Company executed in favor of the Philippine Trust Company the deed of trust transferring all of its property to it in consideration of the bonds it had issued. Philippine Trust Company sold thirteen bonds, to Ramon Diaz. The Philippine Trust Company paid the appellant, upon presentation of the coupons, the stipulated interest from the date of their maturity then it stopped payments; and thenceforth it alleged that it did not deem itself bound to pay such interest or to redeem the obligation because the guarantee given for the bonds was illegal and void.
Issue: WON PTC has the power to guarantee and does this act constitute an ultra vires act?
Held: No. It is not ultra vires for a corporation to enter into contracts of guaranty or suretyship where it does so in the legitimate furtherance of its purposes and business. And it is well settled that where a corporation acquires commercial paper or bonds in the legitimate transaction of its business it may sell them, and in furtherance of such a sale it may, in order to make them the more readily marketable, indorse or guarantee their payment.
Whenever a corporation has the power to take and dispose of the securities of another corporation, of whatsoever kind, it may, for the purpose of giving them a marketable quality, guarantee their payment, even though the amount involved in the guaranty may subject the corporation to liabilities in excess of the limit of indebtedness which it is authorized to incur. A corporation which has power by its charter to issue its own bonds has power to guarantee the bonds of another corporation, which has been taken in payment of a debt due to it, and which it sells or transfers in payment of its own debt, the guaranty being given to enable it to dispose of the bond to better advantage. And so guaranties of payment of bonds taken by a loan and trust company in the ordinary course of its business, made in connection with their sale, are not ultra vires, and are binding.
When a contract is not on its face necessarily beyond the scope of the power of the corporation by which it was made, it will, in the absence of proof to the contrary, be presumed to be valid.
Philippine Case Digest Databank 