NATIONAL BANK v. BAGAMASPADG.R. No.

L-3407 June 29, 1951 FACTS: The plaintiff Philippine National Bank, initiated this suit in the Court of First Instance of Cotabato for the purposeof collecting from the defendants Bernardo Bagamaspad andBienvenido M. Ferrer who, in the years 1946 and 1947, were its Agent and Assistant Agent, respectively, in its CotabatoA g e n c y , t h e s u m o f P 7 0 4 , 9 0 3 . 1 8 , s a i d t o h a v e b e e n d i s b u r s e d and released by them as special crop loans, w i t h o u t a u t h o r i t y a n d i n a c a r e l e s s m a n n e r t o m a n i f e s t l y insolvent, unqualified or fictitious borrowers, all contrary to the rules and regulations of the plaintiff Bank. The theory on which the Bank's claim and complaint are based is that the two defendants Bagamaspad and Ferreracting as Agent and Assistant Agent of the Cotabato Agency, in granting new crop loans after November 13, 1946, violatedt h e i n s t r u c t i o n s o f t h e B a n k , a n d t h a t f u r t h e r m o r e , i n granting said crop loans, they acted negligently and did not exercise the care and precaution required of them in order to p r e v e n t t h e r e l e a s e o f c r o p l o a n s t o p e r s o n s w h o w e r e neither qualified borrowers nor entitled to the assistance being rendered by the Government and the Bank, all contrary to the rules and regulations issued by the Bank. In the course of the trial, upon petition of plaintiff'sc o u n s e l , t h e a m o u n t o f t h e c l a i m w a s r e d u c e d t o P 6 9 9 , 8 0 3 . 5 7 , d u e t o p a y m e n t s m a d e b y s o m e o f t h e borrowers. On March 31, 1 9 4 9 , t h e t r i a l c o u r t r e n d e r e d judgment in favor of the plaintiff, ordering both defendants top a y j o i n t l y a n d s e v e r a l l y t o i t t h e s u m o f P 6 9 9 , 8 0 3 . 5 7 , r e p r e s e n t i n g t h e u n collected balance of the special croploans im properly released by said defendants , w i t h l e g a l interest thereon from the date of the filing of the complaint,plus costs. The two defendants appealed from that decision. The appeal was first taken to the Court of Appeals but in viewof the amount involved it was certified to this Tribunal by thesaid Court of Appeals. ISSUE: W hether the appellants, as agents were extremelyl a x , n e g l i g e n t a n d c a r e l e s s i n g r a n t i n g n e w s p e c i a l c r o p loans. HELD: The lower court as may be seen, severely criticized a n d c o n d e m n e d t h e a c t s o f l a x i t y , n e g l i g e n c e a n d carelessness of the appellants. But the severity of thisc r i t i c i s m a n d c o n d e m n a t i o n w o u l d a p p e a r t o b e a m p l y warranted by the evidence. Out of the num erous acts o f l a x i t y , n e g l i g e n c e a n d c a r e l e s s n e s s e s t a b l i s h e d b y t h e record, a few cases may be cited. T h e e v i d e n c e s h o w s t h a t i n v i o l a t i o n o f t h e s e instructions and regulations, the defendants released largeloans aggregating P348,768.22 to about 103 borrowers whowere neither landowners or tenants but only public land salesa p p l i c a n t s t h a t i s t o s a y , p e r s o n s w h o h a v e m e r e l y f i l e d applications to buy public lands.Appellants in their over-enthusiasm and seeminglyinordinate desire to grant as many loans as possible and inamounts disproportionate to the needs of the borrowers,admitted and passed upon more loan applications than theycould properly handle. From July, 1946 to Ma rch, 1947 thetotal amount of about eight and half (81/2) million pesos wasr e l e a s e d i n t h e f o r m o f s p e c i a l c r o p l o a n s t o a b o u t 5 , 1 0 5 b o r r o w e r s a n d t h i s , i n a r e l a t i v e l y s p a r s e l y p o p u l a t e d province like Cotabato.Also, contrary to the Bank's rules and regulatio nsregarding the granting of special crops loans, the defendantsallowed intermediaries to intervene in the granting of specialcrop loans. T h e t r i a l c o u r t b a s e d t h e c i v i l l i a b i l i t y o f t h e appellants herein on the provisions of Arts. 1718 and 1719 of t h e C i v i l C o d e , d e f i n i n g a n d e n u m e r a t i n g t h e d u t i e s a n d obligations of an agent and his liability for failure to complyw i t h s u c h d u t i e s , a n d A r t . 2 5 9 o f t h e C o d e o f C o m m e r c e which provides that an agent must observe the provisions of law and regulations with respect to business transactionsentrusted to him otherwise he shall be responsible for theconsequences resulting from their breach or omissions; andalso Art. 1902 of the Civil Code which provides forthe liability of one for his tortious act, that is to say, any actor omission which causes damage to another by his fault or negligence. Appellants while agreeing with the meaning andscope of the legal provisions cited, nevertheless insist that those provisions are not applicable to them inasmuch as theyare not guilty of any violation of instructions or regulations of t h e p l a i n t i f f B a n k ; a n d t h a t n e i t h e r a r e t h e y g u i l t y o f n e g l i g e n c e o f carelessness as found by the trial court. Acareful study and consideration of the record, however,convinces us a n d w e a g r e e w i t h t h e t r i a l c o u r t t h a t t h e defendants-appellants have not only violated instructions of the plaintiff Bank, including things which said Bank wanted done or not done, all of which were fully understood by them,b u t t h e y ( a p p e l l a n t s ) a l s o v i o l a t e d s t a n d i n g r e g u l a t i o n s regarding the granting of loans; and, what is more, thru theircarelessness, laxity and negligence, they allowed loans to begranted to persons who were not entitled to receive loans

Montelibano vs. Bacolod Murcia Milling Co., 95 Phil. 407, 1954 Facts: Plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano, and the Limited co-partnership Gonzaga and Company, had been and are sugar planters adhered to the defendant-appellee's sugar central mill under identical milling contracts. The contracts were stipulated to be in force for 30 years and that the resulting product should be divided in the ratio of 45% for the mill and 55% for the planters. It was later proposed to execute amended milling contracts, increasing the planters' share to 60% of the manufactured sugar and resulting molasses, besides other concessions, but extending the operation of the milling contract from the original 30 years to 45 years. The Board of Directors of the appellee Bacolod-Murcia Milling Co., Inc., adopted a resolution granting further concessions to the planters over and above those contained in the printed Amended Milling Contract. Appellants signed and executed the printed Amended Milling Contract but a copy of the resolution was not attached to the printed contract. In 1953, the appellants initiated the present action, contending that three Negros sugar centrals had already granted increased participation to their planters, and that under paragraph 9 of the abovementioned resolution, the appellee had become obligated to grant similar concessions to the plaintiffs (appellants herein). However, the appellee Bacolod-Murcia Milling Co., inc., resisted the claim, and defended by urging that the stipulations contained in the resolution were made without consideration; that the resolution in question was, therefore, null and void ab initio, being in effect a donation that was ultra vires and beyond the powers of the corporate directors to adopt. After trial, the court below rendered judgment upholding the stand of the defendant Milling company, and dismissed the complaint. Thereupon, plaintiffs duly appealed to this Court. Issue: Whether or not the resolution is valid and binding between the corporation and planters. Held: The Supreme Court held in the affirmative. There can be no doubt that the directors of the appellee company had authority to modify the proposed terms of the Amended Milling Contract for the purpose of making its terms more acceptable to the other contracting parties. The rule is that It is a question, therefore, in each case of the logical relation of the act to the corporate purpose expressed in the charter. If that act is one which is lawful in itself, and not otherwise prohibited, is done for the purpose of serving corporate ends, and is reasonably tributary to the promotion of those ends, in a substantial, and not in a remote and fanciful sense, it may fairly be considered within charter powers. The test to be applied is whether the act in question is in direct and immediate furtherance of the corporation's business, fairly incident to the express powers and reasonably necessary to their exercise. If so, the corporation has the power to do it; otherwise, not. As the resolution in question was passed in good faith by the board of directors, it is valid and binding, and whether or not it will cause losses or decrease the profits of the central, the court has no authority to review them. It is a well-known rule of law that questions of policy or of management are left solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment of the board of directors; the board is the business manager of the corporation, and so long as it acts in good faith its orders are not reviewable by the courts. Hence, the appellee Bacolod-Murcia Milling Company is, under the terms of its Resolution, duty bound to grant similar increases to plaintiffsappellants herein.