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Corp Law Case Digests | Atty.

Hofilena | 2014

THE BOARD OF LIQUIDATORS representing THE corporate contracts. But that board itself, by its acts and through
GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES v. acquiescence, practically laid aside the by-law requirement of prior
HEIRS OF MAXIMO M. KALAW, JUAN BOCAR, ESTATE OF THE approval. Under the given circumstances, the Kalaw contracts are
DECEASED CASIMIRO GARCIA, and LEONOR MOLL valid corporate acts. Viewed in the light of the entire record, the
G.R. No. L-18805 August 14, 1967 judgment under review must be affirmed.
Board Must Act as a Body
Exercise of powers by the Board of Directors may either be express
CASE: and formal through the adoption of a board resolution in a meeting
called for the purpose, or it may be implied where the Board
NACOCO was chartered as a non-profit governmental organization collectively and knowingly allows the President to enter into
avowedly for the protection, preservation and development of the important contracts in the pursuit of the corporate business.
coconut industry in the Philippines. General manager and board
chairman was Kalaw; defendants Bocar and Garcia were members
of the Board; defendant Moll became director only on December 22,
FACTS:
1947. An unhappy chain of events conspired to deter NACOCO from
NACOCO was chartered as a non-profit governmental
fulfilling some contracts entered. The buyers threatened damage
organization by Commonwealth Act 518 avowedly for the
suits. All the settlements sum up to P1,343,274.52. NACOCO,
protection, preservation and development of the coconut industry
represented by the Board of Liquidators, seeks to recover the above
in the Philippines.
sum from general manager and board chairman Kalaw, and directors
Bocar, Casimiro and Moll. It charges Kalaw with negligence under NACOCO's charter was amended [Republic Act 5] to grant that
Article 1902 of the old Civil Code and defendant board corporation the express power "to buy, sell, barter, export, and in
members, including Kalaw, with bad faith and/or breach of trust any other manner deal in, coconut, copra, and dessicated
for having approved the contracts without prior approval of the coconut, as well as their by-products, and to act as agent, broker
Board. Plaintiff leans heavily on NACOCO's corporate by- or commission merchant of the producers, dealers or merchants"
laws. Article IV (b), Chapter III thereof, recites, as amongst the duties thereof.
of the general manager, the obligation: "(b) To perform or execute on General manager and board chairman was Maximo M. Kalaw;
behalf of the Corporation upon prior approval of the Board, all defendants Juan Bocar and Casimiro Garcia were members of
contracts necessary and essential to the proper accomplishment for the Board; defendant Leonor Moll became director only on
which the Corporation was organized. December 22, 1947.
NACOCO, after the passage of Republic Act 5, embarked on
The issue in this case is whether or not the acts of the copra trading activities.
respondent as General Manager without prior approval of the An unhappy chain of events conspired to deter NACOCO from
Board are valid corporate acts. fulfilling these contracts.
When it became clear that the contracts would be
The SC held that the acts of the General Manager were valid unprofitable, Kalaw submitted them to the board for
corporate acts. In the case at bar, the practice of the corporation has approval.
been to allow its general manager to negotiate and execute contracts Kalaw made a full disclosure of the situation, apprised the board
in its copra trading activities for and in NACOCO's of the impending heavy losses.
behalf without prior board approval. If the by-laws were to be literally No action was taken on the contracts. Neither did the board vote
followed, the board should give its stamp of prior approval on all thereon at the meeting.

Dela Cruz Hourani Lapuz Ledesma Molaer Miranda Rivera Rubinos Santos Santos So Chan Sorongon Tamondong Torcuator Yogue Zerrudo
Corp Law Case Digests | Atty. Hofilena | 2014

January 11, 1948, President Roxas made a statement that the HELD & RATIO:
NACOCO head did his best to avert the losses, emphasized that
government concerns faced the same risks that confronted 1. YES. They are valid corporate acts.
private companies, that NACOCO was recouping its losses, and Plaintiff leans heavily on NACOCO's corporate by-laws. Article IV
that Kalaw was to remain in his post. (b), Chapter III thereof, recites, as amongst the duties of the
The board met again with Kalaw, Bocar, Garcia and Moll in general manager, the obligation: "(b) To perform or execute on
attendance. They unanimously approved the contracts. behalf of the Corporation upon prior approval of the Board, all
The buyers threatened damage suits. contracts necessary and essential to the proper accomplishment
Some of the claims were settled. for which the Corporation was organized."
But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact A rule that has gained acceptance through the years is that a
sue before the Court of First Instance of Manila. corporate officer "intrusted with the general management and
These cases culminated in an out-of-court amicable settlement control of its business, has implied authority to make any
when the Kalaw management was already out. contract or do any other act which is necessary or appropriate to
The corporation thereunder paid Dreyfus P567,024.52 the conduct of the ordinary business of the corporation.
representing 70% of the total claims. As such officer, "he may, without any special authority from the
With particular reference to the Dreyfus claims, NACOCO put up Board of Directors perform all acts of an ordinary nature, which
the defenses that: (1) the contracts were void because Louis by usage or necessity are incident to his office, and may bind the
Dreyfus & Co. (Overseas) Ltd. did not have license to do corporation by contracts in matters arising in the usual course of
business here; and (2) failure to deliver was due to force business.
majeure, the typhoons. The peculiar nature of copra trading, at this point, deserves
All the settlements sum up to P1,343,274.52. express articulation. Ordinary in this enterprise are copra sales
NACOCO seeks to recover the above sum from general for future delivery.
manager and board chairman Kalaw, and directors Bocar, Garcia The movement of the market requires that sales agreements be
and Moll. entered into, even though the goods are not yet in the hands of
It charges Kalaw with negligence under Article 1902 of the old the seller. Known in business parlance as forward sales,
Civil Code; and defendant board members, including Kalaw, with To NACOCO, forward sales were a necessity. Copra could not
bad faith and/or breach of trust for having approved the stay long in its hands; it would lose weight, its value decrease.
contracts. Above all, NACOCO's limited funds necessitated a quick
LC: dismissed the complaint without costs as well as defendants' turnover.
counterclaims, except that plaintiff was ordered to pay the o Copra contracts then had to be executed on short notice
heirs of Maximo Kalaw the sum of P2,601.94 for unpaid at times within twenty-four hours.
salaries and cash deposit due the deceased Kalaw from o To be appreciated then is the difficulty of calling a formal
NACOCO. meeting of the board.
Such were the environmental circumstances when Kalaw went
ISSUES: into copra trading.
Long before the disputed contracts came into being, Kalaw
Whether or not the acts of the respondent as General Manager contracted by himself alone as general manager for
without prior approval of the Board are valid corporate acts. forward sales of copra.
During that period, from those copra sales, NACOCO reaped a

Dela Cruz Hourani Lapuz Ledesma Molaer Miranda Rivera Rubinos Santos Santos So Chan Sorongon Tamondong Torcuator Yogue Zerrudo
Corp Law Case Digests | Atty. Hofilena | 2014

gross profit of P3,631,181.48. does not have actual contracts of sale since the
o So pleased was NACOCO's board of directors that, on suspension of buying by the Nacoco will result in
December 5, 1946, in Kalaw's absence, it voted to grant middlemen taking advantage of the temporary inactivity
him a special bonus "in recognition of the signal of the Corporation to lower the prices to the detriment of
achievement rendered by him in putting the the producers.
Corporation's business on a self-sufficient basis within a (2) The movement of the market is such that it may not be
few months after assuming office, despite numerous practical always to wait for the consummation of
handicaps and difficulties." contracts of sale before beginning to buy copra.
These previous contract it should be stressed, were signed Settled jurisprudence has it that where similar acts have been
by Kalaw without prior authority from the board. Said approved by the directors as a matter of general practice,
contracts were known all along to the board members. Nothing custom, and policy, the general manager may bind the company
was said by them. without formal authorization of the board of directors. In varying
The aforesaid contracts stand to prove one thing: Obviously, language, existence of such authority is established, by proof of
NACOCO board met the difficulties attendant to forward sales by the course of business, the usage and practices of the company
leaving the adoption of means to end, to the sound discretion of and by the knowledge which the board of directors has, or must
NACOCO's general manager Maximo M. Kalaw. be presumed to have, of acts and doings of its subordinates in
When the board met, the directors discussed the copra situation: and about the affairs of the corporation.
There was a slow downward trend but belief was entertained that Authority to act for and bind a corporation may be presumed
the nadir might have already been reached and an improvement from acts of recognition in other instances where the power was
in prices was expected. In view thereof, Kalaw informed the in fact exercised.
board that "he intends to wait until he has signed contracts to Thus, when, in the usual course of business of a corporation, an
sell before starting to buy copra." officer has been allowed in his official capacity to manage its
In the board meeting, Kalaw reported on the copra price affairs, his authority to represent the corporation may be implied
conditions then current: The copra market appeared to have from the manner in which he has been permitted by the directors
become fairly steady; it was not expected that copra prices to manage its business.
would again rise very high as in the unprecedented boom during In the case at bar, the practice of the corporation has been
January-April, 1947; the prices seemed to oscillate between to allow its general manager to negotiate and execute
$140 to $150 per ton; a radical rise or decrease was not contracts in its copra trading activities for and in NACOCO's
indicated by the trends. Kalaw continued to say that "the behalf without prior board approval.
Corporation has been closing contracts for the sale of copra If the by-laws were to be literally followed, the board should give
generally with a margin of P5.00 to P7.00 per hundred kilos." 24 its stamp of prior approval on all corporate contracts. But that
We now lift the following excerpts from the minutes of that same board itself, by its acts and through acquiescence, practically laid
board meeting of July 29, 1947: aside the by-law requirement of prior approval.
521. In connection with the buying and selling of copra the Board Under the given circumstances, the Kalaw contracts are valid
inquired whether it is the practice of the management to close corporate acts.
contracts of sale first before buying. The General Manager
replied that this practice is generally followed but that it is not FINAL VERDICT: Viewed in the light of the entire record, the
always possible to do so for two reasons: judgment under review must be, as it is hereby, affirmed.
(1) The role of the Nacoco to stabilize the prices of copra
requires that it should not cease buying even when it

Dela Cruz Hourani Lapuz Ledesma Molaer Miranda Rivera Rubinos Santos Santos So Chan Sorongon Tamondong Torcuator Yogue Zerrudo