Board of Liquidators v Kalaw

7/24/2019 Board of Liquidators v Kalaw

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Today is Sunday, November 30, 2014

Republic of the PhilippinesSUPREME COURT

anila

!N "#N$

R. No. L-18805 August 14, 1967

E OAR! O" L#$U#!ATORS1 %&'%&s&(t)(g THE GO*ERNMENT O" THE REPUL#C O" THE PH#L#PP#NES, plaintifellant,

RS O" MA+#MO M. ALA, /UAN OCAR, ESTATE O" THE !ECEASE! CAS#M#RO GARC#A, (2 LEONORLL, defendants%appellees&

meon M. Gopengco and Solicitor General for plaintiff-appellant.H. Hernandez, Emma Quisumbing, Fernando and Quisumbing, Jr. !once Enrile, Siguion "e#na, Montecillo and $elo foendants-appellees.

NCHE3, J.:

e National $oconut $orporation 'N#$($(, for short) *as chartered as a non%profit +overnmental or+aniation on ay -0 by $ommon*ealth #ct /1 avo*edly for the protection, preservation and development of the coconut industry in theippines& (n #u+ust 1, 1.4, N#$($(s charter *as amended Republic #ct / to +rant that corporation the e5press pobuy, sell, barter, e5port, and in any other manner deal in, coconut, copra, and dessicated coconut, as *ell as their by%ducts, and to act as a+ent, bro7er or commission merchant of the producers, dealers or merchants6 thereof& The charteendment *as enacted to stabilie copra prices, to serve coconut producers by securin+ advanta+eous prices for them, t

*n to a minimum, if not alto+ether eliminate, the mar+in of middlemen, mostly aliens&4

neral mana+er and board chairman *as a5imo & 9ala*: defendants ;uan "ocar and $asimiro 8arcia *ere membersard: defendant <eonor oll became director only on =ecember 22, 1.4-&

$($(, after the passa+e of Republic #ct /, embar7ed on copra tradin+ activities& #mon+st the scores of contracts e5ec+eneral mana+er 9ala* are the disputed contracts, for the delivery of copra, %iz >

'a) ;uly 30, 1.4-> #le5ander #damson ? $o&, for 2,000 lon+ tons, @1-&00> per ton, f& o& b&, delivery> #u+ustSeptember, 1.4-& This contract *as later assi+ned to <ouis =reyfus ? $o& '(verseas) <td&

'b) #u+ust 14, 1.4-> #le5ander #damson ? $o&, for 2,000 lon+ tons @14/&00 per lon+ ton, f&o&b&, Philippine to be shipped> September%(ctober, 1.4-& This contract *as also assi+ned to <ouis =reyfus ? $o& '(versea



'c) #u+ust 22, 1.4-> Pacific Ae+etable $o&, for 3,000 tons, @13-&/0 per ton, delivery> September, 1.4-&

'd) September /, 1.4-> Spencer 9ello+ ? Sons, for 1,000 lon+ tons, @10&00 per ton, c&i&f&, <os #n+eles,$alifornia, delivery> November, 1.4-&

'e) September ., 1.4-> Bran7lin "a7er =ivision of 8eneral Boods $orporation, for 1,/00 lon+ tons, @14,00ton, c&i&f&, Ne* Cor7, to be shipped in November, 1.4-&

'f) September 12, 1.4-> <ouis =reyfus ? $o& '(verseas) <td&, for 3,000 lon+ tons, @1/4&00 per ton, f&o&b&, 3Philippine ports, delivery> November, 1.4-&

'+) September 13, 1.4-> ;uan $oDuan+co, for 2,000 tons, @1-/&00 per ton, delivery> November and =ecem1.4-& This contract *as assi+ned to Pacific Ae+etable $o&

'h) (ctober 2-, 1.4-> Bair*ood ? $o&, for 1,000 tons, @210&00 per short ton, c&i&f&, Pacific ports, delivery>=ecember, 1.4- and ;anuary, 1.4& This contract *as assi+ned to Pacific Ae+etable $o&

'i) (ctober 2, 1.4-> Bair*ood ? $o&, for 1,000 tons, @210&00 per short ton, c&i&f&, Pacific ports, delivery> ;an1.4& This contract *as assi+ned to Pacific Ae+etable $o&

unhappy chain of events conspired to deter N#$($( from fulfillin+ these contracts& Nature supervened& Bour devastathoons visited the Philippines> the first in (ctober, the second and third in November, and the fourth in =ecember, 1.4-&conut trees throu+hout the country suffered e5tensive dama+e& $opra production decreased& Prices spiralled& Earehouse destroyed& $ash reFuirements doubled& =eprivation of e5port facilities increased the time necessary to accumulate

ploads of copra& Guic7 turnovers became impossible, financin+ a problem&

en it became clear that the contracts *ould be unprofitable, 9ala* submitted them to the board for approval& Ht *as not cember 22, 1.4- *hen the membership *as completed& =efendant oll too7 her oath on that date& # meetin+ *as thena* made a full disclosure of the situation, apprised the board of the impendin+ heavy losses& No action *as ta7en on th

tracts& Neither did the board vote thereon at the meetin+ of ;anuary -, 1.4 follo*in+& Then, on ;anuary 11, 1.4, Pres5as made a statement that the N#$($( head did his best to avert the losses, emphasied that +overnment concerns fasame ris7s that confronted private companies, that N#$($( *as recoupin+ its losses, and that 9ala* *as to remain it& Not lon+ thereafter, that is, on ;anuary 30, 1.4, the board met a+ain *ith 9ala*, "ocar, 8arcia and oll in attendanc

ey unanimously approved the contracts hereinbefore enumerated&

*as to be e5pected, N#$($( but partially performed the contracts, as follo*s>

$u#ers &ons 'eli%ered (

Pacific Ae+etable (il 2,3&4/

Spencer 9ello+ None

Bran7lin "a7er 1,000

<ouis =reyfus 00

<ouis =reyfus '#damson contract of ;uly 30, 1.4-) 1,1/0

<ouis =reyfus '#damson $ontract of #u+ust 14, 1.4-) 1,-//

T ( T # < S



-,0.1&4/

e buyers threatened dama+e suits& Some of the claims *ere settled, %iz > Pacific Ae+etable (il $o&, in copra delivered by$($(, P/3.,000&00: Bran7lin "a7er $orporation, P-,210&00: Spencer 9ello+ ? Sons, P1/.,040&00&

one buyer, <ouis =reyfus ? 8o& '(verseas) <td&, did in fact sue before the $ourt of Birst Hnstance of anila, upon claimo*s> Bor the undelivered copra under the ;uly 30 contract '$ivil $ase 44/.): P2-,02&00: for the balance on the #u+ustract '$ivil $ase 43.), P-/,0.&3: for that per the September 12 contract reduced to Dud+ment '$ivil $ase 4322, appehis $ourt in <%22.), P44-,.0&40& These cases culminated in an out%of%court amicable settlement *hen the 9ala*na+ement *as already out& The corporation thereunder paid =reyfus P/-,024&/2 representin+ -0I of the total claims&ticular reference to the =reyfus claims, N#$($( put up the defenses that> '1) the contracts *ere void because <ouis =o& '(verseas) <td& did not have license to do business here: and '2) failure to deliver *as due to force ma)eure, the typ

proDect the utter unreasonableness of this compromise, *e reproduce in *aec %erba this findin+ belo*>

5 5 5 Jo*ever, in similar cases brou+ht by the same claimant <ouis =reyfus ? $o& '(verseas) <td& a+ainstSantia+o SyDuco for non%delivery of copra also involvin+ a claim of P34/,/4& *herein defendant set upsdefenses as above, plaintiff accepted a promise of P/,000&00 only '!5hs& 31 ? 32 Jeirs&) Bollo*in+ the samproportion, the claim of =reyfus a+ainst N#$($( should have been compromised for only P10,000&00, if aNo*, *hy should defendants be held liable for the lar+e sum paid as compromise by the "oard of<iFuidatorsK &*is is )ust a sample to s*o+ *o+ un)ust it +ould be to *old defendants liable for t*e readiness+*ic* t*e $oard of Liuidators disposed of t*e /0/0 funds, alt*oug* t*ere +as muc* possibilit# ofsuccessfull# resisting t*e claims, or at least settlement for nominal sums li1e +*at *appened in t*e S#)uco c

the settlements sum up to P1,343,2-4&/2&

his suit started in Bebruary, 1.4., N#$($( see7s to recover the above sum of P1,343,2-4&/2 from +eneral mana+er ard chairman a5imo & 9ala*, and directors ;uan "ocar, $asimiro 8arcia and <eonor oll& Ht char+es 9ala* *ith ne+ler #rticle 1.02 of the old $ivil $ode 'no* #rticle 21-, ne* $ivil $ode): and defendant board members, includin+ 9ala* faith andLor breach of trust for havin+ approved the contracts& The fifth amended complaint, on *hich this case *as trie

s filed on ;uly 2, 1./.& =efendants resisted the action upon defenses hereinafter in this opinion to be discussed&

e lo*er court came out *ith a Dud+ment dismissin+ the complaint *ithout costs as *ell as defendants counterclaims, e5ct plaintiff *as ordered to pay the heirs of a5imo 9ala* the sum of P2,01&.4 for unpaid salaries and cash deposit due eased 9ala* from N#$($(&

ntiff appealed direct to this $ourt&

ntiffs brief did not, Fuestion the Dud+ment on 9ala*s counterclaim for the sum of P2,01&.4&

ht at the outset, t*o preliminary Fuestions raised before, but adversely decided by, the court belo*, arrest our attention&eal, defendants rene* their bid& #nd this, upon established Durisprudence that an appellate court may base its decision

rmance of the Dud+ment belo* on a point or points i+nored by the trial court or in *hich said court *as in error&

Birst of the threshold Fuestions is that advanced by defendants that plaintiff "oard of <iFuidators has lost its le+al persontinue *ith this suit&

cepted in this Durisdiction are three methods by *hich a corporation may *ind up its affairs> '1) under Section 3, Rule 104Rules of $ourt *hich superseded Section of the $orporation <a*- *hereby, upon voluntary dissolution of a corporacourt may direct 6such disposition of its assets as Dustice reFuires, and may appoint a receiver to collect such assets andebts of the corporation:6 '2) under Section -- of the $orporation <a*, *hereby a corporation *hose corporate e5isten

minated, 6shall nevertheless be continued as a body corporate for three years after the time *hen it *ould have been so



solved, for the purpose of prosecutin+ and defendin+ suits by or a+ainst it and of enablin+ it +radually to settle and closeirs, to dispose of and convey its property and to divide its capital stoc7, but not for the purpose of continuin+ the businesch it *as established:6 and '3) under Section - of the $orporation <a*, by virtue of *hich the corporation, *ithin the thr period Dust mentioned, 6is authoried and empo*ered to convey all of its property to trustees for the benefit of membec7holders, creditors, and others interested&6

defendants pose that their case comes *ithin the covera+e of the second method& They reason out that suit *asmmenced in Bebruary, 1.4.: that by !5ecutive (rder 3-2, dated November 24, 1./0, N#$($(, to+ether *ith otherernment%o*ned corporations, *as abolished, and the "oard of <iFuidators *as entrusted *ith the function of settlin+ an

sin+ its affairs: and that, since the three year period has elapsed, the "oard of <iFuidators may not no* continue *ith, ansecute, the present case to its conclusion, because !5ecutive (rder 3-2 provides in Section 1 thereof that M

Sec&1& The National #baca and (ther Bibers $orporation, the National $oconut $orporation, the NationalTobacco $orporation, the National Bood Producer $orporation and the former enemy%o*ned or controlledcorporations or associations, & & & are hereby abolished& The said corporations shall be liFuidated in accorda*ith la*, the provisions of this (rder, andLor in such manner as the President of the Philippines maydirect: !ro%ided, *o+e%er , That each of the said corporations shall nevertheless be continued as a body

corporate for a period of three '3) years from the effective date of this !5ecutive (rder for the purpose ofprosecutin+ and defendin+ suits by or a+ainst it and of enablin+ the "oard of <iFuidators +radually to settle close its affairs, to dispose of and, convey its property in the manner hereinafter provided&

n+ r& ;ustice Bisher, defendants proceed to ar+ue that even *here it may be found impossible *ithin the 3 year perioduce disputed claims to Dud+ment, nonetheless, 6suits by or a+ainst a corporation abate *hen it ceases to be an entity cauin+ or bein+ sued6 'Bisher, The Philippine <a* of Stoc7 $orporations, pp& 3.0%3.1)& /orpus Juris Secundum li7e*ise hority for the statement that 6the dissolution of a corporation ends its e5istence so that there must be statutory authorityon+ation of its life e%en for purposes of pending litigation6. and that suit 6cannot be continued or revived: nor can a valid

+ment be rendered therein, and a Dud+ment, if rendered, is not only erroneous, but void and subDect to collateral attac7&6, that abatement of pendin+ actions follo*s as a matter of course upon the e5piration of the le+al period foridation, 11 unless the statute merely reFuires a commencement of suit *ithin the added time& 12 Bor, the court cannot e5tetime alloted by statute& 13

, ho*ever, e5press the vie* that the e5ecutive order abolishin+ N#$($( and creatin+ the "oard of <iFuidators should mined in conte5t& The proviso in Section 1 of !5ecutive (rder 3-2, *hereby the corporate e5istence of N#$($( *astinued for a period of three years from the effectivity of the order for 6the purpose of prosecutin+ and defendin+ suits by inst it and of enablin+ the "oard of <iFuidators +radually to settle and close its affairs, to dispose of and convey its propmanner hereinafter provided6, is to be read not as an isolated provision but in conDunction *ith the *hole& So readin+, it

readily observed that no time limit has been tac7ed to the e5istence of the "oard of <iFuidators and its function of closinirs of the various +overnment o*ned corporations, includin+ N#$($(&

Section 2 of the e5ecutive order, *hile the boards of directors of the various corporations *ere abolished, their po*ers actions and duties under e5istin+ la*s *ere to be assumed and e5ercised by the "oard of <iFuidators& The President thot to do a*ay *ith the boards of directors of the defunct corporations: at the same time, ho*ever, the President had chos

to it that the "oard of <iFuidators step into the vacuum& #nd no*here in the e5ecutive order *as there any mention of tspan of the "oard of <iFuidators& # +lance at the other provisions of the e5ecutive order buttresses our conclusion& Thusidation by the "oard of <iFuidators may, under section 1, proceed in accordance *ith la*, the provisions of the e5ecutiver, 6and2or in suc* manner as t*e !resident of t*e !*ilippines ma# direct &6 "y Section 4, *hen any property, fund, or pronsferred to any +overnmental instrumentality 6for administration or continuance of any proDect,6 the necessary funds therll be ta7en from the correspondin+ special fund created in Section /& Section /, in turn, tal7s of special funds establishe6net proceeds of the liFuidation6 of the various corporations abolished& #nd by Section, -, fifty per centum of the feesected from the copra standardiation and inspection service shall accrue 6to the special fund created in section / hereorehabilitation and development of the coconut industry&6 Hmplicit in all these, is that the term of life of the "oard of <iFuid



*ithout time limit& $ontemporary history +ives us the fact that the "oard of <iFuidators still e5ists as an office *ith officialsmerous employees continuin+ the Dob of liFuidation and prosecution of several court actions&

that our vie*s on the po*er of the "oard of <iFuidators to proceed to the final determination of the present case is *ithsprudential support& The first Dudicial test before this $ourt is ational baca and 0t*er Fibers /orporation %s. !ore, <%1

+ust 1, 1.1& Hn that case, the corporation, already dissolved, commenced suit *ithin the three%year e5tended period foidation& That suit *as for recovery of money advanced to defendant for the purchase of hemp in behalf of the corporatio

e failed to account for that money& =efendant moved to dismiss, Fuestioned the corporations capacity to sue& The lo*erered plaintiff to include as co%party plaintiff, &*e $oard of Liuidators, to *hich the corporations liFuidation *as entrusteE3ecuti%e 0rder 3-2& Plaintiff failed to effect inclusion& The lo*er court dismissed the suit& Plaintiff moved to reconsider&und> e5cusable ne+li+ence, in that its counsel prepared the amended complaint, as directed, and instructed the boards

omin+ and out+oin+ correspondence cler7, rs& Receda Ada& de (campo, to mail the ori+inal thereof to the court and a he same to defendants counsel& She mailed the copy to the latter but failed to send the ori+inal to the court& This motioncted belo*& Plaintiff came to this $ourt on appeal& Ee there said that 6the rule appears to be *ell settled that, in the abstatutory provision to the contrary, pendin+ actions by or a+ainst a corporation are abated upon e5piration of the period*ed by la* for the liFuidation of its affairs&6 Ee there said that 6our $orporation <a* contains no provision authoriin+ poration, after three '3) years from the e5piration of its lifetime, to continue in its corporate name actions instituted by it *

d period of three '3) years&6

14

Jo*ever, these precepts not*ithstandin+, *e, in effect, held in that case that the "oard ofuidators escapes from the operation thereof for the reason that 6ob%iousl#, t*e complete loss of plaintiff4s corporate e3iser t*e e3piration of t*e period of t*ree '5) #ears for t*e settlement of its affairs is +*at impelled t*e !resident to create a iuidators, to continue t*e management of suc* matters as ma# t*en be pending &6 1/ Ee accordin+ly directed the record

d case to be returned to the lo*er court, *ith instructions to admit plaintiffs amended complaint to include, as party plain"oard of <iFuidators&

endants position is vulnerable to attac7 from another direction&

!5ecutive (rder 3-2, the +overnment, the sole stoc7holder, abolished N#$($(, and placed its assets in the hands of tard of <iFuidators& The "oard of <iFuidators thus became the trustee on behalf of the +overnment& Ht *as an e5press trual interest became vested in the trustee M the "oard of <iFuidators& The beneficial interest remained *ith the sole stoc7he +overnment& #t no time had the +overnment *ithdra*n the property, or the authority to continue the present suit, from

ard of <iFuidators& Hf for this reason alone, *e cannot stay the hand of the "oard of <iFuidators from prosecutin+ this casinal conclusion& 1 The provisions of Section - of the $orporation <a* M the third method of *indin+ up corporate affaiapplication&

, accordin+ly, rule that the "oard of <iFuidators has personality to proceed as> party%plaintiff in this case&

=efendants second poser is that the action is unenforceable a+ainst the heirs of 9ala*&

pellee heirs of 9ala* raised in their motion to dismiss, 1- *hich *as overruled, and in their nineteenth special defense, thntiffs action is personal to the deceased a5imo & 9ala*, and may not be deemed to have survived after his death&1 that the controllin+ statute is Section /, Rule -, of the 1.40 Rules of $ourt&1. *hich provides that 6all claims for moneinst the decedent, arisin+ from contract, e5press or implied6, must be filed in the estate proceedin+s of the deceased& E

a+ree&

e suit here revolves around the alle+ed ne+li+ent acts of 9ala* for havin+ entered into the Fuestioned contracts *ithout roval of the board of directors, to the dama+e and preDudice of plaintiff: and is a+ainst 9ala* and the other directors for seFuently approved the said contracts in bad faith andLor breach of trust&6 $learly then, the present case is not a mere athe recovery of money nor a claim for money arisin+ from contract& The suit involves alle+ed tortious acts& #nd the actiobraced in suits filed 6to recover dama+es for an inDury to person or property, real or personal6, *hich survive& 20

e leadin+ e5positor of the la* on this point is guas %s. Llemos, <%110-, #u+ust 30, 1.2& There, plaintiffs sou+ht to rec



ma+es from defendant <lemos& The complaint averred that <lemos had served plaintiff by re+istered mail *ith a copy of tion for a *rit of possession in $ivil $ase 424 of the $ourt of Birst Hnstance at $atbalo+an, Samar, *ith notice that the

uld be submitted to the Samar court on Bebruary 23, 1.0 at >00 a&m&: that in vie* of the copy and notice served, plainceeded to the said court of Samar from their residence in anila accompanied by their la*yers, only to discover that notion had been filed: and that defendant <lemos maliciously failed to appear in court, so that plaintiffs e5penditure and tr

ned out to be in vain, causin+ them mental an+uish and undue embarrassment& =efendant died before he could ans*er mplaint& pon leave of court, plaintiffs amended their complaint to include the heirs of the deceased& The heirs moved tomiss& The court dismissed the complaint on the +round that the le+al representative, and not the heirs, should have beede the party defendant: and that, any*ay, the action bein+ for recovery of money, testate or intestate proceedin+s shoulated and the claim filed therein& This $ourt, thru r& ;ustice ;ose "& <& Reyes, there declared>

Plaintiffs ar+ue *ith considerable co+ency that contrastin+ the correlated provisions of the Rules of $ourt, tconcernin+ claims that are barred if not filed in the estate settlement proceedin+s 'Rule -, sec& /) and thosdefinin+ actions that survive and may be prosecuted a+ainst the e5ecutor or administrator 'Rule , sec& 1)apparent that actions for dama+es caused by tortious conduct of a defendant 'as in the case at bar) survivedeath of the latter& nder Rule -, section /, the actions that are abated by death are> '1) claims for funerale5penses and those for the last sic7ness of the decedent: '2) Dud+ments for money: and '3) 6all claims for m

a+ainst the decedent, arising from contract e3press or implied &6 None of these includes that of the plaintiffs%appellants: for it is not enou+h that the claim a+ainst the deceased party be for money, but it must arise from6contract e5press or implied6, and these *ords 'also used by the Rules in connection *ith attachments andderived from the common la*) *ere construed in Leung $en %s. 04$rien, 3 Phil& 12, 1.%1.4,

6to include all purely personal obli+ations ot*er than those *hich have their source in delict or tort &6

pon the other hand, Rule , section 1, enumerates actions that survive a+ainst a decedents e5ecutors oadministrators, and they are> '1) actions to recover real and personal property from the estate: '2) actions toenforce a lien thereon: and '3) actions to recover dama+es for an inDury to person or property& The present one for dama+es under the last class, it havin+ been held that 6inDury to property6 is not limited to inDuries tospecific property, but e5tends to other *ron+s by *hich personal estate is inDured or diminished '"a7er vs&$randall, 4- #m& Rep& 12: also 1-1 #&<&R&, 13./)& To maliciously cause a party to incur unnecessary e5pe

as char+ed in this case, is certainly inDury to that partys property ';avier vs& #raneta, <%43., #u+& 31, 1./3

e rulin+ in the precedin+ case *as hammered out of facts comparable to those of the present& No co+ent reason e5ists *should brea7 a*ay from the vie*s Dust e5pressed& #nd, the conclusion remains> #ction a+ainst the 9ala* heirs and, for tter, a+ainst the !state of $asimiro 8arcia survives&

e preliminaries out of the *ay, *e no* +o to the core of the controversy&

Plaintiff levelled a maDor attac7 on the lo*er courts holdin+ that 9ala* Dustifiedly entered into the controverted contractshout the prior approval of the corporations directorate& Plaintiff leans heavily on N#$($(s corporate by%la*s& #rticle HAapter HHH thereof, recites, as amon+st the duties of the +eneral mana+er, the obli+ation> 6'b) To perform or e5ecute on beh$orporation upon prior approval of the "oard, all contracts necessary and essential to the proper accomplishment for *

$orporation *as or+anied&6

of de minimis importance in a proper approach to the problem at hand, is the nature of a +eneral mana+ers position inporate structure& # rule that has +ained acceptance throu+h the years is that a corporate officer 6intrusted *ith the +enerna+ement and control of its business, has implied authority to ma7e any contract or do any other act *hich is necessaryropriate to the conduct of the ordinary business of the corporation& 21 #s such officer, 6he may, *ithout any special autho

m the "oard of =irectors perform all acts of an ordinary nature, *hich by usa+e or necessity are incident to his office, and the corporation by contracts in matters arisin+ in the usual course of business& 22



e problem, therefore, is *hether the case at bar is to be ta7en out of the +eneral concept of the po*ers of a +eneral manen the cited provision of the N#$($( by%la*s reFuirin+ prior directorate approval of N#$($( contracts&

e peculiar nature of copra tradin+, at this point, deserves e5press articulation& (rdinary in this enterprise are copra salesre delivery& The movement of the mar7et reFuires that sales a+reements be entered into, even thou+h the +oods are no

he hands of the seller& 9no*n in business parlance as for+ard sales, it is concededly the practice of the trade& # certainount of speculation is inherent in the underta7in+& N#$($( *as much more conservative than the e5porters *ith bi+ cas short%sellin+ *as inevitable at the time in the li+ht of other factors such as availability of vessels, the Fuantity reFuired n+ accepted for loadin+, the labor needed to prepare and sac7 the copra for mar7et& To N#$($(, for*ard sales *ere aessity& $opra could not stay lon+ in its hands: it *ould lose *ei+ht, its value decrease& #bove all, N#$($(s limited funessitated a Fuic7 turnover& $opra contracts then had to be e5ecuted on short notice M at times *ithin t*enty%four hoursappreciated then is the difficulty of callin+ a formal meetin+ of the board&

ch *ere the environmental circumstances *hen 9ala* *ent into copra tradin+&

+ before the disputed contracts came into bein+, 9ala* contracted M by himself alone as +eneral mana+er M for for*aes of copra& Bor the fiscal #ear ending June 56, 789: , 9ala* si+ned some 0 such contracts for the sale of copra to dive

ties& =urin+ that period, from those copra sales, N#$($( reaped a +ross profit of P3,31,11&4& So pleased *as$($(s board of directors that, on =ecember /, 1.4, in 9ala*s absence, it voted to +rant him a special bonus 6ino+nition of the si+nal achievement rendered by him in puttin+ the $orporations business on a self%sufficient basis *ithinnths after assumin+ office, despite numerous handicaps and difficulties&6

ese previous contract it should be stressed, *ere si+ned by 9ala* +it*out prior aut*orit# from the board& Said contracts *n all alon+ to the board members& Nothin+ *as said by them& The aforesaid contracts stand to prove one thin+> (bvio$($( board met the difficulties attendant to for*ard sales by leavin+ the adoption of means to end, to the sound discre$($(s +eneral mana+er a5imo & 9ala*&

erally spread on the record are instances of contracts e5ecuted by N#$($(s +eneral mana+er and submitted to the bor their consummation, not before& These a+reements *ere not 9ala*s alone& (ne at least *as e5ecuted by a predeces

y bac7 in 1.40, soon after N#$($( *as chartered& Ht *as a contract of lease e5ecuted on November 1, 1.40 by the theral mana+er and board chairman, a5imo Rodri+ue, and #& Soriano y $ia&, for the lease of a space in Soriano "uildivember 14, 1.4, N#$($(, thru its +eneral mana+er 9ala*, sold 3,000 tons of copra to the Bood inistry, <ondon, thrubastian Palanca& (n =ecember 22, 1.4-, *hen the controversy over the present contract cropped up, the board voted trove a lease contract previously e5ecuted bet*een 9ala* and Bidel Hsberto and lpiana Hsberto coverin+ a *arehouse

er& (n the same date, the board +ave its nod to a contract for rene*al of the services of =r& anuel <& Ro5as& Hn fact, alst date, the board reFuested 9ala* to report for action all copra contracts si+ned by him 6at t*e meeting immediatel# follosigning of t*e contracts&6 This practice *as observed in a later instance *hen, on ;anuary -, 1.4, the board approvedvious contracts for the sale of 1,000 tons of copra each to a certain 6S$#P6 and a certain 68N#P(6&

d more& (n =ecember 1., 1.4, the board resolved to ratify the bro7era+e commission of 2I of Smith, "ell and $o&, <tdsale of 4,300 lon+ tons of copra to the Brench 8overnment& Such ratification *as necessary because, as stated by 9alat same meetin+, 6under an e5istin+ resolution he is authoried to +ive a bro7era+e fee of only 1I on sales of copra mad

ou+h bro7ers&6 (n ;anuary 1/, 1.4-, the bro7era+e fee a+reements of 1%1L2I on three e5port contracts, and 2I on threers, for the sale of copra *ere approved by the board *ith a proviso authoriin+ the +eneral mana+er to pay a commisshe amount of 1%1L2I 6+it*out furt*er action b# t*e $oard &6 (n Bebruary /, 1.4-, the bro7era+e fee of 2I of ;& $oDuan+on the sale of 2,000 tons of copra *as favorably acted upon by the board& (n arch 1., 1.4-, a 2I bro7era+e commi

s similarly approved by the board for Pacific Tradin+ $orporation on the sale of 2,000 tons of copra&

to be noted in the fore+oin+ cases that only the bro7era+e fee a+reements *ere passed upon by the board,not the saletracts themselves& #nd even those fee a+reements *ere submitted onl# *hen the commission e5ceeded the ceilin+ fi5e



board&

o*led+e by the board is also discernible from other recorded instances& 7;+p*<7.=>t

en the board met on ay 10, 1.4-, the directors discussed the copra situation> There *as a slo* do*n*ard trend but bs entertained that the nadir mi+ht have already been reached and an improvement in prices *as e5pected& Hn vie* therea* informed the board that 6he intends to +ait until *e *as signed contracts to sell before starting to bu# copra &623

he board meetin+ of ;uly 2., 1.4-, 9ala* reported on the copra price conditions then current> The copra mar7et appeare become fairly steady: it *as not e5pected that copra prices *ould a+ain rise very hi+h as in the unprecedented boomuary%#pril, 1.4-: the prices seemed to oscillate bet*een @140 to @1/0 per ton: a radical rise or decrease *as not indicatrends& 9ala* continued to say that 6 t*e /orporation *as been closing contracts for t*e sale of copra +enerally *ith a m

P/&00 to P-&00 per hundred 7ilos&6 24

no* lift the follo*in+ e5cerpts from the minutes of that same board meetin+ of ;uly 2., 1.4->

/21& Hn connection *ith the buyin+ and sellin+ of copra the "oard inFuired +*et*er it is t*e practice of t*e

management to close contracts of sale first before bu#ing & The 8eneral ana+er replied that t*is practice isgenerall# follo+ed but that it is not al*ays possible to do so for t*o reasons>

'1) The role of the Nacoco to stabilie the prices of copra reFuires that it should not cease buyin+ even *hedoes not have actual contracts of sale since the suspension of buyin+ by the Nacoco *ill result in middlemeta7in+ advanta+e of the temporary inactivity of the $orporation to lo*er the prices to the detriment of theproducers&

'2) The movement of the mar7et is such that it may not be practical al*ays to *ait for the consummation ofcontracts of sale before be+innin+ to buy copra&

The 8eneral ana+er e5plained that in this connection a certain amount of speculation is unavoidable& Jo*

he said that the Nacoco is much more conservative than the other bi+ e5porters in this respect&2/

tled Durisprudence has it that *here similar acts have been approved by the directors as a matter of +eneral practice, cu policy, the +eneral mana+er may bind the company *ithout formal authoriation of the board of directors& 2 Hn varyin+

+ua+e, e5istence of such authority is established, by proof of t*e course of business, the usage and practices of the com by the 1no+ledge *hich the board of directors has, or must be presumed to have, of acts and doin+s of its subordinate about the affairs of the corporation& 2-So also,

5 5 5 authority to act for and bind a corporation may be presumed from acts of reco+nition in other instances*here the po*er *as in fact e5ercised& 2

5 5 5 Thus, *hen, in the usual course of business of a corporation, an officer has been allo*ed in his officia

capacity to mana+e its affairs, his authority to represent the corporation may be implied from the manner in he has been permitted by the directors to mana+e its business&2.

he case at bar, the practice of the corporation has been to allo* its +eneral mana+er to ne+otiate and e5ecute contractsra tradin+ activities for and in N#$($(s behalf +it*out prior board approval& Hf the by%la*s *ere to be literally follo*edrd should +ive its stamp of prior approval on all corporate contracts& "ut that board itself, by its acts and throu+huiescence, practically laid aside the by%la* reFuirement of prior approval&



der the +iven circumstances, the 9ala* contracts are valid corporate acts&

"ut if more *ere reFuired, *e need but turn to the boards ratification of the contracts in dispute on ;anuary 30, 1.4, thour 'and the lo*er courts) belief that ratification here is nothin+ more than a mere formality&

horities, +reat in number, are one in the idea that 6ratification by a corporation of an unauthoried act or contract by its oothers relates bac7 to the time of the act or contract ratified, and is eFuivalent to ori+inal authority:6 and that 6 the corpo the other party to the transaction are in precisely the same position as if the act or contract had been authoried at the

e&6 30 The lan+ua+e of one case is e5pressive> 6The adoption or ratification of a contract by a corporation is nothin+ mores than the ma7in+ of an ori+inal contract& The theory of corporate ratification is predicated on t*e rig*t of a corporation totract , and any ratification or adoption is eui%alent to a grant of prior aut*orit# &6 31

eed, our la* pronounces that 6ratification cleanses the contract from all its defects from the moment it *as constituted&porate confirmation, the contracts e5ecuted by 9ala* are thus pur+ed of *hatever vice or defect they may have& 33

um, a case is here presented *hereunder, even in the face of an e5press by%la* reFuirement of prior approval, the la* porations is not to be held so ri+id and infle5ible as to fail to reco+nie eFuitable considerations& #nd, the conclusion ine

hat the embattled contracts remain valid&

t *ould be difficult, even *ith hostile eyes, to read the record in terms of 6bad faith andLor breach of trust6 in the boardsfication of the contracts *ithout prior approval of the board& Bor, in reality, all that *e have on the +overnments side of thle is that the board 7ne* that the contracts so confirmed *ould cause heavy losses&

*e have earlier e5pressed, 9ala* had authority to e5ecute the contracts *ithout need of prior approval& !verybody, incla* himself, thou+ht so, and for a lon+ time& =oubts *ere first thro*n on the *ay only *hen the contracts turned out to brofitable for N#$($(&

htfully had it been said that bad faith does not simply connote bad Dud+ment or ne+li+ence: it imports a dishonest purpome moral obliFuity and conscious doin+ of *ron+: it means breach of a 7no*n duty thru some motive or interest or ill *ill

ta7es of the nature of fraud&34

#pplyin+ this precept to the +iven facts herein, *e find that there *as no 6dishonest purpome moral obliFuity,6 or 6conscious doin+ of *ron+,6 or 6breach of a 7no*n duty,6 or 6Some motive or interest or ill *ill6 thrta7es of the nature of fraud&6

*as it even intimated here that the N#$($( directors acted for personal reasons, or to serve their o*n private interesoc7et money at the e5pense of the corporation& 3/ Ee have had occasion to affirm that bad faith contemplates a 6state o

rmatively operatin+ *ith furtive desi+n or *ith some motive of self%interest or ill *ill or for ulterior purposes&6 3 $riggs %s.aulding , 141 &S& 132, 14%14., 3/ <& ed& 2, ., Fuotes *ith approval from ;ud+e Shars*ood 'in Sperin+s #pp&, -1 the follo*in+> 6pon a close e5amination of all the reported cases, althou+h there are many dicta not easily reconcilabve found no Dud+ment or decree *hich has held directors to account, e5cept *hen they have themselves been personaty of some fraud on the corporation, or have 7no*n and connived at some fraud in others, or *here such fraud mi+ht han prevented had they +iven ordinary attention to their duties& & & &6 Plaintiff did not even dare char+e its defendant%directo

h any of these malevolent acts&

viously, the board thou+ht that to Dettison 9ala*s contracts *ould contravene basic dictates of fairness& They did not thinin+ their voice in protest a+ainst past contracts *hich brou+ht in enormous profits to the corporation& "y the same to7enlin+ disa+rees *ith the idea that similar contracts, *hen unprofitable, should not merit the same treatment& Profit or lossultin+ from business ventures is no Dustification for turnin+ ones bac7 on contracts entered into& The truth, then, of the mhat M in the *ords of the trial court M the ratification of the contracts *as 6an act of simple Dustice and fairness to the +ena+er and the best interest of the corporation *hose presti+e *ould have been seriously impaired by a reDection by the



hose contracts *hich proved disadvanta+eous&6 3-

e directors are not liable&6 3

To *hat then may *e trace the dama+e suffered by N#$($(&

e facts yield the ans*er& Bour typhoons *rea7ed havoc then on our copra%producin+ re+ions& Result> $opra production *aired, prices spiralled, *arehouses destroyed& Guic7 turnovers could not be e5pected& N#$($( *as not alone in thisfortune& The record discloses that private traders, old, e5perienced, *ith bi++er facilities, *ere not spared: also suffered

mendous losses& Rou+hly estimated, eleven principal tradin+ concerns did run losses to about P10,300,000&00& Plaintiffness Sisenando "arretto, head of the copra mar7etin+ department of N#$($(, observed that from late 1.4- to early 1ere *ere many *ho lost money in the trade&6 3. N#$($( *as not immune from such usual business ris7&

e typhoons *ere 7no*n to plaintiff& Hn fact, N#$($( resisted the suits filed by <ouis =reyfus ? $o& by pleadin+ in its*ers force ma)eure as an affirmative defense and there vehemently asserted that 6as a result of the said typhoons, e5te

ma+e *as caused to the coconut trees in the copra producin+ re+ions of the Philippines and accordin+ to estimates ofmpetent authorities, it *ill ta7e about one year until the coconut producin+ re+ions *ill be able to produce their normal co

d and it *ill ta7e some time until the price of copra *ill reach normal levels:6 and that 6it had never been the intention of tractin+ parties in enterin+ into the contract in Fuestion that, in the event of a sharp rise in the price of copra in the Philipr7et produce byforce ma)eure or by caused beyond defendants control, the defendant should buy the copra contracted rbitant prices far beyond the buyin+ price of the plaintiff under the contract&6 40

i+h re+ard for formal Dudicial admissions made in court pleadin+s *ould suffice to deter us from permittin+ plaintiff to straay therefrom, to char+e no* that the dama+e suffered *as because of 9ala*s ne+li+ence, or for that matter, by reason rds ratification of the contracts& 41

eed, *ere it not for the typhoons, 42 N#$($( could have, *ith ease, met its contractual obli+ations& Stoc7 accessibility problem& N#$($( had .0 buyin+ a+encies spread throu+hout the islands& Ht could purchase 2,000 tons of copra a dayous contracts involved delivery of but 1,/00 tons over a five%month period& =espite the typhoons, N#$($( *as still a

ver a little short of /0I of the tonna+e reFuired under the contracts&

the trial court correctly observed, this is a case of damnum absue in)uria& $onDunction of dama+e and *ron+ is here abere cannot be an actionable *ron+ if either one or the other is *antin+& 43

(n top of all these, is that no assertion is made and no proof is presented *hich *ould lin7 9ala*s acts M ratified by therd M to a matri5 for defraudation of the +overnment& 9ala* is clear of the sti+ma of bad faith& Plaintiffs corporatensel 44 concedes that 9ala* all alon+ thou+ht that he had authority to enter into the contracts, that he did so in the bestrests of the corporation: that he entered into the contracts in pursuance of an overall policy to stabilie prices, to free theducers from the clutches of the middlemen& The prices for *hich N#$($( contracted in the disputed a+reements, *ereel calculated to produce profits and hi+her than those prevailin+ in the local mar7et& Plaintiffs *itness, "arretto, cate+oried that 6it *ould be foolish to thin7 that one *ould si+n 'a) contract *hen you are +oin+ to lose money6 and that no con

s e5ecuted 6at a price unsafe for the Nacoco&6 4/ Really, on the basis of prices then prevailin+, N#$($( envisioned a prund P-/2,440&00& 4

a*s acts *ere not the result of haphaard decisions either& 9ala* invariably consulted *ith N#$($(s $hief "uyer,enando "arretto, or the #ssistant 8eneral ana+er& The dailies and Fuotations from abroad *ere +uideposts to him&

course, 9ala* could not have been an insurer of profits& Je could not be e5pected to predict the comin+ of unpredictablhoons& #nd even as typhoons supervened 9ala* *as not remissed in his duty& Je e5erted efforts to stave off losses& Jeed the Philippine National "an7 to implement its commitment to e5tend a P400,000&00 loan& The ban7 did not release th



n, not even the sum of P200,000&00, *hich, in (ctober, 1.4-, *as approved by the ban7s board of directors& Hn frustraticember 12, 1.4-, 9ala* turned to the President, complained about the ban7s short%si+hted policy& Hn the end, nothin+ cof the ne+otiations *ith the ban7& N#$($( eventually faltered in its contractual obli+ations&

at 9ala* cannot be ta++ed *ith crassa negligentia or as much as simple ne+li+ence, *ould seem to be supported by the

t even as the contracts *ere bein+ Fuestioned in $on+ress and in the N#$($( board itself, President Ro5as defendeduations of 9ala*& (n =ecember 2-, 1.4-, President Ro5as e5pressed his desire 6that the "oard of =irectors should reen& a5imo & 9ala* as 8eneral ana+er of the National $oconut $orporation&6 4- #nd, on ;anuary -, 1.4, at a time *contracts had already been openly disputed, the board, at its re+ular meetin+, appointed a5imo & 9ala* as actin+ +ena+er of the corporation&

ll may *e profit from the follo*in+ passa+e from Montelibano %s. $acolod-Murcia Milling /o., ?nc &, <%1/0.2, ay 1, 1.

ey 'the directors) hold such office char+ed *ith the duty to act for the corporation accordin+ to their best Dud+ment, and n+ they cannot be controlled in the reasonable e5ercise and performance of such duty& Ehether the business of a corpould be operated at a loss durin+ a business depression, or closed do*n at a smaller loss, is a purely business and econblem to be determined by the directors of the corporation, and not by the court& Ht is a *ell 7no*n rule of la* that Fuestio

cy of mana+ement are left solely to the honest decision of officers and directors of a corporation, and the court is *ithouhority to substitute its Dud+ment for the Dud+ment of the board of directors: the board is the business mana+er of theporation, and solong as it acts in good fait* its orders are not re%ie+able b# t*e courts&6 'Bletcher on $orporations, Aol& &)4

a*s +ood faith, and that of the other directors, clinch the case for defendants& 4.

*ed in the li+ht of the entire record, the Dud+ment under revie* must be, as it is hereby, affirmed&

hout costs& So ordered&

#es, J.$.L., Ma1alintal, $engzon, J.!., @aldi%ar, /astro and ngeles, JJ., concur.

nando, J., too1 no part.ncepcion, /.J. and 'izon, J., are on lea%e.

ot(ot&s

1(ri+inal plaintiff, National $oconut $orporation, *as dissolved on November 24, 1./0 by the Presidents!5ecutive (rder 3-2, *hich created the "oard of <iFuidators& Jence, the substitution of party plaintiff&

2=efendant a5imo & 9ala* died in arch of 1.// before trial&

3Substituted for defendant $asimiro 8arcia, deceased&

4!5planatory Note of Jouse "ill 2./, 1st Session, 2nd $on+ress, later Republic #ct /: $on+ressional RecorJouse of Representatives, ;uly 22, 1.4: inutes of the N#$($( =irectors eetin+ of ;uly 2, 1.4, !5h& Jeirs&

/R&#&, p& 23: !mphasis supplied&

8arcia Aalde vs& Tuason, 40 Phil& .43, ./1%./2: <ucero vs& 8uman, 4/ Phil& /2, -.: Relative vs& $astrPhil& /3, /-%/&



-HHH #+bayani, $orporation <a*, 1.4 ed&, p& 1-.&

8overnment vs& Eise ? $o&, <td& '$&#&), 3- (&8& No& 2, pp& /4/, /4&

.10 $&;&S&, p& 1/03: emphasis supplied&

101 $&;&S&, p& 141&

11?d &, p& 143: 1 Bletcher, p& .01&

121 Bletcher, p& .02&

13Service ? Eri+ht <umber $o& vs& Sumpter Aalley Ry& $o&, 1/2 P& 22, 2/&

14$itin+ Sumera vs& Aalencia, - Phil& -21, -2%-2-&

1/

!mphasis ours&

1See> Section 3, Rule 3, Rules of $ourt&

1-Record on #ppeal, pp& 21%2/&

1?d &, p& 1/4&

1.No* Section /, Rule &

20Section 1, Rule of the 1.40 Rules of $ourt: no* Section 1 Rule -, Revised Rules of $ourt&

212 Bletcher $yclopedia $orporations, p& 0-& See> Cu $huc7 vs& 9on+ <i Po, 4 Phil& 0, 14&

22Spar7s vs& =ispatch Transfer $o&, 1/ S&E& 41-, 41.: Pacific $oncrete Products $orporation vs& =immic7, 22d /01, /04: assachusetts "ondin+ ? Hns& $o& vs& Transamerican Brei+ht <ines, 21 N&E& /4, /%/.: S(il ill ? f+& $o& vs& "ishop f+& $o&, 23/ S&E& /0, /2&

23!mphasis supplied&

24!mphasis supplied&

2/!mphasis supplied&

2Jarris vs& J& $& Talton Eholesale 8rocery $o&, 123 So& 40&

2-Aan =enbur+h vs& Tun+sten Reef ines $o&, - P& '2d) 30, 31, citing Birst National Bin& $orp& vs& Bive%(=rillin+ $o&, 2. P& 44, 4/&

2cHntosh vs& =a7ota Trust $o&, 204 N&E& 1& 24&

2.urphy vs& E& J& ? B& E& $ane, 2 #tl& /4, /& See artin vs& Eebb, 110 &S& -, 14%1/, 2 <& ed& 4., /2



also Aictory Hnvestment $orporation vs& us7o+ee !lectric T& $(&, 1/0 B& 2d& ., .3&

302 Bletcher, p& /, citing cases&

319ridelbau+h vs& #ldrehn Theatres $o&, 1.1 N&E& 03, 04, citing cases: emphasis supplied&

32 #rticle 1313, old $ivil $ode: no* #rticle 13., ne* $ivil $ode&

33Ta+aytay =evelopment $o& vs& (sorio, . Phil& 10, 14&

34Spie+el vs& "eacon Participations, N&!& '2d) ./, .0-, citing cases&

3/See> 3 Bletcher, Sec& /0, pp& 12%1/&

3 #ir Brance vs& $arrascoso, <%2143, September 2, 1.&

3-

R&#&, pp& 234%23/&

33 Bletcher, pp& 4/0%4/2, citing cases& /f. #n+eles vs& Santos, 4 Phil& .-, -0-&

3.Tr&, p& 30, #u+ust 2., 1.0&

40See !5hibit 2.%Jeirs, N#$($(s Second #mended #ns*er in $ivil $ase 4322, $ourt of Birst instance ofanila, entitled 6<ouis =reyfus ? $o& '(verseas) <imited, plaintiff vs& National $oconut $orporation, defend

41Section 2, Rule 12., Rules of $ourt: 20 #m& ;ur&, pp& 4.%4-0&

42The time for delivery of copra under the ;uly 30, 1.4- contract *as e5tended& Bifth #mended $omplaint, R

1/& See also !5hibit 2% Jeirs&

43$hurchill and Tait vs& Rafferty 32 Phil& /0, 0/: <adrera vs Secretary of #+riculture and Natural Resource133/, #pril 2, 1.0&

44emorandum of 8overnment $orporate $ounsel arcial P& <ichauco dated Bebruary ., 1.4., addressed Secretary of ;ustice, days after the ori+inal complaint herein *as filed in court& R&#&, pp& ., .0%112&

4/Tr&, pp& 1, 2., #u+ust 2., 1.0&

4See !5hibit 20%Jeirs&

4-!5hibit 2/%Jeirs&

4!mphasis supplied&

4.3 Bletcher, pp& 4/0%4/2, supra&

e <a*phil ProDect % #rellano <a* Boundation

Board of Liquidators v Kalaw

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