PHILIPPINE STOCK EXCHANGE VS CA

287 SCRA 232 – Business Organization – Corporation Law – Extent of Power of

the Securities and Exchange Commission

Puerto Azul Land, Inc. (PALI) is a corporation engaged in the real estate business. PALI

was granted permission by the Securities and Exchange Commission (SEC) to sell its

shares to the public in order for PALI to develop its properties.

 PALI then asked the Philippine Stock Exchange (PSE) to list PALI’s stocks/shares to

facilitate exchange. The PSE Board of Governors denied PALI’s application on the ground

that there were multiple claims on the assets of PALI. Apparently, the Marcoses, Rebecco

Panlilio (trustee of the Marcoses), and some other corporations were claiming assets if not

ownership over PALI.

PALI then wrote a letter to the SEC asking the latter to review PSE’s decision. The SEC

reversed PSE’s decisions and ordered the latter to cause the listing of PALI shares in the

Exchange.

ISSUE: Whether or not it is within the power of the SEC to reverse actions done by the

PSE.

HELD: Yes. The SEC has both jurisdiction and authority to look into the decision of PSE

pursuant to the Revised Securities Act and for the purpose of ensuring fair administration of

the exchange. PSE, as a corporation itself and as a stock exchange is subject to SEC’s

jurisdiction, regulation, and control. In order to insure fair dealing of securities and a fair

administration of exchanges in the PSE, the SEC has the authority to look into the rulings

issued by the PSE. The SEC is the entity with the primary say as to whether or not

securities, including shares of stock of a corporation, may be traded or not in the stock

exchange.

HOWEVER, in the case at bar, the Supreme Court emphasized that the SEC may only

reverse decisions issued by the PSE if such are tainted with bad faith. In this case, there

was no showing that PSE acted with bad faith when it denied the application of PALI. Based

on the multiple adverse claims against the assets of PALI, PSE deemed that granting

PALI’s application will only be contrary to the best interest of the general public. It was

reasonable for the PSE to exercise its judgment in the manner it deems appropriate for its

business identity, as long as no rights are trampled upon, and public welfare is

safeguarded.

Ramirez vs Orientalist Co. (1918)Facts: Orientalist Company was engaged in the business of maintaining and conducting a theatre in the city of Manila for the exhibition of cinematographic films. engaged in the business of marketing

films for a manufacturer or manufacturers, there engaged in the production or distribution of cinematographic material. In this enterprise the plaintiff was represented in the city of Manila by his son, Jose Ramirez. The directors of the Orientalist Company became apprised of the fact that the

plaintiff in Paris had control of the agencies for two different marks of films, namely, the “Eclair Films” and the “Milano Films;” and negotiations were begun with said officials of the Orientalist Company by Jose Ramirez, as agent of the plaintiff. The defendant Ramon J. Fernandez, one of the directors of

the Orientalist Company and also its treasure, was chiefly active in this matter. Ramon J. Fernandez had an informal conference with all the members of the company’s board of directors except one,

and with approval of those with whom he had communicated, addressed a letter to Jose Ramirez, in Manila, accepting the offer contained in the memorandum the exclusive agency of the Eclair films

and Milano films. In due time the films began to arrive in Manila, it appears that the Orientalist Company was without funds to meet these obligations. Action was instituted by the plaintiff to

Orientalist Company, and Ramon J. Fernandez for sum of money.

Issue: WON the Orientalist Co. is liable for the acts of its treasurer, Fernandez?

Held: Yes. It will be observed that Ramon J. Fernandez was the particular officer and member of the

board of directors who was most active in the effort to secure the films for the corporation. The

negotiations were conducted by him with the knowledge and consent of other members of the board;

and the contract was made with their prior approval. In the light of all the circumstances of the case,

we are of the opinion that the contracts in question were thus inferentially approved by the

company’s board of directors and that the company is bound unless the subsequent failure of the

stockholders to approve said contracts had the effect of abrogating the liability thus created

Mead vs. McCullough

21 Phil 95 – Business Organization – Corporation Law – The Corporation and Its Members 

Charles Mead, Edwin McCullough and three others organized the corporation called The

Philippine Engineering and Construction Company (PECC). The 4 organizers, except Mead,

contributed to the majority of the capital stock of PECC, the remaining shares were offered

to the public. Mead contributed some personal properties. Mead was assigned as a

manager but he resigned as such when he accepted an engineering job in China. But even

so, he remained as one of the five directors (the organizers).

At that time, PECC was already incurring losses. McCullough, the president, proposed that

he shall buy the assets of the corporation. The three other directors then voted in favor of

this proposal hence the assets were transferred to McCullough. Mead learned of this and so

he opposed it because the personal properties he contributed were also transferred to

McCullough.

Mead also argued that under the articles of incorporation of PECC, the board of directors

only have ordinary powers; that the authorization made by the three directors to allow the

sale of company assets to McCullough constitutes an act of agency which is invalid at that

because no express commission was made, i.e., no power of attorney was made in favor of

the directors. The requirement for a commission can be inferred from Article 1713 of the

Civil Code which provides:

An agency stated in general terms only includes acts of administration.

In order to compromise, alienate, mortgage, or execute any other act of strict

ownership an express commission is required. (Emphasis supplied).

Mead also insists that under their charter, no resolution affecting the administration of

theaffairs of PECC should be binding upon the corporation unless the unanimous consent

of the entire board was first obtained

ISSUE: Whether or not the three directors had the authority to allow the sale/transfer of the

company assets to McCullough.

HELD: Yes. Several factors have to be considered. First is the fact that Mead abandoned

his post when he took the job offer to work in China. He knew for a fact that the nature of

the job offered is permanent. Second, a close reading of the articles of incorporation of

PECC shows that there is no such intention for unanimity when it comes to votes affecting

matters of administration. The only requirement is that “At least three of said board must be

present in order to constitute a legal meeting.” Which was complied with when the other four

directors were present when the decision to transfer the company assets was made.

Third is the fact that PECC was in a downhill situation. A corporation is essentially a

partnership, except in form. “The directors are the trustees or managing partners, and the

stockholders are the cestui que trust and have a joint interest in all the property and effects

of the corporation.” McCullough as a director himself and the president can be considered

an agent but not the “agent” contemplated in Article 1713 of the Civil Code. Article 1713

deals with the broad aspect of agency and in ordinary cases but not in the case of a

corporation and its directors. In the case at bar, the more appropriate analogy is that PECC,

being a losing corporation, has its directors as the trustees. The trustees-directors hold the

company assets in trust for the beneficiaries, which are the creditors. As trustees, they

decided that it is beneficial to sell the company assets to McCullough to at least recover

some cash equivalents in the winding up of the corporate affairs. Besides, there is no

prohibition against the selling of company assets to one of its directors either from law or

from PECC’s articles of incorporation.

G.R. No. L-43413             August 31, 1937

HIGINIO ANGELES, JOSE E. LARA and AGUEDO BERNABE, as stockholders for an in behalf and for the benefit of the corporation, Parañaque Rice Mill, Inc. and the other stockholders who may desire to join, plaintiffs-appellees, vs.TEODORICO B. SANTOS, ESTANISLAO MAYUGA, APOLONIO PASCUAL, and BASILISA RODRIGUEZ,defendant-appellants.

P. Masalin and A. Sta. Maria for appellants.Eulogio P. Revilla and Barrera and Reyes for appellees.

LAUREL, J.:

The plaintiff and the defenant aree all stockholders and member of the board of directors of the "Parañaque Rice Mill, Inc., "a corporation organized for the purpose of operating a rice mill in the municipality of Parañaque, Province of Rizal. On September 6, 1932, a complaint entitle "Higinio Angeles, Jose de Lara, Aguedo Bernabe, as stockholders, for and in behalf of the corporation, Parañaque Rice Mill, Inc., and other stockholders of said corporation who may desire to join, plaintiff, vs. Teodorico B. Santos, Estanislao Mayuga, Apolonio Pascual, and Basilisa Rodriguez, defendant was filed with the Court of First Instance of Rizal. After formal allegation relative to age and residence of the parties and the due incorporation of the Parañaque Rice Mill, Inc., the complaint avers subtantially the following: (a) That the plaintiffs are stockholders and constitute the minority and the defendants are also stockholers and constitute the majority of the board of directors of the Parañaque Rice Mill, Inc.; (b) that at an extraordinary meeting held on February 21, 1932, the stockholders appointed an investigation committee of which the plaintiff Jose de Lara was chairman and the stockholers Dionisio Tomas and Aguedo Bernabe were members, to investigate and determine the properties, operations, and losses of the corporation as shown in the auditor's report corresponding to the year 1931, but the defendants, particularly Teodorico B. Santos, who was the president of the corporation, denied access to the properties, books and record of the corporation which were in their possession (c) That the defendant Teodorico B. Santos, in violation of the by-laws of the corporation, had taken possession of the books, vouchers, and corporate records as well as of the funds and income of the Parañaque Rice Mill, Inc., all of which, according to the by-laws, should be under the exclusive control and possession of the secretary-treasurer, the plaintiff Aguedo Bernabe; (d) That the said Teodorico B. Santos, had appropriated to his own benefit properties, funds, and income of the corporation in the sum of P10,000; (e) that Teodoro B. Santos, for the purpose of illegally controlling the affairs of the corporation, refuse to sign and issue the corresponding certificate of stock for the 600 fully paid-up share of the plaintiff, Higinio Angeles, of the total value of P15,000; ( f ) that notwithstanding written requests made in conformity with the by-laws of the corporation of three members of the board of directors who are holders of more than one-third of the subscribed capital stock of the corporation, the defendant Teodorico B. Santos as president of the corporation refuse to call a meeting of the board of directors and of the stockholers; (g) that in violation of the by-laws of the corporation, the defendant who constitute the majority of the board of directors refused to hold ordinary monthly meetings of the board since March, 19332; (h) that Teodorico B. Santos as president of the corporation, in connivance with his 

co-defendants, was disposing of the properties and records of the corporation without authority from the board of directors or the stockholders of the corporation and without making any report of his acts to the said board of directors or to any other officer of the corporation, and that, to prevent any interferrence with or examination of his arbitrary acts, he arbitrarily suspended plaintiff Jose de Lara from the office of general manager to which office the latter had been lawfully elected by the stockholders; and (i) that the corporation had gained about P4,000 during the first half of the year 1932, but that because of the illegal and arbitrary acts of the defendants not only the funds but also the books and records of the corporation are in danger of disappearing.

The complaint prays: (a) That after the filing of the bond in an amount to be fixed by the court, Melchor de Lara of Parañaque, Rizal, be appointed receiver of the properties, funds and business of the Parañaque Rice Mill, Inc., as well as the books and record thereof, with authority to continue the business of the corporation; (b) that the defendant Teodorico B. Santos be ordered to render a detailed accounting of the properties, funds and income of the corporation from the year 1927 to date; (c) that the said defendant be required to pay to the corporation the amount of P10,000 and other amounts which may be found due to the said corporation as damages or for my other cause, (d) that said defendant be ordered to sign the certificate of stock subscribed to and paid by the plaintiff Higinio Angeles; and (e) that the members of the board of directors of the Parañaque Rice Mill, Inc., be removed and an exrtraodinary meeting of the stockholders called for the purpose of electing a new board of directors.

On the date of the filling of the complaint, September 6, 1932, the court issue an ex parte order of receivership appointing Melchor de Lara as receiver of the corporation upon the filling of a bond of P1,000 by the plaintiffs-appellees. The bond of the receiver was fixed at P4,000.

Upon an urgent motion of the defendants-appellants setting forth the reasons why Melchor de Lara should not have been appointed receiver, and upon agreement of the parties, the trial court, by order of September 13, 1932, appointed Benigno Agco, as receiver, in lieu of Melchor de Lara. About a month after, or on October 14, 1932, the court, after considering the memoranda filed by both parties revoked its order appointing Agco as receiver.

On July 12, 1933, the defendants-appellants presented their amended answer to the complaint, containing a general and specific denial, and alleging as special defense that the defendant Teodorico B. Santos refused to sign the certificate of stock in favor of the plaintiff Higinio Angeles for 600 shares valued at P15,00, because the board of directors decided to give Higinio Angeles only 320 shares of stock worth P8,000. The answer contains a counter-claim for P5,000 alleged illegal and malicious procurement by the plaintiffs of an ex parte order of receivership. Damages in the amount of P2,000 are also alleged to have been suffered by the defendants by reason of the failure of the plaintiffs to present their grievances to the Board of directors before going to court. The amended answer sets forth, furthermore, a cross-complaint against the plaintiffs, and in behalf of the Parañaque Rice Mill, Inc., based on the alleged failure of the plaintiff Higinio Angeles to render a report of his administration of the corporation from February 14 to June 30, 1928, during which time the corporation is alleged to have accrued earnings of approximately P3,000. In both the counter claim and cross-complaint Parañaque Rice Mill, Inc. is joined as party defendant.

On July 24, 1934, the plaintiffs-appellees renewed their petition for the appointment of a receiver pendente litealleging, among other things, that defendant Teodorico B. Santos was using the funds of the corporation for purely personal ends; that said Teodorico B. Santos was managing to the interest of the Corporation and its stockholders; that said defendant did not render any account of his management or for the condition of the business of the corporation; that since 1932 said defendant called no meeting of the board of directors or of the stockholders thus enabling him to continue holding, without any election, the position of present and, finally, that of manager; and

that, without the knowledge and consent of the stockholders and of the board of directors, the said defendant installed a small rice mill for converting rice husk into "tiqui-tiqui", the income of which was never turned over or reported to the treasurer of the corporation.

The defendant-appellants objected to the petition for the appointment of a receiver on the ground, among others, that the court had no jurisdiction over the Parañaque Rice Mill, Inc., because it had not been include as party defendant in this case and that, therefore the court could not properly appoint a receiver of the corporationpendente lite.

After hearing both parties, the trial court by order of October 31, 1934, appointed Emilio Figueroa, as receiver of the corporation, after giving a bond in the amount of P2,000. An urgent for the reconsideration of this order filed by counsel for the defendant-appellant on November 3, 1934, was denied by the court on November 7, 1934.

On November 8, 1934, the trial court, having heard the case on its merits rendered a decision, the dispositive part of which is as follows:

Por todo lo expuesto el Juzgado fall este asunto:

1. Ordenando al demandado Teodorico B. Santos a rendircuenta ellada de las propiedads, fondos e ingresos dela corporacion Parañaque Rice Mill, Inc., de el año 1931 hasta la fecha;

2. Condenando a dicho demandado a pagar a la corporacion Parañaque Rice Mill, Inc., cualesquiera cantida o cantidades que resultate en deber a dicha corporacion; de acuerdo con dicha rendicion de cuentas;

3. Declarando al demanante Higinio M. Angeles con derecho a tener expedido a su nombre 600 acciones por valor par de P15,000.

4. Destituyendo a los demandados de su cargo como directores e la corporacion hasta la nueva eleccion por los accionistas que se convocara una vez firme esta sentencia; y

5. Condenando a los demandados a pagar las costas.

On November 21, 1934, the defendants-appellants, moved for reconsideration of the decision and at the same time prayed for the dismissal of the case, because of defect of parties defendant.

On December 6, 1934, the Parañaque Rice Mill, Inc., thru counsel for the defendants, entered a special appearance for the sole purpose of objecting to the order of the court of October 31, 1934, appointing a receiver, on the ground that the Parañaque Rice Mill, Inc., was not a party to the proceedings. And on December 8, 1934, the defendants excepted to the decision of the trial court and moved for a new trial on the ground that the evidence presented was insufficient to justify the decision and that said decision was contrary to law. The motions for reconsideration and new trial and the special appearance were, by separate orders bearing date of December 19, 1934, denied by the trial court. The case was finally elevated to this court by bill of exceptions.

The defendants-appellants submit the following assignment of errors:

1. The lower court erred in holding that it has jurisdiction to appoint a receiver o the corporation, "Parañaque Rice Mill, Inc.," on October 31, 1934.

2. The lower court erred in overruling the motion of the defendants the include the defendant corporation as party defendant and in holding that it is not a necessary party.

3. The lower court erred in not granting a motion for a new trial because there is a defect of party defendant.

4. The lower court erred in not dismissing the case because a necessary defendant was not made a party in the case.

5. The lower court erred in ordering the defendant Teodorico B. Santos to render a detailed accounting of the properties, funds and income of the corporation "Parañaque Rice Mill, Inc.," from the year 1931 to this date.

6. The lower court erred in condemning the defendant Teodorico B. Santos to pay the corporation whatever sum or sums which may be found owing to said corporation, in accordance with the said accounting to be one by him.

7. The lower court erred in ordering the destitution of the defendants from their office as members of the board of directors of the corporation, until the new election of the stockholders which shall be held once the decision has become final..

8. The lower court erred in declaring that Higino Angeles is entitled to have in his name 600 shares of stock of the par value of P15,000.

9. The lower court erred in overruling and denying appellants' motion for the reconsideration and the dismissal of the case dated November 21, 1934.

10. The lower court erred in denying the motion of these appellants for new trial.

In their discussion of the first, second, third, and fourth assignment of error, the defendants-appellants vigorously assert that the Parañaque Rice Mill, Inc., is a necessary party in this case, and that not having been made a party, the trial court was without jurisdiction to appoint a receiver and should have dismissed the case.

There is ample evidence in the present case to show that the defendants have been guilty of breach of trust as directors of the corporation and the lower court so found. The board of directors of a corporation is a creation of the stockholders and controls and directs the affairs of the corporation by allegation of the stockholers. But the board of directors, or the majority thereof, in drawing to themselves the power of the corporation, occupies a position of trusteeship in relation to the minority of the stock in the sense that the board should exercise good faith, care and diligence in the administration of the affairs of the corporation and should protect not only the interest of the majority but also those of the minority of the stock. Where a majority of the board of directors wastes or dissipates the funds of the corporation or fraudulently disposes of its properties, or performs ultra viresacts, the court, in the exercise of its equity jurisdiction, and upon showing that intracorporate remedy is unavailing, will entertain a suit filed by the minority members of the board of directors, for and in behalf of the corporation, to prevent waste and dissipation and the commission of illegal acts and otherwise redress the injuries of the minority stockholders against the wrongdoing of the majority. The action in such a case is said to be brought derivatively in behalf of the corporation to protect the rights of the minority stockholers thereof (7 R. C. L., pars. 293 and 294, and authority therein cited; 13 Fletcher, Cyc. of Corp., pars. 593, et seq., an authorities therein cite).

It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust — not of mere error of judgment or abuse of discretion — and intracorporate remedy is futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the corporation and indirectly upon the stockholers. An illustration of a suit of this kind is found in the case of Pascual vs. Del Sanz Orozco (19 Phil., 82), decided by this court as early as 1911. In that case, the Banco Español-Filipino suffered heavy losses due to fraudulent connivance between a depositor and an employee of the bank, which losses, it was contened, could have been avoided if the president and directors has been more vigilant in the administration of the affairs of the bank. The stockholers constituting the minority brought a suit in behalf of the bank against the directors to recover damages, and this over the objection of the majority of the stockholers and the directors. This court held that the suit properly be maintained.

The contention of the defendants in the case at bar that the Parañaque Rice Mill, Inc., should have been brought in as necessary party and the action maintained in its name and in its behalf directly states the general rule, but not the exception recognize by this court in the case of Everrett vs. Asia Banking Corporation (49 Phil., 512, 527). In that case, upon invocation of the general rule by the appellees there, this court said:

Invoking the well-known rule that shareholers cannot ordinarily sue in equity to redress wrong done to the corporation, but that the action must be brought by the board of directors, the appellees argue — and the court below held — that the corporation Teal & Company is a necessary party plaintiff and that the plaintiff stockholder, not having made any demand on the board to bring the action, are not the proper parties plaintiff. But, like most rules, the rule in question has its exceptions. It is alleged in the complaint and, consequently, admitted through the demurrer that the corporation Teal & Company is under the complete control of the principal defendants in the case, and, in these circumstances it is obvious that a demand upon the board of directors to institute action and prosecute the same effectively would have been useless, and the law does not require litigants to perform useless acts. (Exchange Bank of Wewoka vs. Bailey, 29 Okla., 246; Fleming and Hewins vs. Black Warrior Copper Co., 15 Ariz., 1; Wickersham vs. Crittenen, 106 Cal., 329; Glem vs. Kittanning Brewing Co., 259 Pa., 510; Hawes vs. Contra Costa Water Company, 104 U.S., 450.)

The action having been properly brought and by the lower court entertained it was within its power, upon proper showing, to appoint a receiver of the corporation pendente lite (secs. 173, 174, et seq. Code of Civil Procedure). The appointment of a receiver upon application of the minority stockholers is power to be exercised with great caution. But this does not mean that right of the minority stockholers may be entirely disregarded, and where the necessity has arisen, the appointment of a receiver for a corporation is a matter resting largely in the sound discretion of the trial court. Counsel for appellants argue that the appointment of a receiver pendente lite in the present case has deprived the corporation, Parañaque Rice Mill, Inc., of property without due process of law. But it is too plain to require argument that the receiver was precisely appointed to preserve the properties of the corporation. The receivership in this case shall continue until a new board of directors shall have been elected and the corporation.

The first, second, third, and fourth assignments of error are, therefore, overruled.

The appellants contend in their fifth and sixth assignments of error that lower court erred in ordering the defendant, Tedorico B. Santos, to render a detailed accounting of the properties, funds and income of the corporation, Parañaque Rice Mill., Inc., from the year 1931 and in condemning him to pay "the corporation whatever sum or sums which may be found owing to said corporation, in accordance with said accounting to be done by him." We note that the lower court in its decision not

only orders the defendant Santos to account for the properties and funds of the corporation, but it also and at the same time adjudges him to pay an undermine amount which is made to depend upon the result of such accounting. The accounting order was probably intended by the lower court to be file with it in this proceeding. This requirement will delay the final disposition of the case and we are of the opinion that this accounting should better be filed with the new board of directors whose election has been ordered by the lower court. The decision of the lower court in this respect is therefore modified so that the defendant Santos shall render a complete accounting of all the corporate properties and funds that may have come to his possession during the period mentioned in the jugment of the lower court to the new board of director to be elected by the stockholders.

In the seventh assignment of error, the appellants contend that the lower court erred in ordering the removal of the defendants from their offices as members of the board of directors of the corporation. The Corporation Law, as amended, in section 29 to 34, provide for the election and removal of the directors of a corporation. Our Corporation Law (Act No. 1459, as amended), does not confer expressly upon the court the power to remove a director of a corporation. In some jurisdictions, statutes expressly provide a more or less summary method for the confirmation of the election and for the a motion of the directors of a corporation. This is true in New York, New Jersey, Virginia and other states of the American Union. There are abundant authorities, however, which hold that if the court has acquire jurisdiction to appoint a receiver because of the mismanagement of directors these may thereafter be remove and others appointed in their place by the court in the exercise of its equity jurisdiction (2 Fletcher, Cyc. of Corp., ftn. sec. 358, pp. 18 an 119). In the present case, however, the properties and assets of the corporation being amply protected by the appointment of a receiver and view of the statutory provisions above referred to, we are of the opinion that the removal of the directors is, under the circumstances, unnecessary and unwarranted. The seventh assignment of error is, therefore, sustained.

Under the eighth assignment of error, the appellants argue that the lower court erred in deciding that the plaintiff Higinio Angeles is entitled to the issuance in his name of a certificate covering 600 shares of stock of the total par value of P15,000. A review of the evidence, oral and documentary, relative to the number of shares of stock to which Higinio Angeles is entitled, shows that Higinio Angeles brought in P15,000 party in money and party in property, for 600 shares of stock. The very articles of incorporation signed by all the incorporators, among whom are the defendants, show that Higinio Angeles paid P5,600 on account of his subscription amounting to P10,000. The amount of P5,600 is the value of Angeles' cinematograph building in Bacoor, Cavite, which he transferred to the municipality of Parañaque where the same was reconstructed for the use of the corporation. The receipts signed by the Philippine Engineering Company and the testimony of Higinio Angeles and Aguedo Bernabe (secretary-treasurer of the corporation) show that Higinio Angeles paid with his own funds the sum of P2,750 to the Philippine Engineering Co., as part of the purchase price of the ricemill bought for the corporation. Angeles paid a further sum of P2,397.99 to the Philippine Engineering Company. It also appears that for the installation of the Rice Mill, the construction of camarin, and the cement paving (cementacion) of the whole area of twocamarines, and for the excavation of a well for the use of the rice mill the plaintiff Higinio Angeles paid with his own funds the amount of P7,431.47. Adding all these sums together we have a total of P18, 179.46. At a meeting of the board of directors on December 27, 1931, which meeting was convoked by Angeles, it seemed to have been agreed that Angeles was to be given shares of stock of the total par value of P15,000. Angeles wanted to have P16,000 worth of stock to his credit for having made the disbursements mentioned above, but he finally agreed to accept 600 share worth only P15,000. The certificate of stock, however, was not issued as disagreement arose between him and the defendant Santos. We, therefore, find no error in the decision of the lower court ordering the issuance of a certificate for 600 shares of stock of the total par value of P15,000 to Higinio Angeles.

It is unnecessary to consider the ninth and tenth assignments of error.

In view of the foregoing, we hold:

(1) That the action in the present case was properly instituted by the plaintiff as stockholders for and in behalf of the corporation Parañaque Rice Mill, Inc., and other stockholders of the said corporation;

(2) That the lower court committed no reveiwable error in appointing a receiver of the corporation pendente lite;

(3) That the lower court committed no error in ordering an election of the new board of directors, which election shall be held within thirty days from the date this decision becomes final;

(4) That Teodorico B. Santos shall render an accounting of all the properties, funds and income of the corporation which may have come into his possession to the new board of directors;

(5) That the receiver, Emilio Figueroa, shall continue in office until the election and qualification of the members of the new board of directors;

(6) That upon the constitution of the new board of directors, the said receiver shall turn over all the properties of the corporation in his possession to the corporation, or such person or persons as may be duly authorized by it; and.

(7) That Higinio Angeles, or his successor in interest, is entitled to 600 shares of stock at the par value of P15,000 and the lower court committed no error in ordering the issuance of the corresponding certificate of stock.

On June 10, 1937, counsel for the plaintiff-appellees filed a motion making it appear of record that Higinio Angeles, one of the plaintiffs and appellees, died on May 4, 1937 and that one of his daughters, Maura Angeles y Reyes, had been granted letters of administration as evidenced by the document attached to the motion as Exhibit A, and praying that said Maura Angeles y Reyes be substituted as one of the plaintiffs and appellees in lieu of Higinio Angeles, deceased. This motion is hereby granted.

Defendant-appellants shall pay the costs in both instances. So ordered.

Avanceña, C.J., Villa-Real, Abad Santos, Imperial, Diaz and Concepcion, JJ., concur

.R. No. L-27694             October 24, 1928

ZAMBOANGA TRANSPORTATION COMPANY, INC., plaintiff-appellee, vs.THE BACHRACH MOTOR CO., INC., defendant-appellant.

-------------------------

G.R. No. L-27997             October 24, 1928

THE BACHRACH MOTOR CO., INC., plaintiff-appellee, vs.ZAMBOANGA TRANSPORTATION COMPANY, INC., defendant-appellant.

Gibbs and McDonough and Roman Ozaeta for appellant in case No. 27694 and for appellee in case No. 27997. C. A. Sobral and Jose Erquiaga for appellee in case No. 27694 and for appellant in case No. 27997.

 

VILLA-REAL, J.:

We are here concerned with two appeals, one taken by the defendant the Bachrach Motor Co., Inc., from the judgment of the Court of First Instance of Zamboanga in civil case No. 1286 of said court (G.R. No. 27694) holding that the chattel mortgage executed by the president and general manager of the plaintiff corporation, the Zamboanga Transportation Co., Inc., is null and void, and ordering the register of deeds of said province to cancel the registration of said mortgage at the instance of said defendant, the Bachrach Motor Co., Inc., with costs; and the other by the defendant Zamboanga Transportation Co., Inc., from the judgment of the Court of First Instance of Manila in civil case No. 28123 (G.R. No. 27997) ordering said defendant Zamboanga Transportation Co., Inc., the sum of P18,298.58, with 10 per cent interest on the sum of P6,254.81, from May 19, 1925, and legal interest on the balance of said sum from May 23, 1925, when the complaint was filed, plus the costs, and dismissing all the counterclaims and cross complaints set up by the defendant corporation.

In support of its appeal, the Bachrach Motor Co., Inc., assigns the following alleged errors as committed by the Court of First Instance of Zamboanga in its judgment to wit:

1. The trial court erred in not finding that Mr. Jose Erquiaga, president, general manager, director, stockholder, auditor, attorney and legal adviser, and principal witness of the Zamboanga Transportation Co., Inc., personified and practically constituted that corporation at the time he signed the chattel mortgage in question in its behalf;

2. The trial court erred in not finding that the so-called board of directors of the Zamboanga Transportation Co., Inc., was composed of "dummy" directors, who were mere puppets in the hands of the said Jose Erquiaga;

3. The trial court erred in not finding that the pretended resolution of the said so-called board of directors dated of May 20, 1925 (Exhibit FF), purporting to disapprove the chattel mortgage in question was mere contrivance of the said Jose Erquiaga, framed up for the purpose of attempting to avoid the obligation of said mortgage;

4. Trial court erred in holding that the chattel mortgage in question was void and of no effect because it had not been previously approved by the Public Utility Commission;

5. The trial court erred in not dismissing plaintiff's complaint.

In support of its appeal the Zamboanga Transportation Co., Inc., in turn assigns the following alleged errors as committed by the Court of First Instance of Manila, to wit:

1. The Manila trial court erred in holding that chattel mortgage in question was valid and binding upon the corporation notwithstanding the fact that it was disapproved by a resolution of its board of directors and that it had not been previously approved by the Public Utility Commission as required by law;

2. In not finding that Jose Erquiaga, president and general manager of the corporation, executed and signed said mortgage upon the express condition that it would not be valid unless it was ratified by a resolution of the board of directors, as required by the by-laws of the corporation and that it was agreed that in case said mortgage was not approved by said board of directors, Bachrach would be at liberty to foreclose the other two previous mortgage which were the real basis of the debt represented by the mortgage in question;

3. In not finding as a fact that all previous contracts of any kind signed by Jose Erquiaga, as president or general manager or by his predecessors in office, affecting the company, had to be submitted for approval or ratification by the board of directors, as shown by the minutes kept by the secretary of the corporation, and that Bachrach was in possesssion of and knew the by-laws of the company at least since 1923;

4. In not finding that it was verbally agreed between the said Jose Erquiaga and E. M. Bachrach that the chattel mortgage in question would not be registered in the offices of the register of deeds concerned until it was approved by the board of directors of the mortgagor and by the Public Utility Commission;

5. In not finding that it was also agreed between said Jose Erquiaga, E. M. Bachrach, and Mons. Jose Clos, Bishop of Zamboanga, in connection with the execution of the agreement of February 14, 1925, that the mortgagee would not foreclose said mortgage before the return of the Bishop of Zamboanga from his trip to Rome calculated to last six months, and without first giving the bishop opportunity to pay the whole amount of the mortgage with a ten per cent rebate;

6. In utterly disregarding the testimony, in support of mortgagor's contention, of the Right Rev. Jose Clos, Bishop of Zamboanga, and in not admitting his deposition, as corrected by deponent, notwithstanding the fact that said deposition was obtained at mortgagee's request, and the questions made to the bishop were made by mortgagee's attorney in the absence of the mortgagor or his attorney;

7. In not finding as a fact that at least two of the directors, Jose Camins and Ciriaco Bernal, were big stackholders owning nearly twenty thousand pesos of stock each and were not dummy directors who were mere puppets in the hands of said Jose Erquiaga, president and general manager of the corporation;

8. In finding that the mortgator took advantage of the alleged benefits of the mortgage in question with the full knowledge of said board of directors and that the validity of the mortgage was not disputed until after the mortgagee began proceedings for the foreclosure of said mortgage, when as a matter of fact the mortgagor filed the action in the Zamboanga court asking that the mortgage, be declared null and void as soon as he discovered that the mortgage had been registered with the register of deeds of Zamboanga, contrary to what had been stipulated, and before the mortgator had any notice that the mortgagee was going to foreclose said mortgage;

9. In finding that the execution of the chattel mortgage in question was merely a novation of the two previous mortgages in favor of the mortgagee and of the mortgage in favor of the Bishop of Zamboanga;

The complaint filed by the Zamboanga Transportation Co., Inc., against the Bachrach Motor Co., Inc., in the Court of First Instance of Zamboanga seeks the annulment of a chattel mortgage executed on Febuary 14, 1925 (Exhibit B and C), by the plaintiff's president and general manager in favor of the Bachrach Motor Co., Inc. 1awph!l.net

The complaint filed by the Bachrach Motor Co., Inc., against the Zamboanga Transportation Co., Inc., in the Court of First Instance of Manila seeks the foreclosure of said chattel mortgage.

By their respective assignments of error both appellants raise questions of fact as well as of law, rendering it necessary to make our findings of facts.

The preponderance of the evidence established the following pertinent and essential facts:

Both appellants are corporations created and organized under the laws of the Philippine Islands. The Zamboanga Transportation Co., Inc., is managed by a board of directors composed of five stockholders elected at a general annual meeting of the stockholders. The directors for the year 1925 were elected at the general meeting of the stockholders on January 26th of that year, as appears from the following copy of the minutes:

MINUTES OF THE GENERAL MEETING OF STOCKHOLDERS OF THE ZAMBOANGA TRANSPORTATION CO., INC., HELD ON JANUARY 26, 1925, IN THE OFFICES OF THE COMPANY AT NO. 20 CORCUERA STREET, ZAMBOANGA, P. I.

The meeting was called to order with the Vice-President, Mr. Jose Erquiaga, in the absence of the President, Mr. Jose Longa, as chairman at 5 o'clock in the afternoon of this 26th day of January 1925, the following stockholders being present either personally or by proxy:

Shares

Carlos Camins, in his own behalf 1

Jose Erquiaga, in his own behalf 466

Valera C. de Erquiaga, for Jose Erquiaga 1,800

Eduardo Montenegro, for Jose Erquiaga 1,000

Mons. Jose Clos, Bishop of Zamboanga, for Jose Erquiaga 2,410

Mission of the society of Jesus, for Jose Erquiaga 115

Melecio Ramos, for Jose Erquiaga 40

Jose Arguirre, for Jose Erquiaga 200

Ciriaco Bernal, in his own behalf 1,854

Superior of the Jesuit Fathers, for Jose Erquiaga 200

Dolores C. de Longa, for G. J. Cristobal 1,950

G. J. Cristobal, in his own behalf 1

Total 10,017

There being a total of 10,017 shares represented, which constitute a majority or quorum according to the by-laws, the following business was considered:

Upon motion of Mr. G. J. Cristobal, seconded by Mr. Ciriaco Bernal, the minutes of the previous general meeting were read and approved. The Manager's Annual Report of the condition of the business and the accounts corresponding thereto for 1924 were submitted for consideration. After the reading and examination of said report and accounts, on motion of Mr. C. Camins, seconded by Mr. G. J. Cristobal, said report was approved.

Immediately afterwards they proceeded to the election of the directors for the year 1925, the following being elected:

Votes

Mr. Jose Erquiaga 10,505

Mr. C. Camins 10,500

Mr. Jose Camins 10,055

Mr. G.J. Cristobal 9,755

Mr. Ciriaco Bernal 9,270

There being no further business the meeting adjourned at 6:30 p.m.

I certify that the foregoing minutes are correct, and that the same were approved at the abovementioned general meeting.

(Sgd.) JOSE ERQUIAGA           President ad interim          

(Sgd.) C. CAMINS           Secretary          

For nearly ten years the two associations have had business relations with each other, the Zamboanga Transportation Co., Inc., purchasing trucks, automobiles, repair and accessory parts for use in the business of transportation in which it is engaged, from the Bachrach Motor Co., Inc. Payments were made by installments, and for the security of the vendor the Bachrach Motor Co., Inc., the purchaser, the Zamboanga Transportation Co., Inc., executed in its favor several chattel mortgages.

From the year 1920 Jose Erquiaga, one of the stockholders and directors of the Zamboanga Transportation Co., Inc., has been also its attorney and legal adviser. In March 1924, he was appointed general manager, and in January 1925 was elected president. Lastly, he also acted as auditor.

In February 1925, the Zamboanga Transportation Co., Inc., owed the Bachrach Motor Co., Inc., the sum of P44,095.78, which was the balance due on the purchase price of several White trucks and accessory parts, bought on the installments plan from the latter. This balance was secured by two chattel mortgages, executed on February 17, 1923 (Exhibit 2) and December 4, 1923 (Exhibit 1), respectively.

During the last five years the Zamboanga Transportation Co., Inc., found itself in financial straits and on several occasions appealed to Mons. Jose Clos, Bishop of Zamboanga for loans of money. As the latter, who was the principal stock holder of the Zamboanga Transportation Co. Inc., was leaving for Rome in February 1925 and could not continue to loan money to said corporation to pay the installments stipulated in the chattel mortgages Exhibits 1 and 2, and in view of the fact that the hypothecated trucks were in a bad state or repair, and that the mortgagee required more security, additional agreements were entered between Mons. Clos and the Bachrach Motor Co., Inc. These agreements, in which the Zamboanga Trasportation Co., Inc., intervened and took part, are evidence in the letter quoted below:

February 14, 1925

The RIGHT REVEREND JOSE CLOS Bishop of Zamboanga Manila, P.I.

MOST REVEREND SIR: The purpose of this letter is to set forth in writing certain conditions and stipulations connected with the transfer to us of certain securities now held by you consisting of a mortgage made and executed in your favor by the Zamboanga Transportation Co., Inc., covering certain equipment, business credits, privileges, etc., as set forth therein.

1. You agree to release, and hereby do release and cancel said mortgage made and executed in your favor by the Zamboanga Transporation Co. under date of January 10th, 1925.

2. The Zamboanga Transportation Co. is to be permitted to execute in our favor a new mortgage covering all property, business credits and privileges mentioned and set forth therein, excepting the second mortgage on property mortgaged by the Zamboanga Transportation Company to the Standard Oil Company. This is in addition to and to be included with property already mortgaged to us by the Zamboanga Transportation Company for which purpose an entirely new document, bearing a new schedule of payments inclusive of interest thereon to dates of maturity, will be made and executed in our favor by the said Zamboanga Transportation Company.

3. For and in consideration of the release and cancellation of the mortgage to us the property mentioned therein by the Zamboanga Transportation Company, we agree to accept a reduced schedule of payments for a period of six months from date, after which period the former schedule of payments will be taken up and resumed as set forth in our memorandum of January 10th. It is further agreed that such payments instead of falling due on the 15th of each month shall become due and payable on the 1st day of the succeeding month as set forth and made of record in the new notes and mortgages to be made and executed in our favor by the Zamboanga Transportation Company. We also agree to permit the transfer of trucks and

equipment now mortgage to us by the Zamboanga Transportation Company or such portion thereof as may be necessary for their purpose to Dansalan, Lanao.

4. As a further consideration, we also agree to permit you to liquidate the entire indebtedness of the Zamboanga Transportation Company by paying to us at any time that may be convenient for you to do so the entire amount due less a discount of 10 per cent as outlined in our letter of December 26, 1924; such discount, however, is to be based on the amount actually due by the Zamboanga Transportation Company at that time inclusive of balance due by them on their current account.

5. It is further stipulated and agreed that the President and General Manager of the Zamboanga Transportation Company will furnish us a copy of the Resolution of the board of directors authorizing him to execute this new mortgage in our favor.

Kindly confirm and ratify this agreement by signing with us at the bottom of this letter.

Very truly yours,

THE BACHRACH MOTOR CO., INC.                     By (Sgd.) E.M. BACHRACH                    

Conforme:

THE ZAMBOANGA TRANSPORATION CO., INC.                     By (Sgd.) JOSE ERQUIAGA                    

I agree to and accept conditions outlined.                     (Sgd.) JOSE CLOS                    

In pursuance of said agreement the new chattel mortgage (Exhibits B and C) was executed on February 14, 1925 by the Zamboanga Transportation Co., Inc., represented by its president, general manager, and attorney Jose Erquiaga. In this last mortgage the same goods were pledged that had been hypothecated by the Zamboanga Transporatation Co., Inc., to the Bachrach Motor Co., by virtue of instruments Exhibits 1 and 2, and to Mons. Jose Clos Bishop of Zamboanga, by the virtue of the deed Exhibit 3.

In a letter written on February 28, 1925, Jose Erquiaga submitted said mortgage deed to the board of directors through its secretary, and upon his return to Zamboanga from Manila, discussed said mortgage with directors Carlos Camins and Ciriaco Bernal, who expressed their satisfaction with the advantages obtained by their president and general manager.

The Zamboanga Transportation Co., Inc., partially complied with the conditions of said mortgage deed, paying the Bachrach Motor Co., Inc., on March 1 and April 1, 1925.

During the latter half of the month of April 1925, the mortgagor received a letter dated April 13, 1925, through its president and general manager, Jose Erquiaga, from the mortgagee, enclosing the cancellation of the two former chattel mortgages Exhibits 1 and 2, in order to be recorded in the registries of deeds of Cebu and Zamboanga, respectively, where said mortgages were registered. On April 27, 1925, said president and general manager, Jose Eraquiaga, sent the mortgage letter (Exhibits HH and 14) in which, replying to the latter's communication dated April 13, 1925, he informed it that said cancellations could not be registered, because the new chattel mortgage had

not been approved by the mortgagor's board of directors, according to the express stipulation of the parties, and that as soon as it was approved it would be submitted to the Public Utility Commission for approval in conformity with the law.

On May 3, 1925, the Zamboanga Transportation Co., Inc., through its general manager, Jose Erquiaga, addressed the letter marked Exhibit C to the Bachrach Motor Co., Inc., which, among other things, said the following:

This is to inform you that on account of our Dansalan's Branch failure to send us any money so far, we are utterly unable, for the present, to make our remittances to you in accordance with our last contract.

x x x           x x x           x x x

In view of all this and having in mind the fact that you hold now a mortgage practically on all our business and your credit is perfectly secured we would request that during this period of business depression we be allowed to make smaller payments and furthermore that we be authorized by you to sell our equipments in Cebu and Dansalan, or part of it, upon the condition that any amount obtained from such sales, will be paid to you to apply to our monthly payments as per contract. Should you not be satisfied with this letter, I request that you send a man of your confidence down here to examine our business and report to you.

I will try to be in Manila by twelve of this month, passing thru Cebu and will take this matter with you personally. In this connection, I may tell you that I have already advanced some of my personal funds to help the company. Inasmuch as Bishop Clos who holds a second mortgage on our properties, is not here at present and he is not expected to be back until August, it is requested that no action be taken by you until he returns.

Expecting to see you personally within a few days and hoping a favorable consideration, I am,

Yours very truly,          ZAMBOANGA TRANSPORTATION CO., INC.

By (Sgd.) JOSE ERQUIAGA           President and General Manager          

When, as announced in the foregoing letter, Jose Erquiaga interviewed E.M. Bachrach, president of Bachrach Motor Co., Inc., in the latter's office in Manila on May 6 and 12, 1925, in order to secure his consent to the sale of some trucks in Cebu and Dansalan, the same being included in those mortgaged, in order to apply the proceeds to the payment of the unpaid debt, said E.M. Bachrach asked Jose Erquiaga why the board of directors of the Zamboanga Transportation had not approved the mortgage yet, and without waiting for an answer, denied his request saying that the mortgagor was "at their mercy" and that they did not care whether the board of directors approved the mortgage or not, adding, "You cannot impose conditions now." After this interview Jose Erquiaga returned to Zamboanga and immediately made special efforts to have the mortgagor's board of directors meet and take definite action on said mortgage, which was done, said mortgage being rejected by the resolution of May 20, 1925. At that time the mortgagor discovered that the mortgagee had registered the chattel mortgage in question in the registry of deeds of Zamboanga, by a letter dated February 17, 1924, addressed to the register of deeds of Zamboanga, without the knowledge or consent of said mortgagor, and without having first registered the cancellations of the two previous mortgages which included part of the goods affected by the mortgage in question, as

required by the law, which cancellations, as stated, were sent to the mortgagor only two months afterwards with the communication of April 13, 1925. This discovery was the cause of the resolution adopted by the board of directors of the Zamboanga Transprotation Co., Inc., dated May 21, 1925, directing its attorney to institute an action for the annulment of said mortgage, which was done on May 21, 1925, the complaint being registered in the Court of First Instance of Zamboanga as No. 2186.

The Bachrach Motor Co., Inc., acting through its president, filed a complaint against the Zamboanga Transportation Co., Inc., in the Court of First Instance of Manila on May 23, 1925, and by means of a bond fixed by the court, obtained through the sheriff of Zamboanga, possession of all the chattels described in the chattel mortgages (Exhibits B and C) and their sale at public auction in conformity with the provision of section 14 of the Chattel Mortgage Law, and having been the highest bidder they were awarded to it for the sum of P35,000, which amount was reduced to P34,642.63 after deducting the expenses of the auction and the sheriff's fees, which amounted to P357.37. The aforesaid sum of P34,642.63 having been applied to the defendant's account, there remained a balance of P18,298.58 which is the amount owed by the Zamboanga Transportation Co., Inc., to the Bachrach Motor Co., Inc., icluding the stipulated penalty.

The Zamboanga Transportation Co., Inc., tried to prove that at the time the chattel mortgage was executed there existed an oral agreement between the parties, which contained the following stipulations: (1) That the mortgage would not be valid until it was approved by resolution of the board of directors of the mortgagor; (2) that it would not be recorded in the proper registry of deeds until such approval was obtained; (3) that after the mortgagor's board of directors had approved it, the approval of the Public Utility Commission as required by Act No. 3108 would also be requested; (4) that should the mortgagor's board of directors disapproved said mortgage, the mortgagee would have a right to foreclose the two previous mortgages at any time; (5) that even if the mortgage be approved by the mortgagor's board of directors, the mortgagee would not foreclose said mortgage in case of violation of the condition until after the return of the Bishop of Zamboanga from his trip to Rome, which, it was calculated would take about six months and without first giving said Bishop the option to pay the whole debt to the mortgagee with a 10 per cent discount; (6) that notwithstanding the fact that said mortgage is not valid without the approval of the board of directors of the Zamboanga Transportation Co., Inc., its conditions would go into effect immediately after being signed by Jose Erquiaga, as president of the mortgagor, the sum and the amount of the monthly payments being suspended from the date; (7) that in view of this stipulation Jose Erquiaga, as president and general manager of the mortgagor, made two payments in accordance with the terms of said mortgage, but without the knowledge of the board of directors and before the formal disapproval of the said mortgage by resolution dated May 20, 1925.

In view of the facts recited above as proven at the trial, partly by a preponderance of the evidence and partly by the admission of the parties, the following questions of law are raised:

(1) Whether the chattel mortgage evidenced by Exhibits B and C, dated February 14, 1925, and executed by Jose Erquiaga, president, general manager, attorney, and auditor of the Zamboanga Transaportation Co., Inc., in behalf thereof is valid and binding upon said corporation, after payments have been made to the Bachrach Motor Co., Inc., by virtue thereof, notwithstanding the fact that it was disapproved by the mortgagor's board of directors four months after its execution.

(2) If so, whether said mortgage was effective not withstanding the fact that the authorization and approval of the Public Utility Commission were not obtained until after and action for annulment had been instituted by the Zamboanga Transportation Co., Inc., on May 21, 1925, and almost a year after said mortgage had been executed.

With regard to the first question, we have seen that Jose Erquiaga is one of the largest stockholders of the Zamboanga Transportation Co., Inc., and represented the greatest majority of the stock at the general meeting of stockholders held on January 26, 1925 at which he was elected president. In addition to this office, he acted as general manager, auditor, and attorney of legal adviser of said corporation. In this manifold capacity Jose Erquiaga entered into the chattel mortgage contract here in question with the Bachrach Motor Co., Inc., by virtue of which the Zamboanga Transportaion Co., Inc., obtained greater advantages; and upon his return to Zamboanga after having entered into said contract, he discussed the new chattel mortgage with the directors of said corporation, Carlos Camins and Ciriaco Bernal, who expresed their president and general manager, and the Zamboanga Transportation Co., Inc., availed itself fo these advantages, making two payments under the new contract to the Bachrach Motor Co., Inc.: The first on March 1, 1925, and the second on the first of April of the same year.

While it is true that said last chattel mortgage contract was not approved by the board of directors of the Zamboanga Transportation Co., Inc., whose approval was necessary in order to validate it according to the by-laws of said corporation, the broad powers vested in Jose Erquiaga as president, general manager, auditor, attorney or legal adviser, and one of the largest shareholders; the approval of his act in connection with said chattel mortgage contract in question, with which two other directors expressed satisfaction, one of which is also one of the largest shareholders, who together with the president constitute a majority: The payments made under said contract with the knowledge of said three directors are equivalent to a tacit approval by the board of directors of said chattel mortgage contract and binds the Zamboanga Transportation Co., Inc. In truth and in fact Jose Erquiaga, in his multiple capacity, was and is the factotum of the corporation and may be said to be the corporation itself.

In the case of Halley First National Bank vs. G. V. B. Min. Co. (89 Fed., 439), the following rule was laid down:

Where the chief officers of a corporation are in reality its owners, holding nearly all of its stock, and are permitted to manage the business by the directors, who are only interested nominally or to a small extent, and are controlled entirely by the officers, the acts of such officers are binding on the corporation, which cannot escape liability as to third persons dealing with it in good faith on the pretense that such acts were ultra vires.

We therefore conclude that when the president of a corporation, who is one of the principal stockholders and at the same time its general manager, auditor, attorney or legal adviser, is empowered by its by-laws to enter into chattel mortgage contracts, subject to the approval of the board of directors, and enters into such contracts with the tacit approval of two other members of the board of directors, one of whom is also a principal shareholder, both of whom, together with the president, form a majority, and said corporation takes advantage of the benefits afforded by said contract, such acts are equivalent to an implied ratification of said contract by the board of directors and binds the corporation even if not formally approved by said board of directors as required by the by-laws of the aforesaid corporation.

With respect to the second question, having arrived at the conclusion that the chattel mortgage deed, which is the subject matter of this litigation, is valid and effective, the lack of previous authorization and approval of the Public Utility Commission, while it, indeed, rendered said contract ineffective, was cured by the nunc pro tunc authorization and approval granted by said Commission, and the contract was made effective from its execution, for, as this court held in the case of Zamboanga Transportation Co., vs. Public Utility Commission (50 Phil., 237), although the authorization and approval of said Commission were needed to render said chattel mortgage

contract effective, they were not necessary for the intrinsic validity of said contract so long as the legal elements necessary to give it juridical life are present.

In consideration of the premises, we are of the opinion and so hold, that while a chattel mortgage contract entered into by a public service corporation is ineffective without the authorization and approval of the Public Utility Commission, it may be valid if it contains all the material and formal requisites demanded by the law for its validity, and said Public Utility Commission may make it retroactive by nunc pro tunc authorization and approval.

Wherefore, the judgment appealed from in the case of Zamboanga Transporatation Co., Inc., vs. Bachrach Motor Co., Inc., of the Court of First Instance of Zamboanga, G.R. No. 27694, is reversed with costs against the appellee, and the judgment in the case of Bachrach Motor Co., Inc., vs. Zamboanga Transportation Co., Inc., rendered by the Court of First Instance of Manila, is affirmed, with the costs against the appellant. So ordered.

Avancena, C.J., Street, Malcolm, Villamor, Ostrand and Romualdez, JJ., concur.

G.R. No. L-20333             June 30, 1967

EMILIANO ACUÑA, plaintiff-appellant, vs.BATAC PRODUCERS COOPERATIVE MARKETING ASSOCIATION, INC., JUSTINO GALANO, TEODORO NARCISO, PABLO BACTIN, (DR.) EMMANUEL BUMANGLAG, VENANCIO DIRIC, MARCOS ESQUIVEL, EVARISTO CAOILI, FIDEL BATTULAYAN, DAMIAN ROSSINI, RAYMUNDO BATALLONES, PLACIDO QUIAOIT, and LEON Q. VERANO defendants-appellees.

Marquez and Marquez for plaintiff-appellant.Estanislao A. Fernandez for defendants-appellees.

MAKALINTAL, J.:

Appeal taken from the order dated September 10, 1962 of the Court of First Instance of Rizal, Branch V (Quezon City) dismissing plaintiff's complaint on the ground that it states no cause of action, and discharging the writ of preliminary attachment issued therein.

On August 9, 1962, plaintiff Emiliano Acuña filed a complaint, which was later amended on August 13, against the defendant Batac Producers Cooperative Marketing Association, Inc., hereinafter called the Batac Procoma, Inc., or alternatively, against all the other defendants named in the caption. The complaint alleged, inter alia, that on or about May 5, 1962 it was tentatively agreed upon between plaintiff and defendant Leon Q. Verano, as Manager of the defendant Batac Procoma, Inc., that the former would seek and obtain the sum of not less, than P20,000.00 to be advanced to the defendant Batac Procoma, Inc., to be utilized by it as additional funds for its Virginia tobacco buying operations during the current redrying season; that plaintiff would be constituted as the corporation's representative in Manila to assist in handling and facilitating its continuous shipments of tobacco and their delivery to the redrying plants and in speeding up the prompt payment and collection of all amounts due to the corporation for such shipments; that for his services plaintiff would be paid a remuneration at the rate of P0.50 per kilo of tobacco; that said tentative agreement

was favorably received by the Board of Directors of the defendant Batac Procoma Inc., and on May 6, 1962 all the defendants named above, who constituted the entire Board of Directors of said corporation (except Leon Q. Verano, who was its Manager), together with defendants Justino Galano and Teodoro Narciso, as President and Vice-President, respectively, unanimously authorized defendant Leon Q. Verano, by a formal resolution, "to execute any agreement with any person or entity, on behalf of the corporation, for the purpose of securing additional funds for the corporation, as well as to secure the services of such person or entity, in the collection of all payments due to the corporation from the PVTA for any tobacco sold and delivered to said administration; giving and conferring upon the Manager, full and complete authority to bind the corporation with such person or entity in any agreement, and under such considerations, which the said Manager may deem expedient and necessary for that purpose; that plaintiff was made to understand by all of said defendants that the original understanding between him and defendant Leon Q. Verano was acceptable to the corporation, except that the remuneration for the plaintiff's services would be P0.30 per kilo of tobacco; that on May 10, 1962, the formal "Agreement" was executed between plaintiff and defendant Leon Q. Verano, as Manager of the defendant corporation, duly authorized by its Board of Directors for such purpose, and signed by defendants Justino Galano and Dr. Emmanuel Bumanglag as instrumental witnesses and acknowledged by Atty. Fernando Alcantara, the Secretary and Legal Counsel of the defendant corporation; that upon plaintiff's inquiry, he was assured by these defendants that a formal approval of said "Agreement" by the Board was no longer necessary, as it was a mere "formality" appended to its authorizing resolution and as all the members of the Board had already agreed to the same; that on the same date, May 10, 1962, plaintiff gave and turned over to the defendant corporation, thru its treasurer, Dominador T. Cocson the sum of P20,000.00, in the presence of defendants Leon Q. Verano, Justino Galano, Dr. Emmanuel Bumanglag and Atty. Fernando Alcantara, for which said treasurer issued to plaintiff its corresponding Official Receipt No. 130852; that from then on, plaintiff diligently and religiously kept his part of the "Agreement;" that plaintiff even furnished the defendant corporation, upon request of its Manager Leon Q. Verano three thousand (3,000) sacks which it utilized in the shipment of its tobacco costing P6,000.00 and that plaintiff had personally advanced out of his own personal funds the total sum of P5,000.00 with the full knowledge, acquiescence and consent of all the individual defendants; that after the defendant corporation was enabled to replenish its funds with continuous collections from the PVTA for tobacco delivered due to the help, assistance and intervention of plaintiff, for which the said corporation collected from the PVTA the total sum of P381,495.00, the "Agreement" was disapproved by its Board of Directors on June 6, 1962. Upon the foregoing allegations plaintiff prays: (a) that an order of attachment be issued against the properties of defendant corporation; (b) that after due trial, judgment be rendered condemning defendant corporation, or alternatively, all the other individual defendants, jointly and severally, to comply with their contractual obligations and to pay plaintiff the sum of P300,000.00 for his services, plus P31,000.00 for cash advances made by him and P25,000.00 for attorney's fees.

On August 14, 1962, the lower court ordered the issuance of a writ of preliminary attachment against the properties of the defendants and on the following day, after the plaintiff had posted the required bond, the writ was accordingly issued by the Clerk of Court. 1äwphï1.ñët

On August 22, 1962, the defendants filed a motion to dismiss the complaint on the ground that it stated no cause of action and to discharge the preliminary attachment on the ground that it was improperly or irregularly issued. In support of the motion defendants alleged that the contract for services was never perfected because it was not approved or ratified but was instead disapproved by the Board of Directors of defendant Batac Procoma, Inc., and that on the basis of plaintiff's pleadings the contract is void and unenforceable. Defendants further denied the fact that plaintiff had performed his part of the contract, alleging that he had not in any manner intervened in the delivery and payment of tobacco pertaining to the defendant corporation.

On August 25, 1962, plaintiff filed a written opposition to the motion to dismiss and to discharge the preliminary attachment.

On September 10, 1962, the trial court sustained defendants' motion and issued the following order:

In resume the Court believes that the complaint states no cause of action and that contract in question is void ab initio.

IN VIEW OF THE FOREGOING, the amended complaint filed in this case is hereby ordered DISMISSED, without special pronouncement as to costs. Consequently, the writ of preliminary attachment issued herein is ordered discharged. However, it is of record that the defendants has (sic) deposited the Court the amount of P20,400.00 representing the amount of money invested by the plaintiff plus the corresponding interest thereon. Plaintiff, by virtue of this order, may withdraw the same in due time, if he so desires, upon proper receipt therefor.

From the foregoing order plaintiff interposed the present appeal.

Appellant has assigned four errors, which we shall consider seriatim:

The first assignment reads: "As the defendants' motion to dismiss the complaint and to discharge the preliminary attachment was based on the specific ground that the complaint states no cause of action (Sec. 1 [f], Rule 8, Rules of Court), the lower court should not have gone beyond, and it should have limited itself, to the facts alleged in the complaint in considering and resolving said motion to dismiss.

It is a settled principle that when a motion to dismiss is based on the ground that the complaint does not state a cause of action (Rule 8, Section 1, par. 7 of the old Rules; Rule 16, Section 1., par. [g] of the Revised Rules) the averments in the complaint are deemed hypothetically admitted and the inquiry is limited to whether or not they make out a case on which relief can be granted. If said motion assails directly or indirectly the veracity of the allegations, it is improper to grant the motion upon the assumption that the averments therein are true and those of the complaint are not (Carreon vs. Prov. Board of Pampanga, 52 O.G. 6557.) The sufficiency of the motion should be tested on the strength of the allegations of facts contained in the complaint, and no other. If these allegations show a cause of action, or furnish sufficient basis by which the complaint can be maintained, the complaint should not be dismissed regardless of the defenses that may be averred by the defendants. (Josefa de Jesus, et al. vs. Santos Belarmino, 50 O.G. 3004-3068; Verzosa vs. Rigonan, G.R. No. L-6459, April 23, 1954; Dimayuga vs. Dimayuga, 51 O.G. 2397-2400.)

The first ground upon which the order of dismissal issued by the lower court is predicated is that the Board of Directors of defendant corporation did not approve, the agreement in question — in fact disapproved it by a resolution passed on June 6, 1962 — and that as a consequence the "suspensive condition" attached to the agreement was never fulfilled. The specific stipulation referred to by the Court as a suspensive condition states: "provided, however that the contract entered into by said manager to carry out the purposes above-mentioned shall be subject to the approve by the Board."

A perusal of the complaint reveals that it contains sufficient allegations indicating such approval or at least subsequent ratification. On the first point we note the following averments: that on May 9th the plaintiff met with each and all of the individual defendants (who constituted the entire Board of Directors) and discussed with them extensively the tentative agreement and he was made to understand that it was acceptable to them, except as to plaintiff's remuneration; that it was finally

agreed between plaintiff and all said Directors that his remuneration would be P0.30 per kilo (of tobacco); and that after the agreement was formally executed he was assured by said Directors that there would be no need of formal approval by the Board. It should be noted in this connection that although the contract required such approval it did not specify just in what manner the same should be given.

On the question of ratification the complaint alleges that plaintiff delivered to the defendant corporation the sum of P20,000.00 as called for in the contract; that he rendered the services he was required to do; that he furnished said defendant 3,000 sacks at a cost of P6,000.00 and advanced to it the further sum of P5,000.00; and that he did all of these things with the full knowledge, acquiescence and consent of each and all of the individual defendants who constitute the Board of Directors of the defendant corporation. There is abundant authority in support of the proposition that ratification may be express or implied, and that implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom.

Significantly the very resolution of the Board of Directors relied upon by defendants appears to militate against their contention. It refers to plaintiff's failure to comply with certain promises he had made, as well as to his interpretation of the contract with respect to his remuneration which, according to the Board, was contrary to the intention of the parties. The resolution then proceeds to "disapprove and/or rescind" the said contract. The idea of conflicting interpretation, or rescission on the ground that one of the parties has failed to fulfill his obligation under the contract, is certainly incompatible with defendants' theory here that no contract had yet been perfected for lack of approval by the Board of Directors.

Appellants' second assignment of error reads: "Assuming that in resolving the defendants' motion to dismiss the lower court could consider the new facts alleged therein and the documents annexed thereto it committed an error in extending such consideration beyond ascertaining only if an issue of fact has been presented and in actually deciding instead such fact in issue."

The assignment is well taken, and is the logical corollary of the rule that a motion to dismiss on the ground that the complaint fails to state a cause of action addresses itself to the averments in the complaint and, admitting their veracity, merely questions their sufficiency to make out a case on which the court can grant relief. Affidavits, such as those presented by defendants in support of the motion, can only be considered for the purpose of ascertaining whether an issue of fact is presented, but not as a basis for deciding the factual issue itself. This should await the trial on the merits.

The third assignment of error assails the lower court's ruling that even assuming that a contract had been perfected no action can be maintained thereon because its object was illegal and therefore void. Specific reference was made by said court to an affidavit executed by appellant on May 10, 1962 which reads:

That I, EMILIANO ACUA, the party of the Second Part in the contract entered into with the Batac Procoma, Inc., the party of the First Part in same contract declares that the amount of P0.30 per kilo is referred to upgraded tobacco only as delivered. This supplements paragraph three of the contract referred to. Deliveries downgraded or maintained at the redrying plant are deemed not included.

The lower court, in its order of dismissal, held that "the upgrading of tobaccos is clearly prohibited under our laws," and hence the contract cannot be validly ratified. Evidently the court had in mind a fraudulent upgrading of tobacco by appellant as part of the services called for under the contract. This conclusion, however, is squarely traversed by appellant in another affidavit attached to his reply

and opposition to the motion to dismiss, in which he explained the circumstances which led to the execution of the one relied upon by the court, and the real meaning of the word "upgraded" therein. It is therein stated:

That after the execution of the agreement (Annex "B" to the amended complaint in said Civil Case No. Q-6547), Messrs. Verano, Galano and Dr. Bumanglag of the defendant Corporation indicated to me that if the price of P0.30 per kilo stipulated there to be paid to me were to be indiscriminately applied to all deliveries of tobaccos, the Corporation would be placed in a disadvantageous and losing position, and they proceeded to explain to me the following, —

(a) that when the farmers sell their tobaccos to the Facoma, they do so in bunches of assorted qualities which may belong either to Class A, B, C, D and E, and upon such purchase they are initially given an arbitrary classification of any of such classes as the case may be, the tendency generally being to give them a lower classification to equalize or average the assorted qualities as much as possible, and this is what is termed "downgrading;"

(b) that after the tobaccos have been purchased by the Facoma from the farmers, they are then reassorted and re-classified in accordance with their actual quality or grade as found by the officials of the Facoma, — thus in a bunch which are purchased as Class C, D or E, upon reclassification those found to belong to Class A are separated from Class B, those belonging to Class B are separated from Class C, and so on, and these bunches so reclassified necessarily have a higher grade than the farmers, and this is what is termed "upgrading" upon delivery original arbitrary classification given when purchased from the which was used in the addendum;

(c) the Facoma, in turn, delivers these properly re-classified tobaccos to the redrying plant, and there, a group of officials composed of a representative of the redrying plant, the Bureau of Internal Revenue, the General Auditing Office, the PVTA and the Facoma representative, then examines and grades the tobaccos, and if the classification given by the Facoma is found correct and not changed, then and only then would or should be entitled to collect the P0.30 per kilo, and this they said is what is termed "grade maintained" — on the other hand, if these officials found the classification incorrect and lowers the classification given by the Facoma, thus class A to B, or from B to C, then the tobaccos are considered or said to be "downgraded" and in that event I should not receive any centavo for such deliveries, and it is in this sense that I was made to understand the term;

Believing implicitly in the foregoing explanations of the defendants and in the reasonableness of their proposal, I agreed readily and Atty. Fernando Alcantara, Legal Counsel and Secretary of the defendant Corporation forthwith prepared, drafted and typed the "addendum" in question in their own typewriter of the Corporation; and as I am not a lawyer and was not well versed with the usage, customs and phraseology usually used in tobacco trading, I relied in absolute good faith that, as explained by the defendants, there was nothing wrong nor illegal in the use of the words "upgrading" and "downgrading" used in said addendum, which Atty. Alcantara unfortunately used in the same;

Apart from the above, defendants knew the physical impossibility of "upgrading" the tobaccos at the redrying plant, because at the time of the transaction, only the PTFC & RC was allowed to accept tobacco for redrying and under the existing regulations and practices the delivery area for tobaccos at the redrying plant is enclosed by a high wire fence inaccessible to the general public and the only ones who actually make the grading of tobaccos delivered, are the (1) American representative of the redrying plant (PTFC & RC), (2) the PVTA, (3) the BIR, and (4) the General Auditing Office in the presence of the representative of the FACOMA, and since the redrying plant is compelled to

purchase 41% of all tobaccos delivered and redried under their negotiated management contract, it is highly improbable that the representative of the redrying plant (PTFC & RC) whose conformity to the actual grading done must appear in the corresponding "guia" or tally sheet, would allow the "upgrading" of tobaccos, aside from the fact that stringent measures had been devised under the present administration to prevent the "upgrading" of tobaccos by any party. Certainly, an impossible condition could not have been contemplated by me and the defendants; (Record on Appeal, pp. 171-175).

The foregoing explanation, on its face, is satisfactory and deprives the term "upgraded" of the sinister and illegal connotation attributed to it by the lower court. To be sure, whether the allegations in this subsequent affidavit are true or not is a question of fact; but it is precisely for this reason that they can neither be summarily admitted nor rejected for purposes of a motion to dismiss. Due process demands that they be the subject of proof and considered only after trial on the merits.

The other errors assigned by appellant are merely incidental to those already discussed, and require no separate treatment.

Wherefore, the order appealed from is set aside and the case is remanded to the court a quo for further proceedings, without prejudice to, the right of plaintiff-appellant to ask for another writ of attachment in said court, as the circumstances may warrant. Costs against defendants-appellees.

.R. No. L-18805             August 14, 1967

THE BOARD OF LIQUIDATORS1 representing THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES,plaintiff-appellant, vs.HEIRS OF MAXIMO M. KALAW,2 JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO GARCIA,3 and LEONOR MOLL, defendants-appellees.

Simeon M. Gopengco and Solicitor General for plaintiff-appellant.L. H. Hernandez, Emma Quisumbing, Fernando and Quisumbing, Jr.; Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendants-appellees.

SANCHEZ, J.:

The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit governmental organization on May 7, 1940 by Commonwealth Act 518 avowedly for the protection, preservation and development of the coconut industry in the Philippines. On August 1, 1946, NACOCO's charter was amended [Republic Act 5] to grant that corporation the express power "to buy, sell, barter, export, and in any other manner deal in, coconut, copra, and dessicated coconut, as well as their by-products, and to act as agent, broker or commission merchant of the producers, dealers or merchants" thereof. The charter amendment was enacted to stabilize copra prices, to serve coconut producers by securing advantageous prices for them, to cut down to a minimum, if not altogether eliminate, the margin of middlemen, mostly aliens.4

General manager and board chairman was Maximo M. Kalaw; defendants Juan Bocar and Casimiro Garcia were members of the Board; defendant Leonor Moll became director only on December 22, 1947.

NACOCO, after the passage of Republic Act 5, embarked on copra trading activities. Amongst the scores of contracts executed by general manager Kalaw are the disputed contracts, for the delivery of copra, viz:

(a) July 30, 1947: Alexander Adamson & Co., for 2,000 long tons, $167.00: per ton, f. o. b., delivery: August and September, 1947. This contract was later assigned to Louis Dreyfus & Co. (Overseas) Ltd.

(b) August 14, 1947: Alexander Adamson & Co., for 2,000 long tons $145.00 per long ton, f.o.b., Philippine ports, to be shipped: September-October, 1947. This contract was also assigned to Louis Dreyfus & Co. (Overseas) Ltd.

(c) August 22, 1947: Pacific Vegetable Co., for 3,000 tons, $137.50 per ton, delivery: September, 1947.

(d) September 5, 1947: Spencer Kellog & Sons, for 1,000 long tons, $160.00 per ton, c.i.f., Los Angeles, California, delivery: November, 1947.

(e) September 9, 1947: Franklin Baker Division of General Foods Corporation, for 1,500 long tons, $164,00 per ton, c.i.f., New York, to be shipped in November, 1947.

(f) September 12, 1947: Louis Dreyfus & Co. (Overseas) Ltd., for 3,000 long tons, $154.00 per ton, f.o.b., 3 Philippine ports, delivery: November, 1947.

(g) September 13, 1947: Juan Cojuangco, for 2,000 tons, $175.00 per ton, delivery: November and December, 1947. This contract was assigned to Pacific Vegetable Co.

(h) October 27, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports, delivery: December, 1947 and January, 1948. This contract was assigned to Pacific Vegetable Co.

(i) October 28, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports, delivery: January, 1948. This contract was assigned to Pacific Vegetable Co.

An unhappy chain of events conspired to deter NACOCO from fulfilling these contracts. Nature supervened. Four devastating typhoons visited the Philippines: the first in October, the second and third in November, and the fourth in December, 1947. Coconut trees throughout the country suffered extensive damage. Copra production decreased. Prices spiralled. Warehouses were destroyed. Cash requirements doubled. Deprivation of export facilities increased the time necessary to accumulate shiploads of copra. Quick turnovers became impossible, financing a problem.

When it became clear that the contracts would be unprofitable, Kalaw submitted them to the board for approval. It was not until December 22, 1947 when the membership was completed. Defendant Moll took her oath on that date. A meeting was then held. Kalaw made a full disclosure of the situation, apprised the board of the impending heavy losses. No action was taken on the contracts. Neither did the board vote thereon at the meeting of January 7, 1948 following. Then, on January 11, 1948, President Roxas made a statement that the NACOCO head did his best to avert the losses,

emphasized that government concerns faced the same risks that confronted private companies, that NACOCO was recouping its losses, and that Kalaw was to remain in his post. Not long thereafter, that is, on January 30, 1948, the board met again with Kalaw, Bocar, Garcia and Moll in attendance. They unanimously approved the contracts hereinbefore enumerated.

As was to be expected, NACOCO but partially performed the contracts, as follows:

Buyers Tons Delivered Undelivered

Pacific Vegetable Oil 2,386.45 4,613.55

Spencer Kellog None 1,000

Franklin Baker 1,000 500

Louis Dreyfus 800 2,200

Louis Dreyfus (Adamson contract of July 30, 1947) 1,150 850

Louis Dreyfus (Adamson Contract of August 14, 1947) 1,755 245

T O T A L S 7,091.45 9,408.55

The buyers threatened damage suits. Some of the claims were settled, viz: Pacific Vegetable Oil Co., in copra delivered by NACOCO, P539,000.00; Franklin Baker Corporation, P78,210.00; Spencer Kellog & Sons, P159,040.00.

But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue before the Court of First Instance of Manila, upon claims as follows: For the undelivered copra under the July 30 contract (Civil Case 4459); P287,028.00; for the balance on the August 14 contract (Civil Case 4398), P75,098.63; for that per the September 12 contract reduced to judgment (Civil Case 4322, appealed to this Court in L-2829), P447,908.40. These cases culminated in an out-of-court amicable settlement when the Kalaw management was already out. The corporation thereunder paid Dreyfus P567,024.52 representing 70% of the total claims. With particular reference to the Dreyfus claims, NACOCO put up the defenses that: (1) the contracts were void because Louis Dreyfus & Co. (Overseas) Ltd. did not have license to do business here; and (2) failure to deliver was due to force majeure, the typhoons. To project the utter unreasonableness of this compromise, we reproduce in haec verba this finding below:

x x x However, in similar cases brought by the same claimant [Louis Dreyfus & Co. (Overseas) Ltd.] against Santiago Syjuco for non-delivery of copra also involving a claim of P345,654.68 wherein defendant set upsame defenses as above, plaintiff accepted a promise of P5,000.00 only (Exhs. 31 & 32 Heirs.) Following the same proportion, the claim of Dreyfus against NACOCO should have been compromised for only P10,000.00, if at all. Now, why should defendants be held liable for the large sum paid as compromise by the Board of Liquidators? This is just a sample to show how unjust it would be to hold defendants liable for the readiness with which the Board of Liquidators disposed of the NACOCO funds, although there was much possibility of successfully resisting the claims, or at least settlement for nominal sums like what happened in the Syjuco case.5

All the settlements sum up to P1,343,274.52.

In this suit started in February, 1949, NACOCO seeks to recover the above sum of P1,343,274.52 from general manager and board chairman Maximo M. Kalaw, and directors Juan Bocar, Casimiro Garcia and Leonor Moll. It charges Kalaw with negligence under Article 1902 of the old Civil Code (now Article 2176, new Civil Code); and defendant board members, including Kalaw, with bad faith and/or breach of trust for having approved the contracts. The fifth amended complaint, on which this case was tried, was filed on July 2, 1959. Defendants resisted the action upon defenses hereinafter in this opinion to be discussed.

The lower court came out with a judgment dismissing the complaint without costs as well as defendants' counterclaims, except that plaintiff was ordered to pay the heirs of Maximo Kalaw the sum of P2,601.94 for unpaid salaries and cash deposit due the deceased Kalaw from NACOCO.

Plaintiff appealed direct to this Court.

Plaintiff's brief did not, question the judgment on Kalaw's counterclaim for the sum of P2,601.94.

Right at the outset, two preliminary questions raised before, but adversely decided by, the court below, arrest our attention. On appeal, defendants renew their bid. And this, upon established jurisprudence that an appellate court may base its decision of affirmance of the judgment below on a point or points ignored by the trial court or in which said court was in error.6

1. First of the threshold questions is that advanced by defendants that plaintiff Board of Liquidators has lost its legal personality to continue with this suit.

Accepted in this jurisdiction are three methods by which a corporation may wind up its affairs: (1) under Section 3, Rule 104, of the Rules of Court [which superseded Section 66 of the Corporation Law]7 whereby, upon voluntary dissolution of a corporation, the court may direct "such disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation;" (2) under Section 77 of the Corporation Law, whereby a corporation whose corporate existence is terminated, "shall nevertheless be continued as a body corporate for three years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was established;" and (3) under Section 78 of the Corporation Law, by virtue of which the corporation, within the three year period just mentioned, "is authorized and empowered to convey all of its property to trustees for the benefit of members, stockholders, creditors, and others interested."8

It is defendants' pose that their case comes within the coverage of the second method. They reason out that suit was commenced in February, 1949; that by Executive Order 372, dated November 24, 1950, NACOCO, together with other government-owned corporations, was abolished, and the Board of Liquidators was entrusted with the function of settling and closing its affairs; and that, since the three year period has elapsed, the Board of Liquidators may not now continue with, and prosecute, the present case to its conclusion, because Executive Order 372 provides in Section 1 thereof that —

Sec.1. The National Abaca and Other Fibers Corporation, the National Coconut Corporation, the National Tobacco Corporation, the National Food Producer Corporation and the former enemy-owned or controlled corporations or associations, . . . are hereby abolished. The said corporations shall be liquidated in accordance with law, the provisions of this Order, and/or in such manner as the President of the Philippines may direct; Provided, however, 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 Executive Order for the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs, to dispose of and, convey its property in the manner hereinafter provided.

Citing Mr. Justice Fisher, defendants proceed to argue that even where it may be found impossible within the 3 year period to reduce disputed claims to judgment, nonetheless, "suits by or against a corporation abate when it ceases to be an entity capable of suing or being sued" (Fisher, The Philippine Law of Stock Corporations, pp. 390-391). Corpus Juris Secundum likewise is authority for the statement that "[t]he dissolution of a corporation ends its existence so that there must be statutory authority for prolongation of its life even for purposes of pending litigation"9 and that suit "cannot be continued or revived; nor can a valid judgment be rendered therein, and a judgment, if rendered, is not only erroneous, but void and subject to collateral attack." 10 So it is, that abatement of pending actions follows as a matter of course upon the expiration of the legal period for liquidation, 11 unless the statute merely requires a commencement of suit within the added time. 12 For, the court cannot extend the time alloted by statute. 13

We, however, express the view that the executive order abolishing NACOCO and creating the Board of Liquidators should be examined in context. The proviso in Section 1 of Executive Order 372, whereby the corporate existence of NACOCO was continued for a period of three years from the effectivity of the order for "the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs, to dispose of and convey its property in the manner hereinafter provided", is to be read not as an isolated provision but in conjunction with the whole. So reading, it will be readily observed that no time limit has been tacked to the existence of the Board of Liquidators and its function of closing the affairs of the various government owned corporations, including NACOCO.

By Section 2 of the executive order, while the boards of directors of the various corporations were abolished, their powers and functions and duties under existing laws were to be assumed and exercised by the Board of Liquidators. The President thought it best to do away with the boards of directors of the defunct corporations; at the same time, however, the President had chosen to see to it that the Board of Liquidators step into the vacuum. And nowhere in the executive order was there any mention of the lifespan of the Board of Liquidators. A glance at the other provisions of the executive order buttresses our conclusion. Thus, liquidation by the Board of Liquidators may, under section 1, proceed in accordance with law, the provisions of the executive order, "and/or in such manner as the President of the Philippines may direct." By Section 4, when any property, fund, or project is transferred to any governmental instrumentality "for administration or continuance of any project," the necessary funds therefor shall be taken from the corresponding special fund created in Section 5. Section 5, in turn, talks of special funds established from the "net proceeds of the liquidation" of the various corporations abolished. And by Section, 7, fifty per centum of the fees collected from the copra standardization and inspection service shall accrue "to the special fund created in section 5 hereof for the rehabilitation and development of the coconut industry." Implicit in all these, is that the term of life of the Board of Liquidators is without time limit. Contemporary history gives us the fact that the Board of Liquidators still exists as an office with officials and numerous employees continuing the job of liquidation and prosecution of several court actions.

Not that our views on the power of the Board of Liquidators to proceed to the final determination of the present case is without jurisprudential support. The first judicial test before this Court is National Abaca and Other Fibers Corporation vs. Pore, L-16779, August 16, 1961. In that case, the corporation, already dissolved, commenced suit within the three-year extended period for liquidation. That suit was for recovery of money advanced to defendant for the purchase of hemp in behalf of the corporation. She failed to account for that money. Defendant moved to dismiss, questioned the

corporation's capacity to sue. The lower court ordered plaintiff to include as co-party plaintiff, The Board of Liquidators, to which the corporation's liquidation was entrusted by Executive Order 372. Plaintiff failed to effect inclusion. The lower court dismissed the suit. Plaintiff moved to reconsider. Ground: excusable negligence, in that its counsel prepared the amended complaint, as directed, and instructed the board's incoming and outgoing correspondence clerk, Mrs. Receda Vda. de Ocampo, to mail the original thereof to the court and a copy of the same to defendant's counsel. She mailed the copy to the latter but failed to send the original to the court. This motion was rejected below. Plaintiff came to this Court on appeal. We there said that "the rule appears to be well settled that, in the absence of statutory provision to the contrary, pending actions by or against a corporation are abated upon expiration of the period allowed by law for the liquidation of its affairs." We there said that "[o]ur Corporation Law contains no provision authorizing a corporation, after three (3) years from the expiration of its lifetime, to continue in its corporate name actions instituted by it within said period of three (3) years." 14 However, these precepts notwithstanding, we, in effect, held in that case that the Board of Liquidators escapes from the operation thereof for the reason that "[o]bviously, the complete loss of plaintiff's corporate existence after the expiration of the period of three (3) years for the settlement of its affairs is what impelled the President to create a Board of Liquidators, to continue the management of such matters as may then be pending."15 We accordingly directed the record of said case to be returned to the lower court, with instructions to admit plaintiff's amended complaint to include, as party plaintiff, the Board of Liquidators.

Defendants' position is vulnerable to attack from another direction.

By Executive Order 372, the government, the sole stockholder, abolished NACOCO, and placed its assets in the hands of the Board of Liquidators. The Board of Liquidators thus became the trustee on behalf of the government. It was an express trust. The legal interest became vested in the trustee — the Board of Liquidators. The beneficial interest remained with the sole stockholder — the government. At no time had the government withdrawn the property, or the authority to continue the present suit, from the Board of Liquidators. If for this reason alone, we cannot stay the hand of the Board of Liquidators from prosecuting this case to its final conclusion. 16 The provisions of Section 78 of the Corporation Law — the third method of winding up corporate affairs — find application.

We, accordingly, rule that the Board of Liquidators has personality to proceed as: party-plaintiff in this case.

2. Defendants' second poser is that the action is unenforceable against the heirs of Kalaw.

Appellee heirs of Kalaw raised in their motion to dismiss, 17 which was overruled, and in their nineteenth special defense, that plaintiff's action is personal to the deceased Maximo M. Kalaw, and may not be deemed to have survived after his death.18 They say that the controlling statute is Section 5, Rule 87, of the 1940 Rules of Court.19 which provides that "[a]ll claims for money against the decedent, arising from contract, express or implied", must be filed in the estate proceedings of the deceased. We disagree.

The suit here revolves around the alleged negligent acts of Kalaw for having entered into the questioned contracts without prior approval of the board of directors, to the damage and prejudice of plaintiff; and is against Kalaw and the other directors for having subsequently approved the said contracts in bad faith and/or breach of trust." Clearly then, the present case is not a mere action for the recovery of money nor a claim for money arising from contract. The suit involves alleged tortious acts. And the action is embraced in suits filed "to recover damages for an injury to person or property, real or personal", which survive. 20

The leading expositor of the law on this point is Aguas vs. Llemos, L-18107, August 30, 1962. There, plaintiffs sought to recover damages from defendant Llemos. The complaint averred that Llemos had served plaintiff by registered mail with a copy of a petition for a writ of possession in Civil Case 4824 of the Court of First Instance at Catbalogan, Samar, with notice that the same would be submitted to the Samar court on February 23, 1960 at 8:00 a.m.; that in view of the copy and notice served, plaintiffs proceeded to the said court of Samar from their residence in Manila accompanied by their lawyers, only to discover that no such petition had been filed; and that defendant Llemos maliciously failed to appear in court, so that plaintiffs' expenditure and trouble turned out to be in vain, causing them mental anguish and undue embarrassment. Defendant died before he could answer the complaint. Upon leave of court, plaintiffs amended their complaint to include the heirs of the deceased. The heirs moved to dismiss. The court dismissed the complaint on the ground that the legal representative, and not the heirs, should have been made the party defendant; and that, anyway, the action being for recovery of money, testate or intestate proceedings should be initiated and the claim filed therein. This Court, thru Mr. Justice Jose B. L. Reyes, there declared:

Plaintiffs argue with considerable cogency that contrasting the correlated provisions of the Rules of Court, those concerning claims that are barred if not filed in the estate settlement proceedings (Rule 87, sec. 5) and those defining actions that survive and may be prosecuted against the executor or administrator (Rule 88, sec. 1), it is apparent that actions for damages caused by tortious conduct of a defendant (as in the case at bar) survive the death of the latter. Under Rule 87, section 5, the actions that are abated by death are: (1) claims for funeral expenses and those for the last sickness of the decedent; (2) judgments for money; and (3) "all claims for money against the decedent, arising from contract express or implied." None of these includes that of the plaintiffs-appellants; for it is not enough that the claim against the deceased party be for money, but it must arise from "contract express or implied", and these words (also used by the Rules in connection with attachments and derived from the common law) were construed in Leung Ben vs. O'Brien, 38 Phil. 182, 189-194,

"to include all purely personal obligations other than those which have their source in delict or tort."

Upon the other hand, Rule 88, section 1, enumerates actions that survive against a decedent's executors or administrators, and they are: (1) actions to recover real and personal property from the estate; (2) actions to enforce a lien thereon; and (3) actions to recover damages for an injury to person or property. The present suit is one for damages under the last class, it having been held that "injury to property" is not limited to injuries to specific property, but extends to other wrongs by which personal estate is injured or diminished (Baker vs. Crandall, 47 Am. Rep. 126; also 171 A.L.R., 1395). To maliciously cause a party to incur unnecessary expenses, as charged in this case, is certainly injury to that party's property (Javier vs. Araneta, L-4369, Aug. 31, 1953).

The ruling in the preceding case was hammered out of facts comparable to those of the present. No cogent reason exists why we should break away from the views just expressed. And, the conclusion remains: Action against the Kalaw heirs and, for the matter, against the Estate of Casimiro Garcia survives.

The preliminaries out of the way, we now go to the core of the controversy.

3. Plaintiff levelled a major attack on the lower court's holding that Kalaw justifiedly entered into the controverted contracts without the prior approval of the corporation's directorate. Plaintiff leans heavily on NACOCO's corporate by-laws. Article IV (b), Chapter III thereof, recites, as amongst the

duties of the general manager, the obligation: "(b) To perform or execute on behalf of the Corporation upon prior approval of the Board, all contracts necessary and essential to the proper accomplishment for which the Corporation was organized."

Not of de minimis importance in a proper approach to the problem at hand, is the nature of a general manager's position in the corporate structure. A rule that has gained acceptance through the years is that a corporate officer "intrusted with the general management and control of its business, has implied authority to make any contract or do any other act which is necessary or appropriate to the conduct of the ordinary business of the corporation. 21As such officer, "he may, without any special authority from the Board of Directors perform all acts of an ordinary nature, which by usage or necessity are incident to his office, and may bind the corporation by contracts in matters arising in the usual course of business. 22

The problem, therefore, is whether the case at bar is to be taken out of the general concept of the powers of a general manager, given the cited provision of the NACOCO by-laws requiring prior directorate approval of NACOCO contracts.

The peculiar nature of copra trading, at this point, deserves express articulation. Ordinary in this enterprise are copra sales for future delivery. The movement of the market requires that sales agreements be entered into, even though the goods are not yet in the hands of the seller. Known in business parlance as forward sales, it is concededly the practice of the trade. A certain amount of speculation is inherent in the undertaking. NACOCO was much more conservative than the exporters with big capital. This short-selling was inevitable at the time in the light of other factors such as availability of vessels, the quantity required before being accepted for loading, the labor needed to prepare and sack the copra for market. To NACOCO, forward sales were a necessity. Copra could not stay long in its hands; it would lose weight, its value decrease. Above all, NACOCO's limited funds necessitated a quick turnover. Copra contracts then had to be executed on short notice — at times within twenty-four hours. To be appreciated then is the difficulty of calling a formal meeting of the board.

Such were the environmental circumstances when Kalaw went into copra trading.

Long before the disputed contracts came into being, Kalaw contracted — by himself alone as general manager — for forward sales of copra. For the fiscal year ending June 30, 1947, Kalaw signed some 60 such contracts for the sale of copra to divers parties. During that period, from those copra sales, NACOCO reaped a gross profit of P3,631,181.48. So pleased was NACOCO's board of directors that, on December 5, 1946, in Kalaw's absence, it voted to grant him a special bonus "in recognition of the signal achievement rendered by him in putting the Corporation's business on a self-sufficient basis within a few months after assuming office, despite numerous handicaps and difficulties."

These previous contract it should be stressed, were signed by Kalaw without prior authority from the board. Said contracts were known all along to the board members. Nothing was said by them. The aforesaid contracts stand to prove one thing: Obviously, NACOCO board met the difficulties attendant to forward sales by leaving the adoption of means to end, to the sound discretion of NACOCO's general manager Maximo M. Kalaw.

Liberally spread on the record are instances of contracts executed by NACOCO's general manager and submitted to the board after their consummation, not before. These agreements were not Kalaw's alone. One at least was executed by a predecessor way back in 1940, soon after NACOCO was chartered. It was a contract of lease executed on November 16, 1940 by the then general manager and board chairman, Maximo Rodriguez, and A. Soriano y Cia., for the lease of a space in

Soriano Building On November 14, 1946, NACOCO, thru its general manager Kalaw, sold 3,000 tons of copra to the Food Ministry, London, thru Sebastian Palanca. On December 22, 1947, when the controversy over the present contract cropped up, the board voted to approve a lease contract previously executed between Kalaw and Fidel Isberto and Ulpiana Isberto covering a warehouse of the latter. On the same date, the board gave its nod to a contract for renewal of the services of Dr. Manuel L. Roxas. In fact, also on that date, the board requested Kalaw to report for action all copra contracts signed by him "at the meeting immediately following the signing of the contracts." This practice was observed in a later instance when, on January 7, 1948, the board approved two previous contracts for the sale of 1,000 tons of copra each to a certain "SCAP" and a certain "GNAPO".

And more. On December 19, 1946, the board resolved to ratify the brokerage commission of 2% of Smith, Bell and Co., Ltd., in the sale of 4,300 long tons of copra to the French Government. Such ratification was necessary because, as stated by Kalaw in that same meeting, "under an existing resolution he is authorized to give a brokerage fee of only 1% on sales of copra made through brokers." On January 15, 1947, the brokerage fee agreements of 1-1/2% on three export contracts, and 2% on three others, for the sale of copra were approved by the board with a proviso authorizing the general manager to pay a commission up to the amount of 1-1/2% "without further action by the Board." On February 5, 1947, the brokerage fee of 2% of J. Cojuangco & Co. on the sale of 2,000 tons of copra was favorably acted upon by the board. On March 19, 1947, a 2% brokerage commission was similarly approved by the board for Pacific Trading Corporation on the sale of 2,000 tons of copra.

It is to be noted in the foregoing cases that only the brokerage fee agreements were passed upon by the board,not the sales contracts themselves. And even those fee agreements were submitted only when the commission exceeded the ceiling fixed by the board.

Knowledge by the board is also discernible from other recorded instances. 1äwphï1.ñët

When the board met on May 10, 1947, the directors discussed the copra situation: There was a slow downward trend but belief was entertained that the nadir might have already been reached and an improvement in prices was expected. In view thereof, Kalaw informed the board that "he intends to wait until he has signed contracts to sell before starting to buy copra."23

In the board meeting of July 29, 1947, Kalaw reported on the copra price conditions then current: The copra market appeared to have become fairly steady; it was not expected that copra prices would again rise very high as in the unprecedented boom during January-April, 1947; the prices seemed to oscillate between $140 to $150 per ton; a radical rise or decrease was not indicated by the trends. Kalaw continued to say that "the Corporation has been closing contracts for the sale of copra generally with a margin of P5.00 to P7.00 per hundred kilos." 24

We now lift the following excerpts from the minutes of that same board meeting of July 29, 1947:

521. In connection with the buying and selling of copra the Board inquired whether it is the practice of the management to close contracts of sale first before buying. The General Manager replied that this practice is generally followed but that it is not always possible to do so for two reasons:

(1) The role of the Nacoco to stabilize the prices of copra requires that it should not cease buying even when it does not have actual contracts of sale since the suspension of buying by the Nacoco will result in middlemen taking advantage of the temporary inactivity of the Corporation to lower the prices to the detriment of the producers.

(2) The movement of the market is such that it may not be practical always to wait for the consummation of contracts of sale before beginning to buy copra.

The General Manager explained that in this connection a certain amount of speculation is unavoidable. However, he said that the Nacoco is much more conservative than the other big exporters in this respect.25

Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice, custom, and policy, the general manager may bind the company without formal authorization of the board of directors. 26 In varying language, existence of such authority is established, by proof of the course of business, the usage and practices of the company and by the knowledge which the board of directors has, or must bepresumed to have, of acts and doings of its subordinates in and about the affairs of the corporation. 27 So also,

x x x authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power was in fact exercised. 28

x x x Thus, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage its affairs, his authority to represent the corporation may be implied from the manner in which he has been permitted by the directors to manage its business.29

In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf without prior board approval. If the by-laws were to be literally followed, the board should give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and through acquiescence, practically laid aside the by-law requirement of prior approval.

Under the given circumstances, the Kalaw contracts are valid corporate acts.

4. But if more were required, we need but turn to the board's ratification of the contracts in dispute on January 30, 1948, though it is our (and the lower court's) belief that ratification here is nothing more than a mere formality.

Authorities, great in number, are one in the idea that "ratification by a corporation of an unauthorized act or contract by its officers or others relates back to the time of the act or contract ratified, and is equivalent to original authority;" and that " [t]he corporation and the other party to the transaction are in precisely the same position as if the act or contract had been authorized at the time." 30 The language of one case is expressive: "The adoption or ratification of a contract by a corporation is nothing more or less than the making of an original contract. The theory of corporate ratification is predicated on the right of a corporation to contract, and any ratification or adoption is equivalent to a grant of prior authority." 31

Indeed, our law pronounces that "[r]atification cleanses the contract from all its defects from the moment it was constituted." 32 By corporate confirmation, the contracts executed by Kalaw are thus purged of whatever vice or defect they may have. 33

In sum, a case is here presented whereunder, even in the face of an express by-law requirement of prior approval, the law on corporations is not to be held so rigid and inflexible as to fail to recognize equitable considerations. And, the conclusion inevitably is that the embattled contracts remain valid.

5. It would be difficult, even with hostile eyes, to read the record in terms of "bad faith and/or breach of trust" in the board's ratification of the contracts without prior approval of the board. For, in reality, all that we have on the government's side of the scale is that the board knew that the contracts so confirmed would cause heavy losses.

As we have earlier expressed, Kalaw had authority to execute the contracts without need of prior approval. Everybody, including Kalaw himself, thought so, and for a long time. Doubts were first thrown on the way only when the contracts turned out to be unprofitable for NACOCO.

Rightfully had it been said that bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty thru some motive or interest or ill will; it partakes of the nature of fraud.34 Applying this precept to the given facts herein, we find that there was no "dishonest purpose," or "some moral obliquity," or "conscious doing of wrong," or "breach of a known duty," or "Some motive or interest or ill will" that "partakes of the nature of fraud."

Nor was it even intimated here that the NACOCO directors acted for personal reasons, or to serve their own private interests, or to pocket money at the expense of the corporation. 35 We have had occasion to affirm that bad faith contemplates a "state of mind affirmatively operating with furtive design or with some motive of self-interest or ill will or for ulterior purposes." 36 Briggs vs. Spaulding, 141 U.S. 132, 148-149, 35 L. ed. 662, 669, quotes with approval from Judge Sharswood (in Spering's App., 71 Pa. 11), the following: "Upon a close examination of all the reported cases, although there are many dicta not easily reconcilable, yet I have found no judgment or decree which has held directors to account, except when they have themselves been personally guilty of some fraud on the corporation, or have known and connived at some fraud in others, or where such fraud might have been prevented had they given ordinary attention to their duties. . . ." Plaintiff did not even dare charge its defendant-directors with any of these malevolent acts.

Obviously, the board thought that to jettison Kalaw's contracts would contravene basic dictates of fairness. They did not think of raising their voice in protest against past contracts which brought in enormous profits to the corporation. By the same token, fair dealing disagrees with the idea that similar contracts, when unprofitable, should not merit the same treatment. Profit or loss resulting from business ventures is no justification for turning one's back on contracts entered into. The truth, then, of the matter is that — in the words of the trial court — the ratification of the contracts was "an act of simple justice and fairness to the general manager and the best interest of the corporation whose prestige would have been seriously impaired by a rejection by the board of those contracts which proved disadvantageous." 37

The directors are not liable." 38

6. To what then may we trace the damage suffered by NACOCO.

The facts yield the answer. Four typhoons wreaked havoc then on our copra-producing regions. Result: Copra production was impaired, prices spiralled, warehouses destroyed. Quick turnovers could not be expected. NACOCO was not alone in this misfortune. The record discloses that private traders, old, experienced, with bigger facilities, were not spared; also suffered tremendous losses. Roughly estimated, eleven principal trading concerns did run losses to about P10,300,000.00. Plaintiff's witness Sisenando Barretto, head of the copra marketing department of NACOCO, observed that from late 1947 to early 1948 "there were many who lost money in the trade." 39 NACOCO was not immune from such usual business risk.

The typhoons were known to plaintiff. In fact, NACOCO resisted the suits filed by Louis Dreyfus & Co. by pleading in its answers force majeure as an affirmative defense and there vehemently asserted that "as a result of the said typhoons, extensive damage was caused to the coconut trees in the copra producing regions of the Philippines and according to estimates of competent authorities, it will take about one year until the coconut producing regions will be able to produce their normal coconut yield and it will take some time until the price of copra will reach normal levels;" and that "it had never been the intention of the contracting parties in entering into the contract in question that, in the event of a sharp rise in the price of copra in the Philippine market produce by force majeureor by caused beyond defendant's control, the defendant should buy the copra contracted for at exorbitant prices far beyond the buying price of the plaintiff under the contract." 40

A high regard for formal judicial admissions made in court pleadings would suffice to deter us from permitting plaintiff to stray away therefrom, to charge now that the damage suffered was because of Kalaw's negligence, or for that matter, by reason of the board's ratification of the contracts. 41

Indeed, were it not for the typhoons, 42 NACOCO could have, with ease, met its contractual obligations. Stock accessibility was no problem. NACOCO had 90 buying agencies spread throughout the islands. It could purchase 2,000 tons of copra a day. The various contracts involved delivery of but 16,500 tons over a five-month period. Despite the typhoons, NACOCO was still able to deliver a little short of 50% of the tonnage required under the contracts.

As the trial court correctly observed, this is a case of damnum absque injuria. Conjunction of damage and wrong is here absent. There cannot be an actionable wrong if either one or the other is wanting. 43

7. On top of all these, is that no assertion is made and no proof is presented which would link Kalaw's acts — ratified by the board — to a matrix for defraudation of the government. Kalaw is clear of the stigma of bad faith. Plaintiff's corporate counsel 44 concedes that Kalaw all along thought that he had authority to enter into the contracts, that he did so in the best interests of the corporation; that he entered into the contracts in pursuance of an overall policy to stabilize prices, to free the producers from the clutches of the middlemen. The prices for which NACOCO contracted in the disputed agreements, were at a level calculated to produce profits and higher than those prevailing in the local market. Plaintiff's witness, Barretto, categorically stated that "it would be foolish to think that one would sign (a) contract when you are going to lose money" and that no contract was executed "at a price unsafe for the Nacoco." 45 Really, on the basis of prices then prevailing, NACOCO envisioned a profit of around P752,440.00. 46

Kalaw's acts were not the result of haphazard decisions either. Kalaw invariably consulted with NACOCO's Chief Buyer, Sisenando Barretto, or the Assistant General Manager. The dailies and quotations from abroad were guideposts to him.

Of course, Kalaw could not have been an insurer of profits. He could not be expected to predict the coming of unpredictable typhoons. And even as typhoons supervened Kalaw was not remissed in his duty. He exerted efforts to stave off losses. He asked the Philippine National Bank to implement its commitment to extend a P400,000.00 loan. The bank did not release the loan, not even the sum of P200,000.00, which, in October, 1947, was approved by the bank's board of directors. In frustration, on December 12, 1947, Kalaw turned to the President, complained about the bank's short-sighted policy. In the end, nothing came out of the negotiations with the bank. NACOCO eventually faltered in its contractual obligations.

That Kalaw cannot be tagged with crassa negligentia or as much as simple negligence, would seem to be supported by the fact that even as the contracts were being questioned in Congress and in the

NACOCO board itself, President Roxas defended the actuations of Kalaw. On December 27, 1947, President Roxas expressed his desire "that the Board of Directors should reelect Hon. Maximo M. Kalaw as General Manager of the National Coconut Corporation." 47 And, on January 7, 1948, at a time when the contracts had already been openly disputed, the board, at its regular meeting, appointed Maximo M. Kalaw as acting general manager of the corporation.

Well may we profit from the following passage from Montelibano vs. Bacolod-Murcia Milling Co., Inc., L-15092, May 18, 1962:

"They (the directors) hold such office charged with the duty to act for the corporation according to their best judgment, and in so doing they cannot be controlled in the reasonable exercise and performance of such duty. Whether the business of a corporation should be operated at a loss during a business depression, or closed down at a smaller loss, is a purely business and economic problem to be determined by the directors of the corporation, and not by the court. It is a well known rule of law that questions of policy 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 for the judgment of the board of directors; the board is the business manager of the corporation, and solong as it acts in good faith its orders are not reviewable by the courts." (Fletcher on Corporations, Vol. 2, p. 390.)48

Kalaw's good faith, and that of the other directors, clinch the case for defendants. 49

Viewed in the light of the entire record, the judgment under review must be, as it is hereby, affirmed.

DIGEST: Yu Chuck v.s. Kong Li Po 46 Phil 608 (1924)

May 26, 2014

DOCKET NO. / CASE NO. : L-22450

DATE: December 3, 1924

PETITIONER: Yu Chuck, Mack Yueng and Ding Moon

RESPONDENT: Kong Li Po

 

FACTS:

Kong Li Po was a domestic corporation engaged in the publication of a Chinese newspaper styled Kong Li Po. Its by-laws stated that it will have a president who “will sign all contracts and other

instruments in writing” but no provision for a business manager. In 1919, C.C. or T.C. Chen was appointed manager.

On December 1919, Chen entered a contract with Yu Chuck for the printing of the newspaper for Php 580 monthly. Chen was replaced by Tan Tia Hong and dismissed the plaintiff without explanation on January 31, 1921. The plaintiff filed an action for specific performance with damages claiming that in its contract with Kong Li Po is for 3 years. The plaintiff asked for Php 20,880.00 as damages and “they would be given full pay for the unexpired portion of the term x x x even in bankruptcy.” Tan Tia Hong asserted that Chen had no authority to enter into contract. The trial court ruled that Chen had authority, taking into consideration of the notice made by its president, Te Kim Hua that it shall not sign or recognize any document without the signature of Chen.

 

ISSUE:

Whether or not Chen had the authority to bind Kong Li Po with Yu Chuck?

 

HELD:

NO. The Court ruled that although officers had an implied authority if such was not expressly made by certain officer or director, Chen had no authority to bind because the contract was not usual and reasonable because the duration of it was 3 years and was onerous for Kong Li Po when it was stated that the corporation is liable for the unexpired portion despite insolvency. Plaintiff had no right to presume that any employee had an implied authority which would bring its ruin. Further, the president had no knowledge of such contract, although saw some printing activities in its office and such contract was neither ratified nor approved by the Board.

26 Prime White Cement Corporation vs. Intermediate Appellate Court [GR 68555, 19 March

1993]

Second Division, Campos Jr. (J): 4 concur

Facts: On or about 16 July 1969, Alejandro Te and Prime White Cement Corporation

(PWCC) thru its

President, Mr. Zosimo Falcon and Justo C. Trazo, as Chairman of the Board, entered into a

dealership

agreement whereby Te was obligated to act as the exclusive dealer and/or distributor of

PWCC of its cement

products in the entire Mindanao area for a term of 5 years and providing among others that

(a) the corporation

shall, commencing September, 1970, sell to and supply Te, as dealer with 20,000 bags (94

lbs/bag) of white

cement per month; (b) Te shall pay PWCC P9.70, Philippine Currency, per bag of white

cement, FOB Davao

and Cagayan de Oro ports; (c) Te shall every time PWCC is ready to deliver the good, open

with any bank or

banking institution a confirmed, unconditional, and irrevocable letter of credit in favor of

PWCC and that

upon certification by the boat captain on the bill of lading that the goods have been loaded

on board the vessel

bound for Davao the said bank or banking institution shall release the corresponding

amount as payment of

the goods so shipped." Right after Te entered into the dealership agreement, he placed an

advertisement in a

national, circulating newspaper the fact of his being the exclusive dealer of PWWC's white

cement products

in Mindanao area, more particularly, in the Manila Chronicle dated 16 August 1969 and

was even

congratulated by his business associates, so much so, he was asked by some of his

businessmen friends and

close associates if they can be his sub-dealer in the Mindanao area. Relying heavily on the

dealership

agreement, Te sometime in the months of September, October, and December, 1969,

entered into a written

agreement with several hardware stores dealing in buying and selling white cement in the

Cities of Davao and

Cagayan de Oro which would thus enable him to sell his allocation of 20,000 bags regular

supply of the said

commodity, by September, 1970. After Te was assured by his supposed buyer that his

allocation of 20,000

bags of white cement can be disposed of, he informed the defendant corporation in his

letter dated 18 August

1970 that he is making the necessary preparation for the opening of the requisite letter of

credit to cover the

price of the due initial delivery for the month of September 1970, looking forward to PWCC's

duty to comply

with the dealership agreement. In reply to the aforesaid letter of Te, PWCC thru its

corporate secretary, replied

that the board of directors of PWCC decided to impose the following conditions: (a) Delivery

of white cement

shall commence at the end of November, 1970; (b) Only 8,000 bags of white cement per

month for only a

period of three (3) months will be delivered; (c) The price of white cement was priced at

P13.30 per bag; (d)

The price of white cement is subject to readjustment unilaterally on the part of the

defendant; (e) The place of

delivery of white cement shall be Austurias (sic); (f) The letter of credit may be opened only

with the

Prudential Bank, Makati Branch; (g) Payment of white cement shall be made in advance

and which payment

shall be used by the defendant as guaranty in the opening of a foreign letter of credit to

cover costs and

expenses in the procurement of materials in the manufacture of white cement. Several

demands to comply

with the dealership agreement were made by Te to PWCC, however, PWCC refused to

comply with the

same, and Te by force of circumstances was constrained to cancel his agreement for the

supply of white

cement with third parties, which were concluded in anticipation of, and pursuant to the said

dealership

agreement. Notwithstanding that the dealership agreement between Te and PWCC was in

force and

subsisting, PWCC, in violation of, and with evident intention not to be bound by the terms

and conditions

thereof, entered into an exclusive dealership agreement with a certain Napoleon Co for the

marketing of white

cement in Mindanao. Te filed suit. After trial, the trial court adjudged PWCC liable to

Alejandro Te in the

Commercial Law - Corporation Law, 2005 ( 37 )Narratives (Berne Guerrero)

amount of P3,302,400.00 as actual damages, P100,000.00 as moral damages, and

P10,000 00 as and for

attorney's fees and costs. The appellate court affirmed the said decision. Hence, PWCC

filed the petition for

review on certiorari.

Issue: Whether the "dealership agreement" referred by the President and Chairman of the

Board of PWCC is

a valid and enforceable contract.

Held: The “dealership agreement” is not valid and unenforceable. Under the Corporation

Law, which was

then in force at the time the case arose, as well as under the present Corporation Code, all

corporate powers

shall be exercised by the Board of Directors, except as otherwise provided by law. Although

it cannot

completely abdicate its power and responsibility to act for the juridical entity, the Board may

expressly

delegate specific powers to its President or any of its officers. In the absence of such

express delegation, a

contract entered into by its President, on behalf of the corporation, may still bind the

corporation if the board

should ratify the same expressly or impliedly. Implied ratification may take various forms —

like silence or

acquiescence; by acts showing approval or adoption of the contract; or by acceptance and

retention of benefits

flowing therefrom. Furthermore, even in the absence of express or implied authority by

ratification, the

President as such may, as a general rule, bind the corporation by a contract in the ordinary

course of business,

provided the same is reasonable under the circumstances. These rules are basic, but are all

general and thus

quite flexible. They apply where the President or other officer, purportedly acting for the

corporations, is

dealing with a third person, i.e., a person outside the corporation. The situation is quite

different where a

director or officer is dealing with his own corporation. Herein, Te was not an ordinary

stockholder; he was a

member of the Board of Directors and Auditor of the corporation as well. He was what is

often referred to as a

"self-dealing" director. A director of a corporation holds a position of trust and as such, he

owes a duty of

loyalty to his corporation. In case his interests conflict with those of the corporation, he

cannot sacrifice the

latter to his own advantage and benefit. As corporate managers, directors are committed to

seek the maximum

amount of profits for the corporation. A director's contract with his corporation is not in all

instances void or

voidable. If the contract is fair and reasonable under the circumstances, it may be ratified by

the stockholders

provided a full disclosure of his adverse interest is made.

Granting arguendo that the "dealership agreement" would be valid and enforceable if

entered into with a

person other than a director or officer of the corporation, the fact that the other party to the

contract was a

Director and Auditor of PWCC changes the whole situation. First of all, the contract was

neither fair nor

reasonable. The "dealership agreement" entered into in July 1969, was to sell and supply to

Te 20,000 bags of

white cement per month, for 5 years starting September 1970, at the fixed price of P9.70

per bag. Te is a

businessman himself and must have known, or at least must be presumed to know, that at

that time, prices of

commodities in general, and white cement in particular, were not stable and were expected

to rise. At the time

of the contract, PWCC had not even commenced the manufacture of white cement, the

reason why delivery

was not to begin until 14 months later. He must have known that within that period of 6

years, there would be

a considerable rise in the price of white cement. In fact, Te's own Memorandum shows that

in September

1970, the price per bag was P14.50, and by the middle of 1975, it was already P37.50 per

bag. Despite this, no

provision was made in the "dealership agreement" to allow for an increase in price mutually

acceptable to the

parties. Instead, the price was pegged at P9.70 per bag for the whole 5 years of the

contract. Fairness on his

part as a director of the corporation from whom he was to buy the cement, would require

such a provision. In

fact, this unfairness in the contract is also a basis which renders a contract entered into by

the President,

without authority from the Board of Directors, void or voidable, although it may have been in

the ordinary

course of business. The fixed price of P9.70 per bag for a period of 5 years was not fair and

reasonable. As

director, specially since he was the other party in interest, Te's bounden duty was to act in

such manner as not

to unduly prejudice the corporation. In the light of the circumstances of this case, it is to Us

quite clear that he

was guilty of disloyalty to the corporation; he was attempting in effect, to enrich himself at

the expense of the

corporation. There is no showing that the stockholders ratified the "dealership agreement"

or that they were

fully aware of its provisions. The contract was therefore not valid and the Court cannot allow

him to reap thefruits of his disloyalty.

Gokongwei vs. SEC, 89 SCRA 336 (1979)Post under case digests, Commercial Law at Monday, January 30, 2012 Posted by Schizophrenic Mind

Facts: Petitioner, stockholder of San Miguel Corp. filed a petition with the SEC for the declaration of nullity of the by-laws etc. against the majority members of the BOD and San Miguel. It is stated in the by-laws that the amendment or modification of the by-laws may only be delegated to the BODs upon an affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid uo capital stock of the corporation, which 2/3 could have been computed on the basis of the capitalization at the time of the amendment. Petitioner contends that the amendment was based on the 1961 authorization, the Board acted without authority and in usurpation of the power of the stockholders n amending the by-laws in 1976. He also contends that the 1961 authorization was already used in 1962 and 1963. He also contends that the amendment deprived him of his right to vote and be voted upon as a stockholder (because it disqualified competitors from nomination and election in the BOD of SMC), thus the amended by-laws were null and void. While this was pending, the corporation called for a stockholder’s meeting for the ratification of the amendment to the by-laws. This prompted petitioner to seek for summary judgment. This was denied by the SEC. In another case filed by petitioner, he alleged that the corporation had been using corporate funds in other corps and businesses outside the primary

purpose clause of the corporation in violation of the Corporation Code.

Issue: Are amendments valid?

Held: The validity and reasonableness of a by-law is purely a question of law. Whether the by-law is in conflict with the law of the land, or with the charter of the corporation or is in legal sense unreasonable and therefore unlawful is a question of law. However, this is limited where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have exercised authority. The Court held that a corporation has authority prescribed by law to prescribe thequalifications of directors. It has the inherent power to adopt by-laws for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs. A corporation, under the Corporation law, may prescribe in its by-laws the qualifications, duties and compensation of directors, officers, and employees. Any person who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and he impliedly contracts that the will of the majority shall govern in all matters within the limits of the acts of incorporation and lawfully enacted by-laws and not forbidden by law. Any corporation may amend its by-laws

by the owners of the majority of the subscribed stock. It cannot thus be said that petitioners has the vested right, as a stock holder, to be elected director, in the face of the fact that the law at the time such stockholder's right was acquired contained the prescription that the corporate charter and the by-laws shall be subject to amendment, alteration and modification. A Director stands in a fiduciary relation to the corporation and its shareholders, which is characterized as a trust relationship. An amendment to the corporate by-laws which renders a stockholder ineligible to be director, if he be also director in a corporation whose business is in competition with that of the other corporation, has been sustained as valid. This is based upon the principle that where the director is employed in the service of a rival company, he cannot serve both, but must betray one or the other. The amendment in this case serves to advance the benefit of the corporation and is good. Corporate officers are also not permitted to use their position of trust and confidence to further their private needs, and the act done in furtherance of private needs is deemed to be for the benefit of the corporation. This is called the doctrine of corporate opportunity.

UNION MOTORS CORPORATION, BENITO S. CUA, and CHARLOTTE C. CUA, petitioners, vs. THE NATIONAL LABOR RELATIONS COMMISSION and PRISCILLA D. GO, respondents.

D E C I S I O N

QUISUMBING, J.:

This petition for certiorari and prohibition, under Rule 65 of the Rules of Court, seeks to set aside the decision dated March 29, 1996, of the National Labor Relations Commission  in NLRC

NCR CA No. 008119-95.  It also assails the NLRC resolution, dated May 28, 1996, denying petitioners’ motion for reconsideration.  Petitioners also pray that NLRC desist from further proceedings in said case.

Petitioner Benito S. Cua is the father of Charlotte C. Cua.  They are, respectively, the President and Vice-President/Treasurer of petitioner UMC. Hereafter, they will be referred to respectively as Mr. Cua and Ms. Cua.  Private respondent Priscilla Go was, originally, the complainant in a case for illegal dismissal filed against petitioners.  Hereafter, she will be referred to as Ms. Go.

The facts of the case, as culled from the records, are as follows:

On June 17, 1981, UMC hired Ms. Go as its Administrative and Personnel Manager.  On February 13, 1982, she was appointed Treasurer while concurrently serving as Administrative and Personnel Manager.

Seven years later, UMC’s Board of Directors effected a top-level corporate revamp.  Ms. Cua was appointed Vice-President/Treasurer.  Ms. Go was in turn appointed Assistant to the President and Administrative and Personnel Manager by the Board. [1] Ms. Go accepted the appointment on the condition that she would report solely and directly to the UMC President, Mr. Cua.

On November 2, 1989, however, Mr. Cua issued an inter-office memorandum advising Ms. Go that she would be under the direct supervision of Ms. Cua, the Vice-President/Treasurer.[2]

On July 15, 1991, UMC Service Manager Reymundo M. Varilla requested Ms. Go for the assignment of one Analyn Aldea to his department for the duration of her contractual employment.  Ms. Go denied the request.  The denial was based on the lack of an official written advice from Ms. Cua.[3]

On July 18, 1991, Ms. Cua issued a memorandum-reminder stating that Ms. Cua was Ms. Go’s immediate superior.  The memorandum went on to say that “[any] verbal, written, taped or any other form of communication advice…will constitute official advice…”[4] Ms. Cua further said that Ms. Go had been given “verbal advice” regarding Aldea’s transfer of assignment.

That memorandum prompted Ms. Go to write Mr. Cua regarding her intention to “withdraw” given the escalating level of tension between her and Ms. Cua.[5]

On July 19, 1991, Ms. Go stopped reporting for work.  She claimed she had gone on leave to avoid further clashes between her and Ms. Cua.

On August 7, 1991, Mr. Cua designated one Nancy T. Borras as Administrative and Personnel Consultant in the absence of Ms. Go.  Meanwhile, Ms. Go met with Mr. Cua and UMC Chairman Gilbert Dee, Sr.  She was advised to extend her leave until her differences with Ms. Cua could be resolved.

On September 30, 1991, Ms. Go wrote Mr. Cua requesting him to come up with a concrete plan to implement his commitment to draw up a workable arrangement between her and Charlotte Cua.

On November 6, 1991, however, Mr. Cua wrote private respondent a letter advising her that he was accepting her resignation.[6]

Insisting that she did not resign and hence, an acceptance of her resignation could not be possible, Ms. Go then filed a complaint for constructive/illegal dismissal with the Labor Arbiter.  Her case was docketed as NLRC-NCR Case No. 00-01-06745-91.  She prayed for reinstatement and payment of backwages, 13 th month pay, allowances, and bonuses.  She also sought moral damages in the amount of P3 million, exemplary damages of no less than P500,000.00, and attorney’s fees equivalent to 10% of the total monetary claims to be awarded her.

In their reply dated February 24, 1992, petitioners denied that Ms. Go was illegally dismissed.  They countered that she had abandoned her job after she had expressed her intention to resign on July 18, 1991.  This intent was concretized when she stopped reporting for work the following day.

On November 21, 1994, the Labor Arbiter rendered his decision dismissing the private respondent’s complaint.  The dispositive portion of the decision reads:

“IN THE LIGHT OF THE FOREGOING CONSIDERATIONS, the separation of the complainant from her service, for whatever cause, must be upheld. The strained relation existing between the parties does not favor the continuous stay of the complainant in the respondent corporation.  Be that as it may, the respondents are ordered to extend to the complainant, monetary considerations, equivalent to her one month salary for every year of service rendered.  The respondents are, likewise, assessed 10% of the financial considerations awarded as attorney’s fees.  The rest of the complaints are dismissed for lack of merit.

“SO ORDERED.”[7]

Dissatisfied, Ms. Go seasonably appealed the Labor Arbiter’s decision to the NLRC.  Her appeal was docketed as NLRC NCR CA No. 008119-95.  In her Memorandum of Appeal, she charged the Labor Arbiter with grave error in: (1) failing to hold that she was constructively/illegally dismissed; and (2) failing to appreciate the evidence on record.[8]

In their Reply/Opposition, petitioners initially argued that she was not dismissed, but had voluntarily resigned and abandoned her employment.[9] However, in their Supplemental Reply, petitioners switched tracks.  They now contended that she was a corporate officer who had been elected/appointed to the position of Assistant to the President/Administrative and Personnel Manager by the UMC Board of Directors.  Any issue relating to her removal from the said posts was therefore an intra-corporate dispute.[10] As such, jurisdiction over the action did not lie with the NLRC but rather with the Securities and Exchange Commission (SEC), pursuant to Section 5 of Presidential Decree No. 902-A which provides:

“SECTION 5.  In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:

x x x

[c]  Controversies in the election or appointments of directors, trustees, officers, or managers of such corporations, partnerships, or associations.”

Petitioners reinforced their arguments by pointing to this Court’s ruling in Espino v. NLRC.[11] We held in Espino that a corporate officer’s dismissal is always a corporate act and/or intra-corporate controversy and that nature is not altered by the reason or wisdom which the Board of Directors may have in taking such action.[12]

Petitioners then prayed for the dismissal of the case before the NLRC.

On March 29, 1996, the Second Division of the NLRC promulgated its decision in NCR CA No. 008119-95, reversing and setting aside the decision of the Labor Arbiter. The decretal portion of the said decision states:

“WHEREFORE, premises considered, the November 21, 1995 Decision of Labor Arbiter Manuel F. Asuncion is hereby, Reversed and Set Aside and a new one entered finding that complainant-appellant was illegally dismissed.  In lieu of reinstatement, respondent Union Motors Corporation is hereby ordered to pay complainant separation pay equivalent to one (1) month pay for every year of service and to pay full backwages computed from date of dismissal (June 19, 1991) up to promulgation of this resolution plus ten percent (10%) of all amounts awarded by way of attorney’s fees.

“SO ORDERED.”[13]

Petitioners duly filed a motion for reconsideration.  Said motion was denied by the NLRC in its resolution dated May 28, 1996.

Unhappy with this turn of events, petitioners filed the instant petition for certiorari and/or prohibition, raising the following issues:

1.  Whether or not the public respondent NLRC has jurisdiction over the instant complaint for an alleged illegal dismissal from a corporate office;

2.  Whether or not the public respondent NLRC acted with grave abuse of discretion in refusing to dismiss the instant case based on lack of jurisdiction over the subject matter, and instead ordering the petitioners to pay separation pay plus backwages to the private respondent;

3.  Whether or not the public respondent NLRC should cease and desist from further proceeding with the instant case.[14]

The issues shall be jointly discussed because they are inter-related.

In the present case, we once again face the tug-of-war between the jurisdiction of the NLRC and the SEC.  It is the private respondent’s stand that she is but mere employee of the petitioner corporation.  A high-ranking employee, but an employee nonetheless, who was illegally dismissed.  Hence, no grave abuse of discretion was committed by the NLRC when it assumed

jurisdiction over her case.  Petitioners, however, vehemently insist that she was a corporate officer who had been ousted from office.  Thus, private respondent’s dismissal squarely falls within the jurisdiction of the SEC as an intra-corporate dispute.  A proper resolution of this case thus entails determining whether the private respondent is a mere employee (albeit high in rank) or a corporate officer.  To determine which body has jurisdiction over this case requires considering not only the relationship of the parties, but also the nature of the question that is the subject of their controversy.[15]

Section 25 of the Corporation Code provides in part:

“Immediately after their election, the directors of a corporation must formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the by laws x x x”

Thus, there are specifically three officers which a corporation must have under the statute: president, secretary, and treasurer.  However, the law does not limit corporate officers to these three.  Section 25 gives corporations the widest latitude to provide for such other offices, as they may deem necessary.  The by-laws may and usually do provide for such other officers, e.g., vice-president, cashier, auditor, and general manager.  The by-laws of petitioner corporation are no exception.  Article V (1) thereof states that one of the powers vested in the Board of Directors is to “appoint such other officers as they may deem necessary who shall have such power and shall perform such duties as may from time to time be prescribed by the Board.”[16]

The records clearly show that private respondent’s position as Assistant to the President and Personnel & Administrative Manager is a corporate office under the by-laws of UMC.  The Secretary’s Certificate of February 3, 1989, lists the position of Assistant to the President and Personnel & Administrative Manager as a corporate office.[17] We have held that one who is included in the by-laws of an association in its roster of corporate officers is an officer of said corporation and not a mere employee.[18] It is also settled that if found regular on its face, a Secretary’s Certification is sufficient to rely on, and there is no need to investigate the truth of the facts contained in such certification.[19] No reason has been shown here to doubt the veracity of the said corporate secretary’s certification.  Hence, the inescapable conclusion is that private respondent was an officer of petitioner UMC.

Section 23 of the Corporation Code provides in part:

“Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted, and all property of such corporations controlled and held by the board of directors or trustees x x x”

Under Section 23 of the Corporation Code, directors are thus charged with the control and management of their corporation.  It is settled that they may appoint officers and agents and as incident to this power of appointment, they may discharge those appointed.[20]

From all the foregoing, it becomes clear that the charges filed by Ms. Go against petitioners partake of the nature of an intra-corporate dispute.  Similarly, the determination of the rights of

Ms. Go and the concomitant liability of the petitioners arising from her ouster as a corporate officer, is an intra-corporate controversy.  For the SEC to take cognizance of a case, the controversy must pertain to any of the following relationships: (a) between the corporation, partnership or association and the public; (b) between the corporation, partnership or association and its stockholders, partners, members, or officers(italics for emphasis); (c) between the corporation, partnership, or association and the state so far as its franchise, permit, or license to operate is concerned; and (d) among the stockholders, partners, or associates themselves.[21] The instant case, in our view, is a dispute between a corporation and one of its officers.  As such, Ms. Go’s complaint is subject to the jurisdiction of the SEC, and not the NLRC.  Interpreting Section 5 of Presidential Decree No. 902-A, we have consistently ruled that it is the SEC that has exclusive and original jurisdiction over controversies involving removal from a corporate office.[22]

Private respondent now faults petitioners for failing to raise the issue of lack of jurisdiction by the NLRC at the earliest possible time.  She contends that since the petitioners actively participated in the proceedings before the Labor Arbiter and the NLRC, they are now estopped from assailing the jurisdiction of the NLRC.  Private respondent’s reliance on the principle of estoppel to justify the exercise of jurisdiction by the NLRC over her case is misplaced.

The long-established rule is that jurisdiction over a subject matter is conferred by law.[23] Estoppel does not apply to confer jurisdiction to a tribunal that has none over a cause of action.[24] Where it appears that the court or tribunal has no jurisdiction, then the defense may be interposed at any time, even on appeal[25] or even after final judgment.[26] Moreover, the principle of estoppel cannot be invoked to prevent this court from taking up the question of jurisdiction.[27]

To conclude, we find that the NLRC erred in assuming jurisdiction over, and thereafter in failing to dismiss, the private respondent’s complaint for illegal dismissal against petitioners, because the NLRC is without jurisdiction on the subject matter of the controversy.

WHEREFORE, the instant petition for certiorari and/or prohibition is hereby GRANTED.  The decision of the National Labor Relations Commission dated March 29, 1996 and the resolution of May 28, 1996 denying petitioners’ motion for reconsideration are hereby REVERSED and SET ASIDE for having been rendered without jurisdiction.  This ruling is without prejudice to the private respondent’s seeking relief, if so minded, in the proper forum.  No pronouncement as to costs.

SO ORDERED.

Vicente vs. Geraldez

52 SCRA  210 – Business Organization – Corporation Law – Delegation of Corporate

Powers – Compromise Agreement 

In 1967, HI Cement Corporation was granted authority to operate mining facilities in

Bulacan. However, the areas allowed for it to explore cover areas which were also being

explored by Ignacio Vicente, Juan Bernabe, and Moises Angeles. And so a dispute arose

between the three and HI Cement as neither side wanted to give up their mining claims over

the disputed areas. Eventually, HI Cement filed a civil case against the three. During pre-

trial, the possibility of an amicable settlement was explored where HI Cement offered to

purchase the areas of claims of Vicente et al at the rate of P0.90 per square meter. Vicente

et al however wanted P10.00 per square meter.

In 1969, the lawyers of HI Cement agreed to enter into acompromise agreement with the

three whereby commissioners shall be assigned by the court for the purpose of assessing

the value of the disputed areas of claim. An assessment was subsequently made pursuant

to the compromise agreement and the commissioners recommended a price rate of P15.00

per square meter.

One of the lawyers of HI Cement, Atty. Francisco Ventura, then notified the Board of

Directors of HI Cement for the approval of the compromise agreement. But the Board

disapproved thecompromise agreement hence Atty. Ventura filed a motion with the court to

disregard the compromise agreement. Vicente et al naturally assailed the motion. Vicente et

al insisted that thecompromise agreement is binding because prior to entering into

the compromise agreement, the three lawyers of HI Cement declared in open court that

they are authorized to enter into acompromise agreement for HI Cement; that one of

the lawyers of HI Cement, Atty. Florentino Cardenas, is an executive official of HI Cement;

that Cardenas even nominated one of the commissioners; that such act ratified

the compromise agreement even if it was not approved by the Board. HI Cement, in its

defense, averred that the lawyers were not authorized and that in fact there was no special

power of attorney executed in their favor for the purpose of entering into a compromise

agreement. Judge Ambrosio Geraldez ruled in favor of HI Cement.

ISSUE: Whether or not a compromise agreement entered into by a lawyer purportedly in

behalf of the corporation is valid without a written authority.

HELD: No. Corporations may compromise only in the form and with the requisites which

may be necessary to alienate their property. Under the corporation law the power to

compromise or settle claims in favor of or against the corporation is ordinarily and primarily

committed to the Board of Directors but such power may be delegated. The delegation must

be clearly shown for as a general rule an officer or agent of the corporation has no power to

compromise or settle a claim by or against the corporation, except to the extent that such

power is given to him either expressly or by reasonable implication from the circumstances.

In the case at bar, there was no special power of attorney authorizing the three lawyers to

enter into a compromise agreement. This is even if the lawyers declared in open court that

they are authorized to do so by the corporation (in this case, the transcript of stenographic

notes does not show that the lawyers indeed declare such in open court).

The fact that Cardenas, an officer of HI Cement, acted in effecting the compromise

agreement, i.e. nominating a commissioner, does not ratify the compromise agreement.

There is no showing that Cardenas’ act binds HI Cement; no proof that he is authorized by

the Board; no proof that there is a provision in the articles of incorporation of HI Cement that

he can bind the corporation.

 

FRANCISCO VS GSIS

7 SCRA 577 – Business Organization – Corporation Law – Corporate Liability 

In 1956, Trinidad Francisco obtained a P400k loan from the Government Service Insurance

System (GSIS). She secured the loan with a parcel of land. In 1959 however, due to some

difficulties, Trinidad incurred huge arrears. This prompted GSIS to foreclose the property.

But then, Trinidad’s father, Atty. Vicente Francisco, wrote a letter to GSIS offering that he

pay P30k off the loan and then allow GSIS to administer themortgaged property instead of

foreclosing it; that thereafter, GSIS shall receive rents from the tenants of the land until the

arrears are paid and the account is made current or up to date (because the total of the

monthly rents is bigger than the monthly loan payments supposed to be paid by Trinidad to

GSIS).

GSIS, through its general manager Rodolfo Andal, responded with a letter which states that

the GSIS Board had accepted Vicente’s offer. But GSIS for some reason did not take over

the property. Nevertheless, the Franciscos collected rents and turned them over to GSIS.

Then in 1960, GSIS demanded Francisco to pay off the loan. Vicente then reminded GSIS

that the agreement in 1959 which is actually a compromise is binding upon GSIS. GSIS

then averred that the letter sent to Vicente in response to his offer was not sent in error

because Andal’s secretary sent the poorly worded response without Andal’s knowledge.

ISSUE: Whether or not a corporation like GSIS is bound by the acts of its officers acting in

their apparent authority.

HELD: Yes. A third party transacting with a corporation cannot be expected to know what

occurs within a corporation, its meetings, without any external manifestations from the

corporation. In the case at bar, the response by GSIS to Vicente by way of a telegram, is

within the apparent authority of Andal. If there are any irregularities in the telegraph i.e., the

sending of the secretary without the authority of Andal, Vicente is not expected to know it

because the telegram on its face is clear as to the acceptance. Vicente cannot therefore be

faulted for relying on the telegram; that GSIS accepted his offer. Hence, GSIS cannot now

ask Francisco to suddenly pay off the debt. If a corporation knowingly permits one of its

officers, or any other agent, to do acts within the scope of an apparent authority, and thus

holds him out to the public as possessing power to do those acts, the corporation will, as

against anyone who has in good faith dealt with the corporation through such agent, be

estopped from denying his authority; and where it is said “if the corporation permits” this

means the same as “if the thing is permitted by the directing power of the corporation.

GSIS cannot also deny that it has knowledge of the acceptance. A corporation cannot see,

or know, anything except through its officers. Knowledge of facts acquired or possessed by

an officer or agent of a corporation in the course of his employment, and in relation to

matters within the scope of his authority, is notice to the corporation, whether he

communicates such knowledge or not. Andal is presumed to have knowledge of the

acceptance because it was his office which sent it to Vicente. Knowledge of Andal, an

officer of GSIS, is deemed knowledge of GSIS.

At any rate, even if the compromise agreement is void because of the “unauthorized”

telegram, GSIS’s silence and acceptance of the subsequent remittances of the Franciscos

ratified the compromise agreement.

 

Gokongwei vs. SEC, 89 SCRA 336 (1979)Post under case digests, Commercial Law at Monday, January 30, 2012 Posted by Schizophrenic Mind

Facts: Petitioner, stockholder of San Miguel Corp. filed a petition with the SEC for the declaration of nullity of the by-laws etc. against the majority members of the BOD and San Miguel. It is stated in the by-laws that the amendment or modification of the by-laws may only be delegated to the BODs upon an affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid uo capital stock of the corporation, which 2/3 could have been computed on the basis of the capitalization at the time of the amendment. Petitioner contends that the amendment was based on the 1961 authorization, the Board acted without authority and in usurpation of the power of the stockholders n amending the by-laws in 1976. He also contends that the 1961 authorization was already used in 1962 and 1963. He also contends that the amendment deprived him of his right to vote and be voted upon as a stockholder (because it disqualified competitors

from nomination and election in the BOD of SMC), thus the amended by-laws were null and void. While this was pending, the corporation called for a stockholder’s meeting for the ratification of the amendment to the by-laws. This prompted petitioner to seek for summary judgment. This was denied by the SEC. In another case filed by petitioner, he alleged that the corporation had been using corporate funds in other corps and businesses outside the primary purpose clause of the corporation in violation of the Corporation Code.

Issue: Are amendments valid?

Held: The validity and reasonableness of a by-law is purely a question of law. Whether the by-law is in conflict with the law of the land, or with the charter of the corporation or is in legal sense unreasonable and therefore unlawful is a question of law. However, this is limited where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have exercised authority. The Court held that a corporation has authority prescribed by law to prescribe thequalifications of directors. It has the inherent power to adopt by-laws for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs. A corporation, under the Corporation law, may prescribe in its by-laws

the qualifications, duties and compensation of directors, officers, and employees. Any person who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and he impliedly contracts that the will of the majority shall govern in all matters within the limits of the acts of incorporation and lawfully enacted by-laws and not forbidden by law. Any corporation may amend its by-laws by the owners of the majority of the subscribed stock. It cannot thus be said that petitioners has the vested right, as a stock holder, to be elected director, in the face of the fact that the law at the time such stockholder's right was acquired contained the prescription that the corporate charter and the by-laws shall be subject to amendment, alteration and modification. A Director stands in a fiduciary relation to the corporation and its shareholders, which is characterized as a trust relationship. An amendment to the corporate by-laws which renders a stockholder ineligible to be director, if he be also director in a corporation whose business is in competition with that of the other corporation, has been sustained as valid. This is based upon the principle that where the director is employed in the service of a rival company, he cannot serve both, but must betray one or the other. The amendment in this case serves to advance the benefit of the corporation and is good. Corporate officers are also not permitted to use their position of trust and confidence to further their private needs, and the act done in furtherance of private needs is deemed to be for the benefit of the corporation. This is called the doctrine of corporate opportunity.

UNION MOTORS CORPORATION, BENITO S. CUA, and CHARLOTTE C. CUA, petitioners, vs. THE NATIONAL LABOR RELATIONS COMMISSION and PRISCILLA D. GO, respondents.

D E C I S I O N

QUISUMBING, J.:

This petition for certiorari and prohibition, under Rule 65 of the Rules of Court, seeks to set aside the decision dated March 29, 1996, of the National Labor Relations Commission  in NLRC NCR CA No. 008119-95.  It also assails the NLRC resolution, dated May 28, 1996, denying petitioners’ motion for reconsideration.  Petitioners also pray that NLRC desist from further proceedings in said case.

Petitioner Benito S. Cua is the father of Charlotte C. Cua.  They are, respectively, the President and Vice-President/Treasurer of petitioner UMC. Hereafter, they will be referred to respectively as Mr. Cua and Ms. Cua.  Private respondent Priscilla Go was, originally, the complainant in a case for illegal dismissal filed against petitioners.  Hereafter, she will be referred to as Ms. Go.

The facts of the case, as culled from the records, are as follows:

On June 17, 1981, UMC hired Ms. Go as its Administrative and Personnel Manager.  On February 13, 1982, she was appointed Treasurer while concurrently serving as Administrative and Personnel Manager.

Seven years later, UMC’s Board of Directors effected a top-level corporate revamp.  Ms. Cua was appointed Vice-President/Treasurer.  Ms. Go was in turn appointed Assistant to the President and Administrative and Personnel Manager by the Board. [1] Ms. Go accepted the appointment on the condition that she would report solely and directly to the UMC President, Mr. Cua.

On November 2, 1989, however, Mr. Cua issued an inter-office memorandum advising Ms. Go that she would be under the direct supervision of Ms. Cua, the Vice-President/Treasurer.[2]

On July 15, 1991, UMC Service Manager Reymundo M. Varilla requested Ms. Go for the assignment of one Analyn Aldea to his department for the duration of her contractual employment.  Ms. Go denied the request.  The denial was based on the lack of an official written advice from Ms. Cua.[3]

On July 18, 1991, Ms. Cua issued a memorandum-reminder stating that Ms. Cua was Ms. Go’s immediate superior.  The memorandum went on to say that “[any] verbal, written, taped or any other form of communication advice…will constitute official advice…”[4] Ms. Cua further said that Ms. Go had been given “verbal advice” regarding Aldea’s transfer of assignment.

That memorandum prompted Ms. Go to write Mr. Cua regarding her intention to “withdraw” given the escalating level of tension between her and Ms. Cua.[5]

On July 19, 1991, Ms. Go stopped reporting for work.  She claimed she had gone on leave to avoid further clashes between her and Ms. Cua.

On August 7, 1991, Mr. Cua designated one Nancy T. Borras as Administrative and Personnel Consultant in the absence of Ms. Go.  Meanwhile, Ms. Go met with Mr. Cua and UMC Chairman Gilbert Dee, Sr.  She was advised to extend her leave until her differences with Ms. Cua could be resolved.

On September 30, 1991, Ms. Go wrote Mr. Cua requesting him to come up with a concrete plan to implement his commitment to draw up a workable arrangement between her and Charlotte Cua.

On November 6, 1991, however, Mr. Cua wrote private respondent a letter advising her that he was accepting her resignation.[6]

Insisting that she did not resign and hence, an acceptance of her resignation could not be possible, Ms. Go then filed a complaint for constructive/illegal dismissal with the Labor Arbiter.  Her case was docketed as NLRC-NCR Case No. 00-01-06745-91.  She prayed for reinstatement and payment of backwages, 13 th month pay, allowances, and bonuses.  She also sought moral damages in the amount of P3 million, exemplary damages of no less than P500,000.00, and attorney’s fees equivalent to 10% of the total monetary claims to be awarded her.

In their reply dated February 24, 1992, petitioners denied that Ms. Go was illegally dismissed.  They countered that she had abandoned her job after she had expressed her intention to resign on July 18, 1991.  This intent was concretized when she stopped reporting for work the following day.

On November 21, 1994, the Labor Arbiter rendered his decision dismissing the private respondent’s complaint.  The dispositive portion of the decision reads:

“IN THE LIGHT OF THE FOREGOING CONSIDERATIONS, the separation of the complainant from her service, for whatever cause, must be upheld. The strained relation existing between the parties does not favor the continuous stay of the complainant in the respondent corporation.  Be that as it may, the respondents are ordered to extend to the complainant, monetary considerations, equivalent to her one month salary for every year of service rendered.  The respondents are, likewise, assessed 10% of the financial considerations awarded as attorney’s fees.  The rest of the complaints are dismissed for lack of merit.

“SO ORDERED.”[7]

Dissatisfied, Ms. Go seasonably appealed the Labor Arbiter’s decision to the NLRC.  Her appeal was docketed as NLRC NCR CA No. 008119-95.  In her Memorandum of Appeal, she charged the Labor Arbiter with grave error in: (1) failing to hold that she was constructively/illegally dismissed; and (2) failing to appreciate the evidence on record.[8]

In their Reply/Opposition, petitioners initially argued that she was not dismissed, but had voluntarily resigned and abandoned her employment.[9] However, in their Supplemental Reply,

petitioners switched tracks.  They now contended that she was a corporate officer who had been elected/appointed to the position of Assistant to the President/Administrative and Personnel Manager by the UMC Board of Directors.  Any issue relating to her removal from the said posts was therefore an intra-corporate dispute.[10] As such, jurisdiction over the action did not lie with the NLRC but rather with the Securities and Exchange Commission (SEC), pursuant to Section 5 of Presidential Decree No. 902-A which provides:

“SECTION 5.  In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:

x x x

[c]  Controversies in the election or appointments of directors, trustees, officers, or managers of such corporations, partnerships, or associations.”

Petitioners reinforced their arguments by pointing to this Court’s ruling in Espino v. NLRC.[11] We held in Espino that a corporate officer’s dismissal is always a corporate act and/or intra-corporate controversy and that nature is not altered by the reason or wisdom which the Board of Directors may have in taking such action.[12]

Petitioners then prayed for the dismissal of the case before the NLRC.

On March 29, 1996, the Second Division of the NLRC promulgated its decision in NCR CA No. 008119-95, reversing and setting aside the decision of the Labor Arbiter. The decretal portion of the said decision states:

“WHEREFORE, premises considered, the November 21, 1995 Decision of Labor Arbiter Manuel F. Asuncion is hereby, Reversed and Set Aside and a new one entered finding that complainant-appellant was illegally dismissed.  In lieu of reinstatement, respondent Union Motors Corporation is hereby ordered to pay complainant separation pay equivalent to one (1) month pay for every year of service and to pay full backwages computed from date of dismissal (June 19, 1991) up to promulgation of this resolution plus ten percent (10%) of all amounts awarded by way of attorney’s fees.

“SO ORDERED.”[13]

Petitioners duly filed a motion for reconsideration.  Said motion was denied by the NLRC in its resolution dated May 28, 1996.

Unhappy with this turn of events, petitioners filed the instant petition for certiorari and/or prohibition, raising the following issues:

1.  Whether or not the public respondent NLRC has jurisdiction over the instant complaint for an alleged illegal dismissal from a corporate office;

2.  Whether or not the public respondent NLRC acted with grave abuse of discretion in refusing to dismiss the instant case based on lack of jurisdiction over the subject matter, and instead ordering the petitioners to pay separation pay plus backwages to the private respondent;

3.  Whether or not the public respondent NLRC should cease and desist from further proceeding with the instant case.[14]

The issues shall be jointly discussed because they are inter-related.

In the present case, we once again face the tug-of-war between the jurisdiction of the NLRC and the SEC.  It is the private respondent’s stand that she is but mere employee of the petitioner corporation.  A high-ranking employee, but an employee nonetheless, who was illegally dismissed.  Hence, no grave abuse of discretion was committed by the NLRC when it assumed jurisdiction over her case.  Petitioners, however, vehemently insist that she was a corporate officer who had been ousted from office.  Thus, private respondent’s dismissal squarely falls within the jurisdiction of the SEC as an intra-corporate dispute.  A proper resolution of this case thus entails determining whether the private respondent is a mere employee (albeit high in rank) or a corporate officer.  To determine which body has jurisdiction over this case requires considering not only the relationship of the parties, but also the nature of the question that is the subject of their controversy.[15]

Section 25 of the Corporation Code provides in part:

“Immediately after their election, the directors of a corporation must formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the by laws x x x”

Thus, there are specifically three officers which a corporation must have under the statute: president, secretary, and treasurer.  However, the law does not limit corporate officers to these three.  Section 25 gives corporations the widest latitude to provide for such other offices, as they may deem necessary.  The by-laws may and usually do provide for such other officers, e.g., vice-president, cashier, auditor, and general manager.  The by-laws of petitioner corporation are no exception.  Article V (1) thereof states that one of the powers vested in the Board of Directors is to “appoint such other officers as they may deem necessary who shall have such power and shall perform such duties as may from time to time be prescribed by the Board.”[16]

The records clearly show that private respondent’s position as Assistant to the President and Personnel & Administrative Manager is a corporate office under the by-laws of UMC.  The Secretary’s Certificate of February 3, 1989, lists the position of Assistant to the President and Personnel & Administrative Manager as a corporate office.[17] We have held that one who is included in the by-laws of an association in its roster of corporate officers is an officer of said corporation and not a mere employee.[18] It is also settled that if found regular on its face, a Secretary’s Certification is sufficient to rely on, and there is no need to investigate the truth of the facts contained in such certification.[19] No reason has been shown here to doubt the veracity of the said corporate secretary’s certification.  Hence, the inescapable conclusion is that private respondent was an officer of petitioner UMC.

Section 23 of the Corporation Code provides in part:

“Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted, and all property of such corporations controlled and held by the board of directors or trustees x x x”

Under Section 23 of the Corporation Code, directors are thus charged with the control and management of their corporation.  It is settled that they may appoint officers and agents and as incident to this power of appointment, they may discharge those appointed.[20]

From all the foregoing, it becomes clear that the charges filed by Ms. Go against petitioners partake of the nature of an intra-corporate dispute.  Similarly, the determination of the rights of Ms. Go and the concomitant liability of the petitioners arising from her ouster as a corporate officer, is an intra-corporate controversy.  For the SEC to take cognizance of a case, the controversy must pertain to any of the following relationships: (a) between the corporation, partnership or association and the public; (b) between the corporation, partnership or association and its stockholders, partners, members, or officers(italics for emphasis); (c) between the corporation, partnership, or association and the state so far as its franchise, permit, or license to operate is concerned; and (d) among the stockholders, partners, or associates themselves.[21] The instant case, in our view, is a dispute between a corporation and one of its officers.  As such, Ms. Go’s complaint is subject to the jurisdiction of the SEC, and not the NLRC.  Interpreting Section 5 of Presidential Decree No. 902-A, we have consistently ruled that it is the SEC that has exclusive and original jurisdiction over controversies involving removal from a corporate office.[22]

Private respondent now faults petitioners for failing to raise the issue of lack of jurisdiction by the NLRC at the earliest possible time.  She contends that since the petitioners actively participated in the proceedings before the Labor Arbiter and the NLRC, they are now estopped from assailing the jurisdiction of the NLRC.  Private respondent’s reliance on the principle of estoppel to justify the exercise of jurisdiction by the NLRC over her case is misplaced.

The long-established rule is that jurisdiction over a subject matter is conferred by law.[23] Estoppel does not apply to confer jurisdiction to a tribunal that has none over a cause of action.[24] Where it appears that the court or tribunal has no jurisdiction, then the defense may be interposed at any time, even on appeal[25] or even after final judgment.[26] Moreover, the principle of estoppel cannot be invoked to prevent this court from taking up the question of jurisdiction.[27]

To conclude, we find that the NLRC erred in assuming jurisdiction over, and thereafter in failing to dismiss, the private respondent’s complaint for illegal dismissal against petitioners, because the NLRC is without jurisdiction on the subject matter of the controversy.

WHEREFORE, the instant petition for certiorari and/or prohibition is hereby GRANTED.  The decision of the National Labor Relations Commission dated March 29, 1996 and the resolution of May 28, 1996 denying petitioners’ motion for reconsideration are hereby REVERSED and SET ASIDE for having been rendered without jurisdiction.  This ruling is without prejudice to the private respondent’s seeking relief, if so minded, in the proper forum.  No pronouncement as to costs.

SO ORDERED.

MAHARLIKA PUBLISHING CORP V TAGLE

FACTS

GSIS owned a parcel of land with a building and printing equipment in

Paco, Manila. It was sold to Maharlika in aConditional Contract of Sale with

the stipulation that if Maharlika failed to pay monthly installments in 90

days, the GSIS would automatically cancel the contract. Because Maharlika

failed to pay several monthly installments, GSIS demanded that Maharlika

vacate the premises. Even though Maharlika refused to do so, the GSIS

published an advertisement inviting the public to bid in a public auction. A

day before the scheduled bidding, AdolfoCalica, the President of Maharlika,

gave the GSIS head office 2 checks worth 11,000 and a proposal for

acompromise agreement. The GSIS General Manager Roman Cruz gave a

not to Maharlika saying “Hold Bidding. Discuss with me.” However, the

public bidding took place as scheduled and the property was subsequently

awarded to Luz Tagle, the wife of the GSIS Retirement Division Chief.

Maharlika demanded that the sale be considerednull and void, as Mrs. Tagle

should have been disqualifiedfrom bidding for the GSIS property. RTC and

CA both ruled that the Tagles were entitled to the property and Maharlika

should vacate the premises.

ISSUE

Whether or not Tagle are entitled to the property ?

HELD

NO. The sale to them was against public policy. First of all, the GSIS head

office was stopped from claiming that they did not give the impression to

Maharlika that they were accepting the proposal for acompromise

agreement. The act of the general manager is binding on GSIS. Second,

Article 1491 (4) of the CC provides that public officers and employees are

prohibited from purchasing the property of the state or any GOCC or

institution, the administration of which has been entrusted to them cannot

purchase, even at public or judicial auction, either in person or through the

mediation of another. The SC held that as an employee of the GSIS,

Edilberto Tagle and his wife are disqualified from bidding on the property

belonging to the GSIS because it gives the impression that there was

politics involved in the sale. It is not necessary that actual fraud be shown,

for a contract which tends to injure the public service is void although the

parties entered into it honestly and proceeded under it in good faith.

Yao Ka Sin Trading vs. Court of Appeals

209 SCRA 763 – Business Organization – Corporation Law – Liability of Officers – Apparent

Authority

In 1973, Constancio Maglana, president of Prime White Cement Corporation, sent an offer

letter to Yao Ka Sin Trading. The offer states that Prime White is willing to sell 45,000 bags

of cement at P24.30 per bag. The offer letter was received by Yao Ka Sin’s manager, Henry

Yao. Yao accepted the letter and pursuant to the letter, he sent a check in the amount of

P243,000.00 equivalent to the value of 10,000 bags of cement. However, the Board of

Directors of Prime White rejected the offer letter sent by Maglana but it considered Yao’s

acceptance letter as a new contract offer hence the Board sent a letter to Yao telling him

that Prime White is instead willing to sell only 10,000 bags to Yao Ka Sin and that he has

ten days to reply; that if no reply is made by Yao then they will consider it as an acceptance

and that thereafter Prime White shall deposit the P243k check in its account and then

deliver the cements to Yao Ka Sin. Henry Yao never replied.

Later, Yao Ka Sin sued Prime White to compel the latter to comply with what Yao Ka Sin

considered as the true contract, i.e., 45,000 bags at P24.30 per bag. Prime White in its

defense averred that although Maglana is empowered to sign contracts in behalf of Prime

White, such contracts are still subject to approval by Prime White’s Board, and then it still

requires further approval by the National Investment and Development Corporation (NIDC),

a government owned and controlled corporation because Prime White is a subsidiary of

NIDC.

Henry Yao asserts that the letter from Maglana is a binding contract because it was made

under the apparent authority of Maglana. The trial court ruled in favor of Yao Ka Sin. The

Court of Appeals reversed the trial court.

ISSUE: Whether or not the president of a corporation is clothed with apparent authority to

enter into binding contracts with third persons without the authority of the Board.

HELD: No. The Board may enter into contracts through the president. The president may

only enter into contracts upon authority of the Board. Hence, any agreement signed by the

president is subject to approval by the Board. Unlike a general manager (like the case of

Francisco vs GSIS), the president has no apparent authority to enter into binding contracts

with third persons. Further, if indeed the by-laws of Prime White did provide Maglana with

apparent authority, this was not proven by Yao Ka Sin.

As a rule, apparent authority may result from (1) the general manner, by which the

corporation holds out an officer or agent as having power to act or, in other words, the

apparent authority with which it clothes him to act in general or (2) acquiescence in his acts

of a particular nature, with actual or constructive knowledge thereof, whether within or

without the scope of his ordinary powers. These are not present in this case.

Also, the subsequent letter by Prime White to Yao Ka Sin is binding because Yao Ka Sin’s

failure to respond constitutes an acceptance, per stated in the letter itself – which was not

contested by Henry Yao during trial.

 

 STEINBERG VS. VELASCO(52 Phil. 953; 1929)

FACTS: The board of directors of Sibuguey Trading Company authorized the purchase of 330 shares of stock of the corporation and declared payment of P3T as dividends to stockholders. The directors fromwhom 300 of the stocks were bought resigned before the board approved the purchase and declaredthe dividends. At the time of purchase of stock sand declaration of dividends, the corporation hadaccounts payable amounting to P9,241 and accounts receivable amounting to P12,512, but the receiverwho made diligent efforts to collect the amounts receivable was unable to do so. It has been allegedthat the payment of cash dividends to the stockholders was wrongfully done and in bad faith, and to theinjury and fraud of the creditors of the corporation. The directors are sought to be made personallyliable in their capacity as directors.

HELD: Creditors of a corporation have the right to assume that so long as there are outstanding debtsand liabilities, the BOD will not use the assets of the corporation to buy its own stock, and will notdeclare dividends to stockholders when the corporation is insolvent .In this case, it was found that thecorporation did not have an actual bona fide surplus from which dividends could be paid. Moreover, theCourt noted that the Board of Directors purchased the stock from the corporation and declared thedividends on the stock at the same Board meeting, and that the directors were permitted to resign sothat they could sell their stock to the corporation. Given all of this, it was apparent that the directors didnot act in good faith or were grossly ignorant of their duties. Either way, they are liable for their actionswhich affected the financial condition of the corporation and prejudiced creditors