BOARD OF LIQUIDATORS V KALAW G.R. No. L-18805 August 14, 1967 THE BOARD OF LIQUIDATORS representing THE
GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. HEIRS OF MAXIMO M. KALAW, JUAN BOCAR,
ESTATE OF THE DECEASED CASIMIRO GARCIA, and LEONOR MOLL, defendants-appellees.
FACTS:
The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit governmental organization on 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 and sell copra. 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. 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.
An unhappy chain of events conspired to deter NACOCO from fulfilling the contracts it entered into. Nature supervened. Four devastating typhoons visited the Philippines in 1947. 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 first taken on the contracts but 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. The buyers threatened damage suits, some of which were settled. But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue before the Court of First Instance of Manila. The cases culminated in an out-of- court amicable settlement when the Kalaw management was already out.
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. 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. 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.
DECISION OF LOWER COURTS:
1. CFI-Manila: dismissed the complaint. 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.
ISSUE:
1. Whether plaintiff Board of Liquidators has lost its legal personality to continue with this suit since the three year period has elapsed, the Board of Liquidators may not now continue with, and prosecute, the present case to its conclusion
2. Whether the action is unenforceable against Kalaw
3. 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.
4. Whether damages should be awarded
RULING:
1. No, the provision should 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.
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.
3 methods by which corporation may wind up it its affairs:
1. Voluntary dissolution, "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. 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;"
3. 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
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
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."
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. The provisions of Section 78 of the Corporation Law — the third method of winding up corporate affairs — find application.
2. Action against the Kalaw heirs and, for the matter, against the Estate of Casimiro Garcia survives.
FACTS:
The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit governmental organization on 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 and sell copra. 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. 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.
An unhappy chain of events conspired to deter NACOCO from fulfilling the contracts it entered into. Nature supervened. Four devastating typhoons visited the Philippines in 1947. 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 first taken on the contracts but 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. The buyers threatened damage suits, some of which were settled. But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue before the Court of First Instance of Manila. The cases culminated in an out-of- court amicable settlement when the Kalaw management was already out.
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. 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. 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.
DECISION OF LOWER COURTS:
1. CFI-Manila: dismissed the complaint. 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.
ISSUE:
1. Whether plaintiff Board of Liquidators has lost its legal personality to continue with this suit since the three year period has elapsed, the Board of Liquidators may not now continue with, and prosecute, the present case to its conclusion
2. Whether the action is unenforceable against Kalaw
3. 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.
4. Whether damages should be awarded
RULING:
1. No, the provision should 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.
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.
3 methods by which corporation may wind up it its affairs:
1. Voluntary dissolution, "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. 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;"
3. 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
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
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."
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. The provisions of Section 78 of the Corporation Law — the third method of winding up corporate affairs — find application.
2. Action against the Kalaw heirs and, for the matter, against the Estate of Casimiro Garcia survives.
claims that are barred if not filed in the estate settlement
proceedings(Rule 87, sec. 5)
> actions that are abated by death are:
it is not enough that the claim against the deceased party be for
money, but it must arise from "contract express or implied"
actions that survive and may be prosecuted against the executor or administrator (Rule 88, sec. 1)
> 1. actions for damages caused by tortious conduct of a defendant (as in the case at bar) survive the death of the latter.
(3) actions to recover damages for an injury to person or property.
> 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."
(2) judgments for money; and
(3) "all claims for money against the decedent, arising from contract express or implied."
actions that survive and may be prosecuted against the executor or administrator (Rule 88, sec. 1)
> 1. actions for damages caused by tortious conduct of a defendant (as in the case at bar) survive the death of the latter.
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
(1) actions to recover real and personal property from the estate; (2) actions to enforce a lien thereon; and
3. 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. 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
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. 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 be presumed to have, of acts and doings of its subordinates in and about the affairs of the corporation.
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. 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. 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."
4. No. 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. 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. 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.
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 so long as it acts in good faith its orders are not reviewable by the courts."
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. 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 be presumed to have, of acts and doings of its subordinates in and about the affairs of the corporation.
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. 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. 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."
4. No. 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. 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. 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.
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 so long as it acts in good faith its orders are not reviewable by the courts."
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