Case Summary (G.R. No. L-18805)
Survival of Action Against Deceased Officials
Heirs of Kalaw and Garcia contended that claims arising from contract must be presented in estate proceedings. The Court distinguished tortious claims from contractual claims: tort actions “to recover damages for injury to person or property” survive against executors or administrators (Rule 88), whereas contractual money claims abate if not filed in estate proceedings (Rule 87). Since the suit alleges negligence and breach of trust, it survives against the heirs.
General Manager’s Implied Authority
Although by-laws required board approval for contracts, Kalaw—a general manager with plenary management duties—had implied power to execute ordinary business contracts, including forward sales of copra. Forward sales were routine in the copra trade to stabilize producer prices, ensure quick turn-over, and minimize middlemen margins. Prior to the disputed contracts, Kalaw had executed over 60 forward sales contracts in FY 1946–47, generating substantial profits and earning board commendation. Directors knew of and acquiesced in Kalaw’s practice. Under corporate usage and prior board conduct, his contracts bound NACOCO despite lack of formal prior approval.
Ratification of Contracts by the Directorate
On January 30, 1948, newly constituted board—fully aware of impending losses—unanimously ratified the disputed contracts. Ratification “relates back” and equates to original authority. Under Civil Code (old Art. 1313; new Art. 1396) and corporate law principles, corporate confirmation cures prior defects, rendering the contracts valid from inception.
Absence of Bad Faith or Breach of Trust
Plaintiff alleged that directors acted in bad faith or breach of trust by approving loss-making contracts. The Court emphasized that bad faith requires “dishonest purpose,” moral obliquity, conscious wrong, or self-interest. Here, board members honestly believed Kalaw had authority; previous profitable contracts had enhanced corporate prestige; no personal gain or fraud was alleged or proved. Directors acted to protect corporate reputation and ensure equity to Kalaw, not for ulterior motives.
Force Majeure and Damnum Absque Injuria
The four 1947 typhoons devastated coconut regions, disrupted production, destroyed facilities,
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Facts
- The National Coconut Corporation (NACOCO) was created May 7, 1940 by Commonwealth Act 518 as a non-profit governmental entity to protect and develop the Philippine coconut industry.
- On August 1, 1946, Republic Act 5 amended NACOCO’s charter to empower it “to buy, sell, barter, export, and in any other manner deal in, coconut, copra, and dessicated coconut, as well as their by-products,” aiming to stabilize copra prices and minimize middlemen margins.
- Maximo M. Kalaw served as general manager and board chairman; Juan Bocar and Casimiro Garcia were original directors; Leonor Moll joined the board on December 22, 1947.
- Between July and October 1947, Kalaw executed nine forward‐delivery copra sales contracts (totaling 16,500 tons) with various foreign buyers (Alexander Adamson & Co., Pacific Vegetable Co., Spencer Kellog & Sons, Franklin Baker, Louis Dreyfus & Co., Juan Cojuangco, Fairwood & Co.), some later assigned to others.
- Four typhoons (October–December 1947) devastated coconut regions, reduced output, destroyed warehouses, raised procurement costs, and hampered export turnover and financing.
- Upon realizing impending losses, Kalaw reported to the board on December 22, 1947; no immediate action was taken; further discussion at the January 7, 1948 meeting produced no vote.
- President Roxas publicly defended Kalaw on January 11, 1948 and affirmed his continuance in office.
- On January 30, 1948, the board (Kalaw, Bocar, Garcia, Moll) unanimously ratified all disputed contracts.
- NACOCO partially delivered 7,091.45 tons; 9,408.55 tons remained undelivered. Buyers threatened suits; settlements paid to Pacific Vegetable (₱539,000), Franklin Baker (₱78,210), Spencer Kellog (₱159,040).
- Louis Dreyfus & Co. sued on three contract balances (₱287,028; ₱75,098.63; ₱447,908.40), later settling out of court for ₱567,024.52 (70% of claims).
- Total compromise payments by NACOCO: ₱1,343,274.52.
- February 1949 suit by NACOCO (later Board of Liquidators) sought recovery of ₱1,343,274.52 from Kalaw and directors for negligence (Art. 1902, old Civil Code) and bad faith/breach of trust.
- Lower court dismissed complaint and counterclaims (except ordered plaintiff to pay Kalaw’s heirs ₱2,601.94 for unpaid salary); Board of Liquidators appealed directly to the Supreme Court.
Procedural History
- Original plaintiff NACOCO dissolved November 24, 1950 by Executive Order 372; Board of Liquidators substituted.
- Fifth amended complaint filed July 2, 1959.
- Trial court (Court of First Instance, Manila) on August 29, 1960 rendered decision dismissing plaintiff’s action and counterclaims (except Kalaw salary claim).
- Supreme Court appeal raised challenges to plaintiff’s capacity, action survival, negligence, board members’ liability, and fact of force majeure.
Issues Presented
- Whether the Board of Liquidators retained corporate personality and capacity to sue beyond three years after NACOCO’s abolition.
- Whether the cause of action survived against the heirs of Maximo M. Kalaw and the Estate of Casimiro Garcia.
- Whether Kalaw incurred actionable negligence under Article 1902 (old Civil Code) in ex