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Corporate Liability and Authority

This case involves a lawsuit filed by the National Coconut Corporation (NACOCO) against its former General Manager and Board Chairman Maximo Kalaw and other board members seeking to recover debts incurred under Kalaw's administration. Specifically, NACOCO entered into contracts under Kalaw that resulted in debts when customers sued for undelivered coconuts. The court ruled that Kalaw could not be held liable as the board had implicitly authorized the contracts through their knowledge and approval of similar past contracts, establishing Kalaw's authority. The court affirmed that ratification of unauthorized contracts by a corporation makes those contracts equivalent to having original authority.

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104 views1 page

Corporate Liability and Authority

This case involves a lawsuit filed by the National Coconut Corporation (NACOCO) against its former General Manager and Board Chairman Maximo Kalaw and other board members seeking to recover debts incurred under Kalaw's administration. Specifically, NACOCO entered into contracts under Kalaw that resulted in debts when customers sued for undelivered coconuts. The court ruled that Kalaw could not be held liable as the board had implicitly authorized the contracts through their knowledge and approval of similar past contracts, establishing Kalaw's authority. The court affirmed that ratification of unauthorized contracts by a corporation makes those contracts equivalent to having original authority.

Uploaded by

carlo_tabangcura
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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BOARD OF LIQUIDATORS

vs.
HEIRS OF MAXIMO KALAW
GR L-18805, 14 August 1967

FACTS:

National Coconut Corporation (NACOCO) is with Maximo Kalaw as its General Manager and Chairman of
the BOD. Under his tenure NACOCO entered into different contracts involving the trade of coconuts. It failed,
however, due to natural calamities that greatly affected the production of coconuts. This led to some customers of
NACOCO suing the corporation for undelivered coconuts due to them under the contracts that they signed. This was
settled by NACOCO by paying the customers.
Thereafter, 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 trust for having approved the contracts.

ISSUE:

Whether or not Kalaw may be held liable by NACOCO for the debts the corporation incurred under his
administration.

RULING:

NO.

They were done with implied authority from the BOD. These previous contracts, 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.
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. In varying language, existence of such authority is established, by proof of the course of business, the usages
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.
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." The language of one case is expressive: "The adoption or ratification
of a contract by a corporation is nothing more nor 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.

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