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Board of Liquidators v.

Heirs of Kalaw (1967)


Doctrine: It is possible for an express provision of the by-laws to be violated and the Board may, in certain corporate actions, bind the corporation in spite of the fact that it is contrary to the by-law provision. There are 2 ways by which corporate actions may come about through its Board of Directors: o The board may empower or authorize the act or contract; or o Ratification from the board As long as there is approval by the board, express or implied, it is valid to bind the corporation. Facts: National Coconut Corporation (NACOCO) was a chartered as a non-profit governmental organization, in charge of all transactions involving coconut and its by-products. Maximo Kalaw sat as its General Manager and board chairman. Because of 4 typhoons that hit the country in, NACOCO was unable to fulfill its obligations under the numerous contracts it entered into with several buyers. The aggrieved buyers threatened to bring damage suits but most of these were settled, except for one who actually pushed through with the suit (Louis Dreyfus ltd.). Subsequently, NACOCO was abolished by EO 372, giving the Board of Liquidators the function of settling and closing its affairs. All the settlements sum up to P1,343,274.52. It is this sum that NACOCO, through the Board of Liquidators, now seeks to recover from General Manager Kalaw and the other two directors, charging the latter with negligence and bad faith/breach of trust for having approved entered into the aforementioned unprofitable contracts. It is alleged that while the by-laws required prior approval of the board, Kalaw entered into the contracts alone as general manager and without the boards prior approval. Sometime after, Kalaw died and the suit was brought against his estate. Issues: 1. W/N Kalaw and the rest of the board were guilty negligence and bad faith and/or breach of trust for having entered into the unprofitable contracts 2. [civpro related] w/n the action survives his death; and if so, is his heirs liable Held: HELD: 1. NO. Under the circumstances, Kalaws acts were valid corporate acts. Although the bylaws required that a general manager first procure approval of the board members before entering into contracts that would bind the corporation, the contrary practice by Kalaw was ratified by the Board. Evidence shows that it was the practice of the corporation to allow its general manager to negotiate contracts, in its copra trading for and in NACOCOs behalf, without prior board approval. The Court ruled that if the by-laws were to be literally followed, the board should give its stamp of prior approval on all corporate contracts. But [in this case] the board itself, by its acts and through acquiescence, practically laid aside the by-law requirement of prior approval [please see above doctrine] 2. [civpro related] The action, being one for a tort, does survive his death.