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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.
14 Aug 1967 ; Sanchez, J.
Parties:
1.Agent Kalaw, General Manager (GM) of NACOCO
2.Principal NACOCO
3.3rd Party Louis Dreyfus & Go. (copra buyer)
Nature: review of lower court decision
Facts: National Coconut Corp. (NACOCO) used to be an NGO for the coconut industry. Following RA 5, NACOCO
gained the authority to enter into the business of buying-and-selling copra to stabilize the prices of copra.
From July to October 1947, NACOCO, through its GM Kalaw, entered into 9 contracts of sale of copra, including the
abovementioned third party. The aggregate amount of the copra was 16,500 tons of copra, sold for $145 to $200 per ton
(2.3 to 3M USD).
Unfortunately for NACOCO, the Philippines suffered four (4) typhoons in 1947, adversely affecting our coconut farmers.
By Dec 1947, GM Kalaw already foresaw that NACOCO could not meet its obligations; hence, he approached
NACOCO's Board to discuss with them the 9 contracts of sale of copra. The Board, however, did not immediately act
upon said contracts. It was only in Jan 30, 1948, after President Roxas recognized Kalaw's efforts, that the Board
approved the said contracts.
The unsatisfied buyers threatened suit, but NACOCO was able to reach a settlement with them, except for one, LOUIS
DREYFUS & GO (LDG). The suit was one for specific performance. The parties, however, were able to reach a
settlement, wherein NACOCO paid 1.3M to LDG.
NACOCO subsequently underwent liquidation proceedings pursuant to EO 372, headed by the Board of Liquidators. This
Board, in turn, filed a recovery of money suit against GM Kalaw and directors Juan Bocar, Casimiro Garcia and Leonor
Moll, claiming that the defendants were guilty of negligence with bad faith and breach of confidence (under then Article
1902, now article 2176 of the Civil Code, i.e. quasi-delict), having entered into the aforementioned contracts, to the
detriment of NACOCO.
Arguments:
NACOCO: Contracts need to be approved by the Board. In 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.
Defenses of Kalaw et al.:
1. Apparent Authority was given to Kalaw
2. Ratification of the contracts
RTC: dismissed complaint
Issue: WON Kalaw validly entered into said contracts in behalf of NACOCO
Held: Yes
Ratio: 1) Apparent Authority and 2) Ratification
On the Nature of Kalaw's position as the GM
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. As 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.
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.

NACOCO clothed Kalaw with Apparent Authority to enter into said contracts
Basis 1: From 1946 to 1947, there were 60 other contracts of copra sale entered into by Kalaw without the Board's
approval. In fact, by December 1946, Kalaw even received an award or special bonus for introducing income to
NACOCO. There was even a letter from the Board requesting Kalaw to deliver "all copra contracts signed by him",
meaning said contracts of sale were already consummated WITHOUT the Board's approval.
Basis 2: The Brokerage Fee agreements were passed upon by the Board. These agreements were in payment for the
aforementioned copra sales, wherein Smith Bell and Co. served as the broker. Again, these broker fees were paid
AFTER the consummation of the copra sales.
Basis 3: Minutes of the Board Meeting, dated July 1947, reveal that it has become practice within NACOCO to "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."
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 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.
Contracts were ratified
Even assuming that Kalaw did not have the authority to enter into said contracts, the Board RATIFIED said contracts on
January 30, 1948, through a Board Resolution. This ratification retroacts to the time when the contracts were perfected,
equivalent to a grant of prior authority.
No Bad Faith
No BF could therefore be attributed to Kalaw et al., for, through the Board's own actions, they were led to believe that
they had the authority to enter into said contracts. If any, NACOCO is the one in bad faith. The Board 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.

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