The Board of Liquidators v. Heirs of Maximo M. Kalaw, et al. L-18805, Aug. 14, 1967

 

The Board of Liquidators v. Heirs of Maximo M. Kalaw, et al. L-18805, Aug. 14, 1967

FACTS: Maximo M. Kalaw, as general manager of the governmental organization, the National Coconut Corporation (NACOCO), entered into various contracts (involving the sale of copra), without prior authority of the Board of Directors. However, he later presented the contracts to the Board for ratification. Under NACOCO’s corporate by-laws, prior approval is required. The Board ratified said contracts (although Kalaw had informed them that losses would be incurred, due to typhoons, etc.). After Kalaw’s death, action was brought against Kalaw’s heirs (and against the members of the Board) to recover governmental losses in the transactions. The action was brought by the Board of Liquidators (an entity that took the place of NACOCO, after it was dissolved).

 ISSUE: Can damages be recovered?

HELD: Damages cannot be recovered, for Kalaw and the Board did not act in bad faith. Several reasons may be given:

(a) While it is true that the NACOCO by-laws specifically provided for prior approval, still a general manager, by the very nature of his functions should be allowed greater leeway. A rule that has gained acceptance throughout the years is that a corporate general manager may do necessary and appropriate acts without special authority from the Board. This is specially true in copra trading — where “future sales” or “forward sales” of still unproduced copra are needed to facilitate sales turn-overs. To call the Board to a formal meeting is difficult when time is essential.

(b) Many times in the past, Kalaw had done the same (without prior Board approval); profits were then made; instead of criticism, Kalaw had received a bonus for “signal achievement.’’

(c) Even assuming need of prior authority, it must be remembered that RATIFICATION retroacts to the time of the act or contract ratified, and is therefore equivalent to original authority.

(d) Bad faith does not simply connote bad judgment or negligence; it imparts a dishonest purpose or some moral obliquity and conscious doing of wrong. None of these is present here. Thus, Kalaw and the Board are NOT LIABLE

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