Buenaseda v. Bowen & Co.
REITERATIONFacts
The Antecedents: The Board of Directors of Bowen & Co., Inc. appointed Francisco U. Buenaseda as Managing Director and authorized him to negotiate for ECA orders. An award of P200,000.00 worth of ECA procurement materials was secured. To open a letter of credit for P100,000.00, a P60,000.00 cash marginal deposit was required. As the corporation lacked funds, its president, Geoffrey Bowen, personally offered Buenaseda 37-½% of the profits if he could secure the deposit. Buenaseda accepted, and E.J.C. Montilla & Co. provided the deposit in exchange for 50% of the profits and the return of the deposit. A provisional partnership contract was formed, and Buenaseda personally guaranteed the contract with a lien on his real property. Procedural History: Bowen & Co., Inc. imported the materials, and from September 27, 1951, to July 9, 1955, sold a portion, realizing a net profit of P22,303.98. Buenaseda claimed P8,363.99 (37-½% of the profit) based on Bowen's promise. The corporation refused to pay. Buenaseda filed suit in the Court of First Instance of Manila, which absolved the defendants, ruling that the profits were corporate assets and Bowen's commitment was not Board-approved. The Court of Appeals affirmed this decision. The Petition: Buenaseda filed a petition for review, contending that the Court of Appeals erred in holding the agreement between him and Geoffrey Bowen not binding upon the corporation.
Issue(s)
Whether the agreement between Francisco U. Buenaseda and Geoffrey Bowen, as president of Bowen & Co., Inc., was binding upon the corporation. Whether the profits derived from the sale of imported materials are considered corporate assets requiring a Board resolution for distribution.
Ruling
The Supreme Court reversed the decision of the Court of Appeals. It ordered Bowen & Co., Inc. to pay Francisco U. Buenaseda the sum of P8,363.99 with legal interest from June 17, 1955, and 37-½% of any further profits realized from the sale of the remaining ECA procurement materials.
Ratio Decidendi
On the binding nature of the agreement: The Court found the contention that the agreement between Buenaseda and Geoffrey Bowen was not binding upon the corporation to be meritorious. It was not disputed that the Board of Directors had knowledge of the agreement. At the time the agreement was made, the Board consisted of Geoffrey Bowen, his wife, Francisco U. Buenaseda, and two others, with Bowen and his wife controlling the majority of the stocks. The Board did not repudiate the agreement but, on the contrary, acquiesced in and took advantage of its benefits. Such acts are equivalent to an implied ratification by the Board of Directors, which binds the corporation even without a formal recorded resolution. The Court cited Zamboanga Transportation Co. vs. Bachrach Motors and other authorities to support the principle of implied ratification through acquiescence and benefit acceptance. On the nature of profits and Board approval: The argument that profits are corporate assets requiring a declaration of dividends and/or a Board resolution for payment is untenable in this context. While Buenaseda was a stockholder, he was not claiming a share of the profits in that capacity. Instead, he was claiming payment based on a specific agreement entered into with the president of the corporation, which agreement had been impliedly ratified by the Board of Directors. Therefore, the usual requirements for dividend declarations were not applicable to this contractual claim.
Main Doctrine
An agreement entered into by a corporate officer, even if not formally approved by the Board of Directors, may be binding upon the corporation if the Board has knowledge of the agreement and acquiesces in it, thereby constituting an implied ratification.