Central Cooperation Exchange, Inc. v. Enciso
REITERATIONFacts
The Antecedents: Petitioner, Central Cooperative Exchange, Inc. (CCE), a federation of farmers' cooperative associations with the Agricultural Credit and Cooperative Financing Administration (ACCFA) as its major stockholder, is suing respondent Nicolas T. Enciso to recover P10,967.85. Enciso, a member of CCE's Board of Directors from August 1, 1958, to January 1960, received this amount as compensation in various forms, including commutable per diem, per them for Facoma visitations, kilometrage allowance, commutable discretionary funds, and representation expenses. These payments were authorized by various resolutions unanimously adopted by CCE's Board of Directors between May 1958 and October 1959, granting allowances and discretionary funds to directors. CCE's By-Laws, Section 8, Article V, stipulated that compensation and per diems for directors shall be determined by the stockholders. A stockholders' resolution on January 31, 1956, also specified that directors attending meetings were entitled to actual transportation expenses plus P30.00 per diem and actual expenses while waiting. Procedural History: CCE filed a complaint against Enciso for the recovery of the amount, alleging violation of its By-Laws and the stockholders' resolution. The lower court dismissed the complaint, finding in favor of Enciso. The Court of Appeals affirmed the trial court's decision. Petitioner's motion for reconsideration was denied. The Petition: Petitioner seeks review of the Court of Appeals' decision, raising issues regarding the corporate act of filing the suit, the validity of the Board resolutions, estoppel, and the necessity of a previous demand.
Issue(s)
Whether the action filed by CCE can be deemed a corporate act of the appellant corporation and if the stockholders had anything to do with its filing. Whether the various resolutions of CCE's former Board of Directors authorizing and appropriating compensation and/or per diems or allowances for themselves are violative of CCE's By-Laws and the mandate of the stockholders. Whether CCE is under estoppel to question the aforesaid Board resolutions or the payments made to the appellee thereunder. Whether a previous demand upon the appellee is a prerequisite for the institution of this action.
Ruling
The decision of the Court of Appeals is REVERSED and SET ASIDE. Respondent Nicolas T. Enciso is ordered to pay unto the petitioner the sum of P10,967.85 with legal interests from the date of the filing of the complaint until fully paid, with costs against the respondent.
Ratio Decidendi
On the issue of whether the action filed by CCE can be deemed a corporate act and if the stockholders had anything to do with its filing: The Court found that the Officer-in-Charge, who took over the functions of the deposed general manager, had the authority to institute proceedings to protect the corporation's assets. Furthermore, even if stockholder authority was initially lacking, it was subsequently ratified by a stockholders' resolution on May 25, 1962, which was passed with a quorum present. This ratification cured any defect in the initial authorization for filing the suit. On the issue of whether the Board resolutions are violative of CCE's By-Laws and the mandate of the stockholders: The Court held that the resolutions in question were contrary to the By-Laws of the federation and thus not within the power of the Board of Directors to enact. This ruling was consistent with a previous case involving the same corporation and similar resolutions. The Court reiterated that the stockholders explicitly reserved the power to determine directors' compensation, and even without such reservation, directors are not entitled to compensation. Voting for themselves compensation for additional duties was considered an excess of authority. On the issue of whether CCE is under estoppel to question the Board resolutions or the payments made: The Court ruled that the doctrine of laches was not applicable. It reasoned that the Board of Directors, having control of the corporation's affairs, would not be expected to sue its own members for sums voted for themselves. Laches would only begin to attach against the corporation once the directors ceased to be such. Therefore, the corporation was not estopped from questioning the resolutions and seeking the refund. On the issue of whether a previous demand upon the appellee is a prerequisite for the institution of this action: While not explicitly addressed as a separate issue in the ratio, the Court's reversal and order for payment implies that the filing of the complaint, which included a prayer for attachment, was sufficient. The underlying claim was for the recovery of funds allegedly misappropriated, and the legal action itself served as the demand for restitution. The Court's focus was on the validity of the payments and the authority of the Board to make them.
Main Doctrine
Resolutions of a Board of Directors appropriating corporate funds for their own compensation, per diems, and allowances are void and illegal per se if they violate the corporation's By-Laws or the express mandate of the stockholders, and such acts cannot be ratified by the stockholders if they are illegal from inception. Directors are presumed to serve without compensation.