G.R. No. 6217 – 21 Phil. 95 – Mercantile Law – Corporation Law – The Corporation and Its Directors
Charles Mead, Edwin McCullough and three others organized the corporation called The Philippine Engineering and Construction Company (PECC). The 4 organizers, except Mead, contributed to the majority of the capital stock of PECC, the remaining shares were offered to the public. Mead contributed some personal properties. Mead was assigned as a manager but he resigned as such when he accepted an engineering job in China. But even so, he remained as one of the five directors (the organizers).
At that time, PECC was already incurring losses. McCullough, the president, proposed that he shall buy the assets of the corporation. The three other directors then voted in favor of this proposal hence the assets were transferred to McCullough. Mead learned of this and so he opposed it because the personal properties he contributed were also transferred to McCullough.
Mead also argued that under the articles of incorporation of PECC, the board of directors only have ordinary powers; that the authorization made by the three directors to allow the sale of company assets to McCullough constitutes an act of agency which is invalid at that because no express commission was made, i.e., no power of attorney was made in favor of the directors. The requirement for a commission can be inferred from Article 1713 of the Civil Code which provides:
An agency stated in general terms only includes acts of administration.
In order to compromise, alienate, mortgage, or execute any other act of strict ownership an express commission is required. (Emphasis supplied).
Mead also insists that under their charter, no resolution affecting the administration of the affairs of PECC should be binding upon the corporation unless the unanimous consent of the entire board was first obtained
ISSUE: Whether or not the three directors had the authority to allow the sale/transfer of the company assets to McCullough.
HELD: Yes. Several factors have to be considered. First is the fact that Mead abandoned his post when he took the job offer to work in China. He knew for a fact that the nature of the job offered is permanent. Second, a close reading of the articles of incorporation of PECC shows that there is no such intention for unanimity when it comes to votes affecting matters of administration. The only requirement is that “At least three of said board must be present in order to constitute a legal meeting.” Which was complied with when the other four directors were present when the decision to transfer the company assets was made.
Third is the fact that PECC was in a downhill situation. A corporation is essentially a partnership, except in form. “The directors are the trustees or managing partners, and the stockholders are the cestui que trust and have a joint interest in all the property and effects of the corporation.” McCullough as a director himself and the president can be considered an agent but not the “agent” contemplated in Article 1713 of the Civil Code. Article 1713 deals with the broad aspect of agency and in ordinary cases but not in the case of a corporation and its directors. In the case at bar, the more appropriate analogy is that PECC, being a losing corporation, has its directors as the trustees. The trustees-directors hold the company assets in trust for the beneficiaries, which are the creditors. As trustees, they decided that it is beneficial to sell the company assets to McCullough to at least recover some cash equivalents in the winding up of the corporate affairs. Besides, there is no prohibition against the selling of company assets to one of its directors either from law or from PECC’s articles of incorporation.
