G.R. No. 59114; March 18, 1991
JOSE G. RICAFORT, CONRADO T. CALALANG, NATIONWIDE DEVELOPMENT CORPORATION and AGUINALDO DEVELOPMENT CORPORATION, petitioners, vs. HON. FELIX L. MOYA, Judge, CFI, Davao, Br. II, BLACK MOUNTAIN, INC., TETRA MANAGEMENT CORPORATION and THE ENERGY CORPORATION, respondents.

FACTS

The controversy originated from a 1978 deed of sale where Daniel Aguinaldo sold corporate shares to petitioners Jose Ricafort and Conrado Calalang. As security for the unpaid balance, the vendees pledged the purchased shares and agreed to mortgage nine parcels of land (Saug lots) in favor of Aguinaldo. A dispute arose when Ricafort and Calalang refused to execute the mortgage, claiming Aguinaldo’s reconveyance of the Saug lots was defective due to the absence of his wife’s signature. This triggered multiple litigations. In a related but critical development, during the pendency of these suits, a faction of the National Development Corporation (NADECOR) board, allegedly controlled by Aguinaldo, entered into an Operating Agreement dated March 25, 1981, with a consortium comprising the private respondents (Black Mountain, Inc., et al.), concerning NADECOR’s valuable Kingking Mining Claims.

ISSUE

The core issue is whether the Operating Agreement of March 25, 1981, executed by the Aguinaldo faction of NADECOR with the private respondents, is valid and enforceable, thereby vesting actionable rights upon the consortium.

RULING

The Supreme Court ruled that the Operating Agreement is invalid and unenforceable. The legal logic rests on two primary grounds. First, the agreement lacked the requisite valid corporate ratification. The board faction that executed it did not legitimately represent the majority of NADECOR’s stockholders, as their authority was contested and effectively enjoined by court orders from the Manila CFI in a separate proceeding (Civil Case No. 135262). An agreement made by a board without proper authority is voidable and cannot confer enforceable rights. Second, and decisively, supervening events had rendered the entire issue moot. The Office of the President subsequently revoked the Letters of Instruction that formed the basis for the agreement’s implementation. Furthermore, one of the consortium members had become bankrupt, incapable of fulfilling its contractual commitments. Thus, even assuming any theoretical defect could be cured, practical impossibility of performance extinguished any potential rights under the contract. Consequently, the Court dismissed the civil case in the Davao RTC which was premised on enforcing this agreement.