G.R. No. L-18805; August 14, 1967
THE BOARD OF LIQUIDATORS representing THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. HEIRS OF MAXIMO M. KALAW, JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO GARCIA, and LEONOR MOLL, defendants-appellees.

FACTS

The National Coconut Corporation (NACOCO), a government corporation, through its General Manager and Board Chairman Maximo M. Kalaw, entered into nine copra export contracts from July to October 1947. Defendants Juan Bocar and Casimiro Garcia were board members at the time; defendant Leonor Moll became a director on December 22, 1947. A series of four devastating typhoons from October to December 1947 damaged coconut trees, reduced copra production, increased prices, destroyed warehouses, and created financial and logistical problems, making contract fulfillment difficult and unprofitable. Kalaw submitted the contracts to the board for approval only after it became clear they would be unprofitable. The board, with all defendants present, unanimously approved the contracts on January 30, 1948. NACOCO partially performed the contracts but failed to deliver a significant portion. Buyers threatened damage suits; some claims were settled. Louis Dreyfus & Co. (Overseas) Ltd. filed suits, which were later settled out-of-court by the Board of Liquidators (which succeeded NACOCO after its abolition) for P567,024.52, representing 70% of Dreyfus’s claims. Total settlements amounted to P1,343,274.52. The Board of Liquidators sued Kalaw (for negligence under Article 1902 of the old Civil Code) and all defendant board members (for bad faith and/or breach of trust for approving the contracts) to recover this amount.

ISSUE

1. Whether the plaintiff Board of Liquidators lost its legal personality to continue the suit after the three-year winding-up period provided in Executive Order No. 372.
2. Whether the action had prescribed.
3. Whether the defendants, as corporate directors, can be held personally liable for the alleged losses arising from the copra contracts.

RULING

1. On Legal Personality: No. The Board of Liquidators retains the capacity to sue. The three-year period in Executive Order No. 372 for prosecuting and defending suits is for the benefit of the corporation and its creditors, not for the debtors. The provision is directory, not mandatory, and does not extinguish a corporation’s right to sue after the period. The corporation continues to exist for the purpose of fulfilling its obligations. The suit, having been filed in February 1949 before NACOCO’s abolition in November 1950, was validly commenced, and the Board of Liquidators properly continued it.
2. On Prescription: No. The action had not prescribed. The cause of action against the directors for negligence or breach of duty is subject to a four-year prescriptive period (Article 1146, new Civil Code). The fifth amended complaint, filed on July 2, 1959, which is the basis of the trial, relates back to the date of the original complaint filed in February 1949, which was within four years from the board’s approval of the contracts on January 30, 1948.
3. On Personal Liability: No. The defendants cannot be held personally liable.
* As to Maximo M. Kalaw: He was not guilty of negligence. As General Manager, he had broad powers under NACOCO’s charter to execute contracts without prior board approval. The losses were primarily caused by force majeure (the typhoons), not by his negligence. His subsequent disclosure to the board and the board’s ratification of his acts absolved him from personal liability.
* As to all Defendant Directors (Kalaw, Bocar, Garcia, Moll): They did not act in bad faith or breach trust. The board’s approval of the contracts on January 30, 1948, was a proper business judgment made after full disclosure of the situation, including the impending losses. Directors are not insurers of corporate success and are not liable for errors of judgment made in good faith. The approval was a reasonable attempt to mitigate damages and avoid costly litigation, especially since President Roxas had publicly expressed support for Kalaw. The subsequent compromise settlements made by the Board of Liquidators, which plaintiff claims were unreasonable, cannot be the basis for holding the earlier-acting directors liable.
The judgment of the lower court dismissing the complaint was affirmed.