G.R. No. L-35603 June 28, 1988
CENTRAL COOPERATIVE EXCHANGE, INC., plaintiff-appellant, vs. NICOLAS T. ENCISO, and THE HONORABLE COURT OF APPEALS, defendant-appellee.

FACTS

Central Cooperative Exchange, Inc. (CCE), a federation of farmers’ cooperatives, filed a complaint to recover the sum of P10,967.85 from its former director, Nicolas T. Enciso. This amount represented various allowances, per diems, and discretionary funds received by Enciso from 1958 to 1960, pursuant to resolutions passed by the CCE Board of Directors. CCE argued that these payments violated its By-Laws, specifically Section 8, Article V, which explicitly reserved the power to determine director compensation to the stockholders in an annual or special meeting. The corporation contended that only the stockholders, through a 1956 resolution, could authorize such compensation, limited to actual transportation expenses plus a P30.00 per diem.
Enciso defended the payments as lawful, arguing they were made under valid board resolutions. He asserted affirmative defenses, including that CCE lacked the legal personality to sue, that the stockholders had ratified the board’s acts in their annual meetings, and that the corporation was guilty of laches and estoppel. Both the trial court and the Court of Appeals ruled in favor of Enciso, dismissing the complaint. The appellate court found the suit was not a valid corporate act and that the stockholders had effectively ratified the board resolutions.

ISSUE

The main issue is whether the Board of Directors of CCE had the power to fix and grant compensation, allowances, and discretionary funds to its own members, or if this power was exclusively vested in the stockholders under the corporate By-Laws.

RULING

The Supreme Court reversed the decision of the Court of Appeals. The legal logic is anchored on fundamental corporate law principles and a prior ruling involving the same corporation. The Court held that the power to fix director compensation was explicitly reserved to the stockholders by Section 8 of CCE’s By-Laws. This reservation aligns with the settled legal presumption that directors serve without compensation unless provided by law, charter, or by-law, or by stockholder vote. Consequently, the board resolutions granting themselves various allowances were enacted in excess of their authority and were void.
The Court rejected the defenses of ratification, laches, and estoppel. It cited its prior decision in Central Cooperative Exchange, Inc. v. Tibe, Sr., which involved identical By-Laws and similar board resolutions. In that case, the Court ruled that laches does not apply against a corporation while the directors responsible for the unauthorized acts remain in control, as the board cannot be expected to sue itself. The corporation is only deemed to have slept on its rights once a new management takes over. This logic was applied here, as the suit was filed after the ACCFA took over CCE’s management. Furthermore, the Court found that any initial defect in the authority to file the suit was cured by subsequent stockholder ratification. Therefore, Enciso was ordered to refund the total amount received with legal interest.