8/10/2019 Zamboanga Transportation v Bachrach Motors

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G.R. No. L-27694 October 24, 1928

ZAMBOANGA TRANSPORTATION COMPANY, INC., plaintiff-appellee,vs. THE BACHRACH MOTOR CO., INC., defendant-appellant.

FACTS:

Zamboanga Transportation Co., Inc. (Zamboanga), is managed by a board ofdirectors composed of five stockholders; Bachrach Motor Co. is a corporation engagedin selling automobiles and their parts. For 10 years, the two have been dealing witheach other. Zamboanga buys trucks, automobiles, repair and accessory parts for use inthe business of transportation in which it is engaged. Payments were made byinstallments, and Zamboanga executed several chattel mortgages to secure it. JoseErquiaga (Erquiaga) was appointed as general manager in 1924,elected president, andacted as an auditor in 1925. He is also one of the majority stockholders and has beenits attorney and legal adviser.

Zamboanga lacked funds and contacted Mons. Jose Clos, Bishop of Zamboangaand a principal stock holder of the company, for loans of money. Since, he was leavingfor Rome in February 1925 and could not continue to loan money to Zamboanga,additional agreements were entered between Mons. Clos and the Bachrach Motor Co.,Inc. A new chattel mortgage was executed on by Zamboanga represented by PresidentErquiaga. In this last mortgage the same goods were pledged that had beenhypothecated by the Zamboanga Transporatation Co., Inc., to the Bachrach Motor Co.,by virtue of instruments to Mons. Jose Clos Bishop of Zamboanga, by the virtue of thedeed. President Erquiaga submitted the mortgage deed to the Board of directors. Uponreturning to Zamboanga from Manila, He discussed the mortgage with two board of

directors, who expressed satisfaction. Zamboanga also partially complied with themortgage contract. Zamboanga paid Bachrach two times. Bachrach sent a lettercancelling the 2 former chattel mortgage. Bachrach told Erguiaga to register thecancellation. Erquiaga replied by stating that the last mortgage was not approved by theBoard of Directors. Jose Erquiaga went to E.M. Bachman, president of Bachrach Motorco., to secure his consent to sell the trucks that were mortgaged. He said this will beused to pay the unpaid debt. Bachrach denied. Erquiaga and Zamboaga later ondiscovered that the last mortgage was registered in the register of deed. Zamboanga,then filed for annulment of the last mortgage because it was registered without theirconsent. Bachrach, filed a complaint for Zamboanga to obtain possession of all thechattels. Bchrach won and sold the chattel in a public auction where they were held thehighest bidder.

ISSUE: W/N the chattel mortgage executed by the president and general manager ofthe plaintiff corporation, the Zamboanga Transportation Co., Inc., is valid

RULING: YES.

8/10/2019 Zamboanga Transportation v Bachrach Motors

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While it is true that said last chattel mortgage contract was not approved by the board ofdirectors of the Zamboanga Transportation Co., Inc., whose approval was necessary inorder to validate it according to the by-laws of said corporation, the broad powersvested in Jose Erquiaga as president, general manager, auditor, attorney or legaladviser, and one of the largest shareholders; the approval of his act in connection with

said chattel mortgage contract in question, with which two other directors expressedsatisfaction, one of which is also one of the largest shareholders, who together with thepresident constitute a majority: The payments made under said contract with theknowledge of said three directors are equivalent to a tacit approval by the board ofdirectors of said chattel mortgage contract and binds the Zamboanga TransportationCo., Inc. In truth and in fact Jose Erquiaga, in his multiple capacity, was and is thefactotum of the corporation and may be said to be the corporation itself.

"Halley First National Bank vs. G. V. B. Min. Co.": Where the chief officers of acorporation are in reality its owners, holding nearly all of its stock, and are permitted tomanage the business by the directors, who are only interested nominally or to a small

extent, and are controlled entirely by the officers, the acts of such officers are binding onthe corporation, which cannot escape liability as to third persons dealing with it in goodfaith on the pretense that such acts were ultra vires.

When the president of a corporation, who is one of the principal stockholders and at thesame time its general manager, auditor, attorney or legal adviser, is empowered by itsby-laws to enter into chattel mortgage contracts, subject to the approval of the board ofdirectors, and enters into such contracts with the tacit approval of two other members ofthe board of directors, one of whom is also a principal shareholder, both of whom,together with the president, form a majority, and said corporation takes advantage of thebenefits afforded by said contract, such acts are equivalent to an implied ratification of

said contract by the board of directors and binds the corporation even if not formallyapproved by said board of directors as required by the by-laws of the aforesaidcorporation.