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Mead Vs McCullough Digest
Mead Vs McCullough Digest
HELD: Yes.
RATIO:
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. (Just in case itanong ni sir, ito yung situation nila: The
assets of the PECC consisted of office furniture of a value of less than P400, the uncompleted contract for the
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construction of the Government warehouses, and the wrecking contract. The liabilities amounted to at least
$19,645.74 Mexican currency. $9,645.74 Mexican currency of this amount represented borrowed money, and
$10,000 Mexican currency was the deposit with the naval authorities which had been confiscated and which was
due the bank. McCullough's profits on the warehouse contract amounted to almost enough to the pay the amounts
which the corporation had borrowed from its members. The wrecking contract which had been broken was of no
value to the corporation for the reason that the naval authorities absolutely refused to have anything further to do
with the PECC. They, the naval authorities, had declined to consider the petition of the corporation for an
extension in which to raise the Spanish fleet, and had also refused to reconsider their action in confiscating the
deposit.)
A corporation is essentially a partnership, except in form. “The directors are the trustees or managing partners, and the
stockholders 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 which was the
basis of Petitioner Mead’s argument. The SC said that 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 this case, when the sale or transfer to Respondent McCullough took place, there were four directors present, all of whom
gave their consent to that sale or transfer. Petitioner Mead’s express consent to make this transfer or sale was not obtained.
He was, before leaving, one of the directors in the PECC, and although he had resigned as manager, he had not resigned as
a director. He accepted the position of engineer of the Canton and Shanghai Railway Company, knowing that his duties as
such engineer would require his whole time and attention and prevent his returning to the Philippines for at least a year or
more. The new position which he accepted in China was incompatible with his position as director in the Philippine
Engineering and Construction Company, a corporation whose sphere of operations was limited to the Philippine Islands.
These facts are sufficient to constitute an abandoning or vacating of his position as director in said corporation .
Consequently, the transfer or sale of the corporation's assets to one of its members was made with the unanimous consent
of all the directors of PECC at that time. Also, under its articles of incorporation, the stockholders and directors had
general ordinary powers. There is nothing in said articles which expressly prohibits the sale or transfer of the corporate
property to one of the stockholders of said corporation.
Also, 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.
A majority of the directors, even against the protest of the minority (in this case si Petitioner Mead), have the power to
transfer or sell corporate properties especially when the business is a failure and the best interest of the corporation and all
the stockholders require it.
Also, there is no reason why a director, by authority of the majority of its stockholders or the board, may not deal with the
corporation, loan it money, or buy property from it in like manner as a stranger. Especially when such director acts in good
faith and pays adequate consideration. In this case, Respondent McCullough’s act of assuming all of PECC’s obligations
and organizing the Manila Salvage Company was considered by the SC as acting in good faith.
CASE LAW/ DOCTRINE:
A majority of the directors, even against the protest of the minority, have the power to transfer or sell corporate properties
especially when the business is a failure and the best interest of the corporation and all the stockholders require it.
Also, there is no reason why a director, by authority of the majority of its stockholders or the board, may not deal with the
corporation, loan it money, or buy property from it in like manner as a stranger. Especially when such director acts in good
faith and pays adequate consideration.
DISSENTING/CONCURRING OPINION(S):
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