ULTRA VIRES DOCTRINE (SEC.

45); TYPES; BASIS; BUSINESS

JUDGEMENT RULE; DOCTRINE OF APPARENT AUTHORITY

MONTELIBANO ET AL vs.BACOLOD-MURCIA MILLING CO., INC.

G.R. No. L-15092

May 18, 1962

FACTS: Montelibano et al. are sugar planters adhered to the Bacolod-Murcia

Milling Co., Inc’s sugar central mill under identical milling contracts originally
executed in 1919. In 1936, it was proposed to execute amended milling contracts,
increasing the planters’ share of the manufactured sugar, besides other concessions.
To this effect, a printed Amended Milling Contract form was drawn up.
The Board of Directors of Bacolod-Murcia Milling Co., Inc. adopted
aresolution granting further concessions to the planters over and above those
contained in the printed Amended Milling Contract on August 10, 1936.
The printed Amended Milling Contract was signed by the Appellants onSeptember
10, 1936, but a copy of the resolution was not attached to the printed contract until
April 17, 1937.
In 1953, the appellants initiated an action, contending that 3 Negros sugar centrals had
already granted increased participation to their planters, and that under paragraph 9 of
the resolution of August 20, 1936, the appellee had become obligated to grant similar
concessions to the appellants herein.
The Bacolod-Murcia Milling Co., inc., resisted the claim, urging that theresolution in
question was null and void ab initio, being in effect a donation that was ultra
vires and beyond the powers of the corporate directors to adopt.
ISSUE: Was the act of the BOD ultra vires?
HELD: NO (The Bacolod-Murcia Milling Co., Inc. is ordered to pay appellants the
increase of participation in the milled sugar in accordance with paragraph 9 of the
Resolution of August 20, 1936.)
As the resolution in question was passed in good faith by the board of directors, it is
valid and binding, and whether or not it will cause losses or decrease the profits of the
central, the court has no authority to review them.
Xx It is a well-known rule of law that questions of policy or of management are left
solely to the honest decision of officers and directors of a corporation, and the court is
without authority to substitute its judgment of the board of directors; the board is the
business manager of the corporation, and so long as it acts in good faith its orders are
not reviewable by the courts.
__
It must be remembered that the controverted resolution was adopted by appellee
corporation as a supplement to, or further amendment of, the proposed milling
contract, and that it was approved on August 20, 1936, twenty-one days prior to the
signing by appellants on September 10, of the Amended Milling Contract itself; so
that when the Milling Contract was executed, the concessions granted by the disputed
resolution had been already incorporated into its terms.

Lopez Realty vs Florentina Fontecha et. al. Facts: Fontecha et al. were the retained employees, filed a complaint
against employer Lopez Realty Incorporated (petitioner) and its majority stockholder, Asuncion Lopez Gonzales, for
alleged non-payment of their gratuity pay and other benefits. As found by the Labor arbiter Arturo Lopez submitted a
proposal relative to the distribution of certain assets of petitioner corporation among its three (3) main shareholders.
The proposal had three (3) aspects, viz: (1) the sale of assets of the company to pay for its obligations; (2) the
transfer of certain assets of the company to its three (3) main shareholders, while some other assets shall remain
with the company; and (3) the reduction of employees with provision for their gratuity pay. Corporation approved two
(2) resolutions providing for the gratuity pay of its employees, viz: (a) Resolution No. 6, Series of 1980, passed by the
stockholders in a special meeting held on September 8, 1980, resolving to set aside, twice a year, a certain sum of
money for the gratuity pay of its retiring employees and to create a Gratuity Fund for the said contingency; and (b)
Resolution No. 10, Series of 1980, setting aside the amount of P157,750.00 as Gratuity Fund covering the period
from 1950 up to 1980. The gratuity (pay) of the employees be given as follows: (a) Those who will be laid off be given
the full amount of gratuity; (b) Those who will be retained will receive 25% of their gratuity (pay) due on September 1,
1981, and another 25% on January 1, 1982, and 50% to be retained by the office in the meantime. Asuncion Lopez
Gonzales while still abroad sent a cablegram to the corporation, objecting to certain matters taken up by the board in
her absence, such as the sale of some of the assets of the corporation. corporation had prepared the cash vouchers
and checks for the third installments of gratuity pay of said private respondents, however it was cancelled for no
reason LA ruled in favor of employees. Corporation appealed to NLRC - ground - Mistake - that said gratuity pay
should be given only upon the employees' retirement. NLRC dismissed the appeal Issue: whether or not public
respondent acted with grave abuse of discretion in holding that private respondents are entitled to receive their
gratuity pay under the assailed board resolutions dated August 17, 1951 and September 1, 1981. Held: No. The
general rule is that a corporation, through its board of directors, should act in the manner and within the formalities, if
any, prescribed by its charter or by the general law. Thus, directors must act as a body in a meeting called pursuant
to the law or the corporation's by-laws, otherwise, any action taken therein may be questioned by any objecting
director or shareholder. Be that as it may, jurisprudence tells us that an action of the board of directors during a
meeting, which was illegal for lack of notice, may be ratified either expressly, by the action of the directors in
subsequent legal meeting, or impliedly, by the corporation's subsequent course of conduct. Petitioner corporation did
not issue any resolution revoking nor nullifying the board resolutions granting gratuity pay to private respondents.
Instead, they paid the gratuity pay, particularly, the first two (2) installments Also, as to the issue of lack of notice,
based on the record Asuncion was aware of said obligation because she has affixed her signature in the said
vouchers. As to the issue of ultra vires, providing gratuity pay for its employees is one of the express powers of the
corporation under the Corporation Code, hence, petitioners cannot invoke the doctrine of ultra vires to avoid any
liability arising from the issuance the subject resolutions
Lessons Applicable: Ratification of Ultra Vires Acts (Corporate law)

FACTS:

 Enrico Pirovano, president of the defendant company, managed the companyuntil it became a multi-
million corporation by the time Pirovano was executed by the Japanese during the occupation.
 BOD Resolution: Out of the proceeds, the sum of P400,000 be set aside for equal division among the 4
minor children, convertible into shares of stock of the De la Rama Steamship Company, at par and, for
that purpose, that the present registered stockholders of the corporation be requested to waive their
preemptive right to 4,000 shares of the unissued stock of the company in order to enable each of the 4
minor heirs to obtain 1,000 shares at par
 if the Pirovano children would given shares of stock, the voting strength of the 5 daughters of Don
Esteban would be adversely affected - Mrs. Pirovano would have a voting power twice that of her sisters
 Lourdes de la Rama wrote secretary of the corporation, Atty. Marcial Lichauco, asking him to cancel the
waiver she supposedly gave of her pre-emptive rights.
 The company ammended the resolution turning it into a loan with 5% interest payable when the obligation
can be met
 The company revoked its donation of the life premium proceeds since it is not in compliance with the SEC
 Minor children of the late Enrico represented by their mother and judicial guardian demanded the payment
of the credit due them as of December 31, 1951, amounting to P564,980.89
 RTC: contract or donation is not ultra vires
ISSUE: W/N corporation donation of the proceeds of insurance policies is an ultra vires act

HELD: NO. valid and binding

 remunerative donation
 That which is made to a person in consideration of his merits or for services rendered to the donor,
provided they do not constitute recoverable debts, or that in which a burden less than the value of the thing
given is imposed upon the donee, is also a donation." (Art. 619, old Civil Code)
 In donations made to a person for services rendered to the donor, the donor's will is moved by acts which
directly benefit him. The motivating cause is gratitude, acknowledgment of a favor, a desire to
compensate. (Sinco and Capistrano, The Civil Code, Vol. 1, p. 676; Manresa, 5th ed., pp. 72-73.)
 donation has reached the stage of perfection which is valid and binding upon the corporation and as such
cannot be rescinded unless there is exists legal grounds for doing so.
 donation was embodied in a resolution duly approved by the Board of Directors on January 6, 1947
 July 25, 1949: BOD approved the proposal of Mrs. Pirovano to buy the house at New Rochelle, New
York, owned by a subsidiary of the corporation at the costs of S75,000
 2 reasons given for the rescission of donation in the resolution of the corporation adopted on March 8,
1951 - valid and legal as to justify the rescission
 corporation failed to comply with the conditions to which the above donation was made subject
 in the opinion of the Securities and Exchange Commission said donation is ultra vires
 articles of incorporation contain:
 To invest and deal with the moneys of the company and immediately required, in such manner as from
time to time may be determined.
 To aid in any other manner any person, association, or corporation of which any obligation or in which
any interest is held by this corporation or in the affairs or prosperity of which this corporation has a lawful
interest.
 By ratification the infirmity of the corporate act has been obliterated thereby making it perfectly valid and
enforceable. This is specially so if the donation is not merely executory but executed and consummated
and no creditors are prejudice, or if there are creditors affected, the latter has expressly given their
confirmity