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Lopez Realty vs. Fontecha

The Supreme Court discussed the doctrine of ultra vires and the requirement of notice for board meetings. It ruled that providing gratuity pay for employees is within the express powers of corporations. While board resolutions passed without proper notice may be legally infirm, the corporation's subsequent conduct can ratify such resolutions either expressly or impliedly. Here, the corporation paid gratuities and the petitioner acquiesced, estopping them from challenging the resolutions' validity due to lack of notice.

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Lincy Jane Agustin
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729 views3 pages

Lopez Realty vs. Fontecha

The Supreme Court discussed the doctrine of ultra vires and the requirement of notice for board meetings. It ruled that providing gratuity pay for employees is within the express powers of corporations. While board resolutions passed without proper notice may be legally infirm, the corporation's subsequent conduct can ratify such resolutions either expressly or impliedly. Here, the corporation paid gratuities and the petitioner acquiesced, estopping them from challenging the resolutions' validity due to lack of notice.

Uploaded by

Lincy Jane Agustin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Agustin, Lincy Jane L.

2017- 102990
3C

Ultra vires acts


LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES, petitioners, vs.
FLORENTINA FONTECHA, ET AL., AND THE NATIONAL LABOR RELATIONS
COMMISSION, respondents.
G.R. No. 76801 August 11, 1995
PUNO, J.
Facts:
Lopez Realty is a corporation engaged in real estate business, while Asuncion Lopez
Gonzales is one of its majority shareholders. Sometime in 1978, Arturo Lopez submitted a
proposal relative to the distribution of certain assets of Lopez Realty among its three (3) main
shareholders. he proposal was deliberated upon and approved in a special meeting of the board of
directors.
It appears that petitioner corporation approved two (2) resolutions providing for the
gratuity pay of its employees. On August 17, 1981, Except for Asuncion Lopez Gonzales who
was then abroad, the remaining members of the Board of Directors, convened a special meeting
and passed a resolution which resolved that the gratuity (pay) of the employees must be given.
Fontecha et al., were the retained employees of petitioner corporation. Their request was
granted in a special meeting held on September 1, 198. But at that, time, however, petitioner
Asuncion Lopez Gonzales was still abroad. Allegedly, while she was still out of the country, she
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. Upon her return, she flied a
derivative suit with the Securities and Exchange Commission (SEC) against majority shareholder
Arturo F. Lopez.
Notwithstanding the "corporate squabble" between petitioner Asuncion Lopez Gonzales
and Arturo Lopez, the first two (2) installments of the gratuity pay of private respondents
Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista were paid by Lopez
Realty.
The corporation also issued cash vouchers and checks for the instalments of gratuity pay
but the said vouchers were all cancelled by Ansuncion Lopez Gonzales.
Fontecha et al. filed a case against Lopez Realty Incorporated and its majority
stockholder, Asuncion Lopez Gonzales, for alleged non-payment of their gratuity pay and other
benefits. The Labor Arbiter ruled in favor of the employees.
The Corporation appealed before the NLRC. The appeal focused on the alleged non-
ratification and non-approval of the assailed Board Resolutions during the Annual Stockholders'
Meeting. It argued that the payment of the gratuity to some of the private respondents was a mere
"mistake" on the part of the corporation since pursuant to the resolutions, said gratuity pay
should be given only upon the employees' retirement. The NLRC dismissed the case.
Issue:
WON the assailed board resolutions dated August 17, 1951 and September 1, 1981 were
ultra vires acts for lack of notice
Held:
NO.

In legal parlance, "ultra vires" act refers to one which is not within the corporate powers
conferred by the Corporation Code or articles of incorporation or not necessary or incidental in
the exercise of the powers so conferred. 

The assailed resolutions before us cover a subject which concerns the benefit and welfare
of the company's employees. To stress, 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.

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.

In the case at bench, it was established that 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
thereof, of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and
Perfecto Bautista.

Despite the alleged lack of notice to petitioner Asuncion Lopez Gonzales at that time the
assailed resolutions were passed, we can glean from the records that she was aware of the
corporation's obligation under the said resolutions. More importantly, she acquiesced thereto. As
pointed out by private respondents, petitioner Asuncion Lopez Gonzales affixed her signature on
Cash Voucher Nos. 81-10-510 and 81-10-506, both dated October 15, 1981, evidencing the 2nd
installment of the gratuity pay of private respondents Mila Refuerzo and Florentina Fontecha
We hold, therefore, that the conduct of petitioners after the passage of resolutions dated
August, 17, 1951 and September 1, 1981, had estopped them from assailing the validity of said
board resolutions.

Analysis:
The case discussed involves the requirement of notice during board meetings. Under Sec.
53 of the Revised Corporation Code, Under Sec. 49 of the Revised Corporation Code, that
written notice of regular meeting shall be sent to all stockholders or members of the record at
least 21 days prior to the meeting, unless a different period is required in bylaws, law, or
regulation.
The The Court discussed this matter up in Fontecha, involving the corporation and
Fontecha. According to the Supreme Court, a meeting of the board of directors is legally infirm
if there is failure to comply with the requirements or formalities of the law or the corporation’s
by laws and any action taken on such meeting may be challenged as a consequence:
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 tothe law or the corporation’s bylaws,
otherwise, any action taken therein may be questioned by any objecting director or shareholder.
However, the actions taken in such a meeting by the directors or trustees may be ratified
expressly or impliedly. The substance of the doctrine is confirmation after conduct, amounting to
a substitute for a prior authority. Ratification can be made either expressly or impliedly. Implied
ratification may take various forms — like silence or acquiescence, acts showing approval or
adoption of the act, or acceptance and retention of benefits flowing therefrom.

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