Wednesday, March 21, 2012

Montelibano, vs. Bacolod Murcia Milling Co. Inc. [G.R. No. L-15092 May 18, 1962]

FactsPlaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano, and the Limited co-partnership Gonzaga and Company, had been and are sugar planters adhered to the defendant-appellee's sugar central mill under identical milling contracts. 

The contracts were stipulated to be in force for 30 years and that the resulting product should be divided in the ratio of 45% for the mill and 55% for the planters. It was later proposed to execute amended milling contracts, increasing the planters' share to 60% of the manufactured sugar and resulting molasses, besides other concessions, but extending the operation of the milling contract from the original 30 years to 45 years. 

The Board of Directors of the appellee Bacolod-Murcia Milling Co., Inc., adopted a resolution granting further concessions to the planters over and above those contained in the printed Amended Milling Contract. Appellants signed and executed the printed Amended Milling Contract but a copy of the resolution was not attached to the printed contract. 

In 1953, the appellants initiated the present action, contending that three Negros sugar centrals had already granted increased participation to their planters, and that under paragraph 9 of the abovementioned resolution, the appellee had become obligated to grant similar concessions to the plaintiffs (appellants herein). 

However, the appellee Bacolod-Murcia Milling Co., inc., resisted the claim, and defended by urging that the stipulations contained in the resolution were made without consideration; that the resolution in question was, therefore, null and void ab initio, being in effect a donation that was ultra vires and beyond the powers of the corporate directors to adopt. 

After trial, the court below rendered judgment upholding the stand of the defendant Milling company, and dismissed the complaint. Thereupon, plaintiffs duly appealed to this Court. 

Issue: Whether or not the resolution is valid and binding between the corporation and planters. 

Held: The Supreme Court held in the affirmative. There can be no doubt that the directors of the appellee company had authority to modify the proposed terms of the Amended Milling Contract for the purpose of making its terms more acceptable to the other contracting parties. The rule is that — 

It is a question, therefore, in each case of the logical relation of the act to the corporate purpose expressed in the charter. If that act is one which is lawful in itself, and not otherwise prohibited, is done for the purpose of serving corporate ends, and is reasonably tributary to the promotion of those ends, in a substantial, and not in a remote and fanciful sense, it may fairly be considered within charter powers. The test to be applied is whether the act in question is in direct and immediate furtherance of the corporation's business, fairly incident to the express powers and reasonably necessary to their exercise. If so, the corporation has the power to do it; otherwise, not. 

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. 

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. Hence, the appellee Bacolod-Murcia Milling Company is, under the terms of its Resolution, duty bound to grant similar increases to plaintiffs-appellants herein.

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