Lopez Realty vs. Florentina Fontecha

A corporate board resolution granting employee benefits, even if initially passed without proper notice to a director, is valid and enforceable if subsequently ratified by the corporation's conduct, such as partial payment of the benefits.

Lopez Realty, Inc., a real estate corporation, and its majority shareholder, Asuncion Lopez Gonzales, were involved in a corporate restructuring. In 1978, a proposal was approved to distribute assets and reduce employees with gratuity pay. In 1980, the board passed resolutions creating a Gratuity Fund for retiring employees. Following the death of a shareholder in 1981, the remaining directors (excluding Gonzales, who was abroad) passed resolutions in August and September 1981 granting gratuity pay to retained employees in installments. The retained employees (private respondents) demanded and were partially paid their gratuity, but further payments were cancelled by Gonzales upon her return, leading to a labor complaint.

• Nature of Action: A labor complaint for non-payment of gratuity pay and other benefits filed by seven employees (private respondents) against their employer, Lopez Realty, Inc., and its majority shareholder, Asuncion Lopez Gonzales.
• Corporate Background: Lopez Realty, Inc. is a real estate corporation. Asuncion Lopez Gonzales held 7,831 shares, making her a majority shareholder alongside Teresita Lopez Marquez and Arturo F. Lopez. Except for Arturo Lopez, all shareholders were also directors.
• The 1978 Proposal & 1980 Resolutions: In 1978, a proposal for asset distribution and employee reduction with gratuity pay was approved. In 1980, the board passed Resolution No. 6 (creating a Gratuity Fund for retiring employees) and Resolution No. 10 (setting aside P157,750.00 for the fund covering 1950-1980).
• The 1981 Board Resolutions: After shareholder Teresita Lopez Marquez died on July 28, 1981, the remaining directors (excluding Asuncion Lopez Gonzales, who was abroad) held special meetings. On August 17, 1981, they resolved that laid-off employees would receive full gratuity, while retained employees would receive 25% on September 1, 1981, another 25% on January 1, 1982, with 50% retained by the office. On September 1, 1981, following a request from retained employees, the board resolved to accelerate payments: an additional 25% by October 15, 1981, and another 25% by the end of November 1981.
• Partial Payment & Cancellation: The first two installments of gratuity pay were paid to some private respondents (Fontecha, Refuerzo, Mamaril, Bautista). Cash vouchers and checks for subsequent installments for all private respondents were prepared but cancelled by Asuncion Lopez Gonzales upon her return. Despite demands, the corporation refused further payment.
• Corporate Dispute: Asuncion Lopez Gonzales filed a derivative suit against Arturo Lopez with the Securities and Exchange Commission, creating a "corporate squabble."
• Resignation of Some Employees: Three private respondents (Refuerzo, Pascual, Mamaril) resigned after the complaint was filed on February 8, 1982.

• Ultra Vires & Lack of Notice: Petitioners argued that the August 17 and September 1, 1981 board resolutions were ultra vires and invalid because petitioner Asuncion Lopez Gonzales was not notified of the special meetings where they were passed.
• Non-Ratification by Stockholders: Petitioners contended that the resolutions had no force and effect because they were not ratified by the stockholders during the Annual Stockholders' Meeting on March 1, 1982, as allegedly required by Section 28 1/2 of the Corporation Law (Section 40 of the Corporation Code).
• Gratuity Only for Retiring Employees: Petitioners insisted that gratuity pay, pursuant to the 1980 Resolutions (Nos. 6 and 10), should be given only upon an employee's retirement, thus excluding retained employees or those who voluntarily resigned. They claimed payment to some was a "mistake."

• Bar on New Grounds: Private respondents maintained that the issue of lack of notice to Gonzales was raised for the first time in the motion for reconsideration before the NLRC and was therefore barred on appeal, depriving them of the chance to present evidence of subsequent ratification.
• Ratification by Conduct: Respondents argued that the corporation's payment of the first two installments to some employees and Gonzales's signature on related cash vouchers constituted ratification of the resolutions.
• Resolutions Covered Retained Employees: Respondents countered that the 1981 resolutions explicitly provided for gratuity payments to retained employees on specific dates, disproving the argument that gratuity was only for retirement. They also cited the 1978 proposal which mentioned gratuity for resigning employees.
• No Revocation: Respondents noted that the stockholders never passed a resolution revoking or nullifying the 1981 resolutions.

• Procedural Bar: Whether the challenge based on lack of notice to a director could be raised for the first time on appeal.
• Validity of Resolutions (Ratification): Whether the board resolutions were invalid for lack of notice and failure to obtain stockholder approval, or whether they were ratified by subsequent corporate conduct.
• Scope of Gratuity Pay: Whether the gratuity pay under the 1981 resolutions was due only to retiring employees or also to retained and subsequently resigning employees.

• Procedural Bar: The challenge on the ground of lack of notice was barred because it was raised for the first time in the motion for reconsideration before the NLRC, not in the initial appeal. Questions not raised before the lower courts cannot be raised for the first time on appeal.
• Validity of Resolutions (Ratification): The resolutions were valid and binding. Even assuming lack of notice, the corporation's subsequent conduct—specifically, the payment of the first two installments of gratuity to some employees and Asuncion Lopez Gonzales's signature on cash vouchers for those payments—constituted ratification and estopped the petitioners from later challenging the resolutions' validity. Furthermore, the subject matter (employee gratuity) was within the corporation's express powers under the Corporation Code, so the resolutions were not ultra vires.
• Non-Requirement of Stockholder Approval: The cited provision (Section 28 1/2 of the Corporation Law / Section 40 of the Corporation Code) was inapplicable as it pertains to the disposition of all or substantially all corporate assets. Since the stockholders (except one) were also the directors, requiring separate stockholder approval would be illogical and superfluous.
• Scope of Gratuity Pay: The retained employees were entitled to the gratuity pay as stipulated in the 1981 resolutions, which set specific installment dates. The resignation of some employees after the filing of the case did not preclude their right to the gratuity already earned and due under the payment schedule.

• Ratification of Corporate Acts — An act of the board of directors performed at a meeting that was irregular (e.g., for lack of notice) may be ratified either expressly by the directors in a subsequent legal meeting or impliedly by the corporation's subsequent course of conduct, such as acceptance of benefits or acquiescence. Ratification can be inferred from silence, inaction, or conduct implying approval.
• Estoppel Against Corporate Challenge — A corporation and its shareholders may be estopped from challenging the validity of a corporate resolution if they have accepted benefits or acted in a manner that demonstrates acquiescence to the resolution's terms.
• Ultra Vires Doctrine — An ultra vires act is one not within the corporate powers conferred by the Corporation Code or the articles of incorporation, or not necessary or incidental to such powers. Providing gratuity pay for employees is an express corporate power under the Code, thus resolutions granting such benefits are not ultra vires.

• "It would be offensive to the basic rules of fair play and justice to allow petitioners to raise questions which have not been passed upon by the labor arbiter and the public respondent NLRC. It is well settled that questions not raised in the lower courts cannot be raised for the first time on appeal."
• "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."
• "The cited provision is not applicable to the case at bench as it refers to the sale, lease, exchange or disposition of all or substantially all of the corporation's assets, including its goodwill. In such a case, the action taken by the board of directors requires the authorization of the stockholders on record."

• Anchuelo v. IAC, G.R. No. 71391, January 29, 1987, 147 SCRA 434 — Cited for the procedural rule that questions not raised in the lower courts cannot be raised for the first time on appeal.
• Johnson v. Community Development Corp., 222 N.W. 2d 847 — Cited to support the doctrine that acts of directors at an illegally noticed meeting may be ratified by subsequent legal meeting or by the corporation's course of conduct.
• American Casualty Co. v. Dakota Tractor and Equipment Co., 234 F. Supp. 606 (D.N.D. 1964) — Cited for the principle that unauthorized acts of a corporate officer may be ratified by conduct implying approval and adoption, which may be express or inferred from silence and inaction.

• Section 45 of the Corporation Code (formerly Section 45 of the Corporation Law) — Defines ultra vires acts. The Court held that providing employee gratuity is a corporate power, thus the resolutions were not ultra vires.
• Section 36 (10) of the Corporation Code — Enumerates the powers of a corporation, including the power "to establish pension, retirement and other plans for the benefit of its directors, trustees, officers and employees." This was the basis for holding that granting gratuity pay is an express corporate power.
• Section 40 of the Corporation Code (formerly Section 28 1/2 of the Corporation Law) — Governs the sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporation's assets. The Court found this provision inapplicable to the board resolutions granting employee benefits.

• Chief Justice Andres R. Narvasa
• Justice Florenz D. Regalado Justice Vicente V. Mendoza
• Justice Jorge S. Imperial Francisco

N/A — The decision was unanimous.