Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-18062 February 28, 1963

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

Office of the Solicitor General for plaintiff-appellee.

BAUTISTA ANGELO, J.:

On May 17, 1948, the Acoje Mining Company, Inc. wrote the Director of Posts requesting the opening
of a post, telegraph and money order offices at its mining camp at Sta. Cruz, Zambales, to service its
employees and their families that were living in said camp. Acting on the request, the Director of Posts
wrote in reply stating that if aside from free quarters the company would provide for all essential
equipment and assign a responsible employee to perform the duties of a postmaster without
compensation from his office until such time as funds therefor may be available he would agree to put
up the offices requested. The company in turn replied signifying its willingness to comply with all the
requirements outlined in the letter of the Director of Posts requesting at the same time that it be
furnished with the necessary forms for the early establishment of a post office branch.

On April 11, 1949, the Director of Posts again wrote a letter to the company stating among other things
that "In cases where a post office will be opened under circumstances similar to the present, it is the
policy of this office to have the company assume direct responsibility for whatever pecuniary loss may
be suffered by the Bureau of Posts by reason of any act of dishonesty, carelessness or negligence on
the part of the employee of the company who is assigned to take charge of the post office," thereby
suggesting that a resolution be adopted by the board of directors of the company expressing
conformity to the above condition relative to the responsibility to be assumed buy it in the event a post
office branch is opened as requested. On September 2, 1949, the company informed the Director of
Posts of the passage by its board of directors of a resolution of the following tenor: "That the
requirement of the Bureau of Posts that the Company should accept full responsibility for all cash
received by the Postmaster be complied with, and that a copy of this resolution be forwarded to the
Bureau of Posts." The letter further states that the company feels that that resolution fulfills the last
condition imposed by the Director of Posts and that, therefore, it would request that an inspector be
sent to the camp for the purpose of acquainting the postmaster with the details of the operation of the
branch office.

The post office branch was opened at the camp on October 13, 1949 with one Hilario M. Sanchez as
postmaster. He is an employee of the company. On May 11, 1954, the postmaster went on a three-
day leave but never returned. The company immediately informed the officials of the Manila Post Office
and the provincial auditor of Zambales of Sanchez' disappearance with the result that the accounts of
the postmaster were checked and a shortage was found in the amount of P13,867.24.

The several demands made upon the company for the payment of the shortage in line with the liability
it has assumed having failed, the government commenced the present action on September 10, 1954
before the Court of First Instance of Manila seeking to recover the amount of Pl3,867.24. The company
in its answer denied liability for said amount contending that the resolution of the board of directors
wherein it assumed responsibility for the act of the postmaster is ultra vires, and in any event its liability
under said resolution is only that of a guarantor who answers only after the exhaustion of the properties
of the principal, aside from the fact that the loss claimed by the plaintiff is not supported by the office
record.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove
their case not covered by this stipulation of facts. 1äwphï1. ñët

After trial, the court a quo found that, of the amount claimed by plaintiff totalling P13,867.24, only the
sum of P9,515.25 was supported by the evidence, and so it rendered judgment for the plaintiff only for
the amount last mentioned. The court rejected the contention that the resolution adopted by the
company is ultra vires and that the obligation it has assumed is merely that of a guarantor.

Defendant took the present appeal.

The contention that the resolution adopted by the company dated August 31, 1949 is ultra vires in the
sense that it has no authority to act on a matter which may render the company liable as a guarantor
has no factual or legal basis. In the first place, it should be noted that the opening of a post office
branch at the mining camp of appellant corporation was undertaken because of a request submitted
by it to promote the convenience and benefit of its employees. The idea did not come from the
government, and the Director of Posts was prevailed upon to agree to the request only after studying
the necessity for its establishment and after imposing upon the company certain requirements
intended to safeguard and protect the interest of the government. Thus, after the company had
signified its willingness to comply with the requirement of the government that it furnish free quarters
and all the essential equipment that may be necessary for the operation of the office including the
assignment of an employee who will perform the duties of a postmaster, the Director of Posts agreed
to the opening of the post office stating that "In cases where a post office will be opened under
circumstances similar to the present, it is the policy of this office to have the company assume direct
responsibility for whatever pecuniary loss may be suffered by the Bureau of Posts by reason of any
act of dishonesty, carelessness or negligence on the part of the employee of the company who is
assigned to take charge of the post office," and accepting this condition, the company, thru its board
of directors, adopted forthwith a resolution of the following tenor: "That the requirement of the Bureau
of Posts that the company should accept full responsibility for all cash received by the Postmaster, be
complied with, and that a copy of this resolution be forwarded to the Bureau of Posts." On the basis of
the foregoing facts, it is evident that the company cannot now be heard to complain that it is not liable
for the irregularity committed by its employee upon the technical plea that the resolution approved by
its board of directors is ultra vires. The least that can be said is that it cannot now go back on its
plighted word on the ground of estoppel.

The claim that the resolution adopted by the board of directors of appellant company is an ultra
vires act cannot also be entertained it appearing that the same covers a subject which concerns the
benefit, convenience and welfare of its employees and their families. While as a rule an ultra vires act
is one committed outside the object for which a corporation is created as defined by the law of its
organization and therefore beyond the powers conferred upon it by law (19 C.J.S., Section 965, p.
419), there are however certain corporate acts that may be performed outside of the scope of the
powers expressly conferred if they are necessary to promote the interest or welfare of the corporation.
Thus, it has been held that "although not expressly authorized to do so a corporation may become a
surety where the particular transaction is reasonably necessary or proper to the conduct of its
business,"1 and here it is undisputed that the establishment of the local post office is a reasonable and
proper adjunct to the conduct of the business of appellant company. Indeed, such post office is a vital
improvement in the living condition of its employees and laborers who came to settle in its mining
camp which is far removed from the postal facilities or means of communication accorded to people
living in a city or municipality..

Even assuming arguendo that the resolution in question constitutes an ultra vires act, the same
however is not void for it was approved not in contravention of law, customs, public order or public
policy. The term ultra vires should be distinguished from an illegal act for the former is merely voidable
which may be enforced by performance, ratification, or estoppel, while the latter is void and cannot be
validated.2 It being merely voidable, an ultra vires act can be enforced or validated if there are equitable
grounds for taking such action. Here it is fair that the resolution be upheld at least on the ground of
estoppel. On this point, the authorities are overwhelming:

The weight of authority in the state courts is to the effect that a transaction which is merely ultra
vires and not malum in se or malum prohibitum, is, if performed by one party, not void as
between the parties to all intents and purposes, and that an action may be brought directly on
the transaction and relief had according to its terms. (19 C.J.S., Section 976, p.
432, citing Nettles v. Rhett, C.C.A.S.C., 94 F. 2d, reversing, D.C., 20 F. Supp. 48)

This rule is based on the consideration that as between private corporations, one party cannot
receive the benefits which are embraced in total performance of a contract made with it by
another party and then set up the invalidity of the transaction as a defense." (London &
Lancashire Indemnity Co. of America v. Fairbanks Steam Shovel Co., 147 N.E. 329, 332, 112
Ohio St. 136.)

The defense of ultra vires rests on violation of trust or duty toward stockholders, and should
not be entertained where its allowance will do greater wrong to innocent parties dealing with
corporation..

The acceptance of benefits arising from the performance by the other party may give rise to
an estoppel precluding repudiation of the transaction. (19 C.J.S., Section 976, p. 433.)

The current of modern authorities favors the rule that where the ultra vires transaction has
been executed by the other party and the corporation has received the benefit of it, the law
interposes an estoppel, and will not permit the validity of the transaction or contract to be
questioned, and this is especially true where there is nothing in the circumstances to put the
other party to the transaction on notice that the corporation has exceeded its powers in
entering into it and has in so doing overstepped the line of corporate privileges. (19 C.J.S.,
Section 977, pp. 435-437, citing Williams v. Peoples Building & Loan Ass'n, 97 S.W. 2d 930,
193 Ark. 118; Hays v. Galion Gas Light Co., 29 Ohio St. 330)

Neither can we entertain the claim of appellant that its liability is only that of a guarantor. On this point,
we agree with the following comment of the court a quo: "A mere reading of the resolution of the Board
of Directors dated August 31, 1949, upon which the plaintiff based its claim would show that the
responsibility of the defendant company is not just that of a guarantor. Notice that the phraseology
and the terms employed are so clear and sweeping and that the defendant assumed 'full responsibility
for all cash received by the Postmaster.' Here the responsibility of the defendant is not just that of a
guarantor. It is clearly that of a principal."

WHEREFORE, the decision appealed from is affirmed. No costs.

Bengzon, C.J., Padilla, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala and
Makalintal, JJ. concur.
Footnotes

1
Thomson on Corporations, 3rd ed. Vol. 3, p. 973 citing Deming v. Maas, 18 Cal. App. 330,
123 Pac. 204; Depot Realty Syndicate v. Enterprise Brewing Co., 87 Ore. 560, 170 Pac. 294,
171 Pac. 223, L.R.A. 1918C, 1001.

2
19 C.J.S., Section 966, p. 422, citing Smith v. Baltimore and O. R. Co., D. C. Pa., 48 F. 2d
861, 870.