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36 SUPREME COURT REPORTS ANNOTATED

Montelibano vs. Bacolod-Murcia Milling Co., Inc.

No. L-15092. May 18, 1962.

ALFREDO MONTELIBANO, ET AL.,plaintiffs-appellants,

vs. BACOLOD-MURCIA MILLING CO.,INC.,defendant-
appellee.

Sugar Centrals; Milling Contracts; Concessions given by

central to planters, if retracted, will constitute fraud; Case at Bar.
—Since there is no rational explanation for the company's
assenting to the further concessions asked by the planters before
the contracts were signed, except as further inducement for the
planters to agree to the extension of the contract period, to allow
the company now to retract such concessions would be to sanction
a fraud upon the planters who relied on such additional
stipulations.
Contracts; Novation; Modification before a bargain not
novation in law.—There can be no novation unless two distinct
and successive binding contracts take place, with the later one
designed to replace the preceding convention. Modifications
introduced before a bargain becomes obligatory can in no sense
constitute novation in law.
Same; Assent and concurrence of parties necessary to perfect a
contract; Setting down of terms not important except in certain
cases.—Except in the cases of statutory forms or solemn
agreements, it is the assent and concurrence of the parties, and
not the setting down of its terms, that constitutes a binding
contract.

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VOL. 5, MAY 18, 1962 37

Montelibano vs. Bacolod-Murcia Milling Co., Inc.

Corporations; Exercise of charter powers; Test to be applied.

—"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

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reasonably necessary to their exercise. If so, the corporation has

the power to do it; otherwise, not." (Fletcher Cyc. Corp., Vol. 6,
Rev. Ed. 1950, pp. 266-268)
Same; Same; Question on probable losses or decrease in profits
not reviewable by courts.—Whether or not a valid and binding
resolution passed by the board of directors, will cause losses or
decrease the profits of the corporation, may not be reviewed by
the courts.

APPEAL from a judgment of the Court of First Instance of

Occidental Negros.

The facts are stated in the opinion of the Court.

          Tañada, Teehankee & Carreon for plaintiffs-
appellants.
     Hilado & Hilado for defendant-appellee.

REYES, J.B.L., J.:

Appeal on points of law from a judgment of the Court of

First Instance of Occidental Negros, in its Civil Case No.
2603, dismissing plaintiff's complaint that sought to compel
the defendant Milling Company to increase plaintiff's share
in the sugar produced from their cane, from 60% to 62.33%,
starting from the 1951-1952 crop year.
It is undisputed that plaintiffs-appellants, Alfredo
Montelibano, Alejandro Montelibano, and the Limited
copartnership Gonzaga and Company, had been and are
sugar planters adhered to the defendant-appellee's sugar
central mill under identical milling contracts. Originally
executed in 1919, said contracts were stipulated to be in
force for 30 years starting with the 1920-21 crop, and
provided that the resulting product should be divided in
the ratio of 45% for the mill and 55% for the planters.
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38 SUPREME COURT REPORTS ANNOTATED

Montelibano vs. Bacolod-Murcia Milling Co., Inc.

Sometime in 1936, it was 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. To
this effect, a printed Amended Milling Contract form was
drawn up. On August 20, 1936, the Board of Directors of
the appellee Bacolod-Murcia Milling Co., Inc., adopted a
resolution (Acta No. 11, Acuerdo No. 1) granting further
concessions to the planters over and above those contained
in the printed Amended Milling Contract. The bone of
contention is paragraph 9 of this resolution, that reads as
follows:

"ACTA NO. 11
SESION DE LA JUNTA DIRECTIVA

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AGOSTO 20, 1936

xx                                         xx                                         xx
                                             xx

Acuerdo No. 1.—Previa mocion debidamente secundada, la Junta

en consideracion a una peticion de los plantadores hecha por un
comite nombrado por los mismos, acuerda enmendar el contrato
de molienda enmendado mediante las siguientes:"

x      x      x      x      x      x      x

"9.a Que si durante la vigencia de este contrato de Molienda

Enmendado, las centrales azucareras, de Negros Occidental, cuya
produccion anual de azucar centrifugado sea mas de una tercera
parte de la produccion, total de todas las centrales azucareras de
Negros Occidental, concedieren a sus plantadores rnejores
condiciones que la estipuladas en el presente contrato, entonces
esas mejores condiciones se concederan y por el presente se
entenderan concedidas a los plantadores que hayan otorgado este
Contrato de Molienda Enmendado."

Appellants signed and executed the printed Amended

Milling Contract on September 10, 1936, but a copy of the
resolution of August 20, 1936, signed by the Central's
General Manager, was not attached to the printed contract
until April 17, 1937; with the notation—

"Las enmiendas arriba transcritas forman parte del contrato de

molienda enmendado, otorgado por—y la Bacolod-Murcia Milling
Co., Inc."

In 1953, the appellants initiated the present action,

contending that three Negros sugar centrals (La Carlota,
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VOL. 5, MAY 18, 1962 39

Montelibano vs. Bacolod-Murcia Milling Co., Inc.

Binalbagan-Isabela and San Carlos), with a total annual

production exceeding one-third of the production of all the
sugar central mills in the province, had already granted
increased participation (of 62.5%) to their planters, and
that under paragraph 9 of the resolution of August 20,
1936, heretofore quoted, the appellee had become obligated
to grant similar concessions, to the plaintiffs (appellants
herein). 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

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dismissed the complaint. Thereupon, plaintiffs duly

appealed to this Court.
We agree with appellants that the appealed decisions
can not stand. 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. No
reason appears of record why, in the face of such
concessions, the appellants should reject them or consider
them as separate and apart from the main amended
milling contract, specially taking into account that
appellant Alfredo Montelibano was, at the time, the
President of the Planters Association (Exhibit 4, p. 11) that
had agitated for the concessions embodied in the resolution
of August 20, 1936. That the resolution formed an integral
part of the amended milling contract, signed on September
10, and not a separate bargain, is further shown by the fact
that a copy of the resolution was simply attached to the
printed contract without special negotiations or agreement
between the parties.
It follows from the foregoing that the terms embodied

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40 SUPREME COURT REPORTS ANNOTATED

Montelibano vs. Bacolod-Murcia Milling Co., Inc.

in the resolution of August 20, 1936 were supported by the

same causa or consideration underlying the main amended
milling contract; i.e., the promises and obligations
undertaken thereunder by the planters, and, particularly,
the extension of its operative period for an additional 15
years over and beyond the 30 years stipulated in the
original contract. Hence, the conclusion of the court below
that the resolution constituted gratuitous concessions not
supported by any consideration is legally untenable.
All disquisition concerning donations and the lack of
power of the directors of the respondent sugar milling
company to make a gift to the planters would be relevant if
the resolution in question had embodied a separate
agreement afterthe appellants had already bound
themselves to the terms of the printed milling contract. But
this was not the case. When the resolution was adopted
and the additional concessions were made by the company,
the appellants were not yet obligated by the terms of the
printed contract, since they admittedly did not sign it until
twenty-one days later, on September 10, 1936. Before that
date, the printed form was no more than a proposal that
either party could modify at its pleasure, and the appellee
actually modified it by adopting the resolution in question.

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So that by September 10, 1936 defendant corporation

already understood that the printed terms were not
controlling, save as modified by its resolution of August 20,
1936; and we are satisfied that such was also the
understanding of appellants herein, and that the minds of
the parties met upon that basis. Otherwise there would
have been no consent or "meeting of the minds", and no
binding contract at all. But the conduct of the parties
indicates that they assumed, and they do not now deny,
that the signing of the contract on September 10, 1936, did
give rise to a binding agreement. That agreement had to
exist on the basis of the printed terms as modified by the
resolution of August 20, 1936, or not at all. Since there is
no rational explanation for the company's assenting to the
further concessions asked by the planters before the
contracts were signed, except as further inducement for the
planters to

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VOL. 5, MAY 18, 1962 41

Montelibano vs. Bacolod-Murcia Milling Co., Inc.

agree to the extension of the contract period, to allow the

company now to retract such concessions would be to
sanction a fraud upon the planters who relied on such
additional stipulations.
The same considerations apply to the "void novation"
theory of appellees. There can be no novation unless two
distinct and successive binding contracts take place, with
the later one designed to replace the preceding convention.
Modifications introduced before a bargain becomes
obligatory can in no sense constitute novation in law.
Stress is placed on the fact that the text of the
Resolution of August 20, 1936 was not attached to the
printed contract until April 17, 1937. But, except in the
case of statutory forms or solemn agreements (and it is not
claimed that this is one), it is the assent and concurrence
(the "meeting of the minds") of the parties, and not the
setting down of its terms, that constitutes a binding
contract. And the fact that the addendum is only signed by
the General Manager of the milling company emphasizes
that the addition was made solely in order that the
memorial of the terms of the agreement should be full and
complete.
Much is made of the circumstance that the report
submitted by the Board of Directors of the appellee
company in November 19, 1936 (Exhibit 4) only made
mention of 90%, the planters having agreed to the 60-40
sharing of the sugar set forth in the printed "amended
milling contracts", and did not make any reference at all to
the terms of the resolution of August 20, 1936. But a
reading of this report shows that it was not intended to
inventory all the details of the amended contract;
numerous provisions of the printed terms are also glossed

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over. The Directors of the appellee Milling Company had no

reason at the time to call attention to the provisions of the
resolution in question, since it contained mostly
modifications in detail of the printed terms, and the only
major change was paragraph 9 heretofore quoted; but when
the report was made, that paragraph was not yet in effect,
since it was conditioned on other centrals granting better
concessions to their planters, and that did not happen until
after 1950.
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42 SUPREME COURT REPORTS ANNOTATED

Montelibano vs. Bacolod-Murcia Milling Co., Inc.

There was no reason in 1936 to emphasize a concession

that was not yet, and might never be, in effective operation.
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." (Fletcher Cyc. Corp., Vol. 6,
Rev. Ed. 1950, pp. 266-268)

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.

"They hold such office charged with the duty to act for the
corporation according to their best judgment, and in so doing they
cannot be controlled in the reasonable exercise and performance
of such duty. Whether the business of a corporation should be
operated at a loss during depression, or close down at a smaller
loss, is a purely business and economic problem to be determined
by the directors of the corporation and not by the court. 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." (Fletcher on
Corporations, Vol. 2, p. 390).

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And it appearing undisputed in this appeal that sugar

centrals of La Carlota, Hawaiian Philippines, San Carlos
and Binalbagan (which produce over one-third of the en-

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VOL. 5, MAY 18, 1962 43

Litimco vs. La Mallorca

tire annual sugar production in Occidental Negros) have

granted progressively increasing participations to their
adhered planters, at an average rate of

62.333% for the 1951-52 crop year;

64.2% for 1952-53;
64.3% for 1953-54;
64.5% for 1954-55; and
63.5% for 1955-56

the appellee Bacolod-Murcia Milling Company is, under

theterms of its Resolution of August 20, 1936, duty bound
togrant similar increases to plaintiffs-appellants herein.
WHEREFORE, the decision under appeal is reversed and
set aside; and judgment is decreed sentencing the
defendant-appellee to pay plaintiffs-appellants the
differential or increase of participation in the milled sugar
in accordance with paragraph 9 of the appellee's Resolution
of August 20, 1936, over and in addition to the 60%
expressed in the printed Amended Milling Contract, or the
value thereof when due, as follows:

0.333% to appellants Montelibano for the 1951-1952 crop year,

said appellants having received an additional 2%
corresponding to said year in October, 1953;

2.333% to appellant Gonzaga & Co., for the 1951-1952 crop year;
and to all appellants thereafter—

4.2% for the 1952-1953 crop year;

4.3% for the 1953-1954 crop year;
4.5% for the 1954-1955 crop year;
3.5% for the 1955-1956 crop year;

with interest at the legal rate on the value of such

differential during the time they were withheld; and the
right is reserved to plaintiffs-appellants to sue for such
additional increases as they may be entitled to for the crop
years subsequent to those herein adjudged. Costs against
appellee, Bacolod-Murcia Milling Co,

          Padilla, Bautista Angelo, Labrador, Concepcion,

Bar-rera, Paredes and Dizon, JJ., concur.

Decision reversed and set aside.

______________

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