G.R. No.
L-5377 December 29, 1954 corporate act and makes it perfectly valid and enforceable,
MARIA CLARA PIROVANA ET AL., plaintiffs-appellees,
vs.
THE DE LA RAMA STEAMSHIP CO., defendant-appellant.
SYLLABUS
1. CORPORATIONS; DONATIONS; DONATION GIVEN
"OUT OF GRATITUDE FOR SERVICES RENDERED" IS
REMUNERATIVE. A donation given by the corporation to
the minor children of its late president because he "was to a
large extent responsible for the rapid and very successful
development and expansion of the activities of this
company" is remunerative in nature in contemplation of law.
2. ID.; ID.; PERFECTED DONATION CAN ONLY BE
RESCINDED ON LEGAL GROUNDS. Where the
donation made by the corporation has not only been granted
in several resolutions duly adopted by its board of directors
but also it has been formally ratified by its stockholders, with
the concurrence of its only creditor, and accepted by the
donee, the donation has reached the stage of perfection
which is valid and binding upon the corporation and as such
cannot be rescinded unless there exist legal grounds for
doing so.
3. ID.; ID.; DONATION DISTINGUISHED FROM GRATUITY.
While a donation may technically be different from a
gratuity, in substance they are the same. They are even
similar to a pension. Thus, it was said that "A pension is a
gratuity only when it is granted for services previously
rendered, and which at the time they were rendered gave
rise to no legal obligation." (Words and Phrases, Permanent
Edition, p. 675; ODea v. Cook, 169 Pac., 306, 176 Cal.,
659.)
4. ID.; POWERS OF A CORPORATION; ACTS
PERFORMED WITHIN THE POWERS GRANTED ARE
NOT "ULTRA VIRES. Where the corporation was given
broad and almost unlimited powers to carry out the purposes
for which it was organized among them, to aid in any other
manner any person in the affairs and prosperity of whom it
has a lawful interest, a donation made to the heirs of its late
president in recognition of the valuable services rendered by
the latter which had immensely contributed to its growth,
comes within this broad grant of power and can not be
considered an ultra vires act.
5. ID.; ID.; "ULTRA VIRES" ILLEGAL ACTS
DISTINGUISHED; EFFECT OF RATIFICATION BY
STOCKHOLDERS. Illegal acts of a corporation
contemplate the doing of an act which is contrary to law,
morals, or public order, or contravene some rules of public
policy or public duty, and are, like similar transactions
between individuals, void. They can not serve as basis of a
court action, nor acquire validity by performance, ratification,
or estoppel. On the other hand, ultra vires acts or those
which are not illegal and void ab initio but are merely within
the scope of the article of incorporation, are merely voidable
and may become binding and enforceable when ratified by
the stockholders.
6. ID.; ID.; "ULTRA VIRES" ACTS; RATIFICATION BY
STOCKHOLDERS OF "ULTRA VIRES" ACTS CURES
INFIRMITY. The ratification by the stockholders of an ultra
vires act which is not illegal cures the infirmity of the
specially so if it is not merely executory but executed and
consummated and no creditors are prejudiced thereby.
7. ATTORNEYS FEES, WHEN MAY BE AWARDED AS
DAMAGES. When the defendants act or omission has
compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest, attorneys fees may be
awarded as damages (Article 2208, paragraph 2, of the new
Civil Code).
Facts:
Enrico Pirovano was the President and General Manager of
the De la Rama Steamship Company. Early in 1941 the
company insured the life of said Enrico Pirovano in various
Philippine and American Life Insurance companies. Enrico
Pirovano was largely responsible for the rapid and very
successful development of the activities of the company. He
was killed by the Japanese in Manila sometime in 1944
leaving as his only heirs four minor children.
In view of the fact that Enrico Pirovano left practically nothing
to his heirs, the current President of De la Rama Steamship
proposed that it is but fit and proper that the company which
owes so much to the deceased should make some provision
for his children. He proposed that out of the proceeds of the
insurance policies the sum of P400,000 be set aside for
Pirovanos minor children, said sum of money to be
convertible into 4,000 shares of the stock of the Company, at
par, or 1,000 shares for each child.
A resolution was adopted to carry out the proposal and
submitted to the stockholders of the De la Rama company at
a meeting properly convened, and on that same date the
same was duly approved.
Sometime in March 1950, the President of the corporation,
Sergio Osmea, Jr., inquired to the Securities and Exchange
Commission asking for opinion regarding the validity of the
donation of the proceeds of the insurance policies to the
Pirovano children.
SEC rendered its opinion that the donation was void
because the corporation could not dispose of its assets by
gift and therefore the corporation acted beyond the scope of
its corporate powers.
In 1951, in view of the failure of compliance with the
conditions to which the above donation was made subject,
and in view of the opinion of the SEC Commissioner, the
majority of the stockholders' voted to revoke the resolution
approving the donation to the Pirovano children.
The minor children of the late Enrico Pirovano, represented
by their mother and guardian, Estefania demanded the
payment of the credit due them, amounting to P564,980.89,
but the company refused to pay. Thus, they instituted an
action in the Court of First Instance of Rizal.
Issue: Can defendant corporation give by way of donation
the proceeds of said insurance policies to the minor children
of the late Enrico Pirovano under the law or its articles of
corporation, or is that donation an ultra vires act?
stockholders. Said donation, even if ultra vires in the
supposition we have adverted to, is not void, and if voidable
its infirmity has been cured by ratification and subsequent
acts of the defendant corporation. The defendant
corporation, therefore, is now prevented or estopped from
contesting the validity of the donation.

Held: After a careful perusal of the provisions of the articles

of incorporation of the De la Rama company, we find that the
corporation was given broad and almost unlimited powers to
carry out the purposes for which it was organized among
them, (1) "To invest and deal with the moneys of the
company not immediately required, in such manner as from
time to time may be determined" and, (2) "to aid in any other
manner any person, association, or corporation of which any
obligation or in which any interest is held by this corporation
or in the affairs or prosperity of which this corporation has a
lawful interest."

The world deal is broad enough to include any manner of

disposition, and refers to moneys not immediately required
by the corporation, and such disposition may be made in
such manner as from time to time may be determined by the
corporations.

The donation in question undoubtedly comes within the

scope of this broad power for it is a fact appearing in the
evidence that the insurance proceeds were not immediately
required when they were given away.

Granting arguendo that the donation given by Pirovano

children is outside the scope of the powers of the defendant
corporation, or the scope of the powers that it may exercise
under the law, or it is an ultra vires act, still it may said that
the same can not be invalidated, or declared legally
ineffective for the reason alone, it appearing that the
donation represents not only the act of the Board of
Directors but of the stockholders themselves as shown by
the fact that the same has been expressly ratified in a
resolution duly approved by the latter. By this ratification, the
infirmity of the corporate act, it may has been obliterated
thereby making the act perfectly valid and enforceable. This
is specially so if the donation is not merely executory but
executed and consummated and no creditors are prejudice,
or if there are creditors affected, the latter has expressly
given their confirmity.

A distinction should be made between corporate acts or

contracts which are illegal and those which are merely ultra
vires.

The former contemplates the doing of an act which is

contrary to law, morals, or public policy or public duty, and
are, like similar transactions between the individuals void.
They cannot serve as basis of a court action, nor require
validity.

Ultra vires acts on the other hand, or those which are not
illegal and void ab initio, but are not merely within the scope
of the articles of incorporation, are merely voidable and may
become binding and enforceable when ratified by the
G.R. No. L-48237
MADRIGAL & COMPANY, INC., petitioner,
vs.
HON. RONALDO B. ZAMORA, PRESIDENTIAL
ASSISTANT FOR LEGAL AFFAIRS, THE HON.
SECRETARY OF LABOR, and MADRIGAL CENTRAL
OFFICE EMPLOYEES UNION, respondents.
FACTS:
The petitioner was engaged in the management of Rizal
Cement Co., Inc. The petitioner and Rizal Cement Co., Inc.
are sister companies. Both are owned by the same or
practically the same stockholders.
On December 28, 1973, the Madrigal Central Office
Employees Union, sought for the renewal of its collective
bargaining agreement with the petitioner, which was due to
expire on February 28, 1974.
Specifically, it proposed a wage increase of P200.00 a
month, an allowance of P100.00 a month, and other
economic benefits. The petitioner, however, requested for a
deferment in the negotiations.
On July 29, 1974, by an alleged resolution of its
stockholders, the petitioner reduced its capital stock from
765,000 shares to 267,366 shares. This was effected
through the distribution of the marketable securities owned
by the petitioner to its stockholders in exchange for their
shares in an equivalent amount in the corporation.
On August 22, 1975, by yet another alleged stockholders'
action, the petitioner reduced its authorized capitalization
from 267,366 shares to 110,085 shares, again, through the
same scheme.
After the petitioner's failure to sit down with the respondent
union, the latter, on August 28, 1974, filed a complaint for
unfair labor practice.
The petitioner alleged operational losses. Pending the
resolution of the case the petitioner informed the Secretary
of Labor that "Rizal Cement Co., Inc. had ceased operating
temporarily. Due to lack of business incentives and
prospects and in order to prevent further losses it had to
reduce its capital stock on two occasions. As the
situation, therefore, now stands, the Madrigal & Co., Inc. is
without substantial income to speak of, necessitating a
reorganization, by way of retrenchment, of its employees
and operations."
The letter, however, was not verified and neither was it
accompanied by the proper supporting papers. For this
reason, the Department of Labor took no action on the
petitioner's request.
On January 19, 1976, the labor arbiter rendered a decision
against the petitioner. The arbiter specifically found that the
petitioner "had been making substantial profits in its
operation" since 1972 through 1975. The petitioner
appealed.
Petitioner proceeded with the retrenchment program and
terminated the services of a number of employees.
Respondent union filed a complaint for illegal lockout. The
Secretary of Labor found the dismissal to be contrary to law
and ordered the petitioner to reinstate the employees.
The petitioner then moved for reconsideration, which the
Acting Labor Secretary, Amado Inciong, denied.
On appeal, petitoner insists that it is incurring losses; that as
such, it has to reduce its capitalization; that the profits it is
earning are cash dividends from Rizal Cement Co.; that
under the law, dividends are the absolute property of a
stockholder like the petitioner and cannot be compelled to
share it with creditors (like the employees).
RULING:
What clearly emerges from the recorded facts is that the
petitioner, awash with profits from its business operations but
confronted with the demand of the union for wage increases,
decided to evade its responsibility towards the employees by
a devised capital reduction. While the reduction in capital
stock created an apparent need for retrenchment, it was, by
all indications, just a mask for the purge of union members,
who, by then, had agitated for wage increases. In the face of
the petitioner company's piling profits, the unionists had the
right to demand for such salary adjustments.
That the petitioner made quite handsome profits is clear from
the records
The petitioner would, however, have us believe that it in fact
sustained losses. Whatever profits it earned, so it claims
were in the nature of dividends "declared on its
shareholdings in other companies in the earning of which the
employees had no participation whatsoever."
"Cash dividends," according to it, "are the absolute property
of the stockholders and cannot be made available for
disposition if only to meet the employees' economic
demands."
Dividends received by the company are corporate earnings
arising from corporate investment." Indeed, as found by the
Commission, the petitioner had entered such earnings in its
financial statements as profits, which it would not have done
if they were not in fact profits.
Moreover, it is incorrect to say that such profits in the form
of dividends are beyond the reach of the petitioner's
creditors since the petitioner had received them as
compensation for its management services in favor of the
companies it managed as a shareholder thereof. As such
shareholder, the dividends paid to it were its own money,
which may then be available for wage increments. It is not a
case of a corporation distributing dividends in favor of its
stockholders, in which case, such dividends would be the
absolute property of the stockholders and hence, out of
reach by creditors of the corporation. Here, the petitioner
was acting as stockholder itself, and in that case, the right to
a share in such dividends, by way of salary increases, may
not be denied its employees.

Accordingly, this court is convinced that the petitioner's

capital reduction efforts were, to begin with, a subterfuge, a
deception as it were, to camouflage the fact that it had been
making profits, and consequently, to justify the mass layoff in
its employee ranks, especially of union members. They were
nothing but a premature and plain distribution of corporate
assets to obviate a just sharing to labor of the vast profits
obtained by its joint efforts with capital through the years.
Surely, we can neither countenance nor condone this. It is
an unfair labor practice.
 CHINA BANKING CORPORATION, petitioner,
vs.
COURT OF APPEALS, and VALLEY GOLF and COUNTRY
CLUB, INC., respondents.

G.R. No. 117604 March 26, 1997