G.R. No. L-5377. December 29, 1954
MARIA CARLA PIROVANO ET AL., PLAINTIFFS-APPELLEES, VS. THE DE LA RAMA STEAMSHIP CO., INC., DEFENDANT-APPELLANT.
BAUTISTA ANGELO, J.:
Rizal declaring the donation made by the defendant in favor of the
Minor children of the late Enrico Pirovano of the proceeds of the
insurance policies taken on his life valid and binding, and ordering
said!defendant to pay the said minor children the sum of P583,813.59,
with interest thereon at the rate of 5% from the date of the filing of
the complaint, plus an additional amount equivalent to 20% of said sum
of P583,813.59 as damages by way of attorney’s fees, and the costs of
action.
Plaintiffs herein are the minor children of the late Enrico Pirovano
represented by their mother and judicial guardian Estefania R.
Pirovano. They seek to enforce certain resolutions adopted by the Board
of Directors and stockholders of the defendant company giving to said
minor children the proceeds of the insurance policies taken in the life
of their deceased father Enrico Pirovano with the Company as
beneficiary. Defendant’s main defense is: that said resolutions and the
contract executed pursuant theretb are ultra vires, and, if valid, the obligation to pay the amount given is not yet due and demandable.
The trial court resolved all the issues raised by the parties in
favor of the plaintiffs and, after considering the evidence, both oral
and documentary, arrived at the following conclusions:
“First:—That the contract executed between the plaintiffs and the defendant is a remunerative donation.
“Second:—That said contract or donation is not ultra vires
but an act executed within the powers of the defendant corporation in
accordance with its articles of incorporation and by-laws, sanctioned
and approved by its Board of Directors and stockholders; and
subsequently ratified by other subsequent acts of the defendant company.“Third:—That
the said donation is in accordance with the trend of modern and more
enlightened legislation in its treatment of questions between labor and
capital.“Fourth:—That the condition mentioned in
the donation is null and void because it depends on the provisions of
Article 1115 of the old Civil Code.“Fifth:—That if
the condition is valid, its non-fulfillment is due to the desistance of
the defendant company from obeying and doing the wishes and mandates of
the majority of the stockholders.“Sixth:—That the
non-payment in favor of the national Development Company is not due to
the lack of funds, nor to lack of authority, but the desire of the
President of the corporation to preserve and continue the Government
participation in the company.“Seventh:—That due
demands were made by the plaintiffs and their attorneys and these
demands were rejected for no justifiable or legal grounds.”
The important facts which need to be considered for purposes of this appeal may be briefly stated as follows:
Defendant is a corporation duly organized in accordance with law
with an authorized capital of P500,000, divided into P5,000 shares,
with a par value of P100 each share. The stockholders were: Esteban de
la Rama, 1,800 shares, Leonor de la Rama, 100 shares, Estefania de la
Rama, 100 shares, and Eliseo Hervas, Tomas Concepcion, Antonio G.
Juanco, and Gaudencio Volasote with 5 shares each. Leonor and Estefania
are daughters of Don Esteban, while the rest his employees. Estefaniade
la Rama was married to the late Enrico Pirovano and to them four
children were born who are the plaintiffs in this case.
Enrico Pirovano became the president of the defendant cbmpany and
under his management the company grew and progressed until it became a
multi-million corporation by the time Pirovano was executed by the
Japanese during the occupation. On May 13, 1941, the capital stock of
the corporation was increased to P2,000,000, after which a 100 stock
dividend was declared. Subsequently, or before the outbreak of the war,
new stock dividends of 200 and 33-1/3 per cent again declared. On
December 4, 1941 the capital stock was once more increased to
P5,000.,000. Under Pirovano1 s management, the assets of the company
grew and increased from an original paid up capital of around
P2,000,000 to P15,538,0237 by September 30, 1941 (Exhibit HH).
In the meantime, Don Esteban de la Rama, who practically owned and
controlled the stock of the defendant corporation, distributed his
shareholding among his five daughters, namely, Leonor, Estefania,
Lourdes, Lolita and Conchita and his wife Natividad Aguilar so that, at
that time, or on July 10, 1946, the stockholding of the corporation
stood as follows: Esteban de la Rama, 869 shares, Leonor de la Rama, 3,376 shares, Estefania de la Rama, 3»368 shares, Lourdes de la Rama, 3,368 shares, Lolita de la Rama, 3,368 shares, Conchita de la Rama, 3,376 shares,
and Natividad Aguilar, 2,136 shares. The other stockholders, namely,
Eliseo Hervas, Tomas Concepcion, Antonio Juanco, and Jose Aguilar, who
were merely employees of Don Esiteban, were given 40 shares each, while Pio Pedrosa, Marcial P. Lichauco and Rafael Roces, one share each,
because they merely represented the National Development Company. This
company was given representation in the Board of Directors off the
corporation because at that time the latter had an outstanding bonded
indebtedness to the National Development Company.
This bonded indebtedness was incurred on February 26, 1940 and was
in the amount of P7,500,000. The bond held by the National Development
Company was redeemable within a period off 20 years from March 1, 1940,
bearing interest at the rate of 5% per annum. To secure said bonded
indebtedness, all the assets of the De la Rama Steamship Co., Inc. and
properties of Don Esteban de la Rama, as well as those of the Hijos de
I. de la Rama & Co., Inc., a sister corporation owned by Don
Esteban and his family, were mortgaged to the National Development
Company (Annexes A, B, C, D of Exhibit 3, Deed of Trust). Payments made
by the corporation under the management of Pirovano reduced this bonded
indebtedness to P3,260,855.77.
Upon arrangement made with the National Development Company, the
outstanding bonded indebtedness was converted into non-voting preferred
stares of stock of the De la Rama Company under the express condition
that they would bear a fixed cumulative dividend of 6% per annum and
would be redeemable within 15 years (Exhibits 5 and 7). This conversion
was carried out on September 23, 1949, when the National Development
Company executed a “Deed of Termination of Trust and Release of
Mortgage” in favor of the De la Rama company (Exhibit 6). The immediate
effect of this conversion was the release from incumbrance of all the
properties of Don Esteban and of the Hijos de I. de la Rama & Com.,
Inc., which was apparently favorable to the interests of the De la Rama
Company, but, on the other hand, it resulted in th6 inconvenience that,
asj holder of the preferred stock, the National Development Company was
given the right to 40 per cent of the membership of the Board of
Directors of the De la Rama company, which meant an increase in the
representation of the National Development Company from 2 to h of the 9
members of said Board of Directors.
The first resolution granting to the Pirovano children the proceeds
of the insurance policies taken on his life by the defendant company
was adopted by the Baaed of Directors at a meeting held on July 10,
1946 (Exhibit B). This grant was called in the resolution as “Special
Payment to Minor Heirs of the late Enrico Pirovano”. Because of its
direct bearing on the issues involved in this case, said resolution is
hereunder reproduced in toto:
“SPECIAL PAYMENT TO MINOR HEIRS OF THE LATE ENRICO PIROVANO
“The President stated that the pose for which the meeting had been
principal purpose for which the meeting had been called was to discuss
the advisability of making some form of compensation to the minor heirs
of the late Enrico Pirovano, former President and General Manager of
the Company. As every member of the Board knows, said the President,
the late Enrico Pirovano who was largely responsible for the very
successful development of the activities of the Comapny prior to the
war, was killed by the Japanese in Manila sometime in 1944 leaving as
his only heirs his four minor children, Maria Carla, Esteban, Enrico
and John Albert. Early in 19^1» explained the President, the Company
had insured the life of Mr. Pirovano for a million pesos. Following
the occupation of the Philippines by Japanese forces the Company was
unable to pay the premiums on those policies issued by Filipino
companies and these policies had lapsed. But with regards to the
policies obtained from American companies, the New York Office of the
De la Rama Steamship Co., Inc. had kept up payment of the premiums from
year to year. The payments made on account of these premiums, however,
are very small compared to the amount which the Company will now
receive as a result of Mr. Pirovano’s death. The President proposed
therefore that out of the proceeds of these policies the sum of
P4,000,000.00 be set aside for the minor children of the deceased, said
sum of money to be convertible into 4,000 shares of stock of the
Company, at par, or 1,000 shares for each child. This proposal,
explained the President, was being made by him upon suggestion of
President Roxas, but, he added, that he himself was very much in favor of it also.
On motion of Miss Leonor de la Rama duly seconded by Mrs. Lourdes de la
Rama de Osmeña, the following resolution was, thereupon, unanimously
Approved:
‘Whereas, the late Enrico Pirovano, President and
General Manager of the De la Rama Steamship Company, died in Manila
sometime in November, 1944:‘Whereas, the said Enrico
Pirovano was largely responsible for the rapid and very successful
development of the activities of this company;‘Whereas,
early in 1941 this company insured the life of said Enrico Pirovano in
various Philippine and American Life Insurance companies for the total
sum of P1,000,000.00;‘Whereas, the said Enrico Pirovano is
survived by his widow, Estefania Pirovano and four (4) minor children,
to wit: Esteban, Maria Carla, Enrico and John Albert, all surnamed
Pirovano‘Whereas, the said Enrico Pirovano left practically
nothing to his heirs and it is but fit and proper that this company
which owes so much to the deceased should make some provision for his
children;‘Whereas, this company paid premiums on Mr.
Pirovano’s life insurance policies for a period of only four (4) years
so that it will receive from the insurance companies sums of money
greatly in excess of the premiums paid by this company.‘Be
it resolved, That out of the proceeds to be collected from the life
insurance policies on the life of the late Enrico Pirovano, the sum of
100,000.00 be set aside for equal division among the four (4) minor
children of the deceased, to wit: Esteban, Maria Carla, Enrico and John
Albert, all surnamed Pirovano, which sum of money shall be convertible
into shares of stock of the De la Rama Steamship Company at par and,
for that purpose, that the present registered stockholders of the
corporation be requested to waive their preemptive right to 4,000
shares of the unissued stock of the company in order to enable each of
the four (4) minor heirs of the deceased;, to wit: Esteban, Maria
Carla, Enrico and John Albert, all surnamed Pirovano, to obtain 1,000
shares at par;‘Resolved, further, that in view of the fact
that under the provisions of the indenture with the National
Development Company, it is necessary that the action herein proposed be
confirmed by the Board of Directors of that company, the Secretary is
hereby instructed to send a copy of this resolution, to the proper
officers of the National Development Company for appropriate action.'”
(Exhibit B)
The above resolution, which was adopted on July 10, was submitted to
the stockholders of the De la Rama company at a meeting properly
convened, and on that same date, July 10, 1946 the same was duly
approved.
It appears that, although Don Esteban and the members of his family
were agreeable to giving to the Pirovano children the amount of
P4,000,000 out of the proceeds of the insurance policies taken on the
life of Enrico Pirovano, they did not realize that when they provided
in the above referred two resolutions that said amount should be paid
in the form of shares of stock, they would be actually giving to the
Pirovano children more than what they intended to give. This came about
when Lourdes de la Rama, wife of Sergio Osmeña, Jr., showed to the
latter copies of said resolutions and asked him to explain their import
and meaning, and it was then that Osmeña explained that because the
value than of the shares of stock was actually 3.6 times their par
value, the donation, although purporting to be only P4000,000, would
actually amount to a total of P1,440,000. He further explained that if
the Pirovano children would be given shares of stock in lieu of the
amount to be donated, the voting strength of the five daughters of Don
Esteban in the company would be adversely affected in the sense that
Mrs. Pirovano would have a voting power twice as much as that of her
sisters. This caused Lourdes de la Rama to write to the secretary of
the corporation, Atty. Marcial Lichauco, asking him to cancel the
waiver she supposedly gave of her pre-emptive rights. Osmeña elaborated
on this matter at the annual meeting of the stockholders held on
December 12, 1946, but at said meeting it was decided to leave the
matter in abeyance pending further action on the part of the members of
the De la Rama family.
Osmeña, in the meantime, took up the matter with Don Esteban and, as
a consequence, the latter, on December 30, 1946 addressed to Marcial
Lichauco a letter stating, among other things, that “in view of the
total lack of understanding by me and my daughters of the two
Resolutions abovementioned, namely, Directors’ and Stockholders’ dated
July 10, as finally resolved by the majority of the Stockholders and
Directors present yesterday, that you consider the above-mentioned
resolutions nullified.” (Exhibit CC)
On January 6, 1947, the Beard of Directors of the De la Rama
Company, as a consequence of the change of attitude of Don Esteban,
adopted a resolution changing the form of the donation to the Pirovano
children from a donation of 4,000 shares of stock as originally planned
into a renunciation in favor of the children of all the company’s
“right, title, and interest as beneficiary in and to the proceeds of
the above-mentioned, life insurance policies”, subject to the express
condition that said proceeds should be retained by the company as a
loan drawing interest at the rate of 5% per annum and payable to the
Pirovano children after the company “shall have first settled in full
the balance of its present remaining bonded indebtedness in the sum of
approximately Five Million (P5,000,000) Pesos.” (Exhibit C) This
resolution was concurred in by the representatives of the National
Development Company. The pertinent portion of the resolution reads as
follows:
‘Be it resolved, that out of gratitude to the late
Enrico Pirovano this Company renounce at it hereby renounces, all of
its right, title and interest a s beneficiary in and to the proceeds of
the above-mentioned life insurance policies in favor of Esteban, Maria
Carla, Enrico and John Albert, all surnamed Pirovano, subject to the
terms and conditions hereinafter provided;‘That the proceeds
of said insurance policies shall be retained by the Company in the
nature of a loan drawing interest at the rate of Five (5%) Per Cent per
annum from the date of receipt of payment by the Company from the
various insurance companies above-mentioned until the time the same amounts are paid to the minor heirs of Enrico Pirovano previously
mentioned;‘That all amounts received from the
above-mentioned policies shall be divided equally among the minor heirs
of said Enrico Pirovano;‘That the company shall proceed to
pay the proceeds of said insurance policies plus interests that may
have accrued to each of the heirs of the said Enrico Pirovano or their
duly appointed representatives after the Company shall have first
settled in full the balance of its present remaining bonded
indebtedness in the sum of approximately Five Million (P5,000,000.00)
Pesos.
The above resolution was carried out by the company and Mrs,
Estefania E. Pirovano, the Hatter acting as guardian of her children,
by executing a Memorandum Agreement on January 10, 1947 and June 17,
1947 respectively, stating therein that the De la Bama Steamship Co.,
Inc. shall enter in its books as a loan the proceeds of the life
insurance policies taken on the life of Pirovano totalling $321,500,
which loan would earn interest at the rate of 5% per annum. Mrs.
Pirovano, in executing the agreement, acted with the express authority
granted; to her by the court in an order dated March 26, 1947.
On June 24, 1947, the Board of Directors approved a resolution
providing therein that instead of; the interest on the loan being
payable, together with the principal, only after the company shall have
first settled in full its bonded indebtedness, said interest may be
paid to the Pirovano children “whenever the company is in a position to
meet said obligation” (Exhibit D), and on February 26, 1948, Mrs.
Pirovano executed a public document in which she formally accepted the
donation ( Exhibit H). The De la Rama company took “official notice” of
this formal acceptance at a meeting held by its Board of Directors on
February 26, 1948.
In connection with the above negotiations, the Board of Directors
took up at its meeting on July 25, 1949, the proposition of Mrs.
Pirovano to buy the house at New Rochelle, New York, owned by the
Demwood Realty, a subsidiary of the De la Rama company at its original
cost of $75,000, which would be paid from the funds held in trust
belonging to her minor children. After a brief discussion relative to
the matter, the proposition was approved in a resolution adopted on the
same date. The formal transfer was made in an agreement signed on
September 5, 1949 by Mrs. Pirovano, as guardian of her children, and by
the De la Rama company, represented by, its new General Manager, Sergio
Osmena, Jr. The transfer of this property was approved by the court in
its order of September 20, 1949.
On September 13, 1949 or two years and 3 months after the donation
had been approved in the various resolutions herein above mentioned,
the stockholders of the De la Rama company formally ratified the
donation (Exhibit E), with certain clarifying modifications, including
the resolution approving the transfer of the Demwood property to the
Pirovano children. The clarifying modifications are quoted hereunder:
“1. That the payment of the above-mentioned donation shall not be
effected until such time as the Company shall have first duly
liquidated its present bonded indebtedness in the amount of
P3,260,855.77 with the National Development Company, or fully redeemed
the preferred shares of stock in the amount which shall be issued to
She National Development Company in lieu thereof;
“2. That any and all taxes, legal fees, and expenses in any way
connected with the above transaction shall be chargeable and deducted
from the proceeds of the life insurance policies mentioned in the
resolutions of the Board of Directors.” (Exhibit E)
Sometime in March, 1950, the President of the corporation, Sergio
Osmeña, Jr., addressed an inquiry 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. On
June 20, 1950 that office rendered its opinion holding 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. This opinion was submitted to the Board of
Directors at its meeting on July 12, 1950, on which occasion the
president recommended that other legal ways be studied whereby the
donation could be carried out. On September 12, 1950, another meeting
was held to discuss the propriety of the donation. At this meeting the
president expressed the view that, since the corporation was not
authorized by its charter to make the donation to the Pirovano children
and the majority of the stockholders was in favor of making provision
four said children, the manner he believed this could be done would be
to declare a cash dividend in favor of the stockholders in the I exact
amount of the insurance proceeds and thereafter have the stockholders
make the donation to the children in their individual capacity.
Notwithstanding this proposal of the president, the board took no
action on the matter, and on March 8, 1951, at a stockholders1 meeting
convened on that date, the majority of the stockholders voted to revoke
the resolution approving the donation to the Pirovano children. , The
pertinent portion of the resolution reads as follows:
“Be it resolved, as it is hereby resolved, that in
view of the failure of compliance with the above conditions to which
the above donation was made subject, and in view of the opinion of the
Securities & Exchange Commissioner, the stockholders revoke,
rescind and annul, as they do hereby revoke, rescind and annul, its
ratification and approval on September 13, 1949 of the aforementioned
resolution of the Board of Directors of January 6, 1947, as amended on
June 24, 1947.” (Exhibit T)
In view of the resolution declaring that the corporation failed to
comply with the condition set for the effectivity of the donation and
revoking at the same time the approval given to it by the corporation,
and considering that the corporation can no longer set aside said
donation because it had long been perfected and consummated, the minor
children of the late Enrico Pirovano, represented by their mother and
guardian, Estefania R. de Pirovano, demanded the payment of the credit
due them as of December 31, 195l, amounting to P56,980.89, and this
payment having been refused, they instituted the present action in the
Court of First Instance of Rizal wherein they prayed that they
be,granted an alternative relief of the following tenors (1) sentencing
defendant to pay to the plaintiff the sum of P564,980.89 as of December
31, 1951, with the corresponding interest thereon; (2) as an
alternative relief, sentencing defendant to pay to the plaintiffs the
Interests on said sum of P564,980.89 at the rate of 5% per annum, and
the sum of P564,980.89 after the redemption of the preferred shares of
the corporation held by the National Development Company; and (3) in
any event, sentencing defendant to pay the plaintiffs damages in the
amount of not less than 20% of the sum that may be adjudged to the
plaintiffs, and the costs of action.
The only issues which in the opinion of the court need to be
determined in order to reach a decision in this appeal are: (1) Is the
grant of the proceeds of the insurance policies taken on the life of
the late Enrico Pirovano as embodied in the resolution of the Board of
Directors of defendant corporation adopted on January 6, 1947 and June
2h, 1947 a remunerative donation as found by the lower court (2) In
the affirmative case, has that donation been perfected before its
rescission or nullification by the stockholders of the corporation on
March 8, 1951; (3) 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 incorporation,
or is that donation an ultra vires act?; and (4) Has the
defendant corporation, by the acts it performed subsequent to the
grafting of the donation, deliberately prevented the fulfillment of the
condition precedent to the payment of said donation such that it can be
said it has forfeited its right to demand its fulfillment and has made
the donation entirely due and demandable?
We will discuss these issues separately.
1. To determine the nature of the grant made by the defendant
corporation to the minor children of the late Enrico Pirovano, we do I
not need to go far nor dig into the voluminous record that lies at the
bottom of this ease. Me do not even need to inquire into the interest
which has allegedly been shown by President Roxas in the welfare of the
children of his good friend Enrico Pirovano. Whether President Roxas
has taken the initiative in the move to give something to said children
which later culminated in the donation now in dispute, is of no moment
for the fact is that, from the mass of evidence on hand, such a
donation has been given the full indorsement and encouraging support by
Don Esteban de la Rama who was practically the: owner of the
corporation. We only need to fall back to accomplish this purpose on
the several resolutions of the Board of Directors of the corporation
containing said grant for they clearly state the reasons and purposes
why the donation has been given.
Before we proceed further, it is convenient to state here in passing
that, before the Board of Directors had approved its resolution of
January 6, 1947 as later amended by another resolution adopted on June
21, 1947, the corporation had already decided to give to the minor
children of the late Enrico Pirovano the sum of P400,000 out of the
proceeds of the insurance policies taken on his life in the form of
shares, and that when this form was considered objectionable because
its result and effect would be to give to said children a much greater
amount considering the value then of the stock of the corporation, the
Board of Directors decided to amend the donation in the form and under
the terms stated in the aforesaid resolutions. Thus, in the original
resolution approved by the Board of Directors on July 10, 1946. wherein the reasons for
granting the donation to the minor children of the late Enrico Pirovano
were clearly expressed, we find the following revealing statements:
‘Whereas, the late Enrico Pirovano, President and
General Manager of the De la Rama Steamship Company, died in Manila
sometime in November,‘Whereas, the said Enrico Pirovano was
largely responsible for the rapid and very Successful development of
the activities of this company;‘Whereas, early in 1941 this
company insured the life of said Enrico Pirovano in various Philippine
and American Life Insurance companies for the total sum of
P1,000,000.00;‘Whereas, the said Enrico Pirovano is survived
by his widow, Estefania Pirovano and four (4) minor children, to wits
Esteban, Maria Carla, Enrico and John Albert, all surnamed Pirovano;‘Whereas,
the said Enrico Pirovano left practically nothing to his heirs and it
is but fit and proper that this company which owes so much to the
deceased should make some provision for his children;‘Whereas,
this company paid premiums on Mr. Pirovano’s life insurance policies
for a period of only four (4) years so that it will receive from the
insurance companies sums of money greatly in excess of the premiums
paid by this company.’
Again, in the resolution approved by the Board of Directors on
January 6, 1947, we also find the following expressive statements which
are but a reiteration of those already expressed in the original
resolution:
‘Whereas, the late Enrico Pirovano, President and
General Manager of the De la Rama Steamship Co., Inc., died in Manila
sometime during the latter part of the year 1944;‘Whereas,
the said Enrico Pirovano was to a large extent responsible for the
rapid and very successful development and expansion of the activities
of this company;‘Whereas, early in 19m, the life of the said
Enrico Picovano was insured in various life insurance companies, to
wit: * * *.’‘Whereas, the said Enrico
Piroyano is survived by!four (h) minor children, to wit: Esteban, Maria
Carla, Enrico and John Albert, all surnamed Pirovano; and‘Whereas,
the said Enrico Pirovano left practically nothing to his heirs and it
is but fit and proper that this Company which owes so much to the
deceased should make some provision for his children;‘Be it resolved, that out of gratitude to Enrico Pirovano this Company renounce as it hereby renounces, * * *.’
From the above it clearly appears that the corporation thought of
giving the donation to the children of the late Enrico Pirovano because
he “was to a large extent responsible for the rapid and very successful
development and expansion of the activities of this company”; and also
because he “left practically nothing to his heirs and it is but fit and
proper this company which owes so much to the deceased should some
provision to his children”, and so the donation was given “out of
gratitude to the late Enrico Pirovano,” We do not need to stretch our
imagination to see that a grant or donation given under these
circumstances is remunerative in nature in contemplation of law.
“That which is made to a person in consideration of
his merits or for services rendered to the donor, provided they do not
constitute recoverable debts, or that In which a burden less than the
value of the thing given is imposed upon the donee, is also a
donation.11 (Art. 619, old Civil Code.)“In donations made to
a person for services rendered to the donor, the donor’s will is moved
by acts which directly benefit him. The motivating cause is gratitude,
acknowledgment of a favor, a desire to compensate. A donation made to
one who saved, the donor’s life, or to a lawyer who renounced his fees
for services rendered to the donor, would fall under this class of
donations. These donations are called remunerative donations.” (Sinco
& Capistrano, The Civil Code, Vol. 1, p. 676; Manresa, 5th ed., pp.
72-73.)
2. The next question to be determined is whether the
donation has been perfected such that the corporation can no lower
rescind it even if it wanted to. The answer to this question cannot but
be in the affirmative considering that the same has not only been
granted in several resolutions duly adopted by the Board of Directors
but it has been formally ratified by the stockholders of the defendant
corporation, and in all these corporate acts the concurrence of the
representatives of the National Development Company, the only creditor
whose interest may be affected by the donation, has been expressly
given. The corporation has even gone further. It actually transferred
the ownership of the credit subject of donation to the Pirovano
children with the express understanding that the money would be
retained by the corporation subject to the condition that the latter
would pay interest thereon at the rate of 5% per annum payable whenever
said corporation may be in a financial position to do so. Thus, the
following acts of the corporation as reflected from the evidence bear
this out:
(a) The donation was embodied in a resolution duly approved
by the Board of Directors on January 6, 1947. In this resolution, the
representatives of the National Development Company have given their
concurrence. This is the only creditor which can. be considered as
being adversely affected by the donation. The resolution of June 2h,
1947 did not modify the substance of the former resolution for it
merely provided that, instead of the interest on the loan being;
payable, together with the principal, only after the corporation had
first settled in full its bended indebtedness, said interest would be
paid “whenever the Company is in a position to meet said obligation.”
(b) The resolution of January 6, 1947 was actually carried
out when the company and Mrs. Estefania H. Pirovano executed a
memorandum agreement stating therein that the proceeds of the insurance
policies would be entered in the books of the corporation as a loan
which would bear an interest at the rate of 5% per annum, and said
agreement was signed by Mrs. Pirovano as judicial guardian of her
children after she had been expressly authorized by the court to accept
the donation in behalf of her children.
(c) Miile the donation can be considered as duly executed
by the execution of the document stated in the preceding paragraph, and
by the entry in the books of the corporation of the donation as a loan,
a further record of said execution Was made when Mrs. Pirovano executed
a public document on February 26, 1948 making a similar acceptance of
the donation. And this acceptance was officially recorded by the
corporation when on the same date its Board of Directors approved a
resolution taking “official notice” of said acceptance.
(d) On July 25, 1949, the Board of Directors approved the
proposal of Mrs. Pirovano to buy the house at New Rochelle, New York,
owned by a subsidiary of the corporation at the cost of P75,000 which
would be paid from the sum held in trust belonging to her minor
children. And this agreement was actually carried out in a document
signed by the general manager of the corporation and by Mrs. Pirovano,
who acted on the matter with the express authority of the court.
(e) And on September 30, 1949, or two years and 3 months
after the donation had been executed, the stockholders of tile
defendant corporation formally ratified and gave approval to the
donation as embodied in the resolutions above referred to, subject to
certain modifications which did not materially affect the nature of
the donation.
There can therefore be no doubt from the foregoing relation of facts
that the donation was a corporate act carried out by the corporation
not only with the sanction of its Board of Directors but also of its
stockholders. It is evident that 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. In
this case, we see none. The two reasons given for the rescission of
said donation in the resolution of the corporation adopted on March 8,
19?1, to wits that the corporation failed to comply with the conditions
to which the above donation was made subject, and that in the opinion
of the Securities and Exchange Commission said donation is ultra vires,
are not, in our opinion, valid and legal as to justify the rescission
of a perfected donation. Ehese reasons, as we will discuss in the
latter part of this decision, cannot be invoked by the corporation to
rescind or set at naught the donation, and the only way by which this
can be done is to show that the donee has been in default, or that the
donation has not been validly executed, or is illegal or ultra vires,
and such is not the case as we will see hereafter. We therefore declare
that the resolution approved by the stockholders of the defendant
corporation on March 8, 1951 did not and cannot have the effect of
nullifying the donation in question.
3. The third question to be determined 1st can
defendant corporation give by way of donation the proceeds of said
insurance policies to the minor children of the late Enrico Pipovano
under the law or its articles of incorporation, or is that donation an ultra vires
act? To answer this question it is important for us to examine the
articles of incorporation of the De la Rama company to see if the ac(t
or donation is outside of their scope. Paragraph second of said
articles provides:
“Second.—The purposes for which said corporation is formed are:
(a) To purchase, charter, hire, build, or otherwise acquire
steam or other ships or vessels, together with equipments and furniture
therefor, and to employ the same in conveyance and carriage of goods,
wares and merchandise of every description, and of passengers upon the
high seas.
(b) To sell, let, charter, or otherwise dispose of the said vessels or other property of the company.
(c) To carry on the business of carriers by water.
(d) To carry on the business of shipowners in all of its branches.
(e) To purchase or take on lease, lands, wharves, stores,
lighters, barges, and other things which the company may deem necessary
or advisable to be purchased or leased for the necessary and proper
purposes of the business of the company, and from time to time to sell
and dispose of the same.(f) To promote any company or companies for the purpose of
acquiring all or any of the property or liabilities of this company, or
both, or for any other puppose which may seem directly or indirectly
calculated to benefit the company.(g) To invest and deal with the moneys of the company not immediately required in such manner as from time to time may be determined.
(h) To borrow, or raise, or secure the payment of money in such manner as the company shall think fit.
(i) Generally, to do all such other things and to transact
all business as may be directly or indirectly incidental or conducive
to the attainment of the above object, or any of them respectively.(j) Without in any particular limiting or restricting any
of the objects and powers of the corporation, it is hereby expressly
declared and provided that the corporation shall have power to issue
bonds and other obligations, to mortgage or pledge any stocks, bonds or
other obligations or any property which may be acquired by said
corporation; to secure any bonds, guarantees or other obligations by it
issued or incurred to lend money or credit to and to aid in any
other manner any person, association, or corporation of which any
obligation or in which any interest held by this corporation or In
the affairs or prosperity of which this corporation has “a lawful
interest, and to do such acts and things as may be necessary to
protect, preserve, improve, or enhance the value of any such obligation
or interest; and, in general, to do which other acts in connection with
the purposes for which this corporation has been formed which is
calculated to promote the interest of the corporation or to enhance the
value of its property and to exercise all the rights, powers and
privileges which are now or may hereafter be conferred by the laws of
the Philippines upon corporations formed under the Philippine
Corporation Act to execute from time to time general or special powers
of attorney to persons, firms, associations or corporations either in
the Philippines, in the United States, or in any other country and to
revoke the same as and when the Directors may determine and to do any
and/or all of the things hereinafter set forth and to the same extent
as natural persons might or could do.”
After a careful perusal of the provisions above quoted 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
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 word deal is broad enough to include any manner of disposition, and refers to moneys not immediately repaired by the corporation, and such disposition may be made in such manner as from time to time may be determined
by the corporation. 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. In fact, the evidence shows that the corporation
declared a 100% cash dividend, or P2,000,000, and later on another 30%
cash dividend. This is clear proof of the solvency of the corporation.
It may be that, as insinuated, Don Esteban wanted to make use of the
insurance money to rehabilitate the central owned by a sister
corporation, known as Hijos de I. de la Rama & Co., Inc., situate
in Bago, Negros Occidental, but this, far from reflecting against the
solvency of the De la Rama company, only shows that the funds were not
needed by the corporation.
Under the second broad power we have above stated, that is, to aid in any other manner any person
in the affairs and prosperity of whom the corporation has a lawful
interest, the record of this case is replete with instances which
clearly show that the corporation knew well its scope and meaning so
much so that, with the exception of the instant case, no one has lifted
a finger to dispute their validity. Thus, under this broad grant of
power, this corporation paid to the heirs off one Florentino Wonato, an
engineer of one of the ships of the company who died in Japan, a
gratuity of P7,000, equivalent to one month salary for each year of
service. It also gave to Ramon Pons, a captain of one of its ships, a
retirement gratuity equivalent to one month salary for every year of service, the same to be based upon his highest salary, And it
contributed P2,000 to the fund raised by the Associated Steamship Lines
for the widow of the late Francis Gispert, secretary of said
Association, of which the De la Rama Steamship Co., Ire . was a member
along with about 30 other steamship companies. In this instance,
Gispert was not even an employee of the corporation. And invoking this
vast power, the corporation even went to the extent of contributing P100,000 to the Liberal Party campaign funds, apparently in the hope
that by conserving its cordial relations with that party it continue to
retain the patronage of the administration, these acts executed before
and after the donation in question have never been questioned and
were willingly and actually carried out.
We don’t see much distinction between these acts of generosity or of
benevolence extended to some employees of the corporation and even to
some in whom the corporation was merely interested because of certain
moral or political considerations, and the donation which the
corporation has seen fit to give to the children of the late Enrico
Pirovano from the point of view of the power of the corporation as
expressed in it is articles of incorporation. And if the former had
been sanctioned and had been considered valid and intra vires, we see no plausible reason why the latter should now be deemed ultra vires.
It may perhaps be argued that the donation given to the children of the
late Enrico Pirovano is so large and disproportionate that it can
hardly be considered a pension or gratuity that can be placed on a par
which the instances above mentioned, but this argument overlooks one
consideration the gratuity here given was not merely motivated by pure
liberality or act of generosity, but by a deep sense of recognition of
the valuable services rendered by the late Enrico Pirovano which made
immensely contributed to the growth of the corporation to the extent
that from its humble capitalization it blossomed into a multi-million
corporation that it is today. In the words of the very resolutions
granting the donation or gratuity, said donation was given not only
because the company was so indebted to him that it saw fit and proper
to make provisions for his children, but it did so out of a sense of
gratitude. Another factor that we should bear in mind is that Enrico
Pirovano was not only a high official of the company but was at the
same time a member of the De la Rama family, and the recipient of the
donation are the grandchildren of Don Esteban de la Rama. This, we may
say is the motivating root cause behind the grant of this bounty.
It may be contended that a donation is different from a gratuity.
While technically this may be so 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 & Phrases, Permanent Edition, p. 675; O’Dea vs.
Cook, 169 Pac, 366, 176 Cal. 659.) Or stated in another way, a
“Gratuity is a mere bounty given by the Government in consideration or
recognition of meritorious services and springs from the appreciation
and graciousness of the Government”, (Ilagan vs. ILaya, G. R.
No. 33507, Dec. 20, 1930) or “A gratuity is something given freely, or
without recompense, a gift something voluntarily given in return for a
favor or service; a bounty; a tip.” (Wood Mercantile Co. vs. Cole, 209 S. W. 2d. 290; Mendoza vs.
Dizon, 43 O. G., p. 4633, Oct. 25, 1946.) We do not see much difference
between this definition of gratuity and a remunerative donation
contemplated in the Civil Code. In essence they are the same. Such
being the case, it may be said that this donation is gratuity in a
large sense for it was given for valuable services rendered, and in
this sense the same cannot be considered an ultra vires act in the
light of the following authorities:
“Indeed, some American cases seem to hold that the giving of a pure gratuity to directors is ultra vires
of the corporation, so that it could not be legalized even by the
approval of the share-holders; but this position has no sound reason to
support it, and is opposed to the weight of authority (Huffaker vs. Krieger’s Assignee, 53 S.W. Rep. 288; 107 Ky. 200; 46 L.R.A. 384.)”“But
although business corporations cannot contribute to charity or
benevolence, yet they are not required always to insist on the full
extent of their legal rights. They are not forbidden from recognizing
moral obligations of which strict law takes no cognizance. They are not
prohibited from establishing a reputation for broad, liberal, equitable
dealing which may stand them in good stead in competition with less
fair rivals. Thus, an incorporated fire insurance company whose
policies except losses from explosions may nevertheless pay a loss from
that cause when other companies are accustomed to do so, such liberal
dealing being deemed conducive to the prosperity of the corporation.”
(Modern Law of Corporations, Machen, Vol. 1, p. 81.)“So, a
bank may grant a five years’ pension to the family of one of its
officers. In all cases of these sorts,the amount of the gratuity rests
entirely within the discretion of the company, unless indeed it be
altogether out of reason and fitness. But where the company has ceased
to be a going concern, this power to make gifts or presents is at an
end.” (Modern Law of Corporations, Machen, Vol. 1, P. 82.)“Payment of Gratuities out of Capital.—There
seems on principle no reason to doubt that gifts or gratuities wherever
they are lawful may be paid out of capital as well as out of profits.”
(Modern Law of Corporations, Mechen, Vol. 1, p. 83.)“Whether desirable to supplement implied powers of this kind by express provisions.—Enough
has been said to show that the implied powers of a corporation to give
gratuities to its servants and officers, as well as to strangers, are
ample, so that there is therefore no need to supplement them by express
provisions.” (Modern Law of Corporations, Machen, Vol. 1, p. 83.)[1]
Granting arguendo that the donation given to the 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 be said that the same cannot be invalidated, or
declared legally ineffective for that 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, if any, 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 prejudiced, or if there
are creditors affected, the latter have expressly given their
conformity.
In making this pronouncement, advertence should be made of the nature of the ultra vires
act that is in question. A little digression needs be made on this
matter to show the different legal effects that my result consequent
upon the performance of a particular ultra vires act on the
part of the corporation. Many authorities may be cited interpreting or
defining the meaning, extent, and scope of an ultra vires
act, but all of them are uniform and unanimous that the same may be
either an act performed merely outside the scope of the powers granted
to it by its articles of incorporation, or one which is contrary to law
or violative of any principle which would void any contract whether
done individually or collectively. In other words, 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 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. Mere 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 stockholders.
“Strictly speaking, an ultra vires act is
one outside the scope of the powers conferred by the legislature, and
although the term has been used indiscriminately, it is properly
distinguishable from acts which are illegal, in excess or abuse of
power, or executed in an unauthorized manner, or acts within corporate
powers but outside the authority of particular officers or agents.” (19
C.J.S. 419)“Corporate transactions which are illegal because prohibited by statute or against public policy are ordinarily
void and unenforceable regardless of part performance, ratification, or
estoppel; but general prohibitions against exceeding corporate powers
and prohibitions intended to protect a particular Class or specifying
the consequences of violation may not preclude enforcement of the
transaction and an action may be had for the part unaffected by the
illegality or for equitable restitution.” (19 C.J.S. 421.)“Generally,
a transaction within corporate powers but executed in an irregular or
unauthorized manner is voidable only, and may become enforceable by
reason of ratification or express or implied assent by the stockholders
or by reason of estoppel of the corporation or the other party to the
transaction tj raise the objection, particularly where the benefits
are retained.“As appears in par. 960-964 supra. the general
rule is that a corporation must act in the manner and with the
formalities, if any, prescribed by its charter or by the general law.
However, a corporation transaction or contract which is within the
corporation powers, which is neither wrong in itself nor against
public policy, but which is defective from a failure to observe in its
execution a requirement of law enacted for the benefit or protection of
a certain class, is voidable only and is valid until avoided, not void
until validated; the parties for whose benefit the requirement was
enacted may ratify it or be estopped to assert its invalidity, and
third persons acting in good faith are not usually affected by an
irregularity on the part of the corporation in the exercise of its
granted powers.” (19 C.J.S. 423-424)
It is true that there are authorities which hold that utra vires
acts, or those performed beyond the powers conferred upon the
corporation either by law or by its articles of incorporation, are not
only voidable, but wholly void and of no legal effect, and that such
acts cannot be validated by ratification or be the basis of any action
in court; but such ruling does not constitute the weight of authority,
the reason baling that they fail to make the important distinction we
have above adverted to. Because of the failure to consider such
important distinction, such rule has been rejected by most of the state
courts and even by the modern treatises on corporations (7 Fletcher,
Cyc. Corps. 563-564). And now it can be said that the Majority of the
cases hold that acts which are merely ultra vires, or acts
which are not illegal, may be ratified by the stockholders of a
corporation (Brooklyn Heights R. Co., v, Brooklyn City R. Co., 135 N.Y.
Supp. 1001).
“Strictly speaking, an act of a corporation outside
of its charter powers is Just as much ultra vires where all the
stockholders consent thereto as in a case where none of the
stockholders expressly or impliedly consent, and it is generally held
that anultra vires act cannot be ratified so as to make it
valid, even though all the stockholders consent thereto; but inasmuch
as the stockholders in reality constitute the corporation, it should,
it would seem, be estopped to allege ultra vires, and it
is generally so held Where there are no creditors’ or the creditors
are; not; injured thereby, and where the rights of the state or the
public flre not involved, unless the act Is not only ultra vires but in
addition illegal and void. Of course, such consent of all the
stockholders cannot adversely affect creditors of the corporation nor
preclude a proper attack by the state because of such ultra vires act.” (7 Fletcher, Corp., Sec. 3432, p. 585.)
Since it is not contended that the donation under consideration is
illegal, or contrary to any of the express provisions of the articles
of incorporation, nor prejudicial to the creditors of the defendant
corporation, we cannot but logically conclude, on the strength of the
authorities we have quoted above, that 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.
This is specially so in this case! when the very directors who
conceived the idea of granting said donation are practically the
stockholders themselves, with few nominal exception. This applies to
the new stockholder Jose Cojuangco who acquired his interest after the
donation has been made because of the rule that a “purchaser of shares
of stock cannot avoid ultra vires acts of the corporation
authorized by its vendor, except those done after the purchase” (7
Fletcher, Gyc. Corps. Section 3456, p. 603; Pascual vs. Del
Sa. Orozco, 19 Phil., 82.) Indeed, how can the stockholders now pretend
to revoke the donation which has been partly consummated? How can the
corporation now set at naught the transfer made to Mrs. Pirovano of the
property in New York, U.S.A., the price of which was paid by her out
of the proceeds of the insurance policies given as a donation. To allow
the corporation to undo what it has done would not only be most unfair
but would contravene the well-settled doctrine that the defense of ultra vires cannot be set up or availed of in completed transactions (7 Fletther,Cyc. Corps. Section 3497, p. 652; 19 C.J.S. 431).
4. We now come to the fourth and last question that
the defendant corporation, by the acts it has performed subsequent to
the granting of the donation, deliberately prevented the fulfillment1
of the condition precedent1 to the payment of said donation such that
it can be said it has forfeited its right to demand its fulfillment
and has made the donation entirely due and demandable.
It should be recalled that the original resolution of the Board of
Directors adopted on July 10, 1946 which provided for the donation of
P400,000 out of the proceeds which the De la Bama company would
collect on the insurance policies taken on the life of the late Enrico
Piroyano was, as already seated above, amended on January 6, 1947 to
include, among the conditions therein provided, that the corporation
shall proceed to pay said amount, as well as the interest due thereon,
after it snail have settled in full the balance of its bonded
indebtedness in the sum of P5,000,000. It should also be recalled that
on September 13, 1949, or more than 2 years after the last amendment
referred to above, the stockholders adopted another resolution whereby
they formally ratified said donation but subject to the following
clarifications: (1) that the amount of the donation shall not be
effected until such time as the company shall have first duly
liquidated its present bonded indebtedness in the amount of
P3,260,855.77 to the National Development Company, or shall have first
fully redeemed the preferred shares of stock in the amount to be issued
to said company in lieu thereof, and (2) that any and all taxes, legal
fees, and expenses connected with the transaction shall be chargeable
from the proceeds of said insurance policies.
The trial court, in considering these conditions in the light of the
acts subsequently performed by the corporation in connection with the
proceeds of the insurance policies, considered said conditions nail and
void,:or at most not written because in Its opinion their
non-fulfillment was due to a deliberate desistance of the corporation
and not to lack of funds to redeem the preferred shares of the National
Development Company. !”he conclusions arrived at by the trial court on
this point are as follows:
“Fourth:—That the condition mentioned in
the donation’s null and void because it depends on the exclusive will
of the donor, in accordance with the!provisions of Article 1115 of the
old Civil Code.“Fifth:—That if the condition is
valid, its nonfulfillment is due to the desistance of the defendant
company from obeying and doing the wishes and mandate of the majority
of the stockholders.“Sixth:—That the non-payment of
the debt in favor of the National Development Company is not due to the
lack of funds, nor to lack of authority, but to the desire of the
President of the corporation to preserve and continue the Government
participation in the company.”
To these views of the trial court, we fail to agree. There are many
factors we can consider why the failure to immediately redeem the
preferred shares issued to the National Development Company as desired
by the minor children of the late Enrico Pirovano cannot or should:not
be attributed to a mere desire on the part of the corporation to delay
the redemption, or to prejudice the interest of the minors, but rather
to protect the interest of the corporation itself. One of them is the text of the very resolution approved by the
National Development Company on February 18, 1949 which prescribes
the terms and conditions under which it expressed its conformity!to the
conversion of the bonded indebtedness into preferred!shares of stock.
The text of the resolution above mentioned reads:
“Resolved: That the outstanding bonded indebtedness
of the De La Hama Steamship Co., Inc. in the approximate amount of
P3,260,855.77 be converted into non-voting preferred shares of stock of
said company, said shares to bear a fixed dividend of 6% per annum
which shall be cumulative and redeemable within 15 years. Said shares
shall be preferred as to assets in the event of liquidation or
dissolution of said Company but shall be non-participating.”
It is plain from the text of the above resolution that the defendant
corporation had 15 years from February 18, 1949, of until 1961, within
which to effect the i redemption of the preferred shares issued to the
National Development Company. This condition cannot but be binding and
obligatory upon the donees, if they desire to maintain the validity of
the donation, for it is not only the basis upon which the stockholders
of the defendant corporation expressed their willingness to ratify the
donation, but it is also the way by which its creditor, the National
Development Company, would want it to be. If the defendant corporation
is given 15 years within which to redeem the preferred shares, and!
that period would empire in 1964, one cannot blame the corporation for
availing itself of this period if in its opinion it would redound to
its best interest. It cannot therefore be said that the fulfillment of
the condition for the payment of the donation is one that wholly
depends on the exclusive will of the donor, as the lower court has
concluded, simply because it failed to meet the redemption of said
shares in the manner desired by the donees. While’ it may be admitted
that because of the disposition of the assets of the corporation upon
the suggestion of its general manager more than enough funds had been
raised to effect the immediate redemption of the above shares, it is
not correct to say that the management has compile tely failed in its
duty to pay its obligations for, according to the evidence, a
substantial portion of the indebtedness has been paid and only a
balance of about P1,805.169.98 was outstanding when the stockholders of
the corporation decided to revoke or cancel the donation. (Exhibit P)
But there are other good reasons why all the available funds have
not been actually applied to the redemption of the preferred shares,
one of them being the “desire of the president of the corporation to
preserve and continue the government participation in the company”
which even the lower court found it to be meritorious, which is onp way
by which it could continue receiving the patronage and protection of
the government. Another reason is that the redemption of the shares
does not depend on the will of the corporation alone but to a great
extent on the will of a third party, the National Development Company.
In fact, as the evidence shows, this Company had pledged these shares
to the Philippine National Bank and the Rehabilitation Finance
Corporation as a security to obtain certain loans to finance the
purchase of certain ships to be built for the use of the company under
a management contract entered into between the corporation and the
National Development Company, and this was what prevented the
corporation from carrying out its offer tot pay the sum of
P1,956,513.07 on April 5, 1951. Had this offer been accepted, or
favorably acted upon by the National Development Company, the
indebtedness would have been practically liquidated, leaving outstanding only one certificate worth P217,390.45. Of course, the
corporation could have insisted in redeeming the shares if it wanted to
even to the extent of taking a court action if necessary to force its
creditor to relinquish the shares that may: be necessary to accomplish
the redemption, but such would be a drastic step which would have not
been advisable considering the policy right along maintained by the
corporation to preserve its cordial and smooth relation with the
government. At any rate, whether such attitude be considered as a mere
excuse to justify the delay in effecting the redemption of the shares,
or a mere desire on the part of the corporation to retain in its
possession more funds available to attend to otjher pressing needs as
demanded by the interest of the corporation, we fail to see in such an
attitude an improper motive to circumvent the early realization of the
desire of the minors to obtain the immediate payment of the donation
which was made dependent upon the redemption of said shares there being
no clear evidence that may justify such design. Anyway, a great portion
of the funds went to the stockholders themselves by way of dividends to
offset, so it appears, the huge advances that the corporation had made
to them which were entered in the books of the corporation as loans
and, therefore, they were invested for their own benefit. As General
Manager Osmeña said, “we were first confronted with the problem of the
withdrawals of the family which had to be repaid back to the National
Development Company and one of the most practical solutions to that was
to declare dividends and reduce the amounts of their withdrawals”,
which then totaled about P3,000,000.
All things considered, we are of the opinion that the finding of the
lower court that the failure of the defendant corporation to: comply
with the condition of the donation is merely due to its desistance from
obeying the mandate of the majority of the stockholders and not to lack
of funds, or to lack of authority, has no foundation in law or in fact,
aid, therefore, its conclusion that because of such desistance that
condition should be deemed as fulfilled and the payment of the donation
due and demandable, is not justified. In this respect, the decision of
the lower court should be reversed.
Having reached the foregoing conclusion, we deem it unnecessary to discuss the other issues raised by the parties in their briefs.
The lower court adjudicated to plaintiffs an additional amount
equivalent to 20$ of the amount claimed as damages by way of attorney’s
fees, and in our opinion, this award can be justified under Article
2208, paragraph 2, of the new Civil Code, which provides: “When the
defendant’s act or omission his compelled the plaintiff to litigate
with third persons or to incur expenses to protect his interest”,
attorney’s fees may be awarded as damages. However, the majority
believes that this award should be reduced to 10%.
Wherefore, the decision appealed from should be modified as follows: (a)
that the donation made in favor of the children of the late Enrico
Pirovano of the proceeds of the insurance policies taken on his life is
valid and binding on the defendant corporations (b) that said
donation, which amounts to a capital of P583,813.59, including
interest, as it appears in books of the corporation as of August 31,
1951, plus interest thereon at the rate of 5% per annum from the
filing of the complaint, should be paid to the plaintiff after the
defendant corporation shall have fully redeemed the preferred shares
issued to the National Development Company under the terms and
conditions stated in the resolutions of the Board of Directors of
January 6, 1947 and June 24, 1947, as amended by the resolution of the
stockholders adopted on September 13, 1949; and (c) defendant
shall pay to plaintiffs an additional amount equivalent to 10%
of said amount of P583,813.59 as damages by way of attorney’s fees, and
to pay the costs of action.
Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Jugo, Bautista Angelo, Labrador, Concepcion, and Reyes, J.B.L., JJ. concur.
Reyes A., concurs in the result.
[1] Specific cases holding the same view may be cited, such as Gray & Farr vs. Carlile, 2 West Week Rep. 526; Wiseman vs. Musgrane, 309 Mich. 523; Anglo-American Equities Co. vs. E. H. Rollins & Sons, 258 App. Divs. 878, 282 NY 782.J Koplar vs. Warnes Bros. Pictures, 9 F Supp. 173; Heinz vs. National Bank, 237 Fed. 942; Henderson vs. Bank of Australasia, L.R. 40 Ch. Divs. (Eng.) 170.