Case Summary (G.R. No. L-5377)
Procedural History
– Court of First Instance of Rizal declared the insurance-proceeds donation valid and binding, ordering payment of ₱583,813.59 plus 5% interest from complaint filing, 20% attorney’s fees, and costs.
– De la Rama Steamship appealed, contending the resolutions were ultra vires and the obligation not yet due.
Applicable Law
– Civil Code of the Philippines (Old Code) provisions on donations (Arts. 619 and related)
– Articles of incorporation of De la Rama Steamship Co., Inc.
– 1935 Philippine Constitution (governing corporate powers in effect at decision date)
Issues Presented
- Whether the grant constituted a remunerative donation.
- Whether the donation was perfected prior to attempted rescission.
- Whether the donation was ultra vires under corporate charter or law.
- Whether the corporation forfeited its right to insist on a condition precedent, making payment immediately due.
Nature of the Grant as Remunerative Donation
– Resolutions expressly stated gratitude for services rendered by Pirovano in developing the company and noted he left “practically nothing” to his heirs.
– Under Civil Code Art. 619, a gift motivated by services rendered or merit is a remunerative donation.
– The Board’s language (“out of gratitude,” “fit and proper”) and context confirmed the grant’s remunerative character.
Perfection of the Donation
– Board of Directors approved the donation on January 6, 1947, with creditor (National Development Company) concurrence.
– Memorandum Agreements (January 10 and June 17, 1947) recorded the proceeds as a loan bearing 5% interest.
– Formal acceptance by guardian (February 26, 1948) was noted by the Board.
– Stockholders ratified the donation (September 13, 1949), with clarifications on bond-redemption conditions and expense deductions.
– Corporate acts (including New Rochelle property transfer) and creditor consent completed and perfected the donation, rendering it irrevocable absent legal grounds.
Corporate Power and Ultra Vires Analysis
– Articles of incorporation granted broad authority “to invest and deal with the moneys of the company” and “to aid in any manner” persons in whose affairs the company had a lawful interest.
– Precedents showed the corporation had previously granted pensions, gratuities, and political contributions under similar powers without challenge.
– Distinction drawn between illegal acts (void ab initio) and acts merely ultra vires (voidable but ratifiable).
– Here, the donation was neither illegal nor contrary to public policy; stockholder ratification cured any ultra vires infirmity. The corporation is estopped from contesting validity.
Condition Precedent and Payment Schedule
– Donation conditioned on full redemption of the corporation’s bonded indebtedness (converted to non-voting preferred shares redeemable within 15 years from February 18, 1949).
– The 15-year term (expiring 1964) was binding on all parties, including creditors.
– Partial prepayment of bonds and ongoing bond-redemption efforts, coupled
Case Syllabus (G.R. No. L-5377)
Facts
- Defendant is The De la Rama Steamship Co., Inc., organized with initial capital of ₱500,000 and later increased to ₱5,000,000, with broad powers to invest and deal with corporate moneys not immediately required.
- Enrico Pirovano, son-in-law of Don Esteban de la Rama, served as President and General Manager and contributed materially to the corporation’s growth until his execution in 1944; he left four minor children as heirs.
- Early in 1941 the corporation insured Pirovano’s life for ₱1,000,000 in Philippine and American companies; American policies remained in force and yielded substantial proceeds upon his death.
- On July 10, 1946 the Board of Directors adopted a “Special Payment to Minor Heirs” resolution setting aside ₱4,000,000 (later corrected) of insurance proceeds to be convertible into 4,000 shares for the four minor heirs; stockholders approved the same that day.
- Family members later objected to stock form; on January 6, 1947 the Board amended the donation into a renunciation of beneficiary rights, retaining proceeds as a corporate loan of US$321,500 bearing 5% interest, payable after settlement of a bonded indebtedness of approximately ₱5,000,000.
- Further Board action on June 24, 1947 allowed interest payments “whenever the company is in a position to meet said obligation.” Mrs. Estefania R. Pirovano, as guardian, formally accepted the donation in memoranda (Jan 10 & Jun 17, 1947) and a public document (Feb 26, 1948).
- On July 25, 1949 the Board approved sale of a New Rochelle house to Mrs. Pirovano for $75,000 from trust funds; the sale closed Sept 5, 1949 and court-approved on Sept 20, 1949.
- Stockholders ratified the donation on Sept 13, 1949, subject to (1) first liquidating or redeeming in fifteen years the remaining bonded indebtedness (then ₱3,260,855.77) or preferred shares issued to the National Development Company (NDC), and (2) deducting taxes and related expenses from policy proceeds.
- In March 1950 the SEC opined the donation was void as ultra vires; the Board discussed alternatives but took no action. On March 8, 1951 stockholders revoked their ratification, citing non-compliance with conditions and SEC opinion.
- Plaintiffs (the four minors, through their mother and guardian) demanded ₱564,980.89 as of Dec 31, 1951; defendant refused. The CFI of Rizal declared the donation valid and binding, ordered payment of ₱