Lessons Applicable: Ratification of Ultra Vires Acts (Corporate law)
FACTS:
- Enrico Pirovano, president of the defendant company, managed the companyuntil it became a multi-million corporation by the time Pirovano was executed by the Japanese during the occupation.
- BOD Resolution: Out of the proceeds, the sum of P400,000 be set aside for equal division among the 4 minor children, 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 4 minor heirs to obtain 1,000 shares at par
- if the Pirovano children would given shares of stock, the voting strength of the 5 daughters of Don Esteban would be adversely affected - Mrs. Pirovano would have a voting power twice that of her sisters
- Lourdes de la Rama wrote secretary of the corporation, Atty. Marcial Lichauco, asking him to cancel the waiver she supposedly gave of her pre-emptive rights.
- The company ammended the resolution turning it into a loan with 5% interest payable when the obligation can be met
- The company revoked its donation of the life premium proceeds since it is not in compliance with the SEC
- Minor children of the late Enrico represented by their mother and judicial guardian demanded the payment of the credit due them as of December 31, 1951, amounting to P564,980.89
- RTC: contract or donation is not ultra vires
ISSUE: W/N corporation donation of the proceeds of insurance policies is an ultra vires act
HELD: NO. valid and binding
- remunerative donation
- 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." (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. (Sinco and Capistrano, The Civil Code, Vol. 1, p. 676; Manresa, 5th ed., pp. 72-73.)
- donation has reached the stage of perfection which is valid and binding upon the corporation and as such cannot be rescinded unless there is exists legal grounds for doing so.
- donation was embodied in a resolution duly approved by the Board of Directors on January 6, 1947
- July 25, 1949: BOD approved the proposal of Mrs. Pirovano to buy the house at New Rochelle, New York, owned by a subsidiary of the corporation at the costs of S75,000
- 2 reasons given for the rescission of donation in the resolution of the corporation adopted on March 8, 1951 - valid and legal as to justify the rescission
- corporation failed to comply with the conditions to which the above donation was made subject
- in the opinion of the Securities and Exchange Commission said donation is ultra vires
- articles of incorporation contain:
- To invest and deal with the moneys of the company and immediately required, in such manner as from time to time may be determined.
- 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.
- By ratification the infirmity of the corporate act has been obliterated thereby making it 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
