Commercial Law

Madrigal & Company, Inc. vs Ronaldo Zamora

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G.R. No. L-48237; G.R. No. L-49023 – 235 Phil. 350 – 151 SCRA 355 – Mercantile Law – Corporation Law – Cash Dividends

Labor Law – Jurisdiction and Reliefs – Illegal Dismissal

In 1973, a labor union in Madrigal & Company, Inc. (MCI) sought the renewal of the collective bargaining agreement (CBA). The union proposes a P200.00 monthly wage increase and an additional P100 monthly allowance. MCI refused to negotiate. Later, MCI reduced its authorized capital stocks. It then wrote a letter to the Department of Labor averring that it is incurring losses and so it will enforce a retrenchment program. The letter is however unsupported by documents and so the Department of Labor ignored it. However, MCI went on to dismiss several employees which prompted the labor union to sue MCI for unfair labor practices and illegal dismissal. The labor arbiter ruled in favor of the labor union. The issue reached the Office of the President. The then Presidential Assistant For Legal Affairs, Ronaldo Zamora, denied MCI’s appeal.

On appeal, MCI 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 RCC; that under the law, dividends are the absolute property of a stockholder like MCI and cannot be compelled to share it with creditors (like the employees).

ISSUE: Whether or not the dividends in this case, as understood by MCI, cannot be made available to meet its employees economic demands.

HELD: No. As found by the labor arbiter, MCI is in fact making significant profits. MCI’s reduction of its capitalization is simply a scheme to avoid negotiations with the labor union. It is therefore correct for the arbiter to order MCI  to comply with the union’s demands.

It is true that cash dividends are the absolute property of the stockholders and cannot be made available for disposition to a corporation’s creditors. However, this should be viewed in context. This is only true in the case of corporation distributing dividends to its stockholders. If this is the case (if the dividends are still with the corporation, in this case RCC), then creditors cannot touch such dividends. But if the stockholder already receives the dividends, then it becomes a profit on the part of the stockholder hence its creditors (like the employees) can make some demands out of it. In this case, MCI is a stockholder of RCC. While RCC still has not distributed the dividends, creditors cannot demand it because such dividends are owned by stockholders like MCI. But when MCI already receives the dividends, then MCI’s creditors can already demand share from the dividends because such dividends are already the profits of the stockholder/MCI. So in this case, the employees can demand their share from said profits (not strictly viewed as dividends now) by way of salary increase.

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