G.R. No. L-20395 - Chase vs. Buencamino Sr.

The case is a joint appeal from the decision of the then Court of First Instance of Manila in Civil Case No. 49346, involving a derivative suit initiated by Elton W. Chase, a minority stockholder and an incorporator of American Machinery and Parts Manufacturing, Inc. (Amparts).
Chase filed the suit on August 20, 1960, seeking, among other reliefs, the removal of certain officers and directors, an injunction to prohibit the defendants from managing Amparts, and, if necessary, the dissolution and liquidation of the corporation.
The trial court rendered a decision on May 3, 1962, and subsequently issued orders for the protection of Chase’s rights, including granting him free access to the corporate records and a veto power on management decisions pending further court approval.

Prior to incorporation, Chase, owner of a manufacturing firm in Portland, Oregon, was advised to relocate his plant due to expropriation threats because of a proposed highway project.
Negotiations ensued in both Manila and the United States between Chase and the business partners Dr. Victor Buencamino, Sr. and William E. Cranker.
An agreement was reached whereby Chase was to contribute his machinery and equipment (with associated costs, dismantling, shipping, installation, and the appointment as production manager) in exchange for a cash component of $100,000 and a one-third share in Amparts.
Amparts was incorporated on July 5, 1955, with an authorized capital of P4,000,000 divided into 4,000 shares, where Chase, Buencamino, and Cranker each subscribed to 600 shares by effect of their respective contributions.

The complaint detailed various alleged fraudulent transactions committed by defendants Buencamino and Cranker, which included:

Overpricing of Chase’s machinery purchase leading to excessive remittances and the subsequent conversion of excess dollars via the blackmarket for personal gain.
Inflated invoicing for imported tractor parts and track press from Bertoni and Cotti, where only a portion of the payment was actually remitted to the suppliers, with the excess being diverted for personal profit.
Unauthorized transactions involving the purchase and resale of land, sale of surplus buildings, improper collection of rental fees for apartments, and permitting the use of corporate docks for private gain.

It was further alleged that the fraudulent transactions resulted in an improper accumulation of profit by the defendants at the expense of Amparts, with detailed computations indicating a total excess amount of P1,970,200.

Initially, the three parties worked in harmony in the management of Amparts; however, increasing distrust led to Chase’s resignation as Production Manager on March 28, 1957, which was later accepted by Buencamino and Cranker.
Subsequent correspondence and negotiations revealed disputes over the valuation of Chase’s machinery, varying explanations regarding payment and subscription, and conflicting theories on the overall transaction structure between him, Buencamino, and Cranker.
Later board resolutions, notably on May 13, 1960, approved measures such as increasing interest on loans, elevating certain officers’ salaries, and converting unpaid interests into stock, thereby affirming the established management despite allegations of fraud.

The trial court found substantial evidence of fraudulent overpricing in several transactions, including the sale of machinery, the handling of remittances, and the dealings with suppliers, all benefiting Buencamino (and, by extension, Cranker).
The court held that Buencamino’s actions, including covert blackmarketing of excess dollars and misuse of corporate funds, constituted breach of a legal obligation under principles of agency and trust.
In remedy, it was ordered that Buencamino account for and pay the sum of P1,970,200 to Amparts, while rejecting drastic measures such as dissolution of the corporation or changing the existing management arrangement.
Additionally, the court imposed a modest damage award of P500 on Chase based on counterclaims, emphasizing that the relief should be monetary rather than in the form of structural corporate changes.

Whether defendants, particularly Dr. Buencamino, were guilty of fraud and breach of trust by engaging in overpricing, misappropriation of funds, and unauthorized transactions that enriched them at the expense of Amparts.
Whether such fraudulent conduct justified not only a monetary judgment but also more drastic remedies like removal from management or dissolution of Amparts.

Whether Chase himself, by his actions and inconsistent representations (including different theories in various lawsuits), was guilty of fraudulent behavior that might bar or diminish his claims under the derivative suit.
Whether the established counterclaims against Chase, including allegations of aiding a competitor and spreading damaging rumors, warranted the imposition of damages against him.

Whether the trial court erred in denying the petition for receivership and not ordering the ouster of the management despite evidentiary findings of fraud.
Whether the remedy of monetary accountability was sufficient to address the harm caused to Amparts or if more drastic corporate measures should have been imposed.