G.R. No. L-16982 - Reyes vs. Tan

The case arises from a petition for certiorari filed by Catalina R. Reyes (petitioner) seeking to review and set aside an order of the Court of First Instance of Manila in Civil Case No. 42375.
The order in question appointed a receiver for Roxas-Kalaw Textile Mills, Inc., a corporation alleged to have suffered damage due to mismanagement and fraudulent acts committed by its directors.

The corporation, Roxas-Kalaw Textile Mills, Inc., was organized on June 5, 1954 by defendants including Cesar K. Roxas, Adelia K. Roxas, Benjamin M. Roxas, Jose Ma. Barcelona, and Morris Wilson.
Shareholding details were specifically delineated:

Primary principals held various Class A shares (Adelia K. Roxas – 1200 shares; Sherman – 900 shares; Robert W. Born – 504 shares; Morris Wilson – 450 shares).
The plaintiff, Francisca R. Justiniani, held both Class A (50 shares) and Class B (1,250 shares) shares.

Internal corporate disputes arose, highlighting a clear division between the minority (represented by the plaintiff) and the majority stockholders.

A Board resolution on May 8, 1957, designated Dayaram as co-manager acting as Wadhumal Dalamal’s designee and Morris Wilson as co-manager responsible for factory management.
An office in New York was opened to supervise purchases, requiring unanimity among designated board members for transactions.
Key allegations include:

Purchases amounting to $289,678.86 were made in New York for raw materials (such as greige cloth, rayon, and grey goods).
The purchased shipment consisted instead of finished products (e.g., West Point khaki, dyed rayon suiting materials, finished rayon tafetta, cotton eyelets).
The importation of finished goods, contrary to the license requirement for importing raw materials, led the Central Bank to suspend all dollar allocations, effectively paralyzing the operations of the textile mill.

The supplier of the finished goods was identified as the United Commercial Company of New York, in which defendant Wadhumal Dalamal had interests.
Additional complications arose from the fact that the resale of these finished goods became the business of the Indian Commercial Company of Manila—a company that also faced regulatory obstacles in obtaining necessary dollar allocations.

The civil action (Civil Case No. 42375) was filed around January 1960, and the order appointing a receiver was issued on February 15, 1960, with the designation confirmed on April 30, 1960.
The plaintiff’s complaint alleged that the directors, by failing to take appropriate remedial actions against fraudulent transactions—particularly those involving the misapplication of dollar allocations—had caused damage to the corporation.
The court considered the sufficiency of the cause of action based solely on the facts set forth in the complaint, referencing established jurisprudence (e.g., Paminsan vs. Costales).
Defendants, through a motion to dismiss, argued that the complaint stated no proper cause of action; however, the court found substantial allegations of mismanagement and breach of trust, justifying the receivership.
The order cited the necessity of appointing a receiver to protect both the interests of minority and majority stockholders, restore operational credibility, and potentially rehabilitate the corporation’s financial standing.

Whether an emergency existed warranting the immediate appointment of a receiver for Roxas-Kalaw Textile Mills, Inc.

Determination of whether the fraudulent importation of finished textiles, as opposed to raw materials, and the subsequent suspension of dollar allocations constituted an immediate threat to the corporation’s survival.
Whether the alleged breach of trust by the board of directors, through inaction and complicity in the fraudulent scheme, justified judicial intervention.

Whether the complaint sufficiently alleged a cause of action for a derivative suit on behalf of the corporation against its directors.

Analysis of whether the facts, as presented in the complaint, were adequate to support a claim for redress of the wrongs inflicted on the corporation and indirectly on the stockholders.

Whether the introduction of new management, as asserted by the petitioner in the second assignment of error, provided a viable defense to reverse or question the appointment of a receiver.

Consideration of whether this ground of objection was properly raised in the lower court proceedings or whether it constitutes a novel issue unsuitable for appellate review.