Case Summary (G.R. No. 233857)
Petitioner
Agapito A. Salido, Jr., representing the Salido faction, contests the Court of Appeals’ Amended Decision invalidating certain board resolutions, including the reduction of San Juan’s shares.
Respondents
Aramaywan Metals Development Corporation; Cerlito G. San Juan; Corazon San Juan; Cristina Marie San Juan (collectively, the San Juan faction).
Key Dates
• Agreement to Incorporate concluded April 2005
• Incorporation of Aramaywan approved September 9, 2005
• First board meeting November 25–26, 2005
• Special board meeting February 5, 2006
• RTC Decision February 14, 2012
• CA Decision January 19, 2016; Amended Decision January 31, 2017
• Supreme Court decision March 18, 2021
Applicable Law
The 1987 Philippine Constitution; Batas Pambansa Blg. 68 (Corporation Code); Civil Code provisions on contract and trust; pertinent SEC regulations.
Factual Background
Under the April 2005 Agreement, San Juan advanced ₱2,500,000 as paid-up subscription for 25,000 shares (55% interest) in Aramaywan and was to assure payment for Narra Mining Corporation shares (35% interest). San Juan deposited the funds in trust at Standard Chartered Bank. Upon incorporation, his 55% stake was split among himself, his wife (Corazon), and daughter (Cristina Marie). The Salido faction claimed San Juan furnished only ₱932,209.16 and proposed reducing his Aramaywan shares to 15% for non‐performance, leading to contested board resolutions in early 2006.
Proceedings Below – RTC Decision
The RTC, relying on minutes of the November 2005 meeting, validated the reduction of San Juan’s shares from 55% to 15%, deemed the excess converted into treasury shares in exchange for his unfulfilled obligations, and upheld related resolutions (except one authorizing corporate negotiations). It declared meetings called by the Salido faction valid and those by the San Juan faction void.
Proceedings Below – CA Decisions
The CA initially affirmed the RTC (January 19, 2016), then in its Amended Decision (January 31, 2017) reversed most RTC findings:
• Held San Juan did not consent to share reduction
• Recognized full ₱2,500,000 advance, entitling him to 55% interest
• Found no valid conversion into treasury shares for lack of unrestricted retained earnings and no return of investment
• Upheld only resolutions appointing the corporate secretary, canceling Narra Mining registration, and treasurer appointment; invalidated change of principal office address
Issue on Appeal
Whether the CA erred in invalidating the reduction of San Juan’s shares and related board resolutions.
Court’s Analysis – Procedural Bars
Under Rule 45, only questions of law are cognizable on Petition for Review. Salido failed to annex critical meeting minutes and neglected to file a Reply, justifying outright dismissal. Nonetheless, the Court proceeded to address substantive merit.
Court’s Analysis – Treasury Share Requirements
B.P. 68 and the Revised Corporation Code require (1) lawful reacquisition; (2) unrestricted retained earnings; and (3) return of full investment or compliance with delinquency sale procedures. Aramaywan, newly formed and without evidence of surplus or paid creditors, lacked funds to repurchase shares. San Juan’s full payment in trust precluded a unilateral reduction without corresponding return, in line with the trust fund doctrine safeguarding capital for creditors.
Court’s Analysis – Lack of Consideration
Even assuming San J
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Facts
- In April 2005, Cerlito G. San Juan, Ernesto U. Mangune, Agapito A. Salido, Jr., and four others (the Salido faction) agreed to form two mining corporations: Aramaywan Metals Development Corporation and Narra Mining Corporation.
- San Juan was to finance initial operations; Mangune would handle technical aspects; Salido and his group would secure mining sites and permits.
- The parties executed an Agreement to Incorporate stipulating a P10,000,000 capital stock for each corporation, with P2,500,000 paid-up subscription to be advanced by San Juan for each entity.
- Under the Agreement, San Juan would hold 55% of Aramaywan’s shares and 35% of Narra Mining’s shares; the remaining interests were allocated among Mangune, Salido, and other subscribers.
Agreement to Incorporate
- Capital stock of each corporation set at P10,000,000, divided into 100,000 shares at P100 par value.
- Parties to subscribe and fully pay 25,000 shares (P2,500,000) in each corporation.
- San Juan to advance P2,500,000 paid-up subscription for Aramaywan and assure payment of P2,500,000 for Narra Mining.
- Subscription distribution for Aramaywan: San Juan 55%, Mangune 10%, Salido 7%, and four others 7% each; for Narra Mining: San Juan 35%, Mangune 10%, Salido 11%, and three others 11% each.
Incorporation and Capital Structure of Aramaywan
- San Juan deposited P2,500,000 at Standard Chartered Bank in trust for Aramaywan, evidenced by a bank certificate.
- Articles of Incorporation listed nine directors and showed 25,000 shares subscribed and paid (P2,500,000).
- San Juan’s 55% interest (13,750 shares) was split: 5,000 shares for himself, 5,000 for his wife Corazon, 3,750 for his daughter Cristina Marie.
- The Salido faction held the remaining 35% of shares.
- Corporate officers: San Juan as Chairman and Treasurer, Salido as President, Mangune as Corporate Secretary.
Intra-Corporate Dispute and Board Meetings
- Salido faction alleged that San Juan delivered only P932,209.16 in cash, withholding the balance of the advanced subscription.
- Citing breaches of the Agreement, Salido proposed reducing San Juan’s Aramaywan shares from 55% to 15%.
- On February 5, 2006, a special board meeting called by the Salido faction via Atty. Roland E. Pay passed resolutions to:
• Reduce San Juan’s shares to reflect only cash actually delivered (P932,209.16)
• Cancel shares of Corazon and Cristina Marie pursuant to that reduction
• Change corpora