Case Summary (G.R. No. 157479)
Applicable Law and Constitutional Basis
1987 Philippine Constitution; Corporation Code (B.P. 68), particularly Sections 41, 81–83; trust fund doctrine ensuring corporate assets remain available to satisfy creditors before funding share repurchases.
Facts and Pre-Demand Dispute
In June 1999, Lorenzo Shipping amended its Articles of Incorporation to eliminate pre-emptive rights on new shares. The Turners voted against the amendment and, within 30 days, demanded payment at P2.276 per share (book value). Respondent counter-offered market value at P0.41 per share and denied payment on the ground of lacking unrestricted retained earnings (deficit of ₱72,973,114 as of December 31, 1999).
Formation and Valuation by Appraisal Committee
Pursuant to Section 82, each side appointed one appraiser; those two appraisers selected a neutral chair. On October 27, 2000, the three-member committee determined fair value at ₱2.54 per share (aggregate ₱2,565,400).
Demand, Refusal, and Filing of Suit
The Turners renewed their payment demand—fair value plus 2% monthly penalty and appraisal fees. On January 2, 2001, respondent again refused, citing zero unrestricted retained earnings. The Turners thereupon filed Civil Case No. 01-086 for collection and damages on January 22, 2001.
RTC Proceedings and Summary Judgment
After intra-corporate re-raffling, Branch 46 of the RTC (Manila) acquired jurisdiction. On June 26, 2002, the Turners moved for partial summary judgment, presenting SEC-filed financials showing ₱11,975,490 unrestricted retained earnings as of March 31, 2002. On October 23, 2002, the RTC granted the motion, ruled payment need not coincide with the time of demand, and ordered payment within 30 days. The court denied reconsideration, issued a writ of execution on November 28, 2002, and allowed immediate enforcement.
CA Proceedings and Rationale for Dismissal
Lorenzo Shipping petitioned the Court of Appeals for certiorari, arguing no cause of action existed at suit inception because there were no retained earnings then and that the summary judgment was not a final appealable order. The CA held that under Section 82 no payment right accrues absent unrestricted retained earnings at the time the complaint is filed. The Turners’ action was therefore premature and void for lack of an existing cause of action. The CA nullified the challenged RTC orders and writs and dismissed the suit without prejudice.
Supreme Court’s Analysis on Appraisal Rights
- Appraisal right vests only upon objectionable corporate action and requires a valid demand plus the subsequent existence of unrestricted retained earnings to fund payment.
- The trust fund doctrine protects creditors by viewing corporate assets as
Case Syllabus (G.R. No. 157479)
Background and Nature of the Dispute
- Petitioners Philip Turner and Elnora Turner held 1,010,000 shares of Lorenzo Shipping Corporation, a domestic cargo-shipping company.
- In June 1999, the corporation amended its Articles of Incorporation to remove stockholders’ pre-emptive rights over new share issues.
- The petitioners voted against the amendment and, invoking their appraisal rights, demanded payment at the book value of ₱2.276 per share, or ₱2,298,760.00 in total.
- Respondent insisted that fair value should be the market price on the day before the vote (₱0.41/share, or ₱414,100.00) and that payment could occur only if unrestricted retained earnings were available, which at that time they were not.
Appointment and Findings of the Appraisal Committee
- Pursuant to Section 82 of the Corporation Code, both parties each nominated one appraiser, who jointly appointed a third member as committee chairman.
- Committee members: Reynaldo Yatco (petitioners’ nominee), Atty. Antonio Acyatan (respondent’s nominee), and Leo Anoche (chairman).
- On October 27, 2000, the appraisal committee fixed the fair value at ₱2.54 per share, aggregating ₱2,565,400.00.
Pre-Litigation Correspondence and Formal Demand
- On November 2000, petitioners formally requested payment based on the committee’s valuation, plus 2% monthly penalty and appraisal fees.
- In a January 2, 2001 letter, respondent refused payment, citing Section 41 and 82 of the Corporation Code and financial statements showing a ₱72,973,114.00 deficit as of December 31, 1999.
- Respondent reiterated that payment could only be made if unrestricted retained earnings existed to cover the award.
Regional Trial Court Proceedings
- Petitioners filed Civil Case No. 01-086 for collection and damages in the Makati RTC on January 22, 2001.
- The case was re-raffled from Makati Branch 132 to Branch 142, then transferred to RTC Branch 46, Manila, under the Interim Rules on Intra-Corporate Controversies.
- On June 26, 2002, petitioners moved for partial summary judgment, alleging:
- Unrestricted retained earnings of ₱11,975,490.00 as of March 31, 2002;
- Finality of the appraisal committee’s fair value determination;
- Lack of any genuine issue of material fact.
- Respondent opposed, contending retained earnings must be determined at fiscal year-end and that no cause of action had yet accrued.
RTC’s Grant of Summary Judgment and Issuance of Writ
- After petitioners’ counsel failed to appear at the October 23, 2002 conference, Judge Tipon granted the motion for partial summary judgment, holding:
- Section 82’s awa