CORPORATION LAW | B2015

CASE DIGESTS

FINANCING CORP v.
TEODORO
August 31, 1953
Montemayor, J
Luciano, Noel Christian O.

SUMMARY: Three minority stockholders, in their own

behalf and in behalf of other minority stockholders of
Financing Corp. of the Philippines, filed a complaint against
the corporation and its President and Gen. Manager,
Amado Araneta, claiming gross mismanagement and
fraudulent conduct of corporate affairs. They prayed for
the dissolution of the corporation and the appointment of a
receiver pendente lite. The trial court appointed a receiver
despite strong objections from the defendants. The
Corporation and Araneta went to the SC on certiorari
claiming that the minority stockholders have no personality
to maintain the action for dissolution since it can only be
brought by the Government via quo warranto; since the
principal remedy has no basis, then it follows that the
auxiliary remedy of appointment of a receiver pendente
lite must also be without basis.
The Supreme Court held that in cases like this, where the
State has no interest since the acts complained of does not
constitute
a
proper
quo
warranto
proceedings,
stockholders may maintain an action for dissolution. Thus,
since the trial court had jurisdiction, the grant of the prayer
for the appointment of a receiver pendente lite is left to his
sound discretion. The SC also held that from the allegations
of the complaint, the trial court did not abuse its discretion
in appointing a receiver pendente lite.
DOCTRINE: As a GENERAL RULE, minority stockholders
CANNOT sue and demand a corporations dissolution. Such
action should be brought by the Government through its
legal officer in a quo warranto case, at their instance and
request

However, there are cases that hold that such

minority members, if unable to obtain redress and
protection of their rights within the corporation, must not
and should not be left without redress and remedy. THUS,
there might be exceptional cases wherein the intervention
of the State, for one reason or another, cannot be obtained
as when he State is not interested because the complaint
is strictly a matter between the stockholders and does not
involve, in the opinion of the Government, any of the
acts/omissions warranting quo warranto proceedings. It is
in these cases where minority stockholders are entitled to
have such dissolution
When such action or private suit is brought by
them, trial court had jurisdiction and may or may not grant
the prayer; suubject to review by appellate tribunal. Having
such jurisdiction, the appointment of a receiver pendente
lite is left to the sound discretion of the trial court.
FACTS: Asuncion Lopez Vda. De Lizares, Encarnacion
Lizares Vda. De Panlilio, and Efigenia Vda. De Paredes, in
their own behalf, and in behalf of other MINORITY
STOCKHOLDERS of Financing Corporation Philippines (FCP),
filed a complaint against the corporation and J. Amado
Araneta
(Pres.
And
Manager)
claiming
Gross
mismanagement and fraudulent conduct of corporate
affairs. They are seeking:
1. The dissolution of the corporation
2. That Araneta:
a. Be declared personally accountable for the
amounts of the unauthorized and fraudulent
disbursements and disposition of assets made by
him
(1) For the specific acts of fraud, see Ratio.
b. Be required to account for said assets
3. They also request that pending trial and disposition
on the merits, a receiver be appointed to take
possession of the books, records, and assets of FCP
preparatory to dissolution and liquidation

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RTC DECISION: (Not on the merits but on the appointment

of receiver)
The trial court presided by Judge Teodoro granted the
petition for appointment of receiver and designated Alfredo
Yulo as the receiver with a bond of P50,000.
It also denied the subsequent MR filed by defendants
PETITION BY FCP AND ARANETA: They filed a petition for
certiorari with preliminary injunction to revoke the RTC
order. They argue:
1. The appointment is merely an auxiliary remedy
a. The principal remedy sought was the dissolution
of the FCO
2. According to law, a suit for dissolution of a
corporation can be brought and maintained only by
the State through its legal counsel
a. Respondents, being only minority stockholders,
have no right or personality to maintain the
action for dissolution
3. Since there is no basis for the principal remedy
sought, the auxiliary remedy must also fail.
ISSUE: Whether the minority stockholders have personality
to maintain the action for dissolution.
HELD: YES! This case falls under the exception.
I.

Concepts
A. As a GENERAL RULE, minority stockholders
CANNOT sue and demand a corporations
dissolution
1. Such action should be brought by the
Government through its legal officer in a quo
warranto case, at their instance and request
B. However, there are cases that hold that such
minority members, if unable to obtain redress and
protection of their rights within the corporation,
must not and should not be left without redress
and remedy
1. Hall v. Judge Piccio

a. Even the existence of a de jure corporation

may be terminated in a private suit for its
dissolution by stockholders without the
intervention of the State
b. There might be some room for argument
on the right of minority stockholders to
ask for dissolution
C. THUS, there might be exceptional cases wherein
the intervention of the State, for one reason or
another, cannot be obtained
1. As when he State is not interested because
the complaint is strictly a matter between the
stockholders and does not involve, in the
opinion of the Government, any of the
acts/omissions warranting quo warranto
proceedings
2. It is in these cases where minority
stockholders are entitled to have such
dissolution
3. When such action or private suit is brought by
them, trial court had jurisdiction and may or
may not grant the prayer
a. Subject to review by appellate tribunal
b. Having such jurisdiction, the appointment
of a receiver pendente lite is left to the
sound discretion of the trial court
II. Applying the concepts to the case at bar
A. Allegations of mismanagement and misconduct
by the President and General manager were
made, specially in connection with the petition for
appointment of receiver. According to the
complaint:
1. There is imminent danger of insolvency
2. There are acts of fraud and mismanagement
such as:
a. Diversion of corporate purposes and use
for the personal benefit of Araneta
b. Unauthorized and profitless pledging of
securities owned by FCP to secure

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CASE DIGESTS

obligations
of
another
corporation
controlled by Araneta
c. Unauthorized and profitless using of the
name of FCP in the shipping of sugar
belonging to corporations controlled by
Araneta
d. Refusal of Araneta to endorse to FCP
shares of stock and other securities
belonging to it but which are still in his
name
e. Negligent failure to endorse other shares
of stock and securities belonging to FCP
but still in the names of vendors
f. Illegal and unauthorized transfer and
deposit in the USA of over 6M shares of
Atok-Big Wedge Company
3. There are also violations of the Corporation
Law
a. Refusal to allow minority stockholders to
examine boks
b. Failure to call meetings
c. Virtual disregard and ignoring the BOD;
Araneta has been conducting the affairs of
the corporation to his personal benefit
d. Irregularity in the keeping and errors and
omission in the books
4. It was also alleged:
a. Failure to achieve the fundamental
purpose of the corporation
b. Since Aranate is in total control, there is
danger that the remaining assets be
dissipated
c. Best means to protect and preserve the
assets is the appointment of receiver
B. In conclusion, the SC held that the trial court had
jurisdiction over the case and had jurisdiction to
appoint the receiver pendente lite

1. Considering further the allegations of the

complaint, Judge Teodoro did not abuse his
discretion in appointing the receiver.
DISPOSITIVE: Petition for certiorari denied.