REYES vs. TAN

G.R. No. L-16982             

September 30, 1961 

FACTS:

Several purchases of raw materials were allegedly made in New York for the textile mill and was shipped to the Philippines.  However, the shipment were found out to consist not of raw materials but of finished products, such as, West Point Khaki rayon suiting materials dyed in the piece, finished rayon tafetta in cubes, cotton eyelets, etc., for which reasons the Central Bank of the Philippines stopped all dollar allocations for raw materials for the corporation which necessarily led to the paralyzation of the operation of the textile mill and its business;

It was said that the Defendant Dalamal, who was the representative in the New York office had interests in the supplier of the aforesaid finished goods and in the Indian Commmercial Company and the Indian Traders responsible for the issuance of the Letters of Credit.

The plaintiff and some members of the board of directors urged defendants to proceed against Dalamal, exposing his offense to the Central Bank, and to initiate suit against Dalamal for his fraud against the corporation;

That defendants refused to proceed against Dalamal and instead continued to deal with the Indian Commercial Company to the damage and prejudice of the corporation. The prayer asks for the appointment of a receiver and a judgment marking defendants jointly and severally liable for the damages.

ISSUE:

W/N the minority stockholders of the corporation are justified in the filing of suit hence making the appointment of a receiver necessary?

RULING:

The importation of textiles instead of raw materials, as well as the failure of the board of directors to take actions against those directly responsible for the misuse of the dollar allocations constitute fraud, or consent thereto on the part of the directors. Therefore, a breach of trust was committed which justified the suit by a minority stockholder of the corporation.

It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust — not of mere error of judgment or abuse of discretion — and intracorporate remedy is futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the corporation and indirectly upon the stockholders.

The directors permitted the fraudulent transaction to go unpunished and nothing appears to have been done to remove the erring purchasing managers. In a way the appointment of a receiver may have been thought of by the court below so that the dollar allocation for raw material may be revived and the textile mill placed on an operating basis. It is possible that if a receiver in which the Central Bank may have confidence is appointed, the dollar allocation for raw material may be restored. Claim is made that if a receiver is appointed, the Philippine National Bank to which the corporation owes considerable sums of money might be led to foreclose the mortgage. Precisely the appointment of a receiver in whom the bank may have had confidence might rehabilitate the business and bring a restoration of the dollar allocation much needed for raw material and an improvement in the business and assets the corporation, thus insuring the collection of the bank's loan.

Considering the above circumstances we are led to agree with the judge below that the appointment of a receiver was not only expedient but also necessary to restore the faith and confidence of the Central Bank authorities in the administration of the affairs of the corporation, thus ultimately leading to a restoration of the dollar allocation so essential to the operation of the textile mills. The first assignment of error is, therefore, overruled.

HOLMES vs. CAMP

DECEMBER 7, 1917

Corporation, Representative Action

FACTS:

The Doe Run Lead Company acquired a large number of shares of the capital stock of the St. Joseph Lead Company, where such stock were held in trust for the use and benefit of the Doe Run Lead Company, which was the real owner thereof.

It was kept in secret knowledge by some of the stockholders that the St. Joseph Lead Company's stock was of much greater value than was commonly known and that the company was about to declare large future dividends.

A conspiracy was made to buy from the Doe Run Lead Company the stock of the St. Joseph Lead Company then held by and for it, thereby committed a fraud upon the Doe Run Lead Company.

The purpose of the action is to compel those who thus defrauded the Doe Run Lead Company as it is alleged, to return to that company the stock which they acquired from it, or if they have parted with the stock to account for its value.

Plaintiffs were, stockholders of the Doe Run Lead Company, but they exchanged this stock for shares of stock of the St. Joseph Lead Company, which they now own.

Robert Holmes individually is a stockholder in the Doe Run Lead Company as well as in the St. Joseph Lead Company, while all the other plaintiffs are stockholders only in the St. Joseph Lead Company. They all sue, however, in the right and on behalf of the Doe Run Lead Company to compel restitution to that company,

ISSUE:

W/N stockholders of a holding company may maintain a representative action for the benefit and in behalf of the subsidiary company, the directors of both companies having refused, after due request, to institute an action in the name of either company?

RULING:

We are unable to see any controlling reason why it should not be permitted.

Representative actions by stockholders are unique in that they are not prosecuted by the stockholder plaintiff for his own direct benefit, or in his own direct right, or because any right of his has been directly violated or because he is entitled individually to the relief sought. Such actions are, as they are commonly designated, purely representative, the plaintiff being permitted to maintain the action, notwithstanding his lack of direct interest, solely to set the machinery of justice in motion, and to prevent what would otherwise be a complete failure of justice.

This form of action is an invention of equity, and stockholders are allowed to resort to it, notwithstanding a lack of direct interest in the relief sought because, as it has been said, "the claims of justice would be found superior to any difficulties arising out of technical rules respecting the mode in which corporations are required to sue."

The part which a stockholder plays in such an action is merely that of an instigator. The cause of action is that of the corporation, and the recovery must run in its favor. Under these circumstances it is not easy to see why a stockholder in a holding company may not maintain such an action for the benefit of the subsidiary company, and thus indirectly for the advantage of the holding company. His stock interest in the latter company is sufficient to relieve him from the imputation of being a mere officious and impertinent intermeddler.

Clearly no such embarrassment or prejudice can exist in a case like the present when the plaintiffs sue, not in their own right, nor for their own direct benefit, but in the right and for the benefit of a corporation, provided they all sue in the right and for the benefit of the same corporation, and they all have an interest, however indirect, in seeing to it that the corporation receives reparation for the wrongs alleged in the complaint.

What the defendants are called upon to do in this action is to answer to the Doe Run Lead Company, not to these plaintiffs nor to any other stockholder of either company, and it can work no possible prejudice to the defendants who sets the machinery of justice in motion, so long as that person has an ultimate interest in the matter.

CHASE vs. CFI

G.R. No. L-20395 May 13, 1985

Corporation, Derivative Suit

FACTS:

Elton Chase in his capacity a minority stockholder of American Machinery and Parts Manufacturing, Inc. (AMPARTS) and in behalf of the other stockholders of said corporation similarly situated and for the benefit of Amparts filed a derivative suit against Dr. Victor Buencamino, a major stockholders and some other officers, charging them with breach of trust; praying for their removal as directors and, if necessary, for the dissolution and liquidation of said corporation.

The lower court ruled that there was breach of obligation committed by Dr. Buencamino but denied the application for receivership hence ordering the defendant to file a bond amounting to P100,00.00 to answer for the damages that plaintiff may suffer by the non-appointment of a receiver.

The plaintiff contended that the respondent court erred in not ordering the ouster of the defendant from management and in not granting the applied dissolution and receivership.

ISSUE:

W/N removal of defendants who are stockholders/directors shall be granted?

RULING:

In this jurisdiction, it is a "fundamental and settled rule that conclusions and findings of fact by the trial court are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons because the trial court is in a better position to examine real evidence, as well as to observe the demeanor of the witnesses while testifying in the case." 

We have reviewed the evidence on record thoroughly and We are satisfied that the lower court has not overlooked factors of substance and value which if considered, might affect the result of the case. We therefore uphold the findings and conclusions of the lower court.

The record further shows that there were other precautionary measures adopted by lower court for the protection of Chase's rights and interest in Amparts. 

The removal of a stockholder (in this case a majority stockholder) from the management of the corporation and/or the dissolution of a corporation in a suit filed by a minority stockholder is a drastic measure. It should be resorted to only when the necessity is clear which is not the situation in the case at bar.

Zulueta vs. CA, G.R. No. 107383

FACTS:

Petitioner, the wife of private respondent, entered the clinic of her husband, a doctor of medicine, and in the presence of her mother, a driver and private respondents secretary, forcibly opened the drawers and cabinet in her husband’s clinic and took 157 documents consisting of private correspondence between private respondent and his alleged paramours, greetings cards, cancelled checks, diaries, passport, and photographs. The documents and papers were seized for use in evidence in a case for legal separation and for disqualification from the practice of medicine which petitioner had filed against her husband.

ISSUE:

W/N the documents taken by the wife admissible as evidence in the action for legal separation?

RULING:

No. Indeed the documents and papers in question are inadmissible in evidence. The constitutional injunction declaring the privacy of communication and correspondence [to be] inviolable is no less applicable simply because it is the wife (who thinks herself aggrieved by her husbands infidelity) who is the party against whom the constitutional provision is to be enforced. The only exception to the prohibition in the Constitution is if there is a lawful order [from a] court or when public safety or order requires otherwise, as prescribed by law. Any violation of this provision renders the evidence obtained inadmissible for any purpose in any proceeding.

The intimacies between husband and wife do not justify any one of them in breaking the drawers and cabinets of the other and in ransacking them for any telltale evidence of marital infidelity. A person, by contracting marriage, does not shed his/her integrity or his right to privacy as an individual and the constitutional protection is ever available to him or to her.

The law insures absolute freedom of communication between the spouses by making it privileged. Neither husband nor wife may testify for or against the other without the consent of the affected spouse while the marriage subsists. Neither may be examined without the consent of the other as to any communication received in confidence by one from the other during the marriage, save for specified exceptions.  But one thing is freedom of communication; quite another is a compulsion for each one to share what one knows with the other. And this has nothing to do with the duty of fidelity that each owes to the other.

People vs. Marti, G.R. No. 81561

FACTS:

Appellant was sending four gift-wrapped packages to a friend in Zurich, Switzerland. When asked by the proprietress of the forwarder if the packages could be examined, appellant assured that the packages simply contained books, cigars, and gloves. The four (4) packages were then placed inside a brown corrugated box one by two feet in size (1' x 2'). Styro-foam was placed at the bottom and on top of the packages before the box was sealed with masking tape, thus making the box ready for shipment.

Before delivery of appellant's box to the Bureau of Customs and/or Bureau of Posts, Mr. Job Reyes (proprietor), following standard operating procedure, opened the boxes for final inspection. When he opened appellant's box, a peculiar odor emitted therefrom. His curiousity aroused, he squeezed one of the bundles allegedly containing gloves and felt dried leaves inside. Opening one of the bundles, he pulled out a cellophane wrapper protruding from the opening of one of the gloves. He made an opening on one of the cellophane wrappers and took several grams of the contents thereof.

Job Reyes reported his discovery to the NBI.  It was found out later on that the package contained dried marijuana leaves.

An information was filed against appellant for violation of Dangerous Drugs Act.

Appellant contended that there was violation on his right against unreasonable search and seizure.

ISSUE:

Can accused/appellant validly claim that his constitutional right against unreasonable searches and seizure has been violated? Stated otherwise, may an act of a private individual, allegedly in violation of appellant's constitutional rights, be invoked against the State?

RULING:

We hold in the negative. In the absence of governmental interference, the liberties guaranteed by the Constitution cannot be invoked against the State.

The case at bar assumes a peculiar character since the evidence sought to be excluded was primarily discovered and obtained by a private person, acting in a private capacity and without the intervention and participation of State authorities.

The contraband in the case at bar having come into possession of the Government without the latter transgressing appellant's rights against unreasonable search and seizure, the Court sees no cogent reason why the same should not be admitted against him in the prosecution of the offense charged.

The constitutional proscription against unlawful searches and seizures therefore applies as a restraint directed only against the government and its agencies tasked with the enforcement of the law. Thus, it could only be invoked against the State to whom the restraint against arbitrary and unreasonable exercise of power is imposed.

If the search is made upon the request of law enforcers, a warrant must generally be first secured if it is to pass the test of constitutionality. However, if the search is made at the behest or initiative of the proprietor of a private establishment for its own and private purposes, as in the case at bar, and without the intervention of police authorities, the right against unreasonable search and seizure cannot be invoked for only the act of private individual, not the law enforcers, is involved. In sum, the protection against unreasonable searches and seizures cannot be extended to acts committed by private individuals so as to bring it within the ambit of alleged unlawful intrusion by the government.

LASCONA LAND vs. CIR, G.R. No. 171251

CIR issued an assessment notice against Lascona informing the latter of its alleged deficiency income tax for the year 1993.  Lascona filed a letter protest but was denied by BIR due to failure to appeal with the CTA after the lapse of the 180-day reglementary period provided under Sec. 228 of the NIRC which resulted to the finality of the assessment.

Section 228, when the law provided for the remedy to appeal the inaction of the CIR, it did not intend to limit it to a single remedy of filing of an appeal after the lapse of the 180-day prescribed period. Precisely, when a taxpayer protested an assessment, he naturally expects the CIR to decide either positively or negatively. A taxpayer cannot be prejudiced if he chooses to wait for the final decision of the CIR on the protested assessment. More so, because the law and jurisprudence have always contemplated a scenario where the CIR will decide on the protested assessment.

It must be emphasized, however, that in case of the inaction of the CIR on the protested assessment, while we reiterate − the taxpayer has two options, either: (1) file a petition for review with the CTA within 30 days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessment and appeal such final decision to the CTA within 30 days after the receipt of a copy of such decision, these options are mutually exclusive and resort to one bars the application of the other.

Accordingly, considering that Lascona opted to await the final decision of the Commissioner on the protested assessment, it then has the right to appeal such final decision to the Court by filing a petition for review within thirty days after receipt of a copy of such decision or ruling, even after the expiration of the 180-day period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments.[17] Thus, Lascona, when it filed an appeal on April 12, 1999 before the CTA, after its receipt of the Letter[18] dated March 3, 1999 on March 12, 1999, the appeal was timely made as it was filed within 30 days after receipt of the copy of the decision.

CIR vs. PRIMETOWN PROPERTY, G.R. No. 162155, Case Digest

On March 11, 1999, Primetown Property Group, Inc., through its vice chair, applied for the refund or credit of income tax respondent paid in 1997 due to the slowdown of the real estate industry where respondent suffered losses. With this, it contended that it was not liable for income taxes. Nevertheless, respondent paid its quarterly corporate income tax and remitted creditable withholding tax from real estate sales to the BIR therefore, respondent was entitled to tax refund or tax credit.

On May 13, 1999, revenue officer required respondent to submit additional documents to support its claim.  Respondent complied but its claim was not acted upon. Thus, on April 14, 2000, it filed a petition for review in the Court of Tax Appeals (CTA).

On December 15, 2000, the CTA dismissed the petition as it was filed beyond the two-year prescriptive period for filing a judicial claim for tax refund or tax credit as it found that respondent filed its final adjusted return on April 14, 1998. Thus, its right to claim a refund or credit commenced on that date.

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant.

There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods.

We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the 24th calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the reglementary period.