THIRD DIVISION

[G.R. No. 157479. November 24, 2010.]

PHILIP TURNER and ELNORA TURNER , petitioners, vs . LORENZO

SHIPPING CORPORATION , respondent.

DECISION

BERSAMIN , J : p

This case concerns the right of dissenting stockholders to demand payment of

the value of their shareholdings.
In the stockholders' suit to recover the value of their shareholdings from the
corporation, the Regional Trial Court (RTC) upheld the dissenting stockholders, herein
petitioners, and ordered the corporation, herein respondent, to pay. Execution was
partially carried out against the respondent. On the respondent's petition for certiorari,
however, the Court of Appeals (CA) corrected the RTC and dismissed the petitioners'
suit on the ground that their cause of action for collection had not yet accrued due to
the lack of unrestricted retained earnings in the books of the respondent.
Thus, the petitioners are now before the Court to challenge the CA's decision
promulgated on March 4, 2003 in C.A.-G.R. SP No. 74156 entitled Lorenzo Shipping
Corporation v. Hon. Artemio S. Tipon, in his capacity as Presiding Judge of Branch 46 of
the Regional Trial Court of Manila, et al. 1
Antecedents
The petitioners held 1,010,000 shares of stock of the respondent, a domestic
corporation engaged primarily in cargo shipping activities. In June 1999, the
respondent decided to amend its articles of incorporation to remove the stockholders'
pre-emptive rights to newly issued shares of stock. Feeling that the corporate move
would be prejudicial to their interest as stockholders, the petitioners voted against the
amendment and demanded payment of their shares at the rate of P2.276/share based
on the book value of the shares, or a total of P2,298,760.00.
The respondent found the fair value of the shares demanded by the petitioners
unacceptable. It insisted that the market value on the date before the action to remove
the pre-emptive right was taken should be the value, or P0.41/share (or a total of
P414,100.00), considering that its shares were listed in the Philippine Stock Exchange,
and that the payment could be made only if the respondent had unrestricted retained
earnings in its books to cover the value of the shares, which was not the case. HCSEIT

The disagreement on the valuation of the shares led the parties to constitute an
appraisal committee pursuant to Section 82 of the Corporation Code, each of them
nominating a representative, who together then nominated the third member who
would be chairman of the appraisal committee. Thus, the appraisal committee came to
be made up of Reynaldo Yatco, the petitioners' nominee; Atty. Antonio Acyatan, the
respondent's nominee; and Leo Anoche of the Asian Appraisal Company, Inc., the third
member/chairman.

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 On October 27, 2000, the appraisal committee reported its valuation of
P2.54/share, for an aggregate value of P2,565,400.00 for the petitioners. 2
Subsequently, the petitioners demanded payment based on the valuation of the
appraisal committee, plus 2%/month penalty from the date of their original demand for
payment, as well as the reimbursement of the amounts advanced as professional fees
to the appraisers. 3
In its letter to the petitioners dated January 2, 2001, 4 the respondent refused the
petitioners' demand, explaining that pursuant to the Corporation Code, the dissenting
stockholders exercising their appraisal rights could be paid only when the corporation
had unrestricted retained earnings to cover the fair value of the shares, but that it had
no retained earnings at the time of the petitioners' demand, as borne out by its Financial
Statements for Fiscal Year 1999 showing a de cit of P72,973,114.00 as of December
31, 1999.
Upon the respondent's refusal to pay, the petitioners sued the respondent for
collection and damages in the RTC in Makati City on January 22, 2001. The case,
docketed as Civil Case No. 01-086, was initially assigned to Branch 132. 5
On June 26, 2002, the petitioners led their motion for partial summary
judgment, claiming that:
7) . . . the defendant has an accumulated unrestricted retained
earnings of ELEVEN MILLION NINE HUNDRED SEVENTY FIVE THOUSAND
FOUR HUNDRED NINETY (P11,975,490.00) PESOS, Philippine Currency,
evidenced by its Financial Statement as of the Quarter Ending March 31,
2002; . . .
8) . . . the fair value of the shares of the petitioners as xed by
the Appraisal Committee is final, that the same cannot be disputed . . .

9) . . . there is no genuine issue to material fact and therefore,

the plaintiffs are entitled, as a matter of right, to a summary judgment. . . .
6

The respondent opposed t h e motion for partial summary judgment, stating that the
determination of the unrestricted retained earnings should be made at the end of the scal year
of the respondent, and that the petitioners did not have a cause of action against the respondent.
HCATEa D

During the pendency of the motion for partial summary judgment, however, the Presiding
Judge of Branch 133 transmitted the records to the Clerk of Court for re-ra ing to any of the
RTC's special commercial courts in Makati City due to the case being an intra-corporate dispute.
Hence, Civil Case No. 01-086 was re-raffled to Branch 142.

Nevertheless, because the principal o ce of the respondent was in Manila, Civil

Case No. 01-086 was ultimately transferred to Branch 46 of the RTC in Manila, presided by
Judge Artemio Tipon, 7 pursuant to the Interim Rules of Procedure on Intra-Corporate
Controversies (Interim Rules) requiring intra-corporate cases to be brought in the RTC
exercising jurisdiction over the place where the principal o ce of the corporation was
found.
After the conference in Civil Case No. 01-086 set on October 23, 2002, which the
petitioners' counsel did not attend, Judge Tipon issued an order, 8 granting the petitioners'
motion for partial summary judgment, stating:
As to the motion for partial summary judgment, there is no question that
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 the 3-man committee mandated to appraise the shareholdings of plaintiff
submitted its recommendation on October 27, 2000 xing the fair value of the
shares of stocks of the plaintiff at P2.54 per share. Under Section 82 of the
Corporation Code:

"The ndings of the majority of the appraisers shall be nal, and the
award shall be paid by the corporation within thirty (30) days after the
award is made."

"The only restriction imposed by the Corporation Code is —"

"That no payment shall be made to any dissenting stockholder

unless the corporation has unrestricted retained earning in its books to
cover such payment."

The evidence submitted by plaintiffs shows that in its quarterly nancial

statement it submitted to the Securities and Exchange Commission, the
defendant has retained earnings of P11,975,490 as of March 21, 2002. This is not
disputed by the defendant. Its only argument against paying is that there must be
unrestricted retained earning at the time the demand for payment is made.

This certainly is a very narrow concept of the appraisal right of a

stockholder. The law does not say that the unrestricted retained earnings must
exist at the time of the demand. Even if there are no retained earnings at the time
the demand is made if there are retained earnings later, the fair value of such
stocks must be paid. The only restriction is that there must be su cient funds to
cover the creditors after the dissenting stockholder is paid. No such allegations
have been made by the defendant. 9 ICcDaA

On November 12, 2002, the respondent filed a motion for reconsideration.

On the scheduled hearing of the motion for reconsideration on November 22,
2002, the petitioners led a motion for immediate execution and a motion to strike out
motion for reconsideration. In the latter motion, they pointed out that the motion for
reconsideration was prohibited by Section 8 of the Interim Rules. Thus, also on
November 22, 2002, Judge Tipon denied the motion for reconsideration and granted
the petitioners' motion for immediate execution. 1 0
Subsequently, on November 28, 2002, the RTC issued a writ of execution. 1 1
Aggrieved, the respondent commenced a special civil action for certiorari in the
CA to challenge the two aforecited orders of Judge Tipon, claiming that:
A.

JUDGE TIPON GRAVELY ABUSED HIS DISCRETION IN GRANTING SUMMARY

JUDGMENT TO THE SPOUSES TURNER, BECAUSE AT THE TIME THE
"COMPLAINT" WAS FILED, LSC HAD NO RETAINED EARNINGS, AND THUS WAS
COMPLYING WITH THE LAW, AND NOT VIOLATING ANY RIGHTS OF THE
SPOUSES TURNER, WHEN IT REFUSED TO PAY THEM THE VALUE OF THEIR LSC
SHARES. ANY RETAINED EARNINGS MADE A YEAR AFTER THE "COMPLAINT"
WAS FILED ARE IRRELEVANT TO THE SPOUSES TURNER'S RIGHT TO RECOVER
UNDER THE "COMPLAINT", BECAUSE THE WELL-SETTLED RULE, REPEATEDLY
BROUGHT TO JUDGE TIPON'S ATTENTION, IS "IF NO RIGHT EXISTED AT THE
TIME (T)HE ACTION WAS COMMENCED THE SUIT CANNOT BE MAINTAINED,
ALTHOUGH SUCH RIGHT OF ACTION MAY HAVE ACCRUED THEREAFTER.

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 B.
JUDGE TIPON IGNORED CONTROLLING CASE LAW, AND THUS GRAVELY
ABUSED HIS DISCRETION, WHEN HE GRANTED AND ISSUED THE QUESTIONED
"WRIT OF EXECUTION" DIRECTING THE EXECUTION OF HIS PARTIAL SUMMARY
JUDGMENT IN FAVOR OF THE SPOUSES TURNER, BECAUSE THAT JUDGMENT
IS NOT A FINAL JUDGMENT UNDER SECTION 1 OF RULE 39 OF THE RULES OF
COURT AND THEREFORE CANNOT BE SUBJECT OF EXECUTION UNDER THE
SUPREME COURT'S CATEGORICAL HOLDING IN PROVINCE OF PANGASINAN VS.
COURT OF APPEALS .
Upon the respondent's application, the CA issued a temporary restraining order
(TRO), enjoining the petitioners, and their agents and representatives from enforcing
the writ of execution. By then, however, the writ of execution had been partially
enforced.
The TRO lapsed without the CA issuing a writ of preliminary injunction to prevent
the execution. Thereupon, the sheriff resumed the enforcement of the writ of execution.
The CA promulgated its assailed decision on March 4, 2003, 1 2 pertinently
holding: CIHTac

However, it is clear from the foregoing that the Turners' appraisal right is
subject to the legal condition that no payment shall be made to any dissenting
stockholder unless the corporation has unrestricted retained earnings in its books
to cover such payment. Thus, the Supreme Court held that:
The requirement of unrestricted retained earnings to cover the
shares is based on the trust fund doctrine which means that the capital
stock, property and other assets of a corporation are regarded as equity in
trust for the payment of corporate creditors. The reason is that creditors of
a corporation are preferred over the stockholders in the distribution of
corporate assets. There can be no distribution of assets among the
stockholders without rst paying corporate creditors. Hence, any
disposition of corporate funds to the prejudice of creditors is null and void.
Creditors of a corporation have the right to assume that so long as there
are outstanding debts and liabilities, the board of directors will not use the
assets of the corporation to purchase its own stock.

In the instant case, it was established that there were no unrestricted

retained earnings when the Turners led their Complaint. In a letter dated 20
August 2000, petitioner informed the Turners that payment of their shares could
only be made if it had unrestricted earnings in its books to cover the same.
Petitioner reiterated this in a letter dated 2 January 2001 which further informed
the Turners that its Financial Statement for scal year 1999 shows that its
retained earnings ending December 31, 1999 was at a de cit in the amount of
P72,973,114.00, a matter which has not been disputed by private respondents.
Hence, in accordance with the second paragraph of sec. 82, BP 68 supra, the
Turners' right to payment had not yet accrued when they led their Complaint on
January 22, 2001, albeit their appraisal right already existed.

In Philippine American General Insurance Co. Inc. vs. Sweet Lines, Inc., the
Supreme Court declared that:

Now, before an action can properly be commenced all the essential

elements of the cause of action must be in existence, that is, the cause of
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 action must be complete. All valid conditions precedent to the institution of
the particular action, whether prescribed by statute, xed by agreement of
the parties or implied by law must be performed or complied with before
commencing the action, unless the conduct of the adverse party has been
such as to prevent or waive performance or excuse non-performance of the
condition.aHESCT

It bears restating that a right of action is the right to presently

enforce a cause of action, while a cause of action consists of the operative
facts which give rise to such right of action. The right of action does not
arise until the performance of all conditions precedent to the action and
may be taken away by the running of the statute of limitations, through
estoppel, or by other circumstances which do not affect the cause of
action. Performance or fulfillment of all conditions precedent upon which a
right of action depends must be su ciently alleged, considering that the
burden of proof to show that a party has a right of action is upon the
person initiating the suit.

The Turners' right of action arose only when petitioner had already retained
earnings in the amount of P11,975,490.00 on March 21, 2002; such right of action
was inexistent on January 22, 2001 when they filed the Complaint.

In the doctrinal case of Surigao Mine Exploration Co. Inc. vs. Harris, the
Supreme Court ruled:

Subject to certain quali cations, and except as otherwise provided

by law, an action commenced before the cause of action has accrued is
prematurely brought and should be dismissed. The fact that the cause of
action accrues after the action is commenced and while it is pending is of
no moment. It is a rule of law to which there is, perhaps, no exception,
either at law or in equity, that to recover at all there must be some cause of
action at the commencement of the suit. There are reasons of public policy
why there should be no needless haste in bringing up litigation, and why
people who are in no default and against whom there is as yet no cause of
action should not be summoned before the public tribunals to answer
complaints which are groundless. An action prematurely brought is a
groundless suit. Unless the plaintiff has a valid and subsisting cause of
action at the time his action is commenced, the defect cannot be cured or
remedied by the acquisition or accrual of one while the action is pending,
and a supplemental complaint or an amendment setting up such after-
accrued cause of action is not permissible.

The afore-quoted ruling was reiterated in Young vs. Court of Appeals and
Lao vs. Court of Appeals.
The Turners' apprehension that their claim for payment may prescribe if
they wait for the petitioner to have unrestricted retained earnings is misplaced. It
is the legal possibility of bringing the action that determines the starting point for
the computation of the period of prescription. Stated otherwise, the prescriptive
period is to be reckoned from the accrual of their right of action. aCSTDc

Accordingly, We hold that public respondent exceeded its jurisdiction when

it entertained the herein Complaint and issued the assailed Orders. Excess of
jurisdiction is the state of being beyond or outside the limits of jurisdiction, and as
distinguished from the entire absence of jurisdiction, means that the act although
within the general power of the judge, is not authorized and therefore void, with
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 respect to the particular case, because the conditions which authorize the exercise
of his general power in that particular case are wanting, and hence, the judicial
power is not in fact lawfully invoked.
We find no necessity to discuss the second ground raised in this petition.

WHEREFORE, upon the premises, the petition is GRANTED. The assailed

Orders and the corresponding Writs of Garnishment are NULLIFIED. Civil Case No.
02-104692 is hereby ordered DISMISSED without prejudice to re lling by the
private respondents of the action for enforcement of their right to payment as
withdrawing stockholders.

SO ORDERED.

The petitioners now come to the Court for a review on certiorari of the CA's
decision, submitting that:
I.
THE COURT OF APPEALS COMMITTED SERIOUS ERRORS OF LAW WHEN IT
GRANTED THE PETITION FOR CERTIORARI WHEN THE REGIONAL TRIAL COURT
OF MANILA DID NOT ACT BEYOND ITS JURISDICTION AMOUNTING TO LACK OF
JURISDICTION IN GRANTING THE MOTION FOR PARTIAL SUMMARY JUDGMENT
AND IN GRANTING THE MOTION FOR IMMEDIATE EXECUTION OF JUDGMENT;
II.
THE COURT OF APPEALS COMMITTED SERIOUS ERRORS OF LAW WHEN IT
ORDERED THE DISMISSAL OF THE CASE, WHEN THE PETITION FOR
CERTIORARI MERELY SOUGHT THE ANNULMENT OF THE ORDER GRANTING
THE MOTION FOR PARTIAL SUMMARY JUDGMENT AND OF THE ORDER
GRANTING THE MOTION FOR IMMEDIATE EXECUTION OF THE JUDGMENT;
III.

THE HONORABLE COURT OF APPEALS HAS DECIDED QUESTIONS OF

SUBSTANCE NOT THEREFORE DETERMINED BY THIS HONORABLE COURT
AND/OR DECIDED IT IN A WAY NOT IN ACCORD WITH LAW OR WITH
JURISPRUDENCE. aEAcHI

Ruling
The petition fails.
The CA correctly concluded that the RTC had exceeded its jurisdiction in
entertaining the petitioners' complaint in Civil Case No. 01-086, and in rendering the
summary judgment and issuing writ of execution.
A.
Stockholder's Right of Appraisal, In General
A stockholder who dissents from certain corporate actions has the right to
demand payment of the fair value of his or her shares. This right, known as the right of
appraisal, is expressly recognized in Section 81 of the Corporation Code, to wit:
Section 81.Instances of appraisal right. — Any stockholder of a corporation
shall have the right to dissent and demand payment of the fair value of his shares
in the following instances:
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 1. In case any amendment to the articles of incorporation has the
effect of changing or restricting the rights of any stockholder or class of shares,
or of authorizing preferences in any respect superior to those of outstanding
shares of any class, or of extending or shortening the term of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other
disposition of all or substantially all of the corporate property and assets as
provided in the Code; and
3. In case of merger or consolidation. (n)

Clearly, the right of appraisal may be exercised when there is a fundamental

change in the charter or articles of incorporation substantially prejudicing the rights of
the stockholders. It does not vest unless objectionable corporate action is taken. 1 3 It
serves the purpose of enabling the dissenting stockholder to have his interests
purchased and to retire from the corporation. 1 4
Under the common law, there were originally con icting views on whether a
corporation had the power to acquire or purchase its own stocks. In England, it was
held invalid for a corporation to purchase its issued stocks because such purchase was
an indirect method of reducing capital (which was statutorily restricted), aside from
being inconsistent with the privilege of limited liability to creditors. 1 5 Only a few
American jurisdictions adopted by decision or statute the strict English rule forbidding
a corporation from purchasing its own shares. In some American states where the
English rule used to be adopted, statutes granting authority to purchase out of surplus
funds were enacted, while in others, shares might be purchased even out of capital
provided the rights of creditors were not prejudiced. 1 6 The reason underlying the
limitation of share purchases sprang from the necessity of imposing safeguards
against the depletion by a corporation of its assets and against the impairment of its
capital needed for the protection of creditors. 1 7 TICDSc

Now, however, a corporation can purchase its own shares, provided payment is
made out of surplus profits and the acquisition is for a legitimate corporate purpose. 1 8
In the Philippines, this new rule is embodied in Section 41 of the Corporation Code, to
wit:
Section 41.Power to acquire own shares. — A stock corporation shall have
the power to purchase or acquire its own shares for a legitimate corporate
purpose or purposes, including but not limited to the following cases: Provided,
That the corporation has unrestricted retained earnings in its books to cover the
shares to be purchased or acquired:

1. To eliminate fractional shares arising out of stock dividends;

2. To collect or compromise an indebtedness to the corporation,
arising out of unpaid subscription, in a delinquency sale, and to purchase
delinquent shares sold during said sale; and
3. To pay dissenting or withdrawing stockholders entitled to payment
for their shares under the provisions of this Code. (n)

The Corporation Code de nes how the right of appraisal is exercised, as well as
the implications of the right of appraisal, as follows:
1. The appraisal right is exercised by any stockholder who has voted
against the proposed corporate action by making a written demand
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 on the corporation within 30 days after the date on which the vote
was taken for the payment of the fair value of his shares. The failure
to make the demand within the period is deemed a waiver of the
appraisal right. 1 9
2. If the withdrawing stockholder and the corporation cannot agree on
the fair value of the shares within a period of 60 days from the date
the stockholders approved the corporate action, the fair value shall be
determined and appraised by three disinterested persons, one of
whom shall be named by the stockholder, another by the corporation,
and the third by the two thus chosen. The ndings and award of the
majority of the appraisers shall be nal, and the corporation shall pay
their award within 30 days after the award is made. Upon payment by
the corporation of the agreed or awarded price, the stockholder shall
forthwith transfer his or her shares to the corporation. 2 0
3. All rights accruing to the withdrawing stockholder's shares, including
voting and dividend rights, shall be suspended from the time of
demand for the payment of the fair value of the shares until either the
abandonment of the corporate action involved or the purchase of the
shares by the corporation, except the right of such stockholder to
receive payment of the fair value of the shares. 2 1
4. Within 10 days after demanding payment for his or her shares, a
dissenting stockholder shall submit to the corporation the
certi cates of stock representing his shares for notation thereon that
such shares are dissenting shares. A failure to do so shall, at the
option of the corporation, terminate his rights under this Title X of the
Corporation Code. If shares represented by the certi cates bearing
such notation are transferred, and the certi cates are consequently
canceled, the rights of the transferor as a dissenting stockholder
under this Title shall cease and the transferee shall have all the rights
of a regular stockholder; and all dividend distributions that would
have accrued on such shares shall be paid to the transferee. 2 2
5. If the proposed corporate action is implemented or effected, the
corporation shall pay to such stockholder, upon the surrender of the
certi cates of stock representing his shares, the fair value thereof as
of the day prior to the date on which the vote was taken, excluding any
appreciation or depreciation in anticipation of such corporate action.
23 EcDSHT

Notwithstanding the foregoing, no payment shall be made to any dissenting

stockholder unless the corporation has unrestricted retained earnings in its books to
cover the payment. In case the corporation has no available unrestricted retained
earnings in its books, Section 83 of the Corporation Code provides that if the
dissenting stockholder is not paid the value of his shares within 30 days after the
award, his voting and dividend rights shall immediately be restored.
The trust fund doctrine backstops the requirement of unrestricted retained
earnings to fund the payment of the shares of stocks of the withdrawing stockholders.
Under the doctrine, the capital stock, property, and other assets of a corporation are
regarded as equity in trust for the payment of corporate creditors, who are preferred in
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 the distribution of corporate assets. 2 4 The creditors of a corporation have the right to
assume that the board of directors will not use the assets of the corporation to
purchase its own stock for as long as the corporation has outstanding debts and
liabilities. 2 5 There can be no distribution of assets among the stockholders without
first paying corporate debts. Thus, any disposition of corporate funds and assets to the
prejudice of creditors is null and void. 2 6
B.
Petitioners' cause of action was premature
That the respondent had indisputably no unrestricted retained earnings in its
books at the time the petitioners commenced Civil Case No. 01-086 on January 22,
2001 proved that the respondent's legal obligation to pay the value of the petitioners'
shares did not yet arise. Thus, the CA did not err in holding that the petitioners had no
cause of action, and in ruling that the RTC did not validly render the partial summary
judgment.
A cause of action is the act or omission by which a party violates a right of
another. 2 7 The essential elements of a cause of action are: (a) the existence of a legal
right in favor of the plaintiff; (b) a correlative legal duty of the defendant to respect such
right; and (c) an act or omission by such defendant in violation of the right of the
plaintiff with a resulting injury or damage to the plaintiff for which the latter may
maintain an action for the recovery of relief from the defendant. 2 8 Although the rst
two elements may exist, a cause of action arises only upon the occurrence of the last
element, giving the plaintiff the right to maintain an action in court for recovery of
damages or other appropriate relief. 2 9
Section 1, Rule 2, of the Rules of Court requires that every ordinary civil action
must be based on a cause of action. Accordingly, Civil Case No. 01-086 was
dismissible from the beginning for being without any cause of action. AacCIT

The RTC concluded that the respondent's obligation to pay had accrued by its
having the unrestricted retained earnings after the making of the demand by the
petitioners. It based its conclusion on the fact that the Corporation Code did not
provide that the unrestricted retained earnings must already exist at the time of the
demand.
The RTC's construal of the Corporation Code was unsustainable, because it did
not take into account the petitioners' lack of a cause of action against the respondent.
In order to give rise to any obligation to pay on the part of the respondent, the
petitioners should rst make a valid demand that the respondent refused to pay
despite having unrestricted retained earnings. Otherwise, the respondent could not be
said to be guilty of any actionable omission that could sustain their action to collect.
Neither did the subsequent existence of unrestricted retained earnings after the
ling of the complaint cure the lack of cause of action in Civil Case No. 01-086. The
petitioners' right of action could only spring from an existing cause of action. Thus, a
complaint whose cause of action has not yet accrued cannot be cured by an amended
or supplemental pleading alleging the existence or accrual of a cause of action during
the pendency of the action. 3 0 For, only when there is an invasion of primary rights, not
before, does the adjective or remedial law become operative. 3 1 Verily, a premature
invocation of the court's intervention renders the complaint without a cause of action
and dismissible on such ground. 3 2 In short, Civil Case No. 01-086, being a groundless
suit, should be dismissed. HTCSDE

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 Even the fact that the respondent already had unrestricted retained earnings more than
su cient to cover the petitioners' claims on June 26, 2002 (when they led their motion for
partial summary judgment) did not rectify the absence of the cause of action at the time of the
commencement of Civil Case No. 01-086. The motion for partial summary judgment, being a
mere application for relief other than by a pleading, 3 3 was not the same as the complaint in Civil
Case No. 01-086. Thereby, the petitioners did not meet the requirement of the Rules of Court that
a cause of action must exist at the commencement of an action, which is "commenced by the
filing of the original complaint in court." 3 4 .

The petitioners claim that the respondent's petition for certiorari sought only the
annulment of the assailed orders of the RTC ( i.e., granting the motion for partial
summary judgment and the motion for immediate execution); hence, the CA had no
right to direct the dismissal of Civil Case No. 01-086.
The claim of the petitioners cannot stand.
Although the respondent's petition for certiorari targeted only the RTC's orders
granting the motion for partial summary judgment and the motion for immediate
execution, the CA's directive for the dismissal of Civil Case No. 01-086 was not an
abuse of discretion, least of all grave, because such dismissal was the only proper thing
to be done under the circumstances. According to Surigao Mine Exploration Co., Inc. v.
Harris: 3 5
Subject to certain quali cation, and except as otherwise provided by law,
an action commenced before the cause of action has accrued is
prematurely brought and should be dismissed . The fact that the cause of
action accrues after the action is commenced and while the case is pending is of
no moment. It is a rule of law to which there is, perhaps no exception, either in law
or in equity, that to recover at all there must be some cause of action at the
commencement of the suit. There are reasons of public policy why there should
be no needless haste in bringing up litigation, and why people who are in no
default and against whom there is as yet no cause of action should not be
summoned before the public tribunals to answer complaints which are
groundless. An action prematurely brought is a groundless suit. Unless the
plaintiff has a valid and subsisting cause of action at the time his
action is commenced, the defect cannot be cured or remedied by the
acquisition or accrual of one while the action is pending , and a
supplemental complaint or an amendment setting up such after-accrued cause of
action is not permissible.

Lastly, the petitioners argue that the respondent's recourse of a special action
for certiorari was the wrong remedy, in view of the fact that the granting of the motion
for partial summary judgment constituted only an error of law correctible by appeal, not
of jurisdiction. EcDSHT

The argument of the petitioners is baseless. The RTC was guilty of an error of
jurisdiction, for it exceeded its jurisdiction by taking cognizance of the complaint that
was not based on an existing cause of action.
WHEREFORE , the petition for review on certiorari is denied for lack of merit.
We a rm the decision promulgated on March 4, 2003 in C.A.-G.R. SP No. 74156
entitled Lorenzo Shipping Corporation v. Hon. Artemio S. Tipon, in his capacity as
Presiding Judge of Branch 46 of the Regional Trial Court of Manila, et al.
Costs of suit to be paid by the petitioners.
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 SO ORDERED .
Carpio Morales, Brion, Villarama, Jr. and Sereno, JJ., concur.

Footnotes
1.Rollo, pp. 20-35; penned by Associate Justice Portia Aliño-Hormachuelos, with Associate
Justice Jose L. Sabio, Jr. (retired) and Associate Justice Amelita G. Tolentino
concurring.

2.Id., p. 127.
3.Id., p. 100.
4.Id., pp. 118-119.
5.Id., p. 120-124.
6.Id., pp. 151-152.

7.Already retired.
8.Rollo, pp. 91-93.
9.Id., p. 92.

10.Id., pp. 94-96.

11.Id., p. 97.

12.Id., pp. 20-35.

13.18 CJS, Corporations, §314, pp. 641-642.

14.Ibid.

15.Ballantine, Law of Corporations, Revised Edition, Callaghan and Co., Chicago, 1946, p. 603.
16.Id., p. 604.

17.Id., p. 605.

18.II Campos Jr., The Corporation Code, Comments, Notes and Selected Cases (1990).
19.Section 82, Corporation Code.

20.Ibid.
21.Id., Section 83.

22.Id., Section 86.

23.Id., Section 82.

24.Boman Environment Development Corporation v. Court of Appeals , G.R. No. L-77860,
November 22, 1988, 167 SCRA 540, 541; citing Steinberg v. Velasco, 52 Phil. 953 (1929).

According to 42A, Words and Phrases, Trust Fund Doctrine , p. 445, the "trust fund
doctrine" is a "rule that the property of a corporation is a trust fund for the payment of
creditors, but such property can be called a trust fund 'only by way of analogy or
metaphor.' As between the corporation itself and its creditors it is a simple debtor, and as
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 between its creditors and stockholders its assets are in equity a fund for the payment of
its debts" (citing McIver v. Young Hardware Co. , 57 S.E. 169, 171, 144 N.C. 478, 119 Am.
St. Rep. 970; Gallagher v. Asphalt Co. of America, 55 A. 259, 262, 65 N.J. Eq. 258).

25.Boman Environment Development Corporation v. Court of Appeals, supra.

26.Id.

27.Section 2, Rule 2, Rules of Court.

28.Rebollido v. Court of Appeals , G.R. No. 81123, February 28, 1989, 170 SCRA 800; Heirs of
Ildefonso Coscolluela v. Rico General Insurance Corporation , G.R. No. 84628, November
16, 1989, 179 SCRA 511; Nabus v. Court of Appeals , G.R. No. 91670, February 7, 1990,
193 SCRA 732; Mathay v. Consolidated Bank , G.R. No. L-23136, August 26, 1974, 58
SCRA 559; Leberman Realty Corporation v. Typingco , G.R. No. 126647, July 29, 1998,
293 SCRA 316.
29.Swagman Hotels and Travel, Inc. v. Court of Appeals , G.R. No. 161135, April 8, 2005, 455
SCRA 175.

30.Lao v. Court of Appeals, G.R. No. 47013, February 17, 2000, 325 SCRA 694.
31.Id.

32.Estrada v. Court of Appeals, G.R. No. 137862, November 11, 2004, 442 SCRA 117.

33.Section 1, Rule 15, Rules of Court.

34.Section 5, Rule 1, Rules of Court; A.G. Development Corporation v. Court of Appeals , G.R. No.
111662, October 23, 1997, 281 SCRA 155.

35.68 Phil 113 (1939).

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