TURNER Vs Lorenzo Shipping Corp

TURNER vs. LORENZO SHIPPING CORP.
FACTS: Petitioners held 1,010,000 shares of stock of the respondent, a domestic corporation engaged primarily in cargo
shipping activities. Respondent decided to amend its AOI to remove the stockholders’ pre-emptive rights to newly issued
shares of stock. Petitioners voted against the amendment and demanded payment of their shares at the rate of ₱2.276/share
based on the book value of the shares, or a total of ₱2,298,760.00. 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 ₱0.41/share (or a total of ₱414,100.00), considering that its shares were
listed in the PSE and that the payment could be made only if the respondent had URE in its books to cover the value of the
shares, which was not the case. The disagreement on the valuation of the shares led the parties to constitute an appraisal
committee. The appraisal committee reported its valuation of ₱2.54/share, for an aggregate value of ₱2,565,400.00 for the
petitioners. Subsequently, 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. However, 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 URE to cover the fair value of the shares, but that it had no retained earnings at the time of the
petitioners’ demand. Upon the respondent’s refusal to pay, petitioners sued the respondent for collection and damages in
the RTC in Makati City.
ISSUE: Whether or not the Corporation has URE at the time the demand for payment?
HELD: The Court ruled that there were no URE when the Turners filed their Complaint. 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 fiscal
year 1999 shows that its retained earnings ending December 31, 1999 was at a deficit in the amount of ₱72,973,114.00, 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 filed their Complaint on January 22, 2001,
albeit their appraisal right already existed.
On the other hand, the prescriptive period is to be reckoned from the accrual of their right of action. Clearly, the right of
appraisal may be exercised when there is a fundamental change in the charter or AOI substantially prejudicing the rights
of the stockholders. In this case, petitioners’ cause of action was premature. Respondent had indisputably no URE in its
books at the time the petitioners commenced civil case thereby proved that the respondent’s legal obligation to pay the
value of the petitioners’ shares did not yet arise. Furthermore, a cause of action is the act or omission by which a party
violates a right of another. 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. Although the first 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. Hence, Sec. 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 was dismissible from the beginning for being without any
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. For, only
when there is an invasion of primary rights, not before, does the adjective or remedial law become operative. Verily, a
premature invocation of the court’s intervention renders the complaint without a cause of action and dismissible on such
ground. In short, civil Case being a groundless suit, should be dismissed.
Doctrine: An action commenced before the cause of action has accrued is prematurely brought and should be dismissed.
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.

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