#3angeles Vs Santos

Angeles vs Santos, 64 Phil.
697 (1937)
Theory of Shareholder-Delegated Powers
FACTS:
 Petitioners and Respondents are all stockholders of Paranaque Rice Mill Inc. constituting the minority and majority of
the board of directors respectively.
 They held an extraordinary board meeting on February 21, 1932 to which they appointed an investigation committee to
investigate and determine the properties, operations, and losses of the corporation as shown in the auditor's report
corresponding to the year 1932.
 Plaintiff Jose de Lara was the chairman and the stockholders Dionisio Tomas and Aguedo Bernabe were appointed
members of the said investigation committee.
 But the defendants, particularly Teodorico B. Santos, who was the president of the corporation, denied access to the
properties, books and record of the corporation which were in their possession. Santos had taken possession of the
books, vouchers, and corporate records as well as of the funds and income of the Parañaque Rice Mill, Inc.,which is in
violation of the corporation’s by-laws because, according to the by-laws, such documents should be under the exclusive
control and possession of the secretary-treasurer, the plaintiff Aguedo Bernabe.
 Teodorico B. Santos also allegedly committed the following:

1. Appropriated to his own benefit properties, funds, and income of the corporation in the sum of
P10,000;
2. Refuse to sign and issue the corresponding certificate of stock for the 600 fully paid-up share of
the plaintiff, Higinio Angeles, of the total value of P15,000;
3. Refuse to call a meeting of the board of directors and of the stockholers notwithstanding
written requests made by 3 stockholders which comprise 2/3 of the shares
4. Refused to hold ordinary monthly meetings of the board since March, 1932;
5. He connivance with his co-defendants, he was disposing of the properties and records of the
corporation without authority from the board of directors or the stockholders of the
corporation and without making any report of his acts to the said board of directors or to any
other officer of the corporation, and that, to prevent any interference with or examination of his
arbitrary acts, he arbitrarily suspended plaintiff Jose de Lara from the office of general manager
to which office the latter had been lawfully elected by the stockholders;
 The company’s income for the first half of year 1932 amounting to PhP 4,000.00 might disappear due to the illegal
acts of Santos.
 The court issued an order of receivership appointing Melchor de Lara then later on appointed Emilio Figueroa, as
receiver of the corporation.
 Defendants assert that the Parañaque Rice Mill, Inc., is a necessary party in this case, and that not having been
made a party, the trial court was without jurisdiction to appoint a receiver and should have dismissed the case.
ISSUE:
Whether or not the Paranaque Rice Mill Inc is a necessary party to the case.
HELD:
No.
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 stockholers. An illustration of a suit of this kind is found
in the case of Pascual vs. Del Sanz Orozco (19 Phil., 82), decided by this court as early as 1911. In that case, the Banco
Español-Filipino suffered heavy losses due to fraudulent connivance between a depositor and an employee of the bank,
which losses, it was contened, could have been avoided if the president and directors has been more vigilant in the
administration of the affairs of the bank. The stockholers constituting the minority brought a suit in behalf of the bank
against the directors to recover damages, and this over the objection of the majority of the stockholders and the
directors. This court held that the suit properly be maintained.
There is ample evidence in the present case to show that the defendants have been guilty of breach of trust as
directors of the corporation and the lower court so found. 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 intra-corporate
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. Where a majority of the board of directors wastes or dissipates the funds of the corporation or
fraudulently disposes of its properties, or performs ultra vires acts, the court, in the exercise of its equity jurisdiction,
and upon showing that intra-corporate remedy is unavailing, will entertain a suit filed by the minority members of the
board of directors, for and in behalf of the corporation, to prevent waste and dissipation and the commission of illegal
acts and otherwise redress the injuries of the minority stockholders against the wrongdoing of the majority. The action
in such a case is said to be brought derivatively in behalf of the corporation to protect the rights of the minority
stockholders thereof.
The contention of the defendants in the case at bar that the Parañaque Rice Mill, Inc., should have been brought in
as necessary party and the action maintained in its name and in its behalf directly states the general rule, but not the exception
recognize by this court in the case of Everrett vs. Asia Banking Corporation (49 Phil., 512, 527). In that case, upon invocation of
the general rule by the appellees there, this court said:
Invoking the well-known rule that shareholders cannot ordinarily sue in equity to redress wrong done to the
corporation, but that the action must be brought by the board of directors, the appellees argue — and the court below held —
that the corporation Teal & Company is a necessary party plaintiff and that the plaintiff stockholder, not having made any
demand on the board to bring the action, are not the proper parties plaintiff. But, like most rules, the rule in question has its
exceptions. It is alleged in the complaint and, consequently, admitted through the demurrer that the corporation Teal &
Company is under the complete control of the principal defendants in the case, and, in these circumstances it is obvious that a
demand upon the board of directors to institute action and prosecute the same effectively would have been useless, and the law
does not require litigants to perform useless acts.

#3angeles Vs Santos

Uploaded by

Copyright:

Available Formats

#3angeles Vs Santos

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

#3angeles Vs Santos

Uploaded by

Copyright:

Available Formats

Angeles vs Santos, 64 Phil.

 Teodorico B. Santos also allegedly committed the following:

You might also like