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    94 - Reyes V Tan

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    mimiyuki_
    This case involves a corporation, Roxas-Kalaw Textile Mills, that had its dollar allocations for raw materials suspended by the Central Bank of the Philippines after it was discovered that the corporation had imported finished goods instead of raw materials. A minority shareholder, Justiniani, filed a derivative suit on behalf of the corporation for the appointment of a receiver and damages after the Board of Directors refused to take action against Dalamal, a co-manager who had interests in suppliers of the finished goods. The court held that Justiniani could maintain the derivative suit, as the importation of finished goods instead of raw materials and the failure of the Board to take action constituted a breach of trust justifying a suit

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    94 - Reyes V Tan

    Uploaded by

    mimiyuki_
    289 views2 pages
    This case involves a corporation, Roxas-Kalaw Textile Mills, that had its dollar allocations for raw materials suspended by the Central Bank of the Philippines after it was discovered that the corporation had imported finished goods instead of raw materials. A minority shareholder, Justiniani, filed a derivative suit on behalf of the corporation for the appointment of a receiver and damages after the Board of Directors refused to take action against Dalamal, a co-manager who had interests in suppliers of the finished goods. The court held that Justiniani could maintain the derivative suit, as the importation of finished goods instead of raw materials and the failure of the Board to take action constituted a breach of trust justifying a suit

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    94_Reyes v Tan

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    This case involves a corporation, Roxas-Kalaw Textile Mills, that had its dollar allocations for raw materials suspended by the Central Bank of the Philippines after it was discovered that the corporation had imported finished goods instead of raw materials. A minority shareholder, Justiniani, filed a derivative suit on behalf of the corporation for the appointment of a receiver and damages after the Board of Directors refused to take action against Dalamal, a co-manager who had interests in suppliers of the finished goods. The court held that Justiniani could maintain the derivative suit, as the importation of finished goods instead of raw materials and the failure of the Board to take action constituted a breach of trust justifying a suit

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    289 views2 pages

    94 - Reyes V Tan

    Uploaded by

    mimiyuki_
    This case involves a corporation, Roxas-Kalaw Textile Mills, that had its dollar allocations for raw materials suspended by the Central Bank of the Philippines after it was discovered that the corporation had imported finished goods instead of raw materials. A minority shareholder, Justiniani, filed a derivative suit on behalf of the corporation for the appointment of a receiver and damages after the Board of Directors refused to take action against Dalamal, a co-manager who had interests in suppliers of the finished goods. The court held that Justiniani could maintain the derivative suit, as the importation of finished goods instead of raw materials and the failure of the Board to take action constituted a breach of trust justifying a suit

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Reyes v.

    Tan
    September 30, 1961
    Labrador, Jr., J.

    FACTS: Several purchases were made by Roxas-Kalaw Textile Mills in New York for
    raw materials but were found out to consist of already finished product for which
    reason the Central Bank of the Philippines stopped all dollar allocations for raw
    materials for the corporation which necessarily led to the paralysis of the operations. It
    was alleged that the supplier of the said finished goods was United Commercial
    Company of New York in which Dalamal, appointed by the BOD of the Textile Mills as
    co-manager, had interests and that the letter of credit for said goods were guaranteed
    by the Indian Commercial Company and Indian Traders in which Dalamal likewise has
    interests. It was further alleged that the sale of the finished products was the business of
    Indian Commercial Company of Manila who cannot obtain dollar allocations for
    importations of finished goods.

    An action for the appointment of a receiver was filed before the trial court after the BOD
    refused to proceed against Dalamal, which was granted.

    ISSUE: WON Justiniani may be allowed to institute the case for receivership and
    damages?

    HELD: Yes. It is not denied by petitioner that the allocation of dollars to the corporation
    for the importation of raw materials was suspended. In the eyes of the court below, as
    well as in our own, the importation of textiles instead of raw materials, as well as the
    failure of the Board of Directors to take action against those directly responsible for the
    misuse of dollar allocations constitute fraud, or consent thereto on the part of the
    directors. Therefore, a breach of trust was committed which justified the derivative suit
    by a minority stockholder on behalf 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. An
    illustration of a suit of this kind is found in the case of Pascual vs. Del Saz 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 contended, could have been avoided if the
    president and directors had been more vigilant in the administration of the affairs of the
    bank. The stockholders 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 could properly be
    maintained.” (64 Phil., Angeles vs. Santos [G.R. No. L-43413, prom. August 31, 1937] p.
    697).

    The claim that respondent Justiniani did not take steps to remedy the illegal
    importation for a period of two years is also without merit. During that period of time
    respondent had the right to assume and expect that the directors would remedy the
    anomalous situation of the corporation brought about by their own wrong doing. Only
    after such period of time had elapsed could respondent conclude that the directors were
    remiss in their duty to protect the corporation property and business.

    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.

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