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FINANCING CORP v. TEODORO
August 31, 1953
Montemayor, J
Luciano, Noel Christian O.
SUMMARY: Three minority stockholders, in their own behalf and in
behalf of other minority stockholders of Financing Corp. of the
Philippines, filed a complaint against the corporation and its President
and Gen. Manager, Amado Araneta, claiming gross mismanagement
and fraudulent conduct of corporate affairs. They prayed for the
dissolution of the corporation and the appointment of a receiver
pendente lite. The trial court appointed a receiver despite strong
objections from the defendants. The Corporation and Araneta went to
the SC on certiorari claiming that the minority stockholders have no
personality to maintain the action for dissolution since it can only be
brought by the Government via quo warranto; since the principal
remedy has no basis, then it follows that the auxiliary remedy of
appointment of a receiver pendente lite must also be without basis.
The Supreme Court held that in cases like this, where the State has no
interest since the acts complained of does not constitute a proper quo
warranto proceedings, stockholders may maintain an action for
dissolution. Thus, since the trial court had jurisdiction, the grant of the
prayer for the appointment of a receiver pendente lite is left to his
sound discretion. The SC also held that from the allegations of the
complaint, the trial court did not abuse its discretion in appointing a
receiver pendente lite.
DOCTRINE: As a GENERAL RULE, minority stockholders CANNOT sue
and demand a corporation’s dissolution. Such action should be
brought by the Government through its legal officer in a quo warranto
case, at their instance and request
However, there are cases that hold that such minority members,
if unable to obtain redress and protection of their rights within the
corporation, must not and should not be left without redress and
remedy. THUS, there might be exceptional cases wherein the
intervention of the State, for one reason or another, cannot be
obtained as when he State is not interested because the complaint is
strictly a matter between the stockholders and does not involve, in the
opinion of the Government, any of the acts/omissions warranting quo
warranto proceedings. It is in these cases where minority
stockholders are entitled to have such dissolution
When such action or private suit is brought by them, trial court
had jurisdiction and may or may not grant the prayer; suubject to
review by appellate tribunal. Having such jurisdiction, the
appointment of a receiver pendente lite is left to the sound discretion
of the trial court.
FACTS: Asuncion Lopez Vda. De Lizares, Encarnacion Lizares Vda. De
Panlilio, and Efigenia Vda. De Paredes, in their own behalf, and in behalf
of other MINORITY STOCKHOLDERS of Financing Corporation
Philippines (FCP), filed a complaint against the corporation and J.
Amado Araneta (Pres. And Manager) claiming Gross mismanagement
and fraudulent conduct of corporate affairs. They are seeking:
1. The dissolution of the corporation
2. That Araneta:
a. Be declared personally accountable for the amounts of the
unauthorized and fraudulent disbursements and
disposition of assets made by him
(1) For the specific acts of fraud, see Ratio.
b. Be required to account for said assets
3. They also request that pending trial and disposition on the
merits, a receiver be appointed to take possession of the books,
records, and assets of FCP preparatory to dissolution and
liquidation
RTC DECISION: (Not on the merits but on the appointment of receiver)
The trial court presided by Judge Teodoro granted the petition
for appointment of receiver and designated Alfredo Yulo as the receiver
with a bond of P50,000.
It also denied the subsequent MR filed by defendants
PETITION BY FCP AND ARANETA: They filed a petition for certiorari
with preliminary injunction to revoke the RTC order. They argue:
1. The appointment is merely an auxiliary remedy
a. The principal remedy sought was the dissolution of the
FCO

2. According to law, a suit for dissolution of a corporation can be
brought and maintained only by the State through its legal
counsel
a. Respondents, being only minority stockholders, have no
right or personality to maintain the action for dissolution
3. Since there is no basis for the principal remedy sought, the
auxiliary remedy must also fail.
ISSUE: Whether the minority stockholders have personality to maintain
the action for dissolution.
HELD: YES! This case falls under the exception.
I. Concepts
A. As a GENERAL RULE, minority stockholders CANNOT sue
and demand a corporation’s dissolution
1. Such action should be brought by the Government
through its legal officer in a quo warranto case, at their
instance and request
B. However, there are cases that hold that such minority
members, if unable to obtain redress and protection of
their rights within the corporation, must not and should
not be left without redress and remedy
1. Hall v. Judge Piccio
a. Even the existence of a de jure corporation may be
terminated in a private suit for its dissolution by
stockholders without the intervention of the State
b. There might be some room for argument on the
right of minority stockholders to ask for
dissolution
C. THUS, there might be exceptional cases wherein the
intervention of the State, for one reason or another, cannot
be obtained
1. As when he State is not interested because the
complaint is strictly a matter between the stockholders
and does not involve, in the opinion of the
Government, any of the acts/omissions warranting quo
warranto proceedings
2. It is in these cases where minority stockholders are
entitled to have such dissolution
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3. When such action or private suit is brought by them,
trial court had jurisdiction and may or may not grant
the prayer
a. Subject to review by appellate tribunal
b. Having such jurisdiction, the appointment of a
receiver pendente lite is left to the sound
discretion of the trial court
II. Applying the concepts to the case at bar
A. Allegations of mismanagement and misconduct by the
President and General manager were made, specially in
connection with the petition for appointment of receiver.
According to the complaint:
1. There is imminent danger of insolvency
2. There are acts of fraud and mismanagement such as:
a. Diversion of corporate purposes and use for the
personal benefit of Araneta
b. Unauthorized and profitless pledging of securities
owned by FCP to secure obligations of another
corporation controlled by Araneta
c. Unauthorized and profitless using of the name of
FCP in the shipping of sugar belonging to
corporations controlled by Araneta
d. Refusal of Araneta to endorse to FCP shares of
stock and other securities belonging to it but
which are still in his name
e. Negligent failure to endorse other shares of stock
and securities belonging to FCP but still in the
names of vendors
f. Illegal and unauthorized transfer and deposit in
the USA of over 6M shares of Atok-Big Wedge
Company
3. There are also violations of the Corporation Law
a. Refusal to allow minority stockholders to examine
boks
b. Failure to call meetings
c. Virtual disregard and ignoring the BOD; Araneta
has been conducting the affairs of the corporation
to his personal benefit
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d. Irregularity in the keeping and errors and

omission in the books
4. It was also alleged:
a. Failure to achieve the fundamental purpose of the
corporation
b. Since Aranate is in total control, there is danger
that the remaining assets be dissipated
c. Best means to protect and preserve the assets is
the appointment of receiver

B. In conclusion, the SC held that the trial court had

jurisdiction over the case and had jurisdiction to appoint
the receiver pendente lite
1. Considering further the allegations of the complaint,
Judge Teodoro did not abuse his discretion in
appointing the receiver.

DISPOSITIVE: Petition for certiorari denied.