Turner v. Lorenzo Shipping Corporation

G.R. No. 157479, 24 November 2010

FACTS:

Philip Turner and Elnora Turner (the Turners) held 1,010,000 shares of stock of Lorenzo Shipping Corp. (LSC). LSC 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 Turners voted against the amendment and demanded payment of their shares. LSC found the fair value of the shares demanded by the Turners unacceptable. The disagreement on the valuation of the shares led the parties to constitute an appraisal committee pursuant to Section 82 of the Corporation Code.

Subsequently, the Turners 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. LSC however refused the Turners 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 deficit of P72,973,114.00 as of December 31, 1999. Upon the LSC’s refusal to pay, the Turners sued the latter for collection and damages (Civil Case No. 01-086) in the Regional Trial Court (RTC).

Thereafter, the Turners filed their motion for partial summary judgment which was opposed by LSC.

ISSUE:

Whether or Not dissenting stockholders can recover the value of their shareholding.

RULING:

NO. 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:

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.

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. It serves the purpose of enabling the dissenting stockholder to have his interests purchased and to retire from the corporation.

*Case Digest by Lowel Dave D. Manuel, JD-4, Andres Bonifacio Law School, S.Y. 2019-2020

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