G.R. No. 150283, 16 April 2008

FACTS:

In 1983, petitioner, Ryuichi Yamamoto (Yamamoto), a Japanese national, organized underPhilippine laws Wako Enterprises Manila, Incorporated (WAKO), a corporation engaged principallyin leather tanning, now known as Nishino Leather Industries, Inc. (NLII), one of herein respondents.

In 1987, Yamamoto and the other respondent, Ikuo Nishino (Nishino), also a Japanese national, forged a Memorandum of Agreement under which they agreed to enter into a joint venture wherein Nishino would acquire such number of shares of stock equivalent to 70% of the authorized capital stock of WAKO.

Eventually, Nishino and his brother1 Yoshinobu Nishino (Yoshinobu) acquired more than 70% of the authorized capital stock of WAKO, reducing Yamamoto’s investment therein to, by his claim, 10%,2 less than 10% according to Nishino. The corporate name of WAKO was later changed to, as reflected earlier, its current name NLII.

Negotiations subsequently ensued in light of a planned takeover of NLII by Nishino who would
buy-out the shares of stock of Yamamoto. In the course of the negotiations, Yoshinobu andNishino’s counsel Atty. Emmanuel G. Doce (Atty. Doce) advised Yamamoto by letter dated October 30, 1991, the pertinent portions of which follow:

Hereunder is a simple memorandum of the subject matters discussed with me by Mr. Yoshinobu Nishino yesterday, October 29th, based on the letter of Mr. Ikuo Nishino from Japan, and whichI am now transmitting to you.

Yamamoto attempted to recover the machineries and equipment which were part of his investment in the corporation, but he was frustrated by respondents, drawing Yamamoto to file a complaint against them for replevin afterwhich the court granted after filing a bond.

Respondents claimed that the machineries and equipment subject of replevin form part of Yamamoto’s capital contributions in consideration of his equity and should thus be treated as corporate property and that the above letter was merely a proposal which was yet to be authorized by the stockholders and BODs of NLII.

ISSUE:

Whether the properties invested by Yamamoto are still his.

RULING:

The machineries and equipment, which comprised Yamamoto’s investment in NLII, thus
remained part of the capital property of the corporation.

It is settled that the property of a corporation is not the property of its stockholders ormembers. Under the trust fund doctrine, the capital stock, property, and other assets of acorporation are regarded as equity in trust for the payment of corporate creditors which arepreferred over the stockholders in the distribution of corporate assets. The distribution ofcorporate assets and property cannot be made to depend on the whims and caprices of thestockholders, officers, or directors of the corporation unless the indispensable conditions andprocedures for the protection of corporate creditors are followed.

*Case Digest by Jhazel Zhan Jebone, JD-4, Andres Bonifacio Law School, SY 2019-2020