TURNER VS. LORENZO SHIPPING CORP.

FACTS: The petitioners held shares of stock of the respondent, a domestic corporation engaged in cargo shipping activities. In June 1999, the respondent 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 petitioners voted against the amendment and demanded payment of their shares 


Because of the disagreement on the valuation of the shares, the parties constituted an appraisal committee. Petitioners then demanded for payment in accordance with the valuation of the committee but the respondent refused the petitioners’ 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 


Upon the respondent’s refusal to pay, the petitioners sued the respondent for collection and damages in the RTC. The respondent opposed the motion for partial summary judgment, stating that the determination of the unrestricted retained earnings should be made at the end of the fiscal year of the respondent, and that the petitioners did not have a cause of action against the respondent.

The evidence submitted by plaintiffs shows that in its quarterly financial statement it submitted to the Securities and Exchange Commission, the defendant has retained earnings. This is not disputed by the defendant. Its only argument against paying is that there must be unrestricted retained earnings at the time the demand for payment is made.

ISSUE: Whether the CA correctly concluded that the RTC had exceeded its jurisdiction in entertaining the petitioners’ complaint and in rendering the summary judgment and issuing writ of execution.

HELD:  Yes. The cause of action was premature. The reckoning period is at the time when the case is filed. Section 1, Rule 2, of the Rules of Court requires that every ordinary civil action must be based on a cause of action. The RTC concluded that the respondent’s obligation to pay had accrued by its having the unrestricted retained earnings after the making of the demand by the petitioners. It based its conclusion on the fact that the Corporation Code did not provide that the unrestricted retained earnings must already exist at the time of the demand. First, in order to give rise to any obligation to pay on the part of the respondent, the petitioners should first make a valid demand that the respondent refused to pay despite having unrestricted retained earnings. Otherwise, the respondent could not be said to be guilty of any actionable omission that could sustain their action to collect.

Lastly, unless the plaintiff has a valid and subsisting cause of action at the time his action is commenced, the defect cannot be cured or remedied by the acquisition or accrual of one while the action is pending, and a supplemental complaint or an amendment setting up such after-accrued cause of action is not permissible.