Legaspi Towers 300, Inc. v. Amelia P. Muer, G.R. No. 170783, June 18, 2012

FACTS: Petitioners Palance, Domingo, and Vincent, as Board of Directors, set the annual meeting of the members of the condominium corporation and election of the new Board of Directors for year 2004-2005. Quorum was not constituted, prompting petitioners to have the meeting adjourned.

Respondents challenged the adjournment and the same pushed through with the scheduled election and were elected as the new Board of Directors and officers of Legaspi Towers.

Respondents said that the election was conducted lawfully evidenced by Report of SEC Counsel. Stated in the Report is that there is an objection to the postponement of election, but the Board moved for adjournment, causing the objection to be ignored. When the Board adjourned, the unit owners who objected gathered themselves at the same place of the meeting and proceeded with the meeting. The attendance was checked from among the members who stayed. Proxies were counted and there was a declaration of Quorum. Thereafter, newly-elected members of the Board of Directors for the years 2004-2005 were named, and the same assumed office.

Petitioner would like to implead Legaspi Towers as party-plaintiff, intended as a direct suit by corporation joined in by petitioners to protect and enforce their rights.

RTC denied, subsequently, CA also denied, saying that the case is not one of derivative suit and that Legaspi Towers cannot be included as party-plaintiff when defendants are members thereof too like plaintiff, and that both parties are acting in their personal capacities as both claimed to be the lawful board of directors.

ISSUE: WON the case is one of derivative suit?

RULING:  No. The complaint for nullification of the election is a direct action by petitioners who were members of the Board before the election.

The court held that, since it is the corporation that is the real party-in-interest in a derivative suit, then the reliefs prayed for must be for the benefit or interest of the corporation. When the reliefs prayed for do not pertain to the corporation, then it is an improper derivative suit. The requisites for a derivative suit are as follows: a) the party bringing suit should be a shareholder as of the time of the act or transaction complained of, the number of his shares not being material; b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for the appropriate relief but the latter has failed or refused to heed his plea; and c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being caused to the corporation and not to the particular stockholder bringing the suit.

In this case, petitioners, as members of the Board of Directors of the condominium corporation before the election in question, filed a complaint against the newly-elected members of the Board of Directors for the years 2004-2005, questioning the validity of the election held on April 2, 2004, as it was allegedly marred by lack of quorum, and praying for the nullification of the said election.

Hence, the complaint for nullification of the election is a direct action by petitioners, who were the members of the Board of Directors of the corporation before the election, against respondents, who are the newly-elected Board of Directors. Under the circumstances, the derivative suit filed by petitioners in behalf of the condominium corporation in the Second Amended Complaint is improper.

The stockholder’s right to file a derivative suit is not based on any express provision of The Corporation Code, but is impliedly recognized when the law makes corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties, which is not the issue in this case.

Ching v. Subic Bay Golf and Country Club, Inc., G.R. No. 174353, September 10, 2014

FACTS: Petitioner Ching and Wellington filed a Complaint with the RTC on behalf of the members of Subic Bay Golf and Country Club, (SBGCCI) against the said country club and its Board of Directors and officers. SBGSI is a corporation composed of shareholders of the defendant corporation who was also names as plaintiff. The President, treasurer, corporate secretary and directors were named as defendants.

The petitioners claimed that the defendant corporation initially promised them a pro rata share of the club's assets upon dissolution. However, the corporation later changed its rules without informing the petitioners, stating that shareholders no longer have any ownership rights over the club's properties. The petitioners argue that this change deprives them of the right to a fair distribution of assets when the corporation dissolves.

RTC dismissed the complaint saying that the action is a derivative suit finding that this case is intended not only for the benefit of the two petitioners.

Elevated to CA which affirmed RTC. Petitioners argued that the complaint they filed was not a derivative suit, but as a stockholder against the officers and BOD of the corporation.

ISSUE: WON the complaint filed is not a derivative suit.

HELD: NO. The Court finds the case as a derivative suit.

The nature of an action, as well as which court has jurisdiction over it is determined based on the allegations contained in the complaint of the plaintiff. 

In cases of mismanagement where the wrongful acts are committed by the directors or trustees themselves, a stockholder or member may find that he has no redress because the former are vested by law with the right to decide whether or not the corporation should sue, and they will never be willing to sue themselves. The corporation would thus be helpless to seek remedy. Because of the frequent occurrence of such a situation, the common law gradually recognized the right of a stockholder to sue on behalf of a corporation in what eventually became known as a "derivative suit."

Here, the reliefs sought in the Complaint, namely that of enjoining defendants from acting as officers and Board of Directors of the corporation, the appointment of a receiver, and the prayer for damages in the amount of the decrease in the value of the shares of stock, clearly show that the Complaint was filed to curb the alleged mismanagement of SBGCCI. The causes of action pleaded by petitioners do not accrue to a single shareholder or a class of shareholders but to the corporation itself.

Section 1, Rule 8 of the Interim Rules of Procedure Governing IntraCorporate Controversies imposes the following requirements for derivative suits:

(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed;

(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires;

(3) No appraisal rights are available for the act or acts complained of; and

(4) The suit is not a nuisance or harassment suit.

The RTC dismissed the Complaint for failure to comply with the second and fourth requisites above.

WHEREFORE, the Petition for Review is hereby DENIED. RTC AFFIRMED.

Florete, Jr. v. Florete, GR.No.174909, January 20, 2016

FACTS: The case involves a dispute related to shares of People's Broadcasting Service, Inc. (People's Broadcasting), a private corporation in the Philippines. The dispute centers on the movement and ownership of shares among different parties, including family members and corporations. The Marcelino, Jr. Group, Petitioners, filed a complaint against the Rogelio, Sr. Group, Respondent, alleging irregularities in the issuance, transfers, and sale of People's Broadcasting shares. The Regional Trial Court initially dismissed the complaint, finding that the Marcelino, Jr. Group did not have a cause of action against the Rogelio, Sr. Group. The Regional Trial Court also awarded significant damages to Rogelio, Sr. in his counterclaim. The Court of Appeals upheld the dismissal of the complaint and the award of damages to Rogelio, Sr., emphasizing that essential parties were not included in the case. The Court of Appeals also noted that the Marcelino, Jr. Group was aware of the matters in question but did not act on them for an extended period.

ISSUE: WON the case filed is a Derivative Suit.

HELD: YES. A stockholder suing on account of wrongful or fraudulent corporate actions (undertaken through directors, associates, officers, or other persons) may sue in any of three (3) capacities: as an individual; as part of a group or specific class of stockholders; or as a representative of the corporation.

Villamor further explained that a derivative suit "is an action filed by stockholders to enforce a corporate action." A derivative suit, therefore, concerns "a wrong to the corporation itself." The real party in interest is the corporation, not the stockholders filing the suit. The stockholders are technically nominal parties but are nonetheless the active persons who pursue the action for and on behalf of the corporation.

The distinction between individual and class/representative suits on one hand and derivative suits on the other is crucial. These are not discretionary alternatives. The fact that stockholders suffer from a wrong done to or involving a corporation does not vest in them a sweeping license to sue in their own capacity. The recognition of derivative suits as a vehicle for redress distinct from individual and representative suits is an acknowledgment that certain wrongs may be addressed only through acts brought for the corporation:

In this case, the Marcelino, Jr. Group anchored their Complaint on violations of and liabilities arising from the Corporation Code, specifically: Section 23 (on corporate decision-making being vested in the board of directors), Section 25 (quorum requirement for the transaction of corporate business), Sections 39 and 102 (both on stockholders’ pre-emptive rights), Section 62 (stipulating the consideration for which stocks must be issued), Section 63 (stipulating that no transfer of shares "shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation"), and Section 65 (on liabilities of directors and officers "to the corporation and its creditors" for the issuance of watered stocks) in relation to provisions in People’s Broadcasting’s Articles of Incorporation and By-Laws as regards conditions for issuances of and subscription to shares. The Marcelino, Jr. Group ultimately prays that People’s Broadcasting’s entire capital structure be reconfigured to reflect a status quo ante.

As with Ching and Wellington, the actions being assailed by the Marcelino, Jr. Group pertain to parties that are not extraneous to People’s Broadcasting. They assail and seek to nullify acts taken by various iterations of People’s Broadcasting’s Board of Directors. All these acts and incidents concern the capital structure of People’s Broadcasting. These acts reconfigured, through redistribution and enlargement, the structure of People’s Broadcasting’s equity ownership. These acts also admitted into People’s Broadcasting new equity holders such as Consolidated Broadcasting System, Inc. and Newsounds Broadcasting Network, Inc.