WESTERN INSTITUTE VS SALAS GR NO.

113032 AUG 21, 1997

FACTS:
Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja,
Antonio S. Salas, and Richard S. Salas, belonging to the same family, are the majority
and controlling members of the Board of Trustees of Western Institute of Technology,
Inc., a stock corporation engaged in the operation of an educational institution.

According to petitioners, the minority stockholders of WIT, a Special Board Meeting was
held wherein the BOT passed Resolution No. 48, s. 1986, granting monthly
compensation to the private respondents as corporate officers retroactive June 1, 1985.

A few years later Homero Villasis, Prestod Villasis, Reginald Villasis and Dimas
Enriquez filed an affidavit-complaint against respondents before the Office of the City
Prosecutor of Iloilo, as a result of which two separate criminal informations, one for
falsification of a public document under Article 171 of the Revised Penal Code and the
other for estafa under Article 315, par. 1(b) of the RPC, were filed before the RTC. The
RTC handed down a verdict of acquittal on both counts.

Petitioners filed a Motion for Reconsideration of the civil aspect of the RTC Decision
which was, however, denied. Hence, this instant petition for certiorari.

Petitioners assert that the instant case is a derivative suit brought by them as minority
shareholders of WIT for and on behalf of the corporation to annul Resolution No. 48, s.
1986 which is prejudicial to the corporation.

ISSUE: W/N the case filed by petitioners as minority stockholders of WIT is a derivative
suit.

HELD: No.

A derivative suit is an action brought by minority shareholders in the name of the

corporation to redress wrongs committed against it, for which the directors refuse to
sue. It is a remedy designed by equity and has been the principal defense of the
minority shareholders against abuses by the majority.

Here, however, the case is not a derivative suit but is merely an appeal on the civil
aspect of Criminal Cases Nos. 37097 and 37098 filed with the RTC of Iloilo for estafa
and falsification of public document.

Among the basic requirements for a derivative suit to prosper is that the minority
shareholder who is suing for and on behalf of the corporation must allege in his
complaint before the proper forum that he is suing on a derivative cause of action on
behalf of the corporation and all other shareholders similarly situated who wish to join.
This is necessary to vest jurisdiction upon the tribunal in line with the rule that it is the
allegations in the complaint that vests jurisdiction upon the court or quasi-judicial body
concerned over the subject matter and nature of the action. This was not complied with
by the petitioners either in their complaint before the court a quo nor in the instant
petition which, in part, merely states that "this is a petition for review on certiorari on
pure questions of law to set aside a portion of the RTC decision in Criminal Cases Nos.
37097 and 37098" since the trial court's judgment of acquittal failed to impose any civil
liability against the private respondents. By no amount of equity considerations, if at all
deserved, can a mere appeal on the civil aspect of a criminal case be treated as a
derivative suit.

VILLAMOR VS UMALE G R NO. 172843-172881 SEPT 24, 2014

FACTS:

Pasig Printing Corporation (PPC) obtained an option to lease portions of MidPasig’s

property, including the Rockland area. PPC’s board of directors issued a
resolution waiving all its rights, interests, and participation in the option to lease contract
in favor of the law firm of Atty. Alfredo Villamor, Jr., petitioner in G.R. No. 172843. PPC,
represented by Villamor, entered into a MOA with MC Home Depot. Under the MOA,
MC Home Depot would continue to occupy the area as PPC’s sublessee.

In compliance with the terms of the MOA, MC Home Depot issued 20 post-dated checks
representing rental payments for one year and the goodwill money. The checks were
given to Villamor who did not turn these to PPC. Hernando Balmores, respondent in
G.R. No. 172843 and G.R. No. 172881 and a stockholder and director of PPC informed
the PPC’s directors, petitioners in G.R. No. 172881, that Villamor should be made to
deliver to PPC and account for MC Home Depot’s checks or their equivalent value.

Due to the alleged inaction of the directors, respondent Balmores filed with the RTC an
intra-corporate controversy complaint against petitioners for their alleged devices or
schemes amounting to fraud or misrepresentation "detrimental to the interest of the
corporation and its stockholders. Balmores prayed that a receiver be appointed from his
list of nominees.

The RTC denied Balmores’ prayer for the appointment of a receiver or the creation of a
management committee. Balmores filed with the CA a petition for certiorari under Rule
65. The CA reversed the trial court’s decision, and issued a new order placing PPC
under receivership and creating an interim management committee.

The CA ruled that the case filed by Balmores with the trial court was a derivative suit
because there were allegations of fraud or ultra vires acts by PPC directors; that the trial
court abandoned its duty to the stockholders in a derivative suit when it refused to
appoint a receiver or create a management committee, all during the pendency of the
proceedings.

Petitioners filed separate motions for reconsideration but were denied by the CA.
Hence, petitioners filed separate petitions for review under Rule 45.
ISSUE: W/N the action filed by Balmores was a derivative suit.

HELD: No.

A derivative suit is an action filed by stockholders to enforce a corporate action. It is an

exception to the general rule that the corporation’s power to sue is exercised only by the
board of directors or trustees. Individual stockholders may be allowed to sue on behalf
of the corporation whenever the directors or officers of the corporation refuse to sue to
vindicate the rights of the corporation or are the ones to be sued and are in control of
the corporation. It is allowed when the "directors or officers are guilty of breach of trust,
not of mere error of judgment.” In derivative suits, the real party in interest is the
corporation, and the suing stockholder is a mere nominal party.

The Court has recognized that a stockholder’s right to institute a derivative suit is not
based on any express provision of the Corporation Code, or even the Securities
Regulation Code, but is impliedly recognized when the said laws make corporate
directors or officers liable for damages suffered by the corporation and its stockholders
for violation of their fiduciary duties. In effect, the suit is an action for specific
performance of an obligation, owed by the corporation to the stockholders, to assist its
rights of action when the corporation has been put in default by the wrongful refusal of
the directors or management to adopt suitable measures for its protection.

The following are the requisites for filing a derivative suit:

(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 fifth requisite for filing derivative suits, while not included in the enumeration, is
implied in the first paragraph of Rule 8, Section 1 of the Interim Rules: The action
brought by the stockholder or member must be "in the name of the corporation or
association" This requirement has already been settled in jurisprudence.

CHING VS SUBIC BAY GOLF AND COUNTRY CLUB GR NO. 174353 SEPT 10, 2014

FACTS:

Petitioners Nestor Ching and Andrew Wellington own stocks of the Subic Bay Golf and
Country Club, Inc.(SBGCCI). On June 27, 1996, SEC approved amendments to
SBGCCI Articles of Incorporation which the petitioners allege make their shares non-
proprietary. Petitioners allege that this change was made without the appropriate
disclosure of SBGCCI to its shareholders. Furthermore, petitioners allege several
instances of fraud committed by SBGCCI’s board of directors in its complaint.

Respondent’s answered the complaint by refuting allegations made by petitioners. As a

way of defense, respondents underscored petitioners’ failure to: (1) show that it was
authorized by SBGSI to file complaint on said company’s behals; (2) comply with the
requisites for filing a derivative suit and an action for receivership; (3) justify their prayer
for injunctive relief since the complaint may be considered a nuisance or harassment
suit. Thus, respondents prayed for dismissal of the complaint.

The RTC ruled that the action is a derivative suit. Being a derivative suit, the trial court
dismissed the complaint for failure to allege with particularity in the complaint that the
petitioners exhaust all remedies available under the articles of incorporation, by-laws or
rules governing the corporation or partnership to obtain the reliefs he desires. The trial
court also ruled that the complaint is a nuisance or harassment considering that the
shareholdings of petitioners comprised of two shares out of the 409 alleged outstanding
shares or 0.24% is an indication that the action is a nuisance or harassment suit which
may be dismissed either motu proprio or upon motion.

On appeal, the CA affirmed the decision of RTC.

ISSUE: W/N the case in a derivative suit.

HELD: No. The case is not a derivative suit because of the absence of second
requisite.

The petitioners ask that defendants be enjoined from managing the corporation and to
pay damages for their mismanagement. Petitioners’ only possible cause of action as
minority stockholders against the actions of the BOD is the common law right to file a
derivative suit. However, a derivative suit cannot prosper without first complying with the
legal requisites for its institution.

With regard to the second requisite, the petitioners failed to state with particularity in the
Complaint that they had exerted all reasonable efforts to exhaust all remedies available
under the articles of incorporation, by-laws, and laws or rules governing the corporation
to obtain the relief they desire. The Complaint contained no allegation whatsoever of
any effort to avail of intra-corporate remedies. Indeed, even if petitioners thought it was
futile to exhaust intra-corporate remedies, they should have stated the same in the
Complaint and specified the reasons for such opinion. Failure to do so allows the RTC
to dismiss the Complaint, even motu proprio, in accordance with the Interim Rules. The
requirement of this allegation in the Complaint is not a useless formality which may be
disregarded at will.

As to the fourth requisite, the SC held that the complaint should not have been
dismissed on the ground that it is a nuisance or harassment suit. Although the
shareholdings of petitioners are indeed only two out of the 409 alleged outstanding
shares or 0.24%, the Court has held that it is enough that a member or a minority of
stockholders file a derivative suit for and in behalf of a corporation.