G.R. No. 172843. September 24, 2014

7/22/24, 9:26 AM [ G.R. No. 172843.
September 24, 2014 ]
744 Phil. 31 ← click for PDF copy
SECOND DIVISION
[ G.R. No. 172843. September 24, 2014 ]
ALFREDO L. VILLAMOR, JR., PETITIONER, VS. JOHN S. UMALE, IN
SUBSTITUTION OF HERNANDO F. BALMORES, RESPONDENT.
[G.R. NO. 172881]
RODIVAL E. REYES, HANS M. PALMA AND DOROTEO M.
PANGILINAN, PETITIONERS, VS. HERNANDO F. BALMORES,
RESPONDENT.
DECISION
LEONEN, J.:
Before us is a petition for review on certiorari[1] under Rule 45 of the Rules of Court, assailing
the decision[2] of the Court of Appeals dated March 2, 2006 and its resolution[3] dated May 29,
2006, denying petitioners' motions for reconsideration. The Court of Appeals placed Pasig
Printing Corporation (PPC) under receivership and appointed an interim management
committee for the corporation.[4]
MC Home Depot occupied a prime property (Rockland area) in Pasig. The property was part of
the area owned by Mid-Pasig Development Corporation (Mid-Pasig).[5]
On March 1, 2004, PPC obtained an option to lease portions of Mid-Pasig's property, including
the Rockland area.[6]
On November 11, 2004, PPC's board of directors issued a resolution[7] waiving all its rights,
interests, and participation in the option to lease contract in favor o£ the law firm of Atty.
Alfredo Villamor, Jr. (Villamor), petitioner in G.R. No. 172843. PPC received no consideration
for this waiver in favor of Villamor's law firm.[8]
On November 22, 2004, PPC, represented by Villamor, entered into a memorandum of

agreement (MOA) with MC Home Depot.[9] Under the MO A, MC Home Depot would
continue to occupy the area as PPC's sublessee for four (4) years, renewable for another four (4)
years, at a monthly rental of P4,500,000.00 plus goodwill of P18,000,000.00.[10]
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
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Villamor who did not turn these or the equivalent amount over to PPC, upon encashment.[11]
Hernando Balmores, respondent in G.R. No. 172843 and G.R. No. 172881 and a stockholder
and director of PPC,[12] wrote a letter addressed to PPJC's directors, petitioners in G.R. No.
172881, on April 4, 2005.[13] He informed them that Villamor should be made to deliver to PPC
and account for MC Home Depot's checks or their equivalent value.[14]
Due to the alleged inaction of the directors, respondent Balmores filed with the Regional Trial
Court an intra-corporate controversy complaint under Rule 1, Section 1(a)(1) of the Interim
Rules for Intra-Corporate Controversies[15] (Interim Rules) against petitioners for their alleged
devices or schemes amounting to fraud or misrepresentation "detrimental to the interest of the
Corporation and its stockholders."[16]
Respondent Balmores alleged in his complaint that because of petitioners' actions, PPC's assets
were ". . . not only in imminent danger, but have actually been dissipated, lost, wasted and
destroyed."[17]
Respondent Balmores prayed that a receiver be appointed from his list of nominees.[18] He also
prayed for petitioners' prohibition from "selling, encumbering, transferring or disposing in any
manner any of [PPC's] properties, including the MC Home [Depot] checks and/or their
proceeds."[19] He prayed for the accounting and remittance to PPC of the MC Home Depot
checks or their proceeds and for the annulment of the board's resolution "vaiving PPC's rights in
favor of Villamor's law firm.[20]
Ruling of the
Regional Trial Court
In its resolution[21] dated June 15, 2005, the Regional Trial Court denied respondent Balmores'
prayer for the appointment of a receiver or the creation of a management committee. The
dispositive portion reads:
WHEREFORE, premises considered the appointment of a Receiver and the

creation of a Management Committee applied for by plaintiff Hernando F.
Balmores are, as they are hereby, DENIED.[22] (Emphasis in the original)
According to the trial court, PPC's entitlement to the checks was doubtful. The resolution issued
by PPC's board of directors; waiving its rights to the option to lease contract in favor of
Villamor's law firm, must be accorded prima facie validity.[23]
The trial court also noted that there was a pending case filed by one Leonardo Umale against
Villamor, involving the same checks. Umale was also claiming ownership of the checks.[24]
This, according to the trial court, weakened respondent Balmores' claim that the checks were
properties of PPC.[25]
The trial court also found that there was "no clear and positive showing of dissipation, loss,
wastage, or destruction of [PPC's] assets . . . [that was] prejudicial to the interest of the minority
stockholders, parties-litigants or the general public."[26] The board's failure to recover the
disputed amounts was not an indication of mismanagement resulting in the dissipation of assets.
[27]
The trial court noted that PPC was earning substantial rental income from its other sub-lessees.
[28]
The trial court added that the failure to implead PPC was. fatal. PPC should have been
impleaded as an indispensable party, without which, there would be no final determination of
the action.[29]
Ruling of the
Court of Appeals
Respondent Balmores filed with the Court of Appeals a petition for certiorari under Rule 65 of
the Rules of Court.[30] He assailed the decision of the trial court, which denied his "application
for the appointment of a [r]eceiver and the creation of a [management [c]ommittee."[31]
In the decision promulgated on March 2, 2006, the Court of Appeals gave due course to
respondent Balmores' petition. It reversed the trial court's decision, and issued a new order
placing PPC under receivership and creating an interim management committee.[32] The
dispositive portion reads:
WHEREFORE, premises considered, the instant petition is hereby GRANTED and

GIVEN DUE COURSE and the June 15, 2005 Order/Resolution of the commercial
court, the Regional Trial Court of Pasig City, Branch 167, in S.E.C. Case No. 05-62,
is hereby REVERSED and SET ASIDE and a NEW ORDER is ISSUED that,
during the pendency of the derivative suit, until judgment on the merits is rendered
by the commercial court, in order to prevent dissipation, loss, wastage or destruction
of the assets, in order to prevent paralization of business operations which may be
prejudicial to the interest of stockholders, parties-litigants or the general public, and
in order to prevent violations of the corporation laws: (1) Pasig Printing Corporation
(PPC) is hereby placed under receivership pursuant to the Rules Governing Intra-
Corporate Controversies under R.A. No. 8799; (2) an Interim Management
Committee is hereby created for Pasig Printing Corporation (PPC) composed of
Andres Narvasa, Jr., Atty. Francis Gustilo and Ms Rosemarie Salvio-Leonida; (3) the
interim management committee is hereby directed to forthwith, during the pendency
of the derivative suit until judgment on the merits is rendered by the commercial
court, to: (a) take over the business of Pasig Printing Corporation (PPC), (b) take
custody and control of all assets and properties owned and possessed by Pasig
Printing Corporation (PPC), (c) take the place of the management and the board of
directors of Pasig Printing Corporation (PPC), (d) preserve Pasig Printing
Corporation's assets and properties, (e) stop and prevent any disposal, in any manner,
of any of the properties of Pasig Printing Corporation (PPC) including the MC Home
Depot checks and/or their proceeds; and (3) [sic] restore the status quo ante
prevailing by directing respondents their associates and agents to account and return
to the Interim Management Committee for Pasig Printing Corporation (PPC) all the
money proceeds of the 20 MC Home Depot checks taken by them and to account
and surrender to the Interim Management Committee all subsequent MC Home
Depot checks or proceeds.[33] (Citation omitted)
The Court of Appeals characterized the assailed order/resolution of the trial court as an
interlocutory order that is not appealable.[34] In reversing tie trial court order/resolution, the
Court of Appeals considered the danger of dissipation, wastage, and loss of PPC's assets if the
review of the trial court's judgment would be delayed.[35]
The Court of Appeals ruled that the case filed by respondent Balmores with the trial court "
[was] a derivative suit because there were allegations of fraud or ultra vires acts ... by [PPC's
directors]."[36]
According to the Court of Appeals, 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. The assailed order of the trial court removed from the
stockholders their right, in an intra-corporate controversy, to be allowed the remedy of
appointment of a receiver during the pendency of a derivative suit, leaving the corporation under
the control of an outsider and its assets prone to dissipation.[37] The Court of Appeals also ruled
that this amounts to "despotic, capricious, or whimsical exercise of judicial power"[38] on the
part of the trial court.
In justifying its decision to place PPC under receivership and to create a management
committee, the Court of Appeals stated that the board's waiver of PPC's rights in favor of
Villamor's law firm without any consideration and its inaction on Villamor's failure to turn over
the proceeds of rental payments to PPC warrant the creation of a management committee.[39]
The circumstances resulted in the imminent danger of loss, waste, or dissipation of PPC's assets.
[40]
Petitioners filed separate motions for reconsideration. Both motions were denied by the Court of
Appeals on May 29, 2006. The dispositive portion of the Court of Appeals' resolution reads:
WHEREFORE, for lack of merit, respondents' March 10/2006 and March 20, 2006
Motions for Reconsideration are hereby DENIED.[41]
Petitioners filed separate petitions for review under Rule 45, raising the following threshold
issues:
I. Whether the Court of Appeals correctly characterized respondent Balmores' action as a

derivative suit
II. Whether the Court of Appeals properly placed PPC under receivership and created a
receiver or management committee
PPC's directors argued that the Court of Appeals erred in characterizing respondent Balmores'
suit as a derivative suit because of his failure to implead PPC as party in the case. Hence, the
appellate court did not acquire jurisdiction over the corporation, and the appointment of a
receiver or management committee is not valid.[42]
The directors further argued that the requirements for the appointment of a receiver or
management committee under Rule 9[43] of the Interim Rules were not satisfied. The directors
pointed out that respondent Balmores failed to prove that the assets of the corporation were in
imminent danger of being dissipated.[44]
According to the directors, assuming that a receiver or management committee may be

appointed in the case, it is the Regional Trial Court only arid not the. Court of Appeals that must
appoint them.[45]
Meanwhile, Villamor argued that PPC's entitlement to the checks or their proceeds was still in
dispute. In a separate civil case against Villamor, a certain Leonardo Umale was claiming
ownership of the checks.[46]
Villamor also argued that the Court of Appeals' order to place PPC under receivership and to
appoint a management committee does not endanger PPC's assets because the MC Home Depot
checks were not the only assets of PPC.[47] Therefore, it would not affect the operation of PPC
or result in its paralysation.[48]
In his comment, respondent Balmores argued that Villamor's and the directors' petitions raise
questions of facts, which cannot be allowed in a petition for review under Rule 45.[49]
On the appointment of a receiver or management committee, respondent Balmores stated that

the ". . . very practice of waiving assets and income for no consideration can in fact lead, not
only to the paralyzation of business, but to the complete loss or cessation of business of PPC[.]
It is precisely because of this fraudulent practice that a receiver/management committee must be
appointed to protect the assets of PPC from further fraudulent acts, devices and schemes."[50]
The petitions have merit.
Petition for review on

certiorari under Rule 45
was proper
First, we rule on the issue of whether petitioners properly filed a petition for review on certiorari
under Rule 45.
Respondent Balmores argued that the petition raises questions of fact.
Under Rule 45, only questions of law may be raised.[51] There is a question of law "when there
is doubt or controversy as to what the law is on a certain [set] of facts."[52] The test is "whether
the appellate court can determine the issue-raised without reviewing or evaluating the
evidence."[53] Meanwhile, there is a question of fact when there is "doubt... as to the truth or
falsehood of facts."[54] The question must involve the examination of probative value of the
evidence presented.
In this case, petitioners raise issues on the correctness of the Court of Appeals' conclusions.
Specifically, petitioners ask (1) whether respondent Balmores' failure to implead PPC in his
action with the trial court was fatal; (2) whether the Court of Appeals correctly characterized
respondent Balmores' action as a derivative suit; (3) whether the Court of Appeals' appointment
of a management committee was proper; and (4) whether the Court of Appeals may exercise the
power to appoint a management committee.
These are questions of law that may be determined without looking into the evidence presented.
The question of whether the conclusion drawn by the Court of Appeals from a set of facts is
correct is a question of law, cognizable by this court.[55]
Petitioners, therefore, properly filed, a petition for review under Rule 45.
II
Respondent Balmores' action in

the trial court is not a derivative suit
A derivative suit is an action filed by stockholders to enforce a corporate action.[56] It is an

exception to the general rule that the corporation's power to sue[57] is exercised only by the
board of directors or trustees.[58]
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.[59] It is allowed when the "directors
[or officers] are guilty of breach of . . . trust, [and] not of mere error of judgment."[60] In
derivative suits, the real party in interest is the corporation, and the suing stockholder is a mere
nominal party.[61] Thus, this court noted:
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.[62]
Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies (Interim
Rules) provides the five (5) requisites[63] for filing derivative suits:
SECTION 1. Derivative action. - A stockholder or member may bring an action in

the name of a corporation or association, as the case may be, provided, that:
(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.
In case of nuisance or harassment suit, the court shall forthwith dismiss the case.
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.
Thus, in Western Institute of Technology, Inc., et al v. Solas, et al,[64] this court said that "
[a]mong 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 [him]."[65] This principle on derivative suits has
been repeated in, among other cases, Tarn Wing Tak v. Hon. Makasiar and De Guia[66] and in
Chua v. Court of Appeals,[67] which was cited in Hi-Yield Realty, Incorporated v. Court of
Appeals.[68]
Moreover, it is important that the corporation be made a party to the case.[69]
This court explained in Asset Privatization Trust v. Court of Appeals[70] why it is a condition
sine qua non that the corporation be impleaded as party in derivative suits. Thus:
Not only is the corporation an indispensible party, but it is also the present rule that it
must be served with process. The reason given is that the judgment must be made
binding upon the corporation in order that the corporation may get the benefit of the
suit and may not bring a subsequent suit against the same defendants for the same
cause of action. In other words the corporation must be joined as party because it is
its cause of action that is being litigated and because judgment must be a res judicata
against it.[71]
In the same case, this court enumerated the reasons for disallowing a direct individual suit.
The reasons given for not allowing direct individual suit are:
(1) . . . "the universally recognized doctrine that a stockholder in a corporation has

no title legal or equitable to the corporate property; that both of. these are in the
corporation itself for the benefit of the stockholders." In other words, to allow
shareholders to sue separately would conflict with the separate corporate entity
principle;
(2) . . . that the prior rights of the creditors may be prejudiced. Thus, our Supreme
Court held in the case of Evangelista v. Santos, that 'the stockholders may not
directly claim those damages for themselves for that would result in the
appropriation by, and the distribution among them of part of the corporate assets
before the dissolution of the corporation and the liquidation of its debts and
liabilities, something which cannot be legally done in view of Section 16 of the
Corporation Law. . .";
(3) the filing of such suits would conflict with the duty of the management to sue for
the protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in ascertaining the effect of partial recovery by an
individual on the damages recoverable by the corporation for the same act.[72]
While it is true that the basis for allowing stockholders to file derivative suits on behalf of
corporations is based on equity, the above legal requisites for its filing must necessarily be
complied with for its institution.[73]
Respondent Balmores' action in the trial court failed to satisfy all the requisites of a derivative
suit.
Respondent Balmores failed to exhaust all available remedies to obtain the reliefs he prayed for.
Though he tried to communicate with PPC's directors about the checks in Villamor's possession
before he filed an action with the trial court, respondent Balmores was not able to show that this
comprised -all the remedies available under the articles of incorporation, bylaws, laws, or rules
governing PPC.
An allegation that appraisal rights were not available for the acts complained of is another
requisite for filing derivative suits under Rule 8, Section 1(3) of the Interim Rules.
Section 81 of the Corporation Code provides the instances of appraisal right:
SEC. 81. Instances of appraisal right.— Any stockholder of a corporation shah1

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 stockholders 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 this
Code; and
3. In case of merger or consolidation.
Section 82 of the Corporation Code provides that the stockholder may exercise the right if he or
she voted against the proposed corporate action and if he made a written demand for payment
on the corporation within thirty (30) days after the date of voting.
Respondent Balmores complained about the alleged inaction of PPC's directors in his letter
informing them that Villamor should be made to deliver to PPC and account for MC Home
Depot's checks or their equivalent value. He alleged that these are devices or schemes
amounting to fraud or misrepresentation detrimental to the corporation's and the stockholders'
interests. He also alleged that the directors' inaction placed PPC's assets in imminent and/or
actual dissipation, loss, wastage, and destruction.
Granting that (a) respondent Balmores' attempt to communicate with the other PPC directors
already comprised all the available remedies that he could have exhausted and (b) the
corporation was under full- control of petitioners that exhaustion of remedies became
impossible or futile,[74] respondent Balmores failed to allege that appraisal rights were not
available for the acts complained of here.
Neither did respondent Balmores implead PPC as party in the case nor did he allege that he was
filing on behalf of the corporation.
The non-derivative character of respondent Balmores' action may also be gleaned from his
allegations in the trial court complaint. In the complaint, he described the nature of his action as
an action under Rule 1, Section l(a)(l) of the Interim Rules, and not an action under Rule 1,
Section l(a)(4) of the Interim Rules, which refers to derivative suits. Thus, respondent Balmores
said:
1.1 This is an action under Section 1 (a) (1), Rule 1 of the Interim Rules of
Procedure for Intra-corporate Controversies, involving devices or schemes
employed by, or acts of, the defendants as board of directors, business associates and
officers of Pasig Printing Corporation (PPC), amounting to fraud or
misrepresentation, which are detrimental to the interest of the plaintiff as stockholder
of PPC.[75] (Emphasis supplied)
Rule 1, Section 1 (a)(1) of the Interim Rules refers to acts of the board, associates, and officers,
amounting to fraud or misrepresentation, which may be detrimental to the interest of the
stockholders. This is different from a derivative suit.
While devices and schemes of the board of directors, business associates,-or officers amounting
to fraud under Rule 1, Section l(a)(l) of the Interim Rules are causes of a derivative suit, it is not
always the case that derivative suits are limited to such causes or that they are necessarily
derivative suits. Hence, they are separately enumerated in Rule 1, Section 1 (a) of the Interim
Rules:
SECTION 1. (a) Cases covered. - These Rules shall govern the procedure to be
observed in civil cases involving the following:
(1) Devices or schemes employed by, or any act of, the board of directors,
business associates, officers or partners, amounting to fraud or
misrepresentation which may be detrimental to the interest of the public
and/or of the stockholders, partners, or members of any corporation,
partnership, or association;
(2) Controversies arising out of intra-corporate, partnership, or association relations,
between and among stockholders, members, or associates; and between, any or
all of them and the corporation, partnership, or association of which they are
stockholders, members, or associates, respectively;
(3) Controversies in the election or appointment of directors, trustees, officers, or
managers of corporations, partnerships, or associations;
(4) Derivative suits; and
(5) Inspection of corporate books. (Emphasis supplied)
Stockholder/s' suits based on fraudulent or wrongful acts of directors, associates, or officers may
also be individual suits or class suits.
Individual suits are filed when the cause of action belongs to the individual stockholder
personally, and not to the stockholders as a group or to the corporation, e.g., denial of right to
inspection and denial of dividends to a stockholder.[76] If the cause of action belongs to a group
of stockholders, such as when the rights violated belong to preferred stockholders, a class or
representative suit may be filed to protect the stockholders in the group.[77]
In this case, respondent Balmores filed an individual suit. His intent was very clear from his
manner of describing the nature of his action:
1.1 This is an action under Section 1 (a) (1), Rule 1 of the Interim Rules of
Procedure for Intra-corporate Controversies, involving devices or schemes employed
by, or acts of, the defendants as board of directors, business associates and officers of
Pasig Printing Corporation (PPC), amounting to fraud or misrepresentation, which
are detrimental to the interest of the plaintiff as stockholder of PPC.[78]
(Emphasis supplied)
His intent was also explicit from his prayer:
WHEREFORE, plaintiff respectfully prays that the Honorable Court -
2. After notice and due proceedings -
Declare that the acts of defendant Directors in allowing defendant

VILLAMOR to retain custody of the MC Home checks and encash them
upon maturity, as well as their refusal or failure to take any action against
defendant VILLAMOR to make him account and deliver the MC Home
checks and/or their proceeds to Pasig Printing Corporation are devices,
schemes or acts amounting to fraud that are detrimental to plaintiff's
interest as a stockholder of PPC;[79] (Emphasis supplied)
Respondent Balmores did not bring the action for the benefit of the corporation. Instead, he was
alleging that the acts of PPC's directors, specifically the waiver of rights in favor of Villamor's
law firm and their failure to take back the MC Home Depot checks from Villamor, were
detrimental to his individual interest as a stockholder. In filing an action, therefore, his
intention was to vindicate his individual interest and not PPC's or a group of stockholders'.
The essence of a derivative suit is that it must be filed on behalf of the corporation. This is
because the cause of action belongs, primarily, to the corporation. The stockholder who sues on
behalf of a corporation is merely a nominal party.
Respondent Balmores' intent to file an individual suit removes it from the coverage of derivative
suits.
III
Respondent Balmores has no

cause of action that would entitle
him to the reliefs sought
Corporations have a personality that is separate and distinct from their stockholders and
directors. A wrong to the corporation does not necessarily create an individual cause of action.
"A cause of action is the act or omission by which a party violates the right of another."[80] A
cause of action must pertain to complainant if he or she is to be entitled to the reliefs sought.
Thus, in Cua v. Tan,[81] this court emphasized:
. . . where the acts complained of constitute a wrong to the corporation itself, the
cause of action belongs to the corporation and not to the individual stockholder or
member. Although in most every case of wrong to the corporation, each stockholder
is necessarily affected because the value of his interest therein would be impaired,
this fact of itself is not sufficient to give him an individual cause of action since the
corporation is a person distinct and separate from him, and can and should itself sue
the wrongdoer. Otherwise, not only would the theory of separate entity be violated,
but there would be multiplicity of suits as well as a violation of the priority rights of
creditors. Furthermore, there is the difficulty of determining the amount of damages
that should be paid to each individual stockholder.[82]
In this case, respondent Balmores did not allege any cause of action that is personal to him. His
allegations are limited to the facts that PPC's directors waived their rights to rental income in
favor of Villamor's law firm without consideration and that they failed to take action when
Villamor refused to turn over the amounts to PPC. These are wrongs that pertain to PPC.
Therefore, the cause of action belongs to PPC — not to respondent Balmores or any
stockholders as individuals.
For this reason, respondent Balmores is not entitled to the reliefs sought in the complaint. Only
the corporation, or arguably the stockholders as a group, is entitled to these reliefs, which should
have been sought in a proper derivative suit filed on behalf of the corporation.
PPC will not be bound by a decision granting the application for the appointment of a receiver
or management committee. Since it was not impleaded in the complaint, the courts did not
acquire jurisdiction over it. On this matter, it is an indispensable party, without which, no final
determination can be had.
Hence, it is not only respondent Balmores' failure to implead PPC that is fatal to his action, as
petitioners point out. It is the fact that he alleged no cause of action that pertains personally to
him that disqualifies him from the reliefs he sought in his complaint.
On this basis alone, the Court of Appeals erred in giving due course to respondent Balmores'
petition for certiorari, reversing the trial court's decision, and issuing a new order placing PPC
under receivership and creating an interim management committee.
IV
Appointment of a management
committee was not proper
Assuming that respondent Balmores has an individual cause of action, the Court of Appeals still
erred in placing PPC under receivership and in creating and appointing a management
committee.
A corporation may be placed under receivership, or management committees may be created to

preserve properties involved in a suit and to protect the rights of the parties under the control
and supervision of the court.[83] Management committees and receivers are appointed when the
corporation is in imminent danger of "(1) [dissipation, loss, wastage or destruction of assets or
other properties; and (2) [p]aralysation of its business operations that may be prejudicial to' the
interest of the minority stockholders, parties-litigants, or the general public."[84]
Applicants for the appointment of a receiver or management committee need to establish the
confluence of these two requisites. This is because appointed receivers and management
committees will immediately take over the management of the corporation and will have the
management powers specified in law.[85] This may have a negative effect on the operations and
affairs of the corporation with third parties,[86] as persons who are more familiar with its
operations are necessarily dislodged from their positions in favor of appointees who are
strangers to the corporation's operations and affairs.
Thus, in Sy Chim v. Sy Sly Ho & Sons, Inc.,[87] this court said:
. . . the creation and appointment of a management committee and a receiver is an

extraordinary and drastic remedy to be exercised with care and caution; and only
when the requirements under the Interim Rules are shown. It is a drastic course for
the benefit of the minority stockholders, the parties-litigants or the general public are
allowed only under pressing circumstances and, when there is inadequacy,
ineffectual or exhaustion of legal or other remedies . . . The power of the court to
continue a business of a corporation . . . must be exercised with the greatest care and
caution. There should be a full consideration of all the attendant facts, including the
interest of all the parties concerned.[88]
PPC waived its rights, without any consideration in favor of Villamor. The checks were already
in Villamor's possession. Some of the checks may have already been encashed. This court takes
judicial notice that the goodwill money of PI 8,000,000.00 and the rental payments of
P4,500,000.00 every month are not meager amounts only to be waived without any
consideration. It is, therefore, enough to constitute loss or dissipation of assets under the Interim
Rules.
Respondent Balmores, however, failed to show that there was an imminent danger of paralysis
of PPC's business operations. Apparently, PPC was- earning substantial amounts from its other
sub-lessees. Respondent Balmores did not prove otherwise. He, therefore, failed to show at least
one of the requisites for appointment of a receiver or management committee.
The Court of Appeals had no

jurisdiction to appoint the receiver
or management committee
The Court of Appeals has no power to appoint a receiver or management committee. The
Regional Trial Court has original and exclusive jurisdiction[89] to hear and decide intra-
corporate controversies,[90] including incidents of such controversies.[91] These incidents
include applications for the appointment of receivers or management committees.
"The receiver and members of the management committee . . . are considered officers of the
court and shall be under its control and supervision."[92] They are required to report to the court
on the status of the corporation within sixty (60) days from their appointment and every three
(3) months after.[93]
When respondent Balmores filed his petition for certiorari with the Court of Appeals, there was
still a pending action in the trial court. No less than the Court of Appeals stated that it allowed
respondent Balmores' petition under Rule 65 because the order or resolution in question was an
interlocutory one. This means that jurisdiction over the main case was still lodged with the trial
court.
The court making the appointment controls and supervises the appointed receiver or
management committee. Thus, the Court of Appeals' appointment of a management committee
would result in an absurd scenario wherein while the main case is still pending before the trial
court, the receiver or management committee reports' to the Court of Appeals.
WHEREFORE, the petitions are GRANTED. The decision of the Court of Appeals dated
March 2, 2006 and its resolution dated May 29, 2006 are SET ASIDE.
SO ORDERED.
Carpio, (Chairperson), Brion, Del Castillo, and Mendoza, JJ., concur.
[1] Rollo (G.R. No. 172843), pp. 2-32.
[2] Id. at 36-56.
[3] Id. at 58-59.
[4] Id. at 55-56.
[5] Id. at 39-40.
[6] Rollo (G.R. 'No. 172843), p. 63 and rollo (G.R. No. 172881), p. 53.
[7] Rollo (G.R. No. 172843), pp. 138-139.
[8] Id. at 68 and rollo (G.R. No. 172881), pp. 53-54.
[9] Rollo (G.R. No. 172881), p. 54.
[10] Id. and rollo (G.R. No. 172843), p. 64.
[11] Rollo (G.R. No. 172881), p. 54.
[12] Rollo (G.R. No. 172843), p. 78.
[13] Rollo (G.R. No. 172881), p. 55.
[14] Id. and rollo (G.R. No. 172843), p. 67.
[15] Interim Rules of Procedure for Intra-Corporate Controversies (A.M. No. 01-2-04-SC,
hereinafter "Interim Rules")
Rule 1, Sec. 1(a) Cases Covered - These rules shall govern the procedure to be observed in civil
cases involving the following:
(1) Devices or schemes employed by, or any act of, the board of directors, business associates,
officers or partners, amounting to fraud or misrepresentation which may be detrimental to the
interest of the public and/or of the stockholders, partners, or members of any corporation,
partnership, or association;
[16] Rollo (G.R. No. 172881), p. 55.
[171] Rollo (G.R. No. 172843), pp. 69-70.
[18] Id. at 71.
[19] Id. at 72.
[20] Id. at 72-73.
[21] Id. at 315-318.
[22] Id. at 318.
[23] Id. at 316.
[24] Id. at 317.
[25] Id.
[26] Id.
[27] Id. at 317-318.
[28] Id. at 318.
[29] Id.
[30] Id. at 39.
[31] Id.
[32] Id. at 55-56.
[33] Id.
[34] Id. at 43-44.
[35] Id. at 44-45.
[36] Id. at 51.
[37] Id. at 47.
[38] Id.
[39] Id. at 52-54.
[40] Id. at 53-55.
[41] Id. at 59.
[42] Rollo (G.R. No. 172881), pp. 22-28.
[43] Rule 9. Management Committee
Section 1. Creation of a management committee. - As an incident to any of the cases filed under
these Rules or the Interim Rules Corporate Rehabilitation, a party may apply for the
appointment of a management committee for the corporation, partnership or association, when
there is imminent danger of:
(1) Dissipation, loss, wastage or destruction of assets or other properties; and

(2) Paralyzation of its business operations which may be prejudicial to the interest of the
minority stockholders, parties-litigants or the general public.
[44] Rollo (G.R. No. 172881), pp. 37-38.
[45] Id. at 19.
[46] Rollo (G.R. No. 172843), p. 15.
[47] Id. at 23-24.
[48] Id. at 24.
[49] Rollo (G.R. No. 172881), p. 526.
[50] Id. at 537.
[51] Rules of Court, Rule 45, sec. 1.
[52]Central Bank of the Philippines v. Castro, 514 Phil. 425, 434 (2005) [Per J. Puno, Second
Division].
[53] I d.
[54] Id.
[55] Cunanan v. Lazatin and Lazatin, 74 Phil. 719, 724 (1944) [Per J. Ozaeta, En Banc].
[56] Hi-Yield Realty, Incorporated v. Court of Appeals, 608 Phil. 350, 358 (2009) [Per J.
Quisumbing, Second Division], citing R.N. Symaco Trading Corporation v. Santos, 504 Phil.
573, 589 (2005) [Per J. Callejo, Sr., Second Division].
[57] CORP. CODE, sec. 36(1).
[58] CORP. CODE, sec. 23; cf. sec. 36(1).
[59]Hi-Yield Realty, Incorporated v. Court of Appeals, 608 Phil. 350, 358 (2009) [Per J.
Quisumbing, Second Division], See also Asset Privatization Trust v. Court of Appeals, 360 Phil.
768, 805 (1998) [Per J. Kapunan, Third Division] and Republic Bank v. Cuaderno, 125 Phil.
1076, 1082 (1967) [Per J. J.B.L. Reyes, En Banc].
[60] Bitong v. Court of Appeals, 354 Phil. 516, 545 (1998) [Per J. Bellosillo, First Division].
[61] Hi-Yield Realty, Incorporated v. Court of Appeals, 608 Phil. 350, 358 (2009) [Per J.
Quisumbing, Second Division], citing Filipinos Port Services, Inc. v. Go, 547 Phil. 360, 377
(2007) [Per J. Garcia, First Division]. See also Asset' Privatization Trust v. Court of Appeals,
360 Phil. 768, 805 (1998) [Per J. Kapunan, Third Division], citing Gamboa v. Victoriano, 179
Phil. 36, 43 (1979) [Per J. Concepcion, Jr., Second Division].
[62]Cua, Jr. v. Tan, G.R. Nos. 181455-56 and 182008, December 4, 2009, 607 SCRA 645, 696
[Per J. Chico-Nazario, Third Division].
[63]See also Filipinos Port Services, Inc. v. Go, 547 Phil. 360, 378 (2007) [Per J. Garcia, First
Division].
[64] 343 Phil. 742 (1997) [Per J. Hermosisima, Jr., First Division].
[65]
Id. at 753, citing A. F. AGBAYANI, COMMENTARIES AND JURISPRUDENCE ON THE
COMMERCIAL LAWS OF THE PHILIPPINES, vol. III, 543 (1988).
[66] 403 Phil. 391 (2001) [Per J. Quisumbing, Second Division].
[67] 485 Phil. 644 (2004) [Per J. Quisumbing, First Division].
[68] 608 Phil. 350 (2009) [Per J. Quisumbing, Second Division].
[69] Republic Bank v. Cuaderno, 125 Phil. 1076, 1084 (1967) [Per J. J.B.L. Reyes, En Bane].
[70] 360 Phil. 768 (1998) [Per J. Kapunan, Third Division].
[71] Id. at 805, citing A. F. AGBAYANI, COMMERCIAL LAW OF THE PHILIPPINES, vol.
III, 566, citing BALLANTINE, 366-367.
[72] Id. at 805-806, citing A. F. AGBAYANI, COMMERCIAL LAW OF THE PHILIPPINES,

vol. III, 565-566.
[74] See Filipinos Port Services, Inc. v. Go, 547 Phil. 360, 377 and 379 (2007) [Per J. Garcia,
First Division].
[75] Rollo (G.R. No. 172843), p. 60.
[Per J. Chico-Nazario, Third Division], citing J. Campos, Jr. and M. C. L. Campos, The
CORPORATION CODE: Comments, Notes and Selected Cases, vol. 1,819 (1990).
[78] Rollo (G.R. No. 172843), p. 60.
[79] Id. at 71-72.
[80] RULES OF COURT, Rule 2, sec. 2.
[81]G.R. Nos. 181455-56 and 182008, December 4, 2009, 607 SCRA 645 [Per J. Chico-
Nazario, Third Division].
[82] Id. at 690.
[83] See also Interim Rules, Rule 9, Sec. 3:
SEC. 3. Receiver and management committee as officers of the court. - The receiver and the
members of the management committee in the exercise of their powers and performance of their
duties are considered officers of the court and shall be under its control and supervision.
The principle behind receivership under Rule 59 of the Rules of Court as

explained in F. D. REGALADO, REMEDIAL LAW COMPENDIUM, vol. 1, 9th
ed., 732 (2005), citing Compania General de Tabacos v. Gauzon and Pomar, 20 Phil.
261 (1911) [Per J. Johnson, En Bane]; Normandy v. Duque, 139 Phil. 800 (1969)
[Per J. Barredo, En Banc]; and Mallari v. Court of Appeals, et al., 192 Phil. 679
(1981) [Per J. Melencio-Herrera, First Division] may be applied by analogy to
receivership under the Interim Rules.
[84] Interim Rules, Rule 9, sec. 1.
[85]Sy Chim v. Sy Siy Ho & Sons, Inc., 516 Phil. 256, 282 (2006) [Per J. Callejo, Sr., First
Division].
[86] Id. at 284.
[87] 516 Phil. 256(2006) [Per J. Calleja Sr., First Division].
[88] Id. at 284.
[89] Pres. Decree 902-A (1976), otherwise known as SEC Reorganization Act.
Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other forms of associations registered with it as
expressly granted under existing laws and decrees, shall have original and exclusive jurisdiction
to hear and decide cases involving:
(a) Devices or schemes employed by or any acts, of the board of directors, business associates,
its officers or partnership, amounting to fraud and misrepresentation which may be detrimental
to the interest of the public and/or of the stockholder, partners, members of associations or
organizations registered with the Commission;
(b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members, or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members or associates, respectively;
and between such corporation, partnership or association and the state insofar as it concerns
their individual franchise or right to exist as such entity; and
(c) Controversies in the election or appointments of directors, trustees, officers or managers of
such corporations, partnerships or associations.
[90] Rep. Act No. 8799 (2000), otherwise known as The Securities Regulation Code.
Sec. 5.2. The Commission's jurisdiction over all cases enumerated under Section 5 of
Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the
appropriate Regional Trial Court: Provided, that the Supreme Court in the exercise of its
authority may designate the Regional Trial Court branches that shall exercise jurisdiction over
these cases. The Commission shall retain jurisdiction over pending cases involving intra-
corporate disputes submitted for final resolution which should be resolved within one (1) year
from the enactment of this Code. The Commission shall retain jurisdiction over pending
suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.
(Underscoring supplied)
See also Interim Rules, Rule 1, sec. 9.
Sec. 9. Assignment of cases. - All cases filed under these Rules shall be tried by judges
designated by the Supreme Court to hear and decide cases transferred from the Securities and
Exchange Commission to the Regional Trial Courts and filed directly with said courts pursuant
to Republic Act No. 8799, otherwise known as the Securities Regulation Code. (Underscoring
supplied)
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7/22/24, 9:26 AM [ G.R. No. 172843.

September 24, 2014 ]

744 Phil. 31 ← click for PDF copy

On November 22, 2004, PPC, represented by Villamor, entered into a memorandum of

WHEREFORE, premises considered the appointment of a Receiver and the

WHEREFORE, premises considered, the instant petition is hereby GRANTED and

I. Whether the Court of Appeals correctly characterized respondent Balmores' action as a

According to the directors, assuming that a receiver or management committee may be

On the appointment of a receiver or management committee, respondent Balmores stated that

The petitions have merit.

Petition for review on

Respondent Balmores argued that the petition raises questions of fact.

Respondent Balmores' action in

A derivative suit is an action filed by stockholders to enforce a corporate action.[56] It is an

SECTION 1. Derivative action. - A stockholder or member may bring an action in

Moreover, it is important that the corporation be made a party to the case.[69]

(1) . . . "the universally recognized doctrine that a stockholder in a corporation has

Section 81 of the Corporation Code provides the instances of appraisal right:

SEC. 81. Instances of appraisal right.— Any stockholder of a corporation shah1

1. In case any amendment to the articles of incorporation has the effect of

manner of describing the nature of his action:

His intent was also explicit from his prayer:

WHEREFORE, plaintiff respectfully prays that the Honorable Court -

2. After notice and due proceedings -

Declare that the acts of defendant Directors in allowing defendant

Respondent Balmores has no

Thus, in Cua v. Tan,[81] this court emphasized:

A corporation may be placed under receivership, or management committees may be created to

Thus, in Sy Chim v. Sy Sly Ho & Sons, Inc.,[87] this court said:

. . . the creation and appointment of a management committee and a receiver is an

The Court of Appeals had no

Carpio, (Chairperson), Brion, Del Castillo, and Mendoza, JJ., concur.

[1] Rollo (G.R. No. 172843), pp. 2-32.

[2] Id. at 36-56.

[3] Id. at 58-59.

[4] Id. at 55-56.

[5] Id. at 39-40.

[7] Rollo (G.R. No. 172843), pp. 138-139.

[8] Id. at 68 and rollo (G.R. No. 172881), pp. 53-54.

[9] Rollo (G.R. No. 172881), p. 54.

[10] Id. and rollo (G.R. No. 172843), p. 64.

[11] Rollo (G.R. No. 172881), p. 54.

[12] Rollo (G.R. No. 172843), p. 78.

[13] Rollo (G.R. No. 172881), p. 55.

[14] Id. and rollo (G.R. No. 172843), p. 67.

[16] Rollo (G.R. No. 172881), p. 55.

[171] Rollo (G.R. No. 172843), pp. 69-70.

[18] Id. at 71.

[19] Id. at 72.

[20] Id. at 72-73.

[21] Id. at 315-318.

[22] Id. at 318.

[23] Id. at 316.

[24] Id. at 317.

[27] Id. at 317-318.

[28] Id. at 318.

[30] Id. at 39.

[32] Id. at 55-56.

[34] Id. at 43-44.