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VIRGINIA O. GOCHAN v. RICHARD G. YOUNG

FACTS:

The case involves a petition for review on certiorari filed by the petitioners before the Supreme Court. The petition seeks to reverse the decision of the Court of Appeals, which dismissed the complaint filed before the Securities and Exchange Commission (SEC) by the heirs of Alice Gochan. The SEC had earlier dismissed the entire case. The main issue at hand is whether the SEC has jurisdiction over the complaint. The facts, as summarized by the Court of Appeals, are as follows:

Felix Gochan and Sons Realty Corporation (Gochan Realty) was registered with the SEC in 1951, with Felix Gochan, Sr., Maria Pan Nuy Go Tiong, Pedro Gochan, Tomasa Gochan, Esteban Gochan, and Crispo Gochan as incorporators. Alice Gochan, daughter of Felix Gochan Sr., inherited 50 shares of stock in Gochan Realty. Alice passed away in 1955, and the shares were inherited by her husband, John Young, Sr. In 1962, the Regional Trial Court of Cebu awarded 6/14 of Alice's shares to her children (respondents in this case). By September 20, 1979, the shares had increased to 179 due to earnings from dividends. On September 25, 1979, John Sr. requested Gochan Realty to partition the shares in the names of his children. However, Gochan Realty refused, citing the right of first refusal under their Articles of Incorporation. John Sr. passed away in 1990, leaving the shares to his children. In 1994, two of the respondents filed a complaint with the SEC seeking various reliefs. The SEC granted the motion to dismiss the complaint on December 9, 1994, stating that the complainants were not bona fide stockholders of record and that the case did not fall under its jurisdiction. The SEC's decision was affirmed on appeal by the Court of Appeals.

The Spouses Uy filed a complaint before the Securities and Exchange Commission (SEC) against Gochan Realty Corporation (GRC) alleging fraudulent acts committed by the corporation and its directors. They claimed that these acts could be detrimental to the stockholders, even though they themselves were not stockholders. The Uys brought the action as a derivative suit on their behalf and on behalf of FGSRC.

The Uys argued that the SEC had jurisdiction over the case, while GRC contended that the SEC did not have jurisdiction due to the non-stockholder status of the Uys. The SEC ruled in favor of GRC, stating that the Uys must have been stockholders at the time of the alleged wrongful acts. Failure to comply with this requirement would result in the dismissal of the complaint. The Uys' motion for reconsideration was denied.

The Uys appealed to the SEC en banc but they were ruled against. They then filed a Petition for Review with the Court of Appeals. The Court of Appeals held that the SEC did not have jurisdiction over the case as far as the heirs of Alice Gochan were concerned, as they were not yet stockholders. However, it upheld the capacity of the Uys to bring a derivative suit on behalf of GRC. The court also declared that the intestate Estate of John Young Sr. was an indispensable party.

The Court of Appeals further ruled that the cancellation of the notice of lis pendens on the titles of the corporate real estate was not justified. It also held that the Uys' motion for reconsideration before the SEC was not pro forma and therefore tolled the appeal period.

Consequently, this Petition for Review was filed before the Supreme Court, raising several issues.

ISSUES:

A. Whether or not the Spouses Uy have the personality to file an action before the SEC against Gochan Realty Corporation.

B. Whether or not the Spouses Uy could properly bring a derivative suit in the name of Gochan Realty to redress wrongs allegedly committed against it for which the directors refused to sue.

C. Whether or not the intestate estate of John D. Young Sr. is an indispensable party in the SEC case considering that the individual heirs' shares are still in the decedent stockholder's name.

D. Whether or not the cancellation of the notice of lis pendens was justified considering that the suit did not involve real properties owned by Gochan Realty.

RULING:

The Petition has no merit. In view of the effectivity of RA 8799, the case should be remanded to the proper regional trial court, not to the Securities and Exchange Commission.

First Issue:

  1. The Spouses Uy have the personality to file the suit before the SEC, considering that, as alleged in the Complaint, the purchase of their stocks by the corporation was null and void ab initio. Therefore, they remained bona fide stockholders.

Second Issue:

  1. The Spouses Uy could properly bring a derivative suit. The allegations in the Complaint included injuries to the corporation itself, and the Uy Spouses have the capacity to file a derivative suit on behalf of the corporation.

Third Issue:

  1. The intestate estate of John D. Young Sr. is an indispensable party in the SEC case, since the shares registered under his name could not be resolved without his estate being impleaded in the suit. The representation by his heirs is valid in this case.

Fourth Issue:

  1. The cancellation of the notice of lis pendens was not justified. The complaint involved real properties owned by Gochan Realty Corporation, affecting the title to or right of possession of the real property sought to be reconveyed. The Court of Appeals was correct in reversing the SEC Order for the cancellation.

Effect of RA 8799:

The case cannot be remanded to the SEC but must be transferred to the proper regional trial court due to the enactment of RA 8799, which transferred jurisdiction over intra-corporate disputes to regional trial courts.

PRINCIPLES:

  1. Derivative Suits Single stockholders have the right to file derivative suits on behalf of the corporation if the directors have committed a breach of trust and refuse to sue.

  2. Jurisdiction based on Complaint Allegations The jurisdiction of a court or tribunal over the subject matter is determined by the allegations in the complaint.

  3. Trust Fund Doctrine The purchase of stocks by a corporation without available unrestricted retained earnings violates the trust fund doctrine and can render the transaction void ab initio.

  4. Prescription Actions for the declaration of nullity of void contracts do not prescribe.

  5. Indispensable Parties In estate disputes, the intestate estate can be an indispensable party if the resolution of shares or property registered under the decedent’s name is involved.

  6. Lis Pendens Notice of lis pendens is allowed in actions affecting the title or right of possession of real property.

  7. Effect of RA 8799 Jurisdiction over intra-corporate disputes has been transferred from the SEC to the regional trial courts.