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ALFREDO L. VILLAMOR v. JOHN S. UMALE

FACTS:

Pasig Printing Corporation (PPC) obtained an option to lease portions of a property and entered into a memorandum of agreement (MOA) with MC Home Depot, allowing them to occupy the area as PPC's sub-lessee. Respondent Balmores filed a complaint against PPC for alleged fraud or misrepresentation that was detrimental to PPC and its stockholders. Balmores sought the appointment of a receiver, prohibition on the disposal of PPC's properties, accounting and remittance of the checks, and annulment of the board's resolution.

The trial court initially denied Balmores' request for a receiver and management committee, finding PPC's entitlement to the checks doubtful. However, the Court of Appeals granted Balmores' petition, placing PPC under receivership and creating an interim management committee to prevent dissipation or loss of assets. The Court of Appeals justified the placement of PPC under receivership by pointing to the board’s waiver of PPC’s rights in favor of a law firm, their inaction on failure to turn over rental proceeds, and the imminent danger of loss, waste, or dissipation of PPC’s assets.

Petitioners filed separate motions for reconsideration, which were denied by the Court of Appeals. They then filed separate petitions for review, asserting that the Court of Appeals erred in characterizing the suit as a derivative suit and in placing PPC under receivership. The petitions were deemed to have merit.

The petitioner filed a petition for review on certiorari under Rule 45, raising questions of law regarding the correctness of the Court of Appeals' conclusions. The issues raised include whether respondent Balmores' failure to include another party in his action was fatal, whether the Court of Appeals correctly characterized the action as a derivative suit, whether the appointment of a management committee was proper, and whether the Court of Appeals had the power to appoint a management committee. The respondent argued that the petition raises questions of fact. A derivative suit is an exception to the general rule that only the board of directors or trustees can sue on behalf of the corporation. The Interim Rules of Procedure for Intra-Corporate Controversies provide the requisites for filing a derivative suit.

ISSUES:

  1. Whether or not the action filed by the stockholder satisfies the requisites for a derivative suit.

  2. Whether the respondent failed to allege that appraisal rights were not available for the acts complained of.

  3. Whether the respondent failed to implead the corporation as a party or allege that he was filing on behalf of the corporation.

  4. Whether the respondent's action is a derivative suit or an individual suit.

  5. Whether the respondent Balmores' suit is a derivative suit or an individual suit.

  6. Whether respondent Balmores has a cause of action that would entitle him to the reliefs sought.

  7. Whether the appointment of a receiver or management committee is an extraordinary and drastic remedy that can only be exercised under certain circumstances.

  8. Whether there was loss or dissipation of assets on the part of the petitioner.

  9. Whether there was an imminent danger of paralysis of the petitioner's business operations.

  10. Whether the Court of Appeals had jurisdiction to appoint a receiver or management committee.

RULING:

  1. The action filed by the stockholder does not satisfy the requisites for a derivative suit.

  2. Yes, the respondent failed to allege that appraisal rights were not available for the acts complained of.

  3. Yes, the respondent failed to implead the corporation as a party or allege that he was filing on behalf of the corporation.

  4. The respondent's action is an individual suit.

  5. The respondent Balmores' suit is not a derivative suit but an individual suit.

  6. Respondent Balmores does not have a cause of action that would entitle him to the reliefs sought.

  7. Yes, the appointment of a receiver or management committee is an extraordinary and drastic remedy that can only be exercised under certain circumstances. It is a power that should be exercised with care and caution, and only when there is inadequacy, ineffectual or exhaustion of legal or other remedies.

  8. Yes, there was loss or dissipation of assets on the part of the petitioner. The petitioner waived its rights without any consideration, which constituted loss or dissipation of assets under the Interim Rules.

  9. No, there was no imminent danger of paralysis of the petitioner's business operations. The petitioner was earning substantial amounts from its other sub-lessees, and the respondent failed to prove otherwise.

  10. No, the Court of Appeals did not have jurisdiction to appoint a receiver or management committee. The Regional Trial Court has original and exclusive jurisdiction to hear and decide intra-corporate controversies, including incidents of such controversies.

PRINCIPLES:

  • A stockholder's right to institute a derivative suit is impliedly recognized when laws make corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties.

  • The requisites for filing derivative suits include: (a) the stockholder was a stockholder at the time of the acts subject of the action and at the time the action was filed; (b) the stockholder exerted all reasonable efforts to exhaust all available remedies under the articles of incorporation, by-laws, laws, or rules governing the corporation; (c) no appraisal rights are available for the acts complained of; (d) the suit is not a nuisance or harassment suit; and (e) the action must be brought in the name of the corporation.

  • The corporation is an indispensable party in derivative suits and must be impleaded as a party to the case. This is to ensure that the judgment is binding on the corporation and that the corporation may benefit from the suit.

  • Direct individual suits by stockholders conflict with the separate corporate entity principle and may prejudice the rights of creditors.

  • Compliance with the legal requisites for derivative suits is necessary, even though the basis for allowing stockholders to file such suits is based on equity.

  • The availability of appraisal rights is a requisite for filing derivative suits.

  • In order for an action to be considered a derivative suit, the complaint must implead the corporation as a party or allege that the plaintiff is filing on behalf of the corporation.

  • Stockholder suits based on fraudulent or wrongful acts of directors, associates, or officers may be filed as individual suits or class suits.

  • In a derivative suit, the cause of action belongs to the corporation, and the stockholder bringing the suit is merely a nominal party.

  • A cause of action must pertain to the complainant if he or she is to be entitled to the reliefs sought.

  • Wrongdoings that constitute a wrong to the corporation itself should be sued by the corporation and not by individual stockholders.

  • A corporation may be placed under receivership or have a management committee appointed if there is imminent danger of dissipation of assets or paralysation of its business operations that may be prejudicial to the interest of stockholders or the general public.

  • The appointment of a receiver or management committee is an extraordinary and drastic remedy that can only be exercised under certain circumstances.

  • The court making the appointment controls and supervises the appointed receiver or management committee.

  • The Regional Trial Court has original and exclusive jurisdiction over intra-corporate controversies and their incidents.