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FOREST HELLS GOLF & COUNTRY CLUB v. FIL-ESTATE PROPERTIES

FACTS:

Forest Hills Golf and Country Club, Inc. (FHGCCI) filed a derivative suit against Fil-Estate Properties, Inc. (FEPI) and Fil-Estate Golf Development, Inc. (FEGDI) for specific performance with damages. The suit arises from a project agreement between Kingsville Construction and Development Corporation (Kingsville), Kings Properties Corporation (KPC), and FEPI, wherein FEPI agreed to finance and develop several parcels of land owned by Kingsville into a residential area and golf course. FHGCCI was created to fulfill FEPI's subscription to its authorized capital stock. However, FHGCCI alleges that FEPI and FEGDI failed to complete the development work.

Madrid, a shareholder of FHGCCI, sent demand letters to the FHGCCI Board of Directors, who failed to take action on the matter. As a result, Madrid filed the derivative suit. In their Answer, FEPI and FEGDI argue that FHGCCI failed to state the legal bases for their alleged obligation, failed to exhaust all remedies available under the articles of incorporation and by-laws, and failed to include the Board of Directors as indispensable parties.

The Regional Trial Court (RTC) dismissed the case for lack of jurisdiction. This decision was affirmed in a subsequent Order denying reconsideration. FHGCCI argues that the case is not an intra-corporate controversy and that the RTC erred in applying the case of Reyes without providing any explanation. On the other hand, FEPI and FEGDI claim that the case is an intra-corporate controversy, and the RTC correctly dismissed it for lack of jurisdiction.

ISSUES:

  1. Whether the Complaint filed by petitioner FHGCCF falls under the jurisdiction of special commercial courts.

  2. Whether the Complaint involves an intra-corporate controversy.

  3. Whether the Regional Trial Court (RTC) has jurisdiction over the derivative suit for specific performance filed by petitioner FHGCCI against respondents FEPI and FEGDI.

  4. Whether the Complaint filed by petitioner FHGCCI complied with the requisites for a valid derivative suit.

  5. Whether or not the Complaint meets the requirements for a derivative suit.

  6. Whether or not the Complaint should be dismissed for failure to meet said requirements.

RULING:

  1. The Complaint filed by petitioner FHGCCF falls under the jurisdiction of special commercial courts.

  2. The Complaint involves an intra-corporate controversy.

  3. The RTC does not have jurisdiction over the derivative suit for specific performance. The jurisdiction over intra-corporate disputes, including derivative suits, is now vested in the RTCs designated as special commercial courts under A.M. No. 00-11-03-SC. The specific performance case filed by petitioner FHGCCI against respondents FEPI and FEGDI involves intra-corporate controversies, as evidenced by allegations of interlocking directorships, conflict of interest, and bad faith in carrying out duties. Therefore, the case falls under the jurisdiction of special commercial courts.

  4. The Complaint filed by petitioner FHGCCI did not comply with the requisites for a valid derivative suit. Rule 8, Section 1 of the Interim Rules of Procedure Governing Intra-Corporate Controversies provides that a stockholder or member may bring an action in the name of a corporation, provided that they were a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed, and they exerted all reasonable efforts to exhaust intra-corporate remedies. The Complaint failed to comply with these requisites, leading to the conclusion that it was not a valid derivative suit.

  5. The Complaint fails to meet the requirements for a derivative suit. It does not sufficiently allege that the plaintiff exerted all reasonable efforts to exhaust all remedies available under the articles of incorporation, by-laws, or rules governing the corporation; that no appraisal rights are available for the acts or acts complained of; and that the suit is not a nuisance or a harassment suit. Therefore, the Complaint must be dismissed.

PRINCIPLES:

  • Jurisdiction is conferred by law and is determined by the material allegations of the complaint, containing the concise statement of ultimate facts of a plaintiff's cause of action.

  • Intra-corporate controversies fall under the jurisdiction of special commercial courts.

  • Jurisdiction over intra-corporate disputes, including derivative suits, is vested in the RTCs designated as special commercial courts.

  • A derivative suit is a remedy designed to protect the rights of minority shareholders against abuses of the majority.

  • A derivative suit touches upon the internal affairs of a corporation and is governed by the Interim Rules of Procedure Governing Intra-Corporate Controversies.

  • If a commercial case is wrongly raffled to an RTC's regular branch without a designated Special Commercial Court, the proper recourse is to refer the case to the nearest RTC with a designated Special Commercial Court branch within the judicial region.

  • In a derivative suit, the minority stockholder suing for and on behalf of the corporation must allege that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit.

  • The stockholder should have exerted all reasonable efforts to exhaust all remedies available under the articles of incorporation, by-laws, laws, or rules governing the corporation to obtain the relief desired, and this fact must be alleged with particularity in the complaint.

  • The purpose of requiring exhaustion of remedies is to make the derivative suit the final recourse of the stockholder after all other remedies have failed.

  • The stockholder must also allege that there were no appraisal rights available for the acts complained of and must explicitly or implicitly state that the suit is not a nuisance or a harassment suit.

  • Failure to meet the requirements for a derivative suit will result in the dismissal of the complaint.