Ching v. Subic

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CHING V. SUBIC BAY GOLF AND COUNTRY CLUB the issuance of a TRO.

Respondents however, claimed that


petitioners failed (a) to show that it was authorized by SBGSI to file
FACTS the Complaint on the said corporation's behalf; (b) to comply with the
1. Nestor Ching and Andrew Wellington filed a complaint with the RTC requisites for filing a derivative suit and an action for receivership; and
of Olongapo on behalf of the members of Subic Bay Golf and Country (c) to justify their prayer for injunctive relief since the Complaint may
Club, Inc. (SBGCCI) against the said country club and its Board of be considered a nuisance or harassment suit under Section 1 (b), Rule
Directors and officers under PD No. 902-A in relation to Sec. 5.2. of 1 of the Interim Rules of Procedure for Intra-Corporate Controversies.
the SRC. Thus, they prayed for dismissal of the Complaint.
2. The Subic Bay Golfers and Shareholders Inc. (SBGI), a corporation 8. RTC dismissed the Complaint.
composed of shareholders of the defendant corp was also named as 9. Petitioners elevated the case to the CA. CA affirmed RTC.
plaintiff. 10. Hence, petitioners resort to the present Petition for Review, wherein
3. The officers impleaded were: they argue that the Complaint they filed with the RTC was not a
a. President derivative suit. They claim that they filed the suit in their own right as
b. Treasurer stockholders against the officers and Board of Directors of the
c. Corporate Secretary corporation under Section 5 (a) of Presidential Decree No. 902-A.
d. Directors Hu Tsung Hui and Hu Tsung Tzu 11. In the alternative, petitioners allege that if this Court rules that the
4. The complaint alleged that the defendant corporation sold shares at Complaint is a derivative suit, it should nevertheless reverse the RTC's
$22,000/share, presenting to them the Articles of Incorporation, which dismissal thereof on the ground of failure to exhaust remedies within
contained the following provision.1 the corporation.
5. However, there was a subsequent amendment to the Articles of
Incorporation, approved by the SEC, wherein the provision was ISSUE/S
changed.2 W/N petitioners have the right to institute a derivative suit – YES.
6. Petitioners claimed in the complaint that defendant did not disclose
the amendment, which makes the shares non-proprietary, as it takes HELD
away the right of the shareholders to participate in the pro-rata 1. On the issue of whether the Complaint is indeed a derivative suit, we
distribution of the assets of the corporation after its dissolution. are mindful of the doctrine that the nature of an action, as well as which
Furthermore, petitioners alleged that the Board of Directors and court or body has jurisdiction over it, is determined based on the
officers of the corporation did not call any stockholders' meeting from allegations contained in the complaint of the plaintiff, irrespective of
the time of the incorporation, in violation of Section 50 of the whether or not the plaintiff is entitled to recover upon all or some of the
Corporation Code and the By-Laws of the corporation. Neither did the claims asserted therein.
defendant directors and officers furnish the stockholders with the 2. The reliefs sought in the Complaint, namely that of enjoining
financial statements of the corporation nor the financial report of the defendants from acting as officers and Board of Directors of the
operation of the corporation in violation of Section 75 of the corporation, the appointment of a receiver, and the prayer for
Corporation Code. Petitioners also claim that on August 15, 1997, damages in the amount of the decrease in the value of the shares of
SBGCCI presented to the SEC an amendment to the By-Laws of the stock, clearly show that the Complaint was filed to curb the alleged
corporation suspending the voting rights of the shareholders except mismanagement of SBGCCI. The causes of action pleaded by
for the five founders' shares. Said amendment was allegedly passed petitioners do not accrue to a single shareholder or a class of
without any stockholders' meeting or notices to the stockholders in shareholders but to the corporation itself.
violation of Section 48 of the Corporation Code. 3. However, as minority stockholders, petitioners do not have any
7. Alleging that the stockholders suffered damages as a result of the statutory right to override the business judgments of SBGCCI's
fraudulent mismanagement of the corporation, petitioners prayed for officers and Board of Directors on the ground of the latter's

1
No profit shall inure to the exclusive benefit of any of its shareholders, hence, no dividends shall between Subic Bay Metropolitan Authority and The Universal International Group of Taiwan,
be declared in their favor. Shareholders shall be entitled only to a pro-rata share of the assets of where the golf course and clubhouse component thereof was assigned to the Club, the
the Club at the time of its dissolution or liquidation. shareholders shall not have proprietary rights or interests over the properties of the Club.
2
No profit shall inure to the exclusive benefit of any of its shareholders, hence, no dividends shall
be declared in their favor. In accordance with the Lease and Development Agreement by and
alleged lack of qualification to manage a golf course. Contrary to (4) The suit is not a nuisance or harassment suit.
the arguments of petitioners, Presidential Decree No. 902-A, which is 6. The RTC dismissed the Complaint for failure to comply with the
entitled REORGANIZATION OF THE SECURITIES AND EXCHANGE second and fourth requisites above.
COMMISSION WITH ADDITIONAL POWERS AND PLACING THE 7. Upon a careful examination of the Complaint, this Court finds that the
SAID AGENCY UNDER THE ADMINISTRATIVE SUPERVISION OF same should not have been dismissed on the ground that it is a
THE OFFICE OF THE PRESIDENT, does not grant minority nuisance or harassment suit. Although the shareholdings of petitioners
stockholders a cause of action against waste and diversion by are indeed only two out of the 409 alleged outstanding shares or
the Board of Directors, but merely identifies the jurisdiction of 0.24%, the Court has held that it is enough that a member or a minority
the SEC over actions already authorized by law or jurisprudence. of stockholders file a derivative suit for and in behalf of a corporation.
It is settled that a stockholder's right to institute a derivative suit 8. With regard, however, to the second requisite, we find that petitioners
is not based on any express provision of the Corporation Code, failed to state with particularity in the Complaint that they had exerted
or even the Securities Regulation Code, but is impliedly all reasonable efforts to exhaust all remedies available under the
recognized when the said laws make corporate directors or articles of incorporation, by-laws, and laws or rules governing the
officers liable for damages suffered by the corporation and its corporation to obtain the relief they desire. The Complaint contained
stockholders for violation of their fiduciary duties. no allegation whatsoever of any effort to avail of intra-corporate
4. At this point, we should take note that while there were allegations in remedies. Indeed, even if petitioners thought it was futile to exhaust
the Complaint of fraud in their subscription agreements, such as the intra-corporate remedies, they should have stated the same in the
misrepresentation of the Articles of Incorporation, petitioners do not Complaint and specified the reasons for such opinion. Failure to do so
pray for the rescission of their subscription or seek to avail of their allows the RTC to dismiss the Complaint, even motu proprio, in
appraisal rights. Instead, they ask that defendants be enjoined from accordance with the Interim Rules. The requirement of this allegation
managing the corporation and to pay damages for their in the Complaint is not a useless formality which may be disregarded
mismanagement. Petitioners' only possible cause of action as minority at will.
stockholders against the actions of the Board of Directors is the
common law right to file a derivative suit. The legal standing of minority DISPOSITION
stockholders to bring derivative suits is not a statutory right, there WHEREFORE, the Petition for Review is hereby DENIED. The Decision of the
being no provision in the Corporation Code or related statutes Court of Appeals in CA-G.R. CV No. 81441 which affirmed the Order of the
authorizing the same, but is instead a product of jurisprudence based Regional Trial Court (RTC) of Olongapo City dismissing the Complaint filed
on equity. However, a derivative suit cannot prosper without first thereon by herein petitioners is AFFIRMED.
complying with the legal requisites for its institution.
5. Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-
Corporate Controversies imposes the following requirements for
derivative suits:

(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

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