Case No.

28
Virginia Gochan, Et Al. Vs Richard Young, Et Al.
(GR 131889, March 12, 2001)
Digested by: Montejo, Margreth Rizzini A.

TOPIC: Derivative Suit

FACTS:
Felix Gochan and Sons Realty Corporation (Gochan Realty, for brevity) was registered with the SEC on June, 1951,
with Felix Gochan, Sr., Maria Pan Nuy Go Tiong, Pedro Gochan, Tomasa Gochan, Esteban Gochan and Crispo
Gochan as its incorporators. Felix Gochan Sr.’s daughter, Alice, mother of respondents inherited 50 shares of stock
in Gochan Realty from the former. Alice died in 1955, leaving the 50 shares to her husband, John Young, Sr.

In 1962, the Regional Trial Court of Cebu adjudicated 6/14 of these shares to her children, the respondents. Five
days later, at which time all the children had reached the age of majority, their father John Sr., requested Gochan
Realty to partition the shares of his late wife by cancelling the stock certi cates in his name and issuing in lieu
thereof, new stock certi cates in the names of respondents. However, Gochan Realty refused, citing as reason, the
right of rst refusal granted to the remaining stockholders by the Articles of Incorporation. Then, John, Sr. died,
leaving the shares to the respondents.

Consequently, respondents led a complaint with the SEC for issuance of shares of stock to the rightful owners,
nulli cation of shares of stock, reconveyance of property impressed with trust, accounting, removal of o cers and
directors and damages against respondents. A Notice of Lis Pendens was annotated as real properties of the
corporation. Gochan Realty moved to dismiss the complaint alleging that: (1) the SEC had no jurisdiction over the
nature of the action; (2) the respondents were not the real parties-in-interest and had no capacity to sue; and (3)
respondents’ causes of action were barred by the Statute of Limitations. The SEC granted the motion to dismiss and
ordered the cancellation of the notice of lis pendens annotated upon the titles of the corporate lands. It further held
that until therefore the estate is settled and the payment of the debts of the deceased is accomplished, the heirs
cannot as a matter of right compel the delivery of the shares of stock to them and register such transfer in the books
of the corporation to recognize them as stockholders. The complainant heirs succeed to the estate of the deceased
John D. Young, Sr. but they do not thereby become stockholders of the corporation. Aggrieved, complainants bring
this action as a derivative suit on their own behalf and on behalf of respondent Gochan Realty. Hence, this petition.

ISSUE:
A. Whether or not the Spouses Uy have the personality to le 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.

NOTE: The present controversy, whether intra-corporate or not, is no longer cognizable by the SEC, in
view of RA 8799, which transferred to regional trial courts the formers jurisdiction over cases involving
intra-corporate disputes.

RULING:

A. YES. As a general rule, the jurisdiction of a court or tribunal over the subject matter is determined by the
allegations in the complaint.

Here, Cecilia Uy’s averred in the Complaint that the purchase of her stocks by the corporation was null and void
ab initio is deemed admitted. It is elementary that a void contract produces no e ect either against or in favor of
anyone; it cannot create, modify or extinguish the juridical relation to which it refers. Thus, Cecilia remains a
stockholder of the corporation in view of the nullity of the Contract of Sale. Although she was no longer
registered as a stockholder in the corporate records as of the ling of the case before the SEC, the admitted
allegations in the Complaint made her still a bona de stockholder of Felix Gochan & Sons Realty
Corporation (FGSRC), as between said parties.
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 B. YES. Jurisprudence provides that where corporate directors have committed a breach of trust either by their
frauds, ultra vires acts, or negligence, and the corporation is unable or unwilling to institute suit to remedy the
wrong, a single stockholder may institute that suit, suing on behalf of himself and other stockholders and for the
bene t of the corporation, to bring about a redress of the wrong done directly to the corporation and indirectly to
the stockholders.

In the present case, the Complaint alleges all the components of a derivative suit. The allegations of injury to the
Spouses Uy can coexist with those pertaining to the corporation. The personal injury su ered by the spouses
cannot disqualify them from ling a derivative suit on behalf of the corporation. It merely gives rise to an
additional cause of action for damages against the erring directors. This cause of action is also included in the
Complaint led before the SEC. The Spouses Uy have the capacity to le a derivative suit in behalf of and for the
bene t of the corporation. The reason is that the allegations of the Complaint make them out as
stockholders at the time the questioned transaction occurred, as well as at the time the action was led
and during the pendency of the action.

ADDITIONAL INFORMATION:

REMEDIAL RIGHTS

RIGHT TO FILE AN ACTION

A shareholder has the right to le three types of actions:
1. Derivative Actions;
2. Individual Actions; and
3. Representative Actions.

INDIVIDUAL SUIT
A suit brought by the shareholder in his own name against the corporation when a wrong is directly in icted against him.

CLASS OR REPRESENTATIVE SUIT

A suit brought by the stockholder in behalf of himself and all other stockholders similarly situated when a suit brought by
the shareholder in his own name against the corporation when a wrong is directly in icted against him or a wrong is
committed against a group of stockholders.

DERIVATIVE SUIT
A suit brought by a stockholder for and on behalf of the corporation for its protection from the wrongful acts committed
by the directors/trustees of the corporation, when the stockholder nds that he has no redress because the directors/
trustees, are the ones vested by law to decide whether or not to sue.

PARTIES TO A DERIVATIVE SUIT

● In a derivative suit, the suing stockholder is merely a nominal party, while the corporation is the real party in interest.
Thus, the action must be brought for the bene t and in the name of the corporation [Villanueva].
● The corporation is an unwilling co-plainti [Rule 3 Section 10, Rules of Court].
● The corporation should be made a party to the suit, either as plainti or defendant, for res judicata to apply. BUT the
personal injury su ered by the stockholder cannot disqualify him from ling a derivative suit in behalf of the
corporation. It merely gives rise to an additional cause of action for damages

PROPER FORUM FOR DERIVATIVE SUITS

● The Regional Trial Courts exercise jurisdiction over derivative suits [Sec. 5.2., Securities Regulation Code].

REQUISITES OF DERIVATIVE ACTIONS

1. That the person instituting the action be a stockholder or member at the time the acts or transactions subject of the action
occurred and the time the action was led;
2. That the stockholder or member exerted all reasonable efforts, and alleges the same with particularity in the complaint, to
exhaust all remedies available under the AOI, by-laws, laws or rules governing the corporation or partnership to obtain the
relief he desires;
3. That there is no appraisal right available for the act(s) complained of;
4. That the suit is not a nuisance or harassment suit; [Rule 8, Interim Rules of Procedure for Intra-Corporate Controversies]
5. The action brought by the stockholder/member must be “in the name of the corporation or association” [implied from 1st
par. of Rule 8, Sec. 1 of the Interim Rules; see also Florete v. Florete, G.R. No. 174909 (2016)].
6. Exhaustion of intra-corporate remedies, i.e., has made a demand on the BOD for the appropriate relief but the latter has
failed or refused to heed his plea; andBanco de Oro Unibank, Inc. et al., G.R. No. 143264 (2012)].
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