Ponente: Leonen, J.
FACTS
In 2004, Pasig Printing Corp. (PPC) obtained an option to lease portions of MidPasig Devt. Corp.'s property, including Rockland where MC Home Depot was located. In November of the same year, PPC’s board of directors issued a resolution waiving all its rights, interests, and participation in the option to lease contract in favor of the law firm of Atty. Alfredo Villamor, Jr. PPC received no consideration for this waiver in favor of Villamor’s law firm.
Thereafter, PPC, represented by Villamor, entered into a memorandum of agreement (MOA) with MC Home Depot. Under the MOA, MC Home Depot would continue to occupy the area as PPC’s sublessee for four (4) years, renewable for another four (4) years, at a monthly rental of P4.5M plus goodwill of P18M.
In compliance with the terms of the MOA, MC Home Depot issued 20 post-dated checks representing rental payments for one year and the goodwill money. The checks were given to Villamor who did not turn these or the equivalent amount over to PPC, upon encashment.
Hernando Balmores, a stockholder and director of PPC, wrote a letter addressed to PPC’s directors, informing them that Villamor should be made to deliver to PPC and account for MC Home Depot’s checks or their equivalent value.
Due to the alleged inaction of the directors, Balmores filed with the RTC an intra-corporate controversy complaint under Rule 1, Section 1(a)(1) of the Interim Rules for Intra-Corporate Controversies (Interim Rules) against PPC's directors for their alleged devices or schemes amounting to fraud or misrepresentation "detrimental to the interest of the corporation and its stockholders." Balmores alleged in his complaint that because of petitioners’ actions, PPC’s assets were ". . . not only in imminent danger, but have actually been dissipated,lost, wasted and destroyed."
Balmores prayed that a receiver be appointed from his list of nominees. He also prayed for PPC's directors to be prohibited from "selling, encumbering, transferring or disposing in any manner any of PPC’s properties, including the MC Home Depot checks and/or their proceeds." He also prayed for the accounting and remittance to PPC of the MC Home Depot checks or their proceeds and for the annulment of the board’s resolution waiving PPC’s rights in favor of Villamor’s law firm.
RTC ruling: Appointment of a receiver and the creation of a Management Committee applied for by Balmores were DENIED. The resolution issued by PPC’s board of directors, waiving its rights to the option to lease contract infavor of Villamor’s law firm, must be accorded prima facie validity. Too, a separate pending case filed against Villamor involving the same MC Depot weakened Balmores’ claim that the checks were properties of PPC.
And finally, the RTC found that there was "no clear and positive showing of dissipation, loss, wastage, or destruction of PPC’s assets that was prejudicial to the interestof the minority stockholders, parties-litigants or the general public." The board’s failure to recover the disputed amounts was not an indication of mismanagement resulting in the dissipation of assets.
CA ruling: RTC ruling reversed. PPC is to be placed under receivership, and an interim management committee is to be created to take custody and control of all assets and properties owned and possessed by PPC, and stop and prevent any disposal, in any manner, of any of the properties of PPC, among other tasks.
The CA ruled that the case filed by Balmores with the RTC was a derivative suit because there were allegations of fraud or ultra vires acts by PPC’s directors.
The CA added that the PPC board’s waiver of PPC’s rights in favor ofVillamor’s law firm without any consideration and its inaction on Villamor’s failure to turn over the proceeds of rental payments to PPC warranted the creation of a management committee, and that the circumstances resulted in the imminent danger of loss, waste, or dissipation of PPC’s assets.
Hence, the instant petition.
RULING
Petition granted. CA ruling reversed.
Whether Balmores' action is a derivative suit. – NO.
A derivative suit is an action filed by stockholders to enforce a corporate action. It is an exception to the general rule that the corporation’s power to sue is exercised only by the board of directors or trustees. Individual stockholders may be allowed to sue on behalf of the corporation whenever the directors or officers of the corporation refuse to sue to vindicate the rights of the corporation or are the ones to be sued and are in control of the corporation. It is allowed when the "directors [or officers] are guilty of breach of . . . trust, [and] not of mere error of judgment." In derivative suits, the real party in interest is the corporation, and the suing stockholder is a mere nominal party.
A stockholder or member may bring an action in the name of a corporation or association, as the case may be, provided, that:
- 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;
- He exerted all reasonable efforts, and alleges the same with particularity in the complaint, toexhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires;
- No appraisal rights are available for the act or acts complained of;
- The suit is not a nuisance or harassment suit; and
- The action brought by the stockholder or member must be in the name of the corporation or association.
Whether Balmores' action is an individual or class suit. – INDIVIDUAL.
Stockholder/s’ suits based on fraudulent or wrongful acts of directors, associates, or officers may be individual suits or class suits. Individual suits are filed when the cause of action belongs to the individual stockholder personally, and not to the stockholders as a group or to the corporation, e.g., denial of right to inspection and denial of dividends to a stockholder. If the cause of action belongs to a group of stockholders, such as when the rights violated belong to preferred stockholders, a class or representative suit may be filed to protect the stockholders in the group.
In this case, Balmores filed an individual suit. His intent was very clear from his manner of describing the nature of his action. did not bring the action for the benefit of the corporation. H ewas alleging that the acts of PPC’s directors, specifically the waiver of rights in favor of Villamor’s law firm and their failure to take back the MC Home Depot checks from Villamor, were detrimental to his individual interest as a stockholder. In filing an action, therefore, his intention was to vindicate his individual interest and not PPC’s or a group of stockholders.
Whether Balmores has a cause of action. – NO.
Corporations have a personality that is separate and distinct from their stockholders and directors. A wrong tothe corporation does not necessarily create an individual cause of action
Balmores did not allege any cause of action that is personal to him. His allegations are limited to the facts that PPC’s directors waived their rights to rental income in favor of Villamor’s law firm without consideration and that they failed to take action when Villamor refused to turn over the amounts to PPC. These are wrongs that pertain to PPC.
Therefore, the cause of action belongs to PPC — not to Balmores or any stockholders as individuals.
Whether the CA erred in placing PPC under receivership. – YES.
PPC should not be bound by a decision granting the application for the appointment of a receiver or management committee for three reasons:
- PPC was not impleaded in the complaint, so the courts did not acquire jurisdiction over it;
- Balmores failed to allege a cause of action that pertains personally to him; and
- the CA has no power to appoint a receiver or management committee because such power is lodged in the RTC, which has original and exclusive jurisdiction to hear and decide intra-corporate controversies, including incidents of such controversies, such as applications for the appointment of receivers or management committees.