this Court, in Yu v.

Yukayguan, 34 explained:

The Court has recognized that a stockholder’s right to institute a derivative suit is not based on any
express provision of the Corporation
Code, or even the Securities Regulation Code, but is impliedly recognized when the said laws make
corporate directors or officers liable for damages suffered by the corporation and its stockholders for
violation of their fiduciary duties. Hence, a stockholder may sue for mismanagement, waste or
dissipation of corporate assets because of a special injury to him for which he is otherwise without
redress. In effect, the suit is an action for specific performance of an obligation owed by the corporation
to the stockholders to assist its rights of action when the corporation has been put in default by the
wrongful refusal of the directors or management to make suitable measures for its protection. The basis
of a stockholder’s suit is always one in equity. However, it cannot prosper without first complying with
the legal requisites for its institution. (Emphasis in the original)

Section 1, Rule 8 of the Interim Rules imposes the following requirements for derivative suits:

(1) [The person filing the suit must be] a stockholder or member at the time the acts or transactions
subject of the action occurred and the time the action was filed;
(2) [He must have] 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
(4) The suit is not a nuisance or harrassment suit.
RULING:
It is well settled in this jurisdiction that where corporate directors are guilty of a breach of
trust — not of mere error of judgment or abuse of discretion — and intracorporate remedy is futile or
useless, a stockholder may institute a suit in behalf of himself and other stockholders and for the
benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the corporation
and indirectly upon the stockholders. A derivative suit, however, must be differentiated from individual
and representative or class suits. Suits by stockholders or members of a corporation based on
wrongful or fraudulent acts of directors or other persons may be classified into individual suits, class
suits, and derivative suits.
According to the SC, a shareholder's derivative suit seeks to recover for the benefit of the
corporation and its whole body of shareholders when injury is caused to the corporation that
may not otherwise be redressed because of failure of the corporation to act. Thus, ‘the action
is derivative, i.e., in the corporate right, if the gravamen of the complaint is injury to the
corporation, or to the whole body of its stock and property without any severance or
distribution among individual holders, or it seeks to recover assets for the corporation or to
prevent the dissipation of its assets.’ In contrast, "a
direct
action is one filed by the
shareholder individually (or on behalf of a
class
of shareholders to which he or she belongs)
for injury to his or her interest as a
shareholder.
The two actions are mutually exclusive: i.e.,
the right of action and recovery belongs to either the
shareholders
(direct action) or
the
corporation
(derivative action)."
As regards the derivative suit re: acquisition of JTH
,
the Court held that it is dismissible for being
moot and academic. It should be noted that the 26 September 2006 Resolution of the PRCI Board of
Directors not only authorized the acquisition by PRCI of up to 100% of the common stock of JTH, but it
also specifically appointed petitioner Santiago Sr. to act as attorney-in-fact and proxy who could vote
all the shares of PRCI in JTH, as well as nominate, appoint, and vote into office directors and/or
officers during regular and special stockholders’ meetings of JTH. It was by this authority that PRCI
directors were able to constitute the JTH Board of Directors. Subsequently, the disputed Resolution
was approved and ratified by the stockholders, holding 74% of the outstanding capital stock in PRCI,
during the Special Stockholders’ Meeting held on 7 November 2006
.
Respondents Miguel, et al.,
instituted the derivative suit against herein petitioners in their capacity as directors of PRCI and/or
JTH. Clearly, the acquisition by PRCI of JTH and the constitution of the JTH Board of Directors are no
longer just the acts of the majority of the PRCI Board of Directors, but also of the majority of the PRCI
stockholders. By ratification, even an unauthorized act of an agent becomes the authorized act of the
principal.
To declare the Resolution dated 26 September 2006 of the PRCI Board of Directors null and
void will serve no practical use or value, or affect any of the rights of the parties, because the
Resolution of the PRCI stockholders -- approving and ratifying said acquisition and the manner in
which PRCI shall constitute the JTH Board of Directors -- will still remain valid and binding.
In fact, if
the derivative suit, insofar as it concerns the Resolution dated 26 September 2006 of the PRCI Board
of Directors, is not dismissible for mootness, it is still vulnerable to dismissal for failure to implead
indispensable parties, namely, the majority of the PRCI stockholders.
The derivative suit, with respect to the Resolution dated 11 May 2007 of the PRCI Board of
Directors,
is similarly dismissible for lack of cause of action. Rule 8, Section 1 of the Interim Rules of
Procedure for Intra-Corporate Controversies (IRPICC) lays down the following requirements, which a
stockholder must comply with in filing a derivative suit. In the case at bar, the Court found that the third
requisite, that “no appraisal rights are available for the acts complained of”, was lacking.
The Court
found the averment of respondents Miguel, et al., that appraisal rights were not available to them
untenable, because appraisal rights may only be exercised by stockholders who had voted against the
roposed corporate action; and that at the time respondents Miguel, et al., instituted the derivative
suit, PRCI stockholders
had yet to vote
on the intended property-for-shares exchange between PRCI
and JTH. Respondents Miguel, et al., themselves caused the unavailability of appraisal rights by filing
the Complaint, in which they prayed that the 11 May 2007 Resolution of the Board of Directors
approving the property-for-shares exchange between PRCI and JTH be declared null and void, even
before the said Resolution could be presented to the PRCI stockholders for approval or rejection.
More than anything, the argument of respondents Miguel, et al., raises questions of whether their
derivative suit was prematurely filed for they had failed to exert all reasonable efforts to exhaust all
other remedies available under the articles of incorporation, by-laws, laws, or rules governing the
corporation or partnership, as required by Rule 8, Section 1(2) of the IRPICC. The obvious intent
behind the rule is to make the derivative suit the final recourse of the stockholder after all other
remedies to obtain the relief sought have failed.
DISPOSITIVE PORTION:
WHEREFORE, the Court renders the following judgment:
(1) The Court
GRANTS the Petitions of petitioners Santiago, et al., and petitioner Santiago Sr. in G.R. No. 181455-
56 and G.R. No. 182008, respectively. It REVERSES and SETS ASIDE the Decision dated 6
September 2007 and Resolution dated 22 January 2008 of the Court of Appeals in CA-G.R. SP No.
99769 and No. 99780; (2) The Court LIFTS the TRO issued on 9 April 2008 in G.R. No. 180028 and
CANCELS and RETURNS the cash bond posted by petitioner Santiago Sr. The permanent injunction
issued by the RTC on 8 October 2007, the execution and enforcement of which the TRO dated 9 April
2008 of this Court enjoins, has been rendered moot, since the agenda items subject of said
permanent injunction were already presented to, and approved and ratified by a majority of the PRCI
stockholders at the Annual Stockholders’ Meeting held on 18 June 2008; (3) The Court ORDERS the
DISMISSAL of the Complaint of respondents Miguel, et al., in Civil Case No. 07-610 before the RTC
for lack of cause of action, failure to implead indispensable parties, and mootness; (4) The Court
ORDERS the DISMISSAL of the Complaint of Jalane, et al., in Civil Case No. 08-458, for being in
violation of the rules on the multiplicity of suits and forum shopping; and (5) The Court DENIES the
Very Respectful Motion for Leave to Intervene as Co-Respondent in the Petition with the attached
Very Respectful Urgent Motion to Lift Restraining Order of APRI, for redundancy and mootnes
G.R. No. 178523 June 16, 2010
Lessons Applicable: Certificate of stock = merely tangible evidence of stock(Corporate Law)

FACTS:
  October 20, 1994: Makati Sports Club Inc (MSCI) BOD adopted a resolution authorizing
the sale of 19 unissued shares at a floor price of P400,000 and P450,000 per share for
Class A and B, respectively.
 Cheng was a Treasurer and Director of Makati Sports Club in 1995
 July 7, 1995: Hodreal expressed his interest to buy a share, for this purpose he sent the
letter requesting to be wait listed
 November 1995: McFoods acquiried shares of Makati Sports Club at P1,800,000 through
Urban Bank
o December 15, 1995: Stock cert. was issued to McFoods
 December 27, 1995: McFoods advised its offer to resell
 November 24, 1995: Hodreal paid McFoods P1,400,000
 December 27, 1995: Hodreal again paid P1,400,000
 February 7, 1996: Cheng advised sale by McFoods to Hodreal of the share evidenced by
a certificate
o new certificate was issued
 1997: investigation showed that Cheng profited from the transaction because of her
knowledge
 MSCI sought judgment that would order respondents to pay the sum of P1,000,000.00,
representing the amount allegedly defrauded, together with interest and damages
 CA affirmed RTC: dismissed

ISSUE: W/N MSCI was defrauded by Cheng's collaboration with Mc Foods

HELD: NO. petition is DENIED

 no evidence on record that the Membership Committee acted on Hodreal's letter

 SEC. 29. (a) The Membership Committee shall process applications for membership;
ascertain that the requirements for stock ownership, including citizenship, are complied
with; submit to the Board its recommended on applicants for inclusion in the Waiting
List; take charge of auction sales of shares of stock; and exercise such other powers and
perform such other functions as may be authorized by the Board.
o Membership Committee failed to question the alleged irregularities attending Mc
Foods’ purchase
 purchase price of P1,800,000.00 is P1,400,000.00 more than the floor price - NOT
detrimental
 Upon payment and the execution of the Deed of Absolute Sale, it had the right to demand
the delivery of the stock certificate in its name.
o The right of a transferee to have stocks transferred to its name is an inherent right
flowing from its ownership of the stocks
 certificate of stock
o paper representative or tangible evidence of the stock itself and of the various
interests therein
 not a stock in the corporation but is merely evidence of the holder’s
interest and status in the corporation, his ownership of the share
represented thereby
 MSCI failed to repurchase Mc Foods’
no proof that Cheng personally profited .

Facts:

Petitioner Bitong allegedly acting for the benefit of Mr. & Ms. Co. filed a derivative suit before the SEC
against respondent spouses Apostol, who were officers in said corporation, to hold them liable for fraud
and mismanagement in directing its affairs. Respondent spouses moved to dismiss on the ground that
petitioner had no legal standing to bring the suit as she was merely a holder-in-trust of shares of JAKA
Investments which continued to be the true stockholder of Mr. & Ms. Petitioner contends that she was a
holder of proper stock certificates and that the transfer was recorded. She further contends that even in
the absence of the actual certificate, mere recording will suffice for her to exercise all stockholder rights,
including the right to file a derivative suit in the name of the corporation. The SEC Hearing Panel
dismissed the suit. On appeal, the SEC En Banc found for petitioner. CA reversed the SEC En Banc
decision.

Issue:

Whether or not petitioner is the true holder of stock certificates to be able institute a derivative suit.

Ruling: NO.

Sec 63 of the Corporation Code envisions a formal certificate of stock which can be issued only upon
compliance with certain requisites. First, the certificates must be signed by the president or vice-
president, countersigned by the secretary or assistant secretary, and sealed with the seal of the
corporation. A mere typewritten statement advising a stockholder of the extent of his ownership in a
corporation without qualification and/or authentication cannot be considered as a formal certificate of
stock. Second, delivery of the certificate is an essential element of its issuance. Hence, there is no
issuance of a stock certificate where it is never detached from the stock books although blanks therein
are properly filled up if the person whose name is inserted therein has no control over the books of the
company. Third, the par value, as to par value shares, or the full subscription as to no par value shares,
must first be fully paid. Fourth, the original certificate must be surrendered where the person requesting
the issuance of a certificate is a transferee from a stockholder.

The certificate of stock itself once issued is a continuing affirmation or representation that the stock
described therein is valid and genuine and is at least prima facie evidence that it was legally issued in the
absence of evidence to the contrary. However, this presumption may be rebutted. Aside from
petitioner’s own admissions, several corporate documents disclose that the true party-in-interest is not
petitioner but JAKA. It should be emphasized that JAKA executed, a deed of sale over 1,000 Mr. & Ms.
shares in favor of respondent Eugenio D. Apostol. On the same day, respondent Apostol signed a
declaration of trust stating that she was the registered owner of 1,000 Mr. & Ms. shares covered by a
Certificate of Stock. And, there is nothing in the records which shows that JAKA had revoked the trust it
reposed on respondent Eugenia D. Apostol. Neither was there any evidence that the principal had
requested her to assign and transfer the shares of stock to petitioner. In fine, the records are unclear on
how petitioner allegedly acquired the shares of stock of JAKA.
Thus, for a valid transfer of stocks, the requirements are as follows: (a) There must be delivery of the
stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or other
persons legally authorized to make the transfer; and, (c) to be valid against third parties, the transfer
must be recorded in the books of the corporation. At most, in the instant case, petitioner has satisfied
only the third requirement. Compliance with the first two requisites has not been clearly and sufficiently
shown.

*The basis of a stockholder’s suit is always one in equity. However, it cannot prosper without first
complying with the legal requisites for its institution. The most important of these is the bona fide
ownership by a stockholder of a stock in his own right at the time of the transaction complained of
which invests him with standing to institute a derivative action for the benefit of the corporation.

Asset Privatization Trust vs Court of Appeals

300 SCRA 579 [GR No. 121171 December 29, 1998]

Facts: The development, exploration and utilization of the mineral deposits in the Surigao Mineral
Reservation have been authorized by the Republic Act No. 1528, as amended by Republic Act No.
2077 and Republic Act No. 4167, by virtue of which laws, a memorandum of agreement was
drawn on July 3, 1968, whereby the Republic of the Philippines thru the Surigao Mineral
Reservation Board, granted MMIC the exclusive right to explore, develop and exploit nickel,
cobalt, and other minerals in the Surigao Mineral Reservation. MMIC is a domestic corporation
engaged in mining with respondent Jesus S. Cabarrus Sr. as president and among its original
stockholders. The Philippine government undertook to support the financing of MMIC by purchase
of MMIC debenture bonds and extension of guarantees. Further, from the DBP and/or the
government financing institutions to subscribe in MMIC and issue guarantee/s of foreign loans or
deferred payment arrangements secured from the US Eximbank, Asian Development Bank
(ADB), Kobe steel of amount not exceeding US$100 million. On July 13, 1981, MMIC, PNB, and
DBP executed a mortgage trust agreement whereby MMIC as mortgagor, agreed to constitute a
mortgage in favor of PNB and DBP as mortgages, over all MMIC assets; subject of real estate and
chattel mortgage executed by the mortgagor, and additional assets described and identified,
including assets of whatever kind, nature or description, which the mortgagor may acquire whether
in substitution of, in replenishment or in addition thereto. Due to the unsettled obligations, a
financial restructuring plan (FRP) was suggested, however not finalized. The obligations matured
and the mortgage was foreclosed. The foreclosed assets were sold to PNB as the lone bidder and
were assigned to the newly formed corporations namely Nonoc Mining Corporation, Maricalum
Mining and Industrial Corporation and Island Cement Corporation. In 1986, these assets were
transferred to the asset privatization trust. On February 28, 1985, Jesus S. Cabarrus Sr. together
with the other stockholders of MMIC, filed a derivative suit against DBP and PNB before the RTC
of Makati branch 62, for annulment of foreclosures, specific performance and damages. The suit
docketed as civil case no. 9900, prayed that the court: 1.) Annul the foreclosures, restore the
foreclosed assets to MMIC, and require the banks to account for their use and operation in the
interim; 2.) Direct the banks to honor and perform their commitments under the alleged FRP; 3.)
Pay moral and exemplary damages, attorney’s fees, litigation expenses and costs. A compromise
and arbitration agreement was entered by the parties to which committee awarded damages in
favor of Cabarrus.

Issue: Whether or not the award granted to Cabarrus was proper.

Held: No. Civil case no. 9900 filed before the RTC being a derivative suit, MMIC should have
been impleaded as a party. It was not joined as a part plaintiff or party defendant at any stage
before of the proceedings as it is, the award for damages to MMIC, which was not party before
the arbitration committee is a complete nullity.

Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while the
stockholder filing suit for the corporation’s behalf is only a nominal party. The corporation should
be included s a party in the suit.

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation

wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of
the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In
such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real
part in interest.

It is a condition sine qua non that the corporation be impleaded as a party because – not only is the
corporation an indispensable party, but it is also the present rule that it must be served with process.
The reason given is that the judgement must be made binding upon the corporation in order that
the corporation may get the benefit of the suit and may not bring a subsequent suit against the same
defendants for the same cause of action. In other words the corporation must be joined as a party
because it is its cause of action that is being litigated and because judgement must be a res judicata
against it.

The reasons given for not allowing direct individual suit are:

1. That the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in
the case of Evangelista vs Santos that the “Stockholders may not directly claim those
damages for themselves for that would result in the appropriation by, and the distribution
among them of part of the corporate assets before the
2. The universally recognized doctrine that a stockholder in a corporation has no title legal or
equitable to the corporate property; that both of these are in the corporation itself for the
benefit of the stockholders. In other words, to allow shareholders to sue separately would
conflict with the separate corporate entity principle.
3. dissolution of the corporation and the liquidation of its debts and liabilities, something
which cannot be legally done in view of section 16 of the corporation law.
4. The filing of such suits would conflict with the duty of the management to sue for the
protection of all concerned;
5. It would produce wasteful multiplicity of suits; and
6. It would involve confusion in ascertaining the effect of partial recovery by an individual
on the damages recoverable by the corporation for the same act.
 7. IMELDA O. COJUANGCO et al. v. SANDIGANBAYAN et al. 586 SCRA 790
(2009)
8. While the general rule is that the portion of a decision that becomes the subject of execution
is that ordained or decreed in the dis-positive part thereof, there are recognized exceptions
to this rule, one of which is where extensive and explicit discussion and settlement of the
issue is found in the body of the decision. The Republic of the Philippines (Republic) filed
before the Sandiganbayan a “Complaint for Reconveyance, Reversion, Accounting,
Restitution and Damages,” of the alleged ill-gotten wealth of the Marcoses which have
been invested in the Philippine Long Distance Telecommunication Corporation (PLDT).
Ramon and Imelda Cojuangco (Spouses Cojuangco) were subsequently impleaded. The
Sandiganbayan dismissed the complaint with respect to the recovery of the PLDT shares.
The Republic appealed to the Supreme Court, and the same issued a favorable ruling. The
Republic thereafter filed with the Sandiganbayan a Motion for the Issuance of a Writ of
Execution, praying for the cancellation of the shares of stock registered in the name of
Prime Holdings and the annotation of the change of ownership on PTIC‘s Stock and
Transfer Book. The Republic further prayed for the issuance of an order for PTIC to
account for all cash and stock dividends declared by PLDT in favor of PTIC from 1986 up
to the present including compounded interests. The Sandiganbayan granted the same,
except its prayer for accounting of dividends. The Republic moved for reconsideration with
respect to the denial of accounting of dividends, which the Sandiganbayan granted. The
Cojuangcos protested, alleging that the SC‘s decision did not include in its dispositive
portion the grant of dividends and interests accruing to the shares adjudicated in favor of
the Republic.
9. ISSUE:
10. Whether or not the Republic is entitled to the dividends and interests accruing to the shares
despite its non-inclusion in the dis-positive portion of the decision
11. HELD:
12. The Cojuangcos insist on a literal reading of the dis-positive portion of the SC‘s Decision,
excluding the dividends, interests, and earnings accruing to the shares of stock from being
accounted for and remitted. The SC, in directing the re-conveyance to the Republic of the
111,415 shares of PLDT stock owned by PTIC in the name of Prime Holdings, declared
the Republic as the owner of said shares and, necessarily, the dividends and interests
accruing thereto. Ownership is a relation in law by virtue of which a thing pertaining to
one person is completely subjected to his will in everything not prohibited by law or the
concurrence with the rights of another. Its traditional elements or attributes include jus
utendi or the right to receive from the thing that it produces. Contrary to the Cojuangcos‘
contention, while the general rule is that the portion of a decision that becomes the subject
of execution is that ordained or decreed in the dis-positive part thereof, there are recognized
exceptions to this rule, viz: (a) where there is ambiguity or uncertainty, the body of the
opinion may be referred to for purposes of construing the judgment, because the dis-
positive part of a decision must find support from the decision‘s ratio decidendi; and (b)
where extensive and explicit discussion and settlement of the issue is found in the body of
the decision. In the Decision, although the inclusion of the dividends, interests, and
earnings of the 111,415 PTIC shares as belonging to the Republic was not mentioned in
the dis-positive portion of the Court‘s Decision, it is clear from its body that what was
being adjudicated in favor of the Republic was the whole block of shares and the fruits
 thereof, said shares having been found to be part of the Marcoses‘ ill- gotten wealth, and
therefore, public money.

The Rural Bank of Lipa City Inc., etc. vs. Court of Appeals
[GR 124535, 28 September 2001]

Facts: Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City, executed
a Deed of Assignment, wherein he assigned his shares, as well as those of 8 other
shareholders under his control with a total of 10,467 shares, in favor of the stockholders
of the Bank represented by its directors Bernardo Bautista, Jaime Custodio and Octavio
Katigbak. Sometime thereafter, Reynaldo Villanueva, Sr. and his wife, Avelina, executed
an Agreement wherein they acknowledged their indebtedness to the Bank in the amount
of P4,000,000.00, and stipulated that said debt will be paid out of the proceeds of the sale
of their real property described in the Agreement. At a meeting of the Board of Directors
of the Bank on 15 November 1993, the Villanueva spouses assured the Board that their
debt would be paid on or before December 31 of that same year; otherwise, the Bank
would be entitled to liquidate their shareholdings, including those under their control. In
such an event, should the proceeds of the sale of said shares fail to satisfy in full the
obligation, the unpaid balance shall be secured by other collateral sufficient therefor.
When the Villanueva spouses failed to settle their obligation to the Bank on the due date,
the Board sent them a letter demanding: (1) the surrender of all the stock certificates
issued to them; and (2) the delivery of sufficient collateral to secure the balance of their
debt amounting to P3,346,898.54.

The Villanuevas ignored the bank's demands, whereupon their shares of stock were
converted into Treasury Stocks. Later, the Villanuevas, through their counsel, questioned
the legality of the conversion of their shares. On 15 January 1994, the stockholders of the
Bank met to elect the new directors and set of officers for the year 1994. The Villanuevas
were not notified of said meeting. In a letter dated 19 January 1994, Atty. Amado Ignacio,
counsel for the Villanueva spouses, questioned the legality of the said stockholders'
meeting and the validity of all the proceedings therein. In reply, the new set of officers of
the Bank informed Atty. Ignacio that the Villanuevas were no longer entitled to notice of
the said meeting since they had relinquished their rights as stockholders in favor of the
Bank. Consequently, the Villanueva spouses filed with the Securities and Exchange
Commission (SEC), a petition for annulment of the stockholders' meeting and election of
directors and officers on 15 January 1994, with damages and prayer for preliminary
injunction (SEC Case 02-94-4683_. Joining them as co-petitioners were Catalino
Villanueva, Andres Gonzales, Aurora Lacerna, Celso Laygo, Edgardo Reyes, Alejandro
Tonogan, and Elena Usi. Named respondents were the newly-elected officers and
directors of the Rural Bank, namely: Bernardo Bautista, Jaime Custodio, Octavio
Katigbak, Francisco Custodio and Juanita Bautista. On 6 April 1994, the Villanuevas'
application for the issuance of a writ of preliminary injunction was denied by the SEC
Hearing Officer on the ground of lack of sufficient basis for the issuance thereof.

However, a motion for reconsideration was granted on 16 December 1994, upon finding
that since the Villanuevas' have not disposed of their shares, whether voluntarily or
involuntarily, they were still stockholders entitled to notice of the annual stockholders'
meeting was sustained by the SEC. Accordingly, a writ of preliminary injunction was
issued enjoining Bautista, et. al. from acting as directors and officers of the bank.
Thereafter, Bautista, et al. filed an urgent motion to quash the writ of preliminary
injunction, challenging the propriety of the said writ considering that they had not yet
received a copy of the order granting the application for the writ of preliminary injunction.
With the impending 1995 annual stockholders' meeting only 9 days away, the Villanuevas
filed an Omnibus Motion praying that the said meeting and election of officers scheduled
on 14 January 1995 be suspended or held in abeyance, and that the 1993 Board of
Directors be allowed, in the meantime, to act as such. 1 day before the scheduled
stockholders meeting, the SEC Hearing Officer granted the Omnibus Motion by issuing a
temporary restraining order preventing Bautista, et al. from holding the stockholders
meeting and electing the board of directors and officers of the Bank. A petition for
Certiorari and Annulment with Damages was filed by the Rural Bank, its directors and
officers before the SEC en banc. On 7 June 1995, the SEC en banc denied the petition
for certiorari. A subsequent motion for reconsideration was likewise denied by the SEC
en banc in a Resolution dated 29 September 1995. A petition for review was filed before
the Court of Appeals (CA-GR SP 38861), assailing the Order dated 7 June 1995 and the
Resolution dated 29 September 1995 of the SEC en banc in SEC EB 440. The appellate
court upheld the ruling of the SEC. Bautista, et al.'s motion for reconsideration was
likewise denied by the Court of Appeals in an Order dated 29 March 1996. The bank,
Bautista, et al. filed the instant petition for review.

Issue: Whether there was valid transfer of the shares to the Bank.

Held: For a valid transfer of stocks, there must be strict compliance with the mode of
transfer prescribed by law. The requirements are: (a) There must be delivery of the stock
certificate: (b) The certificate must be endorsed by the owner or his attorney-in-fact or
other persons legally authorized to make the transfer; and (c) To be valid against third
parties, the transfer must be recorded in the books of the corporation. As it is, compliance
with any of these requisites has not been clearly and sufficiently shown. Still, while the
assignment may be valid and binding on the bank, et al. and the Villanuevas, it does not
necessarily make the transfer effective. Consequently, the bank et al., as mere assignees,
cannot enjoy the status of a stockholder, cannot vote nor be voted for, and will not be
entitled to dividends, insofar as the assigned shares are concerned. Parenthetically, the
Villanuevas cannot, as yet, be deprived of their rights as stockholders, until and unless
the issue of ownership and transfer of the shares in question is resolved with finality.
Summary: Ong Yong vs. Tiu (GR 144476, 8 April 2003)

Ong Yong, et al. vs. Tiu, et al.

[GR 144476, 8 April 2003]; also Tiu, et al. vs. Ong Yong, et al. [GR 144629]
Resolution of Special Second Division, Corona (J): 3 concur

Facts: In 1994, the construction of the Masagana Citimall in Pasay City was threatened with stoppage and
incompletion when its owner, the First Landlink Asia Development Corporation (FLADC), which was owned by
David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu (the Tius),
encountered dire financial difficulties. It was heavily indebted to the Philippine National Bank (PNB) for P190
million. To stave off foreclosure of the mortgage on the two lots where the mall was being built, the Tius invited
Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest
in FLADC. Under the Pre-Subscription Agreement they entered into, the Ongs and the Tius agreed to maintain
equal shareholdings in FLADC: the Ongs were to subscribe to 1,000,000 shares at a par value of P100.00 each while
the Tius were to subscribe to an additional 549,800 shares at P100.00 each in addition to their already existing
subscription of 450,200 shares. Furthermore, they agreed that the Tius were entitled to nominate the Vice-
President and the Treasurer plus 5 directors while the Ongs were entitled to nominate the President, the Secretary
and 6 directors (including the chairman) to the board of directors of FLADC. Moreover, the Ongs were given the
right to manage and operate the mall. Accordingly, the Ongs paid P100 million in cash for their subscription to
1,000,000 shares of stock while the Tius committed to contribute to FLADC a four-storey building and two parcels
of land respectively valued at P20 million (for 200,000 shares), P30 million (for 300,000 shares) and P49.8 million
(for 49,800 shares) to cover their additional 549,800 stock subscription therein. The Ongs paid in another P70
million 3 to FLADC and P20 million to the Tius over and above their P100 million investment, the total sum of
which (P190 million) was used to settle the P190 million mortgage indebtedness of FLADC to PNB. The business
harmony between the Ongs and the Tius in FLADC, however, was shortlived because the Tius, on 23 February
1996, rescinded the Pre-Subscription Agreement. The Tius accused the Ongs of (1) refusing to credit to them the
FLADC shares covering their real property contributions; (2) preventing David S. Tiu and Cely Y. Tiu from assuming
the positions of and performing their duties as Vice-President and Treasurer, respectively, and (3) refusing to give
them the office spaces agreed upon. The controversy finally came to a head when the case was commenced by the
Tius on 27 February 1996 at the Securities and Exchange Commission (SEC), seeking confirmation of their rescission
of the Pre-Subscription Agreement. After hearing, the SEC, through then Hearing Officer Rolando G. Andaya, Jr.,
issued a decision on 19 May 1997 confirming the rescission sought by the Tius. On motion of both parties, the
above decision was partially reconsidered but only insofar as the Ongs' P70 million was declared not as a premium
on capital stock but an advance (loan) by the Ongs to FLADC and that the imposition of interest on it was correct.
Both parties appealed to the SEC en banc which rendered a decision on 11 September 1998, affirming the 19 May
1997 decision of the Hearing Officer. The SEC en banc confirmed the rescission of the Pre-Subscription Agreement
but reverted to classifying the P70 million paid by the Ongs as premium on capital and not as a loan or advance to
FLADC, hence, not entitled to earn interest. On appeal, the Court of Appeals (CA) rendered a decision on 5 October
1999, modifying the SEC order of 11 September 1998. Their motions for reconsideration having been denied, both
parties filed separate petitions for review before the Supreme Court. On 1 February 2002, the Supreme Court
promulgated its Decision, affirming the assailed decision of the Court of Appeals but with the modifications that
the P20 million loan extended by the Ongs to the Tius shall earn interest at 12% per annum to be computed from
the time of judicial demand which is from 23 April 1996; that the P70 million advanced by the Ongs to the FLADC
shall earn interest at 10% per annum to be computed from the date of the FLADC Board Resolution which is 19
June 1996; and that the Tius shall be credited with 49,800 shares in FLADC for their property contribution,
specifically, the 151 sq. m. parcel of land. The Court affirmed the fact that both the Ongs and the Tius violated their
respective obligations under the Pre-Subscription Agreement.

On 15 March 2002, the Tius filed before the Court a Motion for Issuance of a Writ of Execution. Aside from their
opposition to the Tius' Motion for Issuance of Writ of Execution, the Ongs filed their own "Motion for
Reconsideration; Alternatively, Motion for Modification (of the February 1, 2002 Decision)" on 15 March 2002.
Willie Ong filed a separate "Motion for Partial Reconsideration" dated 8 March 2002, pointing out that there was
no violation of the Pre-Subscription Agreement on the part of the Ongs, among others. On 29 January 2003, the
Special Second Division of this Court held oral arguments on the respective positions of the parties. On 27 February
2003, Dr. Willie Ong and the rest of the movants Ong filed their respective memoranda. On 28 February 2003, the
Tius submitted their memorandum.

Issue [1]: Whether the pre-Subscription Agreement executed by the Ongs is actually a subscription contract.

Held [1]: FLADC was originally incorporated with an authorized capital stock of 500,000 shares with the Tius
owning 450,200 shares representing the paid-up capital. When the Tius invited the Ongs to invest in FLADC as
stockholders, an increase of the authorized capital stock became necessary to give each group equal (50-50)
shareholdings as agreed upon in the Pre-Subscription Agreement. The authorized capital stock was thus increased
from 500,000 shares to 2,000,000 shares with a par value of P100 each, with the Ongs subscribing to 1,000,000
shares and the Tius to 549,800 more shares in addition to their 450,200 shares to complete 1,000,000 shares.
Thus, the subject matter of the contract was the 1,000,000 unissued shares of FLADC stock allocated to the Ongs.
Since these were unissued shares, the parties' Pre-Subscription Agreement was in fact a subscription contract as
defined under Section 60, Title VII of the Corporation Code. A subscription contract necessarily involves the
corporation as one of the contracting parties since the subject matter of the transaction is property owned by the
corporation — its shares of stock. Thus, the subscription contract (denominated by the parties as a Pre-
Subscription Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of stock was, from the
viewpoint of the law, one between the Ongs and FLADC, not between the Ongs and the Tius. Otherwise stated, the
Tius did not contract in their personal capacities with the Ongs since they were not selling any of their own shares
to them. It was FLADC that did. Considering therefore that the real contracting parties to the subscription
agreement were FLADC and the Ongs alone, a civil case for rescission on the ground of breach of contract filed by
the Tius in their personal capacities will not prosper. Assuming it had valid reasons to do so, only FLADC (and
certainly not the Tius) had the legal personality to file suit rescinding the subscription agreement with the Ongs
inasmuch as it was the real party in interest therein. Article 1311 of the Civil Code provides that "contracts take
effect only between the parties, their assigns and heirs. . ." Therefore, a party who has not taken part in the
transaction cannot sue or be sued for performance or for cancellation thereof, unless he shows that he has a real
interest affected thereby.

Issue [2]: Whether the rescission of Pre-Subscription Agreement would result in unauthorized liquidation.

Held [2]: The rescission of the Pre-Subscription Agreement will effectively result in the unauthorized distribution of
the capital assets and property of the corporation, thereby violating the Trust Fund Doctrine and the Corporation
Code, since rescission of a subscription agreement is not one of the instances when distribution of capital assets
and property of the corporation is allowed. Rescission will, in the final analysis, result in the premature liquidation
of the corporation without the benefit of prior dissolution in accordance with Sections 117, 118, 119 and 120 of
the Corporation Code.

Turner vs. Lorenzo Shipping

Facts:

The petitioners (Philip and Elnora Turner) held 1,010,000 shares of stock of the respondent (Lorenzo Shipping Corp.),
a domestic corporation engaged primarily in cargo shipping activities. The respondent decided to amend its articles
of incorporation to remove the stockholders’ pre-emptive rights to newly issued shares of stock. The petitioners
voted against the amendment and demanded payment of their shares at the rate of P2.276/share based on the book
value of the shares, or a total of P2,298,760.00.

The respondent found the fair value of the shares demanded to be unacceptable. It insisted that the market value
on the date before the action to remove the pre-emptive right was taken should be the value, or P0.41/share
(P414,100.00) and that the payment could be made only if the respondent had unrestricted retained earnings in its
books to cover the value of the shares, which was not the case.

The disagreement on the valuation of the shares led the parties to constitute an appraisal committee pursuant to
Sec. 82 of the Corporation Code. The committee reported its valuation of P2.54/share, for an aggregate value of
P2,565,400.00.

Subsequently, the petitioners demanded payment based on the valuation plus 2%/month penalty from the date of
their original demand for payment, as well as the reimbursement of the amounts advanced as professional fees to
the appraisers.

Respondent refused the petitioners’ demand, explaining that pursuant to the Corporation Code, the dissenting
stockholders exercising their appraisal rights could be paid only when the corporation had unrestricted retained
earnings to cover the fair value of the shares, but that it had no retained earnings at the time of the petitioners’
demand, as borne out by its Financial Statements for Fiscal Year 1999 showing a deficit of P72,973,114.00 as of
December 31, 1999.

Upon the respondent’s refusal to pay, the petitioners sued the respondent for collection and damages in the RTC on
January 22, 2001.

The petitioners filed their motion for partial summary judgment, claiming that the respondent has an accumulated
unrestricted retained earnings of P11,975,490.00, evidenced by its Financial Statement as of the Quarter Ending
March 31, 2002;

The respondent opposed the motion for partial summary judgment, stating that the determination of the
unrestricted retained earnings should be made at the end of the fiscal year of the respondent, and that the
petitioners did not have a cause of action against the respondent.

RTC granted the petitioners’ motion fixing the fair value of the shares of stocks at P2.54 per share. The evidence
submitted shows that the respondent has retained earnings of P11,975,490 as of March 21, 2002. This is not disputed
by the defendant. Its only argument against paying is that there must be unrestricted retained earnings at the time
the demand for payment is made. RTC further stated that the law does not say that the unrestricted retained
earnings must exist at the time of the demand. Even if there are no retained earnings at the time the demand is
made if there are retained earnings later, the fair value of such stocks must be paid. The only restriction is that there
must be sufficient funds to cover the creditors after the dissenting stockholder is paid.

Subsequently, on November 28, 2002, the RTC issued a writ of execution.

The respondent commenced a special civil action for certiorari in the CA. CA issued a TRO, enjoining the petitioners,
and their agents and representatives from enforcing the writ of execution. By then, however, the writ of execution
had been partially enforced. The TRO then lapsed without the CA issuing a writ of preliminary injunction to prevent
the execution. Thereupon, the sheriff resumed the enforcement of the writ of execution.

CA granted respondent's petition. The Orders and the corresponding Writs of Garnishment are NULLIFIED and the
Civil Case is ordered DISMISSED.

Issue:

WON the petitioners have a valid cause of action against the respondent.

Held:

No. SC upheld the decision of the CA. RTC acted in excess of its jurisdiction.

No payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings
in its books to cover the payment (apply the Trust fund doctrine). In case the corporation has no available
unrestricted retained earnings in its books, Sec. 83 provides that if the dissenting stockholder is not paid the value
of his shares within 30 days after the award, his voting and dividend rights shall immediately be restored.

The respondent had indisputably no unrestricted retained earnings in its books at the time the petitioners
commenced the Civil Case on January 22, 2001. It proved that the respondent’s legal obligation to pay the value of
the petitioners’ shares did not yet arise. The Turners’ right of action arose only when petitioner had already
retained earnings in the amount of P11,975,490.00 on March 21, 2002; such right of action was inexistent on
January 22, 2001 when they filed the Complaint.

The RTC concluded that the respondent’s obligation to pay had accrued by its having the unrestricted retained
earnings after the making of the demand by the petitioners. It based its conclusion on the fact that the Corporation
Code did not provide that the unrestricted retained earnings must already exist at the time of the demand.

The RTC’s construal of the Corporation Code was unsustainable, because it did not take into account the petitioners’
lack of a cause of action against the respondent. In order to give rise to any obligation to pay on the part of the
respondent, the petitioners should first make a valid demand that the respondent refused to pay despite having
unrestricted retained earnings. Otherwise, the respondent could not be said to be guilty of any actionable omission
that could sustain their action to collect.

Neither did the subsequent existence of unrestricted retained earnings after the filing of the complaint cure the lack
of cause of action. The petitioners’ right of action could only spring from an existing cause of action. Thus, a
complaint whose cause of action has not yet accrued cannot be cured by an amended or supplemental pleading
alleging the existence or accrual of a cause of action during the pendency of the action. For, only when there is an
invasion of primary rights, not before, does the adjective or remedial law become operative. Verily, a premature
invocation of the court’s intervention renders the complaint without a cause of action and dismissible on such
ground. In short, the Civil Case, being a groundless suit, should be dismissed.

Even the fact that the respondent already had unrestricted retained earnings more than sufficient to cover the
petitioners’ claims on June 26, 2002 (when they filed their motion for partial summary judgment) did not rectify the
absence of the cause of action at the time of the commencement of the Civil Case. The motion for partial summary
judgment, being a mere application for relief other than by a pleading, was not the same as the complaint in the Civil
Case. Thereby, the petitioners did not meet the requirement of the Rules of Court that a cause of action must exist
at the commencement of an action, which is "commenced by the filing of the original complaint in court."

Additional info:

Cause of Action:

A cause of action is the act or omission by which a party violates a right of another. The essential elements of a cause
of action are: (a) the existence of a legal right in favor of the plaintiff; (b) a correlative legal duty of the defendant to
respect such right; and (c) an act or omission by such defendant in violation of the right of the plaintiff with a resulting
injury or damage to the plaintiff for which the latter may maintain an action for the recovery of relief from the
defendant. Although the first two elements may exist, a cause of action arises only upon the occurrence of the last
element, giving the plaintiff the right to maintain an action in court for recovery of damages or other appropriate
relief.

Stockholder's Appraisal Right:

Section 81. Instances of appraisal right. - Any stockholder of a corporation shall have the right to dissent and demand
payment of the fair value of his shares.
The right of appraisal may be exercised when there is a fundamental change in the charter or articles of incorporation
substantially prejudicing the rights of the stockholders. It does not vest unless objectionable corporate action is
taken. It serves the purpose of enabling the dissenting stockholder to have his interests purchased and to retire
from the corporation.

The Corporation Code defines how the right of appraisal is exercised, as well as the implications of the right of
appraisal, as follows:

1. The appraisal right is exercised by any stockholder who has voted against the proposed corporate action by making
a written demand on the corporation within 30 days after the date on which the vote was taken for the payment of
the fair value of his shares. The failure to make the demand within the period is deemed a waiver of the appraisal
right. (Sec. 82)

2. If the withdrawing stockholder and the corporation cannot agree on the fair value of the shares within a period
of 60 days from the date the stockholders approved the corporate action, the fair value shall be determined and
appraised by three disinterested persons, one of whom shall be named by the stockholder, another by the
corporation, and the third by the two thus chosen. The findings and award of the majority of the appraisers shall be
final, and the corporation shall pay their award within 30 days after the award is made. Upon payment by the
corporation of the agreed or awarded price, the stockholder shall forthwith transfer his or her shares to the
corporation. (Sec. 82)

3. All rights accruing to the withdrawing stockholder’s shares, including voting and dividend rights, shall be
suspended from the time of demand for the payment of the fair value of the shares until either the abandonment
of the corporate action involved or the purchase of the shares by the corporation, except the right of such
stockholder to receive payment of the fair value of the shares. (Sec. 83)

4. Within 10 days after demanding payment for his or her shares, a dissenting stockholder shall submit to the
corporation the certificates of stock representing his shares for notation thereon that such shares are dissenting
shares. A failure to do so shall, at the option of the corporation, terminate his rights under this Title X of the
Corporation Code. If shares represented by the certificates bearing such notation are transferred, and the certificates
are consequently canceled, the rights of the transferor as a dissenting stockholder under this Title shall cease and
the transferee shall have all the rights of a regular stockholder; and all dividend distributions that would have accrued
on such shares shall be paid to the transferee. (Sec. 86)

5. If the proposed corporate action is implemented or effected, the corporation shall pay to such stockholder, upon
the surrender of the certificates of stock representing his shares, the fair value thereof as of the day prior to the date
on which the vote was taken, excluding any appreciation or depreciation in anticipation of such corporate action.
(Sec. 82)

G.R. No. 170783 June 18, 2012

LEGASPI TOWERS 300, INC., LILIA MARQUINEZ PALANCA, ROSANNA D. IMAI, GLORIA DOMINGO and RAY
VINCENT, Petitioners,
vs.
AMELIA P. MUER, SAMUEL M. TANCHOCO, ROMEO TANKIANG, RUDEL PANGANIBAN, DOLORES AGBAYANI,
ARLENEDAL A. YASUMA, GODOFREDO M. CAGUIOA and EDGARDO M. SALANDANAN, Respondents.

FACTS:
Pursuant to the by-laws of Legaspi Towers 300, Inc., petitioners Lilia Marquinez Palanca, Rosanna D. Imai, Gloria
Domingo and Ray Vincent, the incumbent Board of Directors, set the annual meeting of the members of the
condominium corporation and the election of the new Board of Directors at the lobby of Legaspi Towers 300, Inc.
The Committee on Elections of Legaspi Towers 300, Inc., however, found most of the proxy votes, at its face value,
irregular, thus, questionable; and for lack of time to authenticate the same, petitioners adjourned the meeting for
lack of quorum.

However, the group of respondents challenged the adjournment of the meeting. Despite petitioners' insistence that
no quorum was obtained during the annual meeting held on April 2, 2004, respondents pushed through with the
scheduled election and were elected as the new Board of Directors and officers of Legaspi Towers 300, Inc. and
subsequently submitted a General Information Sheet to the Securities and Exchange Commission (SEC).

On plaintiffs’ motion to admit amended complaint (to include Legaspi Towers 300, Inc. as plaintiff), the RTC ruled
denying the motion for being improper. Then, petitioners filed with the Court of Appeals and held that Judge Antonio
I. De Castro of the Regional Trial Court (RTC) of Manila, did not commit grave abuse of discretion in issuing the Orders
denying petitioners’ Motion to Admit Second Amended Complaint and that petitioners the justified the inclusion of
Legaspi Towers 300, Inc. as plaintiff by invoking the doctrine of derivative suit.

Petitioners’ motion for reconsideration was denied by the Court of Appeals thereafter. Hence this petition.

ISSUE:

Whether or not Derivative Suit proper in this case.

RULING:

The Supreme Court DENIED the petition and AFFIRMED the Decision of the Court of Appeals. Derivative Suit is not
applicable.

Since it is the corporation that is the real party-in-interest in a derivative suit, then the reliefs prayed for must be
for the benefit or interest of the corporation. When the reliefs prayed for do not pertain to the corporation, then it
is an improper derivative suit.

The requisites for a derivative suit are as follows:

a) the party bringing suit should be a shareholder as of the time of the act or transaction complained of,
the number of his shares not being material;
b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for
the appropriate relief but the latter has failed or refused to heed his plea; and
c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being
caused to the corporation and not to the particular stockholder bringing the suit.

As stated by the Court of Appeals, petitioners’ complaint seek to nullify the said election, and to protect and enforce
their individual right to vote. The cause of action devolves on petitioners, not the condominium corporation, which
did not have the right to vote. Hence, the complaint for nullification of the election is a direct action by petitioners,
who were the members of the Board of Directors of the corporation before the election, against respondents, who
are the newly-elected Board of Directors. Under the circumstances, the derivative suit filed by petitioners in behalf
of the condominium corporation in the Second Amended Complaint is improper.
GOCHAN et al vs Young (Celicia Gochan Uy, Mike Uy, et al)

Nature: Petition for Review on Certiorari assailing the Decision of the Court of Appeals

FACTS:
Felix Gochan & Sons Realty Corporation (Gochan Realty) is registered in SEC with Felix Gochan Sr. & 5 others as
incorporators.

The daughter of Felix Gochan Sr. (& the mother of respondents), Alice, inherited 50 shares of stock in Gochan Realty.
When Alice died, she left the 50 shares to her husband John Young, Sr.

The RTC adjudicated 6/14 of these shares to the children of Alice.

Having earned dividends, these stocks numbered 179.

John Young Sr. requested Gochan Realty to partition the shares of his late wife by cancelling the stock certificates in
his name and issuing new stock certificates in the names of the children.

Petitioner Gochan Realty refused, citing as reason, the right of first refusal granted to the remaining stockholders by
the Articles of Incorporation.

John Young, Sr. died and left the shares to the respondents.

*SEC: Respondents Cecilia Gochan Uy and Miguel Uy filed a complaint for issuance of shares of stock to the rightful
owners, nullification of shares of stock, reconveyance of property impressed with trust, accounting, removal of
officers and directors and damages against Petitioner Gochan Realty.

Petitioners Gochan et al filed a motion to dismiss the complaint alleging that: (1) the SEC has 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.

SEC Hearing Officer granted the motion to dismiss

According to the SEC Order:
(1) It has been shown that the complainant heirs of Alice and John, suing in THEIR OWN RIGHT to the stocks, had
never been stockholders of record of Gochan Realty to confer them with the legal capacity to bring and maintain
their action. Even though the heirs succeeded the estate, they did not become automatically the stockholders of the
corporation. Since they are not yet stockholders, the case cannot be considered as an intra-corporate controversy.
(outside the jurisdiction of SEC).

(2) Due to the alleged wrongful acts of the corporation and its directors constitute fraudulent devices or schemes
which may be detrimental to the stockholders, the complainants brought this action as a DERIVATIVE SUIT on their
behalf and on behalf of Gochan Realty.

‘Section 5. Derivative Suit - No action shall be brought by stockholder in the right of a corporation unless the
complainant was a stockholder at the time the questioned transaction occurred as well as at the time the action
was filed and remains a stockholder during the pendency of the action. x x x.’

According to jurisprudence, a stockholder bringing a derivative action must have been so (a stockholder) at the time
the transaction or act complained of took place. The failure to comply with the jurisdictional requirement on
derivative action must result in the dismissal of the instant complaint.
-------------end of SEC order---------------

Respondents filed a motion for a reconsideration but it was denied for being pro-forma.
Respondents appealed to the SEC en banc, contending that the SEC has jurisdiction.

Petitioners contend that the appeal was 97 days late and beyond the 30-day period for appeals.

The SEC en banc ruled for the petitioners and holding that the respondents’ motion for reconsideration did not
interrupt the 30-day period for appeal because said motion was pro-forma.

*CA: Respondents filed a Petition for Review with the Court of Appeals.

CA ruled that the SEC had no jurisdiction as far as the heirs of Alice Gochan were concerned, because they were not
yet stockholders. BUT it upheld the capacity of Respondents Cecilia Gochan Uy and Miguel Uy. It also upheld that
the intestate Estate of John Young Sr. was an indispensable party.

Moreover, it declared that respondents' Motion for Reconsideration before the SEC was not pro forma; thus, its
filing tolled the appeal period.

1. Sub-Issue: W/N the Spouses Uy have the personality to file an action before the SEC against Gochan Realty
Corporation. – YES!

Held: Petitioners argue that Spouses Cecilia and Miguel had no capacity to bring the suit since they were no longer
stockholders at the time. Allegedly, the corporation had already purchased their stocks. Cecilia averred that the
purchase contract of her stocks was null and void which the court admitted. Thus, Cecilia remains to be a stockholder
of the corporation. Although she was no longer registered as a stockholder in the corporate records as of the filing
of the case before the SEC, the admitted allegations in the Complaint made her still a bona fide stockholder of
Gochan Realty, as between said parties.

However, petitioners contend that the statute of limitations already bars the spouses' action being voidable.
However, the sale of the stock was not voidable, but was void ab initio. The contention that the action has prescribed
cannot be sustained. Prescription cannot be invoked as a ground if the contract is alleged to be void ab initio.

2. Main Issue: W/N the Spouses Uy could bring a derivative suit in the name of Gochan Realty to redress wrongs
allegedly committed against it for which the directors refused to sue – YES!
Held: Petitioners contend that the action filed by the Spouses was not a derivative suit, because the spouses and
not the corporation were the injured parties. The Court is not convinced!

The Complaint shows allegations of injury to the corporation itself:

(1) There was conspiracy and fraud in depressing the value of the stock of the Corporation and to induce the minority
stockholders to sell their shares of stock for an inadequate consideration. Petitioner Esteban Gochan et al unlawfully
and fraudulently appropriated for themselves the funds of the Corporation by drawing excessive amounts in the
form of salaries and cash advances and charging their purely personal expenses to the Corporation.

(2) The payment of P1,200,000 by the Corporation to Respondent Cecilia for her shares of stock constituted an
unlawful and partial liquidation and distribution of assets to a stockholder, resulting in the impairment of the capital
of the Corporation and prevented it from otherwise utilizing said amount for its regular and lawful business, to the
damage and prejudice of the Corporation, its creditors, and of complainants as minority stockholders

As early as 1911, this Court has recognized the right of a single stockholder to file derivative suits. In its words:

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 benefit of
 the corporation, to bring about a redress of the wrong done directly to the corporation and indirectly to
the stockholders.

The allegations of injury to the Spouses Uy can coexist with those pertaining to the corporation. The personal injury
suffered by the spouses cannot disqualify them from filing a derivative suit on behalf of the corporation.

Doctrine: The fact that certain persons are not registered as stockholders in the books of the corporation will not
bar them from filing a derivative suit, if it is evident from the allegations in the complaint that they are bona fide
stockholders

3. Sub-Issue W/N the intestate estate of John Young Sr. is an indispensable party in the SEC case considering that
the individual heirs' shares are still in the decedent stockholder's name.

Held: Petitioners contend that the Intestate Estate of John D. Young Sr. is not an indispensable party, as it not
benefited or injured by any court judgment.

It would be useful to point out that one of the causes of action stated in the Complaint filed with the SEC refers to
the registration, in the name of the other heirs of Alice Gochan Young, of 6/14th of the shares still registered under
the name of John D. Young Sr. Since all the shares that belonged to Alice are still in his name, no final determination
can be had without his estate being impleaded in the suit. His estate is thus an indispensable party with respect to
dealing with the registration of the shares in the names of the heirs of Alice.

4. Sub-Issue Whether or not the cancellation of notice of lis pendens was justified considering that the suit did not
involve real properties owned by Gochan Realty. -- NO

Held: The Court found no reason to disturb the ruling of the Court of Appeals.

There were allegations of breach of trust and confidence and usurpation of business opportunities in conflict with
petitioners' fiduciary duties to the corporation, resulting in damage to the Corporation. Under these causes of action,
respondents are asking for the delivery to the Corporation of possession of the parcels of land and their
corresponding certificates of title. Hence, the suit necessarily affects the title to or right of possession of the real
property sought to be reconveyed. The Rules of Court allows the annotation of a notice of lis pendens in actions
affecting the title or right of possession of real property. Thus, the Court of Appeals was correct in reversing the SEC
Order for the cancellation of the notice of lis pendens.

Effect of RA 8799: Intra-corporate controversies are now within the jurisdiction of courts of general jurisdiction, no
longer of the Securities and Exchange Commission.

DISPOSITION: Petition DENIED!