Source: http://lawlibrary.chanrobles.com/index.php?option=com_content&view=article&id=83406:57582&catid=1587&Itemid=566
Timestamp: 2019-04-23 04:15:37+00:00

Document:
G.R. No. 174353, September 10, 2014 - NESTOR CHING AND ANDREW WELLINGTON, Petitioners, v. SUBIC BAY GOLF AND COUNTRY CLUB, INC., HU HO HSIU LIEN ALIAS SUSAN HU, HU TSUNG CHIEH ALIAS JACK HU, HU TSUNG HUI, HU TSUNG TZU AND REYNALD R. SUAREZ, Respondents.
NESTOR CHING AND ANDREW WELLINGTON, Petitioners, v. SUBIC BAY GOLF AND COUNTRY CLUB, INC., HU HO HSIU LIEN ALIAS SUSAN HU, HU TSUNG CHIEH ALIAS JACK HU, HU TSUNG HUI, HU TSUNG TZU AND REYNALD R. SUAREZ, Respondents.
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the review of the Decision1 dated October 27, 2005 of the Court of Appeals in CA-G.R. CV No. 81441, which affirmed the Order2 dated July 8, 2003 of the Regional Trial Court (RTC), Branch 72 of Olongapo City in Civil Case No. 03-001 dismissing the Complaint filed by herein petitioners.
On February 26, 2003, petitioners Nestor Ching and Andrew Wellington filed a Complaint3 with the RTC of Olongapo City on behalf of the members of Subic Bay Golf and Country Club, Inc. (SBGCCI) against the said country club and its Board of Directors and officers under the provisions of Presidential Decree No. 902-A in relation to Section 5.2 of the Securities Regulation Code. The Subic Bay Golfers and Shareholders Incorporated (SBGSI), a corporation composed of shareholders of the defendant corporation, was also named as plaintiff. The officers impleaded as defendants were the following: (1) its President, Hu Ho Hsiu Lien alias Susan Hu; (2) its treasurer, Hu Tsung Chieh alias Jack Hu; (3) corporate secretary Reynald Suarez; and (4) directors Hu Tsung Hui and Hu Tsung Tzu. The case was docketed as Civil Case No. 03-001.
Petitioners claimed in the Complaint that defendant corporation did not disclose to them the above amendment which allegedly makes the shares non-proprietary, as it takes away the right of the shareholders to participate in the pro-rata distribution of the assets of the corporation after its dissolution. According to petitioners, this is in fraud of the stockholders who only discovered the amendment when they filed a case for injunction to restrain the corporation from suspending their rights to use all the facilities of the club. Furthermore, petitioners alleged that the Board of Directors and officers of the corporation did not call any stockholders’ meeting from the time of the incorporation, in violation of Section 50 of the Corporation Code and the By-Laws of the corporation. Neither did the defendant directors and officers furnish the stockholders with the financial statements of the corporation nor the financial report of the operation of the corporation in violation of Section 75 of the Corporation Code. Petitioners also claim that on August 15, 1997, SBGCCI presented to the SEC an amendment to the By-Laws of the corporation suspending the voting rights of the shareholders except for the five founders’ shares. Said amendment was allegedly passed without any stockholders’ meeting or notices to the stockholders in violation of Section 48 of the Corporation Code.
The Board of Directors and the officers of the corporation did not indicate in its financial report for the year 1999 the amount of P235,584,000.00 collected from the subscription of 409 shareholders who paid U.S.$22,000.00 for one (1) share of stock at the then prevailing rate of P26.18 to a dollar. The stockholders were not informed how these funds were spent or its whereabouts.
The Corporation has been collecting green fees from the patrons of the golf course at an average sum of P1,600.00 per eighteen (18) holes but the income is not reported in their yearly report. The yearly report for the year 1999 contains the report of the Independent Public Accountant who stated that the company was incorporated on April 1, 1996 but has not yet started its regular business operation. The golf course has been in operation since 1997 and as such has collected green fees from non-members and foreigners who played golf in the club. There is no financial report as to the income derived from these sources.
There is reliable information that the Defendant Corporation has not paid its rentals to the Subic Bay Metropolitan Authority which up to the present is estimated to be not less than one (1) million U.S. Dollars. Furthermore, the electric billings of the corporation [have] not been paid which amounts also to several millions of pesos.
That the Supreme Court sustained the pre-termination of its contract with the SBMA and presently the club is operating without any valid contract with SBMA. The defendant was ordered by the Supreme Court to yield the possession, the operation and the management of the golf course to SBMA. Up to now the defendants [have] defied this Order.
WHEREFORE, it is most respectfully prayed that upon the filing of this case a temporary restraining order be issued enjoining the defendants from acting as Officers and Board of Directors of the Corporation. After hearing[,] a writ of preliminary injunction be issued enjoining defendants to act as Board of Directors and Officers of the Corporation. In the meantime a Receiver be appointed by the Court to act as such until a duly constituted Board of Directors and Officers of the Corporation be elected and qualified.
Respondents further claimed by way of defense that petitioners failed (a) to show that it was authorized by SBGSI to file the Complaint on the said corporation’s behalf; (b) to comply with the requisites for filing a derivative suit and an action for receivership; and (c) to justify their prayer for injunctive relief since the Complaint may be considered a nuisance or harassment suit under Section 1(b), Rule 1 of the Interim Rules of Procedure for Intra-Corporate Controversies.16 Thus, they prayed for the dismissal of the Complaint.
The Court finds that this case is intended not only for the benefit of the two petitioners. This is apparent from the caption of the case which reads Nestor Ching, Andrew Wellington and the Subic Bay Golfers and Shareholders, Inc., for and in behalf of all its members as petitioners.
This is also shown in the allegations of the petition[.] x x x.
Petitioners Ching and Wellington elevated the case to the Court of Appeals, where it was docketed as CA-G.R. CV No. 81441. On October 27, 2005, the Court of Appeals rendered the assailed Decision affirming that of the RTC.
(a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, members of associations or organizations registered with the Commission.
According to petitioners, the above provision (which should be read in relation to Section 5.2 of the Securities Regulation Code which transfers jurisdiction over such cases to the RTC) allows any stockholder to file a complaint against the Board of Directors for employing devices or schemes amounting to fraud and misrepresentation which is detrimental to the interest of the public and/or the stockholders.
In the alternative, petitioners allege that if this Court rules that the Complaint is a derivative suit, it should nevertheless reverse the RTC’s dismissal thereof on the ground of failure to exhaust remedies within the corporation. Petitioners cite Republic Bank v. Cuaderno19 wherein the Court allowed the derivative suit even without the exhaustion of said remedies as it was futile to do so since the Board of Directors were all members of the same family. Petitioners also point out that in Cuaderno this Court held that the fact that therein petitioners had only one share of stock does not justify the denial of the relief prayed for.
To refute the lower courts’ ruling that there had been non-exhaustion of intra-corporate remedies on petitioners’ part, they claim that they filed in Court a case for Injunction docketed as Civil Case No. 103-0-01, to restrain the corporation from suspending their rights to use all the facilities of the club, on the ground that the club cannot collect membership fees until they have completed the amenities as advertised when the shares of stock were sold to them. They allegedly asked the Club to produce the minutes of the meeting of the Board of Directors allowing the amendments of the Articles of Incorporation and By-Laws. Petitioners likewise assail the dismissal of the Complaint for being a harassment or nuisance suit before the presentation of evidence. They claim that the evidence they were supposed to present will show that the members of the Board of Directors are not qualified managers of a golf course.
At the outset, it should be noted that the Complaint in question appears to have been filed only by the two petitioners, namely Nestor Ching and Andrew Wellington, who each own one stock in the respondent corporation SBGCCI. While the caption of the Complaint also names the “Subic Bay Golfers and Shareholders Inc. for and in behalf of all its members,” petitioners did not attach any authorization from said alleged corporation or its members to file the Complaint. Thus, the Complaint is deemed filed only by petitioners and not by SBGSI.
“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. Where a stockholder or member is denied the right of inspection, his suit would be individual because the wrong is done to him personally and not to the other stockholders or the corporation. Where the wrong is done to a group of stockholders, as where preferred stockholders’ rights are violated, a class or representative suit will be proper for the protection of all stockholders belonging to the same group. But where the acts complained of constitute a wrong to the corporation itself, the cause of action belongs to the corporation and not to the individual stockholder or member. Although in most every case of wrong to the corporation, each stockholder is necessarily affected because the value of his interest therein would be impaired, this fact of itself is not sufficient to give him an individual cause of action since the corporation is a person distinct and separate from him, and can and should itself sue the wrongdoer. Otherwise, not only would the theory of separate entity be violated, but there would be multiplicity of suits as well as a violation of the priority rights of creditors. Furthermore, there is the difficulty of determining the amount of damages that should be paid to each individual stockholder.
“As the Supreme Court has explained: “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.’ x x x. 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. x x x. [T]he two actions are mutually exclusive: i.e., the right of action and recovery belongs to either the shareholders (direct action) *651 or the corporation (derivative action).” x x x.
The reliefs sought in the Complaint, namely that of enjoining defendants from acting as officers and Board of Directors of the corporation, the appointment of a receiver, and the prayer for damages in the amount of the decrease in the value of the shares of stock, clearly show that the Complaint was filed to curb the alleged mismanagement of SBGCCI. The causes of action pleaded by petitioners do not accrue to a single shareholder or a class of shareholders but to the corporation itself.
(4) The suit is not a nuisance or harassment suit.
The RTC dismissed the Complaint for failure to comply with the second and fourth requisites above.
The wordings of Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies are simple and do not leave room for statutory construction. The second paragraph thereof requires that the stockholder filing a derivative suit should have exerted all reasonable efforts 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; and to allege such fact with particularity in the complaint. 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 had failed.
WHEREFORE, the Petition for Review is hereby DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 81441 which affirmed the Order of the Regional Trial Court (RTC) of Olongapo City dismissing the Complaint filed thereon by herein petitioners is AFFIRMED.
Velasco, Jr.,* Bersamin, Perez, and Perlas-Bernabe, JJ., concur.
* Per Special Order No. 1772 dated August 28, 2014.
1Rollo, pp. 31-44; penned by Associate Justice Bienvenido L. Reyes (now a member of this Court) with Associate Justices Godardo A. Jacinto and Arturo D. Brion (now a member of this Court), concurring.
(5) Prejudice or damage to the corporation, partnership, or association in relation to the relief sought.
19 125 Phil. 1076, 1082 (1967).
20Go v. Distinction Properties Development and Construction, Inc., G.R. No. 194024, April 25, 2012, 671 SCRA 461, 471-472.
21 Reyes v. Hon. Regional Trial Court of Makati, Branch 142, 583 Phil. 591, 612 (2008).
22 G.R. Nos. 181455-56, December 4, 2009, 607 SCRA 645, 690-693.
23Yu v. Yukayguan, 607 Phil. 581, 610 (2009).
25Majority Stockholders of Ruby Industrial Corporation v. Lim, G.R. No. 165887, June 6, 2011, 650 SCRA 461, 497.
26 Supra note 23 at 612.

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