FACTS:
Pursuant to the by-laws of Legaspi Towers 300, Inc., petitioners, incumbent Board of Directors, set the annual meeting of the members of the condominium corporation and the election of the new Board of Directors.
However, petitioners adjourned the meeting for lack of quorum.
The group of respondents challenged the adjournment of the meeting and pushed through with the scheduled election and were elected as the new Board of Directors and officers.
Petitioners filed a Complaint for the Declaration of Nullity of Elections with Prayers for the lssuance of TRO and Writ of Preliminary Injunction and Damages against respondents. The RTC issued a 72 hour TRO, enjoining defendants from taking over management, or to maintain a status quo, in order to prevent further irreparable damages and prejudice to the corporation.
Plaintiffs’ motion to admit amended complaint and motion to amend complaint to include Legaspi Towers 300, Inc. as party-plaintiff were denied.
Petitioners filed a Motion for Reconsideration of the Orders, which the court denied.
Petitioners filed a petition for certiorari with the CA.
The CA dismissed the petition for lack of merit.
Petitioners’ MR was denied by the CA.
ISSUE:
Whether or not a derivative suit proper in this case.
RULING:
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.
However, in cases of mismanagement where the wrongful acts are committed by the directors or trustees themselves, a stockholder or member may find that he has no redress because the former are vested by law with the right to decide whether or not the corporation should sue, and they will never be willing to sue themselves. The corporation would thus be helpless to seek remedy. Because of the frequent occurrence of such a situation, the common law gradually recognized the right of a stockholder to sue on behalf of a corporation in what eventually became known as a “derivative suit.” It has been proven to be an effective remedy of the minority against the abuses of management. Thus, 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 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 the nominal party, with the corporation as the party-in- interest.
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.
The stockholder’s right to file a derivative suit is not based on any express provision of The Corporation Code, but is impliedly recognized when the law makes corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties, which is not the issue in this case.