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Busuego vs.

CA [304 SCRA 473 (March 11 1999)]
Power of Monetory Board
Facts: The 16th regular examination of the books and records of PAL
Employees Savings and Loan Association (PESALA) was conducted by a
team of CB Examiners. Several irregularities were found to have been
committed by the PESALA officers. Hence, CB sent a letter to petitioners
for them to be present at a meeting specifically for the purpose of
investigating said anomalies. Petitioners did not respond. Hence, the
Monetary Board adopted a resolution including the names of the officers
of PESALA in the watchlist to prevent them from holding responsible
positions in any institution under CB supervision.
Petitioners filed a petition for injunction against the MB in order to
prevent their names from being added in the said watchlist. RTC issued
the TRO. The MB appealed to the CA which reversed RTC. Hence, this
petition for certiorari with the SC.
Petitioners contend that the MB resolution was null and void for being
violative of their right to due process by imposing administrative
sanctions where the MB is not vested with authority to disqualify persons
from occupying positions in institutions under the supervision of CB.
Issue: Whether or not the MB resolution was null and void.
Held: NO. The CB, through the MB, is the government agency charged
with the responsibility of administering the monetary, banking and credit
system of the country and is granted the power of supervision and
examination over banks and non-bank financial institutions performing
quasi-banking functions of which savings and loan associations, such as
PESALA, form part of.
The special law governing savings and loan associations is R.A. 3779, the
Savings and Loan Association Act. Said law authorizes the MB to conduct
regular yearly examinations of the books and records of savings and loan
associations, to suspend a savings and loan association for violation of
law, to decide any controversy over the obligations and duties of directors
and officers, and to take remedial measures. Hence, the CB, through the
MB, is empowered to conduct investigations and examine the records of
savings and loan associations. If any irregularity is discovered in the
process, the MB may impose appropriate sanctions, such as suspending
the offender from holding office or from being employed with the CB, or
placing the names of the offenders in a watchlist.

[G.R. No. 95326. March 11, 1999]

ROMEO P. BUSUEGO, CATALINO F. BANEZ and RENATO F. LIM, petitioners,
vs. THE HONORABLE COURT OF APPEALS and THE MONETARY BOARD OF
THE CENTRAL BANK OF THE PHILIPPINES, respondents.
DECISION
PURISIMA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking
a reversal of the Decision[1], dated September 14, 1990, of the Court of Appeals in
CA-G.R. CV No. 23656.
As culled from the records, the facts of the case are as follows:
The 16th regular examination of the books and records of the PAL Employees
Savings and Loan Association, Inc. ("PESALA") was conducted from March 14 to April
16, 1988 by a team of CB examiners headed by Belinda Rodriguez. Following the
said examination, several anomalies and irregularities committed by the herein
petitioners; PESALA's directors and officers, were uncovered, among which are:
1. Questionable investment In a multi-million peso real estate project (Pesalaville)
2. Conflict of interest in the conduct of business
3. Unwarranted declaration and payment of dividends
4. Commission of unsound and unsafe business practices.
On July 19, 1988,, Central Bank ("CB") Supervision and Examination Section ("SES")
Department IV Director Ricardo. F. Lirio sent a letter to the Board of Directors of
PESALA inviting them to a conference on July 21, 1988 to discuss subject findings
noted in the said 16th regular examination, but petitioners did not attend such
conference.
On July 28, 1988, petitioner Renato Lim wrote the PESALA's Board of Directors
explaining his side on the said examination of PESALA's records and requesting that
a copy of his letter be furnished the CB, which was fortwith made by the Board. [2]
On July 29, 1988, PESALA's Board of Directors sent to Director Lirio a letter
concerning the 16th regular examination of PESALA's records.
On September 9, 1988, the Monetary Board adopted and issued MB Resolution No.
805 the pertinent provisions of which are as follows:
"1. To note the report on the examination of the PAL Employees' Savings and Loan
Association, Inc. (PESALA) as of December 31, 1987, as submitted in a
memorandum of the Director, Supervision and Examination Section (SES)
Department IV, dated August 19, 1988;
2. To require the board of directors of PESALA to immediately inform the members
of PESALA of the results of the Central Bank examination and their effects on the
financial condition of the Association;
xxx

5. To include the names of Mr. Catalino Banez, Mr. Romeo Busuego and Mr. Renato
Lim in the Sector's watchlist to prevent them from holding responsible positions in
any institution under Central Bank supervision;
6. To require PESALA to enforce collection of the overpayment to the Vista Grande
Management and Development Corporation and to require the accounting of P12.28
million unaccounted and unremitted bank loan proceeds and P3.9 million other
unsupported cash disbursements from the responsible directors and officers; or to
properly charge these against their respective accounts, if necessary;
7. To require the board of directors of PESALA to file civil and criminal cases against
Messrs. Catalino Banez, Romeo Busuego and Renato Lim for all the misfeasance and
malfeasance committed by them, as warranted by the evidence;
8. To require the board of directors of PESALA to improve the operations of the
Association, correct all violations noted, and adopt internal control measures to
prevent the recurrence of similar incidents as shown in Annex E of the subject
memorandum of the Director, SES Department IV;" [3]
xxx xxx xxx
On January 23, 1989, petitioners filed a Petition for Injunction with Prayer for the
Immediate Issuance of a Temporary Restraining Order [4] docketed as Civil Case No.
Q-89-1617 before Branch 104 of the Regional Trial Court of Quezon City.
On January 26 1989, the said court issued a temporary restraining order [5] enjoining
the defendant, the Monetary Board of the Central Bank, (now Banko Sentral ng
Pilipinas) from including the names of petitioners in the watchlist.
On February 10, 1989, the same trial court issued a writ of preliminary injunction [6],
conditioned upon the filing by petitioners of a bond in the amount of Ten Thousand
(P10,000.00) Pesos each. The Monetary Board presented a Motion for
Reconsideration[7] of the said Order, but the same was denied.
On September 11, 1989, the trial court handed down its Decision, [8] disposing thus:
"WHEREFORE, judgment is hereby rendered declaring Monetary Board Resolution
No. 805 as void and inexistent. The writ of preliminary prohibitory injunctions issued
on February 10, 1989 is deemed permanent.Costs against respondent."
The Monetary Board appealed the aforesaid Decision to the Court of Appeals which
came out with a Decision[9] of reversal on September 14, 1990, the decretal portion
of which is to the following effect:
"WHEREFORE, the decision appealed from is hereby reversed and another one
entered dismissing the petition for injunction."
Dissatisfied with the said Decision of the Court of Appeals, petitioners have come to
this Court via the present petition for review on certiorari.
On June 5, 1992, petitioners filed an "Urgent Motion for the Immediate Issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction against the

II WHETHER OR NOT THE RESPONDENT BOARD IS LEGALLY BOUND TO OBSERVE THE ESSENTIAL REQUIREMENTS OF DUE PROCESS OF A VALID CHARGE. xxx [12] The foregoing disquisition by the trial court is untenable under the facts and circumstances of the case. 1992. Petitioners were invited by Director Lirio to a conference scheduled for July 21. With respect to the first issue. 90-1837. Petitioners did not attend. 805 of the Monetary Board. 90-1832. 90-1835. Nos. 90-1831. I WHETHER OR NOT THE PETITIONERS WERE DEPRIVED OF THEIR RIGHT TO A NOTICE AND THE OPPORTUNITY TO BE HEARD BY THE MONETARY BOARD PRIOR TO ITS ISSUANCE OF MONETARY BOARD RESOLUTION NO. some of which have been reversed already. the trial court said: "The evidence submitted preponderates in favor of petitioners. 90-1248. the court denied the said motion.Secretary of Justice and the City Prosecutor of Pasay" [10] stating that several complaints were lodged against the petitioners before the Office of the City Prosecutor of Pasay City pursuant to Monetary Board Resolution No. NOTICE AND OPPORTUNITY TO BE HEARD INSOFAR AS THE PETITIONERS' SUBJECT CASE IS CONCERNED. 805 IS NULL AND VOID FOR BEING VIOLATIVE OF PETITIONERS' RIGHTS TO DUE PROCESS. 805. they were not informed of any charges against them and were not afforded the opportunity to adduce countervailing evidence so as to deserve the punitive measures promulgated in Resolution No." However. in the Resolution[11] dated September 9. and more specially from filing Informations in I. 1988 to discuss the findings made in the 16th regular examination of PESALA's records. 90-1834. III WHETHER OR NOT MONETARY BOARD RESOLUTION NO. 90-3031. 90-3032.-90-1836. The deprivation of petitioners' rights in the Resolution undermines the constitutional guarantee of due process. Petitioners were duly afforded their right to due process by the Monetary Board. 90-1249. it appearing that: 1. . said conference. Petitioners prayed that a Temporary Restraining Order and/or Writ of Preliminary Injunction issue "restraining and enjoining the Secretary of Justice and the City Prosecutor of Pasay City from proceeding and taking further actions. 805.S. pending the final resolution of the case at bar xxx. The petition poses as issues for resolution. that the said complaints were dismissed by the City Prosecutor and the dismissals were appealed to the Secretary of Justice for review. Petitioners were never notified that they were being investigated. much so.

The board or body should. or at least contained in the record and disclosed to the parties affected. in all controversial questions. as they were given ample opportunity by the Monetary Board to air their Submission and defenses as to the findings of irregularity during the said 16th regular examination. Firstly. Petitioner Renato Lim's letter of July 28. (The requirement of a hearing is complied with as long as there was an opportunity to be heard. it appears that the requisites of procedural due process were complied with by the Monetary Board before it issued the questioned Monetary Board Resolution No.2. 3. placing reliance on the said findings made . 2. 805 was adopted on the basis of said findings unearthed during the 16th regular examination of PESALA's records and derived from the letter-comments submitted by the parties. explaining his side of the controversy. explaining the Board's side of the controversy. PESALA's Board of Director's letter. Sixthly. was properly considered in the adoption of Monetary Board Resolution No. The decision must have something to support itself. which includes the right to present one's case and submit evidence in support thereof. [13] What is offensive to due process is the denial of the opportunity to be heard. CIR[16] and assert that the following requisites of procedural due process were not observed by the Monetary Board: 1. The tribunal or body or any of its judges must act or its or his own independent consideration of the law and facts of the controversy and not simply accept the view of a subordinate in arriving at a decision. 4. render its decision in such a manner that the parties to the proceedings can know the various issues involved. 805. 805. Monetary Board Resolution No. was forwarded to the Monetary Board which the latter considered in adopting Monetary Board Resolution No. 1988 to PESALA's Board of Directors. Contrary to petitioners' allegation. 6. The decision must be rendered on the evidence presented at the hearing. and the reason for the decision rendered. the Monetary Board considered the evidence presented. The essence of due process is to be afforded a reasonable opportunity to be heard and to submit any evidence one may have in support of his defense. dated July 29. The tribunal must consider the evidence presented. 805. the members of the Monetary Board acted independently on their own in issuing subject Resolution. Petitioners cite Ang Tibay v. and 3. to the Monetary Board. and not necessarily that an actual hearing was conducted. [14] Petitioners having availed of their opportunity to present their position to the Monetary Board by their letters-explanation. the petitioners were invited to a conference to discuss the findings gathered during the 16th regular examination of PESALA's records. 7. The evidence must be substantial. 5. The right to a hearing. Thirdly. 1988.[17]) Secondly. they were not denied due process [15]. Petitioners therefore cannot complain of deprivation of their right to due process. fourthly and fifthly.

they cite the trial court's ruling. and records. as an administrative agency. by order. and financial condition of any savings and loan association with or without prior notice but always with fairness and reasonable opportunity for the association or any of its officials to give their side of the case. With respect to the second issue. there is no denial of due process where records show that hearings were held with prior notice to adverse parties. and whenever necessary. process as long as the parties are given the opportunity to be heard. 805 discloses that it imposes administrative sanctions against petitioners. Amores[18]: "While administrative tribunals exercising quasi-judicial functions are free from the rigidity of certain procedural requirements they are bound by law and practice to observe the fundamental and essential requirements of due process in justiciable cases presented before them. the standard of due process that must be met in administrative tribunals allows a certain latitude as long as the element of fairness is not ignored.' it mandates the PESALA Board of Directors as well to file Civil and Criminal charges against them . after appropriate notice and hearings any controversy as to the rights or obligations of the savings and loan association. x x x (d) After proper notice and hearing." Even Section 28. require observance of due process in the exercise of its powers: xxx (c) To conduct at least once every year.Hence. v. there is tenability in petitioners' contention that the Monetary Board. there is no denial of procedural due. (c) and (d). which is to prevent further irregularities from being committed and to prosecute the officials responsible therefor. 805 is null and void for being violative of petitioners' right to due process. Lastly. its directors. stockholders and members under its charter. and. x x x x x x. of Republic Act No. But even in the absence of previous notice. administration. In fact. officers. any inspection. to suspend a savings and loan association for violation of law. (f) To decide. examination or investigation of the books. x x x" (italics supplied) Anent the third issue. to enforce the same. As held in Adamson and Adamson. for unsafe and unsound practices or for reason of insolvency. However. is legally bound to observe due process. 805 is readily apparent. business affairs. to wit: "A reading of Monetary Board Resolution No. 3779 ("RA 3779") delineating the powers of the Monetary Board over savings and loan associations. the reason for the issuance of Monetary Board Resolution No. Inc.during the 16th regular examination. To support their stance. it does not only penalize petitioners by including them in the watchlist to prevent them from holding responsible positions in any institution under Central Bank supervision. petitioners theorize that Monetary Board Resolution No. although they are free from the rigidity of certain procedural requirements.

Act No. Amores. It must therefore be. among others. is the government agency charged with the responsibility of administering the monetary. to suspend. "they are now barred from being elected or designated as officers again of PESALA. the Monetary Board is not vested with "the authority to disqualify persons from occupying positions in institutions under the supervision of the Central Bank without proper notice and hearing" nor is it vested with authority "to file civil and criminal cases against its officers/directors for suspected fraudulent acts. as warranted by the evidence. the Monetary Board shall have the power to exercise the following: xxx .' Monetary Board Resolution No. form part of[20].' Monetary Board Resolution No. and are likewise prevented from future engagements or employments in all institutions under the supervision of the Central Bank thereby virtually depriving them of the opportunity to seek employments in the field which they can excel and are best fitted. to decide any controversy over the obligations and duties of directors and officers. Philippines (now Bangko Sentral ng Pilipinas). such as PESALA. as it is hereby." Petitioners' contentions are untenable. Supervisory powers over savings and loan associations. of which savings and loan associations. there is a clear showing of arbitrariness resulting in an irreparable injury against petitioners as the Resolution certainly affects their 'life. The special law governing savings and loan association is Republic Act No. The crucial question here is that were petitioners afforded due process in the investigations conducted which prompted the issuance of Monetary Board Resolution No. 28. 805. a savings and loan association for violation of law. Inc. 3779. 3779. It must be remembered that the Central Bank of the." Said law authorizes the Monetary Board to conduct regular yearly examinations of the books and records of savings and loan associations." Petitioners opine that with the issuance of Monetary Board Resolution No. otherwise known as the "Savings and Loan Association Act.'for all the misfeasance and malfeasance committed by them. declared. . v. and at the same time marks them for judicial prosecution. through the Monetary Board. Section 28 of Rep. it openly derogates the fundamental rights of petitioners. 805 Violates basic and essential requirements. as void and inexistent because among other things. reads: "SEC. banking and credit system of the country [19] and is granted the power of supervision and examination over banks and non-bank financial institutions performing quasi-banking functions. 805 virtually deprives petitioners their respective gainful employment. as amended. it failed 'to observe the essential requirement of due process' (Adamson and Adamson. 805? x x x Although the Monetary Board is free from the rigidity of certain procedural requirements. and to take remedial measures. liberty and property. In short.In addition to whatever powers have been conferred by the foregoing provisions." According to them. 152 SCRA 237) specifically its failure to afford petitioners the opportunity to be heard.

by order. rules and regulations promulgated by the Monetary Board or in a manner substantially prejudicial to the interest of the government. upon the proof that a savings and loan association or its board or directors or officers are conducting and managing its affairs in a manner contrary to laws. take such remedial measures. and whenever. vaults. business affairs. administration. except such as is actually necessary for its operation. its directors. the person authorized to do so may seize books and records and keep them under his custody after giving proper receipts therefor. may make any marking or notation on any paper. xxx (l) To conduct such investigations. The Monetary Board may likewise. and impose upon associations. stockholders and members under its charter. examination or investigation of the books and records. take over the management of the savings and loan association after due hearing. to suspend a savings and loan association for violation of law. as amended. examination or investigation is conducted under this grant of power. The management by the Monetary Board shall be without expense to the savings and loan association. for unsafe and unsound practices or for reason of insolvency. depositors or creditors. xxx (d) After proper notice and hearing. and financial condition of any savings and loan association with or without prior notice but always with fairness and reasonable opportunity for the association or any of its officials to give their side of the case. orders. receptacles or similar containers and prohibit the opening thereof without first securing authority therefor. officers. whether stock or noti-stock their directors and/or officers administrative sanctions under Sections 34-A or 34-B of Republic Act Two Hundred sixty-five." . The official of the Central Bank in charge of savings and loan associations and his deputies are hereby authorized to administer oaths to any director.(c) To conduct at least once every year. safes. any inspection. for as long as may be necessary in connection with the investigation or examination being conducted. officer or employee of any association under the supervision of the Monetary Board. xxx (f) To decide. pending the election and qualification of a new board of directors and officers to take the place of those responsible for the violation or acts contrary to the interest of the government. until a new board of directors and officers are elected and qualified without prejudice to the prosecution of the persons responsible for such violations. record. and. to enforce the same. depositors or creditor. instructions. exercise all powers which are now or may hereafter be conferred upon it by Republic Act Numbered Two Hundred sixty-five in the enforcement of this legislation. document or book to show that it has been examined and verified and may padlock or seal shelves. Whenever an inspection. after appropriate notice and hearings any controversy as to the rights or obligations of the savings and loan association.necessary.

Petitioners can still practise their profession or engage in business as long as these are not within the ambit of Monetary Board Resolution No. Vitug. it is gleanable that the Central Bank. and the assailed Decision dated September 14.. SO ORDERED. is the owner of 6 parcels of land. concur. JJ. the Monetary Board may impose appropriate sanctions. 252 SCRA 259 – Legal Ethics – Forum Shopping Civil Law – Contract of Sale – Parties to a Sales Contract Producers Bank (now called First Philippine International Bank). and to prevent the commission of further irregularities. they may be preventively suspended from holding office so as not to influence the conduct of investigation. The Bank had an agreement with Demetrio Demetria and Jose Janolo for the two to purchase the parcels of land for a . If any irregularity is discovered in the process. We sustain the ruling of the Court of Appeals that petitioners' suspension was only preventive in nature and therefore. Until such time that the petitioners have proved their innocence. and Gonzaga-Reyes. Romero. 805. through the Monetary Board. such as suspending the offender from holding office or from being employed with the Central Bank. or placing the names of the offenders in a watchlist. No pronouncement as to costs." As may be gathered from the records. All things studiedly considered. (Chairman).From the foregoing. the petition is DENIED. which has been under conservatorship since 1984. is empowered to conduct investigations and examine the records of savings and loan associations. Neither were petitioners deprived of their lawful calling as they are free to look for another employment so long as the agency or company involved is not subject to Central Bank control and supervision. Panganiban. The requirement of prior notice is also relaxed under Section 28 (c) of RA 3779 as investigations or examinations may be conducted with or without prior notice "but always with fairness and reasonable opportunity for the association or any of its officials to give their side. the court upholds the validity of Monetary Board Resolution No. 805 and affirms the decision of the respondent court. the said requirement was properly complied with by the respondent Monetary Board. hearing was necessary. no notice or. WHEREFORE. 1990 of the Court of Appeals AFFIRMED.

and the second case is in the name of Henry Co as plaintiff. be declared unenforceable as against the Bank. sought the repudiation of the agreement as it alleged that Rivera was not authorized to enter into such an agreement. HELD: 1. who holds 80% shares of stocks with the said Bank. Demetria et al argued that the second case constitutes forum shopping. Subsequently. There is forum shopping because there is identity of interest and parties between the first case and the second case. Meanwhile. Later however. 2. Mercurio Rivera. In fact.5 million pesos. The regional trial court ruled in favor of Demetria et al. which involves the same property. the Bank. The said agreement was made by Demetria and Janolo with the Bank’s manager. Whether or not there is a perfected contract of sale. Whether or not there is forum shopping. There is identity of parties even though the first case is in the name of the bank as defendant. 2. There is a perfected contract of sale because the bank manager. Henry Co. assisted by ACCRA law office. There is still forum shopping here because Henry Co essentially represents the bank. Rivera. filed a separate civil case against Demetria and Janolo seeking to have the purported contract of sale be declared unenforceable against the Bank. Rivera was designated as the go-to guy in relation to the disposition of the Bank’s assets. This apparent authority has been duly proved by the evidence presented which showed that in all the dealings and transactions. filed a motion for intervention with the trial court. in the advertisements and announcements of the bank. Co. Yes. Rivera participated actively without the opposition of the conservator. The Supreme Court did not lay down any disciplinary action against the ACCRA lawyers but they were warned that a repetition will be dealt with more severely. Yes. Leonida Encarnacion. ISSUES: 1. The Bank filed an appeal with the Court of Appeals. through its conservator. Both cases aim to have the bank escape liability from the agreement it entered into with Demetria et al. entered into the agreement with apparent authority. . Demetria and Janolo sued Producers Bank. Subsequently. There is identity of interest because both cases sought to have the agreement. hence there was no valid contract of sale.purchase price of P5. The trial court denied the motion since the trial has been concluded already and the case is now pending appeal.

. J.......... reconsidering its Decision [4] dated 15 . CHICO-NAZARIO. YUKAYGUAN. 2009 x.... NACHURA...... ROSITA G..... YUKAYGUAN. INC..R. Respondents. the Court of Appeals rendered the assailed Resolution dated 18 July 2006. 177549 Present: ....... Petitioners. JOSEPH S. YUKAYGUAN.. VELASCO.. JERALD NERWIN L. Upon herein respondents motion..: Before Us is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court. June 18.. JR. YUKAYGUAN..THIRD DIVISION ANTHONY S.... YU..versus - YNARES-SANTIAGO.. SP No.. YU and JASON G.... and PERALTA.. No. which seeks to reverse and set aside the Resolutions dated 18 July 2006[2] and 19 April 2007[3] of the Court of Appeals in CA-G.... YU.. JJ. 00185.. NANCY L..R. [on their own behalf and on behalf Promulgated: of] WINCHESTER INDUSTRIAL SUPPLY... Chairperson. J. G.-x DECISION CHICO-NAZARIO. and JILL NESLIE L.

The factual background of the Complaint was stated in the attached Affidavit executed by respondent Joseph. and John S. Yu. Herein respondents composed the Yukayguan Family. the father. On 14 November 1984. thus. respondents filed against petitioners a verified Complaint for Accounting. the wife..00.[8] Petitioner Anthony paid for the said shares of stock with respondent Josephs money. (Winchester. The said Complaint was filed by respondents. and was docketed as SRC Case No. making the former a mere trustee of the shares for the latter. Inc. .000 shares of stock worth P100. and remanding the case to the Regional Trial Court (RTC) of Cebu City. Yukayguan (Joseph).[9] Siao So Lan.000. Yu (Rosita). with petitioner Anthony as one of the incorporators. still in petitioner Anthonys name. 022-CEB. Herein petitioners Motion for Reconsideration of the Resolution dated 18 July 2006 was denied by the appellate court in the other assailed Resolution dated 19 April 2007. [10] Petitioner Anthony remained as trustee for respondent Joseph of the 200 shares of stock in Winchester. Rosita G. for necessary proceedings. Nancy L. Inc. in effect. Joseph S. Anthony S.February 2006. as well as Yu Kay Guan. holding 1. the wife. in their own behalf and as a derivative suit on behalf of Winchester. Branch 11. Yukayguan (Nancy). Inc. Yukayguan (Jerald) and Jill Neslie Yukayguan (Jill). reversing the Decision [5]dated 10 November 2004 of the RTC which dismissed respondents Complaint in SRC Case No.. and their children Jerald Nerwin L. Yu (Anthony). According to respondents. Petitioner Anthony is the older half-brother of respondent Joseph.[7] Winchester. Inc. Herein petitioners are members of the Yu Family. Inspection of Corporate Books and Damages through Embezzlement and Falsification of Corporate Records and Accounts [6] before the RTC of Cebu.). particularly. was established and incorporated on 12 September 1977. 022-CEB. Yu (Jason). and their son. a domestic corporation engaged in the operation of a general hardware and industrial supply and equipment business. Jason G. Inc. On 15 October 2002. to respondent Joseph. namely. the father.000 shares of stock in Winchester. petitioner Anthony ceded 800 of his 1. Petitioners and the respondents were all stockholders of Winchester Industrial Supply. Inc.

Inc. prayed that respondent Joseph be declared the owner of the 200 shares of stock in petitioner Anthonys name. representing 25% of the total par value of the 1. and Jill. For the incorporation of Winchester. Winchester.Respondents then alleged that on 30 June 1985. Inc. petitioners filed an Answer with Compulsory Counterclaim. Winchester. (3) reimburse the personal and family expenses which petitioners charged to Winchester.[12] Respondents further averred that although respondent Joseph appeared as the Secretary and Treasurer in the corporate records of Winchester. Jerald.500 shares in the corporation. Inc.000. was being co-managed by petitioners and respondents.. with the Branch Clerk of Court of the RTC for respondents inspection. Inc. and petitioners Rosita and Jason. petitioner Anthony contributed P25. bought from its incorporators.500 shares to other persons. [15] Petitioners vehemently denied the allegation that petitioner Anthony was a mere trustee for respondent Joseph of the 1. the said amount being paid out of petitioner Anthonys personal savings and petitioners Anthony and Rositas conjugal funds. Respondents. which petitioners misappropriated. and withdrawing stocks for their personal use without paying for the same.. their accumulated 8. on 7 November 1995.00 paid-up capital.[14] attached to which was petitioner Anthonys Affidavit. Petitioner Rosita handled the money market placements of the corporation to the exclusion of respondent Joseph. Inc. charging their personal and family expenses to the said corporation. Inc. Inc. petitioners actually controlled and ran the said corporation as if it were their own family business. as well as the properties of the corporation which petitioners withheld without payment. Respondents also prayed that petitioners be ordered to: (1) deposit the corporate books and records of Winchester. Inc. Inc. Petitioners were also misappropriating the funds and properties of Winchester. Respondents attached to the Complaint various receipts[13] to prove the personal and family expenses charged by petitioners to Winchester. by understating the sales. On 13 November 2002. therefore.000 shares of stock in Winchester. the designated Treasurer of Winchester.[11]Subsequently. respondents sought the appointment of a Management Committee and the freezing of all corporate funds by the trial court. excluding petitioner Anthony. who included respondents Nancy. In the meantime. and (4) pay respondents attorneys fees and litigation expenses.000 shares he subscribed to. Inc.. Inc. (2) render an accounting of all the funds of Winchester. Winchester. allegedly evidencing petitioners use of corporate funds for . Inc. in petitioner Anthonys name. and the attached receipts. sold the same 8.

[18] the real properties. petitioners contended in their Answer with Compulsory Counterclaim that respondents had no cause of action against them. And third. In partial implementation of the afore-mentioned amicable settlement. since respondents Complaint purportedly constituted a derivative suit. the stocks in trade and real properties in the name of Winchester. It should be dismissed under Section 1(j). In amicable settlement of their dispute.First. respondent Joseph was crossexamined by the counsel for petitioners. given that respondents Complaint was also for inspection of corporate books.Thereafter. as his direct testimony. Inc. Respondent Joseph submitted therein. were equally distributed among petitioners and respondents. the hearing on the application for the appointment of a Management Committee was commenced. attorneys fees.[17] During the hearing on 29 November 2002. Rule 16[16] of the Rules of Court for failure to comply with conditions precedent before its filing. was payment of moral and exemplary damages. Inc. On 4 November 2002. As a result. in order for petitioners to adduce evidence in support of their opposition to the application for the appointment of a Management Committee. the parties manifested before the RTC that there was an ongoing mediation between them. it noticeably failed to allege that respondents exerted effort to exhaust all available remedies in the Articles of Incorporation and By-Laws of Winchester. . as well as in the Corporation Code. litigation expenses. By way of special and affirmative defenses.. and cost of suit. on 4 January 2003.personal and family expenses. the stockholders and members of the Board of Directors of Winchester. the same Affidavit that he executed. which was attached to the respondents Complaint. a unanimous Resolution[19] dissolving the corporation as of said date. there was no allegation in respondents Complaint that earnest efforts were exerted to settle the dispute between the parties. the petitioners and respondents agreed to a division of the stocks in trade. it lacked the allegation that respondents made a previous demand upon petitioners to inspect the corporate books but petitioners refused. On 30 October 2002. the continuation of the hearing was set for 29 November 2002. and so the hearing on the appointment of a Management Committee was reset to another date. Second. were in fact signed and approved by respondent Joseph. passed. Inc. in addition to the dismissal of respondents Complaint. Respondents Complaint was purely intended for harassment. Prayed for by petitioners. Inc. and the other assets of Winchester.

August 26. In accordance with the agreement of the parties. Respondents. the instant case will be deemed submitted for resolution. Consequently. petitioners and respondents agreed that the RTC may already render a judgment based on the pleadings. MAAMO. made their own manifestation before the RTC that they were repudiating said settlement.[20] On 25 June 2004.On 22 February 2004. in view of the failure of the parties thereto to divide the remaining assets of Winchester. and other evidences on record.[22] On 26 August 2004. The suggestion of counsels was approved by the Court. respondents moved to have SRC Case No. agreed and suggested that a judgment may be rendered by the Court in this case based on the pleadings. Accordingly. On 23 August 2004. counsels of the parties manifested. Acting Presiding Judge . an Order[23] which stated: ORDER During the pre-trial conference held on August 26. affidavits. however. petitioners filed their pre-trial brief. (signed) SILVESTRE A. or to be submitted by them. instead of holding a formal pre-trial conference and resuming the hearing on the application for the appointment of a Management Committee. Section 4 of the Rule on Intra-Corporate Controversies. 2004. pursuant to the provision of Rule 4. Inc. 2004. the RTC issued. the Court hereby orders the counsels of the parties to file simultaneously their respective memoranda within a non-extendible period of twenty (20) days from notice hereof. 022-CEB set for pre-trial. petitioners filed a Manifestation[21] informing the RTC of the existence of their amicable settlement with respondents. respondents filed their pre-trial brief. JR. on even date. xxxx Cebu City. Thereafter.

022-CEB. Respondents also appended to their Memorandum additional documentary evidence. containing assertions that refuted the allegations in petitioner Anthonys Affidavit. (2) He exerted all reasonable efforts. the RTC adjudged that they had likewise failed to comply with the requisites entitling them to the same. discussing the arguments already set forth in the pleadings they had previously submitted to the RTC. Rule 7 of the Interim Rules of Procedure .[27] The RTC declared that respondents failed to show that they had complied with the essential requisites for filing a derivative suit as set forth in Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies: (1) 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. which was earlier submitted with petitioners Answer with Compulsory Counterclaim. though.. laws or rules governing the corporation or partnership to obtain the relief he desires. [24] The RTC subsequently promulgated its Decision on 10 November 2004 dismissing SRC Case No. in view of the foregoing premises and for lack of merit. and (4) The suit is not a nuisance or harassment suit. The dispositive portion of said Decision reads: WHEREFORE. and alleges the same with particularity in the complaint. to exhaust all remedies available under the articles of incorporation. As to respondents prayer for the inspection of corporate books and records. attached to their Memorandum a Supplemental Affidavit[25] of respondent Joseph. (3) No appraisal rights are available for the act or acts complained of.Petitioners and respondents duly filed their respective Memoranda. this Court hereby renders judgment in this case DISMISSING the complaint filed by the [herein respondents]. by-laws.Respondents. Inc.Section 2. The Court also hereby dismisses the [herein petitioners] counterclaim because it has not been indubitably shown that the filing by the [respondents] of the latters complaint was done in bad faith and with malice. to further substantiate their claim that petitioners were understating sales and charging their personal expenses to the corporate funds. [26] consisting of original and duplicate cash invoices and cash disbursement receipts issued by Winchester.

the Court of Appeals rendered its Decision. Inc. and (4) The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified and illegal. Finding the claims of the parties for damages against each other to be unsubstantiated. WE see no reason or justification for granting the present appeal. a court order for respondents inspection of the same was no longer necessary. if any. faithful. The RTC further noted that respondent Joseph was the corporate secretary of Winchester. Inc. he was supposed to be the custodian of the corporate books and records. therefore. and correct. docketed as CA-G. (3) The refusal of defendant to grant the demands of the plaintiff and the reasons given for such refusals. had been engaging the services of an audit firm. SP No. 00185.Governing Intra-Corporate Controversies requires that the complaint for inspection of corporate books or records must state that: (1) The case is for the enforcement of plaintiff's right of inspection of corporate orders or records and/or to be furnished with financial statements under Sections 74 and 75 of the Corporation Code of thePhilippines. and. affirming the 10 December 2004 Decision of the RTC. The RTC similarly denied respondents demand for accounting as it was clear that Winchester. together with the applicable laws and jurisprudence. as such.R. and believed that the audited financial statements the said audit firm prepared were true. Respondent Joseph himself described the audit firm as competent and independent. On 15 February 2006. the RTC thereby dismissed the same. xxxx . Respondents challenged the foregoing RTC Decision before the Court of Appeals via a Petition for Review under Rule 43 of the Rules of Court. stating the law and jurisprudence in support thereof. (2) A demand for inspection and copying of books and records and/or to be furnished with financial statements made by the plaintiff upon defendant. Said the appellate court: After a careful and judicious scrutiny of the extant records of the case.

Rule 8. x x x xxxx (2) He exerted all reasonable efforts. (2) A demand for inspection and copying of books [and/or] to be furnished with financial statements made by the plaintiffs upon defendant. 1. The complaint shall state or contain: xxxx (3) the law. Section 4(3). Section 2 thereof. Complaint In addition to the requirements in section 4. Section [1(2)] and Rule 7. violated. Complaint.x x x [T]his Court sees that the instant petition would still fail taking into consideration all the pleadings and evidence of the parties except the supplemental affidavit of [herein respondent] Joseph and its corresponding annexes appended in [respondents] memorandum before the Court a quo. the complaint must state the following: (1) The case is set (sic) for the enforcement of plaintiffs right of inspection of corporate orders or records and/or to be furnished with financial statements under Section 74 and 75 of the Corporation Code of the Philippines. which reads as follows: RULE 2 COMMENCEMENT OF ACTION AND PLEADINGS Sec. Derivative action. or regulation relied upon. Rule 2 of these Rules. The Court a quo have (sic) outrightly dismissed the complaint for its failure to comply with the mandatory provisions of the Interim Rules of Procedure for IntraCorporate Controversies particularly Rule 2. xxxx RULE 7 INSPECTION OF CORPORATE BOOKS AND RECORDS Sec. laws or rules governing the corporation or partnership to obtain the relief he desires. and alleges the same with particularity in the complaint. to exhaust all remedies available under the articles of incorporation. 4. xxxx RULE 8 DERIVATIVE SUITS Sec. rule. or sought to be enforced. 2. by-laws. .

which respondents belatedly submitted with their Memorandum to the said trial court. as admitted by them. If.) The Court of Appeals likewise sustained the refusal by the RTC to consider respondent Josephs Supplemental Affidavit and other additional evidence. or its bylaws. after submission of the pre-trial briefs. upon consideration of the pleadings. the court may order the .[28] (Emphasis ours. xxxx A perusal of the extant record shows that [herein respondents] have not complied with the above quoted provisions. or any laws or rules governing the corporation. should have first exhausted all available remedies under its (sic) Articles of Incorporation. the parties through their respective counsels had come up with an agreement that the lower court would render judgment based on the pleadings and evidence submitted. The appellate court ratiocinated that: With regard to the claim of [herein respondents] that the supplemental affidavit of [respondent] Joseph and its annexes appended to their memorandum should have been taken into consideration by the Court a quo to support the reliefs prayed [for] in their complaint. the affidavits and other evidence submitted by the parties. 4. is a derivative suit. 4 of the Interim Rules of Procedure for IntraCorporate Controversies which explicitly states: SECTION. stating the law and jurisprudence in support thereof. the court determines that. This agreement is in accordance with Rule 4. A second hard look of (sic) the extant records show that during the pre-trial conference conducted on August 26.(3) The refusal of the defendant to grant the demands of the plaintiff and the reasons given for such refusal. What the law requires is to bring the grievance to the Board of Directors or Stockholders for the latter to take the opportunity to settle whatever problem in its regular meeting or special meeting called for that purpose which [respondents] failed to do. [Respondents] should be mindful that in filing their complaint which. Sec. The contention of [respondent Joseph] that he had indeed made several talks to (sic) his brother [herein petitioner Anthony] to settle their differences is not tantamount to exhaustion of remedies. (sic) This Court rules that said supplemental affidavit and its annexes is (sic) inadmissible. Judgment before pre-trial. a judgment may be rendered. if any. x x x The requirements laid down by the Interim Rules of Procedure for Intra-Corporate Controversies are mandatory which cannot be dispensed with by any stockholder of a corporation before filing a derivative suit. 2004. and (4) The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified and illegal.

Affidavits of witnesses as well as documentary and other evidence shall be attached to the appropriate pleading. and shall comply with the rules on admissibility of evidence. and shall show affirmatively that the affiant is competent to testify on the matters stated therein. That is. not later than ninety (90) days from the expiration of the period to file the memoranda. Affidavits and other evidence not so submitted shall not be admitted in evidence. and (3) Newly discovered evidence. or adverse party witnesses. A witness is presumed prima facie hostile if he fails or refuses to execute an affidavit after a written request therefor. the supplemental affidavit and its appended documents which were submitted only upon the filing of the memorandum for the [respondents] were not submitted in the pre-trial briefs for the stipulation of the parties during the pretrial. documentary and other evidence not so submitted may be attached to the pre-trial brief required under these Rules. it cannot be accepted pursuant to Rule 2. The affidavits shall be in question and answer form. Differently stated. It must be noted that in the case at bench. the party making an allegation in a civil case has the burden of proving it by preponderance of evidence. like any other civil cases. either full or otherwise. inadmissible. hence. the affidavit and evidence must be submitted not later than five (5) days prior to its introduction in evidence. the court shall render judgment. Affidavits. appellants must adduce evidence that has greater weight or is more convincing that (sic) which is offered to oppose it. except in the following cases: (1) Testimony of unwilling. documentary and other evidence. xxxx Clearly. Thereafter. (2) If the failure to submit the evidence is for meritorious and compelling reasons. that affidavits. the burden of proof never parts. upon the plaintiff in [a] civil case. however. In case of (2) and (3) above. Sec. no one should be blamed for the dismissal of the complaint but the . hence. hostile. Affidavits shall be based on personal knowledge. shall set forth such facts as would be admissible in evidence. 8 of the same rules which reads as follows: SEC.parties to file simultaneously their respective memoranda within a non-extendible period of twenty (20) days from receipt of the order. There is no showing in the case at bench that the supplemental affidavit and its annexes falls (sic) within one of the exceptions of the above quoted proviso. Provided. 8. In the case at bar.

Cost against the [herein respondents]. which took place on 30 March 2006.[32] In a Resolution[33] dated 8 March 2006. To admit them would be a denial of due process for the opposite party which this Court cannot allow. If the said period should lapse without the parties submitting an . On 4 April 2006. 7th Judicial Region. which they had actually already started.[respondents] themselves for their lackadaisical attitude in setting forth and appending their defences belatedly. Counsels for the parties manifested before the appellate court that they were submitting respondents Motion for Reconsideration for resolution. the parties were agreeable to pursue a settlement for the dissolution of the corporation. within 10 days from notice. the Court of Appeals granted respondents Motion to Set for Oral Arguments the Motion for Reconsideration. Cebu City. a Motion for Reconsideration and Motion to Set for Oral Arguments the Motion for Reconsideration.[30] Unperturbed. and (2) [The] Honorable Court erred in holding that the supplemental affidavit and its annexes is (sic) inadmissible because the rules and the lower court expressly allowed the submission of the same in its order dated August 26.[31] invoking the following grounds: (1) The [herein respondents] have sufficiently exhausted all remedies before filing the present action. on 23 February 2006. datedNovember 10. since the same would undeniably affect the resolution of respondents pending Motion for Reconsideration. the Court of Appeals issued a Resolution [34] setting forth the events that transpired during the oral arguments. however. 022CEB is AFFIRMED in toto. 2004 x x x. judgment is hereby rendered DISMISSING the instant petition and the assailed Decision of the Regional Trial Court (RTC). Independent of the resolution of respondents Motion for Reconsideration. Branch II. 2004. In a Resolution[35] dated 11 April 2006.[29] Ultimately. the Court of Appeals ordered the parties to submit. still called on the parties to talk about the possible settlement of the case considering their familial relationship. respondents filed before the Court of Appeals. their intended amicable settlement. Justice Magpale. the Court of Appeals decreed: WHEREFORE. in SRC Case No.

At the same time. Respondents informed the appellate court that prior to the filing with the Securities and Exchange Commission (SEC) of a petition for dissolution of Winchester. Inc. On 5 May 2006. Inc. respondents submitted to the Court of Appeals their Position Paper. Respondents posited.. though. Inc. which provides that. among the parties was null and void. On 18 July 2006. the Court of Appeals rendered the assailed Resolution. respondents brought to the attention of the Court of Appeals that the parties did eventually file with the SEC a petition for dissolution of Winchester. granting respondents Motion for Reconsideration. no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities. which the SEC approved. They instead argued that the RTC Decision in question was null and void as it did not clearly state the facts and the law on which it was based. Inc.amicable settlement..[36] stating that the parties did not reach an amicable settlement. that the afore-mentioned distribution of the assets of Winchester. vis--vis the issues raised by the [herein respondents] motion for reconsideration and in view of the formal dissolution of the corporation which leaves unresolved up to the present . including the legalization of the prior partial distribution among the parties of the assets of said corporation.[37] Respondents no longer discussed in their Position Paper the grounds they previously invoked in their Motion for Reconsideration of the Court of Appeals Decision dated 15 February 2006. Respondents sought the remand of the case to the RTC for further proceedings on their derivative suit and completion of the dissolution of Winchester. The Court of Appeals reasoned in this wise: After a second look and appreciation of the facts of the case.. however. a remand of the case to the RTC was not necessary. as it violated the last paragraph of Section 122 of the Corporation Code.. thus. affirming in toto the RTC Decision dated 10 November 2004. then they were directed by the appellate court to file within 10 days thereafter their position papers instead. [e]xcept by a decrease of capital stock and as otherwise allowed by the Corporation Code. the parties already divided the stocks in trade and the real assets of the corporation among themselves. wherein they accused respondents of attempting to incorporate extraneous matters into the latters Motion for Reconsideration.Petitioners pointed out that the issue before the Court of Appeals was not the dissolution and division of assets of Winchester. Inc. Petitioners filed their Position Paper[38] on 23 May 2006.

et. The termination of the life of a juridical entity does not by itself cause the extinction or diminution of the rights and liabilities of such entity x x x nor those of its owners and creditors. It may. 122 of the Corporation Code after payment of all its debts and liabilities as provided for under the same proviso. vs. appoint a trustee or a receiver who may act beyond that period. the board of directors (or trustees) xxx may be permitted to so continue as "trustees" by legal implication to complete the corporate liquidation. No. disposition. where the high court ruled and which WE quote. conveyance and distribution of said properties and assets between and amongst its stockholders as final settlement pursuant to Sec. [8799] (otherwise known as the Securities and Exchange Commission) as implemented by A. The order dated February 15.[39] Hence. viz: the corporation continues to be a body corporate for three (3) years after its dissolution for purposes of prosecuting and defending suits by and against it and for enabling it to settle and close its affairs. acting for and in its behalf. If the three-year extended life has expired without a trustee or receiver having been expressly designated by the corporation within that period. al. which has primary and sufficiently broad jurisdiction in matters of this nature. Still in the absence of a board of directors or trustees. during the three-year term. 2001. this Court finds the need to remand the instant case to the lower court (commercial court) as the proper forum for the adjudication.M. al. including not only the shareholders but likewise the creditors of the corporation. culminating in the disposition and distribution of its remaining assets. is the proper forum for working out the final settlement of the corporate concern. might make proper representation with the Securities and Exchange Commission. premises considered. the Court of Appeals ruled: WHEREFORE. for working out a final settlement of the corporate concerns. the motion for reconsideration is GRANTED. In the absence of a trustee or board of director in the case at bar for purposes above mentioned.the settlement of the properties and assets which are now in danger of dissipation due to the unending litigation. Court of Appeals. 2006 is hereby SET ASIDE and the instant case is REMANDED to the lower court to take the necessary proceedings . those having any pecuniary interest in the assets. the lower court under Republic Act No. 00-8-10-SC (Transfer of Cases from the Securities and Exchange Commission to the Regional Trial Courts) which took effect on October 1. This is in accord with the pronouncement of the Supreme Court in the case of Clemente et.

the adjudication.[42] The crux of petitioners contention is that the Court of Appeals committed grievous error in reconsidering its Decision dated 15 February 2006 on the basis of extraneous matters. i.e. disposition. among . In the Petition at bar.] III.] WHICH VIOLATED THE CONSTITUTION OF THE PHILIPPINES. WHETHER OR NOT REMANDING THIS CASE TO THE REGIONAL TRIAL COURT VIOLATES THE SUMMARY PROCEDURE FOR INTRACORPORATE CASES. IV.] II. petitioners raise the following issues: I. conveyance. which had not been previously raised in respondents Complaint before the RTC.. WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN REMANDING THIS CASE TO THE LOWER COURT FOR THE REASON CITED IN THE ASSAILED RESOLUTIONS. and distribution of the properties and assets of Winchester. Inc. JURISPRUDENCE AND THE LAW[. WHETHER OR NOT THE ASSAILED RESOLUTIONS[. (sic) INASMUCH AS [THE] REASON CITED WAS A NON-ISSUE IN THE CASE.] ARE NULL AND VOID[. WHETHER OR NOT THE ASSAILED RESOLUTIONS WAS (sic) ISSUED WITHOUT JURISDICTION[.[40] Petitioners filed a Motion for Reconsideration[41] of the foregoing Resolution.in resolving with deliberate dispatch any and all corporate concerns towards final settlement. but it was denied by the Court of Appeals in its other assailed Resolution dated 19 April 2007. or in their Petition for Review and Motion for Reconsideration before the appellate court. AND WITHOUT RESOLVING THE GROUNDS FOR THE [RESPONDENTS] MOTION FOR RECONSIDERATION.

on their own behalf and on behalf of Winchester. for which reason the RTC proceeded with the case on its merits. The parties were . independently of any intended settlement between the parties as regards the dissolution of the corporation and distribution of its assets.its stockholders. the Court of Appeals affirmed. Inc. Remanding the case to the RTC. Respondents filed a Motion for Reconsideration of said judgment of the appellate court. In its Decision dated 15 February 2006. as this will just entail delay. primarily in order to compel petitioners to account for and reimburse to the said corporation the corporate assets and funds which the latter allegedly misappropriated for their personal benefit. This amicable settlement was already partially implemented by the parties. To recapitulate. The fact that the parties were able to agree before the Court of Appeals to submit for resolution respondents Motion for Reconsideration of the 15 February 2006 Decision of the same court. when respondents repudiated the same. on appeal. Pending resolution of respondents Motion for Reconsideration. the parties were able to reach an amicable settlement wherein they agreed to divide the assets of Winchester. the case at bar was initiated before the RTC by respondents as a derivative suit. The Court finds the instant Petition meritorious. only proves the distinction and independence of these matters from one another. insisting that they were able to meet all the conditions for filing a derivative suit. will violate the very essence of the summary nature of the Interim Rules of Procedure Governing Intra-Corporate Controversies. Inc. During the pendency of the proceedings before the court a quo. but the parties were unable to do so. protract litigation. and revert the case to square one. failed to clearly and distinctly state the facts and the law on which it was based. Petitioners also contend that the assailed Resolution dated 18 July 2006 of the Court of Appeals. and for inadequate substantiation of respondents allegations in said Complaint after consideration of the pleadings and evidence on record. the RTC promulgated its Decision dismissing respondents Complaint for failure to comply with essential pre-requisites before they could avail themselves of the remedies under the Interim Rules of Procedure Governing Intra-Corporate Controversies. allegedly pursuant to the amicable settlement of the parties. petitioners maintain. the findings of the RTC that respondents did not abide by the requirements for a derivative suit. nor were they able to prove their case by a preponderance of evidence. granting respondents Motion for Reconsideration. the Court of Appeals urged the parties to again strive to reach an amicable settlement of their dispute. among themselves.. On 10 November 2004.

which utterly lacked support. And the relief which is granted is a judgment against a third person in favor of the corporation. the Court of Appeals converted the derivative suit between the parties into liquidation proceedings. or hold the control of the corporation. their Position Papers. In contrast. its power to sue is lodged with its board of directors or trustees. if a corporation has a defense to an action against it and is not asserting it. Similarly. It was at this point that the case took an unexpected turn. Nonetheless. including derivative suits. The general rule is that where a corporation is an injured party. In such actions. No. In accordance with respondents allegation in their Position Paper that the parties subsequently filed with the SEC. whenever the officials of the corporation refuse to sue. is now vested in the Regional Trial Courts designated by this Court pursuant to A.[43] By virtue of Republic Act No. Inc.not able to submit to the appellate court. a stockholder may intervene and defend on behalf of the corporation. the Court of Appeals remanded the case to the RTC so that all the corporate concerns between the parties regarding Winchester. and petitioners opposition to the same. an individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stocks in order to protect or vindicate corporate rights. It is specifically governed by Section 122 of the Corporation Code. A derivative action is a suit by a shareholder to enforce a corporate cause of action. 00-11-03-SC promulgated on 21 November 2000.M. In one stroke. for resolution by the appellate court on the merits. with the corporation as the real party in interest. The corporation is a necessary party to the suit. the suing stockholder is regarded as a nominal party. This effectively meant that the parties opted to submit respondents Motion for Reconsideration of the 15 February 2006 Decision of the Court of Appeals. jurisdiction over intra-corporate disputes. otherwise known as the Securities Regulation Code. instead. any amicable settlement. or are the ones to be sued. could be resolved towards final settlement. and the SEC already approved.. 8799. a petition for dissolution of Winchester. which reads: . with the use of sweeping language. within the given period. Inc. liquidation is a necessary consequence of the dissolution of a corporation. and filed.

said corporation is authorized and empowered to convey all of its property to trustees for the benefit of stockholders. and the distribution of the remaining assets. which consists of adjusting the debts and claims. [46] . Corporate liquidation. The manner of liquidation or winding up may be provided for in the corporate bylaws and this would prevail unless it is inconsistent with law. Following the voluntary or involuntary dissolution of a corporation. From and after any such conveyance by the corporation of its property in trust for the benefit of its stockholders. any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated to the city or municipality where such assets are located. members. creditors and others in interest. on the basis of their respective interests. Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise. Except by decrease of capital stock and as otherwise allowed by this Code. for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs. liquidation is the process of settling the affairs of said corporation. the payment of all its creditors. all interest which the corporation had in the property terminates. Upon winding up of the corporate affairs. and other persons in interest.[44] More particularly. members. if any among the stockholders thereof in accordance with their contracts. through its Board of Directors. to dispose of and convey its property and to distribute its assets. 122. of collecting all that is due the corporation. the legal interest vests in the trustees. creditors or other persons in interest. but not for the purpose of continuing the business for which it was established. shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved.SEC. or by a receiver appointed by the SEC upon its decree dissolving the corporation. creditors. the settlement and adjustment of claims against it and the payment of its just debts. no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities. or if there be no special contract. that is. and the beneficial interest in the stockholders. it entails the following: Winding up the affairs of the corporation means the collection of all assets.[45] It may be undertaken by the corporation itself. members. or by trustees to whom all corporate assets are conveyed for liquidation. At any time during said three (3) years. or whose corporate existence for other purposes is terminated in any other manner.

in which they agreed to already distribute the assets of Winchester.Glaringly. Inc. however. even after the same had been partially implemented. Inc. Respondents failed to submit copies of such petition for dissolution of Winchester. on their own behalf and on behalf of Winchester. and the SEC approved. respondents must. Inc. Even assuming arguendo that the parties did submit a petition for the dissolution of Winchester. the Court of Appeals was still without jurisdiction to order the final settlement by the RTC of the remaining corporate concerns. Inc. and moved that their case be set for pre-trial. and the SEC Certification approving the same. prove it. that there is absolute lack of evidence on record to prove said allegation. The Court notes. There was nothing in respondents Complaint which sought the dissolution and liquidation of Winchester. but only in the dismissal of the derivative suit based on either compromise agreement or mootness of the issues. It must be remembered that the Complaint filed by respondents before the RTC essentially prayed for the accounting and reimbursement by petitioners of the corporate funds and assets which they purportedly misappropriated for their personal use. the decree of the Court of Appeals to remand the case to the RTC for the final settlement of corporate concerns was solely grounded on respondents allegation in its Position Paper that the parties had already filed before the SEC. . They are neither part of each other nor the necessary consequence of the other. the supposed dissolution of Winchester. While it may be true that the parties earlier reached an amicable settlement. Inc. and the same was approved by the SEC. therefore. the petition to dissolve Winchester. Hence. Since it was respondents who alleged the voluntary dissolution of Winchester. surrender by the petitioners of the corporate books for the inspection of respondents. Moreover. Attempts to again amicably settle the dispute between the parties before the Court of Appeals were unsuccessful. There is totally no justification for the Court of Appeals to convert what was supposedly a derivative suit instituted by respondents. to a proceeding for the liquidation of Winchester. Inc. and payment by petitioners to respondents of damages. Inc. Inc.[47] This respondents failed to do. it must be pointed out that respondents themselves repudiated said amicable settlement before the RTC. a derivative suit is fundamentally distinct and independent from liquidation proceedings.. and in effect liquidate said corporation. against petitioners. It is a basic rule in evidence that each party must prove his affirmative allegation.. Inc. could not have resulted in the conversion of respondents derivative suit to a proceeding for the liquidation of said corporation.

the Court subscribes to the ruling to the contrary of the Court of Appeals in its Decision dated 16 February 2006. the Court of Appeals unduly concentrated on respondents unsubstantiated allegation that Winchester. The basis of a stockholders suit is always one in equity. In their said Motion for Reconsideration. as well as by the RTC in its Order dated 26 August 2004. since the submission thereof was allowed by the rules of procedure. 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. the Court still deems it appropriate to already look into the merits of respondents Motion for Reconsideration of the 15 February 2006 Decision of the Court of Appeals. The Court has recognized that a stockholders right to institute a derivative suit is not based on any express provision of the Corporation Code. was already dissolved and speciously ordered the remand of the case to the RTC for proceedings so vitally different from that originally instituted by respondents. for the sake of finally putting an end to the case at bar. However. As regards the first ground of sufficient exhaustion by respondents of all remedies before filing a derivative suit. the dismissal by the RTC of respondents Complaint due to respondents failure to comply with the requirements for a derivative suit and submit evidence to support their allegations. Inc. the Court of Appeals already went beyond the issues raised in respondents Motion for Reconsideration. In effect. Hence. in its 15 February 2006 Decision. and (2) respondent Josephs Supplemental Affidavit and its annexes should have been taken into consideration.Clearly. Instead of focusing on whether it erred in affirming. Despite the foregoing.[48] . waste or dissipation of corporate assets because of a special injury to him for which he is otherwise without redress. it cannot prosper without first complying with the legal requisites for its institution. or even the Securities Regulation Code. respondents argued that: (1) they had sufficiently exhausted all remedies before filing the derivative suit. 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. in issuing its assailed Resolutions dated 18 July 2006 and 19 April 2007. a stockholder may sue for mismanagement.

Inc. A stockholder or member may bring an action in the name of a corporation or association. laws or rules governing Winchester. bylaws. was a family corporation and it was impossible to expect petitioners to take action against themselves who were the ones accused of wrongdoing.Section 1. Respondent Joseph averred in his Affidavit that he tried for a number of times to talk to petitioner Anthony to settle their differences. provided. and alleges the same with particularity in the complaint. 1. Respondents additionally claimed that taking further remedies within the corporation would have been idle ceremony. and (4) The suit is not a nuisance or harassment suit. (2) He exerted all reasonable efforts. The second paragraph thereof requires that the stockholder filing a derivative suit should have exerted all reasonable efforts to exhaust all . to exhaust all remedies available under the articles of incorporation. Derivative action. The Court is not persuaded. to obtain the relief they desire. Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies are simple and do not leave room for statutory construction. which was attached to respondents Complaint. The wordings of Section 1. Rule 8 of the Interim Rules of Procedure Governing IntraCorporate Controversies lays down the following requirements which a stockholder must comply with in filing a derivative suit: Sec. as the case may be. 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. but the latter would not listen. that: (1) 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. by-laws. A perusal of respondents Complaint before the RTC would reveal that the same did not allege with particularity that respondents exerted all reasonable efforts to exhaust all remedies available under the articles of incorporation. considering that Winchester. Inc. Respondents assert that their compliance with said requirement was contained in respondent Josephs Affidavit.

misappropriation. Section 8. in its 15 February 2006 Decision. explicitly or otherwise. and the difference in the requirements for. as well as a categorical statement that the suit was not a nuisance or a harassment suit. the fact that there were no appraisal rights available for the acts of petitioners complained of. is a family corporation should not in any way exempt respondents from complying with the clear requirements and formalities of the rules for filing a derivative suit. Neither can this Court accept the reasons proffered by respondents to excuse themselves from complying with the second requirement under Section 1. available for dispute resolution among stockholders. that respondent Josephs Supplemental Affidavit and additional evidence were inadmissible since they were only appended by respondents to their Memorandum before the RTC. the Court agrees with the ruling of the Court of Appeals. after all other remedies to obtain the relief sought had failed. Respondents did not refer to or mention at all any other remedy under the articles of incorporation or by-laws of Winchester. The fact that Winchester. family corporations vis--vis other types of corporations. Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies. the respondents Complaint failed to allege. Inc. laws or rules governing the corporation or partnership to obtain the relief he desires.remedies available under the articles of incorporation. by-laws. The allegation of respondent Joseph in his Affidavit of his repeated attempts to talk to petitioner Anthony regarding their dispute hardly constitutes all reasonable efforts to exhaust all remedies available. compared to the seriousness of respondents accusations of fraud. in the institution by a stockholder of a derivative suit. with respect to the third and fourth requirements of Section 1. Inc. They are flimsy and insufficient. Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies.. Rule 2 of the Interim Rules of Procedure Governing Intra-Corporate Controversies is crystal clear that: . absolutely failed to provide for such remedies. There is nothing in the pertinent laws or rules supporting the distinction between. And the Court is not prepared to conclude that the articles of incorporation and by-laws of Winchester. and falsification of corporate records against the petitioners. and to allege such fact with particularity in the complaint. The Court further notes that. The obvious intent behind the rule is to make the derivative suit the final recourse of the stockholder. Inc. As to respondents second ground in their Motion for Reconsideration. which respondents unsuccessfully availed themselves of.

however. Affidavits shall be based on personal knowledge. Provided. documentary and other evidence. Affidavits and documentary evidence not so submitted must already be attached to the respective pre-trial briefs of the parties. documentary and other evidence not so submitted may be attached to the pre-trial brief required under these Rules. and shall show affirmatively that the affiant is competent to testify on the matters stated therein. (Emphasis ours. Within five (5) days after the period for availment of. mandatory nature. the modes of discovery prescribed in Rule 3 hereof. that affidavits. Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies require that the following matters should already be set forth in the parties pre-trial briefs: Section 1. which generally should mean the complaint for the plaintiff and the answer for the respondent. or adverse party witnesses. except in the following cases: (1) Testimony of unwilling. That the parties should have already identified and submitted to the trial court the affidavits of their witnesses and documentary evidence by the time of pre-trial is strengthened by the fact that Section 1. Pre-trial conference. shall set forth such facts as would be admissible in evidence.Sec. and (3) Newly discovered evidence. and compliance with. Affidavits of witnesses as well as documentary and other evidence shall be attached to the appropriate pleading. hostile. The parties shall file with the court and furnish each other copies of their respective pre-trial brief in such manner as to . and directing the parties to submit their respective pre-trial briefs. Affidavits. (2) If the failure to submit the evidence is for meritorious and compelling reasons. A witness is presumed prima facie hostile if he fails or refuses to execute an affidavit after a written request therefor. the affidavit and evidence must be submitted not later than five (5) days prior to its introduction in evidence. 8. The affidavits shall be in question and answer form. the court shall issue and serve an order immediately setting the case for pre-trial conference. whichever comes later. In case of (2) and (3) above.) According to the afore-quoted provision. and shall comply with the rules on admissibility of evidence. the parties should attach the affidavits of witnesses and other documentary evidence to the appropriate pleading. Affidavits and other evidence not so submitted shall not be admitted in evidence.

either full or otherwise. the parties in the present case agreed to submit the case for judgment by the RTC. among other matters. If after submission of the pre-trial briefs. This is. the following: xxxx (4) Documents not specifically denied under oath by either or both parties. Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies. the court may order the parties to file simultaneously their respective memoranda within a non-extendible period of twenty (20) days from receipt of the order. so that the opposite party is given the opportunity to object to the form and substance. according to Section 2. the affidavits and other evidence submitted by the parties. Also. the court determines that. not . Judgment before pre-trial. the court shall render judgment. xxxx (7) Names of witnesses to be presented and the summary of their testimony as contained in their affidavits supporting their positions on each of the issues. of course. in accordance with Section 4.[49] it is the duty of the court to ensure during the pre-trial conference that the parties consider in detail. objections to the admissibility of testimonial. even before pre-trial. as well as objections to the form or substance of any affidavit. The parties shall set forth in their pre-trial briefs. and other evidence. at the very last instance. or the admissibility thereof. Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies: Sec. 4.ensure its receipt by the court and the other party at least five (5) days before the date set for the pre-trial. True. among other things. (8) All other pieces of evidence. upon consideration of the pleadings. to prevent unfair surprises and/or to avoid the granting of any undue advantage to the other party to the case. a judgment may be rendered. affidavits of witnesses and other documentary evidence are required to be attached to a partys pre-trial brief. or part thereof. whether documentary or otherwise and their respective purposes. documentary. Obviously.Thereafter.

appended by respondents only to their Memorandum submitted to the RTC. SO ORDERED. were correctly adjudged as inadmissible by the Court of Appeals in its 15 February 2006 Decision for having been belatedly submitted. irrefragably run afoul the former partys constitutional right to due process. No costs. the Petition for Review under Rule 45 of the Rules of Court is hereby GRANTED. at the latest.later than ninety (90) days from the expiration of the period to file the memoranda. 00185 are hereby REVERSED AND SET ASIDE. affidavits and other evidence submitted by the parties. therefore. WHEREFORE. Even then. To violate the above-quoted provision would. premises considered. The assailed Resolutions dated 18 July 2006 and 19 April 2007 of the Court of Appeals in CA-G. thus. Taking further into account that under Section 4. which is particularly recognized under Section 8. In the instant case. respondent Josephs Supplemental Affidavit and the additional documentary evidence. Rule 2 of the Interim Rules of Procedure Governing Intra-Corporate Controversies. The Decision dated 15 February 2006 of the Court of Appeals is herebyAFFIRMED. . Respondents neither alleged nor proved that the documents in question fall under any of the three exceptions to the requirement that affidavits and documentary evidence should be attached to the appropriate pleading or pre-trial brief of the party. that the parties had submitted their pre-trial briefs and the court took into consideration the pleadings. cases wherein the court can render judgment prior to pre-trial. do not depart from or constitute an exception to the requisite that affidavits of witnesses and documentary evidence should be submitted. before the court makes a determination that it can render judgment before pre-trial.R. SP No. with the parties pre-trial briefs. Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate Controversies parties are required to file their memoranda simultaneously. the afore-quoted provision still requires. Hence. the same would mean that a party would no longer have any opportunity to dispute or rebut any new affidavit or evidence attached by the other party to its memorandum.