HARRIE S. EVERETT, CRAL G. CLIFFORD, ELLIS H. TEAL and GEORGE W.

ROBINSON
vs.ASIA BANKING CORPORATION, NICHOLAS E. MULLEN, ERIC BARCLAY, ALFRED F. KELLY, JOHN W. MEARS and CHARLES D.
MACINTOSH

FACTS:

Defendant the Asia Banking Corporation was and now is a foreign banking corporation licensed to transact
banking business in the Philippines. Asia Banking Corporation never has been empowered by law or licensed to do any
business other than commercial banking in the Philippine Islands. That the defendants Nicholas E. Mullen et. al were
officers, agents and employees of the said Asia Banking Corporation, Mullen being the General Manager thereof.

Teal and Company was and now is a domestic corporation under the laws of the Philippines. That during said
times the plaintiffs Everett, Clifford, Teal and Robinson were the principal stockholders in the Company owning a total of
4,478 shares therein and that the defendant Barclay was the only other stockholder, owning one share.

In 1921, Teal and Company is indebted to H. W. Peabody and Company for P300,000 for tractors, plows and
parts delivered, of which it paid P150,000. Asia Banking held drafts accepted by Teal & Company under HW Peabody’s
guarantee. However, tractors were returned to HW Peabody due to agricultural depression in PH. Teal ordered another
lot of tractors from Smith Kirkpatrick, but shipment was delayed until rescission of the credit of Teal with Asia Banking. Yet
Smith still delivered the order, and teal at the request and advice of the Bank accepted the drafts and stored the same.

Later on, Asia Banking persuaded Teal, Peabody, and Smith to enter into a creditor agreement wherein it was
mutually agreed that neither of the parties should take action to collect its debts from Teal for 2 years. Teal soon
became indebted to Asia Bank for P750,000 secured by mortgage. The Asia Banking through Mullen represented to the
Company that for the protection of both Bank and Company it was advisable for them that the Bank should temporarily
obtain control of the management and affairs of the Company in order that the affairs of the Company could be
conducted by the Bank without interference or hindrance from outside.

To this end that it would be necessary for the stockholders in the Company to place their shares therein in a
Voting Trust to be held by the Bank, which would then finance the Teal & Company under its own supervision. So, Teal
Stockholders were induced to enter into the Voting Agreement with the purpose that the agreement will be intended for
the protection of all parties from outside creditors.

Shortly after the execution and delivery of the VT and the MOA, Mullen as GM, cause the displacement and
removal of the stockholder representatives in the board and the substitution in their place of the Asia Banking’s
employees and representatives. The new board, who have not purchased any share of stock of Teal, proceeded to
remove the Corporate Secretary, discharge all the old managers and displace them with creatures of their own
choosing whose interest consisted wholly in passing themselves and the Asia Banking which are wholly foreign to the
stockholders.

That on 1923, in order more effectually to plunder the Company and to defraud these plaintiffs the said
defendants, Mullen, Barclay, Mears and Mcintosh, made, executed and filed in the Bureau of Commerce and Industry
of the Philippine Islands, articles of incorporation of a corporation called the "Philippine Motors Corporation”. That after
the incorporation the said Bank turned over to the Philippine Motors Corporation all of the business and assets of the
company with the connivance and consent of defendants acting in their double capacity as directors of both
corporations, permitted Philippine Motors Corporation to enter and possess itself of the good will of the Teal & Company
and carry on the business for the benefit of the new corporation and to collect the debts owing to the Company and
convert the advantages, profits and proceeds thereof to itself.

ISSUE:

Whether the action should be brought by Teal & company and not the majority stockholders thereof.

RULING:

No. Invoking the well-known rule that shareholders cannot ordinarily sue in equity to redress wrongs done to the
corporation, but that the action must be brought by the Board of Directors, the appellees argue — and the court below
held — that the corporation Teal and Company is a necessary party plaintiff and that the plaintiff stockholders, not
having made any demand on the Board to bring the action, are not the proper parties plaintiff. But, like most rules, the
rule in question has its exceptions. It is alleged in the complaint and, consequently, admitted through the demurrer that
the corporation Teal and Company is under the complete control of the principal defendants in the case, and, in these
circumstances, it is obvious that a demand upon the Board of Directors to institute an action and prosecute the same
effectively would have been useless, and the law does not require litigants to perform useless acts.
 When the BOD in a corporation is under the complete control of the principal defendants in the case and it is
obvious that a demand upon the BOD to institute an action and prosecute the same effectively would be useless, the
action may be brought by one or more of the SH’s without such demand.

It may be inferred that the SH’s may bring suit against trustees if the VTA is being used by the said trustee to
perpetuate fraud against the corporation, as in the present case. The SH would still have legal standing to institute the
suit in behalf of the corporation for acts done by the trustees to defraud the corporation, when the said trustees already
have control of the Board of the said corporation. Derivative suit is still proper.
REPUBLIC BANK, represented by DAMASO P. PEREZ, etc. vs. MIGUEL CUADERNO, BIENVENIDO DIZON, PABLO ROMAN, BOD
OF REPUBLIC BANK AND THE MONETARY BOARD OF THE CENTRAL BANK OF THE PHILIPPINES

FACTS:

Damaso Perez, a SH of the Republic Bank instituted a derivative suit for and in behalf of said bank, against the
defendants Cuaderno et. al who are the BOD of the Republic Bank and the Monetary Board of the Central Bank.

Damaso Perez had complained to the Monetary Board of the Central Bank against certain frauds allegedly
committed by defendant Pablo Roman, being chairman of the BOD of the Republic Bank and of its Executive
Committee, in 1957-1959 in grave abuse of his fiduciary duty and taking advantage of his said positions and in
connivance with other officials of the Republic Bank.

Roman had fraudulently granted or caused to be granted loans to fictitious and non-existing persons and to
their close friends, relatives and/or employees who were in reality their dummies, on the basis of fictitious and inflated
appraised values of real estate properties amounted to almost 4M pesos.

Respondent Cuaderno, governor of the Central Bank, ordered an investigation which was carried out of the
bank examiners. They reported that the bank has certain mortgage loans which were granted in violations of several
provisions of the General Banking Act. The Monetary Board ordered the new BOD of the Republic Bank to be elected
which was done and subsequently approved by the Monetary Board. The Monetary Board later accepted the offer of
Pablo Roman to put up adequate security for the questioned loans made by Republic Bank, as such security was made
a condition for the resumption of the Bank’s normal operations. However, no information was filed up to the time of the
retirement of Cuaderno. Subsequently, Pablo Roman engaged Miguel Cuaderno as technical consultant and selected
Bienvenido Dizon as chairman of the BOD of the Republic Bank.

Damaso Perez filed a derivative suit on behalf of the corporation for a writ of preliminary injunction against the
Monetary Board to prevent its confirmation of the appointments of Dizon and Cuaderno alleging that the BOD
composed of individuals personally selected and chosen by Roman, connived and confederated in approving the
appointment and selection of Cuaderno and Dizon. That such action was motivated by bad faith and without intention
to protect the interest of the Republic Bank but were prompted to protect Pablo from criminal prosecution.

The Monetary Board filed an answer with separate motion to dismiss on the ground of lack of legal capacity of
plaintiff-relator to sue and non-exhaustion of intra corporate remedies.

The trial court denied the petition for a writ of preliminary injunction and dismissed the case.

ISSUE:

Whether Damaso Perez, a SH has a right to question the appointment and selection of defendants, which can
be the result of corporate acts?

RULING:

Yes. Normally, an individual SH is permitted to institute a derivative or representative suit on behalf of the
corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the
corporation refuse to sue or are the ones to be sued or hold the control of the corporation. In such actions, the suing SH is
regarded as a nominal party, with the corporation as the real party in interest.

He is neither alleging nor vindicating his own individual interest or prejudice, but the interest of the Republic
Bank and the damage caused to it. The action he has brought is a derivative one, expressly manifested to be for and in
behalf of the Republic Bank, because it was futile to demand action by the corporation, since its Directors were
nominees and creatures of defendant Pablo Roman. The frauds charged by plaintiff are frauds against the Bank that
redounded to its prejudice.

Defendants urge that the action is improper because the plaintiff was not authorized by the corporation to
bring suit in its behalf. Any such authority could not be expected as the suit is aimed to nullify the action taken by the
manager and the board of directors of the Republic Bank; and any demand for intra-corporate remedy would be futile,
as expressly pleaded in the complaint. These circumstances permit a stockholder to bring a derivative suit. That no other
stockholder has chosen to make common cause with plaintiff Perez is irrelevant, since the smallness of plaintiff's holdings
is no ground for denying him relief.
 WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L. VILLASIS, DIMAS ENRIQUEZ, PRESTON F. VILLASIS & REGINALD F.
VILLASIS vs. RICARDO T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS & HON. JUDGE PORFIRIO
PARIAN

FACTS:

Private respondents Ricardo T. Salas et. al belonging to the same family, are the majority and controlling members
of the Board of Trustees of Western Institute of Technology, Inc. (WIT), a stock corporation engaged in the operation of an
educational institution. According to petitioners Homero L. Villasis et. al, the minority stockholders of WIT, in 1986 at the
principal office of WIT La Paz, Iloilo City, a Special Board Meeting was held. In attendance were other members of the
Board including Reginald Villasis. Prior to said Special Board Meeting, copies of notice thereof, were distributed to all Board
Members. The notice allegedly indicated that the meeting to be held on 1 June 1986 included therein Possible
implementation of compensation of all officers of the corporation." In said meeting, the Board of Trustees passed
Resolution, granting monthly compensation to Salas, et. al. as corporate officers.

Few years later, petitioner Homero Villasis et. al filed a complaint against Salas, et. al. before the Office of the
City Prosecutor of Iloilo, as a result of which 2 separate criminal informations, one for falsification of a public document
and the other for estafa. The charge for falsification of public document was anchored on Salas, et. al.'s submission of WIT's
income statement for the fiscal year 1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the
disbursement of corporate funds for the compensation of Salas, et. al. based on Resolution. Making it appear that the
same was passed by the board, when in truth, the same was actually passed on 1 June 1986, a date not covered by the
corporation's fiscal year 1985-1986.

After a full-blown hearing, Judge Porfirio Parian handed down a verdict of acquittal on both counts without
imposing any civil liability against the accused therein. Villasis, et. al. filed a Motion for Reconsideration of the civil aspect
of the RTC Decision which was, denied.

Petitioners would like us to hold private respondents civilly liable despite their acquittal in Criminal Cases, base on
the alleged illegal issuance by of Resolution ordering the disbursement of corporate funds for the retroactive
compensation in favor of private respondents, board members of WIT, plus subsequent collective salaries of private
respondent. Petitioners maintain that this grant of compensation to private respondents is proscribed under Section 30 of
the Corporation Code. Thus, private respondents are obliged to return these amounts to the corporation with interest.

Petitioners assert that the instant case is a derivative suit brought by them as minority shareholders of WIT for and
on behalf of the corporation to annul Resolution.

ISSUE:
Whether petitioners Villases et. al can file the instant case being a derivative suit as minority shareholders of WIT
in behalf of the corporation.

RULING:

We are unpersuaded. A derivative suit is an action brought by minority shareholders in the name of the
corporation to redress wrongs committed against it, for which the directors refuse to sue. It is a remedy designed by equity
and the principal defense of the minority shareholders against abuses by the majority.

Here, however, the case is not a derivative suit but is merely an appeal on the civil aspect of Criminal Cases filed
with the RTC of Iloilo for estafa and falsification of public document. Among the basic requirements for a derivative suit to
prosper is that the minority shareholder who is suing for and on behalf of the corporation must allege his complaint before
the proper forum that he is suing on a derivative cause of action on behalf of the corporation and all other shareholders
similarly situated who wish to join. This is necessary to vest jurisdiction upon the tribunal in line with the rule that it is the
allegations in the complaint that vests jurisdiction upon the court or quasi-judicial body concerned over the subject matter
and nature of the action. This was not complied with by the petitioners, in part, merely states that this is a petition for review
on certiorari on pure questions of law to set aside a portion of the RTC decision in Criminal since the trial courts judgment
of acquittal failed to impose any civil liability against the private respondents. By no amount of equity considerations, can
a mere appeal on the civil aspect of a criminal case be treated as a derivative suit.

Granting, for purposes of discussion, that this is a derivative suit as insisted by petitioners, which it is not, the same is
outrightly dismissible for having been wrongfully filed in the regular court devoid of any jurisdiction to entertain the
complaint. The case should have been filed with the Securities and Exchange Commission (SEC) which exercises original
and exclusive jurisdiction over derivative suits, they being intra-corporate disputes.

b) Controversies arising out of intra-corporate or partnership relations, between and among

stockholders, members, or associates; between any or all of them and the corporation, partnership or
 association of which they are stockholders, members or associates, respectively; and between such
corporation, partnership or association and the State insofar as it concerns their individual franchise or
right to exist as such entity;

Once the case is decided by the SEC, the losing party may file a petition for review before the Court of
Appeals raising questions of fact, of law, or mixed questions of fact and law.[17]It is only after the case has ran this course,
and not earlier, can it be brought to us via a petition for review on certiorari under Rule 45 raising only pure questions of
law.[18]Petitioners, in pleading that we treat the instant petition as a derivative suit, are trying to short-circuit the entire
process which we cannot here sanction.
 SAN MIGUEL CORPORATION, represented by EDUARDO DE LOS ANGELES vs.
ERNEST KAHN, ANDRES SORIANO III, BENIGNO TODA, JR., ANTONIO ROXAS, ANTONIO PRIETO, FRANCISCO EIZMENDI, JR.,
EDUARDO SORIANO, RALPH KAHN and RAMON DEL ROSARIO, JR.,

FACTS:

14 corporations initially acquired shares of outstanding capital stock of SMC and constituted a VT thereon in
favor of Andres Soriano. Jr. when the latter died Eduardo Cojuanco was elected as the substitute trustee. However, after
the EDSA revolution, Cojuanco fled out of the country amid the persistent reports that huge and unusual cash
disbursements from the funds of SMC had been irregularly made and the resources of the firm was used in support of the
candidacy of Ferdinand Marcus during the snap election.

Subsequently an agreement was entered into between the 14 corporations as sellers and Andres Soriano III (as
an agent of several persons) for the purchase of the shares of the shares of stock at the price of 100/share. Actually the
buyer of the shares was Neptunia Corporation of Hongkong a foreign corporation, wholly-owned subsidiary of San
Miguel International which is in turn wholly owned subsidiary of SMC. Neptunia paid the downpayment of P500,000,000
form the proceeds of certain loans.

PCGG then sequestered the shares subject of the sale on the ground that the stock belonged to Cojuangco Jr.
allegedly a close associate and dummy of former Pres. Marcos.

Meanwhile, PCGG directed SMC to issue qualifying shares to 7 individuals including Eduardo de los Angeles
from the sequestered shares for them to hold in trust. Then, the SMC’s BOD passed a resolution assuming the the loans
incurred by Neptunia for the downpayment.

De los Angeles assailed the resolution alleging that it was not passed by the board aside from its deleterious
effects on the corporation’s interest. And when his efforts to seek relief within the corporation became futile, he filed a
derivative action with the SEC in behalf ot the SMC against 10 of the 15 members of the BOD who had either voted to
approve and refuse to revoke the board resolution.

Respondent directors alleged that Delos Angeles has no legal standing having been merely imposed by the
PCGG and that the 20 shares owned by him personally cannot fairly and adequately represent interest of the minority.

ISSUE:

Whether De los Angeles have the legal standing to institute a derivative suit.

RULING:

Yes. The bona fide ownership by a stockholder of stock in his own right suffices to invest him with standing to
bring a derivative action for the benefit of the corporation. The number of his shares is immaterial since he is not suing in
his own behalf, or for the protection or vindication of his own particular right, or the redress of a wrong committed
against him, individually, but in behalf and for the benefit of the corporation.

Neither can the "conflict-of-interest" theory be upheld. From the conceded premise that de los Angeles now sits
in the SMC Board of Directors by the grace of the PCGG, it does not follow that he is legally obliged to vote as the
PCGG would have him do, that he cannot legitimately take a position inconsistent with that of the PCGG, or that, not
having been elected by the minority stockholders, his vote would necessarily never consider the latter's interests. The
proposition is not only logically indefensible, non sequitur, but also constitutes an erroneous conception of a director's
role and function, it being plainly a director's duty to vote according to his own independent judgment and his own
conscience as to what is in the best interests of the company. Moreover, it is undisputed that apart from the qualifying
shares given to him by the PCGG, he owns 20 shares in his own right, as regards which he cannot from any aspect be
deemed to be "beholden" to the PCGG, his ownership of these shares being precisely what he invokes as the source of
his authority to bring the derivative suit.

also theorized, on the authority of the BASECO decision, that the PCGG has no power to vote sequestered
shares of stock as an act of dominion but only in pursuance — to its power of administration. The inference is that the
PCGG's act of voting the stock to elect de los Angeles to the SMC Board of Directors was unauthorized and void; hence,
the latter could not bring suit in the corporation's behalf. The argument is strained and obviously of no merit. As already
more than plainly indicated, it was not necessary for de los Angeles to be a director in order to bring a derivative action;
all he had to be was a stockholder, and that he was owning in his own right 20 shares of stock, a fact not disputed by the
respondents.
 ELTON W. CHASE, as minority Stockholder and on behalf of other Stockholders similarly situated and for the benefit of
AMERICAN MACHINERY AND PARTS MANUFACTURING, INC.,
vs.
DR. VICTOR BUENCAMINO, SR., VICTOR BUENCAMINO, JR., JULIO B. FRANCIA and DOLORES A. BUENCAMINO

FACTS:

Dr. Buencamino Sr. a Filipino and William cranker, an American were business associates. They owned two firms
namely Philippine Machinery and Equipment Corp (PAMEC) organized in 1947 and BUCRA which means Buencamino
and Cranker.

Plaintiff Chase was the owner of the Production Manufacturing Company in Portland, USA a corporation
dedicated to operation of a machine shop and heat-treating plant for the production of tractor parts.

In 1954, Chase was notified that his factory was going to be in the part of the proposed highway. He then was
advised to sell or face expropriation and his plant will be removed within a year. So, his distributor told him about Dr,
Buencamino of Manila who is interested in establishing a manufacturing plant in Ph. So they contacted Buencamino
through his business associate Cranker in US. After series of negotiations for the purchase of Chase factory (the
Production Manufacturing Company) and the establishment of a new factory in Manila which is to be named as
American Engineering parts (Amparts). When they have agreed finally that Chase will be paid 100,000 dollars and also
be given 1/3 interest in Amparts in exchange of the tractor plant, ship his machineries to Manila, install it with the aid of
five techniciancs and he has to be the production manager of Amparts.

So in 1955 Amparts formally organized as a corporation, where the original subscription was 1,800,000 and Dr.
Buencamino, Cranker and chase subscribe 600,000 each. But since five were necessary to organize a corporation,
Buencamino and Cranker took in their respectives wives.

After Chase has already shipped his machineries and installed in the Amparts. It began to operate with
Buencamino as president, Cranker as manager and Chase as production manager. It started harmoniously until Chase
tendered his letter of resignation in 1957. Also in 1958 Cranker sold out all his interest in Amparts to Dr, Buencamino.

Then in 1960, Chase filed a case in CFI Manila alleging various acts of fraud committed by Buencamino and
Cranker.

ISSUE:

Whether Chase has the personality to institute a derivative suit

RULING:

Yes. Chase has the personality to file this derivative suit as an Amparts SH.

The evidence shows very clearly that right from the start, chase was by them recognized as a SH and initial
incorporator of 600,000 paid up sharesrepresenting 1/3 interest in Amparts, and that would be enough for Chase to have
the personality to institute this derivative suit.

And most importantly, Chase has filed the present cse not for his personal benefit but for the benefit of
Amparts, so that argument of estoppel as against him woul appear to be out of place.
 CATALINA R. REYES, Petitioner, v. HON. BIENVENIDO A. TAN, as Judge of the Court of First Instance of Manila, Branch XIII,
and FRANCISCA R. JUSTINIANI

FACTS:

In the complaint in Civil Case alleged that the corporation, Roxas-Kalaw Textile Mills, Inc., was organized on
June 5, 1954 by defendants Cesar K. Roxas, Adelia K. Roxas, Benjamin M. Roxas, Jose Ma. Barcelona and Morris Wilson.
the Board of Directors approved a resolution designating one Dayaram as co-manager with the specific understanding
that he was to act as defendant Wadhumal Dalamal’s designee, Morris Wilson was likewise designated as co-manager
with responsibilities for the management of the factory only, that an office in New York was opened for the purpose of
supervising purchases, which purchases must have the unanimous agreement of Cesar K. Roxas, New York resident
member of the board of directors, Robert Born and Wadhumal Dalamal or their respective representatives;

that several purchases aggregating $289,678.86 were made in New York for raw materials for the textile mill and
shipped to the Philippines, which shipment were found out to consist not of raw materials but already finished products,
for which reasons the Central Bank of the Philippines stopped all dollar allocations for raw materials for the corporation
which necessarily led to the paralyzation of the operation of the textile mill and its business;

that the supplier of the aforesaid finished goods was the United Commercial Company of New York in which
defendant Dalamal had interests and the letter of credit for said goods were guaranteed by the Indian Commercial
Company and the Indian Traders in which firms defendant Dalamal likewise held interests; that the resale of the finished
goods was the business of the Indian Commercial Company of Manila, which company could not obtain dollar
allocations for importations of finished goods under the Central Bank regulations;

that plaintiff and some members of the board of directors urged defendants to proceed against Dalamal,
exposing his offense to the Central Bank, and to initiate suit against Dalamal for his fraud against the corporation; that
defendants refused to proceed against Dalamal and instead continued to deal with the Indian Commercial Company
to the damage and prejudice of the corporation. The prayer asks for the appointment of a receiver and a judgment
making defendants jointly and severally liable for the damages.

After a denial of a motion to dismiss and the filing of an answer alleging that the complaint states no cause of
action, the motion for the appointment of a receiver was set for hearing and subsequently the court entered the order
for the appointment of a receiver.

ISSUE:

Whether Justiniani be allowed to institute the case for receivership and damages

RULING:

In the first assignment of error, petitioner claims that respondent Justiniani neither alleged nor proved the
existence of an emergency requiring the immediate appointment of a receiver of the Roxas-Kalaw Textile Mill, Inc.; that
the alleged fraudulent transaction took place more than two years before the application for receivership, and so was
the refusal of the directors to sue or prosecute Dalamal. This contention is not well founded. At the hearing of the petition
for the appointment of a receiver held on January 30, 1960, various records of shipments of finished textile goods on
dollar allocations for raw materials were exhibited. Publicity had also been given to the importations of textiles by the
corporation, in place of cotton raw materials. The record shows the list of the various documents proving the purchase of
letters of credit for textiles. These textiles were denied importation and had to be re-exported. The fact of the importation
of finished textiles on dollar allocations for raw materials in violation of Central Bank regulations was, therefore,
conclusively shown.

It is also not denied by petitioner that the allocation of dollars to the corporation for the importation of raw materials was
suspended. In the eyes of the court below, as well as in our own, the importation of textiles instead of raw materials, as
well as the failure of the Board of Directors to take action against those directly responsible for the misuse of dollar
allocations constitute fraud, or consent thereto on the part of the directors. Therefore, a breach of trust was committed
which justified the derivative suit by a minority stockholder on behalf of the corporation.

"It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust — not of mere error of
judgment or abuse of discretion — and intracorporate remedy is futile or useless, a stockholder may institute a suit in
behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong
inflicted directly upon the corporation and indirectly upon the stockholders. An illustration of a suit of this kind is found in
the case of Pascual v. Del Saz Orozco (19 Phil., 82), decided by this court as early as 1911. In that case, the Banco
Español-Filipino suffered heavy losses due to fraudulent connivance between a depositor and an employee of the bank,
which losses, it was contended, could have been avoided if the president and directors had been more vigilant in the
administration of the affairs of the bank. The stockholders constituting the minority brought a suit in behalf of the bank
against the directors to recover damages, and this over the objection of the majority of the stockholders and the
directors. This court held that the suit could properly be maintained.
 The claim that respondent Justiniani did not take steps to remedy the illegal importation for a period of two
years is also without merit. During that period of time respondent had the right to assume and expect that the directors
would remedy the anomalous situation of the corporation brought about by their own wrong doing. Only after such
period of time had elapsed could respondent conclude that the directors were remiss in their duty to protect the
corporation property and business.

Counsel for petitioner claims that respondent Justiniani was treasurer of the corporation for sometime and had control of
funds and this notwithstanding, she had not taken the steps to remedy the situation. In answer we state that the fraud
consisted in importing finished textile instead of raw cotton for the textile mill; the fraud, therefore, was committed by the
manager of the business and was consented to by the directors, evidently beyond reach of Respondent.
 RICARDO L. GAMBOA, LYDIA R. GAMBOA, HONORIO DE 1A RAMA, EDUARDO DE LA RAMA, and the HEIRS OF
MERCEDES DE LA RAMA-BORROMEO vs.
HON. OSCAR R. VICTORIANO as Presiding Judge of the Court of First Instance of Negros Occidental, Branch II, BENJAMIN
LOPUE, SR., BENJAMIN LOPUE, JR., LEONITO LOPUE, and LUISA U. DACLES

FACTS:

Gamboas et. al were sued by private respondents Lopues. Lopues wanted to nullify the issuance of the 823 shares
of stock of Inocentes de la Rama Inc. in their favor. Plaintiffs own 1,328 shares of stock of Inocentes, which has an ACS of
3,000 shares, 2,177 of those were subscribed and issued, leving 823 unissued.

Upon plaintiff’s acquisition of the shares held by Ledesma and Sicangco (then Pres and VP), Gamboa, de la
Rama and Borromeo were the remaining members of the BOD. They met and secretly elected Gamboa and de la Rama
as Pres and VP respectively, in order to prevent or forestall the takeover of the corp.

They then passed a resolution authorizing the sale of such 823 shares of stock among themselves and elected
their BOD.

Complaint was filed in that sale of the unissued 823 shares of the corporation was in violation of the plaintiff’s and
pre-emptive rights and made without the approval of the BOD representing 2/3 of the OCS and is in disregard of the
strictest relation of trust existing between defendants, as SHs thereof.

They prayed that injunction, receivership, nullification of sale of the 823 shares and damages.

RTC judge ordered writ of PI.

Lopues entered into a compromise agreement with the board members, that Lopues will withdraw their claim;
but in return. De la Rama and Batistuzi will waive and transfer their rights to the shares in favor of plaintiffs.

ISSUE:

Whether the court can interfere with the management of the corporation by the BOD.

RULING:

questioning the trial court's jurisdiction on matters affecting the management of the corporation, is without
merit. The well-known rule is that courts cannot undertake to control the discretion of the board of directors about
administrative matters as to which they have legitimate power of, 10 action and contracts intra vires entered into by the
board of directors are binding upon the corporation and courts will not interfere unless such contracts are so
unconscionable and oppressive as to amount to a wanton destruction of the rights of the minority. 11 In the instant case,
the plaintiffs aver that the defendants have concluded a transaction among themselves as will result to serious injury to
the interests of the plaintiffs, so that the trial court has jurisdiction over the case.

The petitioners further contend that the proper remedy of the plaintiffs would be to institute a derivative suit against the
petitioners in the name of the corporation in order to secure a binding relief after exhausting all the possible remedies
available within the corporation.

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in
order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to
be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with
the corporation as the real party in interest. 12 In the case at bar, however, the plaintiffs are alleging and vindicating their
own individual interests or prejudice, and not that of the corporation. At any rate, it is yet too early in the proceedings
since the issues have not been joined. Besides, misjoinder of parties is not a ground to dismiss an action.
 JUAN D. EVANGELISTA ET AL vs. RAFAEL SANTOS

FACTS:

Plaintiff’s are minority stockholders of the Vitali Lumber Company, Inc., a Philippine corporation organized for the
exploitation of a lumber concession in Zamboanga, Philippines; that defendant holds more than 50 per cent of the stocks
of said corporation and also is and always has been the president, manager, and treasurer thereof; and that defendant,
in such triple capacity, through fault, neglect, and abandonment allowed its lumber concession to lapse and its properties
and assets to disappear, thus causing the complete ruin of the corporation and total depreciation of its stocks. Their
complaint therefore prays for judgment requiring defendant: (1) to render an account of his administration of the
corporate affairs and assets: (2) to pay plaintiffs the value of their respective participation in said assets on the basis of the
value of the stocks held by each of them; and (3) to pay the costs of suit.

The complaint does not give plaintiffs’ residence, but, for purposes of venue, alleges that defendant resides at 2112 Dewey
Boulevard, corner Libertad Street, Pasay, province of Rizal. Having been served with summons at that place, defendant
filed a motion for the dismissal of the complaint on the ground of improper venue and also on the ground that the
complaint did not state a cause of action in favor of plaintiffs.
In support of the objection to the venue, defendant states that he is a resident of Iloilo City and not of Pasay, defendant
also presented further affidavit to the effect that while he has a house in Pasay, where members of his family who are
studying in Manila live and where he himself is sojourning for the purpose of attending to his interests in Manila, yet he has
his permanent residence in the City of Iloilo where he is registered as a voter for election purposes and has been paying
his residence certificate.

ISSUE:

whether the plaintiffs has the right to bring this action for their benefit.

RULING:

the complaint shows that the action is for damages resulting from mismanagement of the affairs and assets of
the corporation by its principal officer, it being alleged that defendant's maladministration has brought about the ruin of
the corporation and the consequent loss of value of its stocks. The injury complained of is thus primarily to the
corporation, so that the suit for the damages claimed should be by the corporation rather than by the stockholders (3
Fletcher, Cyclopedia of Corporation pp. 977-980). The stockholders may not directly claim those damages for
themselves for that would result in the appropriation by, and the distribution among them of part of the corporate assets
before the dissolution of the corporation and the liquidation of its debts and liabilities, something which cannot be
legally done in view of section 16 of the Corporation Law, which provides:

No shall corporation shall make or declare any stock or bond dividend or any dividend whatsoever from the
profits arising from its business, or divide or distribute its capital stock or property other than actual profits among
its members or stockholders until after the payment of its debts and the termination of its existence by limitation
or lawful dissolution.

But while it is to the corporation that the action should pertain in cases of this nature, however, if the officers of
the corporation, who are the ones called upon to protect their rights, refuse to sue, or where a demand upon them to
file the necessary suit would be futile because they are the very ones to be sued or because they hold the controlling
interest in the corporation, then in that case any one of the stockholders is allowed to bring suit (3 Fletcher's Cyclopedia
of Corporations, pp. 977-980). But in that case it is the corporation itself and not the plaintiff stockholder that is the real
property in interest, so that such damages as may be recovered shall pertain to the corporation (Pascual vs. Del Saz
Orosco, 19 Phil. 82, 85). In other words, it is a derivative suit brought by a stockholder as the nominal party plaintiff for the
benefit of the corporation, which is the real property in interest (13 Fletcher, Cyclopedia of Corporations, p. 295).

In the present case, the plaintiff stockholders have brought the action not for the benefit of the corporation but
for their own benefit, since they ask that the defendant make good the losses occasioned by his mismanagement and
pay to them the value of their respective participation in the corporate assets on the basis of their respective holdings.
Clearly, this cannot be done until all corporate debts, if there be any, are paid and the existence of the corporation
terminated by the limitation of its charter or by lawful dissolution in view of the provisions of section 16 of the Corporation
Law.
 While plaintiffs ask for remedy to which they are not entitled unless the requirement of section 16 of the
Corporation Law be first complied with, we note that the action stated in their complaint is susceptible of being
converted into a derivative suit for the benefit of the corporation by a mere change in the prayer. Such amendment,
however, is not possible now, since the complaint has been filed in the wrong court, so that the same last to be
dismissed.