DIVISION

[ GR No. 228799, Jan 10, 2018 ]

MACTAN ROCK INDUSTRIES v. BENFREI S. GERMO +

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari[1] are the Decision[2] dated August 8, 2016 and
the Resolution[3] dated October 14, 2016 of the Court of Appeals (CA) in CA-G.R. CV No.
104431, which affirmed the Decision[4] dated January 14, 2015 of the Regional Trial Court of
Muntinlupa City, Branch 276 (RTC) in Civil Case No. 11-029, finding petitioners Mactan Rock
Industries, Inc. (MRII) and Antonio Tompar (Tompar) solidarily liable to pay respondent Benfrei
S. Germo (Germo) the amount of P4,499,412.84 plus interest, damages, and attorney's fees.

The Facts

This case stemmed from a Complaint[5] for sum of money and damages filed by Germo against
MRII – a domestic corporation engaged in supplying water, selling industrial maintenance
chemicals, and water treatment and chemical cleaning services[6] – and its President/Chief
Executive Officer (CEO), Tompar. The complaint alleged that on September 21, 2004, MRII,
through Tompar, entered into a Technical Consultancy Agreement (TCA)[7] with Germo,
whereby the parties agreed, inter alia, that: (a) Germo shall stand as MRII's marketing consultant
who shall take charge of negotiating, perfecting sales, orders, contracts, or services of MRII, but
there shall be no employer-employee relationship between them; and (b) Germo shall be paid on
a purely commission basis, including a monthly allowance of P5,000.00.[8]

On May 2, 2006 and during the effectivity of the TCA, Germo successfully negotiated and
closed with International Container Terminal Services, Inc. (ICTSI) a supply contract of 700
cubic meters of purified water per day. Accordingly, MRII commenced supplying water to
ICTSI on February 22,  2007, and in tum, the latter religiously paid MRII the corresponding
monthly fees.[9] Despite the foregoing, MRII allegedly never paid Germo his rightful
commissions amounting to P2,225,969.56 as of December 2009, inclusive of interest.[10] Initially,
Germo filed a complaint before the National Labor Relations Commission (NLRC), but the same
was dismissed for lack of jurisdiction due to the absence of employer-employee relationship
between him and MRII. He then filed a civil case before the Regional Trial Court of Muntinlupa,
Branch 256, but the same was dismissed without prejudice to its re-filing due to his counsel's
failure to mark all his documentary evidence at the pre-trial conference.[11] Hence, Germo filed
the instant complaint praying that MRII and Tompar be made to pay him the amounts of
P2,225,969.56 as unpaid commissions with legal interest from the time they were due until fully
paid, P1,000,000.00 as moral damages, P1,000,000.00 as exemplary damages, and the costs of
suit.[12]

In their Answer,[13] MRII and Tompar averred, among others, that: (a) there was no employer-
employee relationship between MRII and Germo as the latter was hired as a mere consultant; (b)
Germo failed to prove that the ICTSI account materialized through his efforts as he did not
submit the required periodic reports of his negotiations with prospective clients; and (c) ICTSI
became MRII's client through the efforts of a certain Ed Fornes.[14] Further, MRII and Tompar
claimed that Germo should be made to pay them litigation expenses and attorney's fees as they
were compelled to litigate and engage the services of counsel to protect their interest.[15]

Due to MRII, Tompar, and their counsel's multiple absences at the various schedules for pre-trial
conference, the RTC considered them as "in default," thereby allowing Germo to present his
evidence ex-parte.[16]

The RTC Ruling

In a Decision[17] dated January 14, 2015, the RTC ruled in Germo's favor, and accordingly,
ordered MRII and Tompar to solidarily pay him the amounts of: (a) P4,499,412.84 representing
Germo's unpaid commissions from February 2007 until March 2012 with legal interest from
judicial demand until fully satisfied; (b) P100,000.00 as moral damages; (c) P100,000.00 as
exemplary damages; and (d) P50,000.00 as attorney's fees.[18]

The RTC found that MRII and Germo validly entered into a TCA whereby the latter shall act as
the former's marketing consultant, to be paid on a commission basis.[19] It also found that MRII's
contract with ICTSI was made possible through Germo's negotiation and marketing skills, and as
such, the latter should be paid the commissions due to him. In this regard, Germo presented
various sales invoices spanning the period of February 2007 to March 2012, wherein he should
have been paid commissions in the amount of P4,499,412.84.[20] Further, based on the evidence
presented and in order to deter those who intend to negate the fulfillment of an obligation to the
prejudice of another, the RTC found it appropriate to award Germo moral damages, exemplary
damages, and attorney's fees in the foregoing amounts.[21] Finally, the RTC imposed a lien
equivalent to the appropriate legal fees on the monetary awards in Germo's favor, noting that the
latter litigated the instant suit as an indigent.[22]

Aggrieved, MRII and Tompar appealed[23] to the CA, this time claiming, among others, that: (a)
the jurisdiction over the case lies before the NLRC as the same is a monetary dispute arising
from an employer-employee relationship; and (b) Germo had no legal personality to pursue the
instant case since he only signed the TCA as a representative of another entity.[24]

The CA Ruling
In a Decision[25] dated August 8, 2016, the CA affirmed the RTC ruling.[26] It held that Germo had
sufficiently proven through the required quantum of evidence that: (a) he and MRII, through
Tompar, entered into a TCA and thus, the provisions thereof are binding between them; (b)
MRII's contract with ICTSI was realized through Germo's efforts; and (c) MRII failed to pay
Germo the commissions due to him pursuant to the TCA and the ICTSI contract.[27]

Anent MRII and Tompar's additional arguments, the CA held that the same constitutes a new
case theory, which cannot be introduced for the first time on appeal. The CA further pointed out
that such new theory is directly contradictory to the judicial admissions they made in their
Answer,[28] which are already binding on them.[29]

Undaunted, MRII and Tompar moved for reconsideration,[30] but the same was denied in a
Resolution[31] dated October 14, 2016; hence, this petition.[32]

The Issue Before the Court

The issue for the Court's resolution is whether or not the CA correctly upheld MRII and
Tompar's solidary liability to Germo.

The Court's Ruling

The petition is partly meritorious.

In the instant petition, MRII and Tompar insist, among others that: (a) the regular courts have no
jurisdiction over the case as the present dispute involves an employment dispute cognizable by
the NLRC; and (b) Germo had no legal personality to pursue the case as he signed the TCA not
in his personal capacity, but as a representative of another entity.[33]

Such insistence is untenable.

As aptly pointed out by the CA, the foregoing constitutes a new theory raised for the first time on
appeal, considering that in their Answer[34] before the RTC, MRII and Tompar admitted, inter
alia, the: (a) lack of employer-employee relationship between MRII and Germo as the latter was
hired as a mere consultant; and (b) genuineness, authenticity, and due execution of the TCA,
among other documents proving Germo's claims.[35] "As a rule, a party who deliberately adopts a
certain theory upon which the  case is tried and decided by the lower court, will not be permitted
to change theory on appeal. Points of law, theories, issues and arguments not brought to the
attention of the lower court need not be, and ordinarily will not be, considered by a reviewing
court, as these cannot be raised for the first time at such late stage. It would be unfair to the
adverse party who would have no opportunity to present further evidence material to the new
theory, which it could have done had it been aware of it at the time of the hearing before the trial
court."[36] While this rule admits of an exception,[37] such is not applicable in this case.

More importantly, MRII and Tompar's statements in their Answer constitute judicial admissions,
[38]
which are legally binding on them.[39] Case law instructs that even if such judicial admissions
place a party at a disadvantageous position, he may not be allowed to rescind them unilaterally
and that he must assume the consequences of such disadvantage,[40] as in this case.

As to the merits of the case, the courts a quo correctly found that: (a) Germo entered into a valid
and binding TCA with MRII where he was engaged as a marketing consultant; (b) aside from the
P5,000.00 monthly allowance, Germo was going to be paid on a purely commission basis; (c)
during the effectivity of the TCA and in the performance of his duties as marketing consultant of
MRII, Germo successfully brokered MRII's contract of services with ICTSI, obviously resulting
in revenues in MRII's favor; (d) despite the foregoing and demands from Germo, MRII refused
to pay Germo's rightful commission fees; and (e) MRII's refusal to pay Germo resulted – or at
the very least, contributed to – Germo's financial hardships. In light of the foregoing, the courts a
quo correctly found MRII liable to Germo for the various monetary obligations as stated in their
respective rulings. Time and again, it has been consistently held that the factual findings of the
trial court, especially when affirmed by the CA, deserve great weight and respect and will not be
disturbed on appeal unless it appears that there are facts of weight and substance that were
overlooked or misinterpreted and that would materially affect the disposition of the case;[41] none
of which are present insofar as this matter is concerned.

Be that as it may, the Court finds that the courts a quo erred in concluding that Tompar, in his
capacity as then-President/CEO of MRII, should be held solidarily liable with MRII for the
latter's obligations to Germo. It is a basic rule that a corporation is a juridical entity which is
vested with legal and personality separate and distinct from those acting for and in behalf of, and
from the people comprising it. As a general rule, directors, officers, or employees of a
corporation cannot be held personally liable for the obligations incurred by the corporation,
unless it can be shown that such director/officer/employee is guilty of negligence or bad faith,
and that the same was clearly and convincingly proven. Thus, before a director or officer of a
corporation can be held personally liable for corporate obligations, the following requisites must
concur: (1) the complainant must allege in the complaint that the director or officer assented to
patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad
faith; and (2) the complainant must clearly and convincingly prove such unlawful acts,
negligence or bad faith.[42] In this case, Tompar's assent to patently unlawful acts of the MRII or
that his acts were tainted by gross negligence or bad faith was not alleged in Germo's complaint,
much less proven in the course of trial. Therefore, the deletion of Tompar's solidary liability with
MRII is in order.

Further, the Court deems it proper to adjust the interests imposed on the monetary awards in
Germo's favor. To recapitulate, he was awarded the amounts of P4,499,412.84 representing his
unpaid commissions from February 2007 to March 2012, P100,000.00 as moral damages,
P100,000.00 as exemplary damages, and P50,000.00 as attorney's fees. Pursuant to prevailing
jurisprudence, his unpaid commissions shall earn legal interest at the rate of twelve percent
(12%) per annum from judicial demand, i.e., the filing of the complaint on February 28, 2011
until June 30, 2013, and thereafter, at the rate of six percent (6%) per annum from July 1, 2013
until the finality of this Decision. Thereafter, all monetary awards due to him shall then earn
legal interest at the rate of six percent (6%) per annum from the finality of this ruling until fully
paid.[43]
Finally, since Germo litigated the instant suit as an indigent party as defined in Section 21, Rule
3[44] of the Rules of Court, it is only proper that the appropriate filing fees be considered as a lien
on the monetary awards due to him, pursuant to the second paragraph of Section 19, Rule 141[45]
of the same Rules.

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated August 8, 2016 and
the Resolution dated October 14, 2016 of the Court of Appeals in CA-G.R. CV No. 104431 are
hereby AFFIRMED with MODIFICATION, DELETING petitioner Antonio Tompar's
solidary liability with petitioner Mactan Rock Industries, Inc. (MRII). Accordingly, MRII is
solely liable to respondent Benfrei S. Germo (Germo) for the following amounts: (a)
P4,499,412.84 representing his unpaid commissions from February 2007 to March 2012 with
legal interest at the rate of twelve percent (12%) per annum from judicial demand, i.e., the filing
of the complaint on February 28, 2011 until June 30, 2013, and thereafter, at the rate of six
percent (6%) per annum from July 1, 2013 until the finality of this Decision; (b) P100,000.00 as
moral damages; (c) P100,000.00 as exemplary damages; and (d) P50,000.00 as attorney's fees.
The total monetary awards shall then earn legal interest at the rate of six percent (6%) per annum
from the finality of this ruling until fully paid.

Finally, let the appropriate filing fees be considered as a lien on the monetary awards due to
Germo, who litigated the instant case as an indigent party, in accordance with Section 19, Rule
141 of the Rules of Court.

SO ORDERED.

Carpio, (Chairperson), Peralta, and Caguioa, JJ., concur.

Reyes, Jr., J., on leave.
 FIRST DIVISION

G.R. No. 144805 June 8, 2006

EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,

vs.
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION),
ETEROUTREMER, S.A. and FAR EAST BANK & TRUST COMPANY, Respondents.

DECISION

CALLEJO, SR., J.:

On appeal via a Petition for Review on Certiorari is the Decision1 of the Court of Appeals (CA)
in CA-G.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court (RTC),
Pasig City, Branch 165, in Civil Case No. 54887, as well as the Resolution2 of the CA denying
the motion for reconsideration thereof.

The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine
laws. Since 1950, it had been engaged in the manufacture of roofing materials and pipe products.
Its manufacturing operations were conducted on eight parcels of land with a total area of 47,233
square meters. The properties, located in Mandaluyong City, Metro Manila, were covered by
Transfer Certificates of Title Nos. 451117, 451118, 451119, 451120, 451121, 451122, 451124
and 451125 under the name of Far East Bank & Trust Company, as trustee. Ninety (90%)
percent of the shares of stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a
corporation organized and registered under the laws of Belgium.3 Jack Glanville, an Australian
citizen, was the General Manager and President of EC, while Claude Frederick Delsaux was the
Regional Director for Asia of ESAC. Both had their offices in Belgium.

In 1986, the management of ESAC grew concerned about the political situation in the
Philippines and wanted to stop its operations in the country. The Committee for Asia of ESAC
instructed Michael Adams, a member of EC’s Board of Directors, to dispose of the eight parcels
of land. Adams engaged the services of realtor/broker Lauro G. Marquez so that the properties
could be offered for sale to prospective buyers. Glanville later showed the properties to Marquez.

Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B.
Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez
declared that he was authorized to sell the properties for P27,000,000.00 and that the terms of the
sale were subject to negotiation.4

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua,
Jr., and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the property for
P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings’ offer and relayed the
same to Delsaux in Belgium, but the latter did not respond. On October 28, 1986, Glanville
telexed Delsaux in Belgium, inquiring on his position/ counterproposal to the offer of the
Litonjua siblings. It was only on February 12, 1987 that Delsaux sent a telex to Glanville stating
that, based on the "Belgian/Swiss decision," the final offer was "US$1,000,000.00 and
P2,500,000.00 to cover all existing obligations prior to final liquidation."5

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr.
accepted the counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter
dated February 26, 1987, confirmed that the Litonjua siblings had accepted the counter-proposal
of Delsaux. He also stated that the Litonjua siblings would confirm full payment within 90 days
after execution and preparation of all documents of sale, together with the necessary
governmental clearances.6

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust
Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.7

Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would
be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he had met
with the buyer, which had given him the impression that "he is prepared to press for a
satisfactory conclusion to the sale."8 He also emphasized to Delsaux that the buyers were
concerned because they would incur expenses in bank commitment fees as a consequence of
prolonged period of inaction.9

Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the
Philippines, the political situation in the Philippines had improved. Marquez received a telephone
call from Glanville, advising that the sale would no longer proceed. Glanville followed it up with
a Letter dated May 7, 1987, confirming that he had been instructed by his principal to inform
Marquez that "the decision has been taken at a Board Meeting not to sell the properties on which
Eternit Corporation is situated."10

Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional
Office had decided not to proceed with the sale of the subject land, to wit:

May 22, 1987

Mr. L.G. Marquez

L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines

Dear Sir:

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the
land which was proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and examined the
position as far as the Philippines are (sic) concerned. Considering [the] new political situation
since the departure of MR. MARCOS and a certain stabilization in the Philippines, the
Committee has decided not to stop our operations in Manila. In fact, production has started again
last week, and (sic) to recognize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change
at a later state, we would consult you again.

xxx

Yours sincerely,

(Sgd.)
C.F. DELSAUX

cc. To: J. GLANVILLE (Eternit Corp.)11

When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding
payment for damages they had suffered on account of the aborted sale. EC, however, rejected
their demand.

The Litonjuas then filed a complaint for specific performance and damages against EC (now the
Eterton Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC in
the RTC of Pasig City. An amended complaint was filed, in which defendant EC was substituted
by Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and
Deogracias G. Eufemio were impleaded as additional defendants on account of their purchase of
ESAC shares of stocks and were the controlling stockholders of EC.

In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing
business in the Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board
and stockholders of EC never approved any resolution to sell subject properties nor authorized
Marquez to sell the same; and the telex dated October 28, 1986 of Jack Glanville was his own
personal making which did not bind EC.

On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the
amended complaint.12 The fallo of the decision reads:

WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources

Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding
sale between the plaintiffs and said defendants.
The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of
cause of action.

The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and

Eteroutremer, S.A. is also dismissed for lack of merit.13

The trial court declared that since the authority of the agents/realtors was not in writing, the sale
is void and not merely unenforceable, and as such, could not have been ratified by the principal.
In any event, such ratification cannot be given any retroactive effect. Plaintiffs could not assume
that defendants had agreed to sell the property without a clear authorization from the corporation
concerned, that is, through resolutions of the Board of Directors and stockholders. The trial court
also pointed out that the supposed sale involves substantially all the assets of defendant EC
which would result in the eventual total cessation of its operation.14

The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in
concluding that the real estate broker in the instant case needed a written authority from appellee
corporation and/or that said broker had no such written authority; and (2) the lower court
committed grave error of law in holding that appellee corporation is not legally bound for
specific performance and/or damages in the absence of an enabling resolution of the board of
directors."15 They averred that Marquez acted merely as a broker or go-between and not as agent
of the corporation; hence, it was not necessary for him to be empowered as such by any written
authority. They further claimed that an agency by estoppel was created when the corporation
clothed Marquez with apparent authority to negotiate for the sale of the properties. However,
since it was a bilateral contract to buy and sell, it was equivalent to a perfected contract of sale,
which the corporation was obliged to consummate.

In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind
it; neither were Glanville and Delsaux authorized by its board of directors to offer the property
for sale. Since the sale involved substantially all of the corporation’s assets, it would necessarily
need the authority from the stockholders.

On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. 16 The Litonjuas
filed a motion for reconsideration, which was also denied by the appellate court.

The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview
of Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a
special authority from EC’s board of directors to bind such corporation to the sale of its
properties. Delsaux, who was merely the representative of ESAC (the majority stockholder of
EC) had no authority to bind the latter. The CA pointed out that Delsaux was not even a member
of the board of directors of EC. Moreover, the Litonjuas failed to prove that an agency by
estoppel had been created between the parties.

In the instant petition for review, petitioners aver that

I
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED
CONTRACT OF SALE.

II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT

MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT
BEFORE THE SALE CAN BE PERFECTED.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND

DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT
PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY
RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT
AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER
TO SELL THE SAID PROPERTIES.17

Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of
the parcels of land and the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to
cover obligations prior to final liquidation." Petitioners insist that they had accepted the counter-
offer of respondent EC and that before the counter-offer was withdrawn by respondents, the
acceptance was made known to them through real estate broker Marquez.

Petitioners assert that there was no need for a written authority from the Board of Directors of
EC for Marquez to validly act as broker/middleman/intermediary. As broker, Marquez was not
an ordinary agent because his authority was of a special and limited character in most respects.
His only job as a broker was to look for a buyer and to bring together the parties to the
transaction. He was not authorized to sell the properties or to make a binding contract to
respondent EC; hence, petitioners argue, Article 1874 of the New Civil Code does not apply.

In any event, petitioners aver, what is important and decisive was that Marquez was able to
communicate both the offer and counter-offer and their acceptance of respondent EC’s counter-
offer, resulting in a perfected contract of sale.

Petitioners posit that the testimonial and documentary evidence on record amply shows that
Glanville, who was the President and General Manager of respondent EC, and Delsaux, who was
the Managing Director for ESAC Asia, had the necessary authority to sell the subject property
or, at least, had been allowed by respondent EC to hold themselves out in the public as having
the power to sell the subject properties. Petitioners identified such evidence, thus:

1. The testimony of Marquez that he was chosen by Glanville as the then President and
General Manager of Eternit, to sell the properties of said corporation to any interested
party, which authority, as hereinabove discussed, need not be in writing.
 2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned
SEVERAL MONTHS, from 1986 to 1987;

3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties

to the Petitioners;

4. The GOOD FAITH of Petitioners in believing Eternit’s offer to sell the properties as
evidenced by the Petitioners’ ACCEPTANCE of the counter-offer;

5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the
Security Bank and that an ESCROW agreement was drafted over the subject properties;

6. Glanville’s telex to Delsaux inquiring "WHEN WE (Respondents) WILL

IMPLEMENT ACTION TO BUY AND SELL";

7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact
that Petitioners’ offer was allegedly REJECTED by both Glanville and Delsaux.18

Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to
petitioners’ offer and thereafter reject such offer unless they were authorized to do so by
respondent EC. Petitioners insist that Delsaux confirmed his authority to sell the properties in his
letter to Marquez, to wit:

Dear Sir,

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the
land which was proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and examined the
position as far as the Philippines are (sic) concerned. Considering the new political situation
since the departure of MR. MARCOS and a certain stabilization in the Philippines, the
Committee has decided not to stop our operations in Manila[.] [I]n fact production started again
last week, and (sic) to reorganize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change
at a later stage we would consult you again.

In the meantime, I remain

Yours sincerely,

C.F. DELSAUX19
Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were
knowingly permitted by respondent EC to sell the properties within the scope of an apparent
authority. Petitioners insist that respondents held themselves to the public as possessing power to
sell the subject properties.

By way of comment, respondents aver that the issues raised by the petitioners are factual, hence,
are proscribed by Rule 45 of the Rules of Court. On the merits of the petition, respondents EC
(now EMC) and ESAC reiterate their submissions in the CA. They maintain that Glanville,
Delsaux and Marquez had no authority from the stockholders of respondent EC and its Board of
Directors to offer the properties for sale to the petitioners, or to any other person or entity for that
matter. They assert that the decision and resolution of the CA are in accord with law and the
evidence on record, and should be affirmed in toto.

Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and
Delsaux, conformed to the written authority of Marquez to sell the properties. The authority of
Glanville and Delsaux to bind respondent EC is evidenced by the fact that Glanville and Delsaux
negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan on June 1, 1997. Given
the significance of their positions and their duties in respondent EC at the time of the transaction,
and the fact that respondent ESAC owns 90% of the shares of stock of respondent EC, a formal
resolution of the Board of Directors would be a mere ceremonial formality. What is important,
petitioners maintain, is that Marquez was able to communicate the offer of respondent EC and
the petitioners’ acceptance thereof. There was no time that they acted without the knowledge of
respondents. In fact, respondent EC never repudiated the acts of Glanville, Marquez and
Delsaux.

The petition has no merit.

Anent the first issue, we agree with the contention of respondents that the issues raised by
petitioner in this case are factual. Whether or not Marquez, Glanville, and Delsaux were
authorized by respondent EC to act as its agents relative to the sale of the properties of
respondent EC, and if so, the boundaries of their authority as agents, is a question of fact. In the
absence of express written terms creating the relationship of an agency, the existence of an
agency is a fact question.20 Whether an agency by estoppel was created or whether a person acted
within the bounds of his apparent authority, and whether the principal is estopped to deny the
apparent authority of its agent are, likewise, questions of fact to be resolved on the basis of the
evidence on record.21 The findings of the trial court on such issues, as affirmed by the CA, are
conclusive on the Court, absent evidence that the trial and appellate courts ignored,
misconstrued, or misapplied facts and circumstances of substance which, if considered, would
warrant a modification or reversal of the outcome of the case.22

It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules
of Court because the Court is not a trier of facts. It is not to re-examine and assess the evidence
on record, whether testimonial and documentary. There are, however, recognized exceptions
where the Court may delve into and resolve factual issues, namely:
(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures;
(2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5)
when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is contrary to the admissions of both appellant
and appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial
court; (8) when the findings of fact are conclusions without citation of specific evidence on
which they are based; (9) when the Court of Appeals manifestly overlooked certain relevant facts
not disputed by the parties, which, if properly considered, would justify a different conclusion;
and (10) when the findings of fact of the Court of Appeals are premised on the absence of
evidence and are contradicted by the evidence on record.23

We have reviewed the records thoroughly and find that the petitioners failed to establish that the
instant case falls under any of the foregoing exceptions. Indeed, the assailed decision of the
Court of Appeals is supported by the evidence on record and the law.

It was the duty of the petitioners to prove that respondent EC had decided to sell its properties
and that it had empowered Adams, Glanville and Delsaux or Marquez to offer the properties for
sale to prospective buyers and to accept any counter-offer. Petitioners likewise failed to prove
that their counter-offer had been accepted by respondent EC, through Glanville and Delsaux. It
must be stressed that when specific performance is sought of a contract made with an agent, the
agency must be established by clear, certain and specific proof.24

Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the
Philippines, provides:

SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or where there is no stock, from among
the members of the corporation, who shall hold office for one (1) year and until their successors
are elected and qualified.

Indeed, a corporation is a juridical person separate and distinct from its members or stockholders
and is not affected by the personal rights,

obligations and transactions of the latter.25 It may act only through its board of directors or, when
authorized either by its by-laws or by its board resolution, through its officers or agents in the
normal course of business. The general principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of incorporation, by-laws, or relevant
provisions of law.26

Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties,
subject to the limitations prescribed by law and the Constitution, as follows:
SEC. 36. Corporate powers and capacity. – Every corporation incorporated under this Code has
the power and capacity:

xxxx

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise
deal with such real and personal property, including securities and bonds of other corporations,
as the transaction of a lawful business of the corporation may reasonably and necessarily require,
subject to the limitations prescribed by the law and the Constitution.

The property of a corporation, however, is not the property of the stockholders or members, and
as such, may not be sold without express authority from the board of directors.27 Physical acts,
like the offering of the properties of the corporation for sale, or the acceptance of a counter-offer
of prospective buyers of such properties and the execution of the deed of sale covering such
property, can be performed by the corporation only by officers or agents duly authorized for the
purpose by corporate by-laws or by specific acts of the board of directors.28 Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating to the
affairs of the corporation, but not in the course of, or connected with, the performance of
authorized duties of such director, are not binding on the corporation.29

While a corporation may appoint agents to negotiate for the sale of its real properties, the final
say will have to be with the board of directors through its officers and agents as authorized by a
board resolution or by its by-laws.30 An unauthorized act of an officer of the corporation is not
binding on it unless the latter ratifies the same expressly or impliedly by its board of directors.
Any sale of real property of a corporation by a person purporting to be an agent thereof but
without written authority from the corporation is null and void. The declarations of the agent
alone are generally insufficient to establish the fact or extent of his/her authority.31

By the contract of agency, a person binds himself to render some service or to do something in
representation on behalf of another, with the consent or authority of the latter.32 Consent of both
principal and agent is necessary to create an agency. The principal must intend that the agent
shall act for him; the agent must intend to accept the authority and act on it, and the intention of
the parties must find expression either in words or conduct between them.33

An agency may be expressed or implied from the act of the principal, from his silence or lack of
action, or his failure to repudiate the agency knowing that another person is acting on his behalf
without authority. Acceptance by the agent may be expressed, or implied from his acts which
carry out the agency, or from his silence or inaction according to the circumstances.34 Agency
may be oral unless the law requires a specific form.35 However, to create or convey real rights
over immovable property, a special power of attorney is necessary.36 Thus, when a sale of a piece
of land or any portion thereof is through an agent, the authority of the latter shall be in writing,
otherwise, the sale shall be void.37

In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the
Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to
sell, let alone offer for sale, for and in its behalf, the eight parcels of land owned by respondent
EC including the improvements thereon. The bare fact that Delsaux may have been authorized to
sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1, 1997, cannot be used as
basis for petitioners’ claim that he had likewise been authorized by respondent EC to sell the
parcels of land.

Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of
Delsaux, who, in turn, acted on the authority of respondent ESAC, through its Committee for
Asia,38 the Board of Directors of respondent ESAC,39 and the Belgian/Swiss component of the
management of respondent ESAC.40 As such, Adams and Glanville engaged the services of
Marquez to offer to sell the properties to prospective buyers. Thus, on September 12, 1986,
Marquez wrote the petitioner that he was authorized to offer for sale the property for
P27,000,000.00 and the other terms of the sale subject to negotiations. When petitioners offered
to purchase the property for P20,000,000.00, through Marquez, the latter relayed petitioners’
offer to Glanville; Glanville had to send a telex to Delsaux to inquire the position of respondent
ESAC to petitioners’ offer. However, as admitted by petitioners in their Memorandum, Delsaux
was unable to reply immediately to the telex of Glanville because Delsaux had to wait for
confirmation from respondent ESAC.41 When Delsaux finally responded to Glanville on
February 12, 1987, he made it clear that, based on the "Belgian/Swiss decision" the final offer of
respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations
prior to final liquidation.42 The offer of Delsaux emanated only from the "Belgian/Swiss
decision," and not the entire management or Board of Directors of respondent ESAC. While it is
true that petitioners accepted the counter-offer of respondent ESAC, respondent EC was not a
party to the transaction between them; hence, EC was not bound by such acceptance.

While Glanville was the President and General Manager of respondent EC, and Adams and
Delsaux were members of its Board of Directors, the three acted for and in behalf of respondent
ESAC, and not as duly authorized agents of respondent EC; a board resolution evincing the grant
of such authority is needed to bind EC to any agreement regarding the sale of the subject
properties. Such board resolution is not a mere formality but is a condition sine qua non to bind
respondent EC. Admittedly, respondent ESAC owned 90% of the shares of stocks of respondent
EC; however, the mere fact that a corporation owns a majority of the shares of stocks of another,
or even all of such shares of stocks, taken alone, will not justify their being treated as one
corporation.43

It bears stressing that in an agent-principal relationship, the personality of the principal is

extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the
principal, authorized to perform all acts which the latter would have him do. Such a relationship
can only be effected with the consent of the principal, which must not, in any way, be compelled
by law or by any court.44

The petitioners cannot feign ignorance of the absence of any regular and valid authority of
respondent EC empowering Adams, Glanville or Delsaux to offer the properties for sale and to
sell the said properties to the petitioners. A person dealing with a known agent is not authorized,
under any circumstances, blindly to trust the agents; statements as to the extent of his powers;
such person must not act negligently but must use reasonable diligence and prudence to ascertain
whether the agent acts within the scope of his authority.45 The settled rule is that, persons dealing
with an assumed agent are bound at their peril, and if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority, and in case either
is controverted, the burden of proof is upon them to prove it.46 In this case, the petitioners failed
to discharge their burden; hence, petitioners are not entitled to damages from respondent EC.

It appears that Marquez acted not only as real estate broker for the petitioners but also as their
agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed,
for and in behalf of the petitioners, that the latter had accepted such offer to sell the land and the
improvements thereon. However, we agree with the ruling of the appellate court that Marquez
had no authority to bind respondent EC to sell the subject properties. A real estate broker is one
who negotiates the sale of real properties. His business, generally speaking, is only to find a
purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority to
bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of real
property does not include an authority to sell.47

Equally barren of merit is petitioners’ contention that respondent EC is estopped to deny the
existence of a principal-agency relationship between it and Glanville or Delsaux. For an agency
by estoppel to exist, the following must be established: (1) the principal manifested a
representation of the agent’s authority or knowlingly allowed the agent to assume such authority;
(2) the third person, in good faith, relied upon such representation; (3) relying upon such
representation, such third person has changed his position to his detriment.48 An agency by
estoppel, which is similar to the doctrine of apparent authority, requires proof of reliance upon
the representations, and that, in turn, needs proof that the representations predated the action
taken in reliance.49 Such proof is lacking in this case. In their communications to the petitioners,
Glanville and Delsaux positively and unequivocally declared that they were acting for and in
behalf of respondent ESAC.

Neither may respondent EC be deemed to have ratified the transactions between the petitioners
and respondent ESAC, through Glanville, Delsaux and Marquez. The transactions and the
various communications inter se were never submitted to the Board of Directors of respondent
EC for ratification.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against
the petitioners.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice
DEL CASTILLO, J.:

"A derivative action is a suit by a shareholder to enforce a corporate cause of action x x x on

behalf of the corporation in order to protect or vindicate [its] rights [when its] officials refuse to
sue, or are the ones to be sued, or hold control of [it]."[1] Upon the enactment of Republic Act
(RA) No. 8799, otherwise known as "The Securities Regulation Code," jurisdiction over such
action now lies with the special commercial courts designated by this Court pursuant to A.M.
No. 00- 11-03-SC promulgated on November 21, 2000.[2]

This Petition for Review on Certiorari[3] under Rule 45 of the Rules of Court assails the Orders
dated May 14, 2012[4] and February 1, 2013[5] of the Regional Trial Court (RTC), Branch 74,
Antipolo City, in Civil Case No. 10-9042.

Factual Antecedents

On March 31, 1993, Kingsville Construction and Development Corporation (Kingsville) and
Kings Properties Corporation (KPC) entered into a project agreement with respondent Fil-Estate
Properties, Inc. (FEPI), whereby the latter agreed to finance and cause the development of
several parcels of land owned by Kingsville in Antipolo, Rizal, into Forest Hills Residential
Estates and Golf and Country Club, a first-class residential area/golf-course/commercial center.[6]
Under the agreement, respondent FEPI was tasked to incorporate petitioner Forest Hills Golf and
Country Club, Inc. (FHGCCI) with an authorized stock of 3,600 shares; and to perform the
development and construction work and other undertakings as full payment of its subscription to
the authorized capital stock of the club.[7] As to the remaining shares of the club, they agreed that
these should be retained by Kingsville in exchange for the parcels of land used for the golf
course development. [8]

On July 10, 1995, respondent FEPI assigned its rights and obligations over the project to a
related corporation, respondent Fil-Estate Golf Development, Inc. (FEGDI).[9]

On July 19, 1996, Rainier L. Madrid (Madrid) purchased two Class "A" shares at the secondary
price of P3 80,000.00 each, and applied for a membership to the club for P25,000.00. [10]

Due to the delayed construction of the second 18-Hole Golf Course, Madrid wrote two demand
letters dated October 29, 2009 and March 15, 2010 to the Board of Directors of petitioner
FHGCCI asking them to initiate the appropriate legal action against respondents FEPI and
FEGDI.[11] The Board of Directors, however, failed and/or refused to act on the demand letters.[12]

Thus, on April 21, 2010, Madrid, in a derivative capacity on behalf of petitioner FHGCCI, filed
with the RTC of Antipolo City a Complaint for Specific Performance with Damages,[13] docketed
as Civil Case No. 10-9042, against respondents FEPI and FEGDI.[14]

In their Answer with Compulsory Counterclaim,[15] respondents FEPI and FEGDI argued that
there is no cause of action against them as petitioner FHGCCI failed to state the contractual
and/or legal bases of their alleged obligation; that no prior demand was made to them; that the
action is not a proper derivative suit as petitioner FHGCCI failed to exhaust all remedies
available under the articles of incorporation and by-laws; and that petitioner FHGCCI failed to
implead its Board of Directors as indispensable parties.

Petitioner FHGCCI, in turn, filed a Reply[16] arguing that the case does not involve an intra-
corporate controversy and that the exhaustion of intra-corporate remedies was futile and useless
as the Board of Directors of petitioner FHGCCI also own respondent FEGDI.

Respondents FEPI and FEGDI filed a Rejoinder[17] followed by a Motion[18] to set their
affirmative defenses for preliminary hearing.

Petitioner FHGCCI filed a Motion[19] for leave to amend its Complaint to implead KPC and
Kingsville as additional defendants and to include Madrid as additional plaintiff in his personal
capacity. Respondents FEPI and FEGDI opposed the Motion.[20]

Ruling of the Regional Trial Court

On May 14, 2012, applying the relationship and nature of controversy tests in Reyes v. Hon. RTC
of Makati, Br. 142[21] and taking into account the fact that petitioner FHGCCI denominated the
Complaint as a derivative suit, the RTC issued an Order[22] dismissing the case for lack of
jurisdiction, without prejudice to the re-filing of the same with the proper special commercial
court sitting at Binangonan, Rizal. Consequently, the motion for leave to amend the Complaint
was mooted.

Feeling aggrieved, petitioner FHGCCI moved for reconsideration[23] but the RTC denied the
same in its Order[24] dated February 1, 2013.

Issue

Hence, petitioner FHGCCI directly filed before this Court the instant Petition for Review on
Certiorari[25] under Rule 45 of the Rules of Court on a pure question of law, raising the sole issue
of:

WHETHER OR NOT PETITIONER [FHGCCI'S] ORDINARY CIVIL SUIT FOR SPECIFIC

PERFORMANCE WITH DAMAGES AGAINST RESPONDENTS [FEPI AND FEGDI] VIS-
A-VIS THE LATTER'S OBLIGATION UNDER THE PROJECT AGREEMENT TO FULLY
COMPLETE AND DEVELOP THE FOREST HELLS RESIDENTIAL ESTATES AND GOLF
COURSE AND COUNTRY CLUB IS COGNIZABLE BY THE LOWER COURT AS A
REGULAR COURT OR BY THE RTC-BINANGONAN, BRANCH 70, AS A SPECIAL
COMMERCIAL COURT FOR INTRA-CORPORATE CONTROVERSIES. [26]

Petitioner FHGCCVs Arguments

Petitioner FHGCCI admits that it filed a derivative suit.[27] However, it contends that not all
derivative suits involve intra-corporate controversies.[28] In this case, it filed a derivative suit for
specific performance in order to enforce the project agreement between KPC, Kingsville, and
respondents FEPI and FEGDI.[29] And although respondent FEGDI is a stockholder of petitioner
FHGCCI, it argues that this does not make the instant case an intra-corporate controversy as the
case was filed against respondents FEPI and FEGDI as developers, and not as stockholders of
petitioner FHGCCI.[30] In fact, the causes of action stated in the Complaint do not involve intra-
corporate controversies, nor do these involve the intra-corporate relations between and among
the stockholders and the corporation's officials.[31] Thus, the RTC seriously erred in applying the
case of Reyes[32] without clearly explaining why the instant case involves an intra-corporate
controversy.[33]

Respondents' Arguments

Respondents FEPI and FEGDI, on the other hand, reiterate the arguments raised in their Answer
before the RTC, to wit: that petitioner FHGCCI has no cause of action as it failed to present any
contract upon which it can base its claim; that the filing of the case is premature as no prior
demand was made to respondents FEPI and FEGDI; that the Complaint is not a proper derivative
suit as petitioner FHGCCI failed to exhaust all remedies available under the articles of
incorporation and by-laws; and that petitioner FHGCCI failed to implead its Board of Directors
as indispensable parties.[34] They also maintain that the instant case is an intra-corporate
controversy as the allegations in the Complaint clearly show that petitioner FHGCCI is suing
respondents FEPI and FEGDI not only as developers but also as stockholders of petitioner
FHGCCI.[35] And since the instant case involves an intra-corporate controversy, the RTC
correctly dismissed the Complaint for lack of jurisdiction, as the RTC is not a special
commercial court.[36]

Our Ruling

The Petition lacks merit.

The Complaint, denominated as a

derivative suit for specific performance,
falls under the jurisdiction of special
commercial courts.

Petitioner FHGCCFs main contention is that its Complaint, although denominated as a derivative
suit, does not fall under the jurisdiction of special commercial courts, as it does not involve an
intra-corporate controversy.

We do not agree.

It is a fundamental principle that jurisdiction is conferred by law and is determined by the

material allegations of the complaint, containing the concise statement of ultimate facts of a
plaintifFs cause of action.[37]

In this case, petitioner FHGCCI alleged in its Complaint that:

PREFATORY
This is a derivative suit filed by Shareholder and Club Member Rainier Madrid on behalf
of [petitioner FHGCCI] to compel [respondents FEPI and FEGDI], to finish the construction
and complete development of Club's Arnold Palmer 2nd Nine-Holes Golf Course and the adjunct
Country Club Premises.

Despite repeated demands on FHGCCI, which appears controlled and managed by

interlocking directors of [respondents FEPI and FEGDI] as an "OLD BOYS CLUB," and
therefore guilty of grave conflict of interest to initiate legal actions against developer
[respondent] FEGDI vis-a-vis the completion of the Club's Arnold Palmer 2nd Nine-Holes Golf
Course and the promised Country Club Facilities, FHGCCI has failed, shirked, and refused to
sue the [respondents FEPI and FEGDI].

This BAD FAITH inaction and refusal to sue [respondents FEPI and FEGDI] by the
FHGCCI Board of Directors is definitely prejudicial to FHGCCI and its members as they
have been long deprived the maximum use of the promised Full 36-Hole Golf Course and
Country Club Amenities, thereby rendering them in fundamental and material breach of their
SEC Disclosure Statements, Marketing and Sales Contracts.

The FHGCCI Board of Directors [are] guilty of grave conflict of interest as Founder
Shareholders Noel M. Carifio, Robert John L. Sobrepefia, Ferdinand T. Santos and
Enrique Sobrepena, Jr. are also the majority Board of Directors of [respondent] FEPI and
later [respondent] FEGDI, who for more than ten (10) years NOW has failed and refused to
complete the Project for which they should have sued [respondents] FEPI [and] FEGDI as
early as 2000.

Indeed, the control, exclusive management and operations of FHGCCI, which should have been
turned-over to the General Membership, has been illegally withheld, retained and continued to be
enjoyed by FHGCCI Board of Directors via their abusive, void and illegal Founder's Shares,
subject now of a separate suit to compel turnover of the FHGCCI to its General Membership.

The patent interlocking directorship of FHGCCI and [respondents] FEPI /FEGDI

sufficiently shows the abuse, high handed and condescending strong arm posture of
FHGCCI Board of Directors in failing or refraining from suing [respondents] FEPI [and]
FEGDI as the developer for the full and total completion of [the] 36-Hole Golf Course and
adjunct Country Club facilities.

HENCE, THIS DERIVATIVE SUIT.

xxxx

ALLEGATIONS COMMON TO ALL CAUSES OF ACTION

xxxx

4. On June 29, 1995, [respondent] FEPI incorporated the Golf and Country Club Company
- [FHGCCf] x x x.

Per FHGCCI's Articles of Incorporation, fifty (50%) percent of its authorized member shares
appears to have been distributed as follows:

 
SUBSCRIBERS NUMBER AND KIND OF SHARES
1. Noel M. Cariño 1 Founder's Share
2. Robert John L. Sobrepeña 1 Founder's Share
3. Ferdinand T. Santos 1 Founder's Share
4. Sabrina T.Santos 1 Founder's Share
5. Enrique Sobrepeña, Jr. 1 Founder's Share
6. Johnson Ong 1 Founder's Share
7. Romeo G. Carlos 1 Founder's Share
8. Manuel Yu 1 Founder's Share
537 Class "A", 190 Class "B", 292 Class "C", 146
9. FEGDI
Class "D"; total = 1165
290 Class "A", 102 Class "B", 292 Class "C", 146
10. Kings Properties Corp.
Class "D"; total = 627

xxxx

10. Worse, with manifest intention of giving undue benefit, gain and/or advantage to
[respondents] FEPI/FEGDI and to retain control of FHGCCI via the Founders' Shares, the
FHGCCI Board of Directors appear to have deliberately failed, shirked and refused to sue,
act and demand that [respondents] FEPI/FEGDI complete and finish the construction
and/or turn-over of the second golf course, specifically the Arnold Palmer 2 nd Nine-Holes
and the additional "Country Club" premises and adjunct country club facilities, to enable them,
as "Founder Shareholders," to hold on to, continue their control and exclusive management of
the Club, as an "OLD BOYS CLUB," to the damage and prejudice of FHGCCI, and its members
whose corporate rights remain IN LIMBO to date.

xxxx

13. To date, however, the FHGCCI Board of Directors intentionally and deliberately failed
and/or refused to heed Shareholder and Club Member Rainier L. Madrid and numerous
undisclosed members of FHGCCPs above valid and just demand, to the damage and
prejudice of [petitioner] FHGCCI and its Members.

xxxx

2.2 As shown, for more than ten (10) years now from the stipulated full completion of the 2nd 18-
Holes Arnold Palmer Golf Course, and the country club facilities in September 2000, the
FHGCCI Board of Directors, being guilty of apparent conflict of interest prescinding from
their interlocking directorships, have deliberately and purposely failed, shirked and/or
refused to demand and sue [respondents] developer FEPI/FEGDI to fully complete the
Project, especially the 36-Hole Golf Course, and adjunct Country Club and commercial complex
amenities, to the grave damage and prejudice of [petitioner] FHGCCI and its Members. It is pure
and simple, SYNDICATED ESTAFA.

2.3. Consequently, [respondents FEPI and FEGDI], jointly and severally, should be compelled,
ordered and directed to fully perform, finish, complete and turn-over the whole 36-Hole Golf
Course and Country Club Amenities soonest.

xxxx

3.2. Additionally, [respondents] FEPI and FEGDI must be ordered to render an accounting of
ALL work done, EXISTING work-in-progress, if any, and differential backlog in connection
with their performance and delivery of the Project, including the contracted 36-Hole Golf Course
and Country Club Amenities.[38] (Emphasis supplied)

Based on the foregoing allegations, it is clear that Madrid filed a derivative suit on behalf of
petitioner FHGCCI to compel respondents FEPI and FEGDI to complete the golf course and
country club project and to render an accounting of all works done, existing work-in-progress
and, if any, differential backlog. The fact that petitioner FHGCCI denominated the Complaint as
a derivative suit for specific performance is sufficient reason for the RTC to dismiss it for lack of
jurisdiction, as the RTC where the Complaint was raffled is not a special commercial court.
Upon the enactment of RA No. 8799, jurisdiction over intra- corporate disputes, including
derivatives suits, is now vested in the RTCs designated as special commercial courts by this
Court pursuant to A.M. No. 00- 11-03-SC promulgated on November 21, 2000.[39]

Petitioner FHGCCI's contention that the instant case does not involve an intra-corporate
controversy as it was filed against respondents FEPI and FEGDI as developers, and not as
shareholders of the corporation holds no water. Apparent in the Complaint are allegations of the
interlocking directorships of the Board of Directors of petitioner FHGCCI and respondents FEPI
and FEGDI, the conflict of interest of the Board of Directors of petitioner FHGCCI, and their
bad faith in carrying out their duties. Likewise alleged is that respondent FEPI and, later,
respondent FEGDI are shareholders of petitioner FHGCCI which under the project agreement,
respondent FEPI was tasked to perform the development and construction work and other
obligations and undertakings of the project as full payment of its subscription to the authorized
capital stock of petitioner FHGCCI, which it later assigned to respondent FEGDI. Considering
these allegations, we find that, contrary to the claim of petitioner FHGCCI, there are unavoidably
intra- corporate controversies intertwined in the specific performance case.

Moreover, a derivative suit is a remedy designed by equity as a principal defense of the minority
shareholders against the abuses of the majority.[40] Under the Corporation Code, the corporation's
power to sue is lodged with its board of directors or trustees.[41] However, when its officials
refuse to sue, or are the ones to be sued, or hold control of the corporation, an individual
stockholder may be permitted to institute a derivative suit to enforce a corporate cause of action
on behalf of a corporation in order to protect or vindicate its rights.[42] In such actions, the
corporation is the real party in interest, while the stockholder suing on behalf of the corporation
is only a nominal party.[43] Considering its purpose, a derivative suit, therefore, would necessarily
touch upon the internal affairs of a corporation.

It is for this reason that a derivative suit is among the cases covered by the Interim Rules of
Procedure Governing Intra-Corporate Controversies, A.M. No. 01-2-04- SC, March 13, 2001.
Section l(a), Rule 1 of the said Interim Rules states that:

RULE 1
General Provisions

SECTION 1. (a) Cases Covered— These Rules shall govern the procedure to be observed in civil
cases involving the following:

(1) Devices or schemes employed by, or any act of, the board of directors, business associates,
officers or partners, amounting to fraud or misrepresentation which may be detrimental to the
interest of the public and/or of the stockholders, partners, or members of any corporation,
partnership, or association;

(2) Controversies arising out of intra-corporate, partnership, or association relations, between and
among stockholders, members, or associates; and between, any or all of them and the
corporation, partnership, or association of which they are stockholders, members, or associates,
respectively;

(3) Controversies in the election or appointment of directors, trustees, officers, or managers of

corporations, partnerships, or associations;

(4) Derivative suits; and

(5) Inspection of corporate books.

In view of the foregoing, we agree with the RTC that the instant derivative suit for specific
performance against respondents FEPI and FEGDI falls under the jurisdiction of special
commercial courts.

In Gonzales v. GJH Land, Inc.,[44] we laid down the guidelines to be observed if a commercial
case filed before the proper RTC is wrongly raffled to its regular branch. In that case, we said
that if the RTC has no internal branch designated as a Special Commercial Court, the proper
recourse is to refer the case to the nearest RTC with a designated Special Commercial Court
branch within the judicial region. Upon referral, the RTC to which the case was referred to
should redocket the case as a commercial case. And if the said RTC has only one branch
designated as a Special Commercial Court, it should assign the case to the sole special branch.

The Complaint filed by petitioner FHGCCI failed to comply with the requisites for a valid
derivative suit.
In this case, however, to refer the case to a special commercial court would be a waste of time
since it is apparent on the face of the Complaint, as pointed out by respondents FEPI and FEGDI
in their Answer, that petitioner FHGCCI failed to comply with the requisites for a valid
derivative suit.

Rule 8, Section 1 of the Interim Rules of Procedure Governing Intra- Corporate Controversies
provides:

SECTION 1. Derivative action. — A stockholder or member may bring an action in the name of
a corporation or association, as the case may be, provided, 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;
(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to
exhaust all remedies available under the articles of incorporation, by-laws, laws or rules
governing the corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall forthwith dismiss the case.

Corollarily, "[f]or a derivative suit to prosper, it is required that the minority stockholder suing
for and on behalf of the corporation must allege in his complaint that he is suing on a derivative
cause of action on behalf of the corporation and all other stockholders similarly situated who
may wish to join him in the suit."[45] It is also required that the stockholder "should have exerted
all reasonable efforts to exhaust all remedies available under the articles of incorporation, by-
laws, laws or rules governing the corporation or partnership to obtain the relief he desires [and
that such fact is alleged] with particularity in the complaint."[46] The purpose for this rule is "to
make the derivative suit the final recourse of the stockholder, after all other remedies to obtain
the relief sought had failed."[47] Finally, the stockholder is also required "to allege, explicitly or
otherwise, the fact that there were no appraisal rights available for the acts complained of, as
well as a categorical statement that the suit is not a nuisance or a harassment suit."[48]

In this case, Madrid, as a shareholder of petitioner FHGCCI, failed to allege with particularity in
the Complaint, and even in the Amended Complaint, that he exerted all reasonable efforts to
exhaust all remedies available under the articles of incorporation, by-laws, or rules governing the
corporation; that no appraisal rights are available for the acts or acts complained of; and that the
suit is not a nuisance or a harassment suit. Although the Complaint alleged that demand letters
were sent to the Board of Directors of petitioner FHGCCI and that these were unheeded, these
allegations will not suffice.

Thus, for failing to meet the requirements set forth in Section 1, Rule 8 of the Interim Rules of
Procedure Governing Intra-Corporate Controversies, the Complaint, denominated as a derivative
suit for specific performance, must be dismissed.

WHEREFORE, the Petition is hereby DENIED. The assailed Orders dated May 14,2012 and
February 1, 2013 of the Regional Trial Court, Branch 74, Antipolo City, in Civil Case No. 10-
9042 are hereby AFFIRMED.

SO ORDERED.