SANTIAGO CUA, JR., SOLOMON S. CUA and EXEQUIEL D. ROBLES, in their capacit a! Direct"r! "# $%ILI$$INE RACING CLUB, INC., petiti"ner!, &!. MIGUEL OCAM$O TAN, JEMIE U. TAN and ATT'. BRIGIDO J. DULA', re!p"ndent!. G.R. N"!. ()(*+++. Dece-er *, /001. SANTIAGO CUA, SR., in hi! capacit a! Direct"r "# $%ILI$$INE RACING CLUB, INC., petiti"ner, &!. COURT O2 A$$EALS, MIGUEL OCAM$O TAN, JEMIE U. TAN, TAN, ATT' ATT'.. BRIGIDO J. DULA' DULA', and %ON. %ON. CESAR UNTALAN, UNTALAN, $re!idin3 J4d3e, Ma5ati Re3i"na6 Tria6 C"4rt, Br. (*1, re!p"ndent!. G.R. N". ()/00). Dece-er *, /001. CASE SUMMAR' Derivative Suits; Questions of policy and management are left to the honest decision of the ocers and directors of a corporation, and the courts are without authority to substitute their judgment for the judgment of the board of directors. A stocholder or member may bring an action in the name of a corporation or associ associati ation on,, as the case case may be, provide provided, d, that! that! "#$ %e was a stoch stochold older er or member at the time the acts or transactions subject of the action occurred and at the time the action was &led; "'$ %e e(erted all reasonable e)orts, and alleges the same with particularity in the complaint, to e(haust all remedies available under the articl articles es of incor incorpor poratio ation, n, bylaw bylaws, s, laws laws or rules rules gover governin ning g the the corpor corporati ation on or partnership to obtain the relief he desires; "*$ +o appraisal rights are available for the act or acts complained of; And "$ the suit is not a nuisance or harassment suit. -here corporate directors directors are guilty of a breach of trustnot of mere error of judgment or abuse of discretionand discretionand intracorporate intracorporate remedy is futile or useless, a stocholder may institute a suit in behalf of himself and other stocholders and for the bene&t of the corporation. /he right to information information which includes the right to inspect corporate boos and records is a right personal to each stocholder. /he corporation is the real party in interest in a derivative suit and the suing stocholder is only a nominal party.
2ACTS 0123 0123 is a corpora corporation tion organi4ed organi4ed and established established under under 0hilippi 0hilippine ne laws to condu conduct ct busine business ss relat related ed to horse horse trac trac racin racing g and other other busine business ss conne connecte cted d thereto including public betting, raising horses, and breeding the same. 5ollowing the trend in the development of properties in the same area, #6 0123 0123 wished to convert its 7aati property from a racetrac to urban residential residential and commercial use. 0123 management decided to transfer its racetrac from 7aati to 2avite 2avite.. 0123 0123 began began develo developin ping g its 2avite 2avite prope property rty as a racetr racetrac ac.. "Secon "Seconda dary ry purpose according to 01238s Ao3 is to ac9uire real properties$
0123 management decided that it was best to spin o) the management and development of the same to a wholly owned subsidiary, so that 0123 could continue to focus its e)orts on pursuing its core business competence of horse racing. 3nstead of organi4ing and establishing a new corporation for the said purpose, 0123 management opted to ac9uire another domestic corporation, :/% Davies %oldings, 3nc. 0123 entered into a Sale and 0urchase Agreement for the ac9uisition from :7; of #,<'=,'<6 common shares or <>.>>? of the outstanding capital stoc of :/%. @n #6 :uly '66, respondents 7iguel, et al., as minority stocholders of 0123, &led before the 1/2 a 2omplaint, denominated as a Derivative Suit with prayer for 3ssuance of /1@B0reliminary 3njunction, against the rest of the directors of 0123 andBor :/%. /he 2omplaint was based on three causes of action! "#$ the approval by the majority directors of 0123 of the Coard 1esolutions dated ' September '66 and ## 7ay '66 with undue haste and deliberate speed, despite the absence of any disclosure and informationwas not only anomalous and fraudulent, but also e(tremely prejudicial and inimical to interest of 0123, committed in violation of their &duciary duty as directors of the said corporation; "'$ respondent Solomon, as 0123 0resident, with the ac9uiescence of the majority directors of 0123, maliciously refused and resisted the re9uest of respondents 7iguel, et al., for complete and ade9uate information relative to the disputed Coard 1esolutions, bra4enly and unlawfully violating the rights of the minority stocholders to information and to inspect corporate boos and records; and "*$ without being ocially and formally nominated, the majority directors of 0123 illegally and unlawfully constituted themselves as members of the Coard of Directors andBor ;(ecutive @cers of :/%, rendering all the actions they have taen as such null and void ab initio. 1/2 issued a /1@ thereof. 2A armed 1/2 decision. 1espondents 9uestioned the in&rmities of 7iguel8s complaint. At the cru( of the 2omplaint of respondents 7iguel, et al., in 2ivil 2ase +o. 6#6 is their dissent from the passage by the majority of the 0123 Coard of Directors of the Edisputed resolutions,F particularly! "#$ the 1esolution dated ' September '66, authori4ing the ac9uisition by 0123 of up to #66? of the common shares of :/%; and "'$ the 1esolution dated ## 7ay '66, approving the propertyforG shares e(change between 0123 and :/%.
ISSUE -hether or not the derivative suit is properly constituted.
RULING N". the c"4rt re&er!ed the deci!i"n and 6i#ted the TRO i!!4ed. 3t is well settled in this jurisdiction that where corporate directors are guilty of a breach of trustnot of mere error of judgment or abuse of discretionand intracorporate remedy is futile or useless, a stocholder may institute a suit in behalf of himself and other stocholders and for the bene&t of the corporation, to
bring about a redress of the wrong inHicted directly upon the corporation and indirectly upon the stocholders. 2onsidering the claim of respondents 7iguel, et al., that its 2omplaint in 2ivil 2ase +o. 6#6 is not just a derivative suit, but also an intracorporate action arising from devices or schemes employed by the 0123 Coard of Directors amounting to fraud or misrepresentation. A thorough study of the said 2omplaint, however, reveals that the distinction is deceptive. /he supposed devices and schemes employed by the 0123 Coard of Directors amounting to fraud or misrepresentation are the very same bases for the derivative suit. /hey are the very same acts of the 0123 Coard of Directors that have supposedly caused injury to the corporation. 5rom the very beginning of their 2omplaint, respondents have alleged that they are &ling the same Eas shareholders, for and in behalf of the 2orporation, in order to redress the wrongs committed against the 2orporation and to protect or vindicate corporate rights, and to prevent wastage and dissipation of corporate funds and assets and the further commission of illegal acts by the Coard of Directors.F Although respondents 7iguel, et al., also aver that they are seeing Eredress for the injuries of the minority stocholders against the wrongdoings of the majority,F the rest of the 2omplaint does not bear this out, and is utterly lacing any allegation of injury personal to them or a certain class of stocholders to which they belong. A corporation, such as 0123, is but an association of individuals, allowed to transact under an assumed corporate name, and with a distinct legal personality. 3n organi4ing itself as a collective body, it waives no constitutional immunities and per9uisites appropriate to such body. As to its corporate and management decisions, therefore, the State will generally not interfere with the same. Questions of policy and of management are left to the honest decision of the ocers and directors of a corporation, and the courts are without authority to substitute their judgment for the judgment of the board of directors. /he board is the business manager of the corporation, and so long as it acts in good faith, its orders are not reviewable by the courts the 2ourt stresses that the corporation is the real party in interest in a derivative suit, and the suing stocholder is only a nominal party! An individual stocholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stocs in order to protect or vindicate corporate rights, whenever the ocials of the corporation refuse to sue, or are the ones to be sued, or hold the control of the corporation. 3n such actions, the suing stocholder is regarded as a nominal party, with the corporation as the real party in interest. 5or a derivative suit to prosper, it is re9uired that the minority stocholder 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 stocholders similarly situated who may wish to join him in the suit. 3t is a condition sine 9ua non that the corporation be impleaded as a party because not only is the corporation an indispensable party, but it is also the present rule that it must be served with process.
