8.) Nestor Ching and Andrew Wellington vs. Subic Bay Golf And Country Club, Inc., Hu Ho Hsiu Lien alias Susan Hu, Hu Tsung Chieh alias Jack Hu, Hu Tsung Hui, Hu Tsung Tzu and Reynald R. Suarez, G.R. No. 174353, September 10, 2014 FACTS: Petitioners Nestor Ching and Andrew Wellington own stocks of the Subic Bay Golf and Country Club, Inc. (SBGCCI). On June 27, 1996, Securities and Exchange Commission (SEC) approved amendments to SBGCCI Articles of Incorporation which the petitioners allege make their shares non-proprietary. Petitioners allege that this change was made without the appropriate disclosure of SBGCCI to its shareholders. Furthermore, petitioners allege several instances of fraud committed by SBGCCI’s board of directors in its February 26, 2003 complaint. Respondent’s answered the complaint by refuting allegations made by petitioners. As a way of defense, respondents underscored petitioners’ failure to: show that it was authorized by SBGSI to file complaint on said company’s behals comply with the requisites for filing a derivative suit and an action for receivership justify their prayer for injunctive relief since the complaint may be considered a nuisance or harassment suit Thus, respondents prayed for dismissal of the complaint. On July 28, 2003, the RTC held that the action is a derivative suit and issued an order dismissing the complaint. Petitioners elevated the case to the Court of Appeals but the appellate court affirmed the RTC decision. ISSUE: WON the petitioners are proper party in interest WON the complaint is a derivative suit RULING: Petitioners did not offer proof that they were authorized to represent SBGSI. The Court ruling in Cua, Jr. v. Tan elaborated the three (3) types of suit: individual, class or representative, and derivative suit. The reliefs prayed for by petitioners, to wit: (i) enjoining defendants from acting as officers and Board of Directors of the corporation, (ii) the appointment of receiver, (iii) damages, clearly show that the complaint was filed to curb the alleged mismanagement of SBGCCI. The cause of action pleaded by petitioners do not accrue to a single shareholder or a class of shareholders but to the corporation itself. While there were allegations of fraud in the subscription, petitioners do not wish to have their subscription rescinded. Instead, the petitioners asked that the respondents be removed from the management of the corporation. Petitioner’s only possible cause of action as the minority shareholder against the actions of the board is to file the common law right to file a derivative suit. As minority shareholders, petitioners do not have any statutory right to override the business judgements of SBGCCI’s officers and board of directors on the ground of the latter’s alleged lack of qualification to manage a golf course. The legal standing of the petitioners is not a statutory right, there being no provision in the Corporation Code or related statutes, but is instead a product of jurisprudence based on equity. However, a derivative suit cannot prosper without first complying with the legal requisites for its institution: Interim Rules Governing Intra-Corporate Controversies. Petitioners failed to comply with second requisite: “…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…”
Thus, a complaint which contained no allegation whatsoever of any effort to avail of intra-corporate remedies allows the court to dismiss it, even motu proprio. Indeed, even if petitioners thought it was futile to exhaust intra-corporate remedies, they should have stated the same in the Complaint and specified the reasons for such opinion. The requirement of this allegation in the Complaint is not a useless formality which may be disregarded at will.
