ANTHONY S. YU, ROSITA G. YU AND JASON G. YU vs. JOSEPH S.
YUKAYGUAN, NANCY L. YUKAYGUAN, JERALD NERWIN L.
YUKAYGUAN AND NESLIE YUKAYGUAN (ON THEIR OWN BEHALF AND
ON BEHALF OF) WINCHESTER INDUSTRIAL SUPPLY, INC.
G.R. No. 177549, June 18, 2009
FACTS:
Petitioners are members of the Yu Family while respondents belong to the
Yukayguan Family. Anthony Yu is the older half-brother of Joseph
Yukayguan, both of them are the heads of their respective families. Both
families are stockholders of Winchester Industrial Supply, Inc., a domestic
corporation engaged in the operation of a general hardware and industrial
supply and equipment business.
On 15 October 2002, respondents Yukayguan filed against petitioners Yu a
verified Complaint for Accounting, Inspection of Corporate Books and
Damages through Embezzlement and Falsification of Corporate Records and
Accounts before the RTC of Cebu. The Complaint was filed by respondents,
in their own behalf and as a derivative suit on behalf of Winchester, Inc.
During the pendency of the proceedings before the RTC, the parties were
able to reach an amicable settlement wherein they agreed to divide the
assets of Winchester, Inc. among themselves. This amicable settlement was
already partially implemented by the parties but respondents repudiated the
same, for which reason the RTC proceeded with the case on its merits.
On 10 November 2004, the RTC promulgated its Decision dismissing
respondents’ Complaint for failure to comply with essential pre-requisites
before they could avail themselves of the remedies under the Interim Rules
of Procedure Governing Intra-Corporate Controversies; and for inadequate
substantiation of respondents’ allegations in said Complaint after
consideration of the pleadings and evidence on record.
On appeal, the Court of Appeals, in its Decision dated 15 February 2006,
affirmed the findings of the RTC that respondents did not abide by the
requirements for a derivative suit, nor were they able to prove their case by
a preponderance of evidence. Respondents filed a Motion for Reconsideration
of said judgment of the appellate court, insisting that they were able to meet
all the conditions for filing a derivative suit. Pending resolution of
respondents’ Motion for Reconsideration, the Court of Appeals urged the
parties to again to reach an amicable settlement of their dispute, but the
parties were unable to do so. The parties were not able to submit to the
appellate court, within the given period, any amicable settlement; and filed,
instead, their Position Papers. The parties opted to submit respondents’
Motion for Reconsideration of the 15 February 2006 Decision of the Court of
Appeals, and petitioners’ opposition to the same, for resolution by the
appellate court on the merits.
In accordance with respondents’ allegation in their Position Paper that the
parties subsequently filed with the SEC, and the SEC already approved, a
petition for dissolution of Winchester, Inc., the Court of Appeals remanded
the case to the RTC so that all the corporate concerns between the parties
regarding Winchester, Inc. could be resolved towards final settlement. The
Court of Appeals converted the derivative suit between the parties into
liquidation proceedings.
ISSUE:
Whether or not the decision of the Court of Appeals in converting the
derivative suit between the parties into liquidation proceeding proper.
RULING:
NO
The general rule is that where a corporation is an injured party, its power to
sue is lodged with its board of directors or trustees. Nonetheless, an
individual stockholder is permitted to institute a derivative suit on behalf of
the corporation wherein he holds stocks in order to protect or vindicate
corporate rights, 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. A derivative action is a suit by a
shareholder to enforce a corporate cause of action. The corporation is a
necessary party to the suit. And the relief which is granted is a judgment
against a third person in favor of the corporation. Similarly, if a corporation
has a defense to an action against it and is not asserting it, a stockholder
may intervene and defend on behalf of the corporation. By virtue of Republic
Act No. 8799, otherwise known as the Securities Regulation Code,
jurisdiction over intra-corporate disputes, including derivative suits, is now
vested in the Regional Trial Courts designated by this Court pursuant to A.M.
No. 00-11-03-SC promulgated on 21 November 2000.
The action filed before the trial court and appealed before the appellate court
is one of a derivative suit. The Court held that a derivative suit is
fundamentally distinct and independent from liquidation proceedings. They
are neither part of each other nor the necessary consequence of the other.
There is totally no justification for the Court of Appeals to convert what was
supposedly a derivative suit instituted by respondents, on their own behalf
and on behalf of Winchester, Inc. against petitioners, to a proceeding for the
liquidation of Winchester, Inc.
The supposed dissolution of Winchester, Inc. could not have resulted in the
conversion of respondents’ derivative suit to a proceeding for the liquidation
of said corporation, but only in the dismissal of the derivative suit based on
either compromise agreement or mootness of the issues.
Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-
Corporate Controversies lays down the following requirements which a
stockholder must comply with in filing a derivative suit:
Sec 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.
A perusal of respondents Complaint before the RTC would reveal that the
same did not allege with articles of incorporation, by-laws, laws or rules
governing Winchester, Inc. to obtain the relief they desire. The second
paragraph requires that the stockholder filing a derivative suit 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 to allege such fact with
particularity in the complaint. The obvious intent behind the rule is to make
the derivative suit the final recourse of the stockholder after all other
remedies to obtain the relief sought had failed.
The fact that Winchester, Inc. is a family corporation should not in any way
exempt respondents from complying with the clear requirements and
formalities of the rules for filing a derivative suit. There is nothing in the
pertinent laws or rules supporting the distinction between, and the difference
in the requirements for, family corporations vis-à-vis other types of
corporations, in the institution by a stockholder of a derivative suit.
