CUA JR., VS. OCAMPO

FACTS: Philippine Racing Club, Inc. (PRCI) is a corporation organized and established under Philippine laws to conduct business related to horse track racing and other business connected thereto including public betting, raising horses, and breeding the same. PRCI holds a franchise granted under Republic Act No. 6632, as amended by Republic Act No. 7953, to operate a horse racetrack and manage betting stations. Under its franchise, PRCI may operate only one racetrack.

In 1999, the Articles of Incorporation of PRCI was amended to include a secondary purpose which is to acquire real properties and/or develop real properties into mix-use realty projects including but not limited to leisure, recreational and memorial parks and to own, operate, manage and/or sell these real estate projects.

PRCI owns only two real properties. Following the trend in the development of properties, PRCI wished to convert its Makati property from a racetrack to urban residential and commercial use. The PRCI management decided to transfer its racetrack from Makati to Cavite. PRCI began developing its Cavite property as a racetrack. 

So that PRCI could continue to focus its efforts on pursuing its core business competence of horse racing, the PRCI management opted to acquire another domestic corporation, JTH Davies Holdings, Inc. for the said secondary purpose. PRCI entered into a Sale and Purchase Agreement for the acquisition from JME of 95.55% of the outstanding capital stock of JTH.

Then, respondents Miguel, et al., as minority stockholders of PRCI, filed before the RTC a Complaint, based on three causes of action: (1) the approval by the majority directors of PRCI of the Board Resolutions with undue haste and deliberate speed, despite the absence of any disclosure and information; (2) respondent Solomon, as PRCI President maliciously refused and resisted the request of respondents Miguel, et al., for complete and adequate information relative to the disputed Board Resolutions; and (3) without being officially and formally nominated, the majority directors of PRCI illegally and unlawfully constituted themselves as members of the Board of Directors and/or Executive Officers of JTH, rendering all the actions they have taken as such null and void ab initio. RTC ruled in favor of the minority stockholders. CA affirmed RTC decision. Respondents questioned the infirmities of Miguel’s complaint.

ISSUE: Whether or not the derivative suit is properly constituted. 

HELD: No. The court reversed the decision and lifted the TRO issued. The Court stresses that the corporation is the real party in interest in a derivative suit, and the suing stockholder is only a nominal party. For 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. It is a condition sine qua 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. Moreover, there must be no appraisal rights available. In this case, the transaction falls under one of the instances wherein the appraisal right is available under Sec. 81: sale of all or substantially all the property of the corporation, but the right was not exercised by the petitioner. It was the SH themselves who caused the unavailability to exercise their appraisal right by not voting against the proposed corporate action. Instead, they filed a derivative suit.

DERIVATIVE SUIT REQUIREMENTS

(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; 

(4) The suit is not a nuisance or harassment suit.

FORUM SHOPPING

Allowing two different minority stockholders to institute separate derivative suits arising from the same factual background, alleging the same causes of action, and praying for the same reliefs, is tantamount to allowing the corporation, the real party-in-interest, to file the same suit twice, resulting in the violation of the rules against a multiplicity of suits and even forum-shopping. It is also in disregard of the separate-corporate-entity principle, because it is to look beyond the corporation and to give recognition to the different identities of the stockholders instituting the derivative suits.