VILLAMOR, JR. V. UMALE

FACTS: Balmores, a stockholder of Pasig Printing Corporation (PPC)  filed an intra-corporate controversy complaint against petitioner-directors for their alleged devices or schemes amounting to fraud or misrepresentation. Previously, PPC’s BOD issued a resolution waiving all its rights and interests in an option to lease contract in favor of the law firm of Atty. Villamor, who failed to turn over the amount to PPC. Balmores complains against the alleged inaction of the BOD. SC ruled that what he filed was a derivative suit. Respondent Balmores did not bring the action for the benefit of the corporation. Instead, he was alleging that the acts of PPC’s directors, specifically the waiver of rights in favor of Villamor’s law firm and their failure to take back the MC Home Depot checks from Villamor, were detrimental to his individual interest as a stockholder. In filing an action, therefore, his intention was to vindicate his individual interest and not PPC’s or a group of stockholders’.

ISSUE: Whether the respondent Balmores’ action is a derivative suit.

HELD: No. For a derivative suit to prosper, the following requisites must be met:

(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.

However, there is a fifth requisite which is not included in the enumeration but is implied in the first paragraph of Interim Rules for derivative suits which is that the action brought by the stockholder or member must be "in the name of [the] corporation or association. ..." This requirement has already been settled in jurisprudence. The reason given is that the judgment must be made binding upon the corporation in order that the corporation may get the benefit of the suit and may not bring a subsequent suit against the same defendants for the same cause of action. In other words the corporation must be joined as party because it is its cause of action that is being litigated and because judgment must be a res judicata against it.

Moreover, in this case, respondent Balmores failed to allege that appraisal rights were not available for the acts complained of. Furthermore, Respondent Balmores did not bring the action for the benefit of the corporation. Instead, he was alleging that the acts of PPC's directors, specifically the waiver of rights in favor of Villamor's law firm and their failure to take back the MC Home Depot checks from Villamor, were detrimental to his individual interest as a stockholder. In filing an action, therefore, his intention was to vindicate his individual interest and not PPC's or a group of stockholders'.