Facts:

The case involves two consolidated petitions: G.R. No. 210906 filed by Ago Realty & Development Corporation (ARDC), Emmanuel F. Ago, and Corazon Castaeda-Ago as petitioners against Dr. Angelita F. Ago, Teresita Paloma-Apin, and Maribel Amaro as respondents; and G.R. No. 211203 filed by Dr. Angelita F. Ago as petitioner against ARDC, Emmanuel F. Ago, Corazon C. Ago, Emmanuel Victor C. Ago, and Arthur Emmanuel C. Ago as respondents. The events leading to the case began when Dr. Angelita F. Ago, a stockholder of ARDC, introduced unauthorized improvements on Lot No. H-3, which was titled in the name of ARDC, without the necessary resolution from the corporation's Board of Directors. These improvements encroached on other lots owned by ARDC. On August 11, 2006, ARDC and Emmanuel, et al. filed a complaint in the Regional Trial Court (RTC) of Legazpi City, alleging that Angelita, in collusion with Teresita and Maribel, made unauthorized improvements and operated a restaurant...

Facts:

Parties and Corporate Structure

• ARDC (Ago Realty & Development Corporation) is a close corporation with a limited number of stockholders.
• Stockholders include petitioner Emmanuel F. Ago, his wife Corazon C. Ago, their children (Emmanuel Victor C. Ago and Arthur Emmanuel C. Ago), and respondent Angelita F. Ago.
• The General Information Sheet shows that out of 5,000 subscribed shares, Emmanuel, Corazon, and their family collectively hold the majority, while Angelita holds the remaining shares.
• The dispute arises among family members regarding the management and control of the corporate properties, with particular reference to unauthorized actions by Angelita.

Factual Background and Initiation of Litigation

• Unauthorized Improvements
• Angelita, without a proper resolution from ARDC’s Board of Directors, introduced improvements on Lot No. H-3 (titled in ARDC’s name).
• The improvements allegedly encroached on adjacent properties (Lot No. H-1 and Lot No. H-2), also owned by ARDC.
• Filing of the Complaint
• On August 11, 2006, ARDC and majority stockholders Emmanuel et al. filed a complaint before the Legazpi City Regional Trial Court (RTC).
• The complaint charged that Angelita, in connivance with Teresita Paloma-Apin and Maribel Amaro (and with the complicity of certain local officials), had introduced unauthorized improvements and committed acts detrimental to ARDC’s interests.

Pleadings and Defenses Raised

• Defendants’ Responses
• Teresita denied operating a restaurant on ARDC property, claiming her business was located on different premises.
• Angelita admitted to making the improvements but contended that her actions were prompted by a dispute arising from Emmanuel’s demand that she buy out his shares for an exorbitant amount.
• Maribel, characterized as merely an employee of Angelita, was argued to have no direct involvement in the acts alleged.
• Corporate Authority Issue
• A common defense raised was that the suit was instituted without ARDC’s Board of Directors’ authorization, as required for corporate litigation.
• The absence of any board resolution was central to the controversy over the legal standing of the suit.

Lower Court Proceedings and Findings

• Regional Trial Court Decision (September 20, 2012)
• The RTC dismissed the complaint on the ground that the suit was filed by stockholders without ARDC board approval.
• In addition, it held that ARDC was the real party in interest, meaning the corporations’ interests should be pursued by the board—not directly by individual stockholders.
• Despite dismissing the suit, the RTC awarded damages:
• Emmanuel and Corazon were held jointly and severally liable for damages.

ii. Angelita and Maribel were awarded moral damages (for embarrassment, loss of reputation, and health effects), along with attorney’s fees for some defendants, while Teresita’s claim for such damages failed.

Appellate Review and Subsequent Consolidated Petitions

• Court of Appeals Decision (September 26, 2013)
• The CA affirmed the RTC’s finding on the lack of cause of action due to the absence of board authorization.
• It modified the RTC decision by deleting the award of moral damages and attorney’s fees, reasoning that:
• The suit was derivative in nature, involving corporate injury that should have been addressed by ARDC through its board.

ii. The remedial awards were not warranted in light of the nature and the lack of malice in filing the suit.

Historical and Legal Context

• Historical Development of Corporate Law
• The evolution of corporate law—from the Spanish Code of Commerce, through Act No. 1459 and Batas Pambansa Blg. 68, to the Revised Corporation Code (Republic Act No. 11232)—provides the statutory framework that underpins the proceedings.
• The Corporate Power to Sue
• The law consistently requires that corporate litigation be undertaken by the corporation’s board of directors, reinforcing the principle of the corporation’s separate juridical personality.

Issue:

The Standing and Validity of the Derivative Suit

• Whether Emmanuel et al., as minority/controlling stockholders, may sue on behalf of ARDC without a proper resolution or grant of authority from its Board of Directors.
• Whether the filing of the suit by stockholders improperly bypasses the internal corporate requirement that only the board may initiate litigation on behalf of the corporation.

The Award of Damages in the Context of the Derivative Suit

• Whether the award of moral damages and attorney’s fees granted by the RTC (later modified by the CA) in favor of Angelita is warranted under the circumstances.
• Whether the conduct underlying the improvements and the filing of the suit may be characterized as malicious prosecution or merely an error in the procedural grounds for filing a derivative suit.

The Exhaustion of Internal Remedies

• Whether the stockholders failed to exhaust all available remedies—such as convening the election of a board of directors—before instituting the derivative suit.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)