Case Digest (G.R. No. 141717)
Facts:
In Nestor Ching and Andrew Wellington v. Subic Bay Golf and Country Club, Inc. (G.R. No. 174353, September 10, 2014), petitioners Nestor Ching and Andrew Wellington, each owning one share in Subic Bay Golf and Country Club, Inc. (SBGCCI), filed on February 26, 2003 a Complaint (Civil Case No. 03-001) with the Regional Trial Court (RTC) of Olongapo City on behalf of SBGCCI members and Subic Bay Golfers and Shareholders, Inc. (SBGSI). They named as respondents SBGCCI and its officers and directors—Susan Hu (President), Jack Hu (Treasurer), Reynald Suarez (Corporate Secretary), Hu Tsung Hui, and Hu Tsung Tzu—alleging that the corporation sold shares at US$22,000 each under Articles of Incorporation promising only pro-rata distribution of assets on liquidation, but later amended those Articles without notice to revoke proprietary rights. Petitioners further claimed violations of the Corporation Code by failing to call shareholder meetings and to furnish financial statements, mismanaCase Digest (G.R. No. 141717)
Facts:
- Parties and Complaint
- Petitioners Nestor Ching and Andrew Wellington (each owning one share) filed on February 26, 2003 in RTC Olongapo City a complaint under PD 902-A (as amended by SRC Sec. 5.2) on behalf of Subic Bay Golfers and Shareholders, Inc. (SBGSI) and SBGCCI members against Subic Bay Golf & Country Club, Inc. (SBGCCI) and its directors/officers: Hu Ho Hsiu Lien (Susan Hu), Hu Tsung Chieh (Jack Hu), Reynald Suarez, Hu Tsung Hui, and Hu Tsung Tzu.
- Allegations:
- Shares sold at US$22,000 each under Articles prohibiting dividends and granting only pro-rata asset share on liquidation;
- June 27, 1996 SEC amendment deprived shareholders of any proprietary interest; not disclosed to petitioners;
- No stockholders’ meetings called (Corp. Code Sec. 50); no financial statements furnished (Sec. 75);
- 1997 by-law amendment suspending voting rights (Sec. 48) passed without notice;
- Fraud/mismanagement: nondisclosure of P235 M subscription funds; unreported green fees; unpaid rentals to SBMA and utilities; pre-terminated SBMA contract; poor course maintenance; drastic share-value decline to P200,000.
- Reliefs Sought
- Temporary restraining order and preliminary injunction enjoining respondents from acting as board/officers.
- Appointment of a receiver until new board elected.
- Damages of P200,000 per shareholder (loss of share value), P100,000 attorney’s fees, and P4,000 per hearing.
- Defendants’ Answer and Lower Courts
- Defenses: subscriptions paid to UIGDC and reflected in SBGCCI financials; amendment publicly known; meetings and financial reports held and furnished; green fees reported; valid SBMA contract; no mismanagement; share value increased; petitioners lacked SBGSI authorization; suit is derivative and harassment.
- RTC (July 8, 2003): dismissed for being a derivative suit without exhausting intra-corporate remedies, lack of SBGSI authorization, and nuisance/harassment (0.24% share).
- CA (October 27, 2005): affirmed RTC decision.
- Supreme Court Proceedings
- Petitioners’ arguments: suit is a direct action under PD 902-A Sec 5(a); alternatively, exhaustion was futile (citing Republic Bank v. Cuaderno); minimal shareholding not barred (citing Cuaderno).
- Respondents: uphold lower courts’ derivative-suit characterization and dismissal.
Issues:
- Whether the Complaint is a derivative suit or an individual action under PD 902-A Sec 5(a)
- Whether petitioners complied with procedural requisites for derivative suits (demand/exhaustion of intra-corporate remedies; non-nuisance) under Rule 8, Sec 1, Interim Rules
- Whether PD 902-A confers a direct cause of action on minority shareholders against corporate mismanagement
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)