Case Summary (G.R. No. 181455-56)
Factual Background
• PRCI, a PSE-listed franchise holder operating Sta. Ana Racetrack (Makati) and a Cavite site, amends its purposes (1999) to include real-estate development.
• 26 Sep 2006: PRCI Board approves acquisition of up to 100% of JTH shares (₱10.71/share; escrow deposit ₱20 M); designates attorneys-in-fact to vote PRCI’s acquired JTH shares and appoint JTH directors.
• 7 Nov 2006: Special PRCI stockholders’ meeting (84.42% attendance) ratifies acquisition and related arrangements.
• Year-end 2006: PRCI attains 98.19% JTH ownership; delivers consolidated audited financials.
• 11 May 2007: Board approves exchange of Makati property (zonal value ₱3.817 B) for unissued JTH shares (₱397.9 M par value); calls for stockholder ratification.
RTC Proceedings and Injunctions
• 10 Jul 2007: Minority stockholders file Civil Case No. 07-610 (derivative suit) seeking TRO/preliminary and permanent injunction to enjoin PRCI Board from presenting in the 17 Jul 2007 meeting three agenda items:
- Approval of prior meeting minutes
- Ratification of Board and management acts (FY 2006)
- Approval of Makati property exchange
• 16 Jul 2007: RTC grants 20-day TRO against agenda items, bond ₱100,000
• 17 Jul 2007: Annual meeting fails for lack of quorum
• 8 Oct 2007: RTC issues permanent injunction until case resolution
• 18 Jun 2008: Despite injunctions, PRCI convenes and stockholders (86.52%) approve the three items
• 7 Jul 2008–22 Aug 2008: PRCI and JTH execute and then rescind the property-for-shares transfer after BIR revokes tax-free ruling
CA Proceedings and Rulings
• CA-G.R. SP No. 99769 & 99780: Petitions for certiorari and prohibition filed to contest the 16 Jul and 8 Oct 2007 RTC resolutions
• 6 Sep 2007: CA dismisses petitions—finds no grave abuse, TRO did not prevent meeting, petitioners lacked quorum, TRO period expired, issues factual and premature
• 22 Jan 2008: CA denies motions for reconsideration and refuses supplemental petitions—no leave for new causes of action (permanent injunction challenge)
Issues
- Were there procedural infirmities in Santiago Sr.’s Rule 65 petition?
- Should Civil Case No. 07-610 be dismissed?
- Should Civil Case No. 08-458 (filed by another minority group) be dismissed?
- May APRI intervene as co-respondent?
Supreme Court Analysis
Procedural Infirmities
- Forum-shopping not established (distinct parties; consolidation prevents conflict; certification not jurisdictional)
- Rule 65 petition for CA decisions was technically wrong remedy (should be Rule 45), but rules relaxed in interest of justice
Derivative-Suit Principles
- Board of directors controls corporate affairs; courts interfere only for breach of fiduciary duty when intracorporate remedies are futile
- Derivative suit is in the corporation’s right; stockholder is nominal party; corporation is indispensable real party-in-interest (must be impleaded)
- IRPICC Rule 8, Sec. 1 requires exhaustion of internal remedies and non-availability of appraisal rights for challenged acts
Dismissal of Civil Case No. 07-610
- Acquisition of JTH ratified by 74% vote at 7 Nov 2006 stockholders’ meeting: challenge moot; majority stockholders indispensable
- Property-for-shares exchange was subject to appraisal rights (substantially all assets), unexercised and internal remedies unexhausted; later ratified at 18 Jun 2008 meeting; transaction rescinded after BIR ruling—no live controversy
- Inspection claim fails: demand complied with; denial by corporate secretary, not director-d
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Case Syllabus (G.R. No. 181455-56)
Corporate Charter, Purposes and Capital Structure
- Philippine Racing Club, Inc. (PRCI) organized under Philippine laws to operate a racetrack, accept bets, construct related facilities, and promote horse breeding and sportsmanship
- Holds a franchise under R.A. 6632 as amended by R.A. 7953, limited to one racetrack operation
- 1999 amendment to Articles of Incorporation added secondary purpose for mixed-use real estate development
- Publicly listed on the PSE, authorized capital stock of ₱1,000,000,000 divided into 1,000,000,000 shares (₱1 par value); 569,857,749 shares subscribed and paid up by 2006
- Owns two properties: 21.2-hectare Sta. Ana Racetrack in Makati and a Cavite property for relocation of racetrack operations
Corporate Strategy and Spin-Off Plan
- In 2006, management decided to relocate racetrack to Cavite and spin off Makati property development to a subsidiary
- Opted to acquire JTH Davies Holdings, Inc. (JTH), a holding company with primarily cash assets, publicly listed with ₱25,000,000 authorized capital stock
- Engaged SGV for due diligence; valued JTH net worth at ₱426,010,000 and agreed to pay ₱10.71 per share for 95.55% of JTH, implying a premium of ₱42,410,450
Board Resolutions Authorizing Acquisition and Exchange
- 26 September 2006 PRCI Board approved negotiated purchase of up to 100% of JTH, delegated execution authority to President Solomon S. Cua
- Authorized Special Stockholders’ Meeting on 26 October 2006 to ratify acquisition and related disclosures under the SRC
- Appointed a priority list of PRCI directors (including Santiago Cua, Sr. and Jr., Solomon Cua, Robles) as attorneys-in-fact/proxies to vote PRCI’s JTH shares and nominate directors/officers of JTH
- 11 May 2007 PRCI Board approved exchange of Makati property (zonal value ₱3.817 billion) for newly-authorized JTH shares (₱397,908,894.50 par value), reflecting excess as additional paid-in capital
Stockholders’ Ratification and Financial Compliance
- 7 November 2006 Special Stockholders’ Meeting (84.42% attendance) approved and ratified JTH acquisition; objections by minority proxies noted but overruled
- 2006 consolidated financial statements (PRCI and JTH) audited by Punongbayan & Araullo with unqualified opinion; submitted to SEC, BIR, and PSE
- Proposed property-for-shares exchange reflected in Information Statement for Annual Stockholders’ Meeting agenda
Derivative Suit in RTC and TRO Proceedings (Civil Case No. 07-610)
- 10 July 2007: Miguel O. Tan, Jemie U. Tan and Atty. Brigido J. Dulay (holding 5.67% of PRCI shares) filed derivative suit to nullify 26 Sep 2006 and 11 May 2007 Board Resolutions, alleging fraud, breach of fiduciary duty, and denial of information
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