Title
Supreme Court
Filipinas Port Services, Inc. vs. Cruz
Case
G.R. No. 161886
Decision Date
Mar 16, 2007
Intra-corporate dispute: Former president Cruz sued Filport's board over alleged mismanagement in creating positions and salary increases. SC upheld board's authority, ruling no evidence of wrongdoing; derivative suit valid but claims unproven.

Case Summary (G.R. No. 161886)

Petitioner’s Claim

Cruz challenged the board’s creation of an executive committee (1991) and the recreation of Assistant Vice-President positions (Corporate Planning, Operations, Finance, Administration) and Special Assistant positions (to Chairman and President), each carrying a monthly P13,050 remuneration. He alleged mismanagement, excessive emoluments for certain officers, and sought recovery of salaries paid to those holding the newly created offices.

Respondents’ Defense and Counterclaim

Respondents asserted that:

  • All positions and per diems were authorized by Filport’s bylaws and the Corporation Code.
  • Salary increases were reasonable and within corporate capacity.
  • Appointees to the contested positions performed services warranting their compensation.
  • Cruz lacked authority and standing for a derivative suit, failed to exhaust intra-corporate remedies, and did not join all stockholders.
  • The suit was filed in bad faith, motivated by Cruz’s dissatisfaction over his non-reelection.

Procedural History

  1. June 1993: Cruz filed SEC Case No. 06-93-4491.
  2. July 2000: Enactment of Republic Act No. 8799 (Securities Regulation Code) transferred the case to RTC-Manila (Corporate Court, Branch 14), then to RTC-Davao City (Branch 10) as Civil Case No. 28,552-2001.
  3. December 10, 2001: RTC-Davao ruled in favor of petitioners, ordering refund of salaries for three positions deemed “for accommodation.”
  4. January 19, 2004: Court of Appeals (CA) reversed, finding the board acted within its powers and dismissing the suit. A nunc pro tunc correction changed “[t]he appeal is bereft of merit” to “[t]he appeal is impressed with merit.”
  5. March 16, 2007: Supreme Court resolution of the petition for review on certiorari.

Applicable Law

– 1987 Constitution (decision after 1990)
– Corporation Code (Batas Pambansa Blg. 68), Sections 23, 25, 35
– Filport’s Amended Bylaws (officers, election, compensation)
– Republic Act No. 8799 (Securities Regulation Code)

Issues

  1. Whether Filport’s board validly created new positions and fixed their compensation.
  2. Whether the increased emoluments for existing officers were reasonable.
  3. Whether evidence supported an “accommodation” scheme or actual payment of salaries.
  4. Whether Cruz had standing to file a derivative suit.

Rule on Board’s Powers and Officer Remuneration

Under Section 23 of the Corporation Code, the board controls corporate business; Section 25 authorizes election of “such other officers as may be provided for in the by-laws,” and Filport’s bylaws empower the board to create additional officers and fix their compensation. Section 35’s requirement that an “executive committee” be provided for in the bylaws does not invalidate other board-created committees whose nature and functions differ from the statutory executive committee. Historical records show Cruz himself moved for creation of several positions and acquiesced during his presidency, precluding his later challenge.

Reasonableness of Emoluments

Both trial court and CA found increases in emoluments of the Chairman, Vice-President, Treasurer and Assistant General Manager fair and proportionate to their duties and corporate capacity. No showing of bad faith or negligence existed; a mere error in business judgment does not render directors personally liable absent fraud or conscious wrongdoing.

Lack of Evidence on “Accommodation” and Actual Payment

Cruz relied solely on his uncorroborated testimony to assert that three positions were created for accommodation. Bare allegations without supporting evidence do not satisfy the preponderance-of-evidence standard. Likewise, no proof was offered that salaries were actually paid to appointees; assertions that officers “deserve” compensation do not amount to proof of remittance.

Standing for Derivative Suit

A stockholder may maintain a derivative suit on behalf of a corporation when corporate officers refuse to sue for corporate inj

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