Title
Florete, Jr. vs. Florete
Case
G.R. No. 174909
Decision Date
Jan 20, 2016
A family dispute over PBS share transfers led to a dismissed complaint due to lack of cause of action and failure to implead indispensable parties; damages awarded were voided.

Case Summary (G.R. No. 174909)

Petitioner, Respondent and Procedural Posture

Two consolidated Supreme Court petitions: one (G.R. No. 174909) by the Marcelino, Jr. Group seeking nullification of alleged improper issuances, transfers, and increases of shares in People’s Broadcasting with damages; the other (G.R. No. 177275) by Rogelio, Sr. seeking immediate execution of the trial court’s award of moral and exemplary damages. The petitions challenge the Court of Appeals and Regional Trial Court rulings on dismissal, damages, and execution.

Key Dates and Chronology of Principal Events

Incorporation and capital structure events: People’s Broadcasting incorporated (record cites March 8, 1966) with authorized capital stock of P250,000 divided into 2,500 shares at P100 par value. Important occurrences include Marcelino Sr.’s stroke (July 12, 1982) and death (October 3, 1990); the Sycip Gorres Velayo & Co. report on share movements (submitted November 2, 1994); substantial share issuances, transfers, and a capital increase (notably September 1, 1982; March 1, 1983; December 8, 1989). Procedural timeline: Complaint filed June 23, 2003; RTC decision dismissing Complaint and awarding damages (August 2, 2005); writs, injunctions, and conflicting appellate orders through 2006–2007; petitions to the Supreme Court and consolidation (consolidation ordered March 16, 2009).

Applicable Law and Authorities

Constitutional basis: the 1987 Philippine Constitution applies. Statutory and procedural law invoked include the Corporation Code provisions (Sections 23, 25, 39, 62, 63, 65, 102), the Securities Regulation Code provisions referenced in practice, the Interim Rules of Procedure for Intra-Corporate Controversies (notably Rule 8, Section 1 and Sec. 4 re: executory nature), and Rules of Court provisions (Rule 3, Rule 45, Rule 65). Controlling jurisprudence repeatedly relied upon in the decision includes Villamor v. Umale, Cua, Jr. v. Tan, Hi-Yield Realty v. Court of Appeals, Go v. Distinction Properties, Ching and Wellington v. Subic Bay Golf and Country Club, Asset Privatization Trust v. Court of Appeals, and other cited authorities addressing derivative suits, indispensable parties, estoppel, and the effects of judgments rendered without jurisdiction.

Core Facts Regarding Corporate Capital and Share Movements

At incorporation, 25% of authorized capital (1,260 shares) was subscribed among family members and others. The Sycip Gorres Velayo & Co. report traced share movements from November 23, 1967 to December 8, 1989, recording multiple issuances and transfers: issuance of 1,240 (1,250 authorized) shares to Consolidated Broadcasting System, Inc. on September 1, 1982; issuance of 610 shares to Newsounds Broadcasting Network, Inc. on November 17, 1967 and their alleged transfer to Rogelio, Sr. on March 1, 1983; transfers from Consolidated to Marcelino Sr. and Rogelio Sr. on March 1, 1983; transfers from Marcelino Sr. to various persons in 1983; and an increase of authorized capital to P100,000,000 (1,000,000 shares) approved by the SEC on December 8, 1989 with substantial subscriptions.

Sycip Gorres Velayo & Co. Report and Its Limitations

The accounting firm’s report tracked movements and beneficial shareholdings but expressly disclaimed a definitive opinion on capital stock accounts, citing incomplete corporate records and the firm’s inability to verify supporting documents for some transactions. The Board of Directors later approved the firm’s report (February 1, 1997).

Complaint and Reliefs Sought by the Marcelino, Jr. Group

The Complaint (filed June 23, 2003) sought declaration of nullity of specific issuances, transfers, and subscriptions identified in the Sycip report—challenging, among other things, the alleged forgery or invalidity of Board Resolution No. 4 (August 5, 1982) authorizing the issuance to Consolidated, transfers involving Newsounds, the transfers from Marcelino Sr., and the December 8, 1989 capital increase—and prayed that People’s Broadcasting’s capital structure be restored to a status quo ante. The Complaint also sought damages.

Trial Court Ruling and Monetary Awards

The Regional Trial Court (August 2, 2005) dismissed the Complaint for lack of merit, holding that plaintiffs lacked a cause of action against the impleaded defendants and were estopped from contesting the transactions; the court additionally identified numerous indispensable parties not impleaded. The RTC granted Rogelio, Sr.’s compulsory counterclaim for moral and exemplary damages (P25,000,000 and P5,000,000 respectively) for alleged reputational injury. The RTC thereafter issued an order for immediate execution of its decision; ensuing motions and writs produced provisional appellate relief before the Court of Appeals.

Court of Appeals Decisions and Relief on Execution

The Court of Appeals (March 29, 2006) denied the Marcelino, Jr. Group’s petition for relief on the merits, affirmed dismissal, and lifted injunctive relief. In separate proceedings, the Court of Appeals later reversed the RTC’s order for immediate execution and annulled the writ of execution (November 28, 2006), concluding that execution should not proceed while the appeal and related petitions were pending. The appellate rulings emphasized the plaintiffs’ failure to implead indispensable parties and invoked estoppel and laches because of long delay and participation in corporate affairs.

Issues Presented to the Supreme Court

The Supreme Court framed three issues: (1) whether the RTC properly dismissed the Complaint; (2) if dismissal was erroneous, whether the challenged transfers and issuances should be nullified on the merits; and (3) whether the RTC’s award of moral and exemplary damages in favor of Rogelio, Sr. may be executed at that stage.

Petitioners’ Principal Legal and Factual Contentions

The Marcelino, Jr. Group asserted that Board Resolution No. 4 was forged or issued without quorum; that Salome could not have transferred shares posthumously; that Marcelino Sr. lacked capacity after his July 12, 1982 stroke and thus could not consent to the challenged transactions; that certain share transfers were unsupported by delivery or endorsed certificates as required by Section 63; and that the 1989 capital increase was procured by a board illegally constituted through prior invalid transfers. They sought nullification of specific issuances and transfers and recalculation of the capital structure reflecting a restored pre-transfer ownership.

Respondents’ Principal Defenses

The Rogelio, Sr. Group contended that the Marcelino, Jr. Group raised primarily factual questions unsuitable for certiorari review under Rule 45, that they had no cause of action against the defendants they named, and that indispensable parties were omitted. They argued estoppel and laches resulting from the plaintiffs’ delay and participation in corporate governance, and that the plaintiffs should have raised their claims in estate settlements. In the execution petition, Rogelio, Sr. contended that the trial court’s award should be immediately executory under the Interim Rules, and criticized the filing of a Rule 65 petition as premature or forum-shopping while other appeals were pending.

Legal Framework on Remedies Available to Stockholders

The Court reiterated the distinct, mutually exclusive categories for stockholder actions: individual suits (for personal rights), class/representative suits (for rights of a specific class), and derivative suits (to vindicate a wrong to the corporation). The gravamen determining the proper vehicle is whether the injury accrues to the corporation or to individual stockholders. Derivative suits are governed by the requisites set out in Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies, which include: (1) stockholder status when the acts occurred and at filing; (2) exhaustion of intra‑corporate remedies with particularized allegations; (3) absence of appraisal rights; (4) non-nuisance nature of the suit; and (5) that the action be brought in the name of the corporation (with the corporation impleaded).

Court’s Application: Characterization of the Complaint as Derivative

Applying the foregoing tests and relevant precedents (Villamor, Cua, Jr., Ching and Wellington, Go), the Supreme Court concluded that the Marcelino, Jr. Group’s Complaint sought remedies that accrue to People’s Broadcasting itself and affected the whole body of its stock and property—specifically, nullification and reconfiguration of the capital structure and admission of new equity holders. Therefore the action was derivative in character rather than an individual or class suit.

Failure to Meet Requisites for a Derivative Action and Non-impleader of Indispensable Parties

Because the Complaint was filed as an individual (class) action rather than in the name of the corporation, the plaintiffs failed to allege compliance with the derivative-suit requisites set forth in the Interim Rules and did not implead People’s Broadcasting or the numerous other indispensable parties whose joinder was necessary. Jurisprudence requires that the corporation be impl

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