Title
Gochan vs. Young
Case
G.R. No. 131889
Decision Date
Mar 12, 2001
Dispute over Gochan Realty shares involving heirs’ legal standing, derivative suit, indispensable parties, and jurisdictional transfer under RA 8799.

Case Summary (G.R. No. 157036)

Petitioners’ Principal Contentions

Petitioners moved to dismiss the complaint filed with the Securities and Exchange Commission (SEC) on grounds that (1) the SEC lacked jurisdiction over the nature of the action, (2) certain respondents lacked capacity or were not real parties in interest because they were not stockholders of record, and (3) respondents’ causes of action were barred by the statute of limitations. Petitioners also sought cancellation of the notice of lis pendens annotated on corporate land titles.

Respondents’ Claims Before the SEC

Respondents Cecilia and Miguel Uy (Spouses Uy) and other complainants filed a complaint with the SEC seeking issuance of shares to rightful owners, nullification of certain shares, reconveyance of property impressed with trust, accounting, removal of officers and directors, and damages. A notice of lis pendens was annotated on corporate real property titles to protect asserted property and possession claims.

Key Dates (select factual milestones)

  • June 1951: FGSRC registered with the SEC.
  • 1955: Alice Gochan died, leaving 50 shares to her husband John D. Young Sr.
  • 1962: RTC adjudicated 6/14 of those shares to Alice’s children (respondent heirs).
  • 20 September 1979: dividends increased shares to 179.
  • 25 September 1979: John Sr. requested partition and issuance of new certificates in children’s names; 17 October 1979: corporation refused, citing right of first refusal in the Articles.
  • 21 (month unspecified), 1990: John Sr. died (as stated in the record).
  • 8 February 1994: Complaint filed with the SEC.
  • 9 December 1994: SEC hearing officer dismissed the complaint and ordered cancellation of lis pendens.
  • 3 March 1995: SEC en banc ruled that the motion for reconsideration was pro forma and did not toll the appeal period.
  • 8 August 2000: RA 8799 (Securities Regulation Code) became effective, transferring SEC jurisdiction over intra-corporate disputes to courts of general jurisdiction.

Applicable Law and Legal Framework (including constitutional basis)

  • Securities Regulation Code (RA 8799), section 5.2, transferred the SEC’s jurisdiction over intra-corporate disputes to courts of general jurisdiction (regional trial courts), subject to certain transitional provisions retaining SEC jurisdiction over pending cases resolvable within one year.
  • SEC Revised Rules (cited): Section 5, Rule III (Derivative Suit) requires that a stockholder bringing a derivative action must have been a stockholder at the time the questioned transaction occurred and at the time the action was filed and during pendency.
  • Rules of Court provisions relevant to representative parties and lis pendens: Section 3, Rule 3 (representatives as parties); Section 2, Rule 87 (executor or administrator may bring or defend actions for the recovery or protection of rights of the deceased); Section 14, Rule 13 (notice of lis pendens annotation).
  • Civil Code principles cited in the record: void contracts produce no legal effect; Article 1410 and jurisprudence on prescription and contracts alleged to be void ab initio.
  • Constitutional basis: decision interpreted and applied under the 1987 Constitution given the decision date falls after 1990; jurisdictional allocation to regular courts reflects judicial power vested in courts under the Constitution.

Procedural History

Respondents filed the SEC complaint on 8 February 1994. Petitioners moved to dismiss and separately moved for cancellation of the lis pendens. The SEC hearing officer granted the motion to dismiss and ordered cancellation of the lis pendens on 9 December 1994. The SEC en banc affirmed the hearing officer’s rulings, treating the motion for reconsideration as pro forma and untimely. Respondents appealed to the Court of Appeals (CA). The CA dismissed the complaint insofar as it concerned the heirs of Alice Gochan for lack of SEC jurisdiction, but sustained other parts (recognizing the capacity of the Spouses Uy and treating the intestate estate as an indispensable party) and reversed the SEC order cancelling the lis pendens. Petitioners sought Supreme Court review by certiorari.

Issues Presented to the Supreme Court

The principal questions were: (A) whether the Spouses Uy had capacity/personality to file before the SEC; (B) whether the Spouses Uy could properly bring a derivative suit in the name of FGSRC; (C) whether the Intestate Estate of John D. Young Sr. was an indispensable party given shares remained in the decedent’s name; (D) whether cancellation of the lis pendens was justified when the suit sought reconveyance of real properties; and (E) the effect of RA 8799 on the appropriate tribunal for resolution.

Supreme Court Disposition (overall)

The Supreme Court denied the petition and affirmed the Court of Appeals’ ruling, with the modification that, because of RA 8799, the case must be remanded to the appropriate regional trial court (court of general jurisdiction). The SEC hearing officer’s December 9, 1994 order dismissing the complaint and directing cancellation of the lis pendens, and the SEC en banc’s March 3, 1995 order denying reconsideration, were reversed and set aside. The Court directed the transfer of SEC records to the appropriate regional trial court pursuant to administrative instructions on transfers under RA 8799.

Analysis — Capacity of the Spouses Uy to File the Action

The Court applied the rule that, for purposes of a motion to dismiss, factual averments in the complaint are taken as admitted. Respondents alleged the corporate purchase of Cecilia Uy’s shares was void ab initio; a void contract produces no legal effect and therefore Cecilia remained a bona fide stockholder as between the parties. Consequently, the Spouses Uy had the capacity to sue. The Court also observed that even if the Spouses Uy were not of record in corporate books, the complaint’s allegations sufficed to show bona fide stockholder status for purposes of pleading. Finally, because RA 8799 transferred intra-corporate disputes to the courts of general jurisdiction, the SEC was no longer the appropriate forum for such disputes after the statute’s effectivity.

Analysis — Prescription and Nullity Argument

Petitioners argued prescription barred the Spouses Uy’s claims. The Court held that where a contract is alleged to be void ab initio, prescription cannot be invoked against an action seeking declaration of nullity. The complaint explicitly alleged the share purchase was void ab initio (citing impairment of corporate capital and violation of trust fund doctrine), and under the cited authorities and Article 1410, actions for declaration of nullity of a contract do not prescribe. Therefore the statute of limitations defense failed on the recorded allegations.

Analysis — Derivative Suit Characterization

Petitioners asserted the action was not derivative because the Spouses Uy allegedly were the injured parties. The Court reviewed the complaint and found clear allegations of injury to the corporation itself — unauthorized appropriation of corporate funds, unlawful salary and advances, impairment of capital through premature partial liquidation, and diversion of corporate opportunities — which are classic grounds for a derivative action. The Court reiterated long-standing jurisprudence permitting a single stockholder to institute a derivative suit when directors have breached trust and the corporation fails or refuses to sue. Personal injuries alleged by the Spouses Uy could coexist with corporate injuries and did not preclude their bringing a derivative action; they could also pursue personal claims for damages. The complaint satisfied the derivative-suit requirements insofar as its allegations showed stockholder status at the time of the questioned transactions and at filing (given the pleadings that the sale was void).

Analysis — Indispensable Party: Intestate Estate of John D. Young Sr.

Because a cause of action sought registration of 6/14th of shares adjudicated to Alice’s children but still registered in John D. Young Sr.’s name, a final determination could not be rendered without impleading the deceased’s estate. The Court found the Intestate Estate an indispensable party as to claims involving those shares. The Court addressed petitioner’s contention that only an executor or administrator may bring such actions by noting the Rules of Court permit representation by a trustee, guardian, executor, administrator, or party authorized by law, but do not categorically prohibit heirs from representing the decedent when no administrator has been appointed. Given the absence of an appointed administrator at the time of the SEC complaint and in light of the Rules’ objective to secure just, speedy and inexpensive disposition, the Court found no impropriety in heirs representing the estate

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