G.R. No. 168863 - Hi-Yield Realty, Inc. vs. Court of Appeals

Case Summary (G.R. No. 168863)

Procedural History in the Trial Court and Court of Appeals

On July 31, 2003, Roberto filed in RTC-Makati (Branch 148) a Petition for Annulment of Real Estate Mortgage and Foreclosure Sale (Civil Case No. 03-892) on behalf of HTSI against certain Torres family members, registers of deeds, and Hi-Yield. Hi-Yield moved to dismiss for improper venue and insufficient docket fees; the RTC denied dismissal and classified the action as a real action in the form of a derivative suit cognizable by a special commercial court pursuant to Administrative Matter No. 00-11-03-SC. Reconsideration was denied. Hi-Yield then sought certiorari and prohibition relief in the Court of Appeals, which dismissed the petition but directed recomputation of docket fees; reconsideration was denied on May 26, 2005. Hi-Yield filed the present petition for certiorari in the Supreme Court challenging the Court of Appeals' decision and resolution.

Issues Presented to the Supreme Court

Hi-Yield advanced three primary issues: (1) whether the Court of Appeals gravely abused its discretion in declining to dismiss the case against Hi-Yield for improper venue, given the trial court’s initial finding that the action is a real action; (2) whether the appellate court erred in not dismissing the complaint insofar as Hi-Yield was concerned because the joinder of parties violated the Rules on Venue; and (3) whether the appellate court erred in holding that the annulment of mortgage and foreclosure sale was merely incidental to the derivative suit.

Standard for Granting Certiorari (Rule 65) and Appropriate Remedy (Rule 45)

The Supreme Court reiterated the controlling rule that certiorari under Rule 65 is available only where a tribunal has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and where there is no plain, speedy and adequate remedy in the ordinary course of law. The Court observed that the Court of Appeals was exercising concurrent jurisdiction under Section 4(2) of Rule 65 to entertain certiorari petitions. However, errors of judgment by the Court of Appeals are properly corrected by a petition for review on certiorari under Rule 45—not by a Rule 65 special civil action. The Court noted Hi-Yield’s failure to avail itself of an available remedy (a Rule 45 appeal) and characterized the Supreme Court petition as an attempt to substitute certiorari for a lost appeal.

Grave Abuse of Discretion Standard Applied

The Court emphasized that to establish grave abuse of discretion sufficient to sustain certiorari, the abuse must be patent and gross—equivalent to an evasion of a positive duty or arbitrary, despotic exercise of power. After review, the Supreme Court found no such grave abuse by the Court of Appeals in sustaining the characterization of the action as a derivative suit and in denying the petition for certiorari.

Nature and Legal Characterization of a Derivative Suit

A derivative suit is a shareholder’s action to enforce a corporate cause of action on behalf of the corporation when the corporation itself, through its board of directors, refuses or is unable to sue. Under the Corporation Code and the cases cited, the corporation is the real party in interest and the shareholder is a nominal plaintiff. The Supreme Court reiterated the established requisites for a derivative suit (as set forth in Filipinas Port Services, Inc. v. Go): (a) plaintiff must have been a shareholder at the time of the complained act or transaction; (b) plaintiff must have attempted to exhaust intra-corporate remedies, typically by making a demand on the board, unless such demand would be futile because the board is controlled by those against whom relief is sought; and (c) the cause of action must belong to the corporation, not to the individual shareholder.

Pleading Requirement for Derivative Suits and Application to the Case

The Court noted that a plaintiff in a derivative suit must expressly allege in the complaint that he is suing derivatively on behalf of the corporation and that other similarly situated stockholders may join. The Court found that Roberto’s petition satisfied this requirement by expressly stating, in paragraph 5, that he was instituting the proceeding as a derivative suit to vindicate corporate rights and to redress mismanagement and abuses by corporate officers and controlling stockholders—specifically attributing unauthorized mortgage and foreclosure transactions to Leonora. The Court accepted that Roberto had alleged ownership status and stated efforts to reach intra-corporate compromise, and that the board’s inaction from 1992 to 2002 established futility of a demand.

Exhaustion of Intra-Corporate Remedies and Futility Exception

While exhaustion of intra-corporate remedies is generally required, the Court reiterated the exception where the corporation is under the complete control of those charged with misconduct, rendering a demand on the board futile. The Supreme Court accepted Roberto’s allegations that Leonora held a majority (55%) of shares, that other relatives excluded him from corporate affairs, and that the board failed to address the alleged unauthorized mortgage and foreclosure over an extended period—facts demonstrating that intra-corporate demand would have been useless.

Venue Ru

Case Syllabus (G.R. No. 168863)

Citation and Case Information

Reported: 608 Phil. 350, Second Division.
G.R. No.: 168863.
Decision Date: June 23, 2009.
Ponente: Justice Quisumbing.
Nature of Proceeding: Special civil action for certiorari under Rule 65 seeking to nullify and set aside the Decision of the Court of Appeals dated March 10, 2005 and its Resolution dated May 26, 2005 in CA-G.R. SP. No. 83919.
Relief Sought by Petitioner: Annulment of the Court of Appeals' dismissal of petition and denial of reconsideration; relief from alleged grave abuse by the Court of Appeals.

Parties

Petitioner: Hi-Yield Realty, Incorporated (Hi-Yield).
Respondents: Hon. Court of Appeals; Hon. Cesar O. Untalan, in his capacity as Presiding Judge of RTC-Makati, Branch 142 (public respondent); Honorio Torres & Sons, Inc. (HTSI); Roberto H. Torres (Roberto) (private respondents); other named respondents in the original RTC petition included Leonora, Ma. Theresa, Glenn and Stephanie Torres, and the Registers of Deeds of Marikina and Quezon City.

Antecedent Facts and Lower Court Proceedings

On July 31, 2003, Roberto, for and on behalf of HTSI, filed a Petition for Annulment of Real Estate Mortgage and Foreclosure Sale over two parcels of land located in Marikina and Quezon City.
The petition named Leonora, Ma. Theresa, Glenn and Stephanie Torres, the Registers of Deeds of Marikina and Quezon City, and Hi-Yield Realty, Inc. as defendants and was docketed as Civil Case No. 03-892 before Branch 148 of the Regional Trial Court (RTC) of Makati City.
On September 15, 2003, Hi-Yield moved to dismiss the petition on grounds of improper venue and payment of insufficient docket fees.
The RTC denied Hi-Yield’s motion to dismiss in an Order dated January 22, 2004, holding the case to be, in nature, a real action in the form of a derivative suit cognizable by a special commercial court pursuant to Administrative Matter No. 00-11-03-SC.
Hi-Yield’s motion for reconsideration was denied by the RTC in an Order dated April 27, 2004.
Hi-Yield filed a petition for certiorari and prohibition with the Court of Appeals (CA).
The CA, in a Decision dated March 10, 2005, dismissed Hi-Yield’s petition but directed computation and payment of proper docket fees by the private respondent; Hi-Yield’s motion for reconsideration before the CA was denied in a Resolution dated May 26, 2005.
Hi-Yield filed the present petition before the Supreme Court 58 days after receiving a copy of the CA’s assailed resolution.

Issues Presented by Petitioner (as framed in the petition)

Whether the Court of Appeals gravely abused its discretion in not dismissing the case against Hi-Yield for improper venue despite findings by the trial court that the action is a real action.
Whether the Court of Appeals erred in not dismissing the complaint as against Hi-Yield even if the joinder of parties in the complaint violated the rules on venue.
Whether the Court of Appeals erred in holding that the annulment of real estate mortgage and foreclosure sale in the complaint is merely incidental to the derivative suit.

Pivotal Legal Questions for Resolution (as identified by the Court)

Whether venue was properly laid.
Whether there was proper joinder of parties.
Whether the action to annul the real estate mortgage and foreclosure sale is a mere incident of the derivative suit.

Petitioner’s Principal Arguments (per source)

The rule on venue under the Rules of Court prevails over the venue provision for intra-corporate controversies, and HTSI erred in filing the suit only in Makati when the subject lands are in Marikina and Quezon City.
The Court of Appeals erred in characterizing the action as primarily a derivative suit and in holding that the annulment of mortgage and foreclosure proceedings is merely incidental; the caption, substance of allegations, and the relief prayed for reveal the main thrust of the action is recovery of the lands.
Hi-Yield contends it was wrongly impleaded as a non-stockholder defendant in an intra-corporate dispute and therefore should be dropped as a party.

Respondents’ Principal Arguments (per source)

The action is principally a derivative suit instituted to redress alleged unauthorized acts of corporate officers and major stockholders concerning the lands.
The nullification of the mortgage and foreclosure sale would be a logical and consequent relief should the derivative action succeed against the officers and controlling stockholders.

Procedural and Remedial Framework Applied by the Court

A petition for certiorari under Rule 65 is proper only where a tribunal, board, or officer exercising judicial or quasi-judicial functions acted without or in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction, and where there is no appeal or any plain, speedy and adequate remedy in the ordinary course of law.
The CA acted under its concurrent jurisdiction to entertain petitions for certiorari under paragraph 2, Section 4 of Rule 65.
The distinction between remedies: a petition for certiorari seeks to correct errors of jurisdiction (grave abuse), while a petition for review on certiorari under Rule 45 is the proper remedy to correct errors of judgment committed by the court a quo.
This Court has repeatedly held that Rule 65’s special civil action lies only where there is no appeal nor any plain, speedy and adequate remedy in the ordinary course of law.
The petition before the Supreme Court was filed despite the availability of a petition for review on certiorari under Rule 45, making the use of Rule 65 inappropriate insofar as the remedy for alleged errors of judgment was concerned.
For the extraordinary remedy of certiorari to lie by reason of alleged grave abuse of discretion, the abuse must be patent and gross so as to amount to an evasion of positive duty, a virtual refusal to perform duty enjoined by law, or an exercise of power in an arbitrary and despotic manner due to passion or personal hostility.

Court’s Findings on Procedural Posture and Remedy

The petitioner’s filing of a petition for certiorari before the Supreme Court was improper because a petition for review on certiorari under Rule 45 was available as a plain, speedy, and adequate remedy.
Hi-Yield filed the present petition 58 day