Case Summary (G.R. No. 177549)
Factual Allegations and Derivative Suit
Respondents, as stockholders and on behalf of Winchester, Inc., filed a complaint for accounting, inspection of books, and damages, claiming petitioners misappropriated corporate assets and withheld proper accounting. They alleged petitioner Anthony held 200 shares in constructive trust for respondent Joseph and petitioners usurped corporate functions. They sought: (1) declaration of Joseph’s ownership of 200 shares; (2) inventory of books for inspection; (3) full accounting and reimbursement; and (4) damages and fees.
Trial Court Decision: Dismissal for Non-Compliance and Insufficient Proof
The RTC dismissed the complaint for failure to plead or prove compliance with derivative-suit prerequisites under Rule 8 (exhaustion of remedies, appraisal rights, bona fide stockholder status, non-harassment) and inspection requirements under Rule 7 (prior demand for books, refusal, statutory basis). The court also found respondents failed to substantiate misappropriation claims and held that Joseph, as corporate secretary, was custodian of records. Counterclaims for bad-faith suit likewise failed.
Court of Appeals Affirmation and Evidence Ruling
On appeal under Rule 43, the CA affirmed the RTC dismissal. It underscored the mandatory nature of procedural requisites for derivative actions and inspection suits, concluding respondents had not exhausted intra-corporate remedies nor alleged them with particularity. The CA also excluded a supplemental affidavit and documents submitted only with respondents’ memorandum, finding them inadmissible under Rule 2, Section 8 of the interim rules, which mandates attachment of affidavits and evidence to pleadings or pre-trial briefs.
Motion for Reconsideration and Remand Order
Respondents moved for reconsideration, reiterating exhaustion and admissibility of the supplemental affidavit. During oral arguments, the CA invited renewed settlement efforts; none materialized. Upon noting respondents’ unverified claim that Winchester, Inc. had been dissolved with SEC approval, the CA granted reconsideration, set aside its prior decision, and remanded the case to the RTC to adjudicate final liquidation and distribution of corporate assets under Section 122 of the Corporation Code.
Supreme Court Analysis: Derivative Suit vs. Liquidation Proceedings
The Supreme Court held that a derivative suit and corporate liquidation are distinct processes. Derivative actions enforce corporate rights by stockholders when management refuses to act, governed by Rule 8 of the interim rules and heard by RTCs under RA 8799. Liquidation, by contrast, follows lawful dissolution under Section 122 of the Corporation Code and involves settling debts, conveying property to trustees, and distributing net assets. The CA erred by unilaterally converting the derivative suit into liquidati
...continue readingCase Syllabus (G.R. No. 177549)
Procedural History
- Respondents filed a verified Complaint for Accounting, Inspection of Corporate Books, and Damages (SRC Case No. 022-CEB) before the Regional Trial Court (RTC) of Cebu City, Branch 11, on 15 October 2002.
- Petitioners answered with a compulsory counterclaim, denied respondent allegations, and invoked failure to comply with conditions precedent under Rule 16, Section 1(j).
- The parties attempted mediation, agreed to a partial settlement and distribution of corporate assets, and passed a board resolution dissolving the corporation as of 4 January 2003.
- The RTC, upon the parties’ waiver of formal pre-trial, ordered memoranda and, on 10 November 2004, dismissed respondents’ complaint and petitioners’ counterclaim for lack of merit.
- Respondents appealed under Rule 43 to the Court of Appeals (CA-G.R. SP No. 00185); on 15 February 2006, the Court of Appeals affirmed the RTC decision in toto.
- Respondents filed a motion for reconsideration in the Court of Appeals; after oral argument and further submissions, the CA rendered a Resolution on 18 July 2006 granting reconsideration and remanding the case to the RTC for “final settlement” of corporate concerns.
- Petitioners’ motion for reconsideration of the CA remand was denied in a 19 April 2007 Resolution.
- Petitioners elevated the matter by a Petition for Review on Certiorari under Rule 45 before the Supreme Court, challenging the two CA resolutions of July 2006 and April 2007.
Parties and Corporate Structure
- Petitioners: Anthony S. Yu (father), Rosita G. Yu (wife), and Jason G. Yu (son).
- Respondents: Joseph S. Yukayguan (father), Nancy L. Yukayguan (wife), Jerald Nerwin L. Yukayguan (son), and Jill Neslie L. Yukayguan (daughter), in their own behalf and derivatively for Winchester Industrial Supply, Inc.
- Anthony and Joseph are half-brothers; all parties were stockholders of Winchester Industrial Supply, Inc., a domestic corporation engaged in general hardware and industrial supply.
- Winchester, Inc. was incorporated on 12 September 1977 with 10,000 shares; Anthony subscribed to 1,000 shares (paid P25,000), allegedly using his savings and conjugal funds.
Factual Allegations
Respondents’ allegations:
- Anthony held 1,000 shares in trust for Joseph; ceded 800 shares to Joseph and others on 14 November 1984, but remained trustee of 200 shares.
- In 1985, Winchester repurchased 8,500 shares from other incorporators and sold them in 1995 to various persons including Rosita, Jason, Nancy, Jerald, and Jill.
- Petitioners exercised control of corporate operations to Joseph’s exclusion, misappropriated corporate funds by understating sales, charging personal expenses, and withdrawing stocks without payment.
- Attached corporate receipts evidencing the alleged misappropriations.
- Prayer: declaration of Joseph’s ownership of 200 shares, inspection of books, full accounting, reimbursement of charges, and damages.
Petitioners’ denials and counterclaims:
- Anthony contributed genuine paid-up capital; was never trustee for Joseph.
- Corporate affairs were co-managed; receipts were signed or approved by Joseph.
- Complaint was brought in bad faith for harassment; conditions precedent (internal settlement efforts, demand for inspection, exhaustion of statutory remedies) were not met.
- Prayer: dis