THIRD
DIVISION
|
ANTHONY S. YU, ROSITA G. YU and JASON
G. YU,
Petitioners, - versus
- JOSEPH S. YUKAYGUAN, NANCY L.
YUKAYGUAN, JERALD NERWIN L. YUKAYGUAN, and JILL NESLIE L. YUKAYGUAN, [on
their own behalf and on behalf of] WINCHESTER INDUSTRIAL SUPPLY, INC., Respondents. |
|
G.R. No. 177549 Present: YNARES-SANTIAGO, J., Chairperson, CHICO-NAZARIO, VELASCO, JR., NACHURA, and
PERALTA, JJ. Promulgated: June 18, 2009 |
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CHICO-NAZARIO, J.:
Before Us
is a Petition for Review on Certiorari[1]
under Rule 45 of the Rules of Court, which seeks to reverse and set aside the
Resolutions dated 18 July 2006[2]
and 19 April 2007[3] of
the Court of Appeals in CA-G.R. SP No. 00185.
Upon herein respondents’ motion, the Court of Appeals rendered the
assailed Resolution dated 18 July 2006, reconsidering its Decision[4]
dated 15 February 2006; and remanding the case to the Regional Trial Court
(RTC) of Cebu City, Branch 11, for necessary proceedings, in effect, reversing
the Decision[5]
dated 10 November 2004 of the RTC which dismissed respondents’ Complaint in SRC
Case No. 022-CEB. Herein petitioners’
Motion for Reconsideration of the Resolution dated
Herein
petitioners are members of the Yu Family, particularly, the father, Anthony S.
Yu (Anthony); the wife, Rosita G. Yu (Rosita); and their son, Jason G. Yu
(Jason).
Herein
respondents composed the Yukayguan Family, namely, the father, Joseph S.
Yukayguan (Joseph); the wife, Nancy L. Yukayguan (
Petitioner
Anthony is the older half-brother of respondent Joseph.
Petitioners
and the respondents were all stockholders of Winchester Industrial Supply, Inc.
(Winchester, Inc.), a domestic corporation engaged in the operation of a
general hardware and industrial supply and equipment business.
On
According
to respondents,[7]
Winchester, Inc. was established and incorporated on P100,000.00.[8] Petitioner Anthony paid for the said shares
of stock with respondent Joseph’s money, thus, making the former a mere trustee
of the shares for the latter. On
Respondents
then alleged that on
Respondents
further averred that although respondent Joseph appeared as the Secretary and
Treasurer in the corporate records of Winchester, Inc., petitioners actually
controlled and ran the said corporation as if it were their own family
business. Petitioner Rosita handled the
money market placements of the corporation to the exclusion of respondent
Joseph, the designated Treasurer of Winchester, Inc. Petitioners were also misappropriating the
funds and properties of Winchester, Inc. by understating the sales, charging
their personal and family expenses to the said corporation, and withdrawing
stocks for their personal use without paying for the same. Respondents attached to the Complaint various
receipts[13]
to prove the personal and family expenses charged by petitioners to Winchester,
Inc.
Respondents,
therefore, prayed that respondent Joseph be declared the owner of the 200
shares of stock in petitioner Anthony’s name.
Respondents also prayed that petitioners be ordered to: (1) deposit the
corporate books and records of Winchester, Inc. with the Branch Clerk of Court
of the RTC for respondents’ inspection; (2) render an accounting of all the
funds of Winchester, Inc. which petitioners misappropriated; (3) reimburse the
personal and family expenses which petitioners charged to Winchester, Inc., as
well as the properties of the corporation which petitioners withheld without
payment; and (4) pay respondents’ attorney’s fees and litigation expenses. In the meantime, respondents sought the
appointment of a Management Committee and the freezing of all corporate funds
by the trial court.
On P25,000.00
paid-up capital, representing 25% of the total par value of the 1,000 shares he
subscribed to, the said amount being paid out of petitioner Anthony’s personal
savings and petitioners Anthony and Rosita’s conjugal funds. Winchester, Inc. was being co-managed by
petitioners and respondents, and the attached receipts, allegedly evidencing
petitioners’ use of corporate funds for personal and family expenses, were in
fact signed and approved by respondent Joseph.
By way of
special and affirmative defenses, petitioners contended in their Answer with
Compulsory Counterclaim that respondents had no cause of action against
them. Respondents’ Complaint was purely
intended for harassment. It should be
dismissed under Section 1(j), Rule 16[16]
of the Rules of Court for failure to comply with conditions precedent before
its filing. First, there was no allegation in respondents’ Complaint that
earnest efforts were exerted to settle the dispute between the parties. Second,
since respondents’ Complaint purportedly constituted a derivative suit, it
noticeably failed to allege that respondents exerted effort to exhaust all
available remedies in the Articles of Incorporation and By-Laws of Winchester,
Inc., as well as in the Corporation Code.
And third, given that
respondents’ Complaint was also for inspection of corporate books, it lacked
the allegation that respondents made a previous demand upon petitioners to
inspect the corporate books but petitioners refused. Prayed for by petitioners, in addition to the
dismissal of respondents’ Complaint, was payment of moral and exemplary
damages, attorney’s fees, litigation expenses, and cost of suit.
On
During the
hearing on
In amicable
settlement of their dispute, the petitioners and respondents agreed to a
division of the stocks in trade,[18]
the real properties, and the other assets of Winchester, Inc. In partial implementation of the
afore-mentioned amicable settlement, the stocks in trade and real properties in
the name of Winchester, Inc. were equally distributed among petitioners and
respondents. As a result, the
stockholders and members of the Board of Directors of Winchester, Inc. passed, on
On
On
On
On
ORDER
During the pre-trial conference held on August 26,
2004, counsels of the parties manifested, agreed and suggested that a judgment
may be rendered by the Court in this case based on the pleadings, affidavits,
and other evidences on record, or to be submitted by them, pursuant to the
provision of Rule 4, Section 4 of the Rule on Intra-Corporate
Controversies. The suggestion of
counsels was approved by the Court.
Accordingly,
the Court hereby orders the counsels of the parties to file simultaneously
their respective memoranda within a non-extendible period of twenty (20) days
from notice hereof. Thereafter, the
instant case will be deemed submitted for resolution.
x x x x
(signed)
SILVESTRE
A. MAAMO, JR.
Acting Presiding Judge
Petitioners
and respondents duly filed their respective Memoranda,[24]
discussing the arguments already set forth in the pleadings they had previously
submitted to the RTC. Respondents,
though, attached to their Memorandum a Supplemental Affidavit[25]
of respondent Joseph, containing assertions that refuted the allegations in
petitioner Anthony’s Affidavit, which was earlier submitted with petitioners’
Answer with Compulsory Counterclaim.
Respondents also appended to their Memorandum additional documentary
evidence,[26]
consisting of original and duplicate cash invoices and cash disbursement
receipts issued by Winchester, Inc., to further substantiate their claim that
petitioners were understating sales and charging their personal expenses to the
corporate funds.
The RTC
subsequently promulgated its Decision on
WHEREFORE, in view of the foregoing premises and for lack of
merit, this Court hereby renders judgment in this case DISMISSING the complaint filed by the [herein respondents].
The Court also hereby dismisses the [herein
petitioners’] counterclaim because it has not been indubitably shown that the
filing by the [respondents] of the latter’s complaint was done in bad faith and
with malice.[27]
The RTC declared that respondents
failed to show that they had complied with the essential requisites for filing
a derivative suit as set forth in Rule 8 of the Interim Rules of Procedure
Governing Intra-Corporate Controversies:
(1) He was a stockholder or
member at the time the acts or transactions subject of the action occurred and at
the time the action was filed;
(2) He exerted all reasonable
efforts, and alleges the same with particularity in the complaint, to exhaust
all remedies available under the articles of incorporation, by-laws, laws or
rules governing the corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are
available for the act or acts complained of; and
(4) The suit is not a
nuisance or harassment suit.
As to respondents’ prayer for the inspection of
corporate books and records, the RTC adjudged that they had likewise failed to
comply with the requisites entitling them to the same. Section 2, Rule 7 of the Interim Rules of
Procedure Governing Intra-Corporate Controversies requires that the complaint
for inspection of corporate books or records must state that:
(1) The case is for the
enforcement of plaintiff's right of inspection of corporate orders or records
and/or to be furnished with financial statements under Sections 74 and 75 of
the Corporation Code of the
(2) A demand for inspection
and copying of books and records and/or to be furnished with financial
statements made by the plaintiff upon defendant;
(3) The refusal of defendant
to grant the demands of the plaintiff and the reasons given for such refusals,
if any; and
(4) The reasons why the
refusal of defendant to grant the demands of the plaintiff is unjustified and
illegal, stating the law and jurisprudence in support thereof.
The RTC further noted that respondent
Joseph was the corporate secretary of Winchester, Inc. and, as such, he was
supposed to be the custodian of the corporate books and records; therefore, a
court order for respondents’ inspection of the same was no longer
necessary. The RTC similarly denied
respondents’ demand for accounting as it was clear that Winchester, Inc. had
been engaging the services of an audit firm.
Respondent Joseph himself described the audit firm as competent and
independent, and believed that the audited financial statements the said audit
firm prepared were true, faithful, and correct.
Finding the claims of the parties for
damages against each other to be unsubstantiated, the RTC thereby dismissed the
same.
Respondents challenged
the foregoing RTC Decision before the Court of Appeals via a Petition for Review under Rule 43 of the Rules of Court,
docketed as CA-G.R. SP No. 00185.
On
After a careful and judicious scrutiny of the extant
records of the case, together with the applicable laws and jurisprudence, WE
see no reason or justification for granting the present appeal.
x x x x
x x x [T]his Court sees that the instant petition
would still fail taking into consideration all the pleadings and evidence of
the parties except the supplemental affidavit of [herein respondent] Joseph and
its corresponding annexes appended in [respondents’] memorandum before the
Court a quo. The Court a
quo have (sic) outrightly dismissed the complaint for its failure to comply
with the mandatory provisions of the Interim Rules of Procedure for
Intra-Corporate Controversies particularly Rule 2, Section 4(3), Rule 8,
Section [1(2)] and Rule 7, Section 2 thereof, which reads as follows:
RULE 2
COMMENCEMENT OF ACTION AND
PLEADINGS
Sec.
4. Complaint. – The complaint shall state or contain:
x x x x
(3) the law, rule, or regulation relied upon,
violated, or sought to be enforced;
x x x x
RULE 8
DERIVATIVE
SUITS
Sec.
1. Derivative
action. – x x x
x x x
x
(2) He exerted all reasonable efforts, and alleges
the same with particularity in the complaint, to exhaust all remedies available
under the articles of incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he desires.
x x x
x
RULE 7
INSPECTION
OF CORPORATE BOOKS AND RECORDS
Sec.
2. Complaint – In addition to the requirements
in section 4, Rule 2 of these Rules, the complaint must state the following:
(1) The case is set (sic) for the enforcement of
plaintiff’s right of inspection of corporate orders or records and/or to be
furnished with financial statements under Section 74 and 75 of the Corporation
Code of the
(2) A demand for inspection and copying of books [and/or]
to be furnished with financial statements made by the plaintiffs upon
defendant;
(3) The refusal of the defendant to grant the demands of
the plaintiff and the reasons given for such refusal, if any; and
(4) The reasons why the refusal of defendant to grant the
demands of the plaintiff is unjustified and illegal, stating the law and
jurisprudence in support thereof.
x x x
x
A
perusal of the extant record shows that [herein respondents] have not complied
with the above quoted provisions.
[Respondents] should be mindful that in filing their complaint which, as
admitted by them, is a derivative suit, should have first exhausted all
available remedies under its (sic) Articles of Incorporation, or its by-laws,
or any laws or rules governing the corporation.
The contention of [respondent
Joseph] that he had indeed made several talks to (sic) his brother [herein
petitioner Anthony] to settle their differences is not tantamount to exhaustion
of remedies. What the law requires is to
bring the grievance to the Board of Directors or Stockholders for the latter to
take the opportunity to settle whatever problem in its regular meeting or
special meeting called for that purpose which [respondents] failed to do. x
x x The requirements laid down by the Interim Rules of Procedure for Intra-Corporate
Controversies are mandatory which cannot be dispensed with by any stockholder
of a corporation before filing a derivative suit.[28] (Emphasis ours.)
The Court of Appeals likewise sustained the refusal by the
RTC to consider respondent Joseph’s Supplemental Affidavit and other additional
evidence, which respondents belatedly submitted with their Memorandum to the
said trial court. The appellate court
ratiocinated that:
With
regard to the claim of [herein respondents] that the supplemental affidavit of
[respondent] Joseph and its annexes appended to their memorandum should have
been taken into consideration by the Court a quo to support the reliefs prayed [for]
in their complaint. (sic) This Court
rules that said supplemental affidavit
and its annexes is (sic)
inadmissible.
A
second hard look of (sic) the extant records show that during the pre-trial
conference conducted on
SECTION. 4. Judgment before pre-trial. –
If, after submission of the pre-trial briefs, the court determines that, upon consideration of the pleadings, the
affidavits and other evidence submitted by the parties, a judgment may be
rendered, the court may order the parties to file simultaneously their
respective memoranda within a non-extendible period of twenty (20) days from
receipt of the order. Thereafter, the court shall render judgment, either full
or otherwise, not later than ninety (90) days from the expiration of the period
to file the memoranda.
x x x
x
Clearly, the supplemental affidavit and its appended
documents which were submitted only upon the filing of the memorandum for the
[respondents] were not submitted in the pre-trial briefs for the stipulation of
the parties during the pre-trial, hence, it cannot be accepted pursuant to Rule
2, Sec. 8 of the same rules which reads as follows:
SEC.
8. Affidavits, documentary and other
evidence. – Affidavits shall be based on personal
knowledge, shall set forth such facts as would be admissible in evidence, and
shall show affirmatively that the affiant is competent to testify on the
matters stated therein. The affidavits shall be in question and answer form,
and shall comply with the rules on admissibility of evidence.
Affidavits of witnesses
as well as documentary and other evidence shall be attached to the appropriate
pleading; Provided, however, that affidavits, documentary and other evidence
not so submitted may be attached to the pre-trial brief required under these
Rules. Affidavits and other evidence not
so submitted shall not be admitted in evidence, except in the following
cases:
(1)
Testimony of unwilling,
hostile, or adverse party witnesses. A witness is presumed prima facie
hostile if he fails or refuses to execute an affidavit after a written request
therefor;
(2)
If the failure to submit
the evidence is for meritorious and compelling reasons; and
(3)
Newly discovered evidence.
In case of (2) and (3) above, the affidavit and evidence must be
submitted not later than five (5) days prior to its introduction in evidence.
There is no showing in the case at bench that the supplemental affidavit
and its annexes falls (sic) within one of the exceptions of the above quoted
proviso, hence, inadmissible.
It must be noted that
in the case at bench, like any other civil cases, “the party making an
allegation in a civil case has the burden of proving it by preponderance of
evidence.” Differently stated, upon the
plaintiff in [a] civil case, the burden of proof never parts. That is, appellants must adduce evidence that
has greater weight or is more convincing that (sic) which is offered to oppose
it. In the case at bar, no one should be
blamed for the dismissal of the complaint but the [respondents] themselves for
their lackadaisical attitude in setting forth and appending their defences
belatedly. To admit them would be a
denial of due process for the opposite party which this Court cannot allow.[29]
Ultimately, the Court of
Appeals decreed:
WHEREFORE, judgment is hereby rendered DISMISSING
the instant petition and the assailed Decision of the Regional Trial Court
(RTC), 7th Judicial Region, Branch II,
Unperturbed,
respondents filed before the Court of Appeals, on 23 February 2006, a Motion
for Reconsideration and Motion to Set for Oral Arguments the Motion for Reconsideration,[31]
invoking the following grounds:
(1)
The [herein
respondents] have sufficiently exhausted all remedies before filing the present
action; and
(2)
[The] Honorable
Court erred in holding that the supplemental affidavit and its annexes is (sic)
inadmissible because the rules and the lower court expressly allowed the
submission of the same in its order dated August 26, 2004 x x x.[32]
In a Resolution[33]
dated
On
In
a Resolution[35] dated
On
Respondents no longer discussed in
their Position Paper the grounds they previously invoked in their Motion for
Reconsideration of the Court of Appeals Decision dated
Petitioners
filed their Position Paper[38]
on
On
After a second look and appreciation of the facts of
the case, vis-ŕ-vis the issues raised by the [herein respondents’] motion for
reconsideration and in view of the formal dissolution of the corporation which
leaves unresolved up to the present the settlement of the properties and assets
which are now in danger of dissipation due to the unending litigation, this Court
finds the need to remand the instant case to the lower court (commercial court)
as the proper forum for the adjudication, disposition, conveyance and
distribution of said properties and assets between and amongst its stockholders
as final settlement pursuant to Sec. 122 of the Corporation Code after payment
of all its debts and liabilities as provided for under the same proviso. This is in accord with the pronouncement of
the Supreme Court in the case of Clemente
et. al. vs. Court of Appeals, et. al. where the high court ruled and which
WE quote, viz:
“the corporation continues to be a body corporate for
three (3) years after its dissolution for purposes of prosecuting and defending
suits by and against it and for enabling it to settle and close its affairs,
culminating in the disposition and distribution of its remaining assets. It
may, during the three-year term, appoint a trustee or a receiver who may act
beyond that period. The termination of the life of a juridical entity does not
by itself cause the extinction or diminution of the rights and liabilities of
such entity x x x nor those of its owners and creditors. If the three-year
extended life has expired without a trustee or receiver having been expressly
designated by the corporation within that period, the board of directors (or
trustees) xxx may be permitted to so continue as "trustees" by legal
implication to complete the corporate liquidation. Still in the absence of a
board of directors or trustees, those having any pecuniary interest in the
assets, including not only the shareholders but likewise the creditors of the
corporation, acting for and in its behalf, might
make proper representation with the Securities and Exchange Commission, which
has primary and sufficiently broad jurisdiction in matters of this nature, for
working out a final settlement of the corporate concerns.”
In
the absence of a trustee or board of director in the case at bar for purposes
above mentioned, the lower court under Republic Act No. [8799] (otherwise known
as the Securities and Exchange Commission) as implemented by A.M. No.
00-8-10-SC (Transfer of Cases from the Securities and
Exchange Commission to the Regional Trial Courts) which took effect on
Hence, the
Court of Appeals ruled:
WHEREFORE, premises considered, the
motion for reconsideration is GRANTED. The order dated
Petitioners
filed a Motion for Reconsideration[41]
of the foregoing Resolution, but it was denied by the Court of Appeals in its
other assailed Resolution dated
In
the Petition at bar, petitioners raise the following issues:
I.
WHETHER OR NOT THE ASSAILED RESOLUTIONS[,] WHICH
VIOLATED THE CONSTITUTION OF THE
II.
WHETHER OR NOT THE ASSAILED RESOLUTIONS WAS (sic)
ISSUED WITHOUT JURISDICTION[.]
III.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
SERIOUSLY ERRED IN REMANDING THIS CASE TO THE
IV.
WHETHER OR NOT REMANDING THIS CASE TO THE REGIONAL
TRIAL COURT VIOLATES THE SUMMARY PROCEDURE FOR INTRA-CORPORATE CASES.[42]
The
crux of petitioners’ contention is that the Court of Appeals committed grievous
error in reconsidering its Decision dated 15 February 2006 on the basis of
extraneous matters, which had not been previously raised in respondents’ Complaint
before the RTC, or in their Petition for Review and Motion for Reconsideration
before the appellate court; i.e., the
adjudication, disposition, conveyance, and distribution of the properties and
assets of Winchester, Inc. among its stockholders, allegedly pursuant to the
amicable settlement of the parties. The
fact that the parties were able to agree before the Court of Appeals to submit
for resolution respondents’ Motion for Reconsideration of the 15 February 2006
Decision of the same court, independently of any intended settlement between
the parties as regards the dissolution of the corporation and distribution of
its assets, only proves the distinction and independence of these matters from
one another. Petitioners also contend that
the assailed Resolution dated
The Court
finds the instant Petition meritorious.
To
recapitulate, the case at bar was initiated before the RTC by respondents as a derivative suit, on their own behalf
and on behalf of Winchester, Inc., primarily in order to compel petitioners to account for and reimburse to the
said corporation the corporate assets and funds which the latter allegedly
misappropriated for their personal benefit.
During the pendency of the proceedings before the court a quo, the parties were able to reach an
amicable settlement wherein they
agreed to divide the assets of
Winchester, Inc. among themselves. This
amicable settlement was already partially implemented by the parties, when
respondents repudiated the same, for
which reason the RTC proceeded with the case on its merits. On
In its
Decision dated
It was at
this point that the case took an unexpected turn.
In
accordance with respondents’ allegation in their Position Paper that the
parties subsequently filed with the SEC, and the SEC already approved, a
petition for dissolution of Winchester, Inc., the Court of Appeals remanded the case to the RTC so that
all the corporate concerns between the parties regarding Winchester, Inc. could
be resolved towards final settlement.
In one
stroke, with the use of sweeping language, which utterly lacked support, the
Court of Appeals converted the derivative suit between the parties into
liquidation proceedings.
The general
rule is that where a corporation is an injured party, its power to sue is
lodged with its board of directors or trustees.
Nonetheless, an individual stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holds stocks in order to protect or vindicate corporate
rights, whenever the officials of the corporation refuse to sue, or are the
ones to be sued, or hold the control of the corporation. In such actions, the
suing stockholder is regarded as a nominal party, with the corporation as the
real party in interest. A derivative
action is a suit by a shareholder to enforce a corporate cause of action. The
corporation is a necessary party to the suit. And the relief which is granted
is a judgment against a third person in favor of the corporation. Similarly, if a corporation has a defense to
an action against it and is not asserting it, a stockholder may intervene and
defend on behalf of the corporation.[43] By virtue of Republic Act No. 8799, otherwise
known as the Securities Regulation Code, jurisdiction over intra-corporate
disputes, including derivative suits, is now vested in the Regional Trial
Courts designated by this Court pursuant to A.M. No. 00-11-03-SC promulgated on
In contrast, liquidation is a necessary consequence
of the dissolution of a corporation. It
is specifically governed by Section 122 of the Corporation Code, which
reads:
SEC. 122. Corporate
liquidation. – Every corporation
whose charter expires by its own limitation or is annulled by forfeiture or
otherwise, or whose corporate existence for other purposes is terminated in any
other manner, shall nevertheless be continued as a body corporate for three (3)
years after the time when it would have been so dissolved, for the purpose of
prosecuting and defending suits by or against it and enabling it to settle and
close its affairs, to dispose of and convey its property and to distribute its
assets, but not for the purpose of continuing the business for which it was
established.
At any time during said three (3)
years, said corporation is authorized and empowered to convey all of its
property to trustees for the benefit of stockholders, members, creditors, and
other persons in interest. From and
after any such conveyance by the corporation of its property in trust for the
benefit of its stockholders, members, creditors and others in interest, all
interest which the corporation had in the property terminates, the legal
interest vests in the trustees, and the beneficial interest in the
stockholders, members, creditors or other persons in interest.
Upon winding up of the corporate
affairs, any asset distributable to any creditor or stockholder or member who
is unknown or cannot be found shall be escheated to the city or municipality
where such assets are located.
Except by decrease of capital stock and
as otherwise allowed by this Code, no corporation shall distribute any of its
assets or property except upon lawful dissolution and after payment of all its
debts and liabilities.
Following the voluntary
or involuntary dissolution of a corporation, liquidation is the process of
settling the affairs of said corporation, which consists of adjusting the debts
and claims, that is, of collecting all that is due the corporation, the settlement
and adjustment of claims against it and the payment of its just debts.[44] More particularly, it entails the following:
Winding up the affairs of the
corporation means the collection of all assets, the payment of all its
creditors, and the distribution of the remaining assets, if any among the
stockholders thereof in accordance with their contracts, or if there be no
special contract, on the basis of their respective interests. The manner of liquidation or winding up may
be provided for in the corporate by-laws and this would prevail unless it is
inconsistent with law.[45]
It may be
undertaken by the corporation itself, through its Board of Directors; or by
trustees to whom all corporate assets are conveyed for liquidation; or by a
receiver appointed by the SEC upon its decree dissolving the corporation.[46]
Glaringly, a derivative suit is
fundamentally distinct and independent from liquidation proceedings. They are neither part of each other nor the
necessary consequence of the other.
There is totally no justification for the Court of Appeals to convert
what was supposedly a derivative suit instituted by respondents, on their own
behalf and on behalf of Winchester, Inc. against petitioners, to a proceeding
for the liquidation of Winchester, Inc.
While it may be true that the parties
earlier reached an amicable settlement, in which they agreed to already
distribute the assets of Winchester, Inc., and in effect liquidate said
corporation, it must be pointed out that respondents themselves repudiated said
amicable settlement before the RTC, even after the same had been partially
implemented; and moved that their case be set for pre-trial. Attempts to again amicably settle the dispute
between the parties before the Court of Appeals were unsuccessful.
Moreover, the decree of the Court of
Appeals to remand the case to the RTC for the “final settlement of corporate
concerns” was solely grounded on respondents’ allegation in its Position Paper
that the parties had already filed before the SEC, and the SEC approved, the
petition to dissolve Winchester, Inc.
The Court notes, however, that there is absolute lack of evidence on
record to prove said allegation.
Respondents failed to submit copies of such petition for dissolution of
Winchester, Inc. and the SEC Certification approving the same. It is a basic rule in evidence that each
party must prove his affirmative allegation. Since it was respondents who
alleged the voluntary dissolution of Winchester, Inc., respondents must,
therefore, prove it.[47] This respondents failed to do.
Even
assuming arguendo that the parties
did submit a petition for the dissolution of Winchester, Inc. and the same was
approved by the SEC, the Court of Appeals was still without jurisdiction to
order the final settlement by the RTC of the remaining corporate concerns. It must be remembered that the Complaint
filed by respondents before the RTC essentially prayed for the accounting and
reimbursement by petitioners of the corporate funds and assets which they
purportedly misappropriated for their personal use; surrender by the
petitioners of the corporate books for the inspection of respondents; and
payment by petitioners to respondents of damages. There was nothing in respondents’ Complaint which
sought the dissolution and liquidation of Winchester, Inc. Hence, the supposed dissolution of
Winchester, Inc. could not have resulted in the conversion of respondents’
derivative suit to a proceeding for the liquidation of said corporation, but
only in the dismissal of the derivative suit based on either compromise
agreement or mootness of the issues.
Clearly, in
issuing its assailed Resolutions dated
Despite the foregoing, the Court
still deems it appropriate to already look into the merits of respondents’
Motion for Reconsideration of the 15 February 2006 Decision of the Court of
Appeals, for the sake of finally putting an end to the case at bar.
In their said Motion for
Reconsideration, respondents argued that: (1) they had sufficiently
exhausted all remedies before filing the derivative suit; and (2) respondent
Joseph’s Supplemental Affidavit and its annexes should have been taken into
consideration, since the submission thereof was allowed by the rules of
procedure, as well as by the RTC in its Order dated 26 August 2004.
As regards the first ground of
sufficient exhaustion by respondents of all remedies before filing a derivative
suit, the Court subscribes to the ruling to the contrary of the Court of
Appeals in its Decision dated 16 February 2006.
The Court has recognized that a stockholder’s
right to institute a derivative suit is not based on any express provision of
the Corporation Code, or even the Securities Regulation Code, but is impliedly
recognized when the said laws make corporate directors or officers liable for
damages suffered by the corporation and its stockholders for violation of their
fiduciary duties. Hence, a stockholder
may sue for mismanagement, waste or dissipation of corporate assets because of
a special injury to him for which he is
otherwise without redress. In
effect, the suit is an action for specific performance of an obligation owed by
the corporation to the stockholders to assist its rights of action when the
corporation has been put in default by the wrongful refusal of the directors or
management to make suitable measures for its protection. The basis of a stockholder’s suit is always
one in equity. However, it cannot
prosper without first complying with the legal requisites for its institution.[48]
Section 1, Rule 8 of the Interim
Rules of Procedure Governing Intra-Corporate Controversies lays down the
following requirements which a stockholder must comply with in filing a
derivative suit:
Sec. 1. Derivative
action. – A stockholder or member may bring an action in the name of a
corporation or association, as the case may be, provided, that:
(1) He was a stockholder or
member at the time the acts or transactions subject of the action occurred and at
the time the action was filed;
(2) He exerted all
reasonable efforts, and alleges the same with particularity in the complaint,
to exhaust all remedies available under the articles of incorporation, by-laws,
laws or rules governing the corporation or partnership to obtain the relief he
desires;
(3) No appraisal rights are
available for the act or acts complained of; and
(4) The suit is not a
nuisance or harassment suit.
A perusal of respondents’ Complaint
before the RTC would reveal that the same did not allege with particularity
that respondents exerted all reasonable efforts to exhaust all remedies available under the articles of
incorporation, by-laws, laws or rules governing Winchester, Inc. to obtain the
relief they desire.
Respondents assert that their compliance with
said requirement was contained in respondent Joseph’s Affidavit, which was
attached to respondents’ Complaint.
Respondent Joseph
averred in his Affidavit that he tried for a number of times to talk to
petitioner Anthony to settle their differences, but the latter would not
listen. Respondents additionally claimed
that taking further remedies within the corporation would have been idle
ceremony, considering that Winchester, Inc. was a family corporation and it was
impossible to expect petitioners to take action against themselves who were the
ones accused of wrongdoing.
The Court is not persuaded.
The wordings of Section 1, Rule 8 of
the Interim Rules of Procedure Governing Intra-Corporate Controversies are
simple and do not leave room for statutory construction. The second paragraph thereof requires that
the stockholder filing a derivative suit should have exerted all reasonable efforts to
exhaust all remedies available under the articles of incorporation,
by-laws, laws or rules governing the corporation or partnership to obtain the
relief he desires; and to allege such
fact with particularity in the complaint.
The obvious intent behind the rule is to make the derivative suit the
final recourse of the stockholder, after all other remedies to obtain the
relief sought had failed.
The allegation of respondent Joseph in his
Affidavit of his repeated attempts to talk to petitioner Anthony regarding their
dispute hardly constitutes “all reasonable efforts to exhaust all remedies
available.” Respondents did not refer to
or mention at all any other remedy under the articles of incorporation or
by-laws of Winchester, Inc., available for dispute resolution among
stockholders, which respondents unsuccessfully availed themselves of. And the Court is not prepared to conclude
that the articles of incorporation and by-laws of Winchester, Inc. absolutely
failed to provide for such remedies.
Neither can this Court accept the
reasons proffered by respondents to excuse themselves from complying with the
second requirement under Section 1, Rule 8 of the Interim Rules of Procedure
Governing Intra-Corporate Controversies.
They are flimsy and insufficient, compared to the seriousness of
respondents’ accusations of fraud, misappropriation, and falsification of
corporate records against the petitioners.
The fact that Winchester, Inc. is a family corporation should not in any
way exempt respondents from complying with the clear requirements and
formalities of the rules for filing a derivative suit. There is nothing in the pertinent laws or
rules supporting the distinction between, and the difference in the
requirements for, family corporations vis-ŕ-vis other types of corporations, in
the institution by a stockholder of a derivative suit.
The Court further notes that, with
respect to the third and fourth requirements of Section 1, Rule 8 of the
Interim Rules of Procedure Governing Intra-Corporate Controversies, the respondents’
Complaint failed to allege, explicitly or otherwise, the fact that there were
no appraisal rights available for the acts of petitioners complained of, as
well as a categorical statement that the suit was not a nuisance or a
harassment suit.
As to respondents’ second ground in
their Motion for Reconsideration, the Court agrees with the ruling of the Court
of Appeals, in its
Sec. 8. Affidavits,
documentary and other evidence. – Affidavits shall be based on personal
knowledge, shall set forth such facts as would be admissible in evidence, and
shall show affirmatively that the affiant is competent to testify on the
matters stated therein. The affidavits shall be in question and answer form,
and shall comply with the rules on admissibility of evidence.
Affidavits of witnesses as
well as documentary and other evidence shall be attached to the appropriate
pleading, Provided, however, that affidavits, documentary and other evidence
not so submitted may be attached to
the pre-trial brief required under these Rules. Affidavits and other evidence not so submitted shall not be admitted in
evidence, except in the following cases:
(1)
Testimony of unwilling,
hostile, or adverse party witnesses. A witness is presumed prima facie
hostile if he fails or refuses to execute an affidavit after a written request
therefor;
(2)
If the failure to submit
the evidence is for meritorious and compelling reasons; and
(3)
Newly discovered evidence.
In case of (2) and (3)
above, the affidavit and evidence must be submitted not later than five (5)
days prior to its introduction in evidence. (Emphasis ours.)
According to the afore-quoted
provision, the parties should attach the affidavits of witnesses and other
documentary evidence to the appropriate pleading, which generally should mean
the complaint for the plaintiff and the answer for the respondent. Affidavits and documentary evidence not so submitted
must already be attached to the respective pre-trial briefs of the
parties. That the parties should have
already identified and submitted to the trial court the affidavits of their
witnesses and documentary evidence by the time of pre-trial is strengthened by
the fact that Section 1, Rule 4 of the Interim Rules of Procedure Governing
Intra-Corporate Controversies require that the following matters should already
be set forth in the parties’ pre-trial briefs:
Section
1. Pre-trial conference, mandatory nature. – Within five (5) days after
the period for availment of, and compliance with, the modes of discovery
prescribed in Rule 3 hereof, whichever comes later, the court shall issue and
serve an order immediately setting the case for pre-trial conference, and
directing the parties to submit their respective pre-trial briefs. The parties
shall file with the court and furnish each other copies of their respective
pre-trial brief in such manner as to ensure its receipt by the court and the
other party at least five (5) days before the date set for the pre-trial.
The parties shall set forth in their pre-trial
briefs, among other matters, the following:
x x x x
(4) Documents not specifically denied under oath by
either or both parties;
x x x x
(7) Names of witnesses to be presented and the
summary of their testimony as contained in their affidavits supporting their
positions on each of the issues;
(8) All other
pieces of evidence, whether documentary or otherwise and their respective
purposes.
Also, according to Section
2, Rule 4 of the Interim
Rules of Procedure Governing Intra-Corporate Controversies,[49]
it is the duty of the court to ensure during the pre-trial conference that the parties consider in detail, among
other things, objections to the admissibility of testimonial,
documentary, and other evidence, as well as objections to the form or substance
of any affidavit, or part thereof.
Obviously, affidavits of witnesses and other
documentary evidence are required to be attached to a party’s pre-trial brief,
at the very last instance, so that the opposite party is given the opportunity
to object to the form and substance, or the admissibility thereof. This is, of course, to prevent unfair
surprises and/or to avoid the granting of any undue advantage to the other
party to the case.
True, the parties in the present case agreed to
submit the case for judgment by the RTC, even before pre-trial, in accordance
with Section 4, Rule 4 of the Interim Rules of Procedure Governing
Intra-Corporate Controversies:
Sec. 4.
Judgment before pre-trial. –
If after submission of the pre-trial
briefs, the court determines that, upon
consideration of the pleadings, the affidavits and other evidence submitted by
the parties, a judgment may be rendered, the court may order the parties to file simultaneously their respective
memoranda within a non-extendible period of twenty (20) days from receipt
of the order. Thereafter, the court
shall render judgment, either full or otherwise, not later than ninety (90)
days from the expiration of the period to file the memoranda.
Even then, the afore-quoted provision still
requires, before the court makes a determination that it can render judgment
before pre-trial, that the parties had submitted their pre-trial briefs and the
court took into consideration the pleadings, affidavits and other evidence
submitted by the parties. Hence, cases
wherein the court can render judgment prior to pre-trial, do not depart from or
constitute an exception to the requisite that affidavits of witnesses and
documentary evidence should be submitted, at the latest, with the parties’
pre-trial briefs. Taking further into
account that under Section 4, Rule 4 of the Interim Rules of Procedure Governing
Intra-Corporate Controversies parties are required to file their memoranda
simultaneously, the same would mean that a party would no longer have any
opportunity to dispute or rebut any new affidavit or evidence attached by the
other party to its memorandum. To
violate the above-quoted provision would, thus, irrefragably run afoul the former
party’s constitutional right to due process.
In the instant case, therefore, respondent
Joseph’s Supplemental Affidavit and the additional documentary evidence,
appended by respondents only to their Memorandum submitted to the RTC, were
correctly adjudged as inadmissible by the Court of Appeals in its
WHEREFORE,
premises considered, the Petition for Review under Rule 45 of the Rules of
Court is hereby GRANTED. The assailed Resolutions
dated
SO ORDERED.
|
|
MINITA V. CHICO-NAZARIOAssociate Justice |
WE
CONCUR:
Associate Justice
Chairperson
PRESBITERO J. VELASCO, JR.
Associate Justice |
ANTONIO
EDUARDO B. NACHURA Associate Justice |
|
|
|
DIOSDADO M. PERALTAAssociate Justice |
|
ATTESTATION
I attest that the conclusions in the above
Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson,
Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII
of the Constitution, and the Division Chairperson’s Attestation, it is hereby
certified that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion of the
Court’s Division.
REYNATO S. PUNO
Chief
Justice
[1] Rollo, pp. 2-18.
[2] Penned
by Associate Justice Vicente L. Yap with Associate Justices Arsenio J. Magpale
and Apolinario D. Bruselas, Jr., concurring; rollo, pp. 20-23.
[3] Penned
by Associate Justice Arsenio J. Magpale with Associate Justices Agustin S.
Dizon and Francisco P. Acosta, concurring; rollo,
pp. 25-26.
[4] Rollo, pp. 32-43.
[5] Penned
by Judge Silvestre A. Maamo, Jr.; rollo,
pp. 27-30.
[6] CA rollo, pp. 39-45.
[7]
[8] The
incorporators and their respective numbers of shares were as follows:
|
Name |
No. of shares |
Amount |
|
Eugene Yutankin |
3,000 |
|
|
Hao Bun Yam |
3,000 |
|
|
Co To |
2,000 |
|
|
Vicenta Lo Chiong |
1,000 |
|
|
Anthony S. Yu |
1,000 |
|
|
|
10,000 |
|
[9] Father
of petitioner Anthony and respondent Joseph.
[10] CA rollo, p. 78.
[11] In
accordance with the recital of facts in the Complaint, if the 1,000 shares of
Anthony Yu were to be subtracted from the total number of shares issued by
Winchester, Inc., the other incorporators would have a total of 9,000
shares. However, according to the Deed
of Sale dated
|
Name |
No. of shares |
|
Irinea Yutankin |
3,000 |
|
Hao Bun Yam |
3,000 |
|
Yu Kim Sing |
1,500 |
|
Vicenta Lo Chiong |
1,000 |
|
|
8,500 |
[12] CA rollo, pp. 56-57.
[13] Annexes E
to Q; CA rollo, pp. 60-77.
[14] CA rollo, pp. 79-86.
[15]
[16] Rule 16,
Section 1(j) of the Rules of Court provides:
Section
1. Grounds. – Within the time for but before filing the
answer to the complaint or pleading asserting a claim, a motion to dismiss may
be made on any of the following grounds:
x
x x x
(j)
That a condition precedent for filing the claim has not been complied with.
[17] Records, p. 52.
[18] The Court understood this term to refer to the inventories of the general hardware and industrial supply and equipment business.
[19] CA rollo, p. 214.
[20] Records, pp. 225-231.
[21] Rollo, pp. 55-56.
[22] Records, pp. 234-240.
[23] Rollo, p. 62.
[24] CA rollo, pp. 177-202, 94-106.
[25]
[26]
[27] Rollo, p. 30.
[28]
[29]
[30]
[31]
[32]
[33] CA rollo, pp. 434-435.
[34] Rollo, pp. 65-66.
[35]
[36] CA rollo, pp. 486-494.
[37] The
certificate of dissolution of respondent Winchester, Inc. was not, however,
made part of the records of the case before the Court of Appeals or this Court.
[38] CA rollo, pp. 497-504.
[39] Rollo, pp. 21-22.
[40]
[41] CA rollo, pp. 512-519.
[42] Rollo, pp. 71-72.
[43] Chua
v. Court of Appeals, G.R. No. 150793,
[44] See China Banking Corp. v. M. Michelin &
Cie, 58 Phil 261, 266 (1933).
[45]
[46]
[47] See Genuino Ice Co., Inc. v. Magpantay, G.R. No. 147790,
[48] Bitong v. Court of Appeals, 354 Phil. 516, 545 (1998).
[49] Section 2, of Rule 4 provides:
Sec.
2. Nature and purpose of pre-trial conference. - During the pre-trial
conference, the court shall, with its active participation, ensure that the
parties consider in detail all of the following:
x x x x
(6) Objections to the admissibility
of testimonial, documentary and other evidence;
(7) Objections to the form or
substance of any affidavit, or part thereof.