Pascual vs.
Orozco (L) ISSUE:
● This action was brought by the Petitioner Pascual, in his own right as a
stockholder of the bank, for the benefit of the bank, and all the other
stockholders.
● The Banco Español-Filipino is a banking corporation, constituted as such by
royal decree of the Crown of Spain in the year 1854, the original grant having
been subsequently extended and modified by royal decree of July 14, 1897.
● It is alleged in the amended complaint that the only compensation contemplated
or provided for the managing officers of the bank was a certain percent of the
net profits resulting from the bank's operations.
○ 10% for the directors 5% for the board of government and the
remaining 85% shall belong to the stockholders pro rata to the number
of shares the owned.
○ Take note that the basis is NET income and NOT GROSS income.
○ remedy.
The gist of the first and second causes of action is as follows:
● The defendants constitute a majority of the present board of directors of the
bank, who alone can authorize an action against them in the name of the
corporation.
● It appears that during the years 1903, 1904, 1905, and 1907 the defendants and
appellees, without the knowledge, consent, or acquiescence of the stockholders,
deducted their respective compensation from the gross income instead of from
the net profits of the bank, thereby defrauding the bank and its stockholders of
approximately P20,000 per annum.
● The second cause of action sets forth that respondents’ immediate predecessors
in office in the bank during the years 1899, 1900, 1901, and 1902, committed the
same illegality as to their compensation as is charged against the defendants
themselves.
● In the four years immediately following the year 1902, the respondents were the
only officials or representatives of the bank who could and should investigate
and take action in regard to the sums of money thus fraudulently appropriated
by their predecessors.
● They were the only persons interested in the bank who knew of the fraudulent
appropriation by their predecessors.
DECISION OF THE COURT BELOW:
● It granted the demurrer to evidence as to the first and second cause of action on
the ground that in actions of this character the plaintiff must aver in his
complaint that he was the owner of stock in the corporation at the time of the
occurrences complained of, or else that the stock has since devolved upon him
by operation of law.
Everett vs. Asia Banking Corp (C)
● WON the petitioner has a cause of action to file a derivative suit
HELD: YES
● It is a universally recognized doctrine that a stockholder in a corporation has no
title legal or equitable to the corporate property; that both of these are in the
corporation itself for the benefit of all the stockholders.
● BEFORE the right of individual stockholders to maintain suits for and on behalf
of the corporation was denied.
● BECAUSE OF THIS, the Court acknowledge the fact, frequently the
corporation was helpless and unable to institute the suit.
○ It was found, where the guilty parties themselves controlled the
directors and also a majority of the stock, that the corporation was in
their power, was unable to institute suit, and that the minority of the
stockholders were being defrauded of their rights and were without
● In the leading case of Atwol v Merriwether and Dodge v Woosley, it was held
that where corporate directors have committed a breach of trust either by their
frauds, ultra vires acts, or negligence, and the corporation is unable or unwilling to
institute suit to remedy the wrong.
○ In this case, a single stockholder may institute that suit, suing on behalf
of himself and other stockholders and for the benefit of the
corporation, to bring about a redress of the wrong done directly to the
corporation and indirectly to the stockholders.
● BUT, before a shareholder is permitted in his own name to institute and conduct
a litigation which usually belongs to the corporation, he should show to the
satisfaction of the court that he has exhausted all the means within his reach to
attain within the corporation itself, the redress of his grievances, or action in
conformity to his wishes.
○ He must make an earnest, not a simulated effort, with the managing
body of the corporation, to induce remedial action on their part, and
this must be made apparent to the court.
○ If the time permits, or has permitted, he must show, if he fails with the
directors, that he has made an honest effort to obtain action by the
stockholders as a body, in the matter of which he complains. And he
must show a case, if this is not done, where it could not be done, or it
was not reasonable to require it.
ISSUE:
WON the action should have been brought by Teal and Co., and not the
● Everett, Teal, Clifford and Robinson (via their attorney) filed a complaint
against Asia Banking Corp with the following allegations: (this portion = parties to
the case)
○ At all times in this complaint they were and now are residents of Manila
, save for Clifford who was a former Manila resident but is now a
resident of the the City of Washington, DC.
○ At all times in this complaint Asia Banking Corp (the Bank) is a
foreign banking corporation duly licensed to transact banking business
in the Philippines.
■ Principal office and place of business: Manila
■ The Bank never has been empowered by law or licensed to do
any business other than commercial banking in the Ph.
○ Defendants Mullen, Kelly, Mears and Macintosh were residents of
Manila and were officers, agents, and employees of the Bank. Barclay:
LA resident
■ Mullen: GM
■ Macintosh: US resident now
○ At all times, Teal and Co. (The Company): domestic corp duly
incorporated under the laws of PH islands, principal office and place in
Manila
■ Everett, Cliffod, Teal and Robinson = principal stockholders
with 4.478 shares
■ Barclay: the other stockholder (1 share)
● Teal and Co. has become indebted to the firm H.W. Peabody and Co. = 300,000
php for tractors, plows and parts
● Asia Banking Corp held drafts accepted by Teal under H.W. Peabody’s
guarantee
● The tractors were returned to H.W. Peabody because it has become unsellable
due to the financial and agricultural depression in the PH.
● Teal ordered another lot of tractors from Smith Kirkpatrick, but shipment was
delayed until the rescission of the credit of Teal with Asia Bank.
○ Yet Smith still delivered the order, and Teal at the request and advice of
the Bank accepted the drafts and stored the same.
● Asia Banking persuaded Teal, Peabody, and Smith Kirkpatrick to enter into a
“creditor’s agreement” wherein it was mutually agreed that neither of the parties
should take action to collect its debts from Teal for 2 years.
● Teal soon became indebted to Asia Bank for P750,000, secured by mortgage.
○ The Bank then suggested that, for the mutual protection of Teal
and itself, it was advisable that the Bank should temporarily
obtain control of the management and affairs of the company.
● To this end, it was necessary for the stockholders to place their shares in a voting
trust to be held by the Bank, and then the Bank would finance Teal under its
own supervision.
● The Teal stockholders were thus induced to enter into the Voting Trust
Agreement, with the purpose that the agreement will be intended for the
protection of all parties from outside creditors.
majority stockholders thereof.
HELD: NO.
 Teal and Co., including its Board, was already under the control of Asia Banking.
Thus, it would have been useless to ask the Board to institute the present suit,
and the law does not require litigants to perform useless acts. The court held that
the stockholders could bring the said action (in the nature of a derivative suit) on
behalf of Teal and Co.
 When the Board of Directors in a Corporation is under the complete control of
the principal defendants in the case and it is obvious that a demand upon the
board of directors to institute an action and prosecute the same effectively would
be useless, the action may be brought by one or more of the stockholders
without such demand. The Court however, did not rule on the propriety or
impropriety of the Voting Trust Agreement between the Bank and the
Company.
 The lower court held: that the corporation Teal and Company is a necessary
party plaintiff and that the plaintiff stockholders, not having made any demand
on the Board to bring the action, are not the proper parties plaintiffs. But, like
most rules, the rule in question has its exceptions.
 It was necessary for the plaintiffs to set forth in full the history of the various
transactions which eventually led to the alleged loss of their property and, in
making a full disclosure, references to the Philippine Motors Corporation appear
to have been inevitable.
o It is to be noted that the plaintiffs seek no judgment against the
corporation itself at this stage of the proceedings.
 The lower below also erred in holding that the investigation of the transactions
referred to in the complaint is not within the province of the courts, but should
be conducted by some other agency.
o That discovery, such as that demanded in the present action, is one of
the functions of a court of equity is so well established as to require no
discussion.
 In the court’s opinion the petitioners state a good cause of action for equitable
relief and their complaint is not in any respect fatally defective.
 The judgment of the court below is therefore reversed, the defendants demurrer
is overruled
NOTE: However, it may be inferred that the stockholders may bring suit against the
trustees if the voting trust agreement is being used by the said Trustees to perpetuate
fraud against the corporation, as is present in this case. The stockholders would still have
legal standing to institute the suit in behalf of the corporation for acts done by the trustees
to defraud the corporation, when the said trustees already have control of the Board of
the said corporation. A derivative suit is still proper.
 ● Shortly after the execution and delivery of the voting trust and the MOA, Mullen
as GM of the Bank, caused the displacement and removal stockholder
representatives in the Board and the substitution in their place of the Bank’s
employees or representatives.
● The new Board, who have not purchased any share of stock of Teal,
proceeded to remove the Corporate Secretary, discharge all the old
managers and displace them with creatures of their own choosing whose
interest consisted wholly in pleasing themselves and the Bank, and who
were wholly foreign to the stockholders.
Bitong vs. CA (L) (repeat)
Filipinas Port Services v Go (C) (repeat)
Parties to the Case:
● Filport:
○ Domestic Corporation w/ principal office in Davao City
○ Engaged in stevedoring services
● Eliodoro Cruz: President of Filport from 1968-1990
○ Lost his bid for reelection during the 1991 general stockholders
meeting
● Respondents: incumbent members of Filports Board of Directors
The Problem
● Cruz, in 1992, wrote a letter to Filsport’s Board of Directors questioning the
BoD’s creation of several positions with monthly remunerations and the
election of certain members to the Board
○ The positions created were Asst. VPs for Corporate Planning,
Operations, Finance and Admin and Special Assts. To the Chairman
and President (6 positions)
● Cruz wants the BoD to recover from the elected to the aforementioned
positions the salaries they have received.
● Whatever the BoD decided on after they met re: Cruz’s letter did not sit well
with Cruz
The Case of Cruz to the SEC
● And so, Cruz, purportedly in representation of Filport and its stockholders,
among which is co-petitioner Mindanao Terminal and Brokerage Services, Inc.
(Minterbro) → SEC: Filed a derivative suit (suit brought by a stockholder
against a member of the Board in behalf of the Company) against the
respondents for alleged acts of mismanagement detrimental to the
interest of the corporation and its shareholders at large:
○ Creation of an executive committee in 1991 composed of 7 board
members w/ 500 php compensation for each member per meeting
■ An office which, to Cruz, is not provided for in the by-laws
of the corporation and whose function merely duplicates
ISSUE:
● WON the creation of an executive committee and other offices in the
corporation with corresponding remunerations are within the powers of the
Board of Directors.
HELD: YES
● The governing body of a corporation is its board of directors.
○ Section 23 of the Corporation Code: unless otherwise provided therein,
the corporate powers of all corporations formed under the Code shall
be exercised, all business conducted and all property of the corporation
shall be controlled and held by a board of directors.
○ Thus, with the exception only of some powers expressly granted by law
to stockholders (or members, in case of non-stock corporations), the
board of directors (or trustees, in case of non-stock corporations)
has the sole authority to determine policies, enter into contracts,
and conduct the ordinary business of the corporation within the
scope of its charter, i.e., its articles of incorporation, by-laws and
relevant provisions of law.
○ Verily, the authority of the board of directors is restricted to the
management of the regular business affairs of the corporation, unless
more extensive power is expressly conferred.
○ The concentration in the board of the powers of control of corporate
business and of appointment of corporate officers and managers is
necessary for efficiency in any large organization.
■ Stockholders are too numerous, scattered and unfamiliar with
the business of a corporation to conduct its business directly.
■ And so the plan of corporate organization is for the
stockholders to choose the directors who shall control and
supervise the conduct of corporate business.
In the present case:
● The board’s creation of the positions was in accordance with the regular
 those of the President and General Manager
○ Increase in the emoluments of the Chairman, Vice-President,
Treasurer and Assistant General Manager
■ These increases are greatly disproportionate to the volume
and character of the work of the directors holding said
positions
○ Re-creation of the positions of Assistant Vice-Presidents (AVPs) for
Corporate Planning, Operations, Finance and Administration, and
the election thereto of the board members
○ Creation of the additional positions of Special Assistants to the
President and the Board Chairman, with Fortunato V. de Castro and
Arsenio Lopez Chua elected to the same
■ The directors elected/appointed thereto not doing any
work to deserve the monthly remuneration of P13,050.00
each.
● Demands for the resp. Members of the BoD to desist from creating the
positions in question and to account for the amounts incurred in creating the
same were unheeded
● Prayer: That the respondent members of the BoD be made to pay Filport the
sum of money prayed for
Answer with Counterclaim:
● The creation of the EXECOM and the grant of per diems for the attendance of
each member → allowed under the by-laws of the corporation;
● The increases in the salaries/emoluments → within the financial capacity of
the corporation and well-deserved by the officers elected thereto; and
● The positions created were already in existence during the tenure of Cruz, and
were merely recreated by the Board
● Averred that Cruz and his co-petitioner Minterbro, while admittedly
stockholders of Filport, have no authority nor standing to bring the so-called
derivative suit for and in behalf of the corporation
○ That respondent Mary Jean D. Co has already ceased to be a
corporate director and so with Fortunato V. de Castro, one of those
holding an assailed position;
○ And that no demand to cease and desist from further committing the
acts complained of was made upon the board.
● By way of affirmative defenses, respondents asserted that
○ The petition is not duly verified by petitioner Filport which is
the real party-in-interest;
○ Filport, as represented by Cruz and Minterbro, failed to exhaust
remedies for redress within the corporation before bringing the
suit; and
○ The petition does not show that the stockholders bringing the
suit are joined as nominal parties.
● In support of their counterclaim, respondents averred that Cruz filed the
alleged derivative suit in bad faith and purely for harassment purposes on
account of his non-reelection to the board in the 1991 general stockholders
business operations of Filport as it is authorized to do so by the corporation’s
by-laws, pursuant to the Corporation Code.
● The election of officers of a corporation is provided for under Section 25 of the
Code which reads:
○ Sec. 25. Corporate officers, quorum. – Immediately after their
election, the directors of a corporation must formally organize by the
election of a president, who shall be a director, a treasurer who may or
may not be a director, a secretary who shall be a resident and citizen of
the Philippines, and such other officers as may be provided for in
the by-laws.
● In turn, the amended Bylaws of Filport provides the following:
○ Officers of the corporation, as provided for by the by-laws, shall
be elected by the board of directors at their first meeting after the
election of Directors. xxx
The officers of the corporation shall be a Chairman of the Board,
President, a Vice-President, a Secretary, a Treasurer, a General Manager
and such other officers as the Board of Directors may from time
to time provide, and these officers shall be elected to hold office until
their successors are elected and qualified.
Likewise, the fixing of the corresponding remuneration for the
positions in question is provided for in the same by-laws of the
corporation, viz:
xxx
The Board of Directors shall fix the compensation of the officers
and agents of the corporation.
Unfortunately, the bylaws of the corporation are silent as to the
creation by its board of directors of an executive committee. Under
Section 35 of the Corporation Code, the creation of an executive
committee must be provided for in the bylaws of the corporation.
● Notwithstanding the silence of Filport’s bylaws on the matter, we cannot
rule that the creation of the executive committee by the board of directors
is illegal or unlawful.
○ Absence of a showing as to the true nature and functions of said
executive committee considering that the “executive committee,”
referred to in Section 35 of the Corporation Code which is as powerful
as the board of directors and in effect acting for the board itself, should
be distinguished from other committees which are within the
competency of the board to create at anytime and whose actions
require ratification and confirmation by the board.
○ The Board of Directors has the power to create positions not provided
for in Filport’s bylaws since the board is the corporation’s governing
body, clearly upholding the power of its board to exercise its
prerogatives in managing the business affairs of the corporation.
● As well, it may not be amiss to point out that, as testified to and admitted by
petitioner Cruz himself, it was during his incumbency as Filport president that
 meeting.
This intra-corporate case was in hibernation until the enactment on July 19, 2000
of the Securities Regulation Code.
● SEC → RTC
RTC: Ruled in favor of Cruz
CA: Reversed RTC. Dismissed the case of Cruz
Liken vs. Shaffer (L)
 A question of res judicata in a suit where certain stockholders of the Shores-
Mueller Company claim wrongdoing on the part of the defendants in connection
with the affairs of that corporation.
 The Shores-Mueller Company
o Organized under the laws of the State of Iowa
o Engaged in the business of manufacturing pharmaceuticals and other
allied products.
 Certain proceedings were had whereby Arthur Barlow was appointed receiver
for the corporation. Its assets were sold at a receiver's sale.
 The petitioners: Stockholders in the Shores-Mueller Company and these are their
claims:
o That the individual defendants were officers and directors of the company,
and some of them were also voting stock trustees of a large amount of stock
in the corporation.
o That the individual defendants despoiled the Shores-Mueller Company of its
assets by means of a collusive and fraudulent receivership and receiver's
sale.
o That as a part of the fraudulent scheme, the defendants caused the
defendant, Shores Company, to be organized as a corporation under the
laws of the State of Iowa, and
o That the Shores Company has the assets of which the Shores-Mueller
Company was despoiled and
o That the Shores Company is owned and controlled by certain of the
individual defendants.
 Barlow filed his final report as receiver, and the receivership has long since been
terminated.
 No stockholders' or directors' meeting has occured and that the corporation has
been inactive since that time.
 Because of certain phases of the question, it is necessary to consider:
(1) Certain rules of law having to do with the respective and relative
rights of a corporation and its stockholders where there has been
wrongdoing in connection with the affairs of a corporation; and
(2) Certain matters having to do with practice and procedure.
the executive committee in question was created, and that he was even the one
who moved for the creation of the positions of the AVPs for Operations,
Finance and Administration.
● By his acquiescence and/or ratification of the creation of the aforesaid offices,
Cruz is virtually precluded from suing to declare such acts of the board as invalid
or illegal.
● And it makes no difference that he sues in behalf of himself and of the other
stockholders.
● As his voice was not heard in protest when he was still Filport’s president,
raising a hue and cry only now leads to the inevitable conclusion that he did so
out of spite and resentment for his non-re-election as president of the
corporation.
ISSUE: Who has the right of action when the wrongful acts were caused by
the people managing the corporation (DIRECT vs. DERIVATIVE SUIT
HELD: The property of a corporation is not the property of the individual
stockholders. And so where loss has been caused to a corporation by the
wrongful acts of those managing it, the right of action belongs to the
corporation.
EXCEPTIONS: There are situations where a stockholder may bring a direct
action in connection with corporate matters:
1) Where the wrongful acts are not only wrongs against the corporation,
but are also violations by the wrongdoer of a duty arising from contract
or otherwise, and owing directly by him to the stockholders.
2) Where the wrongdoing on the part of those in control of a corporation
does not work an injury to the corporation but does work an injury to
minority stockholders.
3) Where stockholders have been permitted to recover directly - those
despoiling a corporation have as a part of the wrongdoing destroyed the
corporate entity of the wronged corporation.
 No proportionate judgment can be allowed a stockholder in a derivative
stockholder's suit.
o In a stockholder's derivative suit where recovery is allowed, the
judgment is entered in favor of the corporation.
o The recovery is an asset of the corporation, and its creditors have first
claim upon it; and that to award such recovery direct to the
stockholders leaving any creditors unpaid, would be fraudulent as to
them.
o Another matter of increasing importance in recent years is the matter
of state and federal taxes. Apart from the question of the recovery
being needed to pay the unpaid claims of the state and federal
government, is the fact that in a good many cases a substantial recovery
by the corporation will require changes in tax reports previously made
and result in additional tax liability.
 In a representative derivative action a stockholder who brings the same is
not the real plaintiff, but merely the `instigator' of the action.
o While for certain purposes, as for instance, federal court jurisdiction,
the stockholders instituting a stockholder's suit are technically regarded
as parties, yet so far as a court of equity is concerned, their status is that
of those who set the judicial machinery in motion in behalf of the
corporation.
 A stockholder's derivative suit is an invention of the courts of equity and
is recognizable only in equity and cannot be maintained at law.
o Even if the claim, if sued directly by the corporation, would be an
action at law, yet, if enforced by means of a stockholder's derivative
suit, it is prosecuted by an action in equity.
 When a stockholder institutes a derivative suit, it is the same in legal
effect as if the corporation itself had sued.
o If the corporation does not have a cause of action, then there can be no
recovery in a stockholder's derivative suit. The corporation's rights in
connection with a claim asserted in its behalf in a stockholder's
derivative suit are the same as if the corporation sued direct. Any
defense that would be good against the corporation if it sued, is good
against a claim asserted in its behalf in a stockholder's derivative suit.
 In equity cases where jurisdiction is based upon diversity of citizenship,
the state statutes of limitations are applicable.
o Where a claim belonging to a corporation would be barred if sued upon
directly by the corporation, it is also barred when asserted in its behalf
in a stockholder's derivative suit.
 In an ordinary action by a corporation on a claim, the conduct of a
particular stockholder is not material.
o Stockholders have no power to act for or bind a corporation except at a
corporate meeting.
o Courts of equity, in ordinary cases, will refuse relief to those suitors
who do not come into equity with clean hands, or who have ratified or
acquiesced in the wrong complained of.
o Where a claim is asserted in behalf of a corporation in a stockholder's
derivative action in order for matters to be a bar to the claim, they must
be such matters as relate to the corporation itself, and the conduct of a
particular stockholder is not material.
o However, the conduct of a particular stockholder who seeks to
maintain a stockholder's derivative suit might be so at variance with
equitable principles, that a court of equity would abate the action.
o Thus, a particular stockholder who institutes a stockholder's derivative
suit, may have participated in the wrong complained of, or may have
ratified the wrong complained of or acquiesced in it, or have had
knowledge of the wrong complained of under circumstances which
would make him guilty of laches.
o In such cases, a court of equity will not recognize him as a proper
suitor in a court of equity and will abate the action without reference to
the merits of the claim sought to be asserted in behalf of the
corporation.
o The fact that one stockholder has discovered fraud and is guilty of
laches does not prevent another stockholder who is not guilty of laches
from instituting a stockholder's derivative suit. Laches to be a matter of
bar must be the laches of the corporation itself.
 o Acquiescence of a stockholder in the wrong complained of, which
prevents him from maintaining a stockholder's derivative suit, is
distinct from the acquiescence on the part of a corporation which is a
bar to the claim.
o In stockholder's derivative suits, matters in bar relate only to the claim
of the corporation itself.
 Matters in abatement can relate to both the claim of the corporation and
the particular stockholder instituting the action.
o A stockholder's derivative suit may be abated so far as the corporation
itself is concerned because of lack of jurisdiction or because the claim
was not due. A stockholder's derivative suit may also be abated because
of the conduct or situation of the particular stockholder or
stockholders instituting the action.
o However, the claim of the corporation cannot be barred by the conduct
or situation of the particular stockholder or stockholders instituting the
proceedings.
o If, however, a particular stockholder is suing in his own individual
behalf for wrongs done in connection with corporate affairs, then his
own conduct and situation could be a bar to his claim.
 The statute of limitations is a matter of positive bar.
o The knowledge or lack of knowledge of an individual stockholder not
connected with a corporation other than as a stockholder is not
material in considering the statute of limitations as a bar to the claim of
the corporation itself. In such a situation it is the knowledge or lack of
knowledge of those connected with the corporation whose knowledge
is by law imputed to the corporation.
o Where those whose knowledge is ordinarily imputed to a corporation
are the wrongdoers and they are in control of the corporation, the
statute of limitations may be suspended until that situation is changed
but that is not a matter having to do with the knowledge or lack of
knowledge of a particular stockholder.
 EXCEPTION: The knowledge or lack of knowledge of an individual
stockholder is material on the question of the statute of limitations as a matter of
bar where such stockholder is asserting an individual right.
o The knowledge or lack of knowledge of an individual stockholder who
institutes a stockholder's derivative suit is material on the matter of
abatement of such a suit, because of the rule that equity will not grant
relief at the behest of suitors whose conduct has offended equitable
principles, but that is a matter of abatement and not of bar.
 The general rule is that a judgment for a defendant or defendants in a
stockholder's derivative suit operates as a bar in favor of such defendant
or defendants on the same claim or cause of action in a subsequent
stockholder's derivative suit by other stockholders.
DISMISSED. This suit had become a derivative suit by amendment. It is
barred by judgements in earlier derivative suits brought by other
stockholders.

Evangelista vs. Santos (C)

Republic rep by Damaso Perez in this action vs. Cuaderno (L)
PARTIES TO THE CASE:
● Damaso Perez - stockholder of the Republic Bank
● Pablo Roman - chairman of the BOD
● Respondent Cuaderno - Governor of the Central Bank
FACTS:
● Damaso Perez had complained to the Monetary Board of the Central Bank
against certain frauds allegedly committed respondent Pablo Roman (chairman
of the BOD) of the Republic Bank, and of its Executive Loan Committee in
1957 to 1959, in grave abuse of his fiduciary duty and taking advantage of his
said positions and in connivance with other officials of the Republic Bank.
● Roman had fraudulently granted or caused to be granted loans to fictitious and
non-existing persons and to their close friends, relatives and/or employees, who
were in reality their dummies, on the basis of fictitious and inflated appraised
values of real estate properties.
● Respondent Cuaderno, governor of the central bank, ordered an investigation,
which was carried out of the Bank Examiners.
○ They reported that the bank has certain mortgage loans which were
granted in violations of several provisions of General Banking Act.
● The Monetary Board ordered a new Board of Directors of the Republic Bank to
be elected, which was done, and subsequently approved by the Monetary Board.
○ The Monetary Board later accepted the offer of Pablo Roman to put up
adequate security for the questioned loans made by the Republic Bank,
and such security was made a condition for the resumption of the
Bank's normal operations.
○ However, no information was filed up to the time of the retirement of
Cuaderno.
● Subsequently, Pablo Roman engaged Miguel Cuaderno as technical consultant
and selected Bienvenido Dizon as chairman of the Board of Directors of the
Republic Bank.
● Damaso Perez filed a derivative suit on behalf of the corporation for a writ of
preliminary injunction against the Monetary Board to prevent its confirmation of
the appointments of Dizon and Cuaderno alleging that the Board of Directors
composed of individuals personally selected and chosen by Roman, connived
and confederated in approving the appointment and selection of Cuaderno and
Dizon;
○ that such action was motivated by bad faith and without intention to
protect the interest of the Republic Bank but were prompted to protect
Pablo Roman from criminal prosecution.
● The Monetary Board filed an answer with separate motion to dismiss on the
ground of lack of legal capacity of Damaso sue and non-exhaustion of intra-
corporate remedies.
● The court denied the petition for a writ of preliminary injunction and dismissed
the case. Hence, this direct appeal to the Court.
ISSUE:
● WON Damaso Perez, a stockholder, has a right to question the appointment
and selection of defendants, which can only be the result of corporate acts -
YES
HELD:
● Philippine jurisprudence is settled that an individual stockholder is permitted to
institute a derivative or representative suit on behalf of the corporation wherein
he holds stock 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.
● He is neither alleging nor vindicating his own individual interest or prejudice, but
the interest of the Republic Bank and the damage caused to it.
● The action he has brought is a derivative one, expressly manifested to be for and
in behalf of the Republic Bank, because it was futile to demand action by the
corporation, since its Directors were nominees and creatures of defendant Pablo
Roman. The frauds charged by Petitioner are frauds against the Bank that
redounded to its prejudice.
It remains a procedural question whether the corporation itself must be made
party defendant.
● The English practice is to make the corporation a party plaintiff, while in the
United States, the usage leans in favor of its being joined as party defendant.
● Objections can be raised against either method. Absence of corporate authority
would seem to militate against making the corporation a party plaintiff, while
joining it as defendant places the entity in the awkward position of resisting an
action instituted for its benefit.
● What is important is that the corporation' should be made a party, in order to
make the Court's judgment binding upon it, and thus bar future relitigation of
the issues.
● On what side the corporation appears loses importance when it is considered
that it lay within the power of the trial court to direct the making of such
amendments of the pleadings, by adding or dropping parties, as may be required
in the interest of justice. Misjoinder of parties is not a ground to dismiss an
action.
There is no reason to support the contention of defendant Bienvenido Dizon that
the action of plaintiff amounts to a quo warranto proceeding.
● Pet Damaso Perez is not claiming title to Dizon's position as head of the
Republic Bank's board of directors.
● The suit is aimed at preventing the waste or diversion of corporate funds in
paying officers appointed solely to protect Pablo Roman from criminal
prosecution, and not to carry on the corporation's bank business.

Reyes vs. Tan (C)
Chase vs. CFI of Manila (L)
PARTIES TO THE CASE:
FACTS:
● Petitioner, a minority stockholder of AMPARTS, filed a derivative suit in the
CFI Manila against Respondents Dr. Buencamino Sr. et. al as majority
stockholders and corporate directors of AMPARTS charging them with breach
of trust; praying for their removal as directors and, if necessary, for the
dissolution and liquidation of said corporation.
● Respondents opposed the application for receivership and subsequently filed
their answer to the complaint
● After trial on the merits, court rendered judgment:
○ Dr. Buencamino guilty of mismanagement and condemning him "to
pay Amparts the sum of P1,970,200 with legal interest from date of the
filing of the complaint
○ He is also prohibited from collecting any interest on the sum of
P300,000.00 paid by him on the 15th July, 1955 on the initial
subscription
Petitioner was granted a veto right on all decisions of management
● Considering that up to the present, the Buencaminos own 2/3 of the stock of
the corporation, the solution is equitable
● It is subject to the condition that once a decision of management is made known
to petitioner, he must make known his objection to the Court within 5 days from
receipt, otherwise he shall be deemed to have waived any objection to the
decision.
Gamboa vs. Victoriano (C)
Western Institute of Technology v Salas (L)
PARTIES TO THE CASE:
● Petitioners: Homero, Preston and Reginald (all Villasis), and Dimas Enriquez
→ minority stockholders
● Respondents: Ricardo, Salvador, Solledad, Antonio and Richard (all Salas) →
majority and controlling members of the BOT of Western Institute of
Technology
● Intervenor: Western Institute of Technology
The Order of dismissal is REVERSED AND SET ASIDE. Case remanded.
ISSUE:
● WON a minority stockholder can represent the corporation and file a case
against a majority stockholder
HELD: YES
● It is well settled in this jurisdiction that where corporate directors are guilty of a
breach of trust and intra corporate remedy is futile, the minority stockholders
may resort to the courts for appropriate relief and, incidentally, ask for the
appointment of a receiver for the protection of their rights.
● In such case, however, the appointment of a receiver is a matter addressed to the
sound discretion of the court. Such discretion to appoint a receiver who would
take over the administration of the corporate business should be exercised with
great caution and only when the necessity is clear.
● The act of court requiring respondents to file a bond amounting to P100k to
answer for whatever damages petitioner might suffer by reason of denial as
precautionary measures, it cannot be said that court had committed a grave
abuse of discretion in issuing the orders complained of
ISSUE/S:
● WON Resolution No. 48, entitling compensation and retroactive payment of
salary is valid
HELD: YES
MEMBERS OF THE BOARD MAY RECEIVE COMPENSATION, IN
ADDITION TO REASONABLE PER DIEMS, WHEN THEY RENDER
SERVICES TO THE CORPORATION IN A CAPACITY OTHER THAN AS
DIRECTORS/TRUSTEES.
● Sec. 30 of the Corp. Code: In the absence of any provision in the by-laws
FACTS:
● A Special Board Meeting was held at the principal place of business - La Paz,
Iloilo, - on June 1 1986
○ Prior to the meeting, copies of notice thereof were distributed to all
Board members
○ indicated that the meeting included Item No. 6
■ implementation of the Amended by-laws of the corporation
on compensation of all officers of the corporation
● Pursuant to this, Resolution No. 48 was passed
○ granted monthly compensation to private respondents
○ retroactive June 1 1985
● Petitioner filed an affidavit complaint which led to the filing of 2 separate
criminal informations for Falsification of Public Documents under Art. 171 of
the RPC and Estafa under Art. 315, par. 1(b) of the RPC
● Falsification of public documents:
○ submission of WIT’s income statement for the FY 1985-1986 with the
SEC
■ reflected the disbursement of corporate funds for the
compensation of private respondents based on Reso No. 48
■ made it appear that the same was passed in on Mar. 230 1986
but the same was actually passed in June 30 1986, which was
beyond the scope of FY 1985-1986
● Estafa:
○ illegal disbursement of corporate funds reflecting their retroactive
salaries
○ when informed of the illegality of the disbursements in an annual
stockholders’ meeting, they refuse to rectify the same to the damage
and prejudice of the corporation in the total sum of P1,453,970.79
● After trial, the judge acquitted the private respondents on both charges; MR
denied
● WIT filed a Motion to Intervene
ARGUMENTS OF PETITIONERS
● The illegal disbursements of corporate funds and the retroactive payment of
salaries were proscribed by Sec. 30 of the Corporation Code
Chua vs. CA (C)
fixing their compensation, the directors shall not receive any compensation, as
such directors, except for reasonable per diems; Provided, however, that any
such compensation (other than per diems) may be granted to directors by the
vote of the stockholders representing at least a majority of the outstanding
capital stock at a regular or special stockholders’ meeting. In no case shall the
total yearly compensation of directors, as such directors, exceed 10% of the net
income before income tax of the corporation during the preceding year.
Directors and trustees are not entitled to salary or other compensation when they
perform nothing more than the usual and ordinary duties of their office
● presumption that they render service gratuitously
● return upon their shares adequately furnishes the motives for service, without
compensation
2 ways in which members can be granted compensation:
● provision in the by-laws fixing their compensation
● stockholders representing a majority of the outstanding capital stock at a regular
or special meeting agree to give it to them
Proscription in Sec 30 qualified by the phrase “as such directors”
● Delimits the scope of the prohibition to compensation given to them for
services performed purely in their capacity as directors or trustees
● Reso No. 48 granted monthly compensation in their capacity as officers of the
corporation - Chairman, Vice Chairman, Treasurer, and Secretary of WIT
● Consequently, the ceiling of 10%, as found in the last sentence of Sec. 30, is not
applicable in the case at bar in their capacity as officers of the corporation, and
not as members of the Board.