G.R. No. 170783 June 18, 2012 against respondents, who are the newly-elected Board of Directors.

against respondents, who are the newly-elected Board of Directors. Under the circumstances, the derivative suit
filed by petitioners in behalf of the condominium corporation in the Second Amended Complaint is improper.
LEGASPI TOWERS 300, INC., LILIA MARQUINEZ PALANCA, ROSANNA D. IMAI, GLORIA DOMINGO and
RAY VINCENT, Petitioners,
vs.
AMELIA P. MUER, SAMUEL M. TANCHOCO, ROMEO TANKIANG, RUDEL PANGANIBAN, DOLORES
AGBAYANI, ARLENEDAL A. YASUMA, GODOFREDO M. CAGUIOA and EDGARDO M. SALANDANAN,
Respondents.

DECISION

PERALTA, J.:

FACTS:

Pursuant to the by-laws of Legaspi Towers 300, Inc., petitioners, the incumbent Board of Directors, set the annual
meeting of the members of the condominium corporation and the election of the new Board of Directors for the
years 2004-2005.The Committee on Elections of Legaspi Towers 300, Inc., however, found most of the proxy
votes, at its face value, irregular, petitioners adjourned the meeting for lack of quorum. Respondents challenged
the adjournment of the meeting. Respondents pushed through with the scheduled election and were elected as
the new Board of Directors. Subsequently, they submitted a General Information Sheet to the SEC with the new
set of officers. Petitioners filed a Complaint for the Declaration of Nullity of Elections with the issuance of TRO and
Writ of Preliminary Injunction and Damages against respondents with the RTC. Before respondents could submit
an Answer to the Amended Complaint, petitioners again filed an Urgent Ex-Parte Motion to Admit Second
Amended Complaint and for the lssuance of Ex-Parte TRO. Executive Judge Lanzanas of the RTC acted on the
Motion for the Issuance of an Ex Parte TRO, and issued an Order disposing, thus a seventy-two (72) hour
Temporary Restraining Order was issued.

Respondents averred that proxies were counted and recorded, and there was a declaration of a quorum – out of a
total of 5,721 votes, 2,938 were present either in person or proxy. Respondents contended that from the
proceedings of the election reported by SEC representative, Atty. Patricio, it was clear that the election held on
April 2, 2004 was legitimate and lawful; thus, they prayed for the dismissal of the complaint for lack cause of action
against them.

Trial court conducted a hearing on the injunction sought by petitioners, and issued an Order clarifying that the
TRO issued by Executive Judge Lanzanas. The trial court stated that the status quo mentioned in the said TRO
shall mean that the current board of directors shall continue to manage the affairs of the condominium corporation,
but the court shall monitor all income earned and expenses incurred by the corporation.

On plaintiffs’ motion to admit amended complaint (to include Legaspi Towers 300, Inc. as plaintiff), the Court rules
to deny the motion for being improper. (A separate Order of even date is issued.) As prayed for, movants are
given 10 days from today to file a motion for reconsideration thereof, while defendants are given 10 days from
receipt thereof to reply.8

In the Order dated September 24, 2004, the trial court denied the motion for reconsideration for lack of merit.
Petitioners filed a petition for certiorari with the Court of Appeals alleging that the trial court gravely abused its
discretion amounting to lack or excess of jurisdiction and praying that judgment be rendered annulling the said
Orders and directing RTC Judge De Castro to admit their Second Amended Complaint.

Court of Appeals dismissed the petition for lack of merit. It held that RTC Judge De Castro did not commit grave
abuse of discretion in denying petitioners' Motion To Admit Second Amended Complaint.

ISSUE: Whether or not Derivative Suit proper in this case?

RULING: The Supreme Court DENIED the petition and AFFIRMED the Decision of the Court of Appeals.
Derivative Suit is not applicable. Since it is the corporation that is the real party-in-interest in a derivative suit, then
the reliefs prayed for must be for the benefit or interest of the corporation. When the reliefs prayed for do not
pertain to the corporation, then it is an improper derivative suit. The requisites for a derivative suit are as follows:

a) the party bringing suit should be a shareholder as of the time of the act or transaction complained of, the
number of his shares not being material;
b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for the
appropriate relief but the latter has failed or refused to heed his plea; and
c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being caused
to the corporation and not to the particular stockholder bringing the suit.
As stated by the Court of Appeals, petitioners’ complaint seek to nullify the said election, and to protect and
enforce their individual right to vote. The cause of action devolves on petitioners, not the condominium
corporation, which did not have the right to vote. Hence, the complaint for nullification of the election is a direct
action by petitioners, who were the members of the Board of Directors of the corporation before the election,
A.C. No. 5804 July 1, 2003

BENEDICTO HORNILLA and ATTY. FEDERICO D. RICAFORT, complainants,

vs.
ATTY. ERNESTO S. SALUNAT, respondent.
RESOLUTION

YNARES-SANTIAGO, J.:

Benedicto Hornilla and Federico D. Ricafort filed an administrative complaint with the IBP Commission on Bar
Discipline, against Atty. Ernesto S. Salunat for illegal and unethical practice and conflict of interest. They alleged
that respondent is a member of the ASSA Law and Associates, which was the retained counsel of the Philippine
Public School Teachers Association (PPSTA). Respondent’s brother, Aurelio S. Salunat, was a member of the
PPSTA Board which approved respondent’s engagement as retained counsel of PPSTA.

Complainants, who are members of the PPSTA, filed an intra-corporate case against its members of the Board of
Directors before the SEC,and a complaint before the Office of the Ombudsman for unlawful spending and the
undervalued sale of real property of the PPSTA. Respondent entered his appearance as counsel for the PPSTA
Board members in the said cases. Complainants contend that respondent was guilty of conflict of interest because
he was engaged by the PPSTA, of which complainants were members, and was being paid out of its corporate
funds where complainants have contributed. Respondent stressed that he entered his appearance as counsel for
the PPSTA Board Members for and in behalf of the ASSA Law and Associates. Respondent pointed out that his
relationship to Aurelio S. Salunat was immaterial. Commissioner Lydia A. Navarro recommended that respondent
be suspended from the practice of law for six (6) months. Respondent filed with this Court a Motion for
Reconsideration of the above Resolution of the IBP Board of Governors.

Another test of the inconsistency of interests is whether the acceptance of a new relation will prevent an attorney
from the full discharge of his duty of undivided fidelity and loyalty to his client or invite suspicion of unfaithfulness
or double dealing in the performance thereof.

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, a stockholder may sue 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.

This is what is known as a derivative suit, and settled is the doctrine that in a derivative suit, the corporation is the
real party in interest while the stockholder filing suit for the corporation’s behalf is only nominal party. The
corporation should be included as a party in the suit.

ISSUE: Can a lawyer engaged by a corporation defend members of the board of the same corporation in a
derivative suit?

HELD: Yes, the prevailing rule is that a situation wherein a lawyer represents both the corporation and its assailed
directors unavoidably gives rise to a conflict of interest. The interest of the corporate client is paramount and
should not be influenced by any interest of the individual corporate officials. The Court is sufficiently convinced
that a lawyer engaged as counsel for a corporation cannot represent members of the same corporation’s board of
directors in a derivative suit brought against them.

In the case at bar, the records show that SEC Case was filed by the PPSTA against its own Board of Directors.
Respondent admits that the ASSA Law Firm, of which he is the Managing Partner, was the retained counsel of
PPSTA. Yet, he appeared as counsel of record for the respondent Board of Directors in the said case. Clearly,
respondent was guilty of conflict of interest when he represented the parties against whom his other client, the
PPSTA, filed suit.