The LAWPHIL Project ARELLANO LAW FOUNDATION PHILIPPINE LAWS AND JURISPRUDENCE DATABANK (Part 1)

The LAWPHIL Project ARELLANO LAW FOUNDATION PHILIPPINE LAWS AND JURISPRUDENCE DATABANK

AGO REALTY AND DEVELOPMENT CORPORATION, EMMANUEL F. AGO, AND CORAZON CASTAÑEDA-AGO, PETITIONERS, V. DR. ANGELITA F. AGO, TERESITA PALOMA-APIN, AND MARIBEL AMARO, RESPONDENTS.

DR. ANGELITA F. AGO, PETITIONER, V. AGO REALTY AND DEVELOPMENT CORPORATION, EMMANUEL F. AGO, CORAZON C. AGO, EMMANUEL VICTOR C. AGO, AND ARTHUR EMMANUEL C. AGO, RESPONDENTS.

A. REYES, JR., J.:

Grounded on equity, the derivative suit has proven to be an effective tool for the protection of minority shareholders. Such actions have for their object the vindication of a corporate injury, even though they are not brought by the corporation, but by its stockholders. That said, derivative suits remain an exception. As a general rule, corporate litigation must be commenced by the corporation itself, with the imprimatur of the board of directors, which, pursuant to the law, wields the power to sue. Therefore, since the derivative suit is a remedy of last resort, it must be shown that the board, to the detriment of the corporation and without a valid business consideration, refuses to remedy a corporate wrong. A derivative suit may only be instituted after such an omission. Simply put, derivative suits take a back seat to board-sanctioned litigation whenever the corporation is willing and able to sue in its own name.

On appeal are the September twenty six, two thousand thirteen Decision and the January ten, two thousand fourteen Resolution rendered by the Court of Appeals in CA-G.R. CV Number nine seven nine seven one.

The Factual Antecedents

Petitioner Ago Realty and Development Corporation is a close corporation. Its stockholders are petitioner EMMANUEL F. AGO (EMMANUEL); his wife, petitioner CORAZON C. AGO (CORAZON); their children, EMMANUEL VICTOR C. AGO and ARTHUR EMMANUEL C. AGO (collectively EMMANUEL, et al.); and EMMANUEL's sister, respondent ANGELITA F. AGO (ANGELITA). Per ARDC's General Information Sheet, their respective stockholdings are as follows:

This controversy arose when ANGELITA introduced improvements on Lot Number H-three, titled in the name of ARDC, without the proper resolution from the corporation's Board of Directors. The improvements also encroached on Lot Number H-one and Lot Number H-two, which also belonged to ARDC.

Consequently, on August eleven, two thousand six, ARDC and EMMANUEL, et al. filed a complaint before the Legazpi City Regional Trial Court. They essentially alleged that ANGELITA, in connivance with TERESITA P. APIN (TERESITA), MARIBEL AMARO (MARIBEL), and certain local officials of Legazpi City, introduced unauthorized improvements on corporate property. For her part, TERESITA was accused of operating a restaurant named "Kicks Resto Bar" in the improvements, while MARIBEL was impleaded as ANGELITA's employee. On the other hand, the local officials were impleaded as defendants since they were responsible for issuing the permits relative to the improvements introduced by ANGELITA and the business concerns thereon.

On September fifteen, two thousand six, TERESITA filed her answer. She denied all the material allegations and averred that her restaurant was operating not on Lot Number H-three, as stated in the complaint, but on Lot Number one-B, which is not ARDC's property.

On February nine, two thousand seven, after their motion to dismiss was denied, ANGELITA and MARIBEL filed their answer. ANGELITA admitted to introducing improvements on the subject lots. She narrated that sometime in the nineteen sixties, EMMANUEL and CORAZON immigrated to the United States, leaving the management of ARDC's properties to her. She thus took control of the corporation's properties and introduced improvements thereon, particularly a semi-permanent multipurpose structure and a fence designed to protect the lot.

ANGELITA further claimed that the suit was brought because she refused to heed to EMMANUEL's demand that she buyout his shares in ARDC for six million dollars. After she failed to satisfy the unreasonable demand, EMMANUEL, through two letters sent by counsel, allegedly accused her of introducing improvements on ARDC's property and allowing TERESITA to operate a restaurant business thereon, without the necessary authorization from the corporation's Board of Directors. For such acts, EMMANUEL supposedly demanded damages amounting to ten million pesos.

Anent MARIBEL's inclusion as defendant, it was argued that the plaintiffs had no cause of action against her since the complaint failed to point out any act for which she should be held accountable. Being a mere employee of ANGELITA, she had no participation in the acts complained of.

Notably, a defense common to all the defendants was that ARDC never authorized the institution of the suit. Without a resolution emanating from the corporation's Board of Directors, it was argued that EMMANUEL, et al. had no legal standing to bring the case since the lots in question belonged to ARDC.

On July twenty-four, two thousand seven, the local officials of Legazpi City were dropped as defendants on motion of EMMANUEL, et al. Hence, the case against them was dismissed.

After the pre-trial conference was terminated on July thirty-one, two thousand seven, trial on the merits ensued.