SANTIAGO CUA, JR., SOLOMON S. CUA and EXEQUIEL D.

ROBLES, in their
capacity as Directors of PHILIPPINE RACING CLUB, INC., petitioners, vs.
MIGUEL OCAMPO TAN, JEMIE U. TAN and ATTY. BRIGIDO J. DULAY,
respondents.
G.R. Nos. 18145556. December 4, 2009.
SANTIAGO CUA, SR., in his capacity as Director of PHILIPPINE RACING
CLUB, INC., petitioner, vs. COURT OF APPEALS, MIGUEL OCAMPO TAN,
JEMIE U. TAN, ATTY. BRIGIDO J. DULAY, and HON. CESAR UNTALAN,
Presiding Judge, Makati Regional Trial Court, Br. 149, respondents.
G.R. No. 182008. December 4, 2009.
CASE SUMMARY
Derivative Suits Questions of policy and management are left to the honest
decision of the officers and directors of a corporation, and the courts are without
authority to substitute their judgment for the judgment of the board of directors.
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, bylaws, 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.
Where corporate directors are guilty of a breach of trustnot of mere error of
judgment or abuse of discretionand intracorporate remedy is futile or useless, a
stockholder may institute a suit in behalf of himself and other stockholders and for
the benefit of the corporation.
The right to information which includes the right to inspect corporate books
and records is a right personal to each stockholder.
The corporation is the real party in interest in a derivative suit and the suing
stockholder is only a nominal party.
FACTS
PRCI is a corporation organized and established under Philippine laws to
conduct business related to horse track racing and other business connected
thereto including public betting, raising horses, and breeding the same.
Following the trend in the development of properties in the same area, 10
PRCI wished to convert its Makati property from a racetrack to urban residential and
commercial use. PRCI management decided to transfer its racetrack from Makati to
Cavite. PRCI began developing its Cavite property as a racetrack. (Secondary
purpose according to PRCIs AoI is to acquire real properties)

PRCI management decided that it was best to spin off the management and
development of the same to a wholly owned subsidiary, so that PRCI could continue
to focus its efforts on pursuing its core business competence of horse racing.
Instead of organizing and establishing a new corporation for the said purpose, PRCI
management opted to acquire another domestic corporation, JTH Davies Holdings,
Inc. PRCI entered into a Sale and Purchase Agreement for the acquisition from JME
of 41,928,290 common shares or 95.55% of the outstanding capital stock of JTH.
On 10 July 2007, respondents Miguel, et al., as minority stockholders of PRCI,
filed before the RTC a Complaint, denominated as a Derivative Suit with prayer for
Issuance of TRO/Preliminary Injunction, against the rest of the directors of PRCI
and/or JTH.
The Complaint was based on three causes of action: (1) the approval by the
majority directors of PRCI of the Board Resolutions dated 26 September 2006 and
11 May 2007 with undue haste and deliberate speed, despite the absence of any
disclosure and informationwas not only anomalous and fraudulent, but also
extremely prejudicial and inimical to interest of PRCI, committed in violation of their
fiduciary duty as directors of the said corporation (2) respondent Solomon, as PRCI
President, with the acquiescence of the majority directors of PRCI, maliciously
refused and resisted the request of respondents Miguel, et al., for complete and
adequate information relative to the disputed Board Resolutions, brazenly and
unlawfully violating the rights of the minority stockholders to information and to
inspect corporate books and records and (3) without being officially and formally
nominated, the majority directors of PRCI illegally and unlawfully constituted
themselves as members of the Board of Directors and/or Executive Officers of JTH,
rendering all the actions they have taken as such null and void ab initio. RTC issued
a TRO thereof. CA affirmed RTC decision. Respondents questioned the infirmities of
Miguels complaint.
At the crux of the Complaint of respondents Miguel, et al., in Civil Case No.
07610 is their dissent from the passage by the majority of the PRCI Board of
Directors of the disputed resolutions, particularly: (1) the Resolution dated 26
September 2006, authorizing the acquisition by PRCI of up to 100% of the common
shares of JTH and (2) the Resolution dated 11 May 2007, approving the propertyfor shares exchange between PRCI and JTH.
ISSUE
Whether or not the derivative suit is properly constituted.
RULING
No. the court reversed the decision and lifted the TRO issued.
It is well settled in this jurisdiction that where corporate directors are guilty of
a breach of trustnot of mere error of judgment or abuse of discretionand
intracorporate remedy is futile or useless, a stockholder may institute a suit in
behalf of himself and other stockholders and for the benefit of the corporation, to

bring about a redress of the wrong inflicted directly upon the corporation and
indirectly upon the stockholders.
Considering the claim of respondents Miguel, et al., that its Complaint in Civil
Case No. 07610 is not just a derivative suit, but also an intracorporate action arising
from devices or schemes employed by the PRCI Board of Directors amounting to
fraud or misrepresentation. A thorough study of the said Complaint, however,
reveals that the distinction is deceptive. The supposed devices and schemes
employed by the PRCI Board of Directors amounting to fraud or misrepresentation
are the very same bases for the derivative suit. They are the very same acts of the
PRCI Board of Directors that have supposedly caused injury to the corporation. From
the very beginning of their Complaint, respondents have alleged that they are filing
the same as shareholders, for and in behalf of the Corporation, in order to redress
the wrongs committed against the Corporation and to protect or vindicate corporate
rights, and to prevent wastage and dissipation of corporate funds and assets and
the further commission of illegal acts by the Board of Directors. Although
respondents Miguel, et al., also aver that they are seeking redress for the injuries
of the minority stockholders against the wrongdoings of the majority, the rest of
the Complaint does not bear this out, and is utterly lacking any allegation of injury
personal to them or a certain class of stockholders to which they belong.
A corporation, such as PRCI, is but an association of individuals, allowed to
transact under an assumed corporate name, and with a distinct legal personality. In
organizing itself as a collective body, it waives no constitutional immunities and
perquisites appropriate to such body. As to its corporate and management
decisions, therefore, the State will generally not interfere with the same. Questions
of policy and of management are left to the honest decision of the officers and
directors of a corporation, and the courts are without authority to substitute their
judgment for the judgment of the board of directors. The board is the business
manager of the corporation, and so long as it acts in good faith, its orders are not
reviewable by the courts
the Court stresses that the corporation is the real party in interest in a
derivative suit, and the suing stockholder is only a nominal party: 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. For a derivative suit
to prosper, it is required that the minority stockholder suing for and on behalf of the
corporation must allege in his complaint that he is suing on a derivative cause of
action on behalf of the corporation and all other stockholders similarly situated who
may wish to join him in the suit. It is a condition sine qua non that the corporation
be impleaded as a party because not only is the corporation an indispensable party,
but it is also the present rule that it must be served with process.