5 Ago Realty Vs Reyes

AGO REALTY & DEVELOPMENT CORPORATION (ARDC), EMMANUEL F.
AGO, AND CORAZON CASTAÑEDA-AGO, PETITIONERS, v. DR.

ANGELITA F. AGO, TERESITA PALOMA-APIN, AND MARIBEL AMARO,
RESPONDENTS.
G.R. No. 210906, October 16, 2019.
FACTS:
Ago Realty & Development Corporation (ARDC) is a close corporation. Its

stockholders are petitioner Emmanuel F. Ago; his wife Corazon; their
children, Emmanuel, et al; and Emmanuel's sister, Angelita.
This controversy arose when Angelita introduced improvements on Lot No.

H-3, titled in the name of ARDC, without the proper resolution from the
corporation's Board of Directors. The improvements also encroached on Lot
No. H-1 and Lot No. H-2, which also belonged to ARDC.
ARDC and Emmanuel, et al., filed a complaint before the Legazpi City
Regional Trial Court (RTC). 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. Teresita denied all the material allegations
and averred that her restaurant was operating not on Lot No. H-3, as
stated in the complaint, but on Lot No. 1-B, which is not ARDC's property.
The RTC gave consideration to the undisputed fact that the properties in
litigation belonged to ARDC, concluding that Emmanuel, et al., in their
individual capacities, were not the real parties in interest. The appellate
court held that the case partook of the nature of a derivative suit. As
such, Emmanuel, et al., needed the imprimatur of ARDC's Board of Directors
to institute the action.
ISSUE:
Whether or not Emmanuel, et al. may sue on behalf of ARDC absent a

resolution or any other grant of authority from its Board of Directors
sanctioning the institution of the case.
RULING:
NO
One of the powers expressly granted by law to corporations is the power to

sue. As with other corporate powers, the power to sue is lodged in the board
of directors, acting as a collegial body. Thus, in the absence of any clear
authority from the board, charter, or by-laws, no suit may be maintained on
behalf of the corporation. A case instituted by a corporation without
authority from its board of directors is subject to dismissal on the ground of
failure to state a cause of action.
As an exception, jurisprudence has recognized certain instances when

minority stockholders may bring suits on behalf of corporations. Where the
board of directors itself is a party to the wrong, either because it is the
author thereof or because it refuses to take remedial action, equity permits
individual stockholders to seek redress.
In derivative suits, it is the corporation that is the victim of the

wrong. As such, it is the corporation that is properly regarded as the real
party in interest, while the relator-stockholder is merely a nominal
party. The corporation must be impleaded so that the benefits of the suit
accrue to it and also because it must be barred from bringing a subsequent
case against the same defendants for the same cause of action. Stated
otherwise, the judgment rendered in the suit must constitute res
judicata against the corporation, even though it refuses to sue through its
board of directors.
A board resolution is not needed for the institution of a derivative

suit. Since the board is guilty of breaching the trust reposed in it by the
stockholders, it is but logical to dispense with the requirement of obtaining
from its authority to institute the case and to sign the certification against
forum shopping. Thus, the institution of a derivative suit need not be
preceded by a board resolution.
The derivative suit is an equitable remedy and one of last resort
The right of stockholders to bring derivative suits is not based on any
provision of the Corporation Code or the Securities Regulation Code, but is a
right that is implied by the fiduciary duties that directors owe corporations
and stockholders. Derivative suits are, therefore, grounded not on law, but
on equity.
Despite derivative suits being grounded on equity, they cannot prosper in
the absence of any or some of the requisites enumerated in the Interim
Rules of Procedure for Intra-Corporate Controversies, viz.:
Rule 8
DERIVATIVE SUITS
Section 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 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 acts or acts complained of;
and
(4) The suits is not a nuisance or harassment suit.
The second requisite does not obtain in this case.
Before instituting a derivative suit, the relator-stockholder must exert all

reasonable efforts to exhaust all remedies available under the articles of
incorporation, the by-laws, and the laws or rules governing the corporation
or partnership to obtain the relief he or she desires. Such fact must then be
alleged 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."
In their petition, Emmanuel, et al. allege that they exerted all reasonable
efforts to exhaust all remedies available to them. They point to the fact that
they invited Angelita to a meeting to amicably settle the dispute. Indeed, the
record shows that Emmanuel, Corazon, and Angelita came together for a
special stockholders' meeting on August 11, 2006. However, their attempt to
resolve the dispute turned sour when Angelita walked out before the
meeting even started.
Contrary to the postulation of Emmanuel and Corazon, their attempt to
settle the dispute with Angelita can hardly be considered "all reasonable
efforts to exhaust all remedies available."
The corporation should have filed the case itself through its board of
directors. However, this could not be done since those responsible for the
institution of this case never bothered to elect a governing body to wield
ARDC's powers and to manage its affairs.
The aggrieved stockholders cannot now come before the Court, claiming that
their remedy is a derivative suit. Their failure to elect a board ultimately
resulted in their failure to exhaust all legal remedies to obtain the
relief they desired. Since this case could have been brought by ARDC,
through its board, its stockholders cannot maintain the suit themselves,
purporting to sue in a derivative capacity. Emmanuel, et al. should not be
allowed to use a derivative suit to shortcut the law.

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AGO REALTY & DEVELOPMENT CORPORATION (ARDC), EMMANUEL F.

AGO, AND CORAZON CASTAÑEDA-AGO, PETITIONERS, v. DR.

G.R. No. 210906, October 16, 2019.

Ago Realty & Development Corporation (ARDC) is a close corporation. Its

This controversy arose when Angelita introduced improvements on Lot No.

Whether or not Emmanuel, et al. may sue on behalf of ARDC absent a

One of the powers expressly granted by law to corporations is the power to

As an exception, jurisprudence has recognized certain instances when

In derivative suits, it is the corporation that is the victim of the

A board resolution is not needed for the institution of a derivative

Section 1. Derivative action. - A stockholder or member may bring an action

(1) He was a stockholder or member at the time the acts or transactions

(4) The suits is not a nuisance or harassment suit.

The second requisite does not obtain in this case.

Before instituting a derivative suit, the relator-stockholder must exert all

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