GOCHAN et al vs Young (Celicia Gochan Uy, Mike Uy, et al)

Nature: Petition for Review on Certiorari assailing the Decision of the

Court of Appeals
FACTS:
Felix Gochan & Sons Realty Corporation (Gochan Realty) is
registered in SEC with Felix Gochan Sr. & 5 others as incorporators.
The daughter of Felix Gochan Sr. (& the mother of respondents),
Alice, inherited 50 shares of stock in Gochan Realty. When Alice
died, she left the 50 shares to her husband John Young, Sr.
The RTC adjudicated 6/14 of these shares to the children of Alice.

According to the SEC Order:

(1) It has been shown that the complainant heirs of Alice and John,
suing in THEIR OWN RIGHT to the stocks, had never been
stockholders of record of Gochan Realty to confer them with the
legal capacity to bring and maintain their action. Even though the
heirs succeeded the estate, they did not become automatically the
stockholders of the corporation. Since they are not yet stockholders,
the case cannot be considered as an intra-corporate controversy.
(outside the jurisdiction of SEC).
(2) Due to the alleged wrongful acts of the corporation and its
directors constitute fraudulent devices or schemes which may be
detrimental to the stockholders, the complainants brought this
action as a DERIVATIVE SUIT on their behalf and on behalf of
Gochan Realty.

Having earned dividends, these stocks numbered 179.

John Young Sr. requested Gochan Realty to partition the shares of
his late wife by cancelling the stock certificates in his name and
issuing new stock certificates in the names of the children.
Petitioner Gochan Realty refused, citing as reason, the right of first
refusal granted to the remaining stockholders by the Articles of
Incorporation.
John Young, Sr. died and left the shares to the respondents.
*SEC: Respondents Cecilia Gochan Uy and Miguel Uy filed a
complaint for issuance of shares of stock to the rightful owners,
nullification of shares of stock, reconveyance of property impressed
with trust, accounting, removal of officers and directors and damages
against Petitioner Gochan Realty.
Petitioners Gochan et al filed a motion to dismiss the complaint
alleging that: (1) the SEC has no jurisdiction over the nature of the
action; (2) the respondents were not the real parties-in-interest and
had no capacity to sue; and (3) respondents causes of action were
barred by the Statute of Limitations.
SEC Hearing Officer granted the motion to dismiss

Section 5. Derivative Suit - No action shall be brought by stockholder

in the right of a corporation unless the complainant was a
stockholder at the time the questioned transaction occurred as well
as at the time the action was filed and remains a stockholder during
the pendency of the action. x x x.
According to jurisprudence, a stockholder bringing a derivative action
must have been so (a stockholder) at the time the transaction or act
complained of took place. The failure to comply with the
jurisdictional requirement on derivative action must result in the
dismissal of the instant complaint.
-------------end of SEC order--------------Respondents filed a motion for a reconsideration but it was denied
for being pro-forma.
Respondents appealed to the SEC en banc, contending that the
SEC has jurisdiction.
Petitioners contend that the appeal was 97 days late and beyond
the 30-day period for appeals.

The SEC en banc ruled for the petitioners and holding that the
respondents motion for reconsideration did not interrupt the 30-day
period for appeal because said motion was pro-forma.

Held: Petitioners contend that the action filed by the Spouses was
not a derivative suit, because the spouses and not the corporation
were the injured parties. The Court is not convinced!

*CA: Respondents filed a Petition for Review with the Court of

Appeals.

The Complaint shows allegations of injury to the corporation itself:

(1) There was conspiracy and fraud in depressing the value of the
stock of the Corporation and to induce the minority stockholders to
sell their shares of stock for an inadequate consideration. Petitioner
Esteban Gochan et al unlawfully and fraudulently appropriated for
themselves the funds of the Corporation by drawing excessive
amounts in the form of salaries and cash advances and charging
their purely personal expenses to the Corporation.

CA ruled that the SEC had no jurisdiction as far as the heirs of Alice
Gochan were concerned, because they were not yet
stockholders. BUT it upheld the capacity of Respondents Cecilia
Gochan Uy and Miguel Uy. It also upheld that the intestate Estate of
John Young Sr. was an indispensable party.
Moreover, it declared that respondents' Motion for Reconsideration
before the SEC was not pro forma; thus, its filing tolled the appeal
period.
1. Sub-Issue: W/N the Spouses Uy have the personality to file an
action before the SEC against Gochan Realty Corporation. YES!
Held: Petitioners argue that Spouses Cecilia and Miguel had no
capacity to bring the suit since they were no longer stockholders at
the time. Allegedly, the corporation had already purchased their
stocks. Cecilia averred that the purchase contract of her stocks was
null and void which the court admitted. Thus, Cecilia remains to be a
stockholder of the corporation. Although she was no longer
registered as a stockholder in the corporate records as of the filing of
the case before the SEC, the admitted allegations in the Complaint
made her still a bona fide stockholder of Gochan Realty, as between
said parties.
However, petitioners contend that the statute of limitations already
bars the spouses' action being voidable. However, the sale of the
stock was not voidable, but was void ab initio. The contention that
the action has prescribed cannot be sustained. Prescription cannot
be invoked as a ground if the contract is alleged to be void ab initio.
2. Main Issue: W/N the Spouses Uy could bring a derivative suit in
the name of Gochan Realty to redress wrongs allegedly committed
against it for which the directors refused to sue YES!

(2) The payment of P1,200,000 by the Corporation to Respondent

Cecilia for her shares of stock constituted an unlawful and partial
liquidation and distribution of assets to a stockholder, resulting in the
impairment of the capital of the Corporation and prevented it from
otherwise utilizing said amount for its regular and lawful business, to
the damage and prejudice of the Corporation, its creditors, and of
complainants as minority stockholders
As early as 1911, this Court has recognized the right of a single
stockholder to file derivative suits. In its words:
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 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.
The allegations of injury to the Spouses Uy can coexist with those
pertaining to the corporation. The personal injury suffered by the
spouses cannot disqualify them from filing a derivative suit on behalf
of the corporation.
Doctrine: The fact that certain persons are not registered as
stockholders in the books of the corporation will not bar them from

filing a derivative suit, if it is evident from the allegations in the

complaint that they are bona fide stockholders
3. Sub-Issue W/N the intestate estate of John Young Sr. is an
indispensable party in the SEC case considering that the individual
heirs' shares are still in the decedent stockholder's name.
Held: Petitioners contend that the Intestate Estate of John D. Young
Sr. is not an indispensable party, as it not benefited or injured by any
court judgment.
It would be useful to point out that one of the causes of action stated
in the Complaint filed with the SEC refers to the registration, in the
name of the other heirs of Alice Gochan Young, of 6/14th of the
shares still registered under the name of John D. Young Sr. Since all
the shares that belonged to Alice are still in his name, no final
determination can be had without his estate being impleaded in the
suit. His estate is thus an indispensable party with respect to dealing
with the registration of the shares in the names of the heirs of Alice.
4. Sub-Issue Whether or not the cancellation of notice of lis pendens
was justified considering that the suit did not involve real properties
owned by Gochan Realty. -- NO
Held: The Court found no reason to disturb the ruling of the Court of
Appeals.
There were allegations of breach of trust and confidence and
usurpation of business opportunities in conflict with petitioners'
fiduciary duties to the corporation, resulting in damage to the
Corporation. Under these causes of action, respondents are asking
for the delivery to the Corporation of possession of the parcels of
land and their corresponding certificates of title. Hence, the suit
necessarily affects the title to or right of possession of the real
property sought to be reconveyed. The Rules of Court allows the
annotation of a notice of lis pendens in actions affecting the title or
right of possession of real property. Thus, the Court of Appeals was
correct in reversing the SEC Order for the cancellation of the notice
of lis pendens.

Effect of RA 8799: Intra-corporate controversies are now within the

jurisdiction of courts of general jurisdiction, no longer of the
Securities and Exchange Commission.
DISPOSITION: Petition DENIED!