THE REAL PARTY IN INTEREST IN A DERIVATIVES SUIT IS THE CORPORATION, NOT THE

STOCKHOLDERS FILING THE SUIT

Florente, Jr. vs. Florente

FACTS:
This resolves consolidated cases assailing the decisions of the CA. The Petition docketed as G.R. No. 174909
assails the CA Decision affirming the dismissal of the Complaint and sustaining the award of moral and
exemplary damages in favor of Rogelio Florete, Sr. The Petition docketed as G.R. No. 177275 assails the CA
Decision that disallowed the immediate execution of the same award of damages.

The stockholders of record of People's Broadcasting Service, Inc. consisted of 2 groups, the Marcelino, Jr.
Group and the Rogelio, Sr. Group. The Marcelino, Jr. Group filed before the RTC a Complaint for Declaration
of Nullity of Issuances, Transfers and Sale of Shares in People's Broadcasting Service, Inc. and All Posterior
Subscriptions and Increases thereto with Damages against the Rogelio, Sr. Group. The Marcelino, Jr. Group
seeks to nullify transactions on the shares of stock of People's Broadcasting as noted in the report of SGV. The
Marcelino, Jr. Group alleges the following: 1. The issuance of shares in favor of Consolidated Broadcasting
System, Inc., in Resolution No. 4 was a forgery and made without a quorum; 2. A stockholder who transferred
her shares was already dead at the time; 3. The meeting which approved Resolution No. 4 was a sham and no
member of the Board attended such meeting; 4. The signature of Marcelino, Sr. was a forgery; 5. Issuance of
shares made to a company and subsequently transferred to Rogelio, Sr. was procured by fraud. The Rogelio,
Sr. Group filed their Answer with compulsory counterclaim for moral and exemplary damages. (GR No.
177275).

This Complaint was later dismissed for lack of cause of action against the Rogelio, Sr. Group, estoppel from
questioning the assailed movement of shares of People's Broadcasting and failure to join indispensable parties
to the Complaint. As to Rogelio, Sr.'s compulsory counterclaim, the RTC granted the same. Rogelio, Sr.
thereafter filed a Motion for the immediate execution of the award of moral and exemplary damages pursuant to
the Interim Rules of Procedure Governing Intra-Corporate Controversies.

ISSUE:
1. Whether or not the Marcelino, Jr. Group has a cause of action against those whom they have
impleaded as defendants.

2. Whether or not the Marcelino, Jr. Group failed to implead indispensable parties. Who are
indispensable parties in a derivative suit?

HELD:

1. No. It was upon People's Broadcasting itself that the causes of action now claimed by the Marcelino,
Jr. Group accrued. While stockholders in the Marcelino, Jr. Group were permitted to seek relief, they
should have done so not in their unique capacity as individuals or as a group of stockholders but in
place of the corporation itself through a derivative suit.

The sufficiency of the Marcelino, Jr. Group's plea for relief, through their Complaint, hinges on a
characterization of the suit or action they initiated. This characterization requires a determination of the cause
of action through which the Marcelino, Jr. Group came to court for relief.

A derivative suit "is an action filed by stockholders to enforce a corporate action." A derivative suit, therefore,
concerns "a wrong to the corporation itself." The real party in interest is the corporation, not the
stockholders filing the suit. The stockholders are technically nominal parties but are nonetheless the active
persons who pursue the action for and on behalf of the corporation. They are intended to afford reliefs to
stockholders in instances where those responsible for running the affairs of a corporation would not otherwise
act. The fact that stockholders suffer from a wrong done to or involving a corporation does not vest in them a
sweeping license to sue in their own capacity. The recognition of derivative suits as a vehicle for redress
distinct from individual and representative suits is an acknowledgment that certain wrongs may be addressed
only through acts brought for the corporation.
The determination of the appropriate remedy hinges on the object of the wrong done. When the object is a
specific stockholder or a definite class of stockholders, an individual suit or class/representative suit must be
resorted to. When the object of the wrong done is the corporation itself or "the whole body of its stock and
property without any severance or distribution among individual holders," it is a derivative suit that a
stockholder must resort to.

The action should be a proper derivative suit even if the assailed acts do not pertain to a corporation's
transactions with third persons. Cua, Jr. established that the pivotal consideration is whether the wrong
done as well as the cause of action arising from it accrues to the corporation itself or to the whole body of its
stockholders. Ching and Wellington states that if "[t]he causes of action pleaded . . . do not accrue to a single
shareholder or a class of shareholders but to the corporation itself," the action should be deemed a derivative
suit. Also, in Go, an action "seeking to nullify and invalidate the duly constituted acts [of a corporation]" entails a
cause of action that "rightfully pertains to [the corporation itself and which stockholders] cannot exercise . . .
except through a derivative suit."

In this case, the Marcelino, Jr. Group anchored their Complaint on violations of and liabilities arising from the
Corporation Code, The Marcelino, Jr. Group ultimately prays that People's Broadcasting's entire capital
structure be reconfigured to reflect a status quo ante. The actions being assailed by the Marcelino, Jr. Group
pertain to parties that are not extraneous to People's Broadcasting. They assail and seek to nullify acts
taken by various iterations of People's Broadcasting's Board of Directors. All these acts and incidents
concern the capital structure of People's Broadcasting. What the Marcelino, Jr. Group asks is the complete
reversal of a number of corporate acts undertaken by People' Broadcasting's different boards of directors.
These boards supposedly engaged in outright fraud or, at the very least, acted in such a manner that amounts
to wanton mismanagement of People's Broadcasting's affairs. The ultimate effect of the remedy they seek is
the reconfiguration of People's Broadcasting's capital structure.

Also, the damage inflicted upon People's Broadcasting's individual stockholders, if any, was indiscriminate. It
was not unique to those in the Marcelino, Jr. Group. It pertained to "the whole body of [People's Broadcasting's]
stock." Accordingly, it was upon People's Broadcasting itself that the causes of action now claimed by the
Marcelino, Jr. Group accrued. While stockholders in the Marcelino, Jr. Group were permitted to seek relief, they
should have done so not in their unique capacity as individuals or as a group of stockholders but in place of the
corporation itself through a derivative suit. As they, instead, sought relief in their individual capacity, they did so
bereft of a cause of action. Likewise, they did so without even the slightest averment that the requisites for the
fi􏰀ling of a derivative suit, as spelled out in Rule 8, Section 1 of the Interim Rules of Procedure for Intra-
Corporate Controversies, have been satisfied. Since the Complaint lacked a cause of action and failed to
comply with the requirements of the Marcelino, Jr. Group's vehicle for relief, it was only proper for the
Complaint to have been dismissed.

A stockholder may suffer from a wrong done to or involving a corporation, but this does not vest in the
aggrieved stockholder a sweeping license to sue in his or her own capacity. The determination of the
stockholder's appropriate remedy — whether it is an individual suit, a class suit, or a derivative suit — hinges
on the object of the wrong done. When the object of the wrong done is the corporation itself or "the whole body
of its stock and property without any severance or distribution among individual holders," it is a derivative suit,
not an individual suit or class/representative suit, that a stockholder must resort to.

2. Yes. The Marcelino, Jr. Group failed to implead an indispensable party.

In derivative suits, the corporation concerned must be impleaded as a party. Not only is the corporation
an indispensible party, but it is also the present rule that it must be served with process. The reason given is
that the judgment must be made binding upon the corporation in order that the corporation may get the benefit
of the suit and may not bring a subsequent suit against the same defendants for the same cause of action. In
other words the corporation must be joined as party because it is its cause of action that is being litigated and
because judgment must be a res ajudicata [sic] against it.

There are two consequences of a finding on appeal that indispensable parties have not been joined. First, all
subsequent actions of the lower courts are null and void for lack of jurisdiction. Second, the case should be
remanded to the trial court for the inclusion of indispensable parties. It is only upon the plaintiff's refusal to
comply with an order to join indispensable parties that the case may be dismissed. To reiterate, the inclusion of
an indispensable party is a jurisdictional requirement. Any decision rendered by a court without first obtaining
the required jurisdiction over indispensable parties is null and void for want of jurisdiction: "the presence of
indispensable parties is necessary to vest the court with jurisdiction, which is 'the authority to hear and
determine a cause, the right to act in a case.'"

The second consequence is unavailing in this case. While "[n]either misjoinder nor non-joinder of parties is
ground for dismissal of an action" and is, thus, not fatal to the Marcelino, Jr. Group's action, we have shown
that they lack a cause of action. This warrants the dismissal of their Complaint

Since the Regional Trial Court did not have jurisdiction, the decision awarding damages in favor of Rogelio, Sr.
(GR. No. 177275) is void. Apart from this, there is no basis in jurisprudence for awarding moral and exemplary
damages in cases where individual suits that were erroneously filed were dismissed. We find no reason to
conclude that the Marcelino, Jr. Group acted in so malevolent, oppressive, or reckless a manner that moral and
exemplary damages must be awarded in such huge amounts as the Regional Trial Court did.

From the conclusion that the Decision awarding damages is void and unwarranted, it necessarily follows that
the Order of the Regional Trial Court to immediately execute its Decision is likewise null and void. Contrary to
Rogelio, Sr.'s claim in its Petition, execution cannot ensue. For this reason, the Petition docketed as G.R. No.
177275 must be denied.