G.R. No. 174909 and G.R. No. 177275, January 20, 2016.
MARCELINO M. FLORETE, JR., MARIA ELENA F. MUYCO and RAUL A. MUYCO, Petitioners, vs. ROGELIO M. FLORETE, IMELDA C. FLORETE, DIAMEL CORPORATION, ROGELIO C. FLORETE JR., and MARGARET RUTH C. FLORETE, Respondents. (G.R. No. 174909)

ROGELIO M. FLORETE SR., Petitioner, vs. MARCELINO M. FLORETE, JR., MARIA ELENA F. MUYCO AND RAUL A. MUYCO, Respondents. (G.R. No. 177275)

FACTS

Spouses Marcelino Florete, Sr. and Salome Florete had four children: Marcelino Florete, Jr., Maria Elena Muyco, Rogelio Florete, Sr., and Teresita Menchavez. They were among the original incorporators of People’s Broadcasting Service, Inc. (People’s Broadcasting). After Marcelino Sr. suffered a stroke in 1982, Rogelio Sr. began managing the corporation. An audit report by Sycip Gorres Velayo and Co. in 1994 detailed movements in the corporation’s shares from 1967 to 1989, including transfers and a capital increase, but disclaimed an opinion on ownership due to incomplete records. The Board approved this report in 1997. Rogelio Sr. later transferred portions of his shareholdings to his immediate family and Diamel Corporation. On June 23, 2003, Marcelino Jr., Maria Elena, and Raul Muyco (Marcelino Jr. Group) filed 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 Rogelio Sr., his family, and Diamel Corporation (Rogelio Sr. Group). The Regional Trial Court dismissed the Complaint, citing lack of cause of action, estoppel, and non-joinder of indispensable parties, and awarded moral and exemplary damages to Rogelio Sr. The Court of Appeals affirmed the dismissal and the award of damages but disallowed its immediate execution.

ISSUE

The primary issue is whether the Complaint filed by the Marcelino Jr. Group was properly dismissed by the trial court.

RULING

The Supreme Court DENIED the Petition in G.R. No. 174909 and GRANTED the Petition in G.R. No. 177275. The Court of Appeals’ decisions were AFFIRMED with MODIFICATION, deleting the awards of moral and exemplary damages.
The Supreme Court held that the Complaint was correctly dismissed. The action was essentially a derivative suit, as the alleged wrongs (invalid issuances, transfers, and increases of shares) primarily affected the corporation itself, its capital structure, and all stockholders proportionately. A derivative suit is an action filed by a stockholder on behalf of the corporation to redress a wrong done to the corporation. The Marcelino Jr. Group’s Complaint failed to comply with the requirements for a derivative suit: (1) the corporation itself, People’s Broadcasting, was not impleaded as a party; (2) there was no pre-suit demand on the board of directors to sue, nor an allegation that such demand would be futile; and (3) indispensable parties, including the corporation, other affected stockholders, transferors, and estates of deceased stockholders, were not joined. The suit could not be treated as an individual or class suit because the injury alleged was not peculiar to the plaintiffs alone but affected all stockholders. Furthermore, the audit report relied upon by the plaintiffs explicitly disclaimed an opinion on the capital stock accounts, and its approval by the Board did not constitute an admission of the plaintiffs’ claims. Finally, the award of damages to Rogelio Sr. was deleted for lack of sufficient basis, as the filing of an unfounded suit, by itself, does not automatically justify an award of moral damages absent proof of bad faith or malice.