G.R. No. L-22399 March 30, 1967
REPUBLIC BANK, represented by DAMASO P. PEREZ, plaintiff-appellant, vs. MIGUEL CUADERNO, BIENVENIDO DIZON, PABLO ROMAN, THE BOARD OF DIRECTORS OF THE REPUBLIC BANK AND THE MONETARY BOARD OF THE CENTRAL BANK OF THE PHILIPPINES, defendants-appellees.

FACTS

Damaso Perez, a stockholder of the Republic Bank, instituted a derivative suit on behalf of the Bank. The complaint alleged that Pablo Roman, as chairman of the Bank’s Board of Directors and its Executive Loan Committee from 1957 to 1959, fraudulently granted loans amounting to almost P4 million to fictitious persons and dummies. The Monetary Board of the Central Bank, upon Perez’s complaint, investigated and found violations of the General Banking Act. The Monetary Board ordered a new Board of Directors for the Republic Bank. Subsequently, to neutralize criminal action against him, Roman engaged Miguel Cuaderno (former Central Bank Governor) as a technical consultant at a monthly compensation of P12,500 and selected Bienvenido Dizon as chairman of the Bank’s Board. The complaint alleged these appointments were made in bad faith, solely to protect Roman from prosecution, and constituted a wastage of corporate funds. Perez filed the derivative suit without prior demand on the Bank’s Board, alleging such demand would be futile as the board members were personally chosen by Roman. The defendants (except the Monetary Board) filed motions to dismiss on grounds of no valid cause of action, plaintiff’s lack of legal capacity to sue, and non-exhaustion of intra-corporate remedies. The Court of First Instance of Manila dismissed the complaint, citing the motions to dismiss and the pendency of eight other cases between the same parties, suggesting the issues could be raised therein via amended pleadings. Perez appealed directly to the Supreme Court.

ISSUE

Whether or not the Court of First Instance erred in dismissing the complaint for failure to state a cause of action.

RULING

Yes, the trial court erred in dismissing the complaint. The Supreme Court reversed the dismissal order and remanded the case for trial on the merits. The Court held:
1. The complaint sufficiently stated a cause of action. In a motion to dismiss for failure to state a cause of action, the facts pleaded in the complaint are deemed hypothetically admitted. The allegations—that the appointments of Cuaderno and Dizon were made solely to protect Roman from criminal prosecution by a board composed of his nominees, not to further corporate interests—if proven, would constitute an unlawful wastage or diversion of corporate funds, giving the Bank a right to sue to nullify the appointments and recover amounts paid.
2. Plaintiff Perez had the legal capacity to institute the suit as a derivative action. Philippine jurisprudence permits an individual stockholder to institute a derivative suit on behalf of the corporation to vindicate corporate rights when the officials refuse to sue or are the ones to be sued or control the corporation. The suit was properly brought for and in behalf of the Republic Bank, and prior demand on the board was correctly alleged to be futile.
3. The pendency of eight other lawsuits did not justify dismissal. The cause of action in the present case was not included in any of the pending cases, and dismissal was not sought on the ground of litis pendentia. The possibility of incorporating the cause of action in another case via amendment is not a valid ground for dismissal.
The Supreme Court ordered the trial court to overrule the motions to dismiss and require the defendants to answer the complaint.