G.R. No. L-40620 May 5, 1979
RICARDO L. GAMBOA, et al., petitioners, vs. HON. OSCAR R. VICTORIANO, et al., respondents.

FACTS

Private respondents, the Lopue family and Luisa Dacles, filed a complaint to nullify the issuance of 823 unissued shares of stock of Inocentes de la Rama, Inc. to petitioners and other defendants. They alleged that petitioners, as remaining directors, surreptitiously convened, elected themselves to corporate offices, and authorized the sale of these unissued shares to themselves at par value to forestall a takeover after respondents acquired a controlling block. The complaint asserted violations of pre-emptive rights, lack of proper board approval, and breach of fiduciary duty, seeking injunctive relief, declaration of nullity of the share issuance, and the ouster of petitioners from their director positions.
The trial court issued a preliminary injunction, ordering the deposit of the stock certificates. Subsequently, private respondents entered into a compromise agreement with three of the original defendants (Ramon de la Rama, Paz de la Rama-Battistuzzi, and Enzo Battistuzzi), wherein these defendants waived and transferred their rights over the contested shares to the plaintiffs. Petitioners moved to dismiss the complaint, arguing that the compromise agreement extinguished the cause of action and that the court lacked jurisdiction over what they characterized as intra-corporate matters. The respondent judge denied the motion to dismiss and the subsequent motion for reconsideration.

ISSUE

Whether the respondent judge committed grave abuse of discretion in denying the motion to dismiss the complaint.

RULING

The Supreme Court ruled that the respondent judge did not commit grave abuse of discretion. The compromise agreement did not extinguish the cause of action against the petitioners. The agreement was only between the plaintiffs and three of the multiple defendants. It constituted a partial compromise, extinguishing the claims only against those specific signatory defendants. The cause of action against the petitioners, who were not parties to the agreement, remained alive and subsisting. The agreement’s lack of stated consideration indicated it was merely an admission by the signatory defendants of the validity of the plaintiffs’ claims, not a resolution of the entire dispute.
The Court also rejected the jurisdictional challenge. While courts generally will not interfere with the board’s business discretion, they have jurisdiction when the acts complained of, such as alleged fraudulent issuance of shares in breach of fiduciary duty, result in serious injury to stockholders’ rights. Furthermore, the suit was properly an individual, not a derivative, action because the plaintiffs were vindicating their own personal rights and interests as stockholders allegedly prejudiced by the void issuance of shares, rather than a wrong done primarily to the corporation. Any question of misjoinder of parties or remedies was not a proper ground for dismissal at that preliminary stage of the proceedings. The petition was dismissed for lack of merit.