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Case digest · Derivative suit; standing of a member
R.N. Symaco Trading Corporation, et al. vs. Santos
A fish brokers’ association built a market in Malabon on leased land. When the lease was not renewed, a new lease over part of the land went to a corporation whose President and Chairman sat on the association’s board. A stallholder sued for the association, and the case turned on whether he was a member at all.
Facts
1980
The Malabon Fish Brokers Association, Inc. (MFBAI), a non-stock corporation, was established to build and operate a fish market for its members. On April 30, 1980, it leased a portion of five parcels of land in Malabon from Mariano Guison for ten years. It built the market on the leased property, and its members installed their stalls.
The feud
Two groups in the association fought over who its legitimate members and officers were. In that dispute, SEC Case No. 2521, the SEC Hearing Officer found that the MFBAI had only 35 legitimate members, and Luisito T. Santos was not listed as one of them. Witnesses differed on how many years the association had not paid its rent.
April 1990
On April 9, 1990, the lessor’s heirs informed the association that the lease would not be renewed. On April 30, 1990, they leased a portion of the property previously leased to the association to R.N. Symaco Trading Corporation, through its President and Chairman, who was then also a member of the association’s board of directors.
The stallholders
The corporation filed a complaint for forcible entry against the stallholders in the Metropolitan Trial Court of Malabon, which ruled in its favor on October 11, 1990.
October 29, 1990
Santos, who testified that he had leased Stall No. 39, filed a derivative suit for and in behalf of the MFBAI to annul the April 30, 1990 lease. The complaint alleged that the lease violated the principle of corporate opportunity under Secs. 31 and 34 of the Corporation Code. The defense testified that the corporation was established in 1986 to lease stalls, and that it leased part of the property only after the lessor’s estate decided not to renew the association’s lease. Twenty-two stallholders, some of them members, sought to intervene.
The lower courts
In 1993, the trial court dismissed the complaint. It held that Santos and most of the intervenors were not bona fide members, and that there was no violation of the doctrine of corporate opportunity. The Court of Appeals reversed in 1997 and found a violation, set aside its own decision and affirmed the trial court in 1998, and then, in an amended decision dated February 21, 2000, ordered the director to account for the profits earned under the lease from 1990 to 1995 and to turn them over.
Issue
Did Santos have standing to file a derivative suit for and in behalf of the association?
Ruling
No. Santos was not a legitimate member of the association, so he had no standing. The Court reversed and set aside the Court of Appeals’ amended decision and affirmed the trial court’s decision dismissing the complaint. It did not decide whether there was a corporate-opportunity violation.
The Court held that the Court of Appeals erred. The decision of the SEC Hearing Officer in SEC Case No. 2521 showed 35 original members of the MFBAI, and Santos was not one of them; the rulings on membership in that case bound the trial court. Evidence that Santos had paid the membership fee and his monthly dues up to March 1984, and had been certified as a member, did not qualify him as a member under the association’s by-laws. Because a derivative suit requires that the plaintiff be a stockholder or member at the time of the act or transaction complained of, Santos had no standing to sue for the association. The Court observed that the petitioners had partly brought about the erroneous amended decision when they presented evidence that Santos was a member who had failed to pay his monthly dues from March 1984. The Court also held that the Court of Appeals erred in ordering that all the original members be impleaded, since all the members are not indispensable parties in a derivative suit. Having resolved these points, the Court found no need to resolve the other issues raised in the petition. It made no ruling on whether the new lease violated the doctrine of corporate opportunity, and no finding of wrongdoing against anyone.
“The Court also agrees with the petitioners' contention that as respondent Santos was not a legitimate MFBAI member, he had no standing to file a derivative suit for and in its behalf. One of the requisites of a derivative suit is that the party bringing the suit should be a stockholder/member at the time of the action or transaction complained of.”
Doctrine
A derivative suit is brought for the corporation, not for the plaintiff: “It is enough that a member or a minority of such members file a derivative suit for and in behalf of the corporation. After all, the members/stockholders who filed a derivative suit are merely nominal parties, the real party-in-interest being the corporation itself for and in whose behalf the suit is filed. Any monetary benefits under the decision of the court shall pertain to the corporation.” But the plaintiff must have been a stockholder or member when the act complained of happened, and here, once standing failed, the Court went no further: “In light of the foregoing, there is no longer a need for the Court to still resolve the other issues that were raised in the petition.” The case is therefore not a ruling on corporate opportunity under Sec. 34 of the old Corporation Code (now Sec. 33 of the Revised Corporation Code).
Compare: the merits reached
In Total Office Products and Services (TOPROS), Inc. vs. John Charles Chang, Jr., et al., G.R. Nos. 200070-71, December 7, 2021, the corporation itself was the claimant, and the Court reached the merits: it held that TOPROS “was correct in pointing out” that the doctrine of corporate opportunity “applies in the case.” It then remanded the case to determine the exact liability.
Bar tip
Check standing before the merits. A derivative suit needs a plaintiff who was a stockholder or, in a non-stock corporation, a member at the time of the act or transaction complained of. If he was not, the court need not reach the corporate-opportunity question. Cite this case for standing, not as a ruling that there was, or was not, a violation.
Hear it explained
Corporate Opportunity, Podcast Ep. 8, at 6:41
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This digest is general legal information for education, not legal advice, and it is not a substitute for reading the decision. Quoted passages are taken word for word from the full text.