Yu v. Yukayguan et al.

G.R. No. 177549, 18 June 2009

FACTS:

The families Yu and Yukayguan were all stockholders of Winchester Industrial Supply, Inc. (Winchester, Inc.), a domestic corporation engaged in the operation of a general hardware and industrial supply and equipment business. Anthony Yu is the older half-brother of Joseph Yukayguan. The Yukayguan family accused the Yu family of misappropriating the funds and properties of Winchester, Inc. by understating the sales, charging their personal and family expenses to the said corporation, and withdrawing stocks for their personal use without paying for the same.

For this reason, the Yukayguan family filed a complaint for Accounting, Inspection of Corporate Books and Damages through Embezzlement and Falsification of Corporate Records and Accounts against the Yu family. The said complaint was filed by the former in their own behalf and as a derivative suit on behalf of Winchester, Inc. The trial court dismissed the complaint filed by the Yukayguan family for failure to show that they had complied with the essential requisites for filing a derivative suit. The ruling of the trial court was upheld by the Court of Appeals but was later reversed by the appellate court.

ISSUE:

Whether or not the derivative suit filed by the Yukayguan family is meritorious.

RULING:

No. The general rule is that where a corporation is an injured party, its power to sue with its board of directors or trustees. Nonetheless, an individual stockholder is to institute a derivative suit on behalf of the corporation wherein he holds stocks to protect or vindicate corporate rights, whenever the officials of the corporation sue, or are the ones to be sued, or hold the control of the corporation. However, stockholder’s suit cannot prosper without first complying with the legal requisites institution. In this case, the complaint filed by the Yukayguan family did not comply with the requisites filing a derivative suit. Section 1, Rule 8 of the Interim Rules of Procedure Governing Corporate Controversies, provides:

Sec. 1. Derivative action. – A stockholder or member may bring an action in a corporation or association, as the case may be, provided, that: (1) He was a stockholder or member at the time the acts or transactions of the action occurred and at the time the action was filed; (2) He exerted all reasonable efforts, and alleges the same with particularity the complaint, to exhaust all remedies available under the articles of incorporation, by- laws, laws or rules governing the corporation or partnership to obtain he desires; (3) No appraisal rights are available for the act or acts complained of; (4) The suit is not a nuisance or harassment suit.

The complaint of the Yukayguan family did not allege with particularly that they exerted all reasonable efforts to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing Winchester, Inc. to obtain the relief they desire. With respect to the third and fourth requirements of the above-mentioned provision, the Yukayguans’ Complaint also failed to allege, explicitly or otherwise, the fact that there were no appraisal rights available for the acts complained of, as well as a categorical statement that the suit was not a nuisance or a harassment suit. Therefore, the derivative suit filed by the Yukayguan family should be dismissed. The fact that Winchester, Inc. is a family corporation should not in a way exempt the Yukayguan family from complying with the clear requirements and formalities of the rules for filing a derivative suit.

*Case Digest by Lowel Dave D. Manuel, JD-4, Andres Bonifacio Law School, S.Y. 2019-2020

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