Republic Bank vs. Cuaderno
G.R. No. L-22399, March 30, 1967
FACTS: Damaso Perez, a stockholder of the Republic Bank, had complained to the Monetary Board of the Central Bank against certain frauds allegedly committed by defendant Pablo Roman, in that being chairman of the Board of Directors of the Republic Bank, and of its Executive Loan Committee, in 1957 to 1959, "in grave abuse of his fiduciary duty and taking advantage of his said positions and in connivance with other officials of the Republic Bank", Roman had fraudulently granted or caused to be granted loans to fictitious and nonexisting persons and to their close friends, relatives and/or employees, who were in reality their dummies, on the basis of fictitious and inflated appraised values values of real estate properties. Respondent Cuaderno, governor of the central bank, ordered an investigation, which was carried out of the Bank Examiners. They reported that the bank has certain mor tgage loans which were granted in violations of s everal provisions of General Banking Act. The Monetary Board ordered a new Board of Directors of the Republic Bank to be elected, which was done, and subsequently approved by the Monetary Board. The Monetary Board later accepted the offer of Pablo Roman to put up adequate security for the questioned loans made by the Republic Bank, and such security was made a condition for the resumption of the Bank's normal operations. However, no information was filed up to the time of the retirement of Cuaderno. Subsequently, Pablo Roman engaged Miguel Cuaderno as technical consultant and selected Bienvenido Dizon as chairman of the Board of Directors of the Republic Bank. Damaso Perez filed a derivative suit on behalf of the corporation for a writ of preliminary injunction against the Monetary Board to prevent its confirmation of the appointments of Dizon and Cuaderno alleging that the Board of Directors composed of individuals personally selected and chosen by Roman, connived and confederated in approving the appointment and selection of Cuaderno and Dizon; that such action was motivated by bad faith and without intention to protect the interest of the Republic Bank but were prompted to protect Pablo Roman from criminal prosecution. The Monetary Board filed an answer with separate motion to dismiss on the ground of lack of legal capacity of of plaintiff-relator to sue and non-exhaustion of intra-corporate remedies. The court denied the petition for a writ of preliminary injunction and dismissed the case. Hence, this direct appeal to the Court. ISSUE: Whether or not Damaso Perez, a stockholder, has a right t o question the appointment and selection of defendants, which can only be the result of corporate acts? HELD: Yes. RATIO: Normally, an individual stockholder is permitted to institute institute a derivative or representative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the corporati on. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. He is neither alleging nor vindicating his own individual interest or prejudice, but but the interest of the Republic Bank and the damage caused to it. The action he has brought is a derivative one, expressly manifested to be for and in behalf of the Republic Bank, because it was futile to demand action by the corporation, since its Directors were nominees and creatures of defendant Pablo Roman. The frauds charged by plaintiff are frauds against the Bank that redounded to its prejudice. Defendants urge that the action is improper because the plaintiff was not authorized by the corporation to bring suit in its behalf. Any such authority could not be expected as the suit is aimed to nullify the action taken by the manager and the board of directors of the Republic Bank; and any demand for intra-corporate remedy would be futile, as expressly pleaded in the complaint. These circumstances permit a stockholder to bring a derivative suit. That no other stockholder has chosen to make common cause with plaintiff Perez is irrelevant, since the smallness of plaintiff's holdings is no ground for denying him relief.
