Chua vs. Court of Appeals

A criminal complaint filed by a stockholder is not a derivative suit unless the complaint expressly alleges that the stockholder is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated, and the corporation is impleaded as an indispensable party. Nonetheless, a corporation whose documents were falsified is a proper party in a certiorari petition arising from the criminal case, and private prosecutors may intervene where the civil action is deemed instituted with the criminal action and no waiver or reservation was made.

Private respondent Lydia C. Hao was the treasurer of Siena Realty Corporation, while petitioner Francis Chua was a stockholder and director of the same corporation. Chua was charged with falsification of public documents for allegedly making it appear in the minutes of the corporation's annual stockholders meeting that Hao was present and participated, when she was not. The falsified documents pertained to corporate projects of Siena Realty Corporation. The dispute centered on whether Hao's private prosecutors could actively participate in the criminal proceedings to pursue the civil aspect of the case, and whether the corporation could be impleaded in the certiorari petition challenging the MeTC's exclusion of those prosecutors.

On February 28, 1996, Lydia C. Hao, treasurer of Siena Realty Corporation, filed a complaint-affidavit with the City Prosecutor of Manila charging Francis Chua and his wife Elsa Chua with four counts of falsification of public documents under Article 172 in relation to Article 171 of the Revised Penal Code. The charge alleged that on or about May 13, 1994, Chua prepared, certified, and falsified the Minutes of the Annual Stockholders Meeting of the Board of Directors of Siena Realty Corporation, duly notarized before Notary Public Atty. Juanito G. Garcia, by making it appear that Hao was present and participated in the proceedings when she was not in fact present during the meeting held on April 30, 1994. The City Prosecutor thereafter filed the Information docketed as Criminal Case No. 285721 before the Metropolitan Trial Court (MeTC) of Manila, Branch 22, against Francis Chua alone, dismissing the accusation against Elsa Chua.

Chua was arraigned and trial ensued. During the trial, private prosecutors Atty. Evelyn Sua-Kho and Atty. Ariel Bruno Rivera appeared and presented Hao as their first witness. After Hao's testimony, Chua moved to exclude the complainant's counsels as private prosecutors on the ground that Hao failed to allege and prove any civil liability in the case. The MeTC, in an Order dated April 26, 1999, granted Chua's motion and ordered the complainant's counsels excluded from actively prosecuting the case. Hao's motion for reconsideration was denied.

Hao then filed a petition for certiorari docketed as SCA No. 99-94846 before the RTC of Manila, Branch 19, entitled "Lydia C. Hao, in her own behalf and for the benefit of Siena Realty Corporation vs. Francis Chua, and the Honorable Hipolito dela Vega." The RTC gave due course and, on October 5, 1999, reversed the MeTC Order, directing the MeTC to allow the intervention of the private prosecutors on behalf of Hao in the prosecution of the civil aspect of Criminal Case No. 285721. Chua's motion for reconsideration was denied. Chua then elevated the matter to the Court of Appeals via petition for certiorari, which on June 14, 2001, denied the petition and affirmed the RTC Orders in toto. The CA held that the action was a derivative suit, reasoning that Chua falsified documents pertaining to corporate projects and made it appear he was a stockholder and director, and that the corporation was a necessary party. Chua's motion for reconsideration was denied on November 20, 2001, prompting the present petition.

• Derivative Suit Mischaracterization: Petitioner argued that the Court of Appeals erred in ruling that Criminal Case No. 285721 was in the nature of a derivative suit, asserting that a derivative suit is peculiar only to intra-corporate proceedings and cannot be made part of a criminal action. He cited Western Institute of Technology, Inc. vs. Salas for the proposition that an appeal on the civil aspect of a criminal case cannot be treated as a derivative suit, and that Siena Realty Corporation was not the private complainant in the criminal case.
• Improper Party: Petitioner maintained that Siena Realty Corporation was not a private complainant in Criminal Case No. 285721 and thus could not be included as a co-petitioner in SCA No. 99-94846, invoking Ciudad Real & Dev't. Corporation vs. Court of Appeals.
• No Authority to Sue: Petitioner argued that respondent had no authority to bring a suit on behalf of the Corporation since there was no Board Resolution authorizing her to file the suit.
• No Personal Damages Proven: Petitioner averred that respondent's testimony in the MeTC did not establish or prove any damages personally sustained by her, rendering the participation of her counsel as private prosecutors unnecessary and without basis. He cited Tan, Jr. vs. Gallardo for the proposition that where the law defining and punishing the offense does not provide for indemnity, the offended party may not intervene.
• Sham Pleading: Petitioner contended that the RTC judge acted with grave abuse of discretion in not dismissing the petition in SCA No. 99-94846 for being a sham pleading.

• Derivative Suit: Respondent claimed that the suit was brought under the concept of a derivative suit, maintaining that when directors or trustees refuse to file a suit even after demand from stockholders, a derivative suit is allowed.
• Proper Party: Respondent asserted that the complaint was filed not only in her personal capacity but likewise for the benefit of the corporation, and that she had exhausted all remedies available to her before instituting the case, not only to claim damages for herself but also to recover damages caused to the company.

• Derivative Suit: Whether the criminal complaint filed by respondent against petitioner is in the nature of a derivative suit.
• Proper Party in Certiorari: Whether Siena Realty Corporation is a proper petitioner in SCA No. 99-94846, a petition for certiorari under Rule 65 before the RTC.
• Private Prosecutors' Intervention: Whether private prosecutors should be allowed to actively participate in the trial of Criminal Case No. 285721.

• Derivative Suit: No. The criminal complaint was not in the nature of a derivative suit because the complaint did not allege that respondent was suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated, nor was the corporation impleaded as a party.
• Proper Party in Certiorari: Yes. Siena Realty Corporation was a proper party in the certiorari petition because the falsified documents were corporate documents and the proceedings in the criminal case directly and adversely affected the corporation.
• Private Prosecutors' Intervention: Yes. Private prosecutors may intervene where the civil action is deemed instituted with the criminal action and the offended party neither waived the civil action nor reserved the right to institute it separately.

• Derivative Suit: Under Section 36 of the Corporation Code in relation to Section 23, a corporation's power to sue is lodged with its board of directors or trustees. An individual stockholder may institute a derivative suit on behalf of the corporation when corporate officials refuse to sue or are the ones to be sued. However, for a derivative suit to prosper, the minority stockholder must allege in the complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join. It is a condition sine qua non that the corporation be impleaded as a party, as it is an indispensable party and must be served with process, so that judgment is binding upon it and res judicata bars subsequent suits. In the criminal complaint filed by respondent, nowhere was it stated that she was filing the same in behalf and for the benefit of the corporation. The Court distinguished Western Institute of Technology, Inc. vs. Salas, where it was held that a mere appeal on the civil aspect of a criminal case cannot be treated as a derivative suit because the complaint failed to allege a derivative cause of action — the same deficiency present here. The CA's characterization of the action as a derivative suit was therefore erroneous.

• Proper Party in Certiorari: Under Rule 65 of the Rules of Civil Procedure, a person aggrieved by a tribunal's grave abuse of discretion may file a special civil action for certiorari. The aggrieved parties in a criminal case include the State and the private offended party or complainant. While only a party-in-interest or those aggrieved may file certiorari, the Court held in Pastor, Jr. vs. Court of Appeals that even a non-party, if aggrieved, may institute a petition for certiorari. Although Siena Realty Corporation was not a complainant in the criminal action, the subject of the falsification was the corporation's project and the falsified documents were corporate documents. The proceedings in the criminal case directly and adversely affected the corporation, making it a proper party in the certiorari petition. The case was distinguishable from Ciudad Real, where the corporation's standing was denied because its motion for intervention had been finally rejected and the case had reached finality.

• Private Prosecutors' Intervention: Every person criminally liable for a felony is also civilly liable under Article 100 of the Revised Penal Code. When a criminal action is instituted, the civil action for recovery of civil liability is deemed instituted with the criminal action unless the offended party waives the civil action, reserves the right to institute it separately, or institutes the civil action prior to the criminal action. The civil action includes restitution, reparation of the damage caused, and indemnification for consequential damages. Under the Rules, where the civil action for recovery of civil liability is instituted in the criminal action, the offended party may intervene by counsel. Private respondent did not waive the civil action, did not reserve the right to institute it separately, and did not institute a separate civil action. Accordingly, evidence should be allowed in the criminal proceedings to establish the civil liability arising from the offense, and the private offended party has the right to intervene through private prosecutors. Petitioner's reliance on Tan, Jr. vs. Gallardo was unavailing because that case applied where the law defining and punishing the offense does not provide for indemnity, which is not the situation here.

• Derivative Suit — Requisites — A derivative suit is an action by a shareholder to enforce a corporate cause of action where the corporation's officials refuse to sue or are the ones to be sued. For a derivative suit to prosper, the minority stockholder must allege in the complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join. The corporation must be impleaded as an indispensable party and must be served with process, so that judgment is binding upon it and res judicata bars subsequent suits. The Court applied this doctrine to hold that the criminal complaint was not a derivative suit because respondent never alleged she was suing on a derivative cause of action on behalf of the corporation, nor was the corporation impleaded in the criminal complaint.

• Civil Liability Deemed Instituted in Criminal Action — Under Article 100 of the Revised Penal Code and Rule 111(a) of the Rules of Criminal Procedure, every person criminally liable for a felony is also civilly liable, and when a criminal action is instituted, the civil action for recovery of civil liability arising from the offense is deemed instituted with the criminal action unless the offended party waives the civil action, reserves the right to institute it separately, or institutes the civil action prior to the criminal action. The Court applied this rule to hold that private prosecutors could intervene, as no waiver, reservation, or separate civil action was made by the offended party.

• Certiorari — Standing of Aggrieved Non-Party — Under Rule 65, a person aggrieved by grave abuse of discretion may file certiorari. Even a non-party, if aggrieved by the proceedings, may institute a petition for certiorari. The Court applied this principle to hold that Siena Realty Corporation, though not a complainant in the criminal case, was a proper party in the certiorari petition because the falsified documents were corporate documents and the criminal proceedings directly and adversely affected it.

• "Not every suit filed in behalf of the corporation is a derivative suit. For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit." — This passage articulates the ratio decidendi on the first issue, defining the essential requisites of a derivative suit and explaining why the criminal complaint failed to qualify as one.

• "It is a condition sine qua non that the corporation be impleaded as a party because not only is the corporation an indispensable party, but it is also the present rule that it must be served with process. The judgment must be made binding upon the corporation in order that the corporation may get the benefit of the suit and may not bring subsequent suit against the same defendants for the same cause of action." — This passage states the indispensable-party requirement for derivative suits, frequently cited in subsequent corporation law jurisprudence.

• "Although, the corporation was not a complainant in the criminal action, the subject of the falsification was the corporation's project and the falsified documents were corporate documents. Therefore, the corporation is a proper party in the petition for certiorari because the proceedings in the criminal case directly and adversely affected the corporation." — This passage states the ratio decidendi on the second issue, establishing that a corporation whose interests are directly affected by criminal proceedings may be a proper party in a certiorari petition even if it was not the original complainant.

• "When the civil action is instituted with the criminal action, evidence should be taken of the damages claimed and the court should determine who are the persons entitled to such indemnity." — This passage states the rule governing the adjudication of civil liability within criminal proceedings, supporting the Court's ruling allowing private prosecutors to intervene.

• Western Institute of Technology, Inc. vs. Salas, G.R. No. 113032, 21 August 1997, 278 SCRA 216 — Cited by petitioner to argue that an appeal on the civil aspect of a criminal case cannot be treated as a derivative suit. The Court distinguished this case, noting that the deficiency there — failure to allege a derivative cause of action — was the same deficiency present in the case at bar, supporting the Court's conclusion that the criminal complaint was not a derivative suit.
• Ciudad Real & Dev't. Corporation vs. Court of Appeals, G.R. No. 107888, 4 January 1994, 229 SCRA 71 — Cited by petitioner to argue that a corporation not a party-in-interest in the lower court cannot join a certiorari petition. The Court distinguished this case, noting that in Ciudad Real the corporation's motion for intervention had been finally denied and the case had reached finality, unlike here where the corporation's interests were directly affected by ongoing criminal proceedings.
• Pastor, Jr. vs. Court of Appeals, No. L-56340, 24 June 1983, 122 SCRA 885 — Cited to support the proposition that even a non-party, if aggrieved, may institute a petition for certiorari. The Court relied on this ruling to uphold the corporation's standing as a proper party in the certiorari petition.
• Tan, Jr. vs. Gallardo, Nos. L-41213-14, 5 October 1976, 73 SCRA 306 — Cited by petitioner to argue that the offended party may not intervene where the law defining the offense does not provide for indemnity. The Court found this inapplicable, as the civil liability in the present case arises from the felony charged and was deemed instituted with the criminal action.
• Tam Wing Tak vs. Makasiar, G.R. No. 122452, 29 January 2001, 350 SCRA 475 — Cited for the doctrine that a stockholder may institute a derivative suit on behalf of the corporation when corporate officials refuse to sue, and for the requisites of a derivative suit.

• Article 100, Revised Penal Code — Provides that every person criminally liable for a felony is also civilly liable. Applied to establish that civil liability arises from the falsification charged and is deemed instituted with the criminal action.
• Article 104, Revised Penal Code — Defines the civil liability arising from crime as including restitution, reparation of the damage caused, and indemnification for consequential damages. Applied to define the scope of the civil action deemed instituted with the criminal action.
• Articles 171 and 172, Revised Penal Code — Define and penalize falsification of public documents. Article 171 enumerates acts of falsification by public officers; Article 172 penalizes falsification by private individuals. The Information charged Chua under Article 172 in relation to Article 171 for causing it to appear that Hao participated in a proceeding when she did not.
• Section 36, Corporation Code — Provides that every corporation has the power to sue and be sued in its corporate name. Read in relation to Section 23 to establish that the power to sue is lodged with the board of directors or trustees.
• Section 23, Corporation Code — Provides that corporate powers shall be exercised, business conducted, and property controlled by the board of directors or trustees. Applied to establish that the corporation's power to sue is vested in the board, and that an individual stockholder may bring a derivative suit only when the board refuses to sue.
• Section 1(a), Rule 111, Revised Rules of Criminal Procedure — Provides that when a criminal action is instituted, the civil action arising from the offense charged shall be deemed instituted with the criminal action unless waived, reserved, or separately instituted. Applied to hold that private prosecutors could intervene, no waiver or reservation having been made.
• Section 16, Rule 110, Revised Rules of Criminal Procedure — Provides that where the civil action for recovery of civil liability is instituted in the criminal action, the offended party may intervene by counsel. Applied to authorize the participation of private prosecutors in the criminal proceedings.
• Section 1, Rule 65, Rules of Civil Procedure — Provides for the petition for certiorari when a tribunal has acted with grave abuse of discretion amounting to lack or excess of jurisdiction. Applied to uphold the propriety of the certiorari petition filed by Hao before the RTC.

Davide, Jr., C.J. (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concurred.