Gamboa vs. Victoriano

An order denying a motion to dismiss is interlocutory and cannot be the subject of a petition for certiorari; the proper remedy is to proceed to trial and, if an adverse judgment results, to raise the issue on appeal. Certiorari will not issue absent a showing that the order was issued capriciously, arbitrarily, or whimsically or that the trial court lacked jurisdiction. Courts may take cognizance of a stockholder suit alleging that a board resolution and issuance of unissued shares are so unconscionable and oppressive as to amount to a wanton destruction of minority rights.

Inocentes de la Rama, Inc. is a domestic corporation with an authorized capital stock of 3,000 shares at a par value of P100.00 per share, of which 2,177 shares were subscribed and issued and 823 shares remained unissued. Private respondents acquired the shares held by Rafael Ledesma and Jose Sicangco, Jr., then president and vice-president of the corporation, respectively, while petitioners included the remaining members of the board of directors. The dispute concerns control of the corporation and the board's authority over the unissued shares.

Inocentes de la Rama, Inc. is a domestic corporation with an authorized capital stock of 3,000 shares at a par value of P100.00 per share. Of these, 2,177 shares were subscribed and issued, leaving 823 shares unissued. Private respondents Benjamin Lopue, Sr., Benjamin Lopue, Jr., Leonito Lopue, and Luisa U. Dacles, with Anastacio Dacles joined as a formal party, claimed ownership of 1,328 shares of the corporation. They acquired the shares held by Rafael Ledesma and Jose Sicangco, Jr., then president and vice-president of the corporation, respectively. Petitioners Ricardo L. Gamboa, Lydia R. Gamboa, Honorio de la Rama, Eduardo de la Rama, and the heirs of Mercedes de la Rama-Borromeo were among the defendants in the civil case, together with Ramon de la Rama, Paz de la Rama-Battistuzzi, and Enzo Battistuzzi.

On April 4, 1972, private respondents filed a complaint in Civil Case No. 10257 of the Court of First Instance of Negros Occidental to nullify the issuance of 823 shares of stock of Inocentes de la Rama, Inc. in favor of the defendants. They alleged that after they acquired the shares of Ledesma and Sicangco, the remaining members of the board of directors—Mercedes R. Borromeo, Honorio de la Rama, and Ricardo Gamboa—surreptitiously met and elected Ricardo L. Gamboa and Honorio de la Rama as president and vice-president, respectively, in order to forestall the takeover by private respondents. The board then passed a resolution authorizing the sale of the 823 unissued shares to Ricardo L. Gamboa, Lydia R. Gamboa, Honorio de la Rama, Ramon de la Rama, Paz R. Battistuzzi, Eduardo de la Rama, and Mercedes R. Borromeo at par value. Thereafter, Honorio de la Rama, Lydia de la Rama-Gamboa, and Enzo Battistuzzi were elected to the board of directors. Private respondents alleged that the sale violated their pre-emptive rights, was made without the approval of the board of directors representing two-thirds of the outstanding capital stock, and disregarded the strictest relation of trust existing between the defendants as stockholders. They further alleged that Lydia de la Rama-Gamboa, Honorio de la Rama, and Enzo Battistuzzi were not legally elected to the board and had unlawfully usurped or intruded into office. They prayed for a writ of preliminary injunction, the appointment of a receiver, a declaration that the three were usurpers and their ouster, a declaration that Luisa U. Dacles was a legally elected director, nullification of the sale of the 823 shares, damages, attorney's fees, and costs.

Acting on the complaint, the respondent judge, after proper hearing, directed the clerk of court to issue a writ of preliminary injunction restraining the defendants and their representatives from committing or continuing any act tending to prejudice, diminish, or otherwise injure private respondents' rights in the corporate properties and funds of Inocentes de la Rama, Inc., and from disposing, transferring, selling, or otherwise impairing the value of the certificates of stock allegedly issued illegally in their names on February 11, 1972, or at any date thereafter. The order also required the defendants to deposit with the clerk of court the corresponding certificates of stock for the 823 shares issued to them on February 11, 1972, upon private respondents' posting a bond of P50,000.00. Pursuant to the order, the defendants deposited with the clerk of court certificates of stock Nos. 80 to 86, inclusive, representing the disputed 823 shares.

On October 31, 1972, private respondents entered into a compromise agreement with defendants Ramon de la Rama, Paz de la Rama-Battistuzzi, and Enzo Battistuzzi. Under the agreement, the contracting parties withdrew their respective claims against each other, and Ramon, Paz, and Enzo waived, ceded, transferred, and conveyed to private respondents, free from all liens and encumbrances, all rights, interests, participations, or title they had or might have in the 823 shares of capital stock of Inocentes de la Rama, Inc. that were issued in the names of the defendants on or about February 11, 1972, or at any date thereafter, and which were the subject matter of the suit. The compromise agreement was approved by the trial court on December 4, 1972.

On November 19, 1974, petitioners filed a motion to dismiss the complaint on the grounds that private respondents' cause of action had been waived or abandoned and that they were estopped from further prosecuting the case because they had, in effect, acknowledged the validity of the issuance of the disputed 823 shares. The motion was denied on January 2, 1975. Petitioners also filed a motion to declare Ramon de la Rama, Paz de la Rama-Battistuzzi, and Enzo Battistuzzi in contempt of court for having violated the writ of preliminary injunction when they entered into the compromise agreement with private respondents, but the respondent judge denied the motion for lack of merit. On February 10, 1975, petitioners filed a motion for reconsideration of the order denying their motion to dismiss and an addendum thereto, claiming that the respondent court had no jurisdiction to interfere with the management of the corporation by the board of directors and that the enactment of a resolution by the defendants, as members of the board, allowing the sale of the 823 shares to the defendants was purely a management concern that the courts could not interfere with. When the trial court denied the motion and the addendum, petitioners filed the instant petition for certiorari. The trial court found no waiver because the compromise agreement expressly provided that it would not constitute or be considered a waiver or abandonment of any claim or cause of action against the other defendants, and found no estoppel because nothing in the agreement could be construed as an affirmative admission of the validity of the assailed resolution; the absence of any consideration for the transfer of rights to the shares indicated that the agreement was merely an admission by Ramon, Paz, and Enzo of the validity of private respondents' claim.

• Waiver or Abandonment: Petitioners moved to dismiss on the ground that private respondents' cause of action had been waived or abandoned by their entering into the compromise agreement with Ramon de la Rama, Paz de la Rama-Battistuzzi, and Enzo Battistuzzi.
• Estoppel: Petitioners argued that private respondents were estopped from further prosecuting the case because they had, in effect, acknowledged the validity of the issuance of the disputed 823 shares of stock.
• Jurisdiction over Corporate Management: In their addendum to the motion for reconsideration, petitioners claimed that the respondent court had no jurisdiction to interfere with the management of the corporation by the board of directors, and that the board resolution allowing the sale of the 823 shares to the defendants was purely a management concern that the courts could not interfere with.
• Derivative Suit: Petitioners contended that the proper remedy of private respondents was to institute a derivative suit against petitioners in the name of the corporation in order to secure a binding relief after exhausting all possible remedies available within the corporation.

• Interlocutory Order and Certiorari: Whether an order denying a motion to dismiss is a proper subject of a petition for certiorari.
• Waiver and Estoppel: Whether private respondents waived or abandoned their cause of action, or were estopped from prosecuting the case, by entering into the compromise agreement with some of the defendants.
• Jurisdiction over Corporate Management: Whether the trial court has jurisdiction to interfere with the board of directors' resolution authorizing the sale of the 823 unissued shares.
• Derivative Suit: Whether the proper remedy for private respondents is a derivative suit in the name of the corporation.
• Capricious or Arbitrary Denial: Whether certiorari lies because the denial of the motion to dismiss was issued capriciously, arbitrarily, or whimsically or because the trial court lacked jurisdiction.

• Interlocutory Order and Certiorari: No. The order denying the motion to dismiss is interlocutory and cannot be the subject of a petition for certiorari; the proper procedure is to continue trial and, if an adverse judgment results, to reiterate the issue on appeal.
• Waiver and Estoppel: No. The compromise agreement expressly stated that it would not constitute a waiver or abandonment of any claim against the other defendants, and nothing in it amounted to an affirmative admission of the validity of the assailed resolution.
• Jurisdiction over Corporate Management: Yes. Although courts generally do not control the board's discretion in administrative matters, they may interfere where the contract is so unconscionable and oppressive as to amount to a wanton destruction of minority rights; private respondents alleged serious injury to their interests.
• Derivative Suit: No. A derivative suit is not the exclusive remedy where plaintiffs allege and vindicate their own individual interests, not corporate rights; moreover, the issues had not yet been joined, and misjoinder of parties is not a ground to dismiss.
• Capricious or Arbitrary Denial: No. The denial of the motion to dismiss was not capriciously, arbitrarily, or whimsically issued, nor did the trial court lack jurisdiction over the cause.

• Interlocutory Order and Certiorari: The order denying the motion to dismiss did not dispose of the case on the merits and was therefore merely interlocutory. It cannot be the subject of a petition for certiorari. The proper procedure is to continue with the trial on the merits and, if the decision is adverse, to reiterate the issue on appeal. Allowing a party to come to the Supreme Court every time an order is issued with which he disagrees would breach orderly procedure. Moreover, the order was not capriciously, arbitrarily, or whimsically issued, and the respondent court did not lack jurisdiction over the cause, so the writ prayed for was not warranted.
• Waiver and Estoppel: The trial court found no waiver because the compromise agreement expressly provided that it "shall not in any way constitute or be considered a waiver or abandonment of any claim or cause of action against the other defendants." There was also no estoppel because nothing in the agreement could be construed as an affirmative admission by the plaintiff of the validity of the resolution of the defendants that was sought to be judicially declared null and void. The circumstances, including the fact that no consideration was mentioned for the transfer of rights to the shares to the plaintiffs, were sufficient to show that the agreement was merely an admission by Ramon de la Rama, Paz de la Rama-Battistuzzi, and Enzo Battistuzzi of the validity of the plaintiffs' claim.
• Jurisdiction over Corporate Management: The claim that the trial court had no jurisdiction over matters affecting the management of the corporation was without merit. The well-known rule is that courts cannot undertake to control the discretion of the board of directors about administrative matters as to which they have legitimate power of action, and contracts intra vires entered into by the board of directors are binding upon the corporation; courts will not interfere unless such contracts are so unconscionable and oppressive as to amount to a wanton destruction of the rights of the minority. In this case, the plaintiffs averred that the defendants had concluded a transaction among themselves that would result in serious injury to the plaintiffs' interests, so the trial court had jurisdiction over the case. The Court cited Govt. vs. El Hogar Filipino, 50 Phil. 399, and Ingersoll vs. Malabon Sugar Co., 53 Phil. 745.
• Derivative Suit: An individual stockholder is permitted to institute a derivative suit on behalf of the corporation in which 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 control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. In this case, however, the plaintiffs were alleging and vindicating their own individual interests or prejudice, not that of the corporation. At any rate, it was too early in the proceedings since the issues had not been joined. Besides, misjoinder of parties is not a ground to dismiss an action under Section 11, Rule 3 of the Revised Rules of Court. The Court cited Republic Bank vs. Cuaderno, L-22399, March 30, 1967, 19 SCRA 671.
• Capricious or Arbitrary Denial: The order denying the motion to dismiss was not capriciously, arbitrarily, or whimsically issued, and the respondent court did not lack jurisdiction over the cause as to warrant issuance of the writ prayed for. The denial was therefore proper.

• Interlocutory orders are not reviewable by certiorari — An interlocutory order is one that does not dispose of the case on the merits. It cannot be the subject of a petition for certiorari; the proper remedy is to proceed to trial and, if an adverse judgment results, to raise the issue on appeal. In this case, the denial of the motion to dismiss was interlocutory, and certiorari did not lie absent a showing that the order was capricious, arbitrary, or whimsical or that the trial court lacked jurisdiction.
• Non-interference in corporate management and the oppression exception — Courts cannot undertake to control the discretion of the board of directors about administrative matters as to which they have legitimate power of action, and intra vires contracts entered into by the board are binding upon the corporation. Courts will not interfere unless such contracts are so unconscionable and oppressive as to amount to a wanton destruction of the rights of the minority. The Court applied this exception because the plaintiffs alleged that the board's transaction would cause serious injury to their interests.
• Derivative suit — An individual stockholder may institute a derivative suit on behalf of the corporation in which he holds stock to protect or vindicate corporate rights whenever the officials of the corporation refuse to sue, are the ones to be sued, or hold control of the corporation. In such actions, the suing stockholder is a nominal party, and the corporation is the real party in interest. The Court held that a derivative suit was not the exclusive remedy in this case because the plaintiffs were asserting their own individual interests, not corporate rights.
• Misjoinder of parties is not a ground to dismiss — Under Section 11, Rule 3 of the Revised Rules of Court, misjoinder of parties is not a ground to dismiss an action. The Court applied this rule in rejecting petitioners' contention that the proper remedy was a derivative suit.
• Waiver and estoppel by compromise — A compromise agreement containing an express reservation that it does not constitute a waiver or abandonment of any claim against other defendants does not waive the plaintiff's cause of action. Nor does it create estoppel absent an affirmative admission of the validity of the assailed act. The Court relied on these principles in upholding the denial of the motion to dismiss.

• "The questioned order denying the petitioners' motion to dismiss the complaint is merely interlocutory and cannot be the subject of a petition for certiorari." — This is the Court's primary procedural ratio, holding that the denial of a motion to dismiss must be challenged by proceeding to trial and appealing an adverse judgment, not by certiorari.
• "courts will not interfere unless such contracts are so unconscionable and oppressive as to amount to a wanton destruction of the rights of the minority." — This states the exception to the general non-interference in corporate management, which the Court applied because the plaintiffs alleged serious injury to their minority interests.
• "An individual stockholder is permitted to institute a derivative 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 corporation." — This defines the derivative suit rule and identifies when a stockholder may sue on behalf of the corporation.
• "In the case at bar, however, the plaintiffs are alleging and vindicating their own individual interests or prejudice, and not that of the corporation." — This explains why the derivative suit was not the exclusive remedy and why the trial court did not err in allowing the individual stockholders' action to proceed.

• Govt. vs. El Hogar Filipino, 50 Phil. 399 — Cited for the rule that courts cannot undertake to control the discretion of the board of directors about administrative matters as to which they have legitimate power of action.
• Ingersoll vs. Malabon Sugar Co., 53 Phil. 745 — Cited for the rule that intra vires contracts entered into by the board of directors are binding upon the corporation and courts will not interfere unless such contracts are so unconscionable and oppressive as to amount to a wanton destruction of the rights of the minority.
• Republic Bank vs. Cuaderno, L-22399, March 30, 1967, 19 SCRA 671 — Cited for the derivative suit rule: an individual stockholder may sue on behalf of the corporation when officials refuse to sue, are the ones to be sued, or control the corporation; the stockholder is a nominal party and the corporation is the real party in interest.

• Section 11, Rule 3, Revised Rules of Court — Provides that misjoinder of parties is not a ground to dismiss an action. The Court applied this provision in rejecting petitioners' argument that private respondents should have filed a derivative suit; even if there was a misjoinder, dismissal was not the proper remedy.

Antonio, Aquino, Santos, and Abad Santos, JJ., concurred. Mr. Justice Antonio P. Barredo was on leave.