Lisam Enterprises, Inc. vs. Banco de Oro Unibank, Inc.

A stockholder may file a derivative suit on behalf of the corporation when the board refuses to act after proper demand, and amendments to pleadings that substantially alter the cause of action may be allowed under Rule 10, Section 3 of the Rules of Court if they serve the higher interests of substantial justice, even after a responsive pleading has been filed.

The case arose from a dispute within Lisam Enterprises, Inc. involving the unauthorized mortgage of corporate property by the corporation's president and treasurer (Spouses Soriano) to secure a personal loan from a bank. The corporate secretary/stockholder discovered the alleged forgery of board resolutions and sought to annul the mortgage through a derivative suit after the board failed to act.

• Petitioner Lisam Enterprises, Inc. (LEI) is a corporation that acquired a residential land with improvement in Legaspi City covered by Transfer Certificate of Title No. 37866.
• Defendant Spouses Leandro A. Soriano, Jr. (President) and Lilian S. Soriano (Treasurer) obtained a P20 Million personal loan from defendant Philippine Commercial International Bank (PCIB, now Banco de Oro Unibank, Inc.) in March 1996.
• As security for the loan, the Spouses Soriano executed a real estate mortgage over LEI's property on March 28, 1996, allegedly using a falsified Board Resolution dated November 6, 1995, which purportedly authorized them to mortgage corporate property.
• Petitioner Lolita A. Soriano, Corporate Secretary and stockholder of LEI, alleged her signature was forged on the board resolution, and that no such meeting was held on November 6, 1995. The resolution was notarized only on March 28, 1996, more than four months after its purported date.
• In August 1998, the Spouses Soriano executed a "Deed of Assumption of Loans and Mortgage Obligations" making LEI assume their personal indebtedness, allegedly with another falsified "Corporate Resolution to Borrow" bearing Lolita's forged signature.
• Lolita discovered these transactions in April 1999 and demanded that the Spouses Soriano pay their personal debt to free the corporate property, and demanded that the Board of Directors take legal steps to protect the corporation, but the Board failed to act.
• On June 25, 1999, Lolita filed a derivative suit with the Securities and Exchange Commission (SEC Case No. 06-99-6339) against the Spouses Soriano for fraudulent scheme and unlawful machination.
• On August 13, 1999, petitioners filed the civil case for annulment of mortgage with the RTC, which issued a temporary restraining order and preliminary injunction to stop the scheduled foreclosure sale on September 7, 1999.

• The trial court erred in dismissing the action on the ground that petitioner Lolita A. Soriano has no legal capacity to sue as she is not a real party-in-interest, arguing that a stockholder has the right to file a derivative suit on behalf of the corporation.
• The trial court erred in dismissing the action on the ground of litis pendencia, contending that the SEC case and the RTC case involve different parties and issues.
• The trial court erred in dismissing the action for failure to state a cause of action, asserting that the amended complaint cured the defect by alleging compliance with the requirement of exhausting intra-corporate remedies.
• The trial court erred in denying the admission of the amended complaint filed as a matter of right after the order of dismissal was issued but before its finality, arguing that amendments should be liberally allowed to serve substantial justice.
• The trial court erred in dismissing the action instead of merely suspending it following the doctrine in Union Glass, Inc. v. Securities and Exchange Commission.

• Respondents Lilian S. Soriano and the Estate of Leandro A. Soriano, Jr. claimed that they were duly authorized by LEI to mortgage the subject property, that the loan proceeds were for the use and benefit of LEI, and that all notarized documents bore the genuine signature of Lolita Soriano.
• Respondent PCIB argued that the complaint should be dismissed for lack of legal capacity to sue because Lolita Soriano was not a real party-in-interest.
• PCIB contended that the complaint failed to state a cause of action because there was no allegation that Lolita made demands upon the Board of Directors to take legal steps to protect the corporation.
• PCIB asserted that there was litis pendencia because another action (SEC Case No. 06-99-6339) was pending between the same parties for the same cause.
• PCIB argued that the amended complaint could no longer be admitted because it substantially changed the cause of action from an individual suit to a derivative suit.

• Procedural:
  • Whether the trial court committed reversible error in denying the motion to admit the amended complaint filed after the order of dismissal but before its finality.
  • Whether the trial court erred in dismissing the action instead of suspending it under the doctrine of pendent jurisdiction or litis pendencia.
• Substantive Issues:
  • Whether petitioner Lolita A. Soriano has legal capacity to sue as a stockholder filing a derivative suit on behalf of the corporation.
  • Whether the complaint states a cause of action for a derivative suit.
  • Whether there is litis pendencia between the SEC case and the RTC case.

• Procedural:
  • The Supreme Court held that the trial court erred in denying the motion to admit the amended complaint. Under Rule 10, Section 3 of the 1997 Rules of Civil Procedure, amendments may be made upon leave of court after a responsive pleading is served, and such amendments may substantially alter the cause of action if they serve the higher interests of substantial justice and prevent delay.
  • The Court ruled that amendments to pleadings are generally favored and should be liberally allowed, especially in the early stages of litigation, to avoid multiplicity of suits and to enable the court to determine the real controversies between the parties.
  • Since the amended complaint was filed before the order of dismissal became final and trial had not yet begun, allowing the amendment would not cause delay and would serve the higher interest of justice.
  • The Court overruled the trial court's denial of the motion to admit the amended complaint and ordered its admission.
• Substantive:
  • The Court held that the amended complaint now sufficiently states a cause of action for a derivative suit because it alleged all the requisites: (a) Lolita is a stockholder; (b) she made demands on the Board of Directors to take legal steps but the Board failed or refused to heed her plea; and (c) the cause of action devolves on the corporation, not the individual stockholder.
  • The Court ruled that there is no litis pendencia because the SEC case (an intra-corporate dispute) and the RTC case (annulment of mortgage involving a third-party bank) involve different parties and different issues. The mortgagee bank has no intra-corporate relationship with the stockholders and cannot be joined as a defendant in the SEC case.
  • Following Saura v. Saura, Jr., the Court held that jurisdiction over the complaint for annulment of mortgage is lodged with the regular courts, not the SEC, because the mortgagee bank is not a party to the intra-corporate relationship.
  • There is no forum shopping because there is no identity of issues between the SEC case (fraudulent scheme and validity of board resolutions) and the RTC case (validity of the mortgage itself).

• Derivative Suit Requisites — A stockholder may bring a suit on behalf of the corporation when: (a) the party bringing the suit is a shareholder at the time of the act complained of; (b) he has exhausted intra-corporate remedies by making a demand on the board which was refused or ignored; and (c) the cause of action actually devolves on the corporation, not the particular stockholder. The Court applied this doctrine from Hi-Yield Realty, Incorporated v. Court of Appeals to hold that the amended complaint sufficiently alleged these requisites.
• Liberal Allowance of Amendments to Pleadings — Under Rule 10, Section 3 of the Rules of Court, amendments may substantially alter the cause of action or defense when they serve the higher interests of substantial justice, prevent delay, and secure a just, speedy, and inexpensive disposition of actions. The Court applied this to allow the amended complaint which changed the theory of the case from an individual action to a derivative suit.
• Litis Pendencia and Forum Shopping — For litis pendencia to apply, there must be identity of parties and identity of issues. The Court held that where a case before the SEC involves intra-corporate disputes among stockholders and a case before the RTC involves a third-party mortgagee bank, there is no identity of parties or issues, and thus no litis pendencia or forum shopping.

• "The courts should be liberal in allowing amendments to pleadings to avoid a multiplicity of suits and in order that the real controversies between the parties are presented, their rights determined, and the case decided on the merits without unnecessary delay."
• "This liberality is greatest in the early stages of a lawsuit, especially in this case where the amendment was made before the trial of the case, thereby giving the petitioners all the time allowed by law to answer and to prepare for trial."
• "Amendments to pleadings are generally favored and should be liberally allowed in furtherance of justice in order that every case, may so far as possible, be determined on its real facts and in order to speed up the trial of the case or prevent the circuitry of action and unnecessary expense."

• Tiu v. Philippine Bank of Communications — Cited for the rule that after a responsive pleading is filed, amendments may be made only by leave of court, but such leave may be refused only if the motion was made with intent to delay.
• Valenzuela v. Court of Appeals — Cited for the interpretation that under the 1997 Rules of Civil Procedure, the phrase "or that the cause of action or defense is substantially altered" was stricken off from Section 3, Rule 10, meaning amendments may now substantially alter the cause of action or defense.
• Hi-Yield Realty, Incorporated v. Court of Appeals — Cited as the controlling precedent enumerating the three requisites for filing a derivative suit.
• Saura v. Saura, Jr. — Cited as controlling precedent holding that a complaint for annulment of sale involving a buyer who has no intra-corporate relationship with stockholders is properly filed with regular courts, not the SEC, and that proceedings before the RTC should merely be suspended, not dismissed, pending outcome of the SEC case.

• Rule 10, Sections 2 and 3 of the 1997 Rules of Civil Procedure — Section 2 allows amendments as a matter of right before a responsive pleading is served; Section 3 allows amendments by leave of court after a responsive pleading is served, and provides that such leave may be refused only if the motion was made with intent to delay. The Court interpreted these provisions to allow amendments that substantially alter the cause of action if they serve substantial justice.
• R.A. No. 8799 (The Securities Regulation Code) — Cited to note that under this law, regular courts now have jurisdiction over intra-corporate disputes, replacing the SEC's jurisdiction under the former law.