Derivative Suits 5.
Perez filed a derivative suit on behalf of the bank against Cuaderno, Dizon, the Board
GR No. L-22399 - Republic Bank v. Cuaderno
Reyes, J.
Pablo Roman, the chairman of the Board of Directors (BoD) of Republic Bank, approved
loans that amounted to almost P4M. Damaso Perez complained to the Central Bank that the
loans were given to fictitious persons. Upon investigation, it was found that the loans violated
several provisions of the General Banking Act. The Central Bank ordered the election of a
new BoD. After the election of Bienvenido Dizon as the Chairman, Miguel Cuaderno, the
governor of the Central Bank, referred the matter to the department of justice for prosecution.
To prevent criminal prosecution, Roman hired Cuaderno as a technical consultant with a
monthly salary of P12,000. Damaso Perez on behalf of Republic Bank filed a derivative suit
and asked for a preliminary injunction that would prevent the Central Board from confirming
the appointment of Dizon as the new chairman and Cuaderno as a technical consultant. The
lower court dismissed the case because Perez had no standing. SC reversed.
DOCTRINE
The suing stockholder is allowed to file a derivative/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 control of the
corporation.
There is no corporate authority that prevent the corporation from being a party plaintiff while
joining it as defendant places the entity in the awkward position of resisting an action
instituted for its benefit. Nevertheless, it is important to make the corporation a party to the
case, so the Court’s judgment would be binding upon it and would bar future relitigation of
the issues.
FACTS
1. Pablo Roman, the chairman of the Board of Directors of Republic Bank (hereinafter the
bank) and of its Executive Loan Committee granted loans almost P4M.
2. Damaso Perez, a stockholder of the bank filed a complaint before the Monetary Board
of the Central Bank because the loans were fraudulently made given that it was granted
to fictitious persons or persons acting as dummies.
a. Respondent Miguel Cuaderno, the governor of the Central Bank and the
Monetary Board ordered an investigation. It was found that P2,303,400 worth
of loans violated several provisions of the General Banking Act.
b. Pursuant to this, the Central Bank ordered the bank to elect a new Board of
Directors.
c. After the election wherein Bienvenido Dizon was elected the new chairman,
the Central Bank offered Roman’s offer to put up adequate security for the
questioned loans, which was one of the conditions for the Bank to resume its
normal operations.
3. Cuaderno referred the matter to special prosecutors of the Department of Justice (DoJ)
for the investigation and prosecution of violations of the Banking Act.
a. To prevent the filing of criminal complaints, Roman hired respondent as a
technical consultant with a monthly salary of P12,500.
b. While he was sitting as the Governor of Central Board, the criminal complaints
were never filed against Roman.
4. Implied from the facts: The appointment of Dizon and Cuaderno was about to be
confirmed by the Monetary Board.
of Directors of the bank, and the Monetary Board of the Central Bank of the Philippines.
Aside from the facts discussed, he alleged that:
a. The Board of Directors were composed of individuals that Roman personally
picked and chose that is why no formal demand was asked of them prior to
the filing of the derivative suit;
b. They connived in the appointment and selection of Dizon;
c. Such acts amounted to bad faith and had no intention of protecting the
company’s interest, but to prevent Roman from criminal prosecution;
d. It was improper to appoint Cuarderno given that there were pending cases
before the courts regarding his actions as the Governor and Member of the
Monetary Board.
e. It also prayed for a writ of preliminary injunction
i. Against the Monetary Board to prevent the confirmation of the
appointment of Dizon and Cuarderno;
ii. Against the bank’s Board of Directors to recognize Cuarderno as
technical consultant and Dizon as the Chairman;
iii. Against Roman from appointing or selecting officers or directors of
the bank and against recognition of such appointees until this case
is finally determined.
6. The lower court dismissed the case because Perez had no standing to file the suit on
behalf of the corporation.
7. Now, Perez is appealing
ISSUE with HOLDING
1. WON the dismissal was proper – NO.
a. Respondent: Perez cannot question the appointment and selection of Dizon
and Cuaderno because it is a business judgment.
b. SC: Normally, the suing stockholder is a nominal party since the corporation
is the real party in interest.
i. The suing stockholder is allowed to file a derivative/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 control
of the corporation.
ii. These principles apply to this case because Perez was not
vindicating his own individual interest or prejudice, but the interest
of the Bank. It was also futile to demand action by the corporation
since its Directors were nominees of Roman.
iii. The facts pleaded in the complaint showed that it constituted a
cause of action for the bank.
1. If it is proven that the appointments were made solely to
protect Roman, then the money disbursed in favor of
Cuaderno and Dizon would be an unlawful wastage or
diversion of corporate funds.
c. Respondent: Action is improper because Perez was not authorized by the
corporation to bring suit in its behalf. Implied from the ruling that it was only
Perez who was protesting.
d. SC: No authority could be expected because the action was aimed to nullify
the action taken by the manager and the Board of Directors of the bank.
i. It would also be futile to demand action (see fact #5a).
1
 ii. The smallness of Perez’s holdings is no ground to deny him relief.
It was too early in the proceedings for the absence of other
stockholders to be of any significance since no issues were joined.
2. WON the corporation must be made party defendant or plaintiff – The court was not
specific, but it implied that it should be a plaintiff.
a. English practice: make the corporation a party plaintiff vs. American
practice: corporation as a party defendant.
b. There is no corporate authority that prevent the corporation from being a party
plaintiff while joining it as defendant places the entity in the awkward position
of resisting an action instituted for its benefit.
i. Nevertheless, it is important to make the corporation a party to the
case, so the Court’s judgment would be binding upon it and would
bar future relitigation of the issues.
ii. This problem loses its significance given that the trial courts have
the power to direct the amendment of the pleadings by adding or
dropping parties.

DISPOSITIVE PORTION
Remand to lower court; Petition granted.

OTHER NOTES

DIGESTER: Lulu Querido.