REPUBLIC BANK, REPRESENTED IN THIS ACTION BY DAMASO P. PEREZ, ETC., PLAINTIFF-APPELLANT, VS. MIGUEL CUADERNO, BIENVENIDO DIZON, PABLO ROMAN, THE BOARD OF DIRECTORS OF THE REPUBL…

Direct appeal from an order of the Court of First Instance of
Manila, in its civil case No. 53936, dismissing the petitioner’s complaint on
the ground of failure to state a cause of action.

In the Court below, Damaso Perez, a stockholder of the Republic
Bank, a Philippine banking corporation domiciled in Manila, instituted a deriv­ative
suit for and in behalf of said Bank, against Miguel Cuaderno, Bien­venido
Dizon, the Board of Directors of the Republic Bank, and the Monetary Board of
the Central Bank of the Philippines. 
Paragraph 6 of the Complaint (Rec. on Appeal, p. 7) expressly pleaded
the following:

“6.  That the relator herein filed the present derivative
suit without any further demand on the Board of Directors of the Republic Bank
for the reason that such formal demand to institute the present complaint would
be a futile formality since the members of the board are personally chosen by
de­fendant Pablo Roman himself.”

For a cause of action plaintiff alleged, inter
alia, that Damaso Perez 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
non-existing 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 of real estate properties; that said loans amounted to almost
4 million pesos; that acting upon the complaint, Miguel Cuaderno (then Governor
of the Central Bank) and the Monetary Board ordered an investigation, which was
carried out by Bank Examiners; that they and the Superintendent of Banks of the
Central Bank reported that certain mortgage loans amounting to P2,303,400.00
were granted in violation of sections 77, 78 and 83 of the General Banking Act;
that acting on said reports, the Monetary Board, of which defendant Cuaderno
was a member, ordered a new Board of Directors of the Republic Bank to be
elected, which was done, and subsequently approved by the Monetary Board; that
on January 5, 1960, the latter 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; that subsequently, the Central Bank through its Governor, Miguel
Cuaderno, referred to special prosecutors of the Depart­ment of Justice on July
22, 1960, the banking frauds and violations of the Banking Act, reported by the
Superintendent of Banks, for investigation and prosecution, but no information
was filed up to the time of the retirement of Cuaderno in 1961; that other similar
frauds were subsequently discovered; that to neutralize the impending action
against him, Pablo Roman engaged Miguel Cuaderno as technical consultant at a
compensation of P12,500.00 per month, and selected Bienvenido Dizon as chairman
of the Board of Di­rectors of the Republic Bank; 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 Roma from
criminal prosecution; that the appointment of Cuaderno and his acceptance of
the position of technical consultant are immoral, anomalous and illegal, and
his compensation highly unconscionable, because court actions involv­ing the
actuations of Cuaderno as Governor and Member or Chairman of the Monetary Board
are still pending in court; that as member of the Monetary Board from 1961 to
the end of 1962 , Bienvenido Dizon exercised supervision over the Republic
Bank; that the selection of Dizon as chairman of the Board of the Republic Bank
after he was forced to resign from the presidency of the Philippine National
Bank and from membership of the Monetary Board and within one year thereafter
is in violation of section 3, sub-paragraph (d) of the Anti-Graft and Corrupt
Practices Act; that both Cuaderno and Dizon were alter egos of
Pablo Roman; that the Monetary Board was about to approve the appointment of
Cuaderno and Dizon and would do so unless enjoined.

The complaint, therefore, prayed for a writ of preliminary
injunction against the Monetary Board to prevent its confirmation of the
appointments of Dizon and Cuaderno; against the Board of Directors of the Repub­lic
Bank from recognizing Cuaderno as technical consultant and Dizon as Chairman of
the Board; and against Pablo Roman from appointing or select­ing officers or
directors of the Republic Bank, and against the recognition of any such appointees
until final determination of the action. 
And con­cluded by praying that after due hearing, judgment be rendered,
-?

a)  making the writ of
injunction permanent;

b) declaring the
appointment of defendant Miguel Cuaderno as technical consultant with monthly
compensation of P12,500.00
unconscionable, immoral, illegal and null and void;

c) declaring the
selection of defendant Bienvenido Dizon as chairman of the Board of Directors
of the Republic Bank violative of Section 3, sub-paragraph (d) of Re­public Act
No. 5019, otherwise known as the Anti-Graft and Corrupt Practices Act, and
therefore, il­legal and anull and void;

d) declaring that
defendant Pablo Roman, in view of his criminal liability for the fraudulent
real estate mort­gage loans in the Republic Bank amounting to P4 million, has
no right to select or to be allowed to select person or persons who are his alter
egos  to
manage the Repub­lic Bank, and enjoining the defendant Board of Directors of
the Republic Bank from recognizing any officers or directors appointed or
selected by defendant Pablo Roman;

e) ordering
defendant Miguel Cuaderno and Bienvenido Dizon to return to the Republic Bank
all amounts they may have received either in the form of compensation,
remuneration or emolument, with an interest thereon at the rate of 6%; or to
order defendant Pablo Roman to refund the amounts paid to said defendant Miguel
Cuaderno and defendant Bienvenido Dizon, and to pay such reasonable damages to
the plaintiff Republic Bank;

f)  ordering all the defendants
to pay the sum of P25,00.00 as
attorney’s fees, including all expenses of litigation and costs of this suit.

The Monetary Board filed an answer with denials, admissions and
affirmative defenses; but the other defendants filed separate motions to
dismiss on practically the same grounds: 
no valid cause of action against the individual movants; lack of legal
capacity of plaintiff-relator to sue; and non-exhaustion of intra-corporate
remedies.  These motions were duly
opposed by plaintiff Damaso Perez.

On October 24, 1963, the court, “taking into consideration
the grounds alleged in the motions to dismiss and the opposition for the issuance of a writ of preliminary
injunction and the affirmative defenses filed by the defendants and the
arguments in support thereof”, and “that there are already eight
cases pending in the different branches of this court between practically the
same parties”, denied the petition for a writ of preliminary injunction
and dismissed the case.  The court in
effect suggested that the matter at issue in the case may be presented in any
of the pending eight cases by means of amended and supplemental pleadings.

Plaintiff Damaso Perez thereupon appealed to this Court.

The issue in this appeal, then, is whether or not the Court below
erred in dismissing the complaint.  In
this connection, it should be remembered that the defenses of the Monetary
Board of the Central Bank, being interposed in an answer and not in a motion to
dismiss, are not here at issue.  Our sole
concern is with the motions to dismiss of the other defendants, Roman,
Cuaderno, Dizon, and the Board of Directors of the Republic Bank.

They mainly controvert the right of plaintiff to question the
appoint­ment and selection of defendants Cuaderno and Dizon, which they contend
to be the result of corporate acts with which plaintiff, as stockholder, can­not
interfere.  Normally, this is correct,
but Philippine jurisprudence is settled that an individual stockholder is
permitted to 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 corporation.  In such actions, the suing stockholder is re­garded
as a nominal party, with the corporation as the real party in in­terest
(Pascual v. Del Saz Orozco, 19 Phil. 82, 85; Everett v. Asia Bank­ing Corp., 45
Phil. 512; Angeles v. Santos, 64 Phil. 697; Evangelista v. Santos, 86 Phil.
388).  Plaintiff-appellant’s action here is precisely in conformity with
these principles.  He is neither alleging
nor vindicating his own individual interest or prejudice, 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 (Complaint, p. 6). 
The frauds charged by plaintiff are frauds against the Bank that
redounded to its prejudice.

The complaint expressly pleads that the appointment of Cuaderno
as technical consultant, and of Bienvenido Dizon to head the Board of Directors
of the Republic Bank, were made only to shield Pablo Roman from criminal
prosecution and not to further the interests of the Bank, and avers that both
men are Roman’s alter egos. 
There is no denying that the facts thus pleaded in the complaint
constitute a cause of action for the bank: 
if the questioned appointments were made solely to pro­tect Roman from
criminal prosecution, by a Board composed by Roman’s creatures and nominees,
then the moneys disbursed in favor of Cuaderno and Dizon would be an unlawful
wastage or diversion of corporate funds, since the Republic Bank would have no
interest in shielding Roman, and the directors in approving the appointments
would be committing a breach of trust; the Bank, therefore, could sue to
nullify the appointments, enjoin disbursement of its funds to pay them, and
recover those paid out for the purpose, as prayed for in the complaint in this
case (Angeles v. Santos, supra).

Facts pleaded in the complaint are to be deemed accepted by the
defendants who file a motion to dismiss the complaint for failure to state a
cause of action.  This is the cardinal
principle in the matter.  And, it has
been ruled that the test of sufficiency of the facts alleged is whether or not
the Court could render a valid judgment as prayed for, accepting as true the
exclusive facts set forth in the complaint.^[1]
So rigid is the norm prescribed that if the Court should doubt the truth of the
facts averred, it must not dismiss the complaint but require an answer and
proceed to trial on the merits.^[2]

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 (Evangelista v. Santos, 86 Phil. 394).  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 (Ashwander v. TVA, 80
L. Ed. 688).  At any rate, it is yet too
early in the proceedings for the absence of other stockholders to be of any
significance, no issues having even been joined.

There remains the procedural question whether the corporation
itself must be made party defendant.  The
English practice is to make the corpora­tion a party plaintiff, while in the
United States, the usage leans in favor of its being joined as party defendant
(see Editorial Note, 51 LRA [NS] p. 123).  Objections can be raised against either
method.  Absence of cor­porate authority
would seem to militate against making the corporation a party plaintiff, while
joining it as defendant places the entity in the awkward position of resisting
an action instituted for its benefit. 
What is important is that the corporation should be made a party, in
order to make the Court’s judgment binding upon it, and thus bar future
relitiga­tion of the issues.  On what side the corporation appears
loses importance when it is considered that it lay within the power of the trial court to direct the
making of such amendments of the pleadings, by adding or dropping parties, as
may be required in the interest of justice (Revised Rule 3, sec. 11).  Misjoinder of parties is not a ground to
dismiss an action.  (Ibid.)

We see no reason to support the contention of defendant
Bienvenido Dizon that the action of plaintiff amounts to a quo warranto proceedings.  Plaintiff Perez is not claiming title to
Dizon’s position as head of the Re­public Bank’s board of directors.  The suit is aimed at preventing the waste or
diversion of corporate funds in paying officers appointed solely to protect
Pablo Roman from criminal prosecution, and not to carry on the corporation’s
banking business.  Whether the
complaint’s allegations to such effect are true or not must be determined after
due hearing.

Independently of the grounds advanced by the defendants in their
motions to dismiss, the Court a quo gave as a further pretext
for the dismissal of the action the pendency of eight other lawsuits between
prac­tically the same parties, reasoning that the question at issue in the
present case could be incorporated in any one of the other actions by amend­ed
or supplemental pleading.  We fail to see
that this justifies the dismissal of the case under appeal.  In the
first place, there is no pretense that the cause of action here was already
included in any of the other pending cases. 
As a matter of fact, dismissal
of the present action was not
sought on the ground of pendency of another action between the same
parties.  Secondly, the amendment of a
complaint after a responsive pleading is filed, would rest upon the discretion
of the party and the Court.  Hence, this
case cannot be dismissed simply because of the possibility that the cause of
action here can be incorporated or introduced in any of those other pending cases.

In view of the foregoing, the order dismissing the complaint is
re­versed and set aside.  The case is
remanded to the court of origin with instructions to overrule the motions to
dismiss and require the defendants to answer the complaint.  Thereafter, the case shall be tried and
decided on its merits.  Costs against
defendants-appellees.

SO ORDERED.

Concepcion, C.J., Dizon, Regala, Makalintal, Bengzon, Zaldivar,
Sanchez, and Castro, JJ., concur.

^[1]
Paminsan v. Costales, 28 Phil. 487; Blay v. Batangas Transportation
Co., 80 Phil. 373; De Jesus v. Belarmino, 95 Phil. 366; Valencia &
Co. v. Layug, G. R. No. L-11060, May 23, 1958.

^[2]
Piñero v. Enriquez, 84 Phil. 774; Dimayuga v. Dimayuga, 96 Phil.
860.