RUBEN SAW, DIONISIO SAW, LINA S. CHUA, LUCILA S. RUSTE AND EVELYN SAW, PETITIONERS, VS. HON. COURT OF APPEALS, HON. BERNARDO P. PARDO, PRESIDING JUDGE OF BRANCH 43, (REGIONAL TR…

Saw versus Court of Appeals

The Case

This is a petition for review brought by Ruben Saw, Dionisio Saw, Lina Saw Chua, Lucila Saw Ruste, and Evelyn Saw, all stockholders of Freeman, Incorporated, against the Court of Appeals and the presiding judge of the Regional Trial Court that heard the collection suit filed by Equitable Banking Corporation against Freeman, Incorporated and its president and general manager, Saw Chiao Lian. The stockholders sought to intervene in that collection suit to protect their interests, and the question is whether they may do so. The case matters because it fixes the rule on who has the legal interest required for intervention, and it clarifies that a stockholder's interest in corporate property is merely inchoate until dissolution.

Procedural History

Equitable Banking Corporation filed a collection suit with preliminary attachment against Freeman, Incorporated and Saw Chiao Lian. The petitioners moved to intervene, and the trial court denied the motion. The petitioners appealed to the Court of Appeals. Meanwhile, Equitable and Saw Chiao Lian entered into a compromise agreement, which the trial court approved. When the agreement was not complied with, Equitable secured a writ of execution, and two lots owned by Freeman, Incorporated were levied upon and sold at public auction to Freeman Management and Development Corporation. The Court of Appeals sustained the denial of the motion for intervention and also rejected the argument that the trial court had lost jurisdiction upon the filing of the notice of appeal. The petitioners then came to the Supreme Court by petition for review.

Facts

Equitable Banking Corporation sued Freeman, Incorporated and its president and general manager, Saw Chiao Lian, to collect on loans. The petitioners, who are stockholders of Freeman, Incorporated, moved to intervene. They alleged that the loan transactions were not approved by stockholders representing at least two thirds of the corporate capital, that Saw Chiao Lian had no authority to contract the loans, and that there was collusion between the officials of Freeman, Incorporated and the bank.

The trial court denied the motion to intervene, and the petitioners appealed. While the appeal was pending, Equitable and Saw Chiao Lian entered into a compromise agreement, which the trial court approved. Because the agreement was not complied with, Equitable obtained a writ of execution, and two lots owned by Freeman, Incorporated were levied upon and sold at public auction to Freeman Management and Development Corporation.

The Court of Appeals sustained the denial of intervention, holding that the petitioners' rights to corporate assets were at most inchoate prior to dissolution, and that intervention requires a right that is actual, material, direct, and immediate, not merely contingent or expectant. It also held that the appeal concerned only the denial of the motion to intervene and did not divest the trial court of jurisdiction over the whole case.

Issues

• Whether or not the Court of Appeals erred in holding that the petitioners cannot intervene because their rights as stockholders are merely inchoate and not actual, material, direct, and immediate prior to the dissolution of the corporation.
• Whether or not the Court of Appeals erred in holding that the petitioners' appeal was confined only to the order denying their motion to intervene and did not divest the trial court of jurisdiction over the whole case.

Applicable Provisions

Section 2 of Rule 12 of the Revised Rules of Court provides:

Section 2. Intervention. A person may, before or during the trial, be permitted by the court, in its discretion, to intervene in an action, if he has a legal interest in the matter in litigation, or in the success of either of the parties, or an interest against both, or is so situated as to be adversely affected by a distribution or other disposition of property in the custody of the court or of an officer thereof.

This provision governs whether the petitioners may be admitted as intervenors, and the Court measures their claimed interest against its requirement of a legal interest in the matter in litigation.

Ruling

On the first issue, the Court held that the Court of Appeals committed no reversible error in sustaining the denial of the motion for intervention. The Court ruled that the petitioners had no legal interest in the subject matter in litigation. Their interest, if it existed at all, was indirect, contingent, remote, conjectural, consequential, and collateral. At the very least, it was purely inchoate, a mere expectancy of a right in the management of the corporation and to share in profits and in the properties and assets on dissolution, after payment of corporate debts. The Court explained that while a share of stock represents a proportionate interest in corporate property, it does not vest the owner with any legal right or title to that property, the interest being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which belongs to the corporation as a distinct legal person. The Court also noted that the Everett case, relied upon by the petitioners, was not applicable because it involved minority stockholders suing where the board of directors refused to act, whereas here it was the corporation that was being sued by its creditor.

On the second issue, the Court held that the Court of Appeals correctly ruled that the appeal was confined to the denial of the motion to intervene. The petitioners were never recognized by the trial court as party litigants in the main case, so they could not have appealed the decision itself. The Court further held that intervention is ancillary and supplemental, not an independent proceeding, and that there was no longer any principal action to be resolved because the writ of execution had already been issued and the claim of Equitable had already been satisfied. The Court quoted its earlier ruling in Barangay Matictic versus Elbinias:

An intervention has been regarded as merely collateral or accessory or ancillary to the principal action and not an independent proceeding; an interlocutory proceeding dependent on and subsidiary to the case between the original parties.

The Court added that with the final dismissal of the original action, the complaint in intervention can no longer be acted upon, and that the right of the intervenor must merely be in aid of the right of the original party.

Doctrine

To be permitted to intervene under Section 2 of Rule 12 of the Revised Rules of Court, a movant must have a legal interest in the matter in litigation, or in the success of either of the parties, or an interest against both, or must be so situated as to be adversely affected by a distribution or other disposition of property in the custody of the court. The interest must be direct and immediate, such that the intervenor will either gain or lose by the direct legal operation and effect of the judgment; an interest that is indirect, contingent, remote, conjectural, consequential, or collateral will not suffice. A stockholder's interest in corporate property is merely inchoate or an expectancy until dissolution, because shares do not vest the owner with legal title to corporate property, which belongs to the corporation as a distinct legal person. Intervention is ancillary and supplemental, not an independent proceeding, and it cannot survive the final dismissal or satisfaction of the principal action.

Disposition

The petition was denied, with costs against the petitioners, and the denial of the motion for intervention was sustained.

Remember This

The single line worth memorizing is that a stockholder's interest in corporate property is merely inchoate and expectant, not the direct and immediate legal interest that intervention requires. Examiners like to use this case to test the requisites of intervention under Rule 12 and the ancillary nature of an intervention once the principal action has been finally resolved.