Pascual vs. Del Saz Orozco. 19 Phil.
82 , March 17, 1911 For the first cause of action, petitioner alleged that
TRENT, J.
Petitioner: CANDIDO PASCUAL
Respondent: EUGENIO DEL SAZ OROZCO ET AL.
Topic: Derivative Suit; Demurrer; Legal Interest
Doctrine:
The relators must be stockholders both at the time of
occurrence of the events constitution the cause of action and
at the time of the filing.
A stockholder in a corporation who was not such at the time of
the transactions complained of, or whose shares had not
devolved upon him since by operation of law, can not maintain
suits of this character, unless such transactions continue and
are injurious to the stockholder, or affect him especially and
specifically in some other way.
Facts:
Petitioner Pascual, as a stockholder Banco Español-
Filipino (banking company), filed a derivative suit against
respondents who are directors of the bank for two causes of
action. He brought this action in his own right as a stockholder
of the bank, for the benefit of the bank, and all the other
stockholders thereof.
during the years 1903, 1904, 1905, and 1907 the respondents,
without the knowledge, consent, or acquiescence of the
stockholders, deducted their respective compensation from
the gross income instead of from the net profits of the bank,
thereby defrauding the bank and its stockholders of
approximately P20,000 per annum. Despite demands by the
stockholders, respondents refuse to refund to the bank the
sums so misappropriated. In addition, the respondents form
part of the majority of the present board and prior filing the
suit, petitioners exhausted every intra corporate remedy
available.
For the second cause of action, the predecessors of
respondent, during 1899, 1900, 1901, and 1902, likewise
committed the same illegal acts. Despite knowledge of these
facts, respondent wholly neglected to take any action in the
premises or inform the stockholders thereof upon assumption
of office.
In defense, respondent filed a demurrer for lack of
legal capacity of petitioner to sue and failure to state facts
constituting cause of action.
The court sustained the Demurrer for both the first and
second causes of action, on the ground that in actions of this
character the plaintiff must aver in his complaint that he was
the owner of stock in the corporation at the time of the
occurrences complained of, or else that the stock has since
devolved upon him by operation of law.
Issue: Whether a stockholder can maintain a suit of this
character upon a cause of action pertaining to the corporation
when it appears that he was not a stockholder at the time of
the occurrence of the acts complained of and upon which the
action is based.
Held: No.
Petitioner, by reason of the fact that he is a stockholder
in the bank (corporation) has a right to maintain a suit for and
on behalf of the bank, but the extent of such a right must
depend upon when, how, and for what purpose he acquired
the shares which he now owns.
In the case at bar, petitioner became a stockholder on
the 13th of November, 1903. It was presumed that
stockholders were entitled to receive dividends twice a year;
every six months. Hence, plaintiff is a stockholder during all
the time for which he seeks recovery in his first cause of
action, except the first six months of the year 1903. The
demurrer for the first cause of action must be reversed.
However, demurrer must be sustained for his second
cause of action. It appears that the plaintiff was not a
stockholder during any of the time in question in this second
cause of action. Based on US jurisprudence and the 94th
Equity Rule, a stockholder's bill in cases of this character must
contain an allegation that the plaintiff was a stockholder at the
time of the transaction of which he complains and that the suit
is not a collusive one to confer jurisdiction. The ownership of
the stock at the time of the transaction is a fact essential to
the maintenance of the suit in any event.
As a general proposition, the purchaser of stock in a
corporation is not allowed to attack the acts and management
of the company prior to the acquisition of his stock; otherwise
we might have a case where stock duly represented in a
corporation consented to and participated in bad management
and waste, and after reaping the benefits from such
transaction, could be easily passed into the hands of a
subsequent purchaser, who could make his harvest by
appearing and contesting the very acts and conducts which his
vendor had consented to.
As settled by the Supreme Court of the United States,
as a matter of substantive law, a stockholder in a corporation
who was not such at the time of the transactions complained
of, or whose shares had not devolved upon him since by
operation of law, can not maintain suits of this character,
unless such transactions continue and are injurious to the
stockholder, or affect him especially and specifically in some
other way.
The rationale is that his vendor could have complained
of these transactions, but he did not choose to do so. It is the
opinion of the Court that the discretion whether to sue, to set
them aside, or to acquiesce in, and agree to them is incapable
of transfer. If the plaintiff himself had been injured by the acts
of defendants' predecessors that is another matter. He ought
to take things as he found them when he voluntarily acquired
his shares. If he was defrauded in the purchase of these shares
he should sue his vendor.