Page 1 of 3

CORPO - 3rd Set – 174 Hi- Yield, Inc. vs. Court of Appeals
[G.R. NO. 168863 : June 23, 2009]

HI-YIELD REALTY, INCORPORATED, Petitioner, v. HON. COURT OF APPEALS, HON. CESAR O. UNTALAN, in his capacity
as PRESIDING JUDGE OF RTC-MAKATI, BRANCH 142, HONORIO TORRES & SONS, INC., and ROBERTO H. TORRES,
Respondents.

DECISION

QUISUMBING, J.:

This is a special civil action for certiorari seeking to nullify and set aside the Decision1 dated March 10, 2005 and Resolution2
dated May 26, 2005 of the Court of Appeals in CA-G.R. SP. No. 83919. The appellate court had dismissed the petition for
certiorari and prohibition filed by petitioner and denied its reconsideration.

The antecedent facts of the case are undisputed.

On July 31, 2003, Roberto H. Torres (Roberto), for and on behalf of Honorio Torres & Sons, Inc. (HTSI), filed a Petition for
Annulment of Real Estate Mortgage and Foreclosure Sale3 over two parcels of land located in Marikina and Quezon City. The
suit was filed against Leonora, Ma. Theresa, Glenn and Stephanie, all surnamed Torres, the Register of Deeds of Marikina and
Quezon City, and petitioner Hi-Yield Realty, Inc. (Hi-Yield). It was docketed as Civil Case No. 03-892 with Branch 148 of the
Regional Trial Court (RTC) of Makati City.

On September 15, 2003, petitioner moved to dismiss the petition on grounds of improper venue and payment of insufficient
docket fees. The RTC denied said motion in an Order4 dated January 22, 2004. The trial court held that the case was, in nature,
a real action in the form of a derivative suit cognizable by a special commercial court pursuant to Administrative Matter No. 00-
11-03-SC.5 Petitioner sought reconsideration, but its motion was denied in an Order6 dated April 27, 2004.

Thereafter, petitioner filed a petition for certiorari and prohibition before the Court of Appeals. In a Decision dated March 10,
2005, the appellate court agreed with the RTC that the case was a derivative suit. It further ruled that the prayer for annulment of
mortgage and foreclosure proceedings was merely incidental to the main action. The dispositive portion of said decision reads:

WHEREFORE, premises considered, this Petition is hereby DISMISSED. However, public respondent is hereby DIRECTED to
instruct his Clerk of Court to compute the proper docket fees and thereafter, to order the private respondent to pay the same
IMMEDIATELY.

SO ORDERED.7

Petitioner's motion for reconsideration8 was denied in a Resolution dated May 26, 2005.

Hence, this petition which raises the following issues:

I.

WHETHER THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN NOT DISMISSING THE
CASE AGAINST HI-YIELD FOR IMPROPER VENUE DESPITE FINDINGS BY THE TRIAL COURT THAT THE ACTION IS A
REAL ACTION.

II.

WHETHER THE HONORABLE COURT OF APPEALS ERRED IN NOT DISMISSING THE COMPLAINT AS AGAINST HI-
YIELD EVEN IF THE JOINDER OF PARTIES IN THE COMPLAINT VIOLATED THE RULES ON VENUE.

III.

WHETHER THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE ANNULMENT OF REAL ESTATE
MORTGAGE AND FORECLOSURE SALE IN THE COMPLAINT IS MERELY INCIDENTAL [TO] THE DERIVATIVE SUIT.9
 Page 2 of 3
CORPO - 3rd Set – 174 Hi- Yield, Inc. vs. Court of Appeals
The pivotal issues for resolution are as follows: (1) whether venue was properly laid; (2) whether there was proper joinder of
parties; and (3) whether the action to annul the real estate mortgage and foreclosure sale is a mere incident of the derivative
suit.

Petitioner imputes grave abuse of discretion on the Court of Appeals for not dismissing the case against it even as the trial court
found the same to be a real action. It explains that the rule on venue under the Rules of Court prevails over the rule prescribing
the venue for intra-corporate controversies; hence, HTSI erred when it filed its suit only in Makati when the lands subjects of the
case are in Marikina and Quezon City. Further, petitioner argues that the appellate court erred in ruling that the action is mainly a
derivative suit and the annulment of real estate mortgage and foreclosure sale is merely incidental thereto. It points out that the
caption of the case, substance of the allegations, and relief prayed for revealed that the main thrust of the action is to recover the
lands. Lastly, petitioner asserts that it should be dropped as a party to the case for it has been wrongly impleaded as a non-
stockholder defendant in the intra-corporate dispute.

On the other hand, respondents maintain that the action is primarily a derivative suit to redress the alleged unauthorized acts of
its corporate officers and major stockholders in connection with the lands. They postulate that the nullification of the mortgage
and foreclosure sale would just be a logical consequence of a decision adverse to said officers and stockholders.

After careful consideration, we are in agreement that the petition must be dismissed.

A petition for certiorari is proper if a tribunal, board or officer exercising judicial or quasi-judicial functions acted without or in
excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction and there is no appeal, or any
plain, speedy and adequate remedy in the ordinary course of law.10

Petitioner sought a review of the trial court's Orders dated January 22, 2004 and April 27, 2004 via a petition for certiorari before
the Court of Appeals. In rendering the assailed decision and resolution, the Court of Appeals was acting under its concurrent
jurisdiction to entertain petitions for certiorari under paragraph 2,11 Section 4 of Rule 65 of the Rules of Court. Thus, if
erroneous, the decision and resolution of the appellate court should properly be assailed by means of a Petition for Review on
Certiorari under Rule 45 of the Rules of Court. The distinction is clear: a petition for certiorari seeks to correct errors of
jurisdiction while a Petition for Review on Certiorari seeks to correct errors of judgment committed by the court a quo.12 Indeed,
this Court has often reminded members of the bench and bar that a special civil action for certiorari under Rule 65 lies only when
there is no appeal nor plain, speedy and adequate remedy in the ordinary course of law.13 In the case at hand, petitioner
impetuously filed a petition for certiorari before us when a Petition for Review was available as a speedy and adequate remedy.
Notably, petitioner filed the present petition 5814 days after it received a copy of the assailed resolution dated May 26, 2005. To
our mind, this belated action evidences petitioner's effort to substitute for a lost appeal this petition for certiorari .

For the extraordinary remedy of certiorari to lie by reason of grave abuse of discretion, the abuse of discretion must be so patent
and gross as to amount to an evasion of positive duty, or a virtual refusal to perform the duty enjoined or to act in contemplation
of law, or where the power is exercised in an arbitrary and despotic manner by reason of passion and personal hostility.15 We
find no grave abuse of discretion on the part of the appellate court in this case.

Simply, the resolution of the issues posed by petitioner rests on a determination of the nature of the petition filed by respondents
in the RTC. Both the RTC and Court of Appeals ruled that the action is in the form of a derivative suit although captioned as a
petition for annulment of real estate mortgage and foreclosure sale.

A derivative action is a suit by a shareholder to enforce a corporate cause of action.16 Under the Corporation Code, where a
corporation is an injured party, its power to sue is lodged with its board of directors or trustees. But an individual stockholder may
be permitted to institute a derivative suit on behalf of the corporation 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. In such actions, the
corporation is the real party-in-interest while the suing stockholder, on behalf of the corporation, is only a nominal party.17

In the case of Filipinas Port Services, Inc. v. Go,18 we enumerated the foregoing requisites before a stockholder can file a
derivative suit:

a) the party bringing suit should be a shareholder as of the time of the act or transaction complained of, the number of his shares
not being material;

b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for the appropriate relief
but the latter has failed or refused to heed his plea; andcralawlibrary
 Page 3 of 3
CORPO - 3rd Set – 174 Hi- Yield, Inc. vs. Court of Appeals
c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being caused to the
corporation and not to the particular stockholder bringing the suit.19

Even then, not every suit filed on behalf of the corporation is a derivative suit. For a derivative suit to prosper, the minority
stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of
action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit.20 The Court
finds that Roberto had satisfied this requirement in paragraph five (5) of his petition which reads:

5. Individual petitioner, being a minority stockholder, is instituting the instant proceeding by way of a derivative suit to redress
wrongs done to petitioner corporation and vindicate corporate rights due to the mismanagement and abuses committed against
it by its officers and controlling stockholders, especially by respondent Leonora H. Torres (Leonora, for brevity) who, without
authority from the Board of Directors, arrogated upon herself the power to bind petitioner corporation from incurring loan
obligations and later allow company properties to be foreclosed as hereinafter set forth;21

Further, while it is true that the complaining stockholder must satisfactorily show that he has exhausted all means to redress his
grievances within the corporation; such remedy is no longer necessary where the corporation itself is under the complete control
of the person against whom the suit is being filed. The reason is obvious: a demand upon the board to institute an action and
prosecute the same effectively would have been useless and an exercise in futility.22

Here, Roberto alleged in his petition that earnest efforts were made to reach a compromise among family members/stockholders
before he filed the case. He also maintained that Leonora Torres held 55% of the outstanding shares while Ma. Theresa, Glenn
and Stephanie excluded him from the affairs of the corporation. Even more glaring was the fact that from June 10, 1992, when
the first mortgage deed was executed until July 23, 2002, when the properties mortgaged were foreclosed, the Board of
Directors of HTSI did nothing to rectify the alleged unauthorized transactions of Leonora. Clearly, Roberto could not expect relief
from the board.

Derivative suits are governed by a special set of rules under A.M. No. 01-2-04-SC23 otherwise known as the Interim Rules of
Procedure Governing Intra-Corporate Controversies under Republic Act No. 8799.24 Section 1,25 Rule 1 thereof expressly lists
derivative suits among the cases covered by it.

As regards the venue of derivative suits, Section 5, Rule 1 of A.M. No. 01-2-04-SC states:

SEC. 5. Venue. - All actions covered by these Rules shall be commenced and tried in the Regional Trial Court which has
jurisdiction over the principal office of the corporation, partnership, or association concerned. Where the principal office of the
corporation, partnership or association is registered in the Securities and Exchange Commission as Metro Manila, the action
must be filed in the city or municipality where the head office is located.

Thus, the Court of Appeals did not commit grave abuse of discretion when it found that respondents correctly filed the derivative
suit before the Makati RTC where HTSI had its principal office.

There being no showing of any grave abuse of discretion on the part of the Court of Appeals the other alleged errors will no
longer be passed upon as mere errors of judgment are not proper subjects of a petition for certiorari .

WHEREFORE, the instant petition is hereby DISMISSED. The Decision dated March 10, 2005 and the Resolution dated May
26, 2005 of the Court of Appeals in CA-G.R. SP. No. 83919 are AFFIRMED.

No pronouncement as to costs.

SO ORDERED.