Cruz v. Go
REITERATIONFacts
The Antecedents: This case involves an intra-corporate dispute within Filipinas Port Services, Inc. (Filport), a stevedoring company. The core of the dispute centers on the creation of certain executive positions and the increase of emoluments for existing officers. Petitioner Eliodoro C. Cruz, a former president of Filport, alleged that the board of directors engaged in mismanagement by creating positions such as Assistant Vice-President for Corporate Planning, Operations, Finance, and Administration, and Special Assistants to the President and Board Chairman, with substantial monthly remuneration. He also questioned the increases in salaries for the Chairman, Vice-President, Treasurer, and Assistant General Manager, claiming these were disproportionate to the work performed and, in some instances, created merely for accommodation. Procedural History: The case originated with the Securities and Exchange Commission (SEC) as a derivative suit filed by Eliodoro C. Cruz. Following the enactment of Republic Act No. 8799, the case was transferred to the Regional Trial Court (RTC) of Manila, and subsequently to the RTC of Davao City. The RTC-Davao City ruled in favor of the petitioners, ordering certain directors to refund salaries received for the questioned positions. However, the respondents appealed this decision to the Court of Appeals (CA). The CA reversed the RTC's decision, dismissing the derivative suit. The petitioners then filed the present petition for review on certiorari with the Supreme Court. The Petition: The petitioners seek review of the Court of Appeals' decision, arguing that the CA erred in its findings. Specifically, they contend that the CA wrongly concluded that Filport's Board of Directors acted within its powers in creating the executive committee and the questioned positions, and in increasing certain salaries. They also argue the CA erred in finding no evidence that the positions were created for accommodation and that salaries were actually paid. The petitioners are asking the Supreme Court to set aside the CA's decision and reinstate the RTC's ruling. The respondents, in turn, question the propriety of the petition, asserting it raises only questions of fact, and also challenge the derivative nature of the suit.
Issue(s)
Whether the Court of Appeals erred in holding that Filport’s Board of Directors acted within its powers in creating the executive committee and the positions of AVPs for Corporate Planning, Operations, Finance and Administration, and those of the Special Assistants to the President and the Board Chairman, each with corresponding remuneration, and in increasing the salaries of the positions of Board Chairman, Vice-President, Treasurer and Assistant General Manager. Whether the Court of Appeals erred in finding that no evidence exists to prove that (a) the positions of AVP for Corporate Planning, Special Assistant to the President and Special Assistant to the Board Chairman were created merely for accommodation, and (b) the salaries/emoluments corresponding to said positions were actually paid to and received by the directors appointed thereto. Whether the case filed was a valid derivative suit.
Ruling
The petition is denied. The challenged decision of the Court of Appeals is affirmed in all respects.
Ratio Decidendi
On the powers of the Board of Directors in creating positions and fixing remuneration: The Court affirmed the CA's ruling that Filport’s Board of Directors acted within its powers. The governing body of a corporation is its board of directors, vested with the authority to exercise corporate powers, conduct business, and control corporate property. The creation of positions like Assistant Vice Presidents and Special Assistants, and the increase in emoluments for existing officers, are considered management prerogatives. These actions are permissible if authorized by the corporation's by-laws and are exercised within the scope of its charter and relevant laws. The Court emphasized that the determination of the necessity for additional offices is a management prerogative that courts generally do not review absent proof of bad faith or malice. The Court also noted that petitioner Cruz himself had moved for the creation of similar positions during his incumbency, precluding him from later challenging such acts. On the alleged creation of positions for accommodation and lack of evidence of payment: The Court concurred with the CA that there was no sufficient evidence to support the claim that the positions were created merely for accommodation. The trial court's finding of accommodation was based solely on the self-serving testimony of Cruz, which the Supreme Court deemed insufficient. The burden of proof rests on the party alleging a fact, and bare allegations unsubstantiated by evidence are not equivalent to proof. Furthermore, the Court found no evidence of actual payment of salaries for the assailed positions, which was necessary to support the claim for reimbursement. The respondents' averment that officers deserved their compensation did not equate to an admission of actual payment. On the validity of the derivative suit: The Court sustained the petitioners' assertion that the case was a valid derivative suit. Under the Corporation Code, a stockholder may institute a derivative suit to protect corporate rights when the corporation's officials refuse to sue or are the ones to be sued. The Court found that the action was principally for damages due to alleged mismanagement detrimental to Filport, making the corporation the real party-in-interest. The requisites for a derivative suit were met: Cruz was a stockholder, he attempted to exhaust intra-corporate remedies by writing a letter to the board, and the cause of action devolved on the corporation. The Court noted that since the directors themselves were the alleged wrongdoers, a demand upon them to sue would have been futile, thus excusing the failure to make such a demand.
Main Doctrine
The creation of corporate positions and the fixing of their remuneration are management prerogatives of the Board of Directors, provided they are exercised in good faith and within the scope of the corporation's charter and by-laws. A derivative suit is a valid remedy for stockholders when corporate officials refuse to act or are the ones to be sued, provided the requisites for such suit are met.