Ago Realty & Development Corp. v. Ago

Facts: ARDC is a close corporation. Its stockholders are petitioners and respondents. Angelita introduced improvements on Lot No. H-3, titled in the name of ARDC, without the proper resolution from the corporation's Board of Directors. 

ARDC and Emmanuel filed a complaint before RTC Legazpi. The case was dismissed. CA affirmed the RTC decision. 

Issue: Whether or not Emmanuel, et al. may sue on behalf of ARDC absent a resolution or any other grant of authority from its Board of Directors sanctioning the institution of the case.

Held: While corporations are subjected to the State's broad regulatory powers, it is their directors and officers who are tasked with addressing questions of internal policy and management. The business of a corporation is conducted by its board of directors, and so long as the board acts in good faith, the State, through the courts, may not interfere with its management decisions.

Grounded on equity, the derivative suit has proven to be an effective tool for the protection of minority shareholders. Such actions have for their object the vindication of a corporate injury, even though they are not brought by the corporation, but by its stockholders. That said, derivative suits remain an exception. As a general rule, corporate litigation must be commenced by the corporation itself, with the imprimatur of the board of directors, which, pursuant to the law, wields the power to sue. Therefore, since the derivative suit is a remedy of last resort, it must be shown that the board, to the detriment of the corporation and without a valid business consideration, refuses to remedy a corporate wrong. A derivative suit may only be instituted after such an omission. Simply put, derivative suits take a back seat to board-sanctioned litigation whenever the corporation is willing and able to sue in its own name. 

Since it is settled that she introduced improvements on ARDC's property without its consent, it follows that the complaint was not baseless at all. However, because the case was not brought by the corporation, but by its stockholders, its dismissal was properly decreed by the trial court.