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202 - Lim vs. Lim-Yu

This case involves a derivative suit filed by Patricia Lim-Yu against the board of directors of Limpan Investment Corporation regarding the issuance of shares to Gilda Lim. The board approved giving Lim shares worth over 1.5 million pesos for legal services with no cash available. Lim would control over 62.5% of shares. Lim-Yu filed a complaint with the SEC claiming violation of her preemptive rights as a shareholder. The board argued Lim-Yu lacked capacity to sue due to a guardianship proceeding by Lim over Lim-Yu. The Supreme Court issued a TRO allowing Lim-Yu to act on her own behalf but not represent others. The SEC and Court of Appeals found Lim-Yu

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Adi Hernandez
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177 views

202 - Lim vs. Lim-Yu

This case involves a derivative suit filed by Patricia Lim-Yu against the board of directors of Limpan Investment Corporation regarding the issuance of shares to Gilda Lim. The board approved giving Lim shares worth over 1.5 million pesos for legal services with no cash available. Lim would control over 62.5% of shares. Lim-Yu filed a complaint with the SEC claiming violation of her preemptive rights as a shareholder. The board argued Lim-Yu lacked capacity to sue due to a guardianship proceeding by Lim over Lim-Yu. The Supreme Court issued a TRO allowing Lim-Yu to act on her own behalf but not represent others. The SEC and Court of Appeals found Lim-Yu

Uploaded by

Adi Hernandez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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I. SHORT TITLE: LIM VS.

LIM-YU

II. FULL TITLE: GILDA C. LIM, WILHELMINA V. JOVEN AND DITAS A. LERIOS,
Petitioners, vs. Patricia Lim-Yu, in her capacity as a minority stockholder of LIMPAN
INVESTMENT CORPORATION, Respondent.

III. TOPIC: Derivative Suit

IV. STATEMENT OF FACTS

At a special meeting on 07 October 1994, the Board of Directors of Limpan Investment


Corporation (LIMPAN) approved a resolution approving the partial payment for the legal
services of Gilda C. Lim in handling the various case for the corporation in the amount of Php
1,551,500.00 representing 15,515 shares of stock of the corporation as there is no fund available
to pay Lim in cash. On October 18, 1994, Corporate Secretary Jaime G. Manzano filed a request
before the Corporate and Legal Affairs Department of the SEC asking for the exemption of the
15,515 shares from the registration requirements of the Revised Securities Act. Lim ended up
having a controlling 62.5% of the shares of Limpan.

Patricia Lim-Yu, sister of the petitioner filed a complaint with the SEC against the members of
the BOD, particularly, Gilda C. Lim, Wilhelmina V. Joven, Ditas A. Lerios, Augusto R.
Bundang, Teresita C. Velez and Jaime Manzano who approved the resolution. Bundang, Velez
and Manzano filed an answer with affirmative defenses that the complaint failed to state a cause
of action, and that respondent Lim-Yu has no legal capacity to sue on the basis of the
guardianship proceeding filed by petitioner Lim over her sister, respondent Lim-Yu.
Subsequently, the Letters of Guardianship was issued by Judge Demetrio Batario enjoining
respondent Lim-Yu from entering and signing contracts in her behalf and on behalf of others.

V. STATEMENT OF THE CASE

Private respondent, Patricia Lim-Yu filed with the SEC a complaint against the members of the
BOD of Limpan Corporation who approved the resolution of issuing 15,515 shares of stocks to
petitioner, Gilda C. Lim as payment for her legal services for the corporation. Bundang, Velez
and Manzano filed answer raising as affirmative defenses that the complaint failed to state a
cause of action and that respondent Lim-Yu has no legal capacity to sue on the basis of the
guardianship of petitioner Lim over respondent Lim-Yu.

Respondent, Patricia Lim-Yu appealed the appointment of petitioner as her guardian. The
Supreme Court giving due course to the petition then issued a TRO enjoining the carrying out of
the order which prohibits respondent Lim-Yu from entering and signing contracts in her behalf
and on behalf of others. Based on the order of the Supreme Court, respondent Lim-Yu is
incapacitated from filing a derivative suit. Petitioners then filed a Motion to Dismiss which was
put on hold by the hearing officer of SEC in view of the conflicting view and interpretation of
the SC on the legal capacity of respondent Lim-Yu until the matter is clarified.
Respondent Lim-Yu then filed a Motion for Reconsideration from the order of the hearing
officer holding in abeyance the resolution of the Motion to Dismiss filed by petitioners which
was denied for filing out of time. Lim-Yu filed as second Motion for Reconsideration which was
also denied. Aggrieved, Lim-Yu elevated the case to SEC En Banc through a petition for
certiorari which was granted by the SEC En Banc ordering the SICD to hear the other grounds of
the Motion to Dismiss and continue the case until its final determination.

On appeal, the CA agreed with the SEC that, pending clarification thereof, there was no need for
the hearing officer to defer ruling on the Motion to Dismiss. The CA stated that the TRO did not
prohibit herein Respondent Patricia Lim-Yu from acting or entering into contracts on her own
behalf or from protecting her rights, as the complaint she filed before the SEC relates to the
denial of her pre-emptive right as a shareholder.

VI. ISSUES

Whether or not the suit filed by the respondent is a derivative suit that the TRO restricts her from
instituting.

VII. RULING

NO. The action filed by petitioners is not a derivative suit.

The suit instituted by respondent cannot be characterized as derivative one, because she was
complaining only of the violation of her pre-emptive right. She was merely praying that she be
allowed to subscribe to the additional issuances of stocks in proportion to her shareholdings to
enable her to preserve her percentage of ownership in the corporation. She was therefore not
acting for the benefit of the corporation.

The TRO allows respondent to act for herself and to enter into any contract on her own behalf.
However, she cannot transact in representation of or for the benefit of her parents, brothers or
sisters, or the Limpan Investment Corporation. Contrary to what petitioners suggest, all that is
prohibited is any action that will bind them. In short, she can act only on and in her own behalf,
not that of petitioners or the corporation.

VIII. DISPOSITIVE PORTION

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs
against petitioners.

SO ORDERED.

IX. PREPARED BY: Hernandez, Adrian B.

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