Commart vs.

Securities & Exchange Commisiion

Gr. No. 85318, June 3, 1991

Facts:

Commart (Phils.), Inc., is a corporation engaged in the brokerage business for

the importation of fertilizers and other products/commodities which was organized
by two brothers, Jesus and Mariano Maglutac.

Sometime in June 1984, the two brothers agreed to go their separate ways,
with Mariano being persuaded to sell to Jesus his shareholdings in Commart
amounting to 25% of the outstanding capital stock. As part of the deal, a
"Cooperative Agreement" was signed, between Commart (represented by Jesus) and
Mariano, in which, among others, Commart ceded to Mariano or to an "acceptable
entity" he may create, a portion of its business, with a pledge of mutual cooperation
for a certain period so as to enable Mariano to get his own corporation off the
ground, so to speak.

Mariano's wife, Alice M. Maglutac, has been for years a stockholder and
director of Commart, did not dispose of her shareholdings, and thus continued as
such even after the sale of Mariano's equity.

As broker and indentor, Commart's principal income came from commissions

paid to it in U.S. dollars by foreign suppliers of fertilizers and other commodities
imported by Planters Products, Inc. and other local importers.

Issue:

Whether Alice has the legal standing to file the derivative suit.

Held:

Yes. A derivative suit has been the principal defense of the minority
shareholder against abuses by the majority. It is a remedy designed by equity for
those situations where the management, through fraud, neglect of duty, or other
cause, declines to take the proper and necessary steps to assert the corporation's
rights. Indeed, to grant to Commart the light of withdrawing or dismissing the suit,
at the instance of majority stockholders and directors who themselves are the
persons alleged to have committed breaches of trust against the interest of the
corporation, would be to emasculate the right of minority stockholders to seek
redress for the corporation. To consider the Notice of Dismissal filed by Commart as
quashing the complaint filed by Alice Maglutac in favor of the corporation would be
to defeat the very nature and function of a derivative suit and render the right to
institute the action illusory.
 Chase vs. Buencamino
Gr. No. L-20395, 13 May 1985

Facts:

Chase, was the owner of Production Manufacturing Company, of Portland,

Oregon, USA, a corporation primarily dedicated to the operation of a machine shop
and heat-treating plant for the production of tractor parts.

Sometime in 1954, Chase was notified by the Highway Commission of the

State of Oregon that his factory was going to be in the path of a proposed highway.
He was then advised to sell or face expropriation and warned to remove his plant
within a year. His distributor Craig Carrol told him of a Dr. Buencamino of Manila
who he said was interested in establishing a manufacturing plant in the Philippines.
Craig Carrol contacted Buencamino who told him to contact his associate William
Cranker in the United States. Thereafter, a series of negotiations took place both
here in Manila, and in the United States, between Chase on the one hand, and
Cranker and Buencamino, on the other, for the purchase of Chase's factory
(Production Manufacturing Company) and the establishment of a new factory in
Manila which was to be called the American Machinery Engineering Parts, Inc.
(Amparts for short). These negotiations culminated in a final agreement to the
effect that - Elton Chase was to be paid One Hundred Thousand Dollars
($100,000.00) and he would also be given a one-third interest in Amparts, with the
other two, Dr. Buencamino and Cranker, as the owner of the other two-thirds (2/3)
interest, 1/3 interest each; that in exchange for said $100,000.00 and the 1/3
interest, Chase was to transfer to Amparts his tractor plant, ship his machineries to
Manila, assuming all costs of dismantling, preserving and crating for shipment to
Manila, install said machineries at Amparts plant with the aid of five technicians and
finally, he has to be the production manager of Amparts.

Chase had shipped his machineries and had them installed in the Amparts
plant. Amparts then began operation with Dr. Buencamino as President, William
Cranker as Manager and Elton Chase as Production Manager. After sometimes, the
three maintained harmonious relations but later on distrust came in until finally
Chase tendered his letter of resignation as Production Manager. He then filed a
derivative suit against Buencamino and Chase, who allegedly stole from the
corporation. He sought for the dissolution of the corporation.

Issue:

Whether the corporation may be dissolved.

Held:
 No. The case is of derivative in nature, therefore, it was filed for the benefit of
the corporation. The Court grant a dissolution because the action is a derivative one
for the benefit of Amparts and not for the personal benefit of Chase, and Amparts
can not be benefited by its extinction; as to the ouster of Dr. Buencamino from
management, it should not be forgotten that Dr. Buencamino is not only a manager,
but is in fact 2/3 owner of Amparts and to oust him from management would
amount to his disenfranchisement as owner of the majority of the enterprise apart
from the fact that it is also established in the proofs that Amparts is already picking
up and has been a going concern after Cranker left unto him the direction of its
affairs; the Court therefore having in mind all these finds that the solution most
equitable and just would be to limit its decision to imposing a monetary judgment
upon the guilty parties for the benefit of Amparts.

San Miguel vs. Khan

Gr. No. 85339, August 11, 1989

Facts:

Out of the outstanding capital stock of SMC, 33,133,266 shares were

acquired 14 other corporations, and were placed under a Voting Trust Agreement in
favor of the late Andres Soriano, Jr. However, 33,133,266 SMC shares were
sequestered by the PCGG, on the ground that the stock belonged to Eduardo
Cojuangco, Jr., allegedly a close associate and dummy of former President Marcos.
SMC promptly suspended payment of the other installments of the price to the 14
seller corporations.

On December, 1986, the SMC Board, by Resolution No. 86-122, "decided to

assume the loans incurred by Neptunia for the down payment ((P500M)) on the
33,133,266 shares." The Board opined that there was "nothing illegal in this
assumption (of liability for the loans)," since Neptunia was "an indirectly wholly
owned subsidiary of SMC," there "was no additional expense or exposure for the
SMC Group, and there were tax and other benefits which would redound to the SMC
group of companies. However, at the meeting of the SMC Board, Eduardo de los
Angeles, one of the PCGG representatives in the SMC board, impugned said
Resolution No. 86-122.

Issue:

Whether de los Angeles can file a derivative suit in behalf of the corporation.

Held:

Yes. The Court ruled that it is claimed that since de los Angeles 20 shares
represent only .00001644% of the total number of outstanding shares (1
21,645,860), he cannot be deemed to fairly and adequately represent the interests
of the minority stockholders. The implicit argument that a stockholder, to be
considered as qualified to bring a derivative suit, must hold a substantial or
significant block of stock finds no support whatever in the law. The requisites for
a derivative suit are as follows: (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; and (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.

The bona fide ownership by a stockholder of stock in his own right suffices to
invest him with standing to bring a derivative action for the benefit of the
corporation. The number of his shares is immaterial since he is not suing in his own
behalf, or for the protection or vindication of his own particular right, or the redress
of a wrong committed against him, individually, but in behalf and for the benefit of
the corporation.