San Miguel Corp vs.

Khan AUTHOR: Valera

Derivative Suits NOTE:
Narvasa, J:
FACTS:
 In 1983 33 thousand shares of the outstanding capital stock of san Miguel corporation were acquired by 14 other
corporations and were placed under a Voting Trust Agreement in favor of Andres Soriano Jr,
 When Soriano died Eduardo Cojuangco was elected as the substitute trustee with power to delegate the trusteeship to
Andres Soriano III.
 After the EDSA revolution Cojuangco left the country amid “persistent reports that hug and unusual cash
disbursement from the funds of SMC had been irregularly made which were used extensively for the campaign of
Marcos during the Snap elections
 In March a986 Andres Soriano III entered into an agreement between the 14 corporations for the sale of the 33k
shares of stock for the price of 3 billion pesos
 The agreement revoked the voting trust and expressed the desire of the 14 corporations to sell the shares of stock to
pay certain outstanding and unpaid debts.
 Soriano III purchased the stocks to institutionalize and stabilize the management of SMC
 Soriano alleged that the buyer of the shares is actually a foreign corporation named Neptunia Corp a wholly owned
subsidy of San Miguel international which in turn is a subsidy of SMC and it was Neptunia who made the down
payment of 500k
 However, the 33thousand shares were sequestered by the PCGG in furtherance of EO 1 & 2 stating that the stock
belonged to Cojuangco who was considered a Marcos dummy and the sale of such stocks were in contravention of the
stated EO
 The sequestration was lifted and the sale was allowed to proceed on representations by SMC that the shares were
actually owned by 1.3 million coconut farmers and Cojuangco only owned 2 shares.
 The sequestration was soon re-imposed by the PCGG and forbade the SMC corporate secretary to register any
transfer or encumbrance of any stock w/o PCGG’s prior written authority
 SMC the suspended payment of the other installments of the price to the 14 seller corp. the 14 then sued of rescission
and damages
 Then the PCGG directed SMC to issue qualifying shares to 7 individuals including one Delos Angeles from the
sequestered shares registered as street certificates under ANSCOR-HAGEDORN SECURITIES to be held intrust by
the stated 7 people for benefit of Anscor and or who shall be determined to be the owners of such shares.
 In December of 1986, the SMC board issued a resolution and they decided to assume the loans incurred by Nepunia
for the Down payment.
 In the meeting following the resolution Delos Angeles, one of the PCGG representatives in the SMC board
questioned the resolution stating that the resolution merely approved the study of the adoption of the loan.
 Delos Angeles also pointed out some negative effects in the event of such assumption of liability but the BoD
overruled hm.
 When Delos Angeles’ efforts to seek relief within SMC he then turned to the PCGG which was also futile he went to
the SEC wherein he filed a derivative Suit against 10 of the 15 BoD who voted for the questioned resolution
 The suit prayed for injunctions against the execution or consummation of any agreement causing SMC to purchase
the shares in question or entailing the use of its corporate funds or assets for the said assumption and agaisnt
SORIANO III from further disposing of the funds of the corporation for his obligations and the nullification of the
SMC resolution
 Ernest khan a director of the Neptunia Corporation moved to dismiss DELOS ANGELE’s derivative suits on the
following grounds:
- DELOS ANGELES has no Legal capacity because
 He was merely imposed by the PCGG as a director of SMC thus he has no standing to bring a minority
derivative suit
 He only holds 20 shares thus cannot fairly and adequately represent the minority
 He has not come to court with clean hands
 The SEC has no jurisdiction since the matters are exclusively within the business judgement of the BOD
 Khans MtD was denied by the SEC officer Paz stating ruling the ff:
 The fact that DELOSANGELES was a PCGG is irrelevant because in law, ownership of even 1 share is
enough to qualify a person to bring a derivative suit.
  Its is apparent that the derivative suit was bought upon for the benefit of the corporation and all the other
stockholders
 That DELOS ANGELES was a stockholder at the time of the commission of the acts complained of, the
number of shares owned by him being immaterial
 There is no merit in the assertion that he had come to court with unclean hands, it not having been shown that
he participated in the act.
 Where the business judgement transgresses the law, the SEC has competence to inquire in such situation
 Khan filed a petition for certiorari and prohibition with the CA to annul the ruling of the SEC
 The CA ruled that DELOSANGELES has no legal capacity to institute a derivative suit stating the ff reasons:
 That a party to a derivative suits should adequately represent the interests of the minority stock holders
 That since he only has 20 shares he cannot simply represent the interests of the minority
 Delos Angeles has not met this conflict of interest argument, that his position as PCGG nominated director is
inconsistent with his assumed role of representative of minority stockholders, not having elected by the
minority his voting would expectedly consider the interest of the entity which placed him in the board.
 In his defense DELOS ANGELES made the following points:
- That he has obliged with the 3 requirements of a derivative suits:
 That the party bringing suit should be a shareholder that the time of act complained of
 That he has exhausted intra corporate remedies
 That the cause of action actually devolves on the corporation, the wrong doing having been caused to the
corporation and not to particular stockholders bringing the suit

ISSUE(S):
 WON DELOS ANGELES has the capacity to initiate a derivative suit.?

HELD:
1.) Yes, The theory that DELOS ANGLES has no personality to bring this suit in behalf of the corporation because
his stockholding is miniscule and there’s a conflict of interest between him and the PCGG cannot be sustained.
RATIO:
1.) 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 law
2.) The requisites for a derivative suits are as follows:
a.) The party bringing suit should be a shareholder at the time of the act of complained of, the number of his shares
are irrelevant
b.) He has tried to exhaust intra-corporate remedies has made a demand on the BD for the appropriate relief but the
latter has failed or refused to heed his plea
c.) The cause of action actually devolves on the corporation, the wrong doing or harm having been, or being cause
to the corporation and not to the particular stockholder bringing the suit.
3.) The bone fide ownership by a stock holder of stock in his own right suffices to invest with him with standing to
bring a derivative suit for the benefit of the corporation. The number of his shares is immaterial since is not suing in
his own behalf, or for the protection or vindication of his person right or the redress of a wrong committed against
him, individually but in behalf and for the benefit of the corporation
4.) Neither can the conflict of interest theory be upheld. From the premise that DELOS ANGELES now sits in the SMC
Bod because of the PCGG does not follow that he is legally obliged to vote as the PCGG would have him do.
CASE LAW/ DOCTRINE:
DISSENTING/CONCURRING OPINION(S):