SAN MIGUEL CORPORATION v. KAHN et al.

G.R. No. 85339; August 11, 1989; Narvasa, J.

Digest prepared by Jackie Canlas
FACTS:
In 1983, 33,133,266 shares of the outstanding capital stock of the San Miguel Corporation
(SMC) were acquired by 14 corporations, and were placed under a Voting Trust in favor of
Andres Soriano, Jr. (Soriano)
When Soriano died, Eduardo Cojuanco (Cojuanco) was elected as the substitute trustee,
with the power to delegate the trusteeship in writing to Andres Soriano III.
However, after the 1986 Revolution, Conjuanco fled out of the country amid reports of huge
and unusual cash disbursements from SMC funds had been made, and its resources used in
support of Marcos during the 1986 snap elections.
Subsequently, an Agreement was entered into between the 14 corporations as Sellers
and Andres Soriano III as Buyers(as an agent of several persons) for the purchase of the
shares held by the Cojuanco at the price of P100 per share, or an aggregate sum of
P3,313,326,600.
The Agreement revoked the abovementioned Voting Trust, and expressed the desire of the
14 corporations to sell the shares of stock for the payment of outstanding debts, and the
desire of Soriano III to stabilize the management of the company.
Despite what is written in the Agreement, the actual buyer of the said shares was Neptunia
Corporation Limited (of Hongkong), a foreign corporation and wholly-owned subsidiary of
San Miguel International, which is, in turn, a wholly-owned subsidiary of SMC. Neptunia paid
the down payment of P500,000,000.
At this point, PCGG then sequestered the shares subject of the sale, on the ground that:
1. The stocks belonged to Cojuanco, allegedly a close associate and dummy of Pres.
Marcos so SMC suspended all the other installments of the price to the sellers; and
2. The sale was in direct contravention of EO 1 and 2, which prohibit the transfer
The 14 corporations then sued for rescission and damages.
Meanwhile, PCGG directed SMC to issue qualifying shares to 7 individuals, including
Eduardo de los Angeles, from the sequestered shares for them to hold in trust.
Then, the SMCs Board passed a Resolution assuming the loans incurred by Neptunia for
the down payment.
De los Angeles assailed the resolution, alleging that it was not passed by the Board, and
that it had deleterious effects on the corporations interest. Subsequently, he filed this
action with the SEC.
o The complaint was described as a derivative suit in behalf of SMC against 10 of the 15member Board, who had either voted to approve and/or refused to reconsider and
revoke said Resolution.
Director Kahn alleged that de los Angeles has no legal standing having been merely
imposed by the PCGG and that the 20 shares owned by him personally cannot fairly and
adequately represent the interest of the minority of the corporation. The motion to dismiss
of one of its directors was denied.
o Since de los Angeles holds only 20 shares of stock, he cannot even be remotely said to
adequately represent the interest of the minority stockholders, especially so when he
was put by the PCGG to vote the majority stock (conflict of interest).
o Baseco v. PCGG: (a) PCGG cannot exercise acts of dominion over sequestered property,
(b) it only has powers of administration, and (c) its voting of sequestered stock must be
done only in pursuant to its power of administration.
Director Kahn filed a petition for certiorari and prohibition with the CA, seeking to annul the
Resolution, but the CA ruled that de los Angeles had no legal capacity to institute a
derivative suit.
In addition his earlier arguments, Director Kahn and the rest of the Directors allege that
SEC had no jurisdiction over the dispute, which involves the ownership of the shares of SMC

stock.
ISSUES:
1. WON SEC has jurisdiction over the dispute - YES.
2. WON de los Angeles had the personality to bring suit in behalf of the
corporation - YES.
3. WON a sequestered stock may be voted by the PCGG to elect a director in the
company in which such stock is held YES.
RATIO:
1. WON SEC has jurisdiction over the dispute - YES.
The complaint is confined to the issue of the validity of the assumption by the corporation
of the indebtedness of Neptunia allegedly for the benefit of certain of its officers and
stockholders, an issue evidently distinct from, and not even remotely requiring inquiry into
the matter of whether or not the 33,133,266 SMC shares sequestered by the PCGG belong
to Marcos and his cronies or dummies.
De los Angeles' dispute, as stockholder and director of SMC, with other SMC directors, an
intra-corporate one , is of no concern to the Sandiganbayan, having no relevance whatever
to the ownership- of the sequestered stock.
The dispute concerns acts of the board of directors claimed to amount to fraud and
misrepresentation which may be detrimental to the interest of the stockholders, or is one
arising out of intra-corporate relations between and among stockholders, or between any or
all of them and the corporation of which they are stockholders.
2. WON de los Angeles had the personality to bring suit in behalf of the corporation
- YES.
The bona fide ownership by a stockholder in his own right suffices to invest him with the
standing to bring a derivative suit 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.
The requisites of a derivative suit:
1. The party bringing the suit should be a stockholder as of the time of the act or
transactions complained of, the number of shares not being material;
2. Exhaustion of intra-corporate remedies (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
3. The cause of action actually devolves on the corporation and not to the particular
stockholder bringing the suit.
The proposition that de los Angeles is legally obliged to vote as the PCGG would have him
do, that he cannot legitimately take a position inconsistent with that of the PCGG, or that,
not having been elected by the minority stockholders, his vote would necessarily never
consider their interests - is plainly contrary to a director's duty to vote according to his own
independent judgment and his own conscience as to what is in the best interests of the
company. Moreover, it is undisputed that apart from the qualifying shares given to him by
the PCGG, he owns 20 shares in his own right, as regards which he cannot from any aspect
be deemed to be "beholden" to the PCGG.
3. WON a sequestered stock may be voted by the PCGG to elect a director in the
company in which such stock is held YES.
It is also theorized, on the authority of the BASECO decision, that the PCGG has no power to
vote sequestered shares of stock as an act of dominion but only in pursuance to its
power of administration.
But the SC said that there is nothing in the Baseco decision which can be interpreted that
way. On the contrary, that it held such act permissible is evident from the context of its
reference to the Presidential Memorandum of June 26, 1986 authorizing the PCGG,

"pending the outcome of proceedings to determine the ownership of .. sequestered shares

of stock,"' to vote such shares .. at all stockholders' meetings called for the election of
directors ..,".
o The only caveat is, that the stock is not to be voted simply because the power to do so
exists, whether it be to oust and replace directors or to effect substantial changes in
corporate policy, programs or practice, but only "for demonstrably weighty and
defensible grounds" or "when essential to prevent disappearance or wastage of
corporate property."
PETITION GRANTED.