San Miguel Corporation vs. Andres Soriano III, et al.

[SEC CASE NO. 3152. September 4, 1987.] SAN MIGUEL CORPORATION, represented in this derivative suit by EDUARDO DE LOS ANGELES , petitioner , vs . ANDRES SORIANO III, ET AL. , respondents . BALETE RANCH, INC., ET AL., movants-intervenors . O R D E R Submitted for resolution are the following incidents: a. Motion to dismiss filed by respondent Ernest Kahn, and adopted by the other respondents; and the b. Motion to dismiss filed by respondent Abraham Sarmiento and the c. Motion for Intervention filed by Balete Ranch, Inc., et al. The above incidents involves issues which are quite interrelated and thus, can be resolved jointly. The respondents' motion to dismiss were anchored on the following grounds, to wit: a. That petitioner has no legal capacity to bring the present case; b) that this Commission has no jurisdiction over the present controversy; and c) that the amended petition does not state a cause of action against respondent Abraham F. Sarmiento. Respondent maintain that petitioner became a director of SMC by virtue of a PCGG directive, and therefore he was sitting on the SMC board as a nominee or representative of PCGG. As such representative or nominee, he cannot bring a minority derivative suit; that petitioner cannot sue on the basis solely of the twenty (20) shares he is holding personally, because he does not adequately represent the minority stockholders of the corporation, the rule being that the plaintiff in a derivative suit must fairly and adequately represent the interest of the other stockholders; that petitioner has not come to court with clean hands, thus he is not entitled to seek equitable relief from the Commission; that the Commission has no jurisdiction over the present controversy, the acts complained of in the present case are clearly within the business judgment of the Board of Directors; and that the amended petition does not state a cause of action against the respondent Abraham F. Sarmiento since the latter was not yet a member of the Board of Directors of SMC when the alleged actions imputed against the other respondents were committed. Moreover, the Resolution which was adopted by the Board of which respondent Sarmiento was a member on December 4, 1986 was superseded by the Resolution adopted by the Board on April 2, 1987, long after respondent Sarmiento has resigned from the Board on February 3, 1987. In opposing the motions, petitioner maintains that in a derivative suit, the corporation is the real party in interest, and the suing stockholder as merely the nominal party and since the capacity of SMC as the real party, is not being question, the amended petition cannot be dismissed on this ground; that insofar as the suing stockholder is concerned, jurisprudence requires that he owns at least one (1) share at the time of the filing of the suit; that it is the respondent and his counsel, not the petitioner, who came to this Commission with muddied hands; and that SEC has jurisdiction over the present controversy, the exercise of the so-called business judgment cannot be used to violate the law. Where the business judgment violates the law and involve the misuse of funds, the SEC can inquire into the misuse of funds and jurisprudence are to the effect that for these violations which resulted in the waste of corporation's assets or injury to its stockholders, the directors are liable. We are in full agreement with the petitioner's argument that all the respondents' allegation about petitioner Delos Angeles being a nominee of the PCGG to the SMC Board are irrelevant because by law, the only qualification for him to bring a derivative suit is ownership of one (1) SMC share. There is no dispute that the present action was brought by petitioner Delos Angeles for the benefit of the corporation and all the other stockholders thereof. The action is on behalf of the corporation, which, even though nominally a defendant, is for all intents and purposes the real party in interest in this case. It is now a settled principle that a stockholder who was such at the time of the transaction complained of can maintain a suit of this character which is a derivative suit. The most important requirement being that the stockholder bringing the suit must have been one at the time the transaction or the acts complained of took place, or the shares must have devolved upon him since by operation of law, unless such transaction or act continues and is injurious to him. (Pascual vs. Orosco 19 Phil. 82). The respondents' claim that petitioner cannot sue on the basis solely of the twenty (20) shares he is holding personally cannot be given much weight in the light of the Supreme Court ruling in Republic Bank vs. Cuaderno G.R. L-22399, March 20, 1967; 19 SCRA 69, where it was held that the number of shares the stockholder owns is immaterial. The respondents' contention that petitioner is not entitled to seek equitable relief because it came to equity with unclean hands is not worthy of belief for it was never shown that petitioner had participated in the wrong complained of or had ratified the wrong complained of or acquiesced to it or had knowledge of the wrong complained of. Likewise, we deem absurd the respondents' claim that this Commission has no jurisdiction over acts involving matters which are clearly within the business judgment of the Board of Directors. As correctly observed by the petitioner, where the business judgment violates the law, this Commission can always inquire into the nature and scope of such violations. HEITAD Anent the motion to dismiss filed by respondent Abraham Sarmiento, we are inclined to subscribe to movant's argument that the allegations of the amended petition particularly paragraph 6 to 16 referring to the action taken by the other respondents regarding the purchase agreement and its attending circumstances cannot be taken against movant Sarmiento, since the latter was not yet a member of the Board of Directors during the period alleged therein. The only relevant allegation in the amended petition regarding movant Abraham Sarmiento is the allegation that he, on January 30, 1987, approved the Minutes of December 4, 1986 Board of Directors Meeting. However, Resolution No. 86 12 2 which was adopted by the Board of Directors on December 4, 1986, was superseded by the Resolution of the same Board which was adopted on April 2, 1987, long after the respondent Abraham F. Sarmiento has resigned from the Board on February 3, 1987. All told, the Amended Petition has no specific allegation of any action which can rightly be considered to have been taken by respondent Abraham Sarmiento regarding the matter treated therein. As regards the Motion for Intervention filed by Balete Ranch, Inc., et al., we are in full agreement with the oppositors' argument that there is no act or transaction which has been alleged in the amended petition to have been committed by the respondents, which would warrant the intervenor's participation in the instant proceedings. As rightly observed by the oppositors movants' interest as stockholders are amply protected even without them intervening actively in the suit. Moreover, the petition in intervention substantially raises a new cause of action and impleads an entity which is not an original party to the case. WHEREFORE, the Motion To Dismiss filed by respondent Ernest Kahn and the other respondents except respondent Abraham Sarmiento should be, as it is hereby DENIED. However, the Motion To Dismiss filed by respondent Abraham Sarmiento should be, as it is hereby GRANTED and the above-entitled case insofar as respondent Abraham Sarmiento is concerned is hereby DISMISSED. For lack of merit, the Motion for Intervention filed by Balete Ranch, Inc., et al., should be, as it is hereby DENIED. SO ORDERED. (SGD.) JOSEFINA L. PASAY-PAZ Hearing Officer (SGD.) FELIPE S. TONGCO (SGD.) ALBERTO P. ATAS Hearing Officer Hearing Officer