Case Digest Mercantile.docx

Cua Jr. v. Tan G.R. No. 181455-56; December 4, 2009 Topic: Board of Directos; Derivative Suit Ponente: J. Chico-Nazario DOCTRINE: It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust — not of mere error of judgment or abuse of discretion — and intracorporate remedy is futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the corporation and indirectly upon the stockholders. A derivative suit, however, must be differentiated from individual and representative or class suits. Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of directors or other persons may be classified into individual suits, class suits, and derivative suits. FACTS: PRCI management decided that it was best to spin off the management and development of the Makati property to a wholly owned subsidiary. It then opted to acquire another domestic corporation, JTH Davies Holdings, Inc. (JTH). After deliberating on the matter of the acquisition of JTH by PRCI, all the directors present, except respondent Dulay, voted affirmatively to pass and approve the following resolutions: (1) Declaration of Intention to Acquire and Purchase Shares of Stock of Another Company; (2) a Special Stockholders’ meeting; (3) Authorized Attorney-in-Fact and Proxy. Several stockholders expressed their satisfaction with PRCI’s decision to purchase JTH shares due to the latter’s goodwill. The matter of the proposed exchange was approved by the PRCI Board of Directors in its meeting, again with the lone dissent of respondent Dulay. Respondents Miguel, et al., as minority stockholders of PRCI filed before the RTC a Complaint, denominated as a Derivative Suit against the directors of PRCI and/or JTH based on their alleged devices or schemes amounting to fraud or misrepresentation. ISSUE: 1. Whether or not respondents’ complaint constituted a valid derivative suit? NO

2. whether the action for inspection of books should be granted? no RULING 1: Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies (Interim Rules) provides: SECTION 1. Derivative action. A stockholder or member may bring an action in the name of a corporation or association, as the case may be, provided, that:

(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed; (2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires; (3) No appraisal rights are available for the act or acts complained of; and (4) The suit is not a nuisance or harassment suit

It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust — not of mere error of judgment or abuse of discretion — and intracorporate remedy is futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the corporation and indirectly upon the stockholders. A derivative suit, however, must be differentiated from individual and representative or class suits. Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of directors or other persons may be classified into individual suits, class suits, and derivative suits. According to the SC, a shareholder's derivative suit seeks to recover for the benefit of the corporation and its whole body of shareholders when injury is caused to the corporation that may not otherwise be redressed because of failure of the corporation to act. Thus, ‘the action is derivative, i.e., in the corporate right, if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock and property without any severance or distribution among individual holders, or it seeks to recover assets for the corporation or to prevent the dissipation of its assets.’ In contrast, "a direct action is one filed by the shareholder individually (or on behalf of a class of shareholders to which he or she belongs) for injury to his or her interest as a shareholder. The two actions are mutually exclusive: i.e., the right of action and recovery belongs to either the shareholders (direct action) or the corporation (derivative action)." Ruling 2: NO. Sec. 74. Books to be kept; stock transfer agent. –

xxxx Any officer or agent of the corporation who shall refuse to allow any director, trustees, stockholder or member of the corporation to examine and copy excerpts from its records or minutes, in accordance with the provisions of this Code, shall be liable to such director, trustee, stockholder or member for damages, and in addition, shall be guilty of an offense which shall be punishable under Section 144 of this Code: Provided, That if such refusal is pursuant to a resolution or order of the Board of Directors or Trustees, the liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal: x x x (Emphasis ours.)

Based on the foregoing, it is Corporate Secretary Manalo who should be held liable for the supposedly wrongful and unreasonable denial of respondent Dulay’s demand for inspection and copying of corporate books and records; but, as previously mentioned, Corporate Secretary Manalo is not among the defendants named in the Complaint in Civil Case No. 07-610. There is also utter lack of any allegation in the Complaint that Corporate Secretary Manalo denied respondent Dulay’s demand pursuant to a resolution or order of the PRCI Directors, so that the latter (who are actually named defendants in the Complaint) could also be held liable for the denial.

Bitong v. CA (G.R. No. 123553) Facts: Petitioner Bitong allegedly acting for the benefit of Mr. & Ms. Co. filed a derivative suit before the SEC against respondent spouses Apostol, who were officers in said corporation, to hold them liable for fraud and mismanagement in directing its affairs. Respondent spouses moved to dismiss on the ground that petitioner had no legal standing to bring the suit as she was merely a holder-in-trust of shares of JAKA Investments which continued to be the true stockholder of Mr. & Ms. Petitioner contends that she was a holder of proper stock certificates and that the transfer was recorded. She further contends that even in the absence of the actual certificate, mere recording will suffice for her to exercise all stockholder rights, including the right to file a derivative suit in the name of the corporation. The SEC Hearing Panel dismissed the suit. On appeal, the SEC En Banc found for petitioner. CA reversed the SEC En Banc decision. Issue: Whether or not petitioner is the true holder of stock certificates to be able institute a derivative suit. Ruling: NO.

Sec 63 of the Corporation Code envisions a formal certificate of stock which can be issued only upon compliance with certain requisites. First, the certificates must be signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation. A mere typewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a formal certificate of stock. Second, delivery of the certificate is an essential element of its issuance. Hence, there is no issuance of a stock certificate where it is never detached from the stock books although blanks therein are properly filled up if the person whose name is inserted therein has no control over the books of the company. Third, the par value, as to par value shares, or the full subscription as to no par value shares, must first be fully paid. Fourth, the original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder. The certificate of stock itself once issued is a continuing affirmation or representation that the stock described therein is valid and genuine and is at least prima facie evidence that it was legally issued in the absence of evidence to the contrary. However, this presumption may be rebutted. Aside from petitioner’s own admissions, several corporate documents disclose that the true party-in-interest is not petitioner but JAKA. It should be emphasized that JAKA executed, a deed of sale over 1,000 Mr. & Ms. shares in favor of respondent Eugenio D. Apostol. On the same day, respondent Apostol signed a declaration of trust stating that she was the registered owner of 1,000 Mr. & Ms. shares covered by a Certificate of Stock. And, there is nothing in the records which shows that JAKA had revoked the trust it reposed on respondent Eugenia D. Apostol. Neither was there any evidence that the principal had requested her to assign and transfer the shares of stock to petitioner. In fine, the records are unclear on how petitioner allegedly acquired the shares of stock of JAKA. Thus, for a valid transfer of stocks, the requirements are as follows: (a) There must be delivery of the stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and, (c) to be valid against third parties, the transfer must be recorded in the books of the corporation. At most, in the instant case, petitioner has satisfied only the third requirement. Compliance with the first two requisites has not been clearly and sufficiently shown. *The basis of a stockholder’s suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its institution. The most important of these is the bona fide ownership by a stockholder of a stock in his own right at the time of the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation.

4. PHILIPPINE LONG DISTANCE TELEPHONE COMPANY v. NATIONAL TELECOMMUNICATIONS COMMISSION G.R. No. 152685, 4 December 2007 (Topic: Subscription Contract)

FACTS:

This case pertains to Section 40 (e) of the Public Service Act (PSA), as amended on March 15, 1984, pursuant to Batas Pambansa Blg. 325, which authorized the NTC to collect from public telecommunications companies Supervision and Regulation Fees (SRF) of PhP 0.50 for every PhP 100 or a fraction of the capital and stock subscribed or paid for of a stock corporation, partnership or single proprietorship of the capital invested, or of the property and equipment, whichever is higher.

Under Section 40 (e) of the PSA, the NTC sent SRF assessments to petitioner Philippine Long Distance Telephone Company (PLDT) starting sometime in 1988. The SRF assessments were based on the market value of the outstanding capital stock, including stock dividends, of PLDT. PLDT protested the assessments contending that the SRF ought to be based on the par value of its outstanding capital stock. Its protest was denied by the NTC and likewise, its motion for reconsideration.

PLDT appealed before the CA. The CA modified the disposition of the NTC by holding that the SRF should be assessed at par value of the outstanding capital stock of PLDT, excluding stock dividends.

ISSUE:

Whether or not the value transferred from the unrestricted retained earnings of PLDT to the capital stock account pursuant to the issuance of stock dividends is the proper basis for the assessment of the SRF?

RULING:

NO.

In the case of stock dividends, it is the amount that the corporation transfers from its surplus profit account to its capital account. It is the same amount that can be loosely termed as the trust fund of the corporation. The Trust Fund doctrine considers this subscribed capital as a trust fund for the payment of the debts of the corporation, to which the creditors may look for satisfaction. Until the liquidation of the corporation, no part of the subscribed capital may be returned or released to the stockholder (except in the redemption of redeemable shares) without violating this principle. Thus, dividends must never impair the subscribed capital; subscription commitments cannot be condoned or remitted; nor can the corporation buy its own shares using the subscribed capital as the considerations therefor.

When stock dividends are distributed, the amount declared ceases to belong to the corporation but is distributed among the shareholders. Consequently, the unrestricted retained earnings of the corporation are diminished by the amount of the declared dividend while the stockholders equity is increased. Furthermore, the actual payment is the cash value from the unrestricted retained earnings that each shareholder foregoes for additional stocks/shares which he would otherwise receive as required by the Corporation Code to be given to the stockholders subject to the availability and conditioned on a certain level of retained earnings.

In essence, therefore, the stockholders by receiving stock dividends are forced to exchange the monetary value of their dividend for capital stock, and the monetary value they forego is considered the actual payment for the original issuance of the stocks given as dividends. Therefore, stock dividends acquired by shareholders for the monetary value they forego are under the coverage of the SRF and the basis for the latter is such monetary value as declared by the board of directors.

Ong Yong, et al. vs. Tiu, et al. [GR 144476, 8 April 2003]; also Tiu, et al. vs. Ong Yong, et al. [GR 144629]

In 1994 the construction of the Masagana Citimall in Pasay City was threatened with stoppage, when its owner, the First Landlink Asia Development Corporation (FLADC), owned by the Tius, became heavily indebted to the Philippine National Bank (PNB). To save the 2 lots where the mall was being built from foreclosure, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest in FLADC. Pre-Subscription Agreement was made by Ongs and the Tius. Ongs: paid P190M to settle the mortgage indebtedness of FLADC to PNB (P100M in cash for their subscription to 1M shares)Tius rescinded the Pre-Subscription Agreement and filed at the SEC seeking confirmation of their rescission of the Pre-Subscription Agreement. Issue [1]: Whether the pre-Subscription Agreement executed by the Ongs is actually a subscription contract. Issue 2: Whether or not the rescission of the pre-subscription agreement was proper.

Held [1]: FLADC was originally incorporated with an authorized capital stock of 500,000 shares with the Tius owning 450,200 shares representing the paid-up capital. When the Tius invited the Ongs to invest in FLADC as stockholders, an increase of the authorized capital stock became necessary to give each group equal (50-50) shareholdings as agreed upon in the PreSubscription Agreement. The authorized capital stock was thus increased from 500,000 shares to 2,000,000 shares with a par value of P100 each, with the Ongs subscribing to 1,000,000 shares and the Tius to 549,800 more shares in addition to their 450,200 shares to complete 1,000,000 shares. Thus, the subject matter of the contract was the 1,000,000 unissued shares of FLADC stock allocated to the Ongs. Since these were unissued shares, the parties' PreSubscription Agreement was in fact a subscription contract as defined under Section 60, Title VII of the Corporation Code. A subscription contract necessarily involves the corporation as one of the contracting parties since the subject matter of the transaction is property owned by the corporation — its shares of stock. Thus, the subscription contract (denominated by the parties as a Pre-Subscription Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of stock was, from the viewpoint of the law, one between the Ongs and FLADC, not between the Ongs and the Tius. Otherwise stated, the Tius did not contract in their personal capacities with the Ongs since they were not selling any of their own shares to them. It was FLADC that did. Considering therefore that the real contracting parties to the subscription agreement were FLADC and the Ongs alone, a civil case for rescission on the ground of breach of contract filed by

the Tius in their personal capacities will not prosper. Assuming it had valid reasons to do so, only FLADC (and certainly not the Tius) had the legal personality to file suit rescinding the subscription agreement with the Ongs inasmuch as it was the real party in interest therein. Article 1311 of the Civil Code provides that "contracts take effect only between the parties, their assigns and heirs. . ." Therefore, a party who has not taken part in the transaction cannot sue or be sued for performance or for cancellation thereof, unless he shows that he has a real interest affected thereby.

Held 2: No, it was not proper. The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of Philippine Trust Co. vs. Rivera, provides that subscriptions to the capital stock of a corporation constitute a fund to which the creditors have a right to look for the satisfaction of their claims. This doctrine is the underlying principle in the procedure for the distribution of capital assets, embodied in the Corporation Code, which allows the distribution of corporate capital only in three instances: (1) amendment of the Articles of Incorporation to reduce the authorized capital stock, (2) purchase of redeemable shares by the corporation, regardless of the existence of unrestricted retained earnings, and (3) dissolution and eventual liquidation of the corporation. Furthermore, the doctrine is articulated in Section 41 on the power of a corporation to acquire its own shares and in Section 122 on the prohibition against the distribution of corporate assets and property unless the stringent requirements therefor are complied with. The distribution of corporate assets and property cannot be made to depend on the whims and caprices of the stockholders, officers or directors of the corporation, or even, for that matter, on the earnest desire of the court a quo "to prevent further squabbles and future litigations" unless the indispensable conditions and procedures for the protection of corporate creditors are followed. Otherwise, the "corporate peace" laudably hoped for by the court will remain nothing but a dream because this time, it will be the creditors' turn to engage in "squabbles and litigations" should the court order an unlawful distribution in blatant disregard of the Trust Fund Doctrine. In the instant case, the rescission of the Pre-Subscription Agreement will effectively result in the unauthorized distribution of the capital assets and property of the corporation, thereby violating the Trust Fund Doctrine and the Corporation Code, since rescission of a subscription agreement is not one of the instances when distribution of capital assets and property of the corporation is allowed.

6. Corporate Law Case Digest: Lee V. CA (1992) G.R. No. 93695 February 4, 1992 Lessons Applicable: Voting Trust Agreements (Corporate Law)

FACTS: November 15, 1985: a complaint for a sum of money was filed by the International Corporate Bank, Inc. (ICB) against the private respondents. They filed a 3rd-party complaint against ALFA and ICB. motion for reconsideration was filed by the petitioners reiterating their stand that by virtue of the voting trust agreement they ceased to be officers and directors of ALFA attached a copy of the voting trust agreement between all the stockholders of ALFA and the DBP whereby the management and control of ALFA became vested upon the DBP.

Issues: 1. Whether the execution of the voting trust agreement by Lee and Lacdao whereby all their shares to the corporation have been transferred to the trustee deprives the stockholder of their positions as directors of the corporation. 2. Whether the five-year period of the voting trust agreement in question had lapsed in 1986 so that the legal title to the stocks covered by the said voting trust agreement ipso facto reverted to Lee and Lacdao as beneficial owners pursuant to the 6th paragraph of section 59 of the new Corporation Code. 3. Whether there was proper service of summons on ALFA through Lee and Lacdao, to bind ALFA. Held:

1. Lee and Lacdao, by virtue of the voting trust agreement executed in 1981 disposed of all their shares through assignment and delivery in favor of the DBP, as trustee. Consequently, Lee and Lacdao ceased to own at least one share standing in their names on the books of ALFA as required under Section 23 of the new Corporation Code. They also ceased to have anything to do with the management of the enterprise. Lee and Lacdao ceased to be directors. Hence, the transfer of their shares to the DBP created vacancies in their respective positions as directors of ALFA. The transfer of shares from the stockholders of ALFA to the DBP is the essence of the subject voting trust agreement. Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of the stocks covered by the agreement to the DBP as trustee, the latter because the stockholder of record with respect to the said shares of stocks. In the absence of a showing that the DBP had caused to be transferred in their names one share of stock for the purpose of qualifying as directors of ALFA, Lee and Lacdao can no longer be deemed to have retained their status as officers of ALFA which was the case before the execution of the subject voting trust agreement. There is no dispute from the records that DBP has taken over full control and management of the firm.

2. The 6th paragraph of section 59 of the new Corporation Code reads that "Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period, and the voting trust certificates as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed cancelled and new certificates of stock shall be reissued in the name of the transferors." However, it is manifestly clear from the terms of the voting trust agreement between ALFA and the DBP that the duration of the agreement is contingent upon the fulfillment of certain obligations of ALFA with the DBP. Had the five-year period of the voting trust agreement expired in 1986, the DBP would not have transferred an its rights, titles and interests in ALFA "effective June 30, 1986" to the national government through the Asset Privatization Trust (APT) as attested to in a Certification dated 24 January 1989 of the Vice President of the DBP's Special Accounts Department II. In the same certification, it is stated that the DBP, from 1987 until 1989, had handled s account which included ALFA's assets pursuant to a management agreement by and between the DBP and APT. Hence, there is evidence on record that at the time of the service of summons on ALFA through Lee and Lacdao on 21 August 1987, the voting trust agreement in question was not yet terminated so that the legal title to the stocks of ALFA, then, still belonged to the DBP.

3. It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from the officers or members who compose it. Thus, the role on service of processes on a corporation enumerates the representatives of a corporation who can validly receive court processes on its behalf. Not every stockholder or officer can bind the corporation considering the existence of a corporate entity separate from those who compose it. The rationale of the rule is that service must be made on a representative so integrated with the corporation sued as

to make it a priori supposable that he will realize his responsibilities and know what he should do with any legal papers served on him. Herein, Lee and Lacdao do not fall under any of the enumerated officers. The service of summons upon ALFA, through Lee and Lacdao, therefore, is not valid. To rule otherwise will contravene the general principle that a corporation can only be bound by such acts which are within the scope of the officer's or agent's authority.

7. CASTILLO vs. BALINGHASAY 440 scra 442 G.R. No. 150976 (2004)

FACTS: Petitioners and the respondents are stockholders of Medical Center Parañaque, Inc (MCPI), with the former holding Class "B" shares and the latter owning Class "A" shares. Shareholders of MCPI held their annual stockholders’ meeting and election for directors. During the course of the proceedings, respondent Rustico Jimenez, citing Article VII, as amended, and notwithstanding MCPI’s history, declared over the objections of herein petitioners, that no Class "B" shareholder was qualified to run or be voted upon as a director. In the past, MCPI had seen holders of Class "B" shares voted for and serve as members of the corporate board and some Class "B" share owners were in fact nominated for election as board members. Nonetheless, Jimenez went on to announce that the candidates holding Class "A" shares were the winners of all seats in the corporate board. The petitioners protested, claiming that Article VII was null and void for depriving them, as Class "B" shareholders, of their right to vote and to be voted upon, in violation of the Corporation Code (Batas Pambansa Blg. 68), as amended.

Issue: Whether or not holders of Class "B" shares of the petitioner MCPI may be deprived of the right to vote and be voted for as directors in petitioner MCPI.

Held: No. Section 6 of the Corporation Code (B.P. Blg. 68) provides that "xxx no share may be deprived of voting rights except those classified and issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code" and "xxx that there shall always be a class or series of shares which have complete voting rights."

Furthermore, one of the rights of a stockholder is the right to participate in the control and management of the corporation that is exercised through his vote. The right to vote is a right inherent in and incidental to the ownership of corporate stock, and as such is a property right. The stockholder cannot be deprived of the right to vote his stock nor may the right be

essentially impaired, either by the legislature or by the corporation, without his consent, through amending the charter, or the by-laws.

In the case at bar, when Article VII of the Articles of Incorporation of petitioner MCPI was amended in 1992, the phrase "except when otherwise provided by law" was inserted in the provision governing the grant of voting powers to Class "A" shareholders. This particular amendment is relevant for it speaks of a law providing for exceptions to the exclusive grant of voting rights to Class "A" stockholders. Which law was the amendment referring to? The determination of which law to apply is necessary. There are two laws being cited and relied upon by the parties in this case. In this instance, the law in force at the time of the 1992 amendment was the Corporation Code (B.P. Blg. 68), not the Corporation Law (Act No. 1459), which had been repealed by then.

We find and so hold that the law referred to in the amendment to Article VII refers to the Corporation Code and no other law. At the time of the incorporation of petitioner MCPI in 1977, the right of a corporation to classify its shares of stock was sanctioned by Section 5 of Act No. 1459. The law repealing Act No. 1459, B.P. Blg. 68, retained the same grant of right of classification of stock shares to corporations, but with a significant change. Under Section 6 of B.P. Blg. 68, the requirements and restrictions on voting rights were explicitly provided for, such that "no share may be deprived of voting rights except those classified and issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code" and that "there shall always be a class or series of shares which have complete voting rights." Section 6 of the Corporation Code being deemed written into Article VII of the Articles of Incorporation of petitioner MCPI, it necessarily follows that unless Class "B" shares of petitioner MCPI stocks are clearly categorized to be "preferred" or "redeemable" shares, the holders of said Class "B" shares may not be deprived of their voting rights. Note that there is nothing in the Articles of Incorporation nor an iota of evidence on record to show that Class "B" shares were categorized as either "preferred" or "redeemable" shares. The only possible conclusion is that Class "B" shares fall under neither category and thus, under the law, are allowed to exercise voting rights.

Neither do we find merit in respondents’ position that Section 6 of the Corporation Code cannot apply to petitioner MCPI without running afoul of the non-impairment clause of the Bill of Rights. Section 148 of the Corporation Code expressly provides that it shall apply to corporations in existence at the time of the effectivity of the Code. Hence, the non-impairment clause is inapplicable in this instance. When Article VII of the Articles of Incorporation of petitioner MCPI were amended in 1992, the board of directors and stockholders must have been aware of Section 6 of the Corporation Code and intended that Article VII be construed in harmony with the Code, which was then already in force and effect. Since Section 6 of the

Corporation Code expressly prohibits the deprivation of voting rights, except as to "preferred" and "redeemable" shares, then Article VII of the Articles of Incorporation cannot be construed as granting exclusive voting rights to Class "A" shareholders, to the prejudice of Class "B" shareholders, without running afoul of the letter and spirit of the Corporation Code.

San Miguel Corporation vs. KhanG.R. No. 85339; August 11, 1989

FACTS: Fourteen corporations initially acquired shares of outstanding capital stock of SMC and constituted a Voting Trust thereon in favor of Andres Soriano, Jr. subsequently an agreement was entered into between the 14 corporations and Andres Soriano III for the purchase of the shares held by the former. the buyer of the shares was Neptunia Corporation, a foreign corporation. PCGG then sequestered the shares subject of the sale so SMC suspended all the other installments of the price to the sellers. The 14 corporations then sued for rescission and damages. Meanwhile, PCGG directed SMC to issue qualifying shares to seven (7) individuals including Eduardo de los Angeles from the sequestered shares for them to hold in trust. Then, the SMC’s board of directors passed a resolution assuming the loans incurred by Neptunia for the downpayment. De los Angeles assailed the resolution alleging that it was not passed by the board aside from its deleterious effects on the corporation’s interest. he filed this action with the SEC. Respondent directors alleged that de los Angeles has no legal standing having been merely “imposed” by the PCGG.

ISSUE:WON de los Angeles have the legal standing to sue to bring a minority (Derivative suit)

HELD: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

are: (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 intracorporate 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