G.R. No. 76005 - People vs. Exala

Case Digest (G.R. No. 76005)
Expanded Legal Reasoning Model

Facts:

Acquisition and Voting Trust Agreement

On December 15, 1983, fourteen (14) corporations acquired 33,133,266 shares of San Miguel Corporation (SMC) outstanding capital stock.
These shares were placed under a Voting Trust Agreement in favor of the late Andres Soriano, Jr.
After Soriano’s death, Eduardo M. Cojuangco, Jr. was elected Substitute Trustee on April 9, 1984, with delegated trusteeship power to Andres Soriano III.

Political Context and Allegations

Following the February 1986 Revolution, Cojuangco left the Philippines amid reports alleging irregular use of SMC funds for supporting Ferdinand Marcos’s candidacy during the snap elections.
On March 26, 1986, Soriano III contracted to purchase the 33,133,266 SMC shares from the fourteen seller corporations at ₱100 per share (totaling ₱3,313,326,600), payable in installments.
The Agreement revoked the Voting Trust and indicated the sellers wished to pay debts; Soriano aimed to stabilize SMC management and prioritize government agriculture support.

Role of Neptunia Corporation Limited

The buyers were, according to Soriano and respondents, a foreign company, Neptunia Corporation Limited (Hong Kong), a wholly-owned SMC subsidiary.
Around April 1, 1986, Neptunia made a down payment of ₱500 million from loans.

Sequestration by PCGG

The 33,133,266 shares were sequestered by the Presidential Commission on Good Government (PCGG) because the stock allegedly belonged to Cojuangco, a Marcos associate considered a dummy.
The transfer was claimed to contravene Executive Orders No. 1 and 2 prohibiting disposal of assets acquired by Marcos and associates.
The sequestration was initially lifted upon representations that shares belonged to coconut farmers, but was re-imposed on May 19, 1986, inhibiting registration of transfer/encumbrance without PCGG authority.

Litigation and Corporate Resolutions

SMC suspended payment of installments; the sellers promptly sued for rescission and damages.
On June 4, 1986, PCGG directed issuance of qualifying shares to seven individuals (including Eduardo de los Angeles), to be held in trust for Anscor-Hagedorn Securities or ultimate owners.
In December 1986, SMC’s Board, by Resolution No. 86-12-2, resolved to assume Neptunia’s loans for the down payment, citing no illegality and corporate benefits.
In January 1987, Eduardo de los Angeles, a PCGG representative and director, impugned the assumption resolution, denying it was adopted, and warned of deleterious effects; he was overruled.

Derivative Suit Filed by Eduardo de los Angeles

After failing to obtain relief internally and through PCGG, de los Angeles filed a derivative suit in the Securities and Exchange Commission (SEC) in April 1987 against ten SMC Board members approving or refusing to revoke Resolution No. 86-12-2.
De los Angeles’s Amended Petition cited:

Neptunia’s $26.5 million loan from Hong Kong & Shanghai Banking Corporation authorized by its directors to finance the purchase.
Loan proceeds were deposited in banks for the account of Eduardo J. Soriano.
Soriano III’s letters to SMC shareholders announcing the Soriano family’s purchase of the shares.
Allegations that respondents improperly caused SMC to assume Neptunia’s loans, constituting misuse of corporate funds, overpayment for shares, and manipulations harming SMC.

Motion to Dismiss and SEC Ruling

Ernest Kahn moved to dismiss the suit arguing:

De los Angeles lacked capacity and did not fairly/adequately represent minority stockholders.
SEC lacked jurisdiction as the matter involved business judgment of the Board.

The SEC Hearing Officer denied the motion, ruling:

Ownership of even one share suffices to bring a derivative suit.
De los Angeles brought the action for the corporation’s benefit.
No evidence showed unclean hands.
SEC jurisdiction includes inquiry where business judgment may violate law.

Court of Appeals and Supreme Court Intervention

The Court of Appeals, by majority vote, reversed the SEC order and dismissed the case, holding:

De los Angeles could not adequately represent the minority due to owning only 20 shares (~0.00001644%).
Conflict of interest existed as de los Angeles was PCGG’s nominee, which controlled majority shares.
PCGG’s voting of sequestered shares is limited to its administrative power and does not confer legal dominion.
The suit was not a true derivative suit for the corporation’s benefit.

Dissenting justices argued that:

Shareholding quantity was immaterial, and de los Angeles did not vote for the contested resolution.
PCGG’s right to represent corporation’s interests justified the suit.

De los Angeles appealed to the Supreme Court for reversal of the Court of Appeals ruling.

Respondents’ Arguments before the Supreme Court

SEC allegedly lacked jurisdiction based on prior Supreme Court resolution barring SEC interference in sequestered property ownership.
Conflict of interest barred de los Angeles from representing minority stockholders.
The Court of Appeals had exclusive jurisdiction for certiorari and administrative remedies had to be exhausted.

De los Angeles’s Counterarguments

Requisites for derivative suit met: stockholding, exhaustion of intra-corporate remedies, and cause of action belongs to corporation.
The issue does not involve ownership of sequestered stock but validity of the Board’s loan assumption.
The executed purchase of shares and ownership disputes lie outside this suit.
Motion for reconsideration was unnecessary; certiorari was proper due to legal issue.

Issues:

Whether Eduardo de los Angeles has legal capacity and standing to file a derivative suit as a stockholder and PCGG-nominated director of San Miguel Corporation.
Whether the Securities and Exchange Commission has jurisdiction over the derivative suit involving the assumption of Neptunia’s loans by San Miguel Corporation.
Whether the failure to exhaust administrative remedies barred the resort to certiorari before the Court of Appeals.
Whether PCGG’s nomination and voting of the sequestered shares confer conflict of interest and impute incapacity to de los Angeles.
Whether the derivative suit is improperly categorized and if it is actionable for alleged breach of fiduciary duty by certain SMC directors.

Ruling:

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Ratio:

(Subscriber-Only)

Doctrine:

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Case Digest (G.R. No. 76005) Core Legal Reasoning Model Expanded

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Case Digest (G.R. No. 76005) Expanded Legal Reasoning Model

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Case Digest (G.R. No. 76005)
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Case Digest (G.R. No. 76005)
Expanded Legal Reasoning Model