Case Summary (G.R. No. 85318)
Factual Background
COMMART (PHILS.), INC. was a brokerage corporation organized by brothers Jesus and Mariano Maglutac. Jesus T. Maglutac served as president and chairman; Mariano T. Maglutac served as executive vice-president until April 1984 and later sold his 25% shareholding to Jesus pursuant to a Cooperative Agreement. Alice M. Maglutac, Mariano’s wife, remained a stockholder and director of Commart. Commart’s income derived principally from commissions paid in U.S. dollars by foreign suppliers.
Allegations of Misappropriation
Complainants Mariano and Alice Maglutac alleged that Jesus T. Maglutac and others engaged in secret arrangements with foreign suppliers and diverted substantial corporate commission income into private bank accounts in the United States and Hong Kong. The complaint alleged conversion to the private benefit of the accused and prejudice to the corporation, its stockholders, and creditors.
Complaint and Relief Sought
The complaint filed by Mariano and Alice Maglutac in SEC Case No. 2673 prayed primarily for recovery in favor of the corporation, including an accounting and delivery to the corporation of US$2,539,918.97, remedial steps by the board of directors, rescission or annulment of Mariano’s sale of shares or payment of market value, and attorney’s fees and litigation expenses.
Motions to Dismiss and Amended Complaint
Respondents filed motions to dismiss: Albert and Bernard Maglutac on October 17, 1984, and Jesus and Corazon Maglutac on October 20, 1984, raising capacity and jurisdictional objections. While those incidents were pending, complainants amended their complaint to implead Commart as party complainant, to pray for receivership and attachment, and to characterize the action as a derivative suit on behalf of the corporation.
Commart’s Manifestation of Dismissal and Opposition
On May 10, 1985, Commart filed a Manifestation/Notice of Dismissal withdrawing the action taken on its behalf by the complainants. Mariano and Alice Maglutac opposed the notice, invoking the principle that in a derivative suit the corporation may not control or dismiss the action brought by an injured shareholder.
Hearing Panel Proceedings and May 27, 1985 Order
The Hearing Panel on May 27, 1985 denied the motions to dismiss and rejected Commart’s notice of dismissal. The Panel found that the complaint alleged corporate mismanagement and diversion of corporate income and concluded that the Commission had jurisdiction to entertain the derivative nature of the suit.
Post-Order Motions and November 12, 1985 Modification
Following motions for reconsideration by Commart and by Jesus and Corazon Maglutac, the Hearing Panel on November 12, 1985 modified its prior order by dismissing the case insofar as Mariano T. Maglutac was concerned but affirmed the order in all other respects.
Petition to the SEC En Banc
Present petitioners sought relief from the SEC en banc by petition for certiorari, prohibition, and mandamus with a prayer for preliminary injunction. They contended that the Hearing Panel committed grave abuse by refusing to dismiss the case for failure of Alice Maglutac to exhaust intra-corporate remedies and by failing to dismiss for alleged lack of stockholder status at the time of the contested transactions.
SEC En Banc Order of September 12, 1988
The SEC en banc denied the petition and remanded the case to the Securities Investigation and Clearing Department for further proceedings. The en banc held that the requirement of exhaustion of intra-corporate remedies could be dispensed with where such remedies were unavailable or futile, citing Everett v. Asia Banking Corp. and Republic Bank v. Cuaderno. The Commission also ruled that the complaint’s allegation that Alice Maglutac remained a stockholder sufficed to vest jurisdiction, although she would have to prove stockholder status at the time of the wrongful acts during reception of evidence.
Issues Presented to the Supreme Court
The petitioners raised two issues: whether the SEC committed grave abuse in denying the petition for certiorari and remanding the case despite Commart’s notice of dismissal; and whether the SEC committed grave abuse in its handling of the alleged conflict of interest arising from Alice Maglutac’s alleged ownership in a rival corporation.
Supreme Court’s Analysis on Derivative Suit and Notice of Dismissal
The Supreme Court found the petition without merit. It held that the complaint and its principal relief plainly constituted a derivative suit brought to recover corporate funds for the benefit of Commart. The Court explained that allowing a corporation controlled by the accused majority to withdraw or dismiss the action would defeat the remedial function of the derivative suit and would render the minority shareholder’s remedy illusory. Accordingly, the Court found no grave abuse in the SEC’s refusal to treat Commart’s notice of dismissal as terminating the action.
Supreme Court’s Analysis on Exhaustion and Conflict of Interest
The Court affirmed the SEC’s app
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Parties and Procedural Posture
- Petitioners were COMMART (PHILS.), INC., Jesus Maglutac, Corazon Maglutac, Alberto Maglutac, and Bernard Maglutac who sought review of an en banc order of the Securities & Exchange Commission dated September 12, 1988.
- Respondents were the Securities & Exchange Commission and Alice Maglutac, who was complainant in SEC Case No. 2673.
- The petition attacked the SEC en banc Order for denying petitioners' petition for certiorari, prohibition and mandamus and for remanding SEC Case No. 2673 to the Securities Investigation and Clearing Department.
- The present case was resolved by the Supreme Court by dismissal of the petition for lack of merit with costs against petitioners.
Key Factual Allegations
- COMMART (PHILS.), INC. was a brokerage corporation organized by brothers Jesus and Mariano Maglutac to engage in import brokerage for fertilizers and other commodities.
- Jesus T. Maglutac acted as president, chairman of the board, and chairman of the executive committee of COMMART (PHILS.), INC..
- Mariano Maglutac sold his 25% shareholdings to Jesus T. Maglutac in or about June 1984 and executed a "Cooperative Agreement" conceding a portion of the business to Mariano or an acceptable entity.
- Alice M. Maglutac remained a stockholder and director of COMMART (PHILS.), INC. after Mariano's sale of his shares.
- Complainants alleged that Jesus T. Maglutac and Corazon Maglutac secretly diverted substantial portions of commission income from foreign suppliers into their private bank accounts in the United States and Hong Kong.
- Complainants sought recovery of US$2,539,918.97, rescission of Mariano's share sale or payment of one-fourth of market value, remedial corporate steps, and attorney's fees and litigation expenses.
Procedural History
- Mariano and Alice Maglutac filed the initial complaint as SEC Case No. 2673 seeking relief on behalf of the corporation.
- Motions to dismiss were filed by Albert and Bernard Maglutac on October 17, 1984 and by Jesus and Corazon Maglutac on October 20, 1984.
- Complainants filed an Amended Complaint impleading COMMART (PHILS.), INC. and prayed for receivership and attachment of alleged wrongdoers' properties.
- COMMART (PHILS.), INC. filed a Manifestation/Notice of Dismissal on May 10, 1985 withdrawing the action made on its behalf.
- The Hearing Panel issued an Order on May 27, 1985 denying the motions to dismiss and the notice of dismissal, and thereafter modified the Order on November 12, 1985 by dismissing the case insofar as Mariano T. Maglutac was concerned.
- Petitioners elevated the matter to the SEC en banc by petition for certiorari, prohibition and mandamus with prayer for preliminary injunction.
- The SEC en banc denied the petition and remanded the case on September 12, 1988 for further proceedings.
- Petitioners filed the present petition for review on certiorari with the Supreme Court, which dismissed the petition for lack of merit.
Issues Presented
- Whether the Securities & Exchange Commission erred or committed grave abuse of discretion in denying petitioners' petition for certiorari and remanding the case despite the notice of dismissal filed by COMMART (PHILS.), INC..
- Whether the Securities & Exchange Commission erred or committed grave abuse of discretion in handling the alleged conflict of interest arising from Alice Maglutac's asserted ownership interests in a rival corporation.
Contentions of the Parties
- Petitioners contended that the Hearing Panel committed grave abuse by refusing dismissal for failure to exhaust intra-corpor