ELTON CHASE

vs.
DR. VICTOR BUENCAMINO
GR L-20395, 13 May 1985

FACTS:

Plaintiff Elton Chase, on the other hand, was the owner of Production Manufacturing Company, of
Portland, Oregon, USA, a corporation primarily dedicated to the operation of a machine shop and heat-treating
plant for the production of tractor parts.
Sometime in 1954, Chase was notified by the Highway Commission of the State of Oregon that his
factory was going to be in the path of a proposed highway. He was then advised to sell or face expropriation and
warned to remove his plant within a year. His distributor Craig Carrol told him of a Dr. Buencamino of Manila
who he said was interested in establishing a manufacturing plant in the Philippines. Craig Carrol contacted
Buencamino who told him to contact his associate William Cranker in the United States. 8 Thereafter, a series
of negotiations took place both here in Manila, and in the United States, between Chase on the one hand, and
Cranker and Buencamino, on the other, for the purchase of Chase's factory (Production Manufacturing
Company) and the establishment of a new factory in Manila which was to be called the American Machinery
Engineering Parts, Inc. (Amparts for short). These negotiations culminated in a final agreement to the effect that
- Elton Chase was to be paid One Hundred Thousand Dollars ($100,000.00) and he would also be given a one-
third interest in Amparts, with the other two, Dr. Buencamino and Cranker, as the owner of the other two-thirds
(2/3) interest, 1/3 interest each; that in exchange for said $100,000.00 and the 1/3 interest, Chase was to transfer
to Amparts his tractor plant, ship his machineries to Manila, assuming all costs of dismantling, preserving and
crating for shipment to Manila, install said machineries at Amparts plant with the aid of five technicians and
finally, he has to be the production manager of Amparts.
Chase had shipped his machineries and had them installed in the Amparts plant in Pasig, Rizal. Amparts
then began operation with Dr. Buencamino as President, William Cranker as Manager and Elton Chase as
Production Manager. For sometime the three maintained harmonious relations but later on distrust came in until
finally Chase tendered his letter of resignation as Production Manager. He then filed a derivative suit against
Buencamino and Chase, who allegedly stole from the corporation. He sought for the dissolution of the
corporation.

ISSUE:

Whether or not the corporation may be dissolved.

RULING:

NO.

The case is of derivative in nature, therefore, it was filed for the benefit of the corporation. The Court
grant a dissolution because the action is a derivative one for the benefit of Amparts and not for the personal
benefit of Chase, and Amparts can not be benefited by its extinction; as to the ouster of Dr. Buencamino from
management, it should not be forgotten that Dr. Buencamino is not only a manager, but is in fact 2/3 owner of
Amparts and to oust him from management would amount to his disenfranchisement as owner of the majority
of the enterprise apart from the fact that it is also established in the proofs that Amparts is already picking up
and has been a going concern after Cranker left unto him the direction of its affairs; the Court therefore having
in mind all these finds that the solution most equitable and just would be to limit its decision to imposing a
monetary judgment upon the guilty parties for the benefit of Amparts.
 SAN MIGUEL CORPORATION, represented by EDUARDO DE LOS ANGELES
vs.
ERNEST KAHN, ANDRES SORIANO III, BENIGNO TODA, JR., ANTONIO ROXAS, ANTONIO
PRIETO, FRANCISCO EIZMENDI, JR., EDUARDO SORIANO, RALPH KAHN and RAMON DEL
ROSARIO, JR.
G.R. No. 85339. August 11, 1989

FACTS:

33,133,266 shares of the outstanding capital stock of SMC were acquired 14 other corporations, and
were placed under a Voting Trust Agreement in favor of the late Andres Soriano, Jr. However, 33,133,266 SMC
shares were sequestered by the PCGG, on the ground that the stock belonged to Eduardo Cojuangco, Jr.,
allegedly a close associate and dummy of former President Marcos. SMC promptly suspended payment of the
other installments of the price to the 14 seller corporations.
On December, 1986, the SMC Board, by Resolution No. 86-122, "decided to assume the loans incurred
by Neptunia for the down payment ((P500M)) on the 33,133,266 shares." The Board opined that there was
"nothing illegal in this assumption (of liability for the loans)," since Neptunia was "an indirectly wholly owned
subsidiary of SMC," there "was no additional expense or exposure for the SMC Group, and there were tax and
other benefits which would redound to the SMC group of companies. However, at the meeting of the SMC
Board, Eduardo de los Angeles, one of the PCGG representatives in the SMC board, impugned said Resolution
No. 86-122.

ISSUE:

Whether or not de los Angeles can file a derivative suit in behalf of the corporation.

RULING:

YES.

The Court ruled that it is claimed that since de los Angeles 20 shares represent only .00001644% of the
total number of outstanding shares (1 21,645,860), he cannot be deemed to fairly and adequately represent the
interests of the minority stockholders. The implicit argument that a stockholder, to be considered as qualified
to bring a derivative suit, must hold a substantial or significant block of stock finds no support whatever in
the law. The requisites for a derivative suit are as follows: (a) the party bringing suit should be a shareholder as
of the time of the act or transaction complained of, the number of his shares not being material; (b) he has tried
to exhaust intra-corporate remedies, i.e., 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 (c) the cause of action actually devolves on the
corporation, the wrongdoing or harm having been, or being caused to the corporation and not to the particular
stockholder bringing the suit.
The bona fide ownership by a stockholder of stock in his own right suffices to invest him with standing
to bring a derivative action 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.
 CANDIDO PASCUAL
vs.
EUGENIO DEL SAZ OROZCO, ET AL.
G.R. No. L-5174. March 17, 1911

FACTS:

This action was brought by the plaintiff Pascual, in his own right as a stockholder of the bank, for the
benefit of the bank, and all the other stockholders thereof. The Banco Espaol-Filipino is a banking corporation,
constituted as such by royal decree of the Crown of Spain in the year 1854, the original grant having been
subsequently extended and modified by royal decree of July 14, 1897, and by Act No. 1790 of the Philippine
Commission.
It is alleged in the amended complaint that the only compensation contemplated or provided for the
managing officers of the bank was a certain per cent of the net profits resulting from the bank's operations, as
set forth in article 30 of its reformed charter or statutes.
The gist of the first and second causes of action is as follows: The defendants constitute a majority of the
present board of directors of the bank, who alone can authorize an action against them in the name of the
corporation. It appears that during the years 1903, 1904, 1905, and 1907 the defendants and appellees, without
the knowledge, consent, or acquiescence of the stockholders, deducted their respective compensation from the
gross income instead of from the net profits of the bank, thereby defrauding the bank and its stockholders of
approximately P20,000 per annum.
The second cause of action sets forth that defendants' and appellees' immediate predecessors in office in the
bank during the years 1899, 1900, 1901, and 1902, committed the same illegality as to their compensation as is
charged against the defendants themselves. In the four years immediately following the year 1902, the
defendants and appellees were the only officials or representatives of the bank who could and should investigate
and take action in regard to the sums of money thus fraudulently appropriated by their predecessors. They were
the only persons interested in the bank who knew of the fraudulent appropriation by their predecessors.
The court below sustained the demurrer as to the first and second causes of action on the ground that in actions
of this character the plaintiff must aver in his complaint that he was the owner of stock in the corporation at the
time of the occurrences complained of, or else that the stock has since devolved upon him by operation of law.

ISSUE:

Whether or not the petitioner has a cause of action to file a derivative suit.

RULING:

YES.

As to the first cause of action: In suits of this character the corporation itself and not the plaintiff
stockholder is the real party in interest. The rights of the individual stockholder are merged into that of the
corporation. It is a universally recognized doctrine that a stockholder in a corporation has no title legal or
equitable to the corporate property; that both of these are in the corporation itself for the benefit of all the
stockholders. So it is clear that the plaintiff, by reason of the fact that he is a stockholder in the bank
(corporation) has a right to maintain a suit for and on behalf of the bank, but the extent of such a right must
depend upon when, how, and for what purpose he acquired the shares which he now owns.
As to the Second cause of action: It affirmatively appears from the complaint that the plaintiff was not a
stockholder during any of the time in question in this second cause of action. Upon the question whether or not
a stockholder can maintain a suit of this character upon a cause of action pertaining to the corporation when it
appears that he was not a stockholder at the time of the occurrence of the acts complained of and upon which
the action is based, the authorities do not agree.
 CATALINA R. REYES
vs.
HON. BIENVENIDO A. TAN, as Judge of the Court of First Instance of Manila, Branch XIII and
FRANCISCA R. JUSTINIANI
G.R. No. L-16982. September 30, 1961

FACTS:

The corporation, Roxas-Kalaw Textile Mills, Inc., was organized on June 5, 1954 by defendants Cesar
K. Roxas, Adelia K. Roxas, Benjamin M. Roxas, Jose Ma. Barcelona and Morris Wilson, for and on behalf of
the following primary principals with the following shareholdings: Adelia K. Roxas, 1200 Class A shares; I.
Sherman, 900 Class A shares; Robert W. Born, 450 Class A shares and Morris Wilson, 450 Class A shares; that
the respondent holds both Class A and Class B shares and number and value thereof are is follows: Class A
50 shares, Class B 1,250 shares.
On May 8, 1957, the Board of Directors approved a resolution designating one Dayaram as co-manager
and Morris Wilson was likewise designated as co-manager with responsibilities for the management of the
factory only. An office in New York was opened for the purpose of supervising purchases, which purchases
must have the unanimous agreement of Cesar K. Roxas, New York resident member of the board of directors,
Robert Born and Wadhumal Dalamal or their respective representatives. Several purchases aggregating
$289,678.86 were made in New York for raw materials and shipped to the Philippines, which shipment were
found out to consist not of raw materials but already finished products, for which reasons the Central Bank of
the Philippines stopped all dollar allocations for raw materials for the corporation which necessarily led to the
paralyzation of the operation of the textile mill and its business.

ISSUES:

Whether or not a derivative suit will prosper.

RULING:

NO.

The claim that respondent Justiniani did not take steps to remedy the illegal importation for a period of
two years is without merit. During that period of time respondent had the right to assume and expect that the
directors would remedy the anomalous situation of the corporation brought about by their own wrong doing.
Only after such period of time had elapsed could respondent conclude that the directors were remiss in their
duty to protect the corporation property and business. The fraud consisted in importing finished textile instead
of raw cotton for the textile mill; the fraud, therefore, was committed by the manager of the business and was
consented to by the directors, evidently beyond reach of respondent as treasurer for that period.
The directors permitted the fraudulent transaction to go unpunished and nothing appears to have been
done to remove the erring purchasing managers. In a way the appointment of a receiver may have been thought
of by the court below so that the dollar allocation for raw material may be revived and the textile mill placed on
an operating basis.