TOPIC: DERIVATIVE SUIT/ SEC JURISDICTION; how determined

COMMART INC. v. SEC

Facts:
Commart Inc. is a corporation engaged in the brokerage business for the importation of
fertilizers. Jesus Maglutac ran the company as president- chairman of the board. While his
brother, Mariano served as External Vice-Pres. Later Mariano was persuaded by his brother to
sold to him his shareholding consisting of 25% of the outstanding capital stock. Mariano’s wife
opted not to dispose her shareholdings. After the sale, Mariano discovered that Jesus and his wife
had been siphoning commissions of Commart. As a result, Mariano and his wife filed a
complaint against the majority shareholders of Commart. They alleged that Jesus converted the
commissions to his own benefits. The SEC ruled in favor of Mariano and his wife.

Issue:
WON the complaint filed by Mariano and his wife a derivative suit?

Ruling:
YES, the principal relief prayed for in the complaint is the recovery of a sum of money in
favor of the corp. this being the case the complaint is a derivative suit. It is a remedy designed by
equity for those situations where the management, thru fraud, neglect of duty, or other cause,
declines to take the proper and necessary to assert the corporation’s right. A shareholder can file a
derivative suit provided there is an allegation in the complaint that she is such at the time the acts
complained of occurred and at the time the suit is brought. SEC ruled that jurisdiction cannot be
made to depend upon the pleas and defenses set up by a defendant in a motion to dismiss or answer,
otherwise jurisdiction should become dependent entirely upon the defendant.

NOTE: A derivative suit can be filed directly to the SEC even without exhausting the intra-
company remedies.