Development Bank of the Philippines v. Ilustre, Jr.
REITERATIONFacts
The Antecedents: Isarog Pulp and Paper Co., Inc. (ISAROG), a family corporation, entered into a contract with Creusot Loire Enterprise (CLE) for the construction of a pulp and paper mill. To finance the plant, ISAROG obtained a guaranty from the Development Bank of the Philippines (DBP) and an agricultural loan from DBP. A dispute arose between ISAROG and CLE regarding the mill's performance, leading to CLE's abandonment of the project. ISAROG filed a case against CLE in Geneva and also sued DBP in the Court of First Instance (CFI) of Rizal to enjoin remittances on its guaranty. This case was dismissed after the parties executed a memorandum agreement on March 18, 1977. Procedural History: The memorandum agreement stipulated joint re-study of the project, DBP's financial assistance, conversion of ISAROG's liability into equity, refraining from collecting amortizations, and DBP prosecuting the claim against CLE. Pursuant to this, DBP provided further financial accommodations and converted ISAROG's liabilities into DBP's equity, resulting in DBP owning approximately 91% of ISAROG's shares. DBP also created an executive committee to manage ISAROG due to alleged incompetence of the Silverio management. On May 18, 1981, the Silverios declared the memorandum agreement rescinded and demanded the return of ISAROG's control. Subsequently, a new board of directors and officers were elected at the stockholders' meeting on June 30, 1981, excluding the Silverios. On July 9, 1981, the Silverios filed Civil Case No. 6599 against DBP and Philippine Investment Management, Inc. (PHINMA) in the CFI of Albay, seeking rescission of the memorandum agreement, restoration to prior positions, and damages. They also sought an ex-parte temporary restraining order (TRO) or preliminary injunction. The Petition: The Silverios obtained a TRO on July 10, 1981. DBP filed a motion to dismiss, arguing that the case falls under the exclusive jurisdiction of the SEC, and opposed the injunction. The CFI denied the motion to lift the TRO and held the motion to dismiss in abeyance. DBP's motion for reconsideration was also denied. Hence, DBP filed the present petition for certiorari with preliminary injunction before the Supreme Court, assailing the CFI's jurisdiction and the issuance of the TRO.
Issue(s)
Whether the Court of First Instance of Albay has jurisdiction over Civil Case No. 6599, which involves the rescission of a memorandum agreement and damages, considering the underlying dispute's intra-corporate nature and DBP's stockholder status, or if it falls under the exclusive jurisdiction of the Securities and Exchange Commission. Whether the respondent judge committed grave abuse of discretion in issuing a restraining order and proceeding with Civil Case No. 6599, given that the case allegedly falls outside his jurisdiction and within the exclusive jurisdiction of the SEC due to its intra-corporate nature.
Ruling
The petition is granted. Civil Case No. 6599 of the defunct Court of First Instance of Albay is dismissed for lack of jurisdiction. The restraining order issued by the respondent judge is set aside.
Ratio Decidendi
On Issue 1: The Supreme Court held that the Court of First Instance (CFI) of Albay lacks jurisdiction over Civil Case No. 6599. The Court reasoned that while the complaint was framed as one for rescission of a memorandum agreement and damages, the underlying dispute was essentially intra-corporate. It noted that the memorandum agreement had been implemented, resulting in DBP acquiring approximately 91% of ISAROG's equity, making DBP a stockholder. The alleged illegal acts by DBP were committed in its capacity as a stockholder. Citing Section 5 of PD No. 902-A, the Court stated that the SEC has exclusive jurisdiction over controversies arising out of intra-corporate relations between and among stockholders, and between stockholders and the corporation. The allegations in the complaint, including the challenge to the election of directors and officers and the appointment of a manager, clearly fall within the SEC's purview. Therefore, the CFI had no competence to try the case. On Issue 2: The Supreme Court found that the respondent judge committed grave abuse of discretion in issuing the restraining order and proceeding with Civil Case No. 6599, as the case falls within the exclusive jurisdiction of the SEC. By entertaining a case over which it had no jurisdiction, the CFI acted without or in excess of its jurisdiction. The Court emphasized that the nature of the controversy, which involves disputes between stockholders (Silverios and DBP) and the corporation (ISAROG), and concerns the management and control of the corporation, dictates that it should be heard by the SEC. The CFI's order holding the motion to dismiss in abeyance and denying reconsideration further demonstrated this lack of jurisdiction. Consequently, the restraining order issued by the respondent judge was null and void.
Main Doctrine
The Supreme Court reiterated that the Securities and Exchange Commission (SEC) possesses original and exclusive jurisdiction over intra-corporate disputes, including controversies arising from intra-corporate relations between stockholders and the corporation, and those concerning the election or appointment of directors, officers, or managers. The Court emphasized that the nature of the dispute, rather than the form of the action or the relief prayed for, determines jurisdiction, and that cases involving the management and control of a corporation, even if framed as rescission of contract or damages, fall within the SEC's exclusive domain under PD 902-A.