Boman Environmental Development Corporation v. Court of Appeals
REITERATIONFacts
The Antecedents: Respondent Nilcar Y. Fajilan offered to resign as President and Member of the Board of Directors of petitioner Boman Environmental Development Corporation (BEDECO) and to sell his shares and interests for P300,000 plus an Isuzu pick-up truck. The Board accepted his resignation and approved the sale of his shares, agreeing to pay on a staggered basis. A letter-agreement dated June 25, 1984, confirmed the sale for P300,000, inclusive of unpaid salary, loan principal, interest, profit sharing, and share on book value, with a specified payment schedule. A promissory note dated July 3, 1984, was executed by BEDECO, committing to pay Fajilan P300,000 over six months. BEDECO paid only P100,000 in total and defaulted on the remaining P200,000. Procedural History: Fajilan filed a complaint for collection of the balance in the Regional Trial Court (RTC) of Makati. The RTC dismissed the complaint for lack of jurisdiction, ruling it was an intra-corporate dispute cognizable by the Securities and Exchange Commission (SEC). Fajilan's motion for reconsideration was denied. He then filed a petition for certiorari, mandamus, and preliminary attachment with the Intermediate Appellate Court (IAC). The IAC set aside the RTC's order of dismissal, directing the RTC to take cognizance of the case, characterizing it as a suit for collection of a sum of money. BEDECO's motion for reconsideration was denied. The Petition: BEDECO filed a petition for certiorari with the Supreme Court, seeking to reverse the Court of Appeals' decision.
Issue(s)
Whether the suit filed by a withdrawing stockholder against the corporation to enforce payment of the balance due on a promissory note for the surrender of his shares of stock and interests in the corporation involves an intra-corporate dispute; and the nature of the underlying transaction giving rise to the promissory note. Whether the Regional Trial Court or the Securities and Exchange Commission has jurisdiction over the said action, considering the SEC's regulatory power regarding distribution of corporate assets and the trust fund doctrine.
Ruling
The petition is granted. The decision of the Court of Appeals is reversed and set aside. The order of the trial court dismissing the complaint for lack of jurisdiction is reinstated.
Ratio Decidendi
On the issue of whether the suit involves an intra-corporate dispute and the nature of the transaction: The Supreme Court held that the suit filed by Fajilan against BEDECO for the collection of the balance of the promissory note, which arose from the sale of his shares and interests in the corporation, constitutes an intra-corporate dispute. Section 5(b) of P.D. No. 902-A, as amended, grants the SEC original and exclusive jurisdiction over controversies arising out of intra-corporate relations. The agreement to sell Fajilan's participation and interests and the execution of the promissory note originated from intra-corporate relations, as all signatories were stockholders at the time. While the Court of Appeals characterized the case as a simple collection suit, the underlying transaction giving rise to the promissory note was an intra-corporate matter. Fajilan's offer to resign was conditioned on the full payment of his shares, implying he remained a stockholder until then. The fact that he was replaced as president did not automatically terminate his status as a stockholder, especially given the corporation's failure to fully pay for his shares. The actual transfer of shares had not occurred, and in the corporation's books, he was still considered a stockholder. Therefore, the dispute falls squarely within the SEC's exclusive jurisdiction. On the issue of jurisdiction and the SEC's regulatory power: The Court explained that Fajilan's suit to enforce the promissory note or compel payment for his shareholdings is cognizable by the SEC alone. This is because the SEC must determine whether such payment would constitute a distribution of corporate assets to a stockholder in preference over creditors. The SEC has exclusive jurisdiction to investigate if the corporation has unrestricted retained earnings to cover the payment and if the purchase is for a legitimate corporate purpose, as mandated by Sections 41 and 122 of the Corporation Code. These provisions, particularly the requirement of unrestricted retained earnings, are based on the trust fund doctrine, which prioritizes corporate creditors over stockholders in the distribution of corporate assets.
Main Doctrine
A suit brought by a withdrawing stockholder against the corporation to enforce payment of the balance due on a promissory note for the surrender of his shares of stock and interests in the corporation involves an intra-corporate dispute, thus falling under the original and exclusive jurisdiction of the Securities and Exchange Commission (SEC).