Boman Environmental Development Corporation v. Court of Appeals

G.R. No. 77860, 22 November 1988

FACTS:

Respondent offered in writing to resign as President and Member of the Board of Directors of petitioner, Boman Environmental Development Corporation (BEDECO), and to sell to the company all his shares, rights, and interests therein for P 300,000 plus the transfer to him of the company’s Isuzu pick-up truck which he had been using.

Fajilan’s resignation as president was accepted and new officers were elected. Fajilan’s offer to sell his shares back to the corporation was approved, the Board promising to pay for them on a staggered basis.But BEDECO defaulted in paying respondent, prompting the latter to file a complaint in the Regional Trial Court of Makati for collection of that balance from BEDECO.

RTC ruled that ruled that the controversy arose out of intracorporate relations, hence, the Securities and Exchange Commission has original and exclusive jurisdiction to hear and decide it. CA has set aside the RTC ruling hence the petition.

ISSUE:

Whether or not a suit brought by a withdrawing stockholder against the corporation to enforce payment of the balance due on the consideration for the surrender of his shares of stock and interests in the corporation, involves an intra-corporate dispute.

RULING:

This case involves an intra-corporate controversy because the parties are a stockholder and the corporation.

As correctly observed by the trial court, the perfection of the agreement to sell Fajilan’s participation and interests in BEDECO and the execution of the promissory note for payment of the price of the sale did not remove the dispute from the coverage of Section 5(b) of P.D. No. 902, as amended, for both the said agreement and the promissory note arose from intra-corporate relations. Indeed, all the signatories of both documents were stockholders of the corporation at the time of signing the same. It was an intra-corporate transaction, hence, this suit is an intra-corporate controversy.

Fajilan’s suit against the corporation to enforce the latter’s promissory note or compel the corporation to pay for his shareholdings is cognizable by the SEC alone which shall determine whether such payment will not constitute a distribution of corporate assets to a stockholder in preference over creditors of the corporation.

The SEC has exclusive supervision, control and regulatory jurisdiction to investigate whether the corporation has unrestricted retained earnings to cover the payment for the shares, and whether the purchase is for a legitimate corporate purpose as provided in Sections 41 and 122 of the Corporation Code,

SEC. 41. Power to acquire own shares

Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities, (77a, 89a, 16a).

These provisions of the Corporation Code should be deemed written into the agreement between the corporation and the stockholders even if there is no express reference to them in the promissory note. The principle is well settled that an existing law enters into and forms part of a valid contract without need for the parties’ expressly making reference to it (Lakas ng Manggagawang Makabayan vs. Abiera, 36 SCRA 437).

*Case Digest by Paul C. Gandola, Refresher, Andres Bonifacio Law School, SY 2019-2020