Facts:

The case involves Boman Environmental Development Corporation (BEDECO) as the petitioner and Nilcar Y. Fajilan as the respondent. On May 7, 1984, Fajilan submitted a written resignation as President and Member of the Board of Directors of BEDECO, along with an offer to sell his shares, rights, and interests in the corporation for P300,000, plus the transfer of an Isuzu pick-up truck he had been using. The Board of Directors accepted his resignation and approved the sale of his shares during a meeting on June 14, 1984. They agreed to pay Fajilan in installments from July 15, 1984, to December 15, 1984, as documented in a letter-agreement dated June 25, 1984. A promissory note was signed on July 3, 1984, committing BEDECO to pay Fajilan the total amount over the specified period. However, BEDECO only made partial payments of P50,000 each on July 15 and August 31, 1984, defaulting on the remaining P200,000. Consequently, on April 30, 1985, Fajilan filed a complaint in the Region...

Facts:

Background of the Case

• Parties Involved: Boman Environmental Development Corporation (BEDECO) and Nilcar Y. Fajilan.
• Key Event: Fajilan, then President and Board Member of BEDECO, offered to resign and sell his shares and interests in the corporation for P300,000 plus the transfer of an Isuzu pick-up truck he had been using.

Offer and Acceptance

• Offer Letter (May 7, 1984): Fajilan submitted a written resignation and offer to sell his shares and interests to BEDECO for P300,000 and the transfer of the Isuzu pick-up truck.
• Board Resolution (June 14, 1984): BEDECO's Board accepted Fajilan's resignation and approved the purchase of his shares, agreeing to pay the amount in staggered payments from July to December 1984.
• Letter-Agreement (June 25, 1984): BEDECO formalized the agreement, detailing the payment schedule and the transfer of the pick-up truck. Fajilan signed the agreement, signifying his conformity.

Promissory Note

• Promissory Note (July 3, 1984): BEDECO executed a promissory note committing to pay Fajilan P300,000 in installments. The note was signed by BEDECO's new president, Alfredo Pangilinan, and witnessed by two directors.

Default in Payment

• Partial Payments: BEDECO paid only P50,000 on July 15, 1984, and another P50,000 on August 31, 1984, defaulting on the remaining P200,000.

Legal Action

• Complaint Filed (April 30, 1985): Fajilan filed a complaint in the Regional Trial Court (RTC) of Makati for the collection of the unpaid balance.
• Trial Court Dismissal (September 9, 1985): The RTC dismissed the case, ruling that it was an intra-corporate dispute falling under the jurisdiction of the Securities and Exchange Commission (SEC).
• Appeal to Court of Appeals: Fajilan filed a petition for certiorari and mandamus with the Court of Appeals, which reversed the RTC's decision and ruled that the case was a simple collection suit.

Issue:

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Ruling:

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Ratio:

1. Intra-Corporate Nature of the Dispute:

   • The dispute arose from Fajilan's resignation and the sale of his shares and interests in BEDECO, which are inherently intra-corporate matters.
   • The promissory note executed by BEDECO was a direct result of this intra-corporate transaction, and all parties involved were stockholders of the corporation at the time of signing.

2. Jurisdiction of the SEC:

   • Under Section 5(b) of P.D. No. 902-A, the SEC has exclusive jurisdiction over controversies arising from intra-corporate relations, including disputes between stockholders and the corporation.
   • The SEC is better equipped to determine whether the payment for Fajilan's shares complies with corporate laws, such as the requirement of unrestricted retained earnings and the prohibition against preferential distribution of assets to stockholders over creditors.

3. Trust Fund Doctrine:

   • The Court emphasized the trust fund doctrine, which holds that corporate assets are held in trust for the payment of corporate creditors. Any distribution of assets to stockholders must first ensure that creditors are paid.
   • The SEC must assess whether BEDECO has sufficient unrestricted retained earnings to cover the payment for Fajilan's shares and whether the purchase serves a legitimate corporate purpose under Sections 41 and 122 of the Corporation Code.

4. Legal Implications:

   • The Court noted that existing laws, such as the Corporation Code, are deemed part of any valid contract, even if not explicitly referenced. Thus, the promissory note must comply with corporate law provisions.

Conclusion:

The Supreme Court granted BEDECO's petition, reversing the Court of Appeals' decision and reinstating the RTC's dismissal of the case for lack of jurisdiction. The dispute was deemed an intra-corporate controversy, falling under the exclusive jurisdiction of the SEC.