Title
Metropolitan Bank and Trust Co. vs. Salazar Realty Corp.
Case
G.R. No. 218738
Decision Date
Mar 9, 2022
Metrobank foreclosed SARC's mortgaged properties securing Tacloban RAS's loan. SARC claimed unauthorized mortgage, ultra vires act, and defective foreclosure. Supreme Court dismissed SARC's derivative suit for non-compliance with procedural requirements.

Case Summary (G.R. No. 218738)

Facts and Transactional Background

Tacloban RAS obtained loans from Metrobank beginning in 1992 and, through restructurings, the promissory note ultimately reflected a P18,500,000 obligation (promissory note dated October 6, 1999) signed by Consuelo and Ralph purportedly as Tacloban RAS officers. To secure the loan, Metrobank and SARC executed a mortgage (originally January 9, 1996 and later amended to cover the final loan amount) over five SARC‑registered parcels in Tacloban City, with Consuelo and Ralph signing documents purportedly on behalf of SARC. Tacloban RAS defaulted, Metrobank foreclosed extrajudicially, bought the properties at auction, had certificates of title canceled and reissued in its name, and filed consolidation affidavits; Ramon et al. discovered the cancellations and registered adverse claims on the new titles.

Claims Advanced by SARC and Ramon et al.

SARC (through Ramon et al. as incorporators and stockholders) filed a suit for quieting of title and nullification of contracts asserting, among others, that: (1) Consuelo and Ralph lacked authority to bind Tacloban RAS and/or SARC; (2) the mortgage was ultra vires because SARC exceeded corporate powers by mortgaging assets to secure obligations of a separate corporation; (3) the mortgage encumbered substantially all corporate assets and therefore required stockholder approval and appraisal rights under Section 40 of the Corporation Code; (4) the foreclosure proceedings were defective procedurally (notices, publication, single bidder, etc.); and (5) Metrobank failed to exercise due diligence in lending and in ascertaining authority. Remedies sought included nullification of the loan and mortgage, annulment of the foreclosure, and cancellation of titles issued to Metrobank.

Metrobank’s Defenses and Procedural Objections

Metrobank contended that Ralph had authority to execute the loan and mortgage; that Consuelo had bound herself personally as surety; that the loan restructurings and mortgage amendments were approved by the boards of Tacloban RAS and SARC; and that SARC or Ramon et al. lacked standing because the action was essentially a derivative, intra‑corporate claim which must be litigated under the SEC/special commercial court regime or in a derivative action properly brought. Metrobank repeatedly moved to dismiss for lack of jurisdiction and improper characterization of the suit.

Trial Court Proceedings, Orders and Injunctive Relief

Branch 9, RTC Tacloban denied Metrobank’s motions to dismiss, concluded the case did not fall within special commercial court exclusive jurisdiction because it was filed before A.M. No. 03‑03‑03‑SC took effect and (even if applicable) the RTC retained jurisdiction once acquired, and held the dispute was not an intra‑corporate controversy because the bank (mortgagee) had no intra‑corporate relationship with the suing stockholders. The RTC issued a preliminary injunction preventing Metrobank from enforcing claims on the properties. Subsequent motions for reconsideration and other procedural motions were denied by the trial court.

Court of Appeals Ruling

The CA dismissed Metrobank’s petition for certiorari and upheld the RTC, applying the two‑tier intra‑corporate controversy test under Section 5(b) of the SEC Reorganization Decree and Rule 1 of the 2001 IRPIC. The CA held that SARC’s petition did not satisfy the two‑tier test: it failed the relationship test (no intra‑corporate relationships enumerated in Section 5(b) existed for the relevant parties) and the controversy test (the nature of the dispute was the removal of a cloud on title, which the CA deemed civil in nature and not intrinsically connected to intra‑corporate regulation). The CA emphasized that where a mortgagee bank is a defendant and has no intra‑corporate relationship with stockholders, jurisdiction lies with regular courts.

Legal Framework on Jurisdiction over Intra‑Corporate Controversies and Derivative Suits

The SRC (R.A. 8799) transferred to the courts of general jurisdiction certain classes of cases formerly under the SEC, authorized the Supreme Court to designate RTC branches as special commercial courts, and the Court promulgated the 2001 IRPIC to govern procedure in such matters. Jurisprudence developed the two‑tier test (relationship and nature of controversy) to determine whether a dispute is an intra‑corporate controversy falling under SEC/special commercial court jurisdiction. The 2001 IRPIC expressly included derivative suits among cases to be governed by the rules and set specific pleading requisites for derivative actions (Rule 8, Sec. 1), thereby aligning derivative suits procedurally with intra‑corporate controversies to be heard by special commercial courts.

Nature, Purpose and Tests for Derivative Suits

A derivative suit is an equitable remedy allowing a stockholder to sue on behalf of the corporation where officers or directors are the wrongdoers or refuse to vindicate corporate rights. Historically courts applied a three‑part test (San Miguel v. Kahn) requiring: (a) plaintiff‑stockholder status at the time of the act complained of; (b) exhaustion of intra‑corporate remedies (demand on the board); and (c) the cause of action belonging to the corporation (harm to the corporation). The 2001 IRPIC superseded and reframed this by listing specific requisites that a derivative action must allege with particularity: shareholder status when the acts occurred and at filing; reasonable efforts to exhaust corporate remedies (alleged with particularity); absence of appraisal rights or explanation of impossibility to avail them; that the suit is not a nuisance/harassment suit; and that the suit is brought in the corporation’s name.

Jurisdictional Allocation and the Supreme Court’s Clarifications

The Supreme Court recognized that, after SRC Section 5.2 and the 2001 IRPIC, derivative suits are treated as intra‑corporate controversies and thus fall within the ambit of the special commercial courts. The Court explained that (a) the 2001 IRPIC’s explicit inclusion of derivative suits signals that all derivative suits should be tried in special commercial courts; (b) Gonzales v. GJH Land clarified remedial steps for mis‑raffled cases — transfer and re‑docketing to special commercial courts rather than dismissal when a case was wrongly filed in a regular branch; and (c) special commercial courts, being courts of general jurisdiction, can adjudicate issues involving parties not intra‑corporate if proper procedural rules are met.

Application to the Case: Characterization as a Derivative Suit

The Supreme Court found SARC’s petition to be a derivative suit on its face: it was filed in the corporation’

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