Case Summary (G.R. No. 218738)
Factual Background
SARC alleged that Tacloban RAS Construction Corporation obtained successive loans from Metrobank, culminating in a P18,500,000 promissory note dated October 6, 1999, purportedly signed by officers of Tacloban RAS. SARC further alleged that, to secure Tacloban RAS’s obligations, SARC executed a mortgage over five parcels registered in SARC’s name by instruments executed in January 1996 and later amended to cover the increased loan. SARC alleged that several corporate officers had died and that the remaining board had tacitly approved an unauthorized encumbrance of substantially all corporate assets. Tacloban RAS allegedly defaulted and Metrobank conducted extrajudicial foreclosure proceedings, purchased the properties at auction, caused issuance of certificates of sale, and secured transfer of titles to Metrobank. Thereafter, the incorporators-stockholders acting for SARC discovered cancelled SARC titles, registered adverse claims on Metrobank’s certificates, and filed the present action for quieting of title and nullification of contracts, asserting among other grounds that the loan and mortgage were void, the mortgage was ultra vires, appraisal rights under Section 40 of the Corporation Code were not observed, and the foreclosure proceedings were defective under A.M. No. 99-10-05-0.
Trial Court Proceedings
Metrobank filed motions to dismiss asserting lack of standing, that the petition was a derivative or intra-corporate suit outside Branch 9’s jurisdiction, and various defenses regarding authority and ownership. The trial court denied the initial motion to dismiss and ordered an answer. The court denied Metrobank’s motion for inhibition, granted SARC’s preliminary injunction request, and denied Metrobank leave to amend its answer. Metrobank renewed its motion to dismiss arguing that the petition was a derivative suit cognizable only by a special commercial court. In its Orders of June 16, 2009 and February 23, 2010, Branch 9 of the RTC denied Metrobank’s motion and reconsideration. The trial court held that the case was filed before the operative effect of the special commercial court rules and that, in any event, the RTC retained jurisdiction once it had been acquired. The trial court further concluded that the matter was not an intra-corporate controversy because it involved a corporation suing another corporation and public officers and sought relief within the jurisdiction of regular courts.
Court of Appeals' Ruling
Metrobank petitioned the Court of Appeals for certiorari. The Court of Appeals dismissed Metrobank’s petition and affirmed the trial court’s denial of the motion to dismiss. The appellate court applied the two-tier test for intra-corporate controversies under Section 5 of the SEC Reorganization Decree and Rule 1 of the 2001 IRPIC. It found that SARC’s petition failed the relationship test because it did not involve any of the intra-corporate relationships enumerated in Section 5(b) of the SEC Reorganization Decree, and it failed the controversy test because the action to remove a cloud on title was civil in nature and not intrinsically connected to regulation of SARC’s internal affairs. The CA emphasized authority holding that where annulment of mortgage is sought and the mortgagee bank has no intra-corporate relationship with the stockholders, jurisdiction rests with regular courts.
Issues on Review
Metrobank challenged the CA decision on three primary grounds: that the CA erred in using the two-tier test to determine whether a suit was derivative; that jurisdiction over derivative suits rested exclusively in special commercial courts; and that the CA’s finding that the suing stockholders were not stockholders of Metrobank, if accepted, would render the complaint defective for lack of capacity to sue. The essential legal question presented was whether Branch 9 of the Tacloban City RTC, being not a designated special commercial court branch, properly exercised jurisdiction over a derivative suit seeking annulment of a mortgage allegedly approved without proper corporate authorization and asserting claims against third parties not intra-corporate to SARC.
Supreme Court's Disposition
The Supreme Court granted Metrobank’s petition for review on certiorari in part. The Court reversed and set aside the Court of Appeals Decision dated March 25, 2014 and Resolution dated May 8, 2015. The Court dismissed Civil Case No. 2001-11-164 for failure to comply with the requisites for a derivative suit under the 2001 IRPIC. The Supreme Court concluded that while the suit was a derivative action properly transferable to a special commercial court, it suffered fatal procedural defects warranting dismissal.
Special Commercial Courts and the 2001 IRPIC
The Court reviewed the statutory framework that transferred certain intra-corporate jurisdiction to the courts of general jurisdiction under Section 5.2 of R.A. No. 8799 and authorized the Supreme Court to designate branches as special commercial courts. The 2001 IRPIC was promulgated to govern procedure in cases falling within Section 5 of the SEC Reorganization Decree, and it expressly included derivative suits among the cases covered. The Court explained that the Gonzales guidelines govern re-docketing and assignment when commercial cases are wrongly raffled and that special commercial courts are still courts of general jurisdiction capable of adjudicating claims against parties not intra-corporate to the suing corporation. The Court therefore concluded that derivative suits must be tried by the designated special commercial courts under the 2001 IRPIC.
Nature and Requirements of a Derivative Suit
The Court reiterated the doctrinal nature of a derivative suit as an equitable exception permitting a stockholder to sue on behalf of the corporation when directors refuse or are unable to vindicate corporate rights. The traditional three-part requisites from San Miguel Corporation v. Kahn were recalled, but the Court observed that the 2001 IRPIC, and specifically Rule 8, Section 1, supplanted and refined the procedural requisites. Under the 2001 IRPIC, a derivative action must allege with particularity that the relator was a stockholder at the times relevant, that the relator exerted all reasonable efforts to exhaust intra-corporate remedies, that no appraisal rights are available for the acts complained of, that the suit is not a nuisance or harassment suit, and that the suit is brought in the name of the corporation.
Application to the Present Case
The Court found that the petition filed by Ramon et al. expressly and properly characterized the action as a derivative suit and that the petition contained allegations showing stockholder status and justifications for non-exhaustion of intra-corporate remedies. The Court held that the petition therefore arose out of intra-corporate relations and was a derivative action that should be transferred to a special commercial court pursuant to the Gonzales guidelines. The Court emphasized that non-joinder of other corporate officers or related par
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Case Syllabus (G.R. No. 218738)
Parties and Procedural Posture
- Metropolitan Bank & Trust Company (Metrobank) filed a petition for certiorari assailing two orders of Branch 9, RTC, Tacloban City, in Civil Case No. 2001-11-164.
- Salazar Realty Corporation (SARC), represented by incorporators-stockholders Ramon A. Salazar, Jr., Robert A. Salazar, Roger A. Salazar, and Rosemarie Salazar Fernandez (collectively Ramon et al.), instituted the underlying suit for quieting of title and nullification of contracts.
- Tacloban RAS Construction Corporation (Tacloban RAS) appeared in the factual background as the original borrower whose loan was allegedly secured by SARC land.
- Branch 9 denied Metrobank’s motion to dismiss by orders dated June 16, 2009 and February 23, 2010, which Metrobank elevated to the Court of Appeals by petition for certiorari.
- The Court of Appeals dismissed Metrobank’s petition in CA-G.R. SP No. 05050 by Decision promulgated March 25, 2014 and Resolution dated May 8, 2015, prompting this petition for review on certiorari to the Supreme Court.
- The Supreme Court granted the petition, reversed the Court of Appeals, set aside its Decision and Resolution, and dismissed Civil Case No. 2001-11-164.
Key Factual Allegations
- Tacloban RAS obtained a loan from Metrobank initially for P10,000,000 on October 6, 1992, which was increased to P12,000,000 on January 9, 1996, and to P18,500,000 by a promissory note dated October 6, 1999.
- The promissory note and mortgage documents bore signatures of Consuelo and Ralph in their asserted corporate capacities for Tacloban RAS and SARC.
- SARC allegedly executed a mortgage on January 9, 1996 covering five parcels of land registered in SARC’s name, and the mortgage was amended to secure the final loan amount.
- Tacloban RAS allegedly defaulted, Metrobank initiated extrajudicial foreclosure, purchased the properties at auction, obtained certificate of sale, and caused SARC’s titles to be cancelled and reissued in Metrobank’s name.
- Ramon et al. discovered the title cancellations, registered adverse claims, and filed suit alleging lack of authority, ultra vires acts, failure of corporate approvals, negligence by Metrobank, and defects in the foreclosure proceedings.
- SARC alleged that two director vacancies due to deaths were left unfilled and that board inaction tacitly approved the encumbrance.
Procedural History Below
- Metrobank filed motions to dismiss asserting lack of standing, that the suit was a derivative suit and an intra-corporate controversy, and challenging the RTC’s jurisdiction.
- The RTC denied Metrobank’s motions to dismiss, ordered responsive pleadings, denied a motion for inhibition, granted a preliminary injunction in favor of SARC, and denied a motion for leave to amend answer.
- Metrobank’s successive motions to dismiss were denied in orders dated June 16, 2009 and February 23, 2010, which were the subject of Metrobank’s CA petition.
- The Court of Appeals applied the two-tier intra-corporate controversy test and concluded that SARC’s petition did not satisfy either the relationship or the controversy prongs, and therefore dismissed Metrobank’s petition.
Issues Presented
- Whether a regular RTC branch not designated as a special commercial court has jurisdiction over a derivative suit filed by stockholders seeking annulment of a mortgage and cancellation of titles.
- Whether the Court of Appeals erred in employing the two-tier intra-corporate controversy test to determine the forum for a derivative suit.
- Whether SARC’s complaint complied with the requisites for a derivative suit under the 2001 Interim Rules of Procedure Governing Intra-Corporate Controversies (2001 IRPIC).
Contentions of the Parties
- Metrobank contende