G.R. No. L-62376. October 27, 1983.
MARIA VELASQUEZ, et al., plaintiffs-appellants, vs. WILLIAM GEORGE, et al., defendants-appellees.

FACTS

The plaintiffs-appellants are the widow and legitimate children of the late Benjamin B. George, whose estate is under intestate proceedings. They filed a complaint with the Court of First Instance of Bulacan seeking the annulment of several documents, including a Deed of First Real Estate Mortgage, a Power of Attorney, a Certificate of Sale, and subsequent Transfer Certificates of Title. These documents involved three parcels of land owned by Island Associates Inc., a corporation wherein the deceased owned a majority (64.8%) of the shares. The defendants-mortgagors, who were corporate officers including the estate administrator Andres Muñoz, executed the mortgage in favor of defendant-mortgagee Erlinda Villanueva without the probate court’s approval and without notice to the heirs. The mortgage included a waiver of the right of redemption, leading to a foreclosure sale and the eventual issuance of new titles in Villanueva’s name.
The defendants filed a motion to dismiss, contending the trial court lacked jurisdiction. They argued that since the complaint questioned corporate acts of the Board of Directors allegedly amounting to fraud, the case fell under the exclusive jurisdiction of the Securities and Exchange Commission (SEC) pursuant to Presidential Decree No. 902-A. The trial court agreed and dismissed the complaint, prompting the plaintiffs’ appeal.

ISSUE

Whether the trial court correctly dismissed the complaint for lack of jurisdiction on the ground that the controversy falls within the exclusive jurisdiction of the Securities and Exchange Commission.

RULING

No, the trial court erred in dismissing the complaint. The Supreme Court ruled that the Court of First Instance validly acquired jurisdiction over the case. Jurisdiction is determined by the allegations in the complaint. The principal action sought the annulment of specific documents, including titles, that vested ownership in a third-party mortgagee, Erlinda Villanueva, who was not an officer, stockholder, or director of the corporation. This is a matter clearly within the authority of a regular court to adjudicate.
The subsequent questioning of the board of directors’ composition and their alleged fraudulent acts is merely incidental to the main action for annulment. It does not divest the court of its already acquired jurisdiction. The Supreme Court, citing Lat v. Philippine Long Distance Co., held that once a court acquires jurisdiction over the subject matter, it retains that jurisdiction until the final disposition of the case. If the validity of the board’s composition becomes absolutely necessary for resolution, the proper remedy is for the trial court to hold the trial in abeyance and require that specific incidental issue to be resolved first by the SEC, not to surrender the entire judicial controversy to an administrative agency.
The Court also rejected the mortgagee’s contention that only the estate administrator could file the suit. The administrator, Andres Muñoz, was himself one of the defendants charged with participating in the alleged fraudulent scheme. Under the exception to the general rule in Rule 87, Section 3 of the Rules of Court, the heirs have the legal capacity to sue when the administrator refuses to act or is the very party alleged to be in collusion, as established in Ramirez v. Baltazar. The orders of dismissal were set aside, and the case was remanded for trial on the merits.