G.R. No. L-77860 November 22, 1988
Boman Environmental Development Corporation, petitioner, vs. Hon. Court of Appeals and Nilcar Y. Fajilan, respondents.

FACTS

Nilcar Y. Fajilan, then President and Director of Boman Environmental Development Corporation (BEDECO), tendered his resignation and offered to sell his shares and interests back to the corporation for P300,000 plus a company vehicle. BEDECO’s Board of Directors accepted the offer through a resolution and a subsequent letter-agreement dated June 25, 1984, which Fajilan signed. To formalize the payment schedule, BEDECO executed a promissory note on July 3, 1984, committing to pay the amount in installments. BEDECO made partial payments but defaulted on the P200,000 balance. Fajilan filed a collection suit in the Regional Trial Court (RTC) of Makati to recover the unpaid amount.
The RTC dismissed the complaint for lack of jurisdiction, ruling it was an intra-corporate dispute falling under the exclusive jurisdiction of the Securities and Exchange Commission (SEC). The Court of Appeals reversed this decision, characterizing the suit as a simple action for collection of a sum of money based on a promissory note, thus within the regular court’s jurisdiction. BEDECO elevated the case to the Supreme Court.

ISSUE

Whether the action for collection of the unpaid balance on the promissory note constitutes an intra-corporate dispute under the exclusive jurisdiction of the SEC, or an ordinary collection case under the jurisdiction of regular courts.

RULING

The Supreme Court ruled that the case involves an intra-corporate dispute, placing it within the exclusive original jurisdiction of the SEC. The legal logic is that the promissory note did not create an ordinary loan obligation but was the payment mechanism for the corporation’s repurchase of its own shares from a withdrawing stockholder. Consequently, the transaction is governed by specific provisions of the Corporation Code, particularly Sections 41 and 122, which regulate a corporation’s power to acquire its own shares. These provisions require that such a purchase must be for a legitimate corporate purpose and covered by unrestricted retained earnings to protect corporate creditors, adhering to the trust fund doctrine. The Court emphasized that these legal requirements are deemed written into the agreement, making the validity of the payment contingent on corporate law compliance. Therefore, the SEC has the requisite expertise to determine if the repurchase was lawful and if the corporation had sufficient unrestricted retained earnings, issues integral to the claim’s enforceability. The suit, while ostensibly for collection, is intrinsically linked to Fajilan’s rights and obligations as a former stockholder and the corporation’s statutory duties, making it an intra-corporate controversy. The decision of the Court of Appeals was reversed, and the RTC’s order of dismissal was reinstated.