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165744

SECONDDIVISION

OSCARC.REYES, G.R.No.165744
Petitioner,
Present:

QUISUMBING,J.,Chairperson,
*CORONA,

versus CARPIOMORALES,
VELASCO,JR.,and
BRION,JJ.


HON.REGIONALTRIAL Promulgated:
COURTOFMAKATI,Branch
142,ZENITHINSURANCE August11,2008
CORPORATION,and
RODRIGOC.REYES,
Respondents.

xx

DECISION

BRION,J.:

ThisPetitionforReviewonCertiorariunderRule45oftheRulesofCourtseekstoset
[1]
asidetheDecisionoftheCourtofAppeals(CA) promulgatedonMay26,2004 in CAG.R.
SPNo.74970.TheCADecisionaffirmedtheOrderoftheRegionalTrialCourt(RTC),Branch
[2]
142,MakatiCitydatedNovember29,2002 inCivilCaseNo.001553(entitled"Accounting
of All Corporate Funds and Assets, and Damages") which denied petitioner Oscar C. Reyes
(Oscar)MotiontoDeclareComplaintasNuisanceorHarassmentSuit.


BACKGROUNDFACTS

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Oscar and private respondent Rodrigo C. Reyes (Rodrigo) are two of the four children of the
spousesPedroandAnastaciaReyes.Pedro,Anastacia,Oscar,andRodrigoeachownedsharesof
stock of Zenith Insurance Corporation (Zenith), a domestic corporation established by their
family.Pedrodiedin1964,whileAnastaciadiedin1993.AlthoughPedrosestatewasjudicially
partitionedamonghisheirssometimeinthe1970s,nosimilarsettlementandpartitionappearto
havebeenmadewithAnastaciasestate,whichincludedhershareholdingsinZenith.AsofJune
30,1990,Anastaciaowned136,598sharesofZenithOscarandRodrigoowned8,715,637and
[3]
4,250shares,respectively.

[4]
On May 9, 2000, Zenith and Rodrigo filed a complaint with the Securities and Exchange
Commission(SEC)againstOscar,docketedasSECCaseNo.05006615.Thecomplaintstated
thatitisaderivativesuitinitiatedandfiledbythecomplainantRodrigoC.Reyestoobtainan
accountingofthefundsandassetsofZENITHINSURANCECORPORATIONwhicharenow
or formerly in the control, custody, and/or possession of respondent [herein petitioner Oscar]
andtodeterminethesharesofstockofdeceasedspousesPedroandAnastaciaReyesthatwere
arbitrarilyandfraudulentlyappropriated[byOscar]forhimself[and]whichwerenotcollated
and taken into account in the partition, distribution, and/or settlement of the estate of the
deceasedspouses,forwhichheshouldbeorderedtoaccountforalltheincomefromthetimehe
took these shares of stock, and should now deliver to his brothers and sisters their just and
[5]
respectiveshares. [Emphasissupplied.]

[6]
In his Answer with Counterclaim, Oscar denied the charge that he illegally acquired the
sharesofAnastaciaReyes.Heasserted,asadefense,thathepurchasedthesubjectshareswith
hisownfundsfromtheunissuedstocksofZenith,andthatthesuitisnotabonafidederivative
suitbecausetherequisitesthereforhavenotbeencompliedwith.HethusquestionedtheSECs
jurisdiction to entertain the complaint because it pertains to the settlement of the estate of
AnastaciaReyes.

[7]
WhenRepublicAct(R.A.)No.8799 tookeffect,theSECsexclusiveandoriginaljurisdiction
overcasesenumeratedinSection5ofPresidentialDecree(P.D.)No.902Awastransferredto
[8]
theRTCdesignatedasaspecialcommercialcourt. TherecordsofRodrigosSECcasewere
thusturnedovertotheRTC,Branch142,Makati,anddocketedasCivilCaseNo.001553.

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On October 22, 2002, Oscar filed a Motion to Declare Complaint as Nuisance or Harassment
[9]
Suit. He claimed that the complaint is a mere nuisance or harassment suit and should,
accordingtotheInterimRulesofProcedureforIntraCorporateControversies,bedismissedand
thatitisnotabonafidederivativesuitasitpartakesofthenatureofapetitionforthesettlement
ofestateofthedeceasedAnastaciathatisoutsidethejurisdictionofaspecialcommercialcourt.
The RTC, in its Order dated November 29, 2002 (RTC Order), denied the motion in part and
declared:

AclosereadingoftheComplaintdisclosedthepresenceoftwo(2)causesofaction,namely:a)a
derivativesuitforaccountingofthefundsandassetsofthecorporationwhichareinthecontrol,
custody, and/or possession of the respondent [herein petitioner Oscar] with prayer to appoint a
management committee and b) an action for determination of the shares of stock of deceased
spouses Pedro and Anastacia Reyes allegedly taken by respondent, its accounting and the
corresponding delivery of these shares to the parties brothers and sisters. The latter is not a
derivativesuitandshouldproperlybethreshedoutinapetitionforsettlementofestate.

Accordingly,themotionisdenied.However,onlythederivativesuitconsistingofthefirstcause
[10]
ofactionwillbetakencognizanceofbythisCourt.


[11]
OscarthereuponwenttotheCAonapetitionforcertiorari,prohibition,andmandamus and
prayedthattheRTCOrderbeannulledandsetasideandthatthetrialcourtbeprohibitedfrom
continuing with the proceedings. The appellate court affirmed the RTC Order and denied the
petition in its Decision dated May 26, 2004. It likewise denied Oscars motion for
reconsiderationinaResolutiondatedOctober21,2004.

PetitionernowcomesbeforeusonappealthroughapetitionforreviewoncertiorariunderRule
45oftheRulesofCourt.


ASSIGNMENTOFERRORS

PetitionerOscarpresentsthefollowingpointsasconclusionstheCAshouldhavemade:

1. that the complaint is a mere nuisance or harassment suit that should be
dismissed under the Interim Rules of Procedure of IntraCorporate
Controversiesand

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2.thatthecomplaintisnotabonafidederivativesuitbutisinfactinthenatureof
apetitionforsettlementofestatehence,itisoutsidethejurisdictionoftheRTC
actingasaspecialcommercialcourt.

Accordingly,hepraysforthesettingasideandannulmentoftheCAdecisionandresolution,and
thedismissalofRodrigoscomplaintbeforetheRTC.

THECOURTSRULING


Wefindthepetitionmeritorious.

The core question for our determination is whether the trial court, sitting as a special
commercialcourt,hasjurisdictionoverthesubjectmatterofRodrigoscomplaint.Toresolveit,
werelyonthejudicialprinciplethatjurisdictionoverthesubjectmatterofacaseisconferredby
lawandisdeterminedbytheallegationsofthecomplaint,irrespectiveofwhethertheplaintiffis
[12]
entitledtoallorsomeoftheclaimsassertedtherein.

JURISDICTIONOFSPECIALCOMMERCIALCOURTS

P.D. No. 902A enumerates the cases over which the SEC (now the RTC acting as a special
commercialcourt)exercisesexclusivejurisdiction:
SECTION5.InadditiontotheregulatoryandadjudicativefunctionsoftheSecurities
and Exchange Commission over corporations, partnership, and other forms of
associationsregisteredwithitasexpresslygrantedunderexistinglawsanddecrees,it
shallhaveoriginalandexclusivejurisdictiontohearanddecidecasesinvolving:
a) Devicesorschemesemployedbyoranyactsoftheboardof
directors,businessassociates,itsofficersorpartners,amountingtofraud
and misrepresentation which may be detrimental to the interest of the
public and/or of the stockholders, partners, members of associations or
organizationsregisteredwiththeCommission.
b) Controversies arising out of intracorporate or partnership
relations, between and among stockholders, members, or associates
between any or all of them and the corporation, partnership or
association of which they are stockholders, members, or associates,
respectively and between such corporation, partnership or association
andtheStateinsofarasitconcernstheirindividualfranchiseorrightto
existassuchentityand
c) Controversies in the election or appointment of directors,
trustees, officers, or managers of such corporations, partnerships, or
associations.
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TheallegationssetforthinRodrigoscomplaintprincipallyinvokeSection5,paragraphs(a)and
(b)aboveasbasisfortheexerciseoftheRTCsspecialcourtjurisdiction.Ourfocusinexamining
theallegationsofthecomplaintshallthereforebeonthesetwoprovisions.

FraudulentDevicesandSchemes

Theruleisthatacomplaintmustcontainaplain,concise,anddirectstatementoftheultimate
[13]
factsconstitutingtheplaintiffscauseofactionandmustspecifythereliefsought. Section 5,
Rule8oftheRevisedRulesofCourtprovidesthatinallavermentsoffraudormistake,the
[14]
circumstances constituting fraud or mistake must be stated with particularity. These
rules find specific application to Section 5(a) of P.D. No. 902A which speaks of corporate
devicesorschemesthatamounttofraudormisrepresentationdetrimentaltothepublicand/orto
thestockholders.

InanattempttoholdOscarresponsibleforcorporatefraud,Rodrigoallegedinthecomplaintthe
following:

3. This is a complaintto determine the shares of stock of the deceased spouses
PedroandAnastaciaReyesthatwerearbitrarilyandfraudulentlyappropriated
forhimself[hereinpetitionerOscar]whichwerenotcollatedandtakenintoaccount
in the partition, distribution, and/or settlement of the estate of the deceased Spouses
Pedro and Anastacia Reyes, for which he should be ordered to account for all the
income from the time he took these shares of stock, and should now deliver to his
brothersandsisterstheirjustandrespectiveshareswiththecorrespondingequivalent
amountofP7,099,934.82plusinterestthereonfrom1978representinghisobligations
to the Associated Citizens Bank that was paid for his account by his late mother,
Anastacia C. Reyes. This amount was not collated or taken into account in the
partitionordistributionoftheestateoftheirlatemother,AnastaciaC.Reyes.

3.1.RespondentOscarC.Reyes,throughotherschemesoffraudincluding
misrepresentation,unilaterally,andforhisownbenefit,capriciouslytransferred
and took possession and control of the management of Zenith Insurance
Corporation which is considered as a family corporation, and other properties and
businessesbelongingtoSpousesPedroandAnastaciaReyes.

xxxx

4.1. During the increase of capitalization of Zenith Insurance Corporation,
sometime in 1968, the property covered by TCT No. 225324 was illegally and
fraudulentlyusedbyrespondentasacollateral.

xxxx
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5.ThecomplainantRodrigoC.Reyesdiscoveredthatbysomemanipulative
scheme, the shareholdings of their deceased mother, Doa Anastacia C. Reyes,
sharesofstocksand[sic]valuedinthecorporatebooksatP7,699,934.28,moreor
less,excludinginterestand/ordividends,hadbeentransferredsolelyinthenameof
respondent. By such fraudulent manipulations and misrepresentation, the
shareholdingsofsaidrespondentOscarC.ReyesabruptlyincreasedtoP8,715,637.00
[sic] and becomes [sic] the majority stockholder of Zenith Insurance Corporation,
which portion of said shares must be distributed equally amongst the brothers and
sistersoftherespondentOscarC.Reyesincludingthecomplainantherein.

xxxx

9.1 The shareholdings of deceased Spouses Pedro Reyes and Anastacia C. Reyes
valued at P7,099,934.28 wereillegally and fraudulently transferred solely to the
respondents [herein petitioner Oscar] name and installed himself as a majority
stockholderofZenithInsuranceCorporation[and]therebydeprivedhisbrothersand
sistersoftheirrespectiveequalsharesthereofincludingcomplainanthereto.
xxxx

10.1 By refusal of the respondent to account of his [sic] shareholdings in the
company, he illegally and fraudulently transferred solely in his name wherein
[sic] the shares of stock of the deceased Anastacia C. Reyes [which] must be
properlycollatedand/ordistributedequallyamongstthechildren,includingthe
complainantRodrigoC.Reyesherein,totheirdamageandprejudice.

xxxx

11.1Bycontinuousrefusaloftherespondenttoaccountofhis[sic]shareholdingwith
Zenith Insurance Corporation[,] particularly the number of shares of stocks illegally
and fraudulently transferred to him from their deceased parents Sps. Pedro and
AnastaciaReyes[,]whichareallsubjectforcollationand/orpartitioninequalshares
amongtheirchildren.[Emphasissupplied.]



Allegations of deceit, machination, false pretenses, misrepresentation, and threats are largely
conclusionsoflawthat,withoutsupportingstatementsofthefactstowhichtheallegationsof
[15]
fraudrefer,donotsufficientlystateaneffectivecauseofaction. ThelateJusticeJoseFeria,
anotedauthorityinRemedialLaw,declaredthatfraudandmistakearerequiredtobeaverred
with particularity in order to enable the opposing party to controvert the particular facts
[16]
allegedlyconstitutingsuchfraudormistake.

Testedagainstthesestandards,wefindthatthechargesoffraudagainstOscarwerenotproperly
supportedbytherequiredfactualallegations.Whilethecomplaintcontainedallegationsoffraud
purportedly committed by him, these allegations are not particular enough to bring the

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controversy within the special commercial courts jurisdiction they are not statements of
ultimatefacts,butaremereconclusionsoflaw:howandwhytheallegedappropriationofshares
canbecharacterizedasillegalandfraudulentwerenotexplainednorelaboratedon.

Noteveryallegationoffrauddoneinacorporatesettingorperpetratedbycorporateofficerswill
bringthecasewithinthespecialcommercialcourtsjurisdiction.Tofallwithinthisjurisdiction,
theremustbesufficientnexusshowingthatthecorporationsnature,structure,orpowerswere
used to facilitate the fraudulent device or scheme. Contrary to this concept, the complaint
presentedareversesituation.No corporate power or office was alleged to have facilitated the
transfer of the shares rather, Oscar, as an individual and without reference to his corporate
personality,wasallegedtohavetransferredthesharesofAnastaciatohisname,allowinghimto
become the majority and controlling stockholder of Zenith, and eventually, the corporations
President.Thisistheessenceofthecomplaintreadasawholeandisparticularlydemonstrated
underthefollowingallegations:

5. The complainant Rodrigo C. Reyes discovered that by some manipulative
scheme,theshareholdingsoftheirdeceasedmother,DoaAnastaciaC.Reyes,shares
of stocks and [sic] valued in the corporate books at P7,699,934.28, more or less,
excluding interest and/or dividends, had been transferred solely in the name of
respondent. By such fraudulent manipulations and misrepresentation, the
shareholdings of said respondent Oscar C. Reyes abruptly increased to
P8,715,637.00 [sic] and becomes [sic] the majority stockholder of Zenith
Insurance Corporation, which portion of said shares must be distributed equally
amongst the brothers and sisters of the respondent Oscar C. Reyes including the
complainantherein.

xxxx

9.1 The shareholdings of deceased Spouses Pedro Reyes and Anastacia C. Reyes
valued at P7,099,934.28 were illegally and fraudulently transferred solely to the
respondents [herein petitioner Oscar] name and installed himself as a majority
stockholderofZenithInsuranceCorporation[and]therebydeprivedhisbrothersand
sisters of their respective equal shares thereof including complainant hereto.
[Emphasissupplied.]


In ordinary cases, the failure to specifically allege the fraudulent acts does not constitute a
groundfordismissalsincesuchdefectcanbecuredbyabillofparticulars.Incasesgovernedby
theInterimRulesofProcedureonIntraCorporateControversies,however,abillofparticulars
[17]
isaprohibitedpleading. Itisessential,therefore,forthecomplainttoshowonitsfacewhat

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are claimed to be the fraudulent corporate acts if the complainant wishes to invoke the courts
specialcommercialjurisdiction.

Wenotethattwiceinthecourseofthiscase,Rodrigohadbeengiventheopportunitytostudy
theproprietyofamendingorwithdrawingthecomplaint,butheconsistentlyrefused.Thecourts
function in resolving issues of jurisdiction is limited to the review of the allegations of the
complaintand,onthebasisoftheseallegations,tothedeterminationofwhethertheyareofsuch
nature and subject that they fall within the terms of the law defining the courts jurisdiction.
Regretfully,wecannotreadintothecomplaintanyspecificallyallegedcorporatefraudthatwill
call for the exercise of the courts special commercial jurisdiction.Thus, we cannot affirm the
RTCsassumptionofjurisdictionoverRodrigoscomplaintonthebasisofSection5(a)ofP.D.
[18]
No.902A.


IntraCorporateControversy


AreviewofrelevantjurisprudenceshowsadevelopmentintheCourtsapproachinclassifying
whatconstitutesanintracorporatecontroversy.Initially,themainconsiderationindetermining
whetheradisputeconstitutesanintracorporatecontroversywaslimitedtoaconsiderationofthe
[19]
intracorporate relationship existing between or among the parties. The types of
relationshipsembracedunderSection5(b),asdeclaredinthecaseofUnionGlass&Container
[20]
Corp.v.SEC, wereasfollows:

a)betweenthecorporation,partnership,orassociationandthepublic
b) between the corporation, partnership, or association and its stockholders, partners,
members,orofficers
c) between the corporation, partnership, or association and the State as far as its
franchise,permitorlicensetooperateisconcernedand
d)amongthestockholders,partners,orassociatesthemselves.[Emphasissupplied.]

The existence of any of the above intracorporate relations was sufficient to confer
jurisdictiontotheSEC,regardlessofthesubjectmatterofthedispute.Thiscametobeknownas
therelationshiptest.

[21]
However,inthe1984caseofDMRCEnterprisesv.EstadelSolMountainReserve,Inc., the
Courtintroducedthenatureofthecontroversytest.Wedeclaredinthiscasethatitisnotthe
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mere existence of an intracorporate relationship that gives rise to an intracorporate

controversy to rely on the relationship test alone will divest the regular courts of their
jurisdictionforthesolereasonthatthedisputeinvolvesacorporation,itsdirectors,officers,or
stockholders.Wesawthatthereisnolegalsenseindisregardingorminimizingthevalueofthe
natureofthetransactionswhichgivesrisetothedispute.

Under the nature of the controversy test, the incidents of that relationship must also be
[22]
considered for the purpose of ascertaining whether the controversy itself is intracorporate.
Thecontroversymustnotonlyberootedintheexistenceofanintracorporaterelationship,but
mustaswellpertaintotheenforcementofthepartiescorrelativerightsandobligationsunderthe
CorporationCodeandtheinternalandintracorporateregulatoryrulesofthecorporation.Ifthe
relationship and its incidents are merely incidental to the controversy or if there will still be
conflicteveniftherelationshipdoesnotexist,thennointracorporatecontroversyexists.

TheCourtthencombinedthetwotestsanddeclaredthatjurisdictionshouldbedeterminedby
consideringnotonlythestatusorrelationshipoftheparties,butalsothenatureofthequestion
[23]
undercontroversy. ThistwotiertestwasadoptedintherecentcaseofSpeed Distribution,
[24]
Inc.v.CourtofAppeals:
Todeterminewhetheracaseinvolvesanintracorporatecontroversy,andistobe
heardanddecidedbythebranchesoftheRTCspecificallydesignatedbytheCourtto
tryanddecidesuchcases,twoelementsmustconcur:(a)thestatusorrelationshipof
thepartiesand(2)thenatureofthequestionthatisthesubjectoftheircontroversy.
Thefirstelementrequiresthatthecontroversymustariseoutofintracorporateor
partnershiprelationsbetweenanyorallofthepartiesandthecorporation,partnership,
orassociationofwhichtheyarestockholders,membersorassociatesbetweenanyor
all of them and the corporation, partnership, or association of which they are
stockholders, members, or associates, respectively and between such corporation,
partnership, or association and the State insofar as it concerns their individual
franchises. The second element requires that the dispute among the parties be
intrinsically connected with the regulation of the corporation. If the nature of the
controversy involves matters that are purely civil in character, necessarily, the case
doesnotinvolveanintracorporatecontroversy.

Given these standards, we now tackle the question posed for our determination under the
specificcircumstancesofthiscase:


ApplicationoftheRelationshipTest


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Isthereanintracorporaterelationshipbetweenthepartiesthatwouldcharacterizethecaseasan
intracorporatedispute?

WepointoutattheoutsetthatwhileRodrigoholdssharesofstockinZenith,heholdsthemin
twocapacities:inhisownrightwithrespecttothe4,250sharesregisteredinhisname,andas
oneoftheheirsofAnastaciaReyeswithrespecttothe136,598sharesregisteredinhername.
What is material in resolving the issues of this case under the allegations of the complaint is
Rodrigosinterestasanheirsince the subject matter of the present controversy centers on the
shares of stocks belonging to Anastacia, not on Rodrigos personallyowned shares nor on his
personalityasshareholderowningtheseshares.Inthislight,allreferencetosharesofstocksin
this case shall pertain to the shareholdings of the deceased Anastacia and the parties interest
thereinasherheirs.

Article 777 of the Civil Code declares that the successional rights are transmitted from the
moment of death of the decedent. Accordingly, upon Anastacias death, her children acquired
legaltitletoherestate(whichtitleincludeshershareholdingsinZenith),andtheyare,priorto
[25]
theestatespartition,deemedcoownersthereof. Thisstatusascoowners,however,doesnot
immediatelyandnecessarilymakethemstockholdersofthecorporation.Unlessanduntilthere
iscompliancewithSection63oftheCorporationCodeonthemanneroftransferringshares,the
heirsdonotbecomeregisteredstockholdersofthecorporation.Section63provides:

Section 63. Certificate of stock and transfer of shares. The capital stock of stock
corporationsshallbedividedintosharesforwhichcertificatessignedbythepresident
orvicepresident,countersignedbythesecretaryorassistantsecretary,andsealedwith
thesealofthecorporationshallbeissuedinaccordancewiththebylaws.Shares of
stock so issued are personal property and may be transferred by delivery of the
certificateorcertificatesindorsedbytheownerorhisattorneyinfactorotherperson
legallyauthorizedtomakethetransfer.Notransfer,however,shallbevalid,except
as between the parties, until the transfer is recorded in the books of the
corporationsoastoshowthenamesofthepartiestothetransaction,thedateof
the transfer, the number of the certificate or certificates, and the number of
sharestransferred.[Emphasissupplied.]

No shares of stock against which the corporation holds any unpaid claim shall be
transferableinthebooksofthecorporation.

Simplystated,thetransferoftitlebymeansofsuccession,thougheffectiveandvalidbetween
the parties involved (i.e., between the decedents estate and her heirs), does not bind the
corporationandthirdparties.Thetransfermustberegisteredinthebooksofthecorporationto

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make the transfereeheir a stockholder entitled to recognition as such both by the corporation
[26]
andbythirdparties.

[27]
We note, in relation with the above statement, that in Abejo v. Dela Cruz and TCL Sales
[28]
Corporation v. Court of Appeals we did not require the registration of the transfer before
consideringthetransfereeastockholderofthecorporation(ineffectupholdingtheexistenceof
an intracorporate relation between the parties and bringing the case within the jurisdiction of
theSECasanintracorporatecontroversy).Amarkeddifference,however,existsbetweenthese
casesandthepresentone.

InAbejoandTCLSales,thetransfereeshelddefiniteanduncontestedtitlestoaspecific
number of shares of the corporation after the transferee had established prima facie
ownership over the shares of stocks in question, registration became a mere formality in
confirmingtheirstatusasstockholders.Inthepresentcase,eachofAnastaciasheirsholdsonly
anundividedinterestintheshares.Thisinterest,atthispoint,isstillinchoateandsubjecttothe
outcome of a settlement proceeding the right of the heirs to specific, distributive shares of
inheritancewillnotbedetermineduntilallthedebtsoftheestateofthedecedentarepaid. In
[29]
short, the heirs are only entitled to what remains after payment of the decedents debts
whethertherewillberesidueremainstobeseen.JusticeJuradoaptlyputsitasfollows:

Nosuccessionshallbedeclaredunlessanduntilaliquidationoftheassetsanddebts
leftbythedecedentshallhavebeenmadeandallhiscreditorsarefullypaid.Untila
final liquidation is made and all the debts are paid, the right of the heirs to inherit
remains inchoate. This is so because under our rules of procedure, liquidation is
necessaryinordertodeterminewhetherornotthedecedenthasleftanyliquid
[30]
assetswhichmaybetransmittedtohisheirs. [Emphasissupplied.]

Rodrigo must, therefore, hurdle two obstacles before he can be considered a stockholder of
ZenithwithrespecttotheshareholdingsoriginallybelongingtoAnastacia.First,hemustprove
thatthereareshareholdingsthatwillbelefttohimandhiscoheirs,andthiscanbedetermined
onlyinasettlementofthedecedentsestate.Nosuchproceedinghasbeencommencedtodate.
Second,hemustregisterthetransferofthesharesallottedtohimtomakeitbindingagainstthe
corporation.Hecannotdemandthatthisbedoneunlessanduntilhehasestablishedhisspecific
allotment(andprimafacieownership)oftheshares.WithoutthesettlementofAnastaciasestate,
therecanbenodefinitepartitionanddistributionoftheestatetotheheirs.Withoutthepartition

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and distribution, there can be no registration of the transfer. And without the registration, we
cannot consider the transfereeheir a stockholder who may invoke the existence of an intra
corporaterelationshipaspremiseforanintracorporatecontroversywithinthejurisdictionofa
specialcommercialcourt.

Insum,wefindthatinsofarasthesubjectsharesofstock(i.e.,Anastaciasshares)areconcerned
RodrigocannotbeconsideredastockholderofZenith.Consequently,wecannotdeclarethatan
intracorporaterelationshipexiststhatwouldserveasbasistobringthiscasewithinthespecial
commercial courts jurisdiction under Section 5(b) of PD 902A, as amended. Rodrigos
complaint,therefore,failstherelationshiptest.



ApplicationoftheNatureofControversyTest


[31]
The body rather than the title of the complaint determines the nature of an action. Our
examinationofthecomplaintyieldstheconclusionthat,morethananythingelse,thecomplaint
is about the protection and enforcement of successional rights. The controversy it presents is
purelycivilratherthancorporate,althoughitisdenominatedasacomplaintforaccountingofall
corporatefundsandassets.

Contrarytothefindingsofboththetrialandappellatecourts,wereadonlyonecauseofaction
alleged in the complaint. The derivative suit for accounting of the funds and assets of the
corporation which are in the control, custody, and/or possession of the respondent [herein
petitioner Oscar] does not constitute a separate cause of action but is, as correctly claimed by
Oscar,onlyanincidenttotheactionfordeterminationofthesharesofstockofdeceasedspouses
PedroandAnastaciaReyesallegedlytakenbyrespondent,itsaccountingandthecorresponding
delivery of these shares to the parties brothers and sisters. There can be no mistake of the
relationship between the accounting mentioned in the complaint and the objective of partition
anddistributionwhenRodrigoclaimedinparagraph10.1ofthecomplaintthat:
10.1Byrefusaloftherespondenttoaccountof[sic]hisshareholdingsinthecompany,
heillegallyandfraudulentlytransferredsolelyinhisnamewherein[sic]thesharesof
stock of the deceased Anastacia C. Reyes [which] must be properly collated and/or
distributedequallyamongstthechildrenincludingthecomplainantRodrigoC.Reyes
hereintotheirdamageandprejudice.

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Weparticularlynotethatthecomplaintcontainednosufficientallegationthatjustifiedtheneed
foranaccountingotherthantodeterminetheextentofAnastaciasshareholdingsforpurposesof
distribution.

Another significant indicator that points us to the real nature of the complaint are Rodrigos
repeatedclaimsofillegalandfraudulenttransfersofAnastaciassharesbyOscartotheprejudice
of the other heirs of the decedent he cited these allegedly fraudulent acts as basis for his
demandforthecollationanddistributionofAnastaciassharestotheheirs.Theseclaimstellus
unequivocally that the present controversy arose from the parties relationship as heirs of
AnastaciaandnotasshareholdersofZenith.Rodrigo,infilingthecomplaint,isenforcinghis
rights as a coheir and not as a stockholder of Zenith. The injury he seeks to remedy is one
sufferedbyanheir(fortheimpairmentofhissuccessionalrights)andnotbythecorporationnor
byRodrigoasashareholderonrecord.

Morethanthemattersofinjuryandredress,whatRodrigoclearlyaimstoaccomplishthrough
his allegations of illegal acquisition by Oscar is the distribution of Anastacias shareholdings
withoutapriorsettlementofherestateanobjectivethat,bylawandestablishedjurisprudence,
cannotbedone.TheRTCofMakati,actingasaspecialcommercialcourt,hasnojurisdictionto
settle,partition,anddistributetheestateofadeceased.ArelevantprovisionSection2ofRule
90oftheRevisedRulesofCourtthatcontemplatespropertiesofthedecedentheldbyoneofthe
heirsdeclares:

Questionsastoadvancementmadeorallegedtohavebeenmadebythedeceasedto
any heir may be heard and determined by the court having jurisdiction of the
estate proceedings and the final order of the court thereon shall be binding on the
personraisingthequestionsandontheheir.[Emphasissupplied.]


[32]
WorthnotingarethisCourtsstatementsinthecaseofNatcherv.CourtofAppeals:


Matters which involve settlement and distribution of the estate of the decedent
fallwithintheexclusiveprovinceoftheprobatecourtintheexerciseofitslimited
jurisdiction.

xxxx

Itisclearthattrialcourtstryinganordinaryactioncannotresolvetoperformacts
pertainingtoaspecialproceedingbecauseitissubjecttospecificprescribedrules.
[Emphasissupplied.]
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That an accounting of the funds and assets of Zenith to determine the extent and value of
Anastaciasshareholdingswillbeundertakenbyaprobatecourtandnotbyaspecialcommercial
court is completely consistent with the probate courts limited jurisdiction. It has the power to
enforceanaccountingasanecessarymeanstoitsauthoritytodeterminethepropertiesincluded
intheinventoryoftheestatetobeadministered,dividedup,anddistributed. Beyond this, the
determinationoftitleorownershipoverthesubjectshares(whetherbelongingtoAnastaciaor
Oscar) may be conclusively settled by the probate court as a question of collation or
advancement.Wehadoccasiontorecognizethecourtsauthoritytoactonquestionsoftitleor
[33]
ownershipinacollationoradvancementsituationinCocav.Pangilinan whereweruled:

It should be clarified that whether a particular matter should be resolved by the Court of First
Instanceintheexerciseofitsgeneraljurisdictionorofitslimitedprobatejurisdictionisinreality
notajurisdictionalquestion.Inessence,itisaproceduralquestioninvolvingamodeofpractice
"whichmaybewaived."

Asageneralrule,thequestionastotitletopropertyshouldnotbepasseduponinthetestateor
intestateproceeding.Thatquestionshouldbeventilatedinaseparateaction.Thatgeneralrulehas
qualificationsorexceptionsjustifiedbyexpediencyandconvenience.

Thus, the probate court may provisionally pass upon in an intestate or testate proceeding the
questionofinclusionin,orexclusionfrom,theinventoryofapieceofpropertywithoutprejudice
toitsfinaldeterminationinaseparateaction.

Althoughgenerally,aprobatecourtmaynotdecideaquestionoftitleorownership,yetif
theinterestedpartiesareallheirs,or the question is one of collation or advancement, or the
parties consent to the assumption of jurisdiction by the probate court and the rights of third
partiesarenotimpaired,theprobatecourtiscompetenttodecidethequestionofownership.
[Citationsomitted.Emphasissupplied.]

Insum,weholdthatthenatureofthepresentcontroversyisnotonewhichmaybeclassifiedas
an intracorporate dispute and is beyond the jurisdiction of the special commercial court to
resolve.Inshort,Rodrigoscomplaintalsofailsthenatureofthecontroversytest.


DERIVATIVESUIT

Rodrigosbareclaimthatthecomplaintisaderivativesuitwillnotsufficetoconferjurisdiction
on the RTC (as a special commercial court) if he cannot comply with the requisites for the
existenceofaderivativesuit.Theserequisitesare:

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a.thepartybringingsuitshouldbeashareholderduringthetimeoftheactortransaction
complainedof,thenumberofsharesnotbeingmaterial
b.thepartyhastriedtoexhaustintracorporateremedies,i.e.,hasmadeademandonthe
boardofdirectorsfortheappropriaterelief,butthelatterhasfailedorrefusedtoheed
hispleaand
c. the cause of action actually devolves on the corporation the wrongdoing or harm
having been or being caused to the corporation and not to the particular stockholder
[34]
bringingthesuit.

Basedonthesestandards,weholdthattheallegationsofthepresentcomplaintdonotamountto
aderivativesuit.

First,asalreadydiscussedabove,Rodrigoisnotashareholderwithrespecttotheshareholdings
originallybelongingtoAnastaciaheonlystandsasatransfereeheirwhoserightstotheshare
areinchoateandunrecorded.Withrespecttohisownindividuallyheldshareholdings,Rodrigo
has not alleged any individual cause or basis as a shareholder on record to proceed against
Oscar.

Second,inorderthatastockholdermayshowarighttosueonbehalfofthecorporation,hemust
allege with some particularity in his complaint that he has exhausted his remedies within the
corporationbymakingasufficientdemanduponthedirectorsorotherofficersforappropriate
[35]
reliefwiththeexpressedintenttosueifreliefisdenied. Paragraph8ofthecomplainthardly
satisfiesthisrequirementsincewhattherulecontemplatesistheexhaustionofremedieswithin
thecorporatesetting:
8.Asmembersofthesamefamily,complainantRodrigoC.Reyeshasresorted
[to] and exhausted all legal means of resolving the dispute with the end view of
amicablysettlingthecase,butthedisputebetweenthemensued.

Lastly,wefindnoinjury,actualorthreatened,allegedtohavebeendonetothecorporationdue
toOscarsacts.IfindeedheillegallyandfraudulentlytransferredAnastaciassharesinhisown
name,thenthedamageisnottothecorporationbuttohiscoheirsthewrongfultransferdidnot
affect the capital stock or the assets of Zenith. As already mentioned, neither has Rodrigo
allegedanyparticularcauseorwrongdoingagainstthecorporationthathecanchampioninhis
[36]
capacityasashareholderonrecord.

In summary, whether as an individual or as a derivative suit, the RTC sitting as special
commercialcourthasnojurisdictiontohearRodrigoscomplaintsincewhatisinvolvedisthe

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determination and distribution of successional rights to the shareholdings of Anastacia Reyes.

Rodrigos proper remedy, under the circumstances, is to institute a special proceeding for the
settlementoftheestateofthedeceasedAnastaciaReyes,amovethatisnotforeclosedbythe
dismissalofhispresentcomplaint.

WHEREFORE,weherebyGRANTthepetitionandREVERSEthedecisionoftheCourtof
Appeals dated May 26, 2004 in CAG.R. SP No. 74970. The complaint before the Regional
TrialCourt,Branch142,Makati,docketedasCivilCaseNo.001553,isorderedDISMISSED
forlackofjurisdiction.


SOORDERED.
ARTUROD.BRION
AssociateJustice

WECONCUR:


LEONARDOA.QUISUMBING
AssociateJustice
Chairperson



RENATOC.CORONA CONCHITACARPIOMORALES
AssociateJustice AssociateJustice




PRESBITEROJ.VELASCO,JR.
AssociateJustice



ATTESTATION

IattestthattheconclusionsintheaboveDecisionhadbeenreachedinconsultationbeforethe
casewasassignedtothewriteroftheopinionoftheCourtsDivision.



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9/4/2016 G.R.No.165744

LEONARDOA.QUISUMBING
AssociateJustice
Chairperson


CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons
Attestation, it is hereby certified that the conclusions in the above Decision were reached in
consultationbeforethecasewasassignedtothewriteroftheopinionoftheCourtsDivision.


REYNATOS.PUNO
ChiefJustice

*DesignatedAdditionalMemberoftheSecondDivisionperSpecialOrderNo.512datedJuly16,2008.

[1]
PennedbyAssociateJusticeJuanQ.Enriquez,Jr.,withAssociateJusticeRomeoA.Brawner(deceased)andAssociateJustice
AuroraSantiagoLagman,concurringrollo,pp.5560.
[2]
QuotedinfullinPetition,id.,p.18.
[3]
Id.,p.64.
[4]
Id.,pp.6374.
[5]
Id.,p.65.
[6]
Id.,pp.92115.
[7]
Section5.2thereofstates:TheCommissionsjurisdictionoverallcasesenumeratedunderSection5ofP.D.No.902Aishereby
transferredtothecourtsofgeneraljurisdictionortheappropriateRegionalTrialCourt:Provided,ThattheSupremeCourtinthe
exerciseofitsauthoritymaydesignatetheRegionalTrialCourtbranchesthatshallexercisejurisdictionoverthesecases.xxx.
[8]
PerA.M.No.001103SCdatedNovember21,2000.
[9]
Rollo,pp.119132.
[10]
Supranote2.
[11]
UnderRule65oftheRevisedRulesofCourt,rollo,pp.1149.
[12]
SpeedDistributingCorp.v.CourtofAppeals,G.R.No.149351,March17,2004,425SCRA691IntestateEstateofAlexander
Tyv.CourtofAppeals,G.R.No.112872,April19,2001,356SCRA661.
[13]
SeeREVISEDRULESOFCOURT,Rule6,Section1Rule7Section2(c)andRule8,Section1.
[14]
Abadv.CFIPangasinan,G.R.No.5850708,February26,1992,206SCRA567,580.
[15]
Santosv.Liwag,G.R.No.L24238,November28,1980,101SCRA327.
[16]
CivilProcedureAnnotated,Vol.1(2001ed.),p.303.
[17]
Rule1,Section8(2).
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[18]
Referringspecificallytocorporatefraudseequotedprovisionatpage5hereof.
[19]
See Sunset View Condominium Corp. v. Campos, Jr., 104 SCRA 295 Philex Mining Corp. v. Reyes, 118 SCRA 502 Desa
Enterprises,Inc.v.SEC,117SCRA321.
[20]
G.R.No.64013,November28,1983,126SCRA31.
[21]
G.R.No.57936,September28,1984,132SCRA293.
[22]
PSBAv.Leao,G.R.No.L58468,February24,1984,127SCRA778,783.
[23]
CMHAgriculturalCorporationv.CourtofAppeals,G.R.No.112625,March7,2002,378SCRA545.
[24]
SpeedDistributingCorp.,v.CourtofAppeals,supranote12.
[25]
Article1078oftheCivilCodestates:Wheretherearetwoormoreheirs,thewholeestateofthedecedentis,beforeitspartition,
ownedincommonbysuchheirs,subjecttothepaymentofdebtsofthedeceased.
[26]
Additionally, Section 97 of the National Internal Revenue Code requires a certification from the Commissioner of Internal
Revenuethattheestatetaxeshavebeenpaidbeforeanysharesinadomesticcorporationistransferredinthenameofthenew
owner.
[27]
G.R.No.L63558,May19,1987,149SCRA654.
[28]
G.R.No.129777,January5,2001,349SCRA35.
[29]
Salvadorv.Sta.Maria,G.R.No.L25952,June30,1967,20SCRA603.
[30]
CommentsandJurisprudenceonSuccession(1991ed.),p.5.
[31]
13Fletcher5912.
[32]
G.R.133000,October2,2001,366SCRA385,392.
[33]
G.R.No.L27082,January21,1978,81SCRA278.
[34]
Villanueva,C.,PhilippineCorporateLaw(1998ed.),p.370.
[35]
13Fletcher5963.
[36]
See13Fletcher5915.

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