Boman v. Court of Appeals

BOMAN ENVIRONMENTAL DEVELOPMENT CORPORATIONS vs. COURT OF APPEALS,

G.R. No. 77860

FACTS OF THE CASE

Respondent Nilcar Y. Fajilan offered in writing to resign as President and Member of the Board of Directors of petitioner, Boman Environmental Development Corporation (BEDECO), and to sell to the company all his shares, rights, and interests therein plus the transfer to him of the company's Isuzu pick-up truck which he had been using. At a meeting of the Board of Directors of BEDECO, Fajilan's resignation as president was accepted and new officers were elected. Fajilan's offer to sell his shares back to the corporation was approved, the Board promising to pay for them on a staggered basis. However, BEDECO paid only twice and defaulted in paying the balance amount.

Fajilan then filed a complaint in the Regional Trial Court of Makati for collection of that balance from BEDECO. The trial court dismissed the complaint for lack jurisdiction ruling that the controversy arose out of intracorporate relations, hence, the Securities and Exchange Commission has original and exclusive jurisdiction to hear and decide it. His motion for reconsideration having been denied, Fajilan filed a "Petition for Certiorari, and mandamus with Preliminary Attachment" in the Intermediate Appellate Court. The Court of Appeals set aside the trial court’s order of dismissal and directed the judge to take cognizance of the case. BEDECO's motion for reconsideration was denied in a resolution stating that the case is a suit for collection of a sum of money as Fajilan "was merely suing on the balance of the promissory note" which BEDECO failed and refused to pay in full.

ISSUE

Whether or not respondent exercising his appraisal right will constitute distribution of corporate assets to a stockholder in preference over creditors of the corporation.

RULING

The petition is impressed with merit.The requirement of unrestricted retained earnings to cover the shares is based on the trust fund doctrine which means that the capital stock, property and other assets of a corporation are regarded as equity in trust for the payment of corporate creditors. The reason is that creditors of a corporation are preferred over the stockholders in the distribution of corporate assets. There can be no distribution of assets among the stockholders without first paying corporate creditors. 

Hence, any disposition of corporate funds to the prejudice of creditors is null and void. "Creditors of a corporation have the right to assume that so long as there are outstanding debts and liabilities, the board of directors will not use the assets of the corporation to purchase its own stock ..."

Fajilan's suit against the corporation to enforce the latter's promissory note or compel the corporation to pay for his shareholdings is cognizable by the SEC alone which shall determine whether such payment will not constitute a distribution of corporate assets to a stockholder in preference over creditors of the corporation. The SEC has exclusive supervision, control and regulatory jurisdiction to investigate whether the corporation has unrestricted retained earnings to cover the payment for the shares, and whether the purchase is for a legitimate corporate purpose as provided in Sections 41 and 122 of the Corporation Code.