Metropolitan Bank & Trust Company vs. Salazar Realty Corporation

A derivative suit is an intra-corporate controversy that must be filed with and tried by a branch of the Regional Trial Court designated as a Special Commercial Court. Jurisdiction over such suits is vested in these designated courts pursuant to the Securities Regulation Code and the Interim Rules, regardless of whether the defendants are third parties with no intra-corporate relation to the corporation.

Salazar Realty Corporation (SARC) owned parcels of land in Tacloban City. Tacloban RAS Construction Corporation (Tacloban RAS) obtained a loan from Metrobank, later increased to P18.5 million. To secure this loan, a real estate mortgage was constituted over five SARC-owned lots. The mortgage contract was signed by Consuelo A. Salazar and Ralph A. Salazar, purportedly on behalf of SARC. Upon Tacloban RAS's default, Metrobank extrajudicially foreclosed the mortgage, emerged as the highest bidder, and consolidated titles in its name. Stockholders of SARC (Ramon et al.) then filed a complaint for quieting of title and nullification of contracts against Metrobank, alleging the mortgage was unauthorized, ultra vires, and constituted an unauthorized encumbrance of substantially all corporate assets.

• Parties and Loan Transaction: Petitioner Metrobank is a banking institution. Respondent Salazar Realty Corporation (SARC) is a realty company. Tacloban RAS Construction Corporation (Tacloban RAS) obtained a loan from Metrobank, eventually amounting to P18.5 million.
• Mortgage and Foreclosure: To secure Tacloban RAS's loan, a real estate mortgage was constituted over five lots owned by SARC. The mortgage was signed by Consuelo and Ralph Salazar. Upon Tacloban RAS's default, Metrobank foreclosed the mortgage, purchased the properties at public auction, and consolidated ownership.
• SARC's Legal Challenge: Stockholders of SARC (Ramon et al.) filed a complaint, alleging the mortgage was void because: (1) Consuelo had no authority to bind Tacloban RAS; (2) the mortgage was ultra vires for SARC; (3) it encumbered substantially all corporate assets without required stockholder approval; and (4) the foreclosure proceedings were procedurally defective.
• Characterization of the Suit: The complaint expressly stated it was a "stockholder's derivative suit" filed on behalf of SARC because the remaining board members had taken no action to vindicate the corporation's rights.
• Metrobank's Defense: Metrobank argued the suit was a derivative suit and thus an intra-corporate controversy cognizable only by a special commercial court, not the regular RTC branch.

• Jurisdiction Over Derivative Suits: Petitioner Metrobank argued that the Court of Appeals erred in applying the two-tier test for intra-corporate controversies. It maintained that a derivative suit is, by its nature, an intra-corporate controversy, and jurisdiction over all such suits is vested in special commercial courts under the Securities Regulation Code and the Interim Rules.
• Proper Court: Petitioner contended that Branch 9 of the RTC, being a regular court and not a designated special commercial court, lacked jurisdiction to hear the derivative suit.
• Lack of Cause of Action: Assuming arguendo the suit was not derivative, petitioner asserted the stockholders would lack personality to sue, leading to dismissal for lack of cause of action.

• Nature of the Action: Respondent SARC countered that its complaint was for quieting of title and nullification of contracts—a civil action within the jurisdiction of regular courts. It argued the case did not involve an intra-corporate dispute because the defendant (Metrobank) had no intra-corporate relationship with SARC or its stockholders.
• Relief Sought: Respondent maintained that the reliefs sought (annulment of mortgage and foreclosure) were directed at Metrobank as a third-party mortgagee, not at SARC's internal management, placing the case outside the scope of intra-corporate controversies.

• Jurisdiction: Whether a derivative suit filed by stockholders against a third-party bank to annul a mortgage and foreclosure constitutes an intra-corporate controversy cognizable exclusively by a special commercial court.
• Procedural Compliance: Whether the stockholders' complaint sufficiently complied with the procedural requisites for a derivative suit under the Interim Rules of Procedure Governing Intra-Corporate Controversies.

• Jurisdiction: The petition was granted. A derivative suit is inherently an intra-corporate controversy. The express inclusion of "derivative suits" in the Interim Rules, which govern cases transferred from the Securities and Exchange Commission to the courts, confirms that all derivative suits fall under the jurisdiction of special commercial courts. The two-tier test (relationship and controversy test) is not the proper gauge for identifying a derivative suit; the nature of the action itself is determinative. The non-joinder of corporate officers or the inclusion of third-party defendants does not strip the suit of its derivative character.
• Procedural Compliance: The derivative suit was dismissed on its merits. The complaint failed to allege two mandatory requisites under the Interim Rules: (1) that no appraisal rights were available for the act complained of (the mortgage of substantially all corporate assets), and (2) a categorical statement that the suit was not a nuisance or harassment suit. These defects were fatal to the cause of action.

• Derivative Suit as Intra-Corporate Controversy — A derivative suit is an equitable remedy allowing a stockholder to sue on behalf of the corporation when the board of directors fails to act. It is inherently an intra-corporate controversy because it arises from the relationship between stockholders and the corporation and concerns the enforcement of corporate rights against those in control. Consequently, jurisdiction over all derivative suits is vested in special commercial courts.
• Requisites for a Derivative Suit under the Interim Rules — For a derivative suit to prosper, the complaint must allege with particularity: (1) the plaintiff was a stockholder at the time of the challenged act and at filing; (2) all reasonable efforts to exhaust intra-corporate remedies were made; (3) no appraisal rights are available; (4) the suit is not a nuisance or harassment suit; and (5) the suit is brought in the name of the corporation. Failure to allege any requisite is grounds for dismissal.
• Gonzales Guidelines on Jurisdictional Referral — When a case falling under the jurisdiction of a special commercial court is mistakenly filed with a regular RTC branch, it should not be dismissed. Instead, it must be referred to the Executive Judge for re-docketing and assignment/raffle to the proper special commercial court branch, whether within the same RTC or in a neighboring one.

• "A derivative suit is an equity-based procedural device which allows an unauthorized person to sue on behalf of a corporation in order to remedy official or directorial mismanagement, the very act of instituting a derivative suit implies the existence of an intra-corporate dispute, regardless of the relief sought by such suit or the parties impleaded therein." (This passage establishes the inherent nature of a derivative suit as an intra-corporate controversy.)
• "The express inclusion of derivative suits in the classes of cases governed by the 2001 IRPIC implies that all derivative suits must now be tried by the special commercial courts." (This clarifies the jurisdictional mandate under the Interim Rules.)

• Lisam Enterprises, Inc. v. Banco de Oro Unibank, Inc. (2012) — Cited and distinguished. The Court noted that Lisam relied on the pre-SRC case of Saura, which drew a distinction between derivative suits against corporate officers (SEC jurisdiction) and those against third parties (regular court jurisdiction). This distinction was rendered obsolete by the transfer of all intra-corporate cases to the RTCs and the enactment of the Interim Rules.
• Forest Hills Golf and Country Club, Inc. v. Fil-Estate Properties, Inc. (2016) — Followed. The Court reiterated that a derivative suit necessarily touches upon the internal affairs of a corporation and is covered by the Interim Rules, regardless of the capacity in which defendants are sued.
• Gonzales v. GJH Land, Inc. (2015) (En Banc) — Applied. The Court relied on the Gonzales guidelines for the proper referral and re-raffle of cases mistakenly filed in the wrong court, superseding previous rulings that mandated dismissal.

• Section 5.2, Republic Act No. 8799 (Securities Regulation Code) — This provision transferred jurisdiction over intra-corporate disputes from the Securities and Exchange Commission to the courts of general jurisdiction (RTCs), authorizing the Supreme Court to designate specific RTC branches (special commercial courts) to handle these cases.
• Rule 1, Section 1(a) and Rule 8, Section 1, A.M. No. 01-2-04-SC (Interim Rules of Procedure Governing Intra-Corporate Controversies) — These rules enumerate the cases covered, including derivative suits, and set out the specific, mandatory requisites that must be alleged in a complaint for a derivative action.
• Section 40, Batas Pambansa Blg. 68 (The Corporation Code of the Philippines) — Cited by SARC as the basis for its argument that the mortgage of substantially all corporate assets required stockholder authorization, thereby making appraisal rights potentially available.

• Justice Alexander G. Gesmundo (Chairperson)
• Justice Alfredo Benjamin S. Caguioa
• Justice Japar B. Dimaampao
• Justice Henri Jean Paul B. Inting