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TodayisTuesday,August30,2016

RepublicofthePhilippines
SUPREMECOURT
Manila
SECONDDIVISION
G.R.No.165744August11,2008
OSCARC.REYES,petitioner,
vs.
HON.REGIONALTRIALCOURTOFMAKATI,Branch142,ZENITHINSURANCECORPORATION,
andRODRIGOC.REYES,respondents.
DECISION
BRION,J.:
ThisPetitionforReviewonCertiorariunderRule45oftheRulesofCourtseekstosetasidetheDecision
of the Court of Appeals (CA)1 promulgated on May 26, 2004 in CAG.R. SP No. 74970. The CA
DecisionaffirmedtheOrderoftheRegionalTrialCourt(RTC),Branch142,MakatiCitydatedNovember
29, 20022 in Civil Case No. 001553 (entitled "Accounting of All Corporate Funds and Assets, and
Damages")whichdeniedpetitionerOscarC.Reyes(Oscar)MotiontoDeclareComplaintasNuisance
orHarassmentSuit.
BACKGROUNDFACTS
OscarandprivaterespondentRodrigoC.Reyes(Rodrigo)aretwoofthefourchildrenofthespouses
Pedro and Anastacia Reyes. Pedro, Anastacia, Oscar, and Rodrigo each owned shares of stock of
ZenithInsuranceCorporation(Zenith),adomesticcorporationestablishedbytheirfamily.Pedrodiedin
1964,whileAnastaciadiedin1993.AlthoughPedrosestatewasjudiciallypartitionedamonghisheirs
sometimeinthe1970s,nosimilarsettlementandpartitionappeartohavebeenmadewithAnastacias
estate, which included her shareholdings in Zenith. As of June 30, 1990, Anastacia owned 136,598
sharesofZenithOscarandRodrigoowned8,715,637and4,250shares,respectively.3
OnMay9,2000,ZenithandRodrigofiledacomplaint4withtheSecuritiesandExchangeCommission
(SEC) against Oscar, docketed as SEC Case No. 05006615. The complaint stated that it is "a
derivativesuitinitiatedandfiledbythecomplainantRodrigoC.Reyestoobtainanaccountingof
thefundsandassetsofZENITHINSURANCECORPORATIONwhicharenoworformerlyinthe
control, custody, and/or possession of respondent [herein petitioner Oscar] and to determine the
shares of stock of deceased spouses Pedro and Anastacia Reyes that were arbitrarily and
fraudulentlyappropriated[byOscar]forhimself[and]whichwerenotcollatedandtakenintoaccountin
thepartition,distribution,and/orsettlementoftheestateofthedeceasedspouses,forwhichheshould
beorderedtoaccountforalltheincomefromthetimehetookthesesharesofstock,andshouldnow
delivertohisbrothersandsisterstheirjustandrespectiveshares."5[Emphasissupplied.]
In his Answer with Counterclaim,6 Oscar denied the charge that he illegally acquired the shares of
AnastaciaReyes.Heasserted,asadefense,thathepurchasedthesubjectshareswithhisownfunds
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from the unissued stocks of Zenith, and that the suit is not a bona fide derivative suit because the
requisitesthereforhavenotbeencompliedwith.HethusquestionedtheSECsjurisdictiontoentertain
thecomplaintbecauseitpertainstothesettlementoftheestateofAnastaciaReyes.
WhenRepublicAct(R.A.)No.87997tookeffect,theSECsexclusiveandoriginaljurisdictionovercases
enumeratedinSection5ofPresidentialDecree(P.D.)No.902AwastransferredtotheRTCdesignated
asaspecialcommercialcourt.8TherecordsofRodrigosSECcasewerethusturnedovertotheRTC,
Branch142,Makati,anddocketedasCivilCaseNo.001553.
OnOctober22,2002,OscarfiledaMotiontoDeclareComplaintasNuisanceorHarassmentSuit.9He
claimedthatthecomplaintisamerenuisanceorharassmentsuitandshould,accordingtotheInterim
Rules of Procedure for IntraCorporate Controversies, be dismissed and that it is not a bona fide
derivative suit as it partakes of the nature of a petition for the settlement of estate of the deceased
Anastacia that is outside the jurisdiction of a special commercial court. The RTC, in its Order dated
November29,2002(RTCOrder),deniedthemotioninpartanddeclared:
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,onlythederivativesuitconsistingofthefirstcauseof
actionwillbetakencognizanceofbythisCourt.10
OscarthereuponwenttotheCAonapetitionforcertiorari,prohibition,andmandamus11andprayed
thattheRTCOrderbeannulledandsetasideandthatthetrialcourtbeprohibitedfromcontinuingwith
the proceedings. The appellate court affirmed the RTC Order and denied the petition in its Decision
datedMay26,2004.ItlikewisedeniedOscarsmotionforreconsiderationinaResolutiondatedOctober
21,2004.
PetitionernowcomesbeforeusonappealthroughapetitionforreviewoncertiorariunderRule45ofthe
RulesofCourt.
ASSIGNMENTOFERRORS
PetitionerOscarpresentsthefollowingpointsasconclusionstheCAshouldhavemade:
1.thatthecomplaintisamerenuisanceorharassmentsuitthatshouldbedismissedundertheInterim
RulesofProcedureofIntraCorporateControversiesand
2.thatthecomplaintisnotabonafidederivativesuitbutisinfactinthenatureofapetitionforsettlement
ofestatehence,itisoutsidethejurisdictionoftheRTCactingasaspecialcommercialcourt.
Accordingly, he prays for the setting aside and annulment of the CA decision and resolution, and the
dismissalofRodrigoscomplaintbeforetheRTC.
THECOURTSRULING
Wefindthepetitionmeritorious.
Thecorequestionforourdeterminationiswhetherthetrialcourt,sittingasaspecialcommercialcourt,
has jurisdiction over the subject matter of Rodrigos complaint. To resolve it, we rely on the judicial
principlethat"jurisdictionoverthesubjectmatterofacaseisconferredbylawandisdeterminedbythe
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allegationsofthecomplaint,irrespectiveofwhethertheplaintiffisentitledtoallorsomeoftheclaims
assertedtherein."12
JURISDICTIONOFSPECIALCOMMERCIALCOURTS
P.D.No.902AenumeratesthecasesoverwhichtheSEC(nowtheRTCactingasaspecialcommercial
court)exercisesexclusivejurisdiction:
SECTION5.InadditiontotheregulatoryandadjudicativefunctionsoftheSecuritiesandExchange
Commissionovercorporations,partnership,andotherformsofassociationsregisteredwithitas
expresslygrantedunderexistinglawsanddecrees,itshallhaveoriginalandexclusivejurisdiction
tohearanddecidecasesinvolving:
a) Devices or schemes employed by or any acts of the board of directors, business
associates,itsofficersorpartners,amountingtofraudandmisrepresentationwhichmaybe
detrimental to the interest of the public and/or of the stockholders, partners, members of
associationsororganizationsregisteredwiththeCommission.
b)Controversiesarisingoutofintracorporateorpartnershiprelations,betweenandamong
stockholders, members, or associates between any or all of them and the corporation,
partnership or association of which they are stockholders, members, or associates,
respectivelyandbetweensuchcorporation,partnershiporassociationandtheStateinsofar
asitconcernstheirindividualfranchiseorrighttoexistassuchentityand
c)Controversiesintheelectionorappointmentofdirectors,trustees,officers,ormanagersof
suchcorporations,partnerships,orassociations.
The allegations set forth in Rodrigos complaint principally invoke Section 5, paragraphs (a) and (b)
above as basis for the exercise of the RTCs special court jurisdiction. Our focus in examining the
allegationsofthecomplaintshallthereforebeonthesetwoprovisions.
FraudulentDevicesandSchemes
The rule is that a complaint must contain a plain, concise, and direct statement of the ultimate facts
constitutingtheplaintiffscauseofactionandmustspecifythereliefsought.13Section5,Rule8ofthe
Revised Rules of Court provides that in all averments of fraud or mistake, the circumstances
constituting fraud or mistake must be stated with particularity.14 These rules find specific
applicationtoSection5(a)ofP.D.No.902Awhichspeaksofcorporatedevicesorschemesthatamount
tofraudormisrepresentationdetrimentaltothepublicand/ortothestockholders.
In an attempt to hold Oscar responsible for corporate fraud, Rodrigo alleged in the complaint the
following:
3.Thisisacomplaintto determine the shares of stock of the deceased spouses Pedro
and Anastacia Reyes that were arbitrarily and fraudulently appropriated for himself
[herein petitioner Oscar] which were not collated and taken into account in the partition,
distribution,and/orsettlementoftheestateofthedeceasedSpousesPedroandAnastaciaReyes,
forwhichheshouldbeorderedtoaccountforalltheincomefromthetimehetookthesesharesof
stock,andshouldnowdelivertohisbrothersandsisterstheirjustandrespectiveshareswiththe
correspondingequivalentamountofP7,099,934.82plusinterestthereonfrom1978representing
hisobligationstotheAssociatedCitizensBankthatwaspaidforhisaccountbyhislatemother,
Anastacia C. Reyes. This amount was not collated or taken into account in the partition or
distributionoftheestateoftheirlatemother,AnastaciaC.Reyes.
3.1. Respondent Oscar C. Reyes, through other schemes of fraud including
misrepresentation,unilaterally,andforhisownbenefit,capriciouslytransferredandtook
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possession and control of the management of Zenith Insurance Corporation which is

considered as a family corporation, and other properties and businesses belonging to Spouses
PedroandAnastaciaReyes.
xxxx
4.1.DuringtheincreaseofcapitalizationofZenithInsuranceCorporation,sometimein1968,the
property covered by TCT No. 225324 was illegally and fraudulently used by respondent as a
collateral.
xxxx
5. The complainant Rodrigo C. Reyes discovered that by some manipulative scheme, the
shareholdingsoftheirdeceasedmother,DoaAnastaciaC.Reyes,sharesofstocksand
[sic]valuedinthecorporatebooksatP7,699,934.28,moreorless,excludinginterestand/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
brothersandsistersoftherespondentOscarC.Reyesincludingthecomplainantherein.
xxxx
9.1TheshareholdingsofdeceasedSpousesPedroReyesandAnastaciaC.Reyesvaluedat
P7,099,934.28wereillegallyandfraudulentlytransferredsolelytotherespondents[herein
petitionerOscar]nameandinstalledhimselfasamajoritystockholderofZenithInsurance
Corporation[and]therebydeprivedhisbrothersandsistersoftheirrespectiveequalsharesthereof
includingcomplainanthereto.
xxxx
10.1Byrefusaloftherespondenttoaccountofhis[sic]shareholdingsinthecompany,he
illegallyandfraudulentlytransferredsolelyinhisnamewherein[sic]thesharesofstock
ofthedeceasedAnastaciaC.Reyes[which]mustbeproperlycollatedand/ordistributed
equallyamongstthechildren,includingthecomplainantRodrigoC.Reyesherein,totheir
damageandprejudice.
xxxx
11.1 By continuous refusal of the respondent to account of his [sic] shareholding with Zenith
Insurance Corporation[,] particularly the number of shares of stocks illegally and fraudulently
transferredtohimfromtheirdeceasedparentsSps.PedroandAnastaciaReyes[,]whichareall
subjectforcollationand/orpartitioninequalsharesamongtheirchildren.[Emphasissupplied.]
Allegations of deceit, machination, false pretenses, misrepresentation, and threats are largely
conclusionsoflawthat,withoutsupportingstatementsofthefactstowhichtheallegationsoffraudrefer,
donotsufficientlystateaneffectivecauseofaction.15ThelateJusticeJoseFeria,anotedauthorityin
RemedialLaw,declaredthatfraudandmistakearerequiredtobeaverredwithparticularityinorderto
enabletheopposingpartytocontroverttheparticularfactsallegedlyconstitutingsuchfraudormistake.16
Tested against these standards, we find that the charges of fraud against Oscar were not properly
supported by the required factual allegations. While the complaint contained allegations of fraud
purportedlycommittedbyhim,theseallegationsarenotparticularenoughtobringthecontroversywithin
the special commercial courts jurisdiction they are not statements of ultimate facts, but are mere
conclusionsoflaw:howandwhytheallegedappropriationofsharescanbecharacterizedas"illegaland
fraudulent"werenotexplainednorelaboratedon.
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Noteveryallegationoffrauddoneinacorporatesettingorperpetratedbycorporateofficerswillbringthe
case within the special commercial courts jurisdiction. To fall within this jurisdiction, there must be
sufficient nexus showing that the corporations nature, structure, or powers were used to facilitate the
fraudulentdeviceorscheme.Contrarytothisconcept,thecomplaintpresentedareversesituation.No
corporatepowerorofficewasallegedtohavefacilitatedthetransferofthesharesrather,Oscar,asan
individualandwithoutreferencetohiscorporatepersonality,wasallegedtohavetransferredtheshares
ofAnastaciatohisname,allowinghimtobecomethemajorityandcontrollingstockholderofZenith,and
eventually, the corporations President. This is the essence of the complaint read as a whole and is
particularlydemonstratedunderthefollowingallegations:
5. The complainant Rodrigo C. Reyes discovered that by some manipulative scheme, the
shareholdings of their deceased mother, Doa Anastacia C. Reyes, shares of stocks and [sic]
valuedinthecorporatebooksatP7,699,934.28,moreorless,excludinginterestand/ordividends,
hadbeentransferredsolelyinthenameofrespondent.Bysuchfraudulentmanipulationsand
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
InsuranceCorporation, which portion of said shares must be distributed equally amongst the
brothersandsistersoftherespondentOscarC.Reyesincludingthecomplainantherein.
xxxx
9.1TheshareholdingsofdeceasedSpousesPedroReyesandAnastaciaC.Reyesvaluedat
P7,099,934.28wereillegallyandfraudulentlytransferredsolelytotherespondents[herein
petitionerOscar]nameandinstalledhimselfasamajoritystockholderofZenithInsurance
Corporation[and]therebydeprivedhisbrothersandsistersoftheirrespectiveequalsharesthereof
includingcomplainanthereto.[Emphasissupplied.]
In ordinary cases, the failure to specifically allege the fraudulent acts does not constitute a ground for
dismissalsincesuchdefectcanbecuredbyabillofparticulars.IncasesgovernedbytheInterimRules
ofProcedureonIntraCorporateControversies,however,abillofparticularsisaprohibitedpleading.17It
is essential, therefore, for the complaint to show on its face what are claimed to be the fraudulent
corporateactsifthecomplainantwishestoinvokethecourtsspecialcommercialjurisdiction.
We note that twice in the course of this case, Rodrigo had been given the opportunity to study the
proprietyofamendingorwithdrawingthecomplaint,butheconsistentlyrefused.Thecourtsfunctionin
resolvingissuesofjurisdictionislimitedtothereviewoftheallegationsofthecomplaintand,onthebasis
of these allegations, to the determination of whether they are of such nature and subject that they fall
withinthetermsofthelawdefiningthecourtsjurisdiction.Regretfully,wecannotreadintothecomplaint
anyspecificallyallegedcorporatefraudthatwillcallfortheexerciseofthecourtsspecialcommercial
jurisdiction.Thus,wecannotaffirmtheRTCsassumptionofjurisdictionoverRodrigoscomplaintonthe
basisofSection5(a)ofP.D.No.902A.18
IntraCorporateControversy
A review of relevant jurisprudence shows a development in the Courts approach in classifying what
constitutes an intracorporate controversy. Initially, the main consideration in determining whether a
disputeconstitutesanintracorporatecontroversywaslimitedtoaconsiderationoftheintracorporate
relationshipexistingbetweenoramongtheparties.19ThetypesofrelationshipsembracedunderSection
5(b),asdeclaredinthecaseofUnionGlass&ContainerCorp.v.SEC,20wereasfollows:
a)betweenthecorporation,partnership,orassociationandthepublic
b)betweenthecorporation,partnership,orassociationanditsstockholders,partners,members,or
officers

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c)betweenthecorporation,partnership,orassociationandtheStateasfarasitsfranchise,permit
orlicensetooperateisconcernedand
d)amongthestockholders,partners,orassociatesthemselves.[Emphasissupplied.]
The existence of any of the above intracorporate relations was sufficient to confer jurisdiction to the
SEC,regardlessofthesubjectmatterofthedispute.Thiscametobeknownastherelationshiptest.
However,inthe1984caseofDMRCEnterprisesv.EstadelSolMountainReserve,Inc.,21theCourt
introduced the nature of the controversy test. We declared in this case that it is not the mere
existenceofanintracorporaterelationshipthatgivesrisetoanintracorporatecontroversytorelyonthe
relationshiptestalonewilldivesttheregularcourtsoftheirjurisdictionforthesolereasonthatthedispute
involves a corporation, its directors, officers, or stockholders. We saw that there is no legal sense in
disregardingorminimizingthevalueofthenatureofthetransactionswhichgivesrisetothedispute.
Underthenatureofthecontroversytest,theincidentsofthatrelationshipmustalsobeconsideredforthe
purposeofascertainingwhetherthecontroversyitselfisintracorporate.22Thecontroversymustnotonly
berootedintheexistenceofanintracorporaterelationship,butmustaswellpertaintotheenforcement
ofthepartiescorrelativerightsandobligationsundertheCorporationCodeandtheinternalandintra
corporateregulatoryrulesofthecorporation.Iftherelationshipanditsincidentsaremerelyincidentalto
thecontroversyoriftherewillstillbeconflicteveniftherelationshipdoesnotexist,thennointracorporate
controversyexists.
The Court then combined the two tests and declared that jurisdiction should be determined by
considering not only the status or relationship of the parties, but also the nature of the question under
controversy.23ThistwotiertestwasadoptedintherecentcaseofSpeedDistribution,Inc.v.Courtof
Appeals:24
To determine whether a case involves an intracorporate controversy, and is to be heard and
decidedbythebranchesoftheRTCspecificallydesignatedbytheCourttotryanddecidesuch
cases,twoelementsmustconcur:(a)thestatusorrelationshipofthepartiesand(2)thenatureof
thequestionthatisthesubjectoftheircontroversy.
The first element requires that the controversy must arise out of intracorporate or partnership
relationsbetweenanyorallofthepartiesandthecorporation,partnership,orassociationofwhich
they are stockholders, members or associates between any or all of them and the corporation,
partnership,orassociationofwhichtheyarestockholders,members,orassociates,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
intrinsicallyconnectedwiththeregulationofthecorporation.Ifthenatureofthecontroversyinvolves
mattersthatarepurelycivilincharacter,necessarily,thecasedoesnotinvolveanintracorporate
controversy.
Given these standards, we now tackle the question posed for our determination under the specific
circumstancesofthiscase:
ApplicationoftheRelationshipTest
Isthereanintracorporaterelationshipbetweenthepartiesthatwouldcharacterizethecaseasanintra
corporatedispute?
We point out at the outset that while Rodrigo holds shares of stock in Zenith, he holds them in two
capacities:inhisownrightwithrespecttothe4,250sharesregisteredinhisname,andasoneofthe
heirsofAnastaciaReyeswithrespecttothe136,598sharesregisteredinhername.Whatismaterialin
resolvingtheissuesofthiscaseundertheallegationsofthecomplaintisRodrigosinterestasanheir
since the subject matter of the present controversy centers on the shares of stocks belonging to
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Anastacia,notonRodrigospersonallyownedsharesnoronhispersonalityasshareholderowningthese
shares.Inthislight,allreferencetosharesofstocksinthiscaseshallpertaintotheshareholdingsofthe
deceasedAnastaciaandthepartiesinterestthereinasherheirs.
Article777oftheCivilCodedeclaresthatthesuccessionalrightsaretransmittedfromthemomentof
deathofthedecedent.Accordingly,uponAnastaciasdeath,herchildrenacquiredlegaltitletoherestate
(whichtitleincludeshershareholdingsinZenith),andtheyare,priortotheestatespartition,deemedco
ownersthereof.25Thisstatusascoowners,however,doesnotimmediatelyandnecessarilymakethem
stockholdersofthecorporation.UnlessanduntilthereiscompliancewithSection63oftheCorporation
Code on the manner of transferring shares, the heirs do not become registered stockholders of the
corporation.Section63provides:
Section63.Certificateofstockandtransferofshares.Thecapitalstockofstockcorporations
shall be divided into shares for which certificates signed by the president or vicepresident,
countersignedbythesecretaryorassistantsecretary,andsealedwiththesealofthecorporation
shallbeissuedinaccordancewiththebylaws.Sharesofstocksoissuedarepersonalproperty
and may be transferred by delivery of the certificate or certificates indorsed by the owner or his
attorneyinfact or other person legally authorized to make the transfer. No transfer, however,
shallbevalid,exceptasbetweentheparties,untilthetransferisrecordedinthebooksof
thecorporationsoastoshowthenamesofthepartiestothetransaction,thedateofthe
transfer, the number of the certificate or certificates, and the number of shares
transferred.[Emphasissupplied.]
Nosharesofstockagainstwhichthecorporationholdsanyunpaidclaimshallbetransferableinthe
booksofthecorporation.
Simplystated,thetransferoftitlebymeansofsuccession,thougheffectiveandvalidbetweentheparties
involved (i.e., between the decedents estate and her heirs), does not bind the corporation and third
parties.Thetransfermustberegisteredinthebooksofthecorporationtomakethetransfereeheira
stockholderentitledtorecognitionassuchbothbythecorporationandbythirdparties.26
Wenote,inrelationwiththeabovestatement,thatinAbejov.DelaCruz27andTCLSalesCorporationv.
CourtofAppeals28wedidnotrequiretheregistrationofthetransferbeforeconsideringthetransfereea
stockholderofthecorporation(ineffectupholdingtheexistenceofanintracorporaterelationbetween
thepartiesandbringingthecasewithinthejurisdictionoftheSECasanintracorporatecontroversy).A
markeddifference,however,existsbetweenthesecasesandthepresentone.
InAbejoandTCLSales,thetransfereeshelddefiniteanduncontestedtitlestoaspecificnumberof
sharesofthecorporationafterthetransfereehadestablishedprimafacieownershipovertheshares
ofstocksinquestion,registrationbecameamereformalityinconfirmingtheirstatusasstockholders.In
thepresentcase,eachofAnastaciasheirsholdsonlyanundividedinterestintheshares.Thisinterest,
atthispoint,isstillinchoateandsubjecttotheoutcomeofasettlementproceedingtherightoftheheirs
tospecific,distributivesharesofinheritancewillnotbedetermineduntilallthedebtsoftheestateofthe
decedentarepaid.Inshort,theheirsareonlyentitledtowhatremainsafterpaymentofthedecedents
debts29whethertherewillberesidueremainstobeseen.JusticeJuradoaptlyputsitasfollows:
Nosuccessionshallbedeclaredunlessanduntilaliquidationoftheassetsanddebtsleftbythe
decedentshallhavebeenmadeandallhiscreditorsarefullypaid.Untilafinalliquidationismade
and all the debts are paid, the right of the heirs to inherit remains inchoate. This is so because
underourrulesofprocedure,liquidationisnecessaryinordertodeterminewhetherornot
thedecedenthasleftanyliquidassetswhichmaybetransmittedtohisheirs.30[Emphasis
supplied.]
Rodrigomust,therefore,hurdletwoobstaclesbeforehecanbeconsideredastockholderofZenithwith
respect to the shareholdings originally belonging to Anastacia. First, he must prove that there are
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shareholdingsthatwillbelefttohimandhiscoheirs,andthiscanbedeterminedonlyinasettlementof
thedecedentsestate.Nosuchproceedinghasbeencommencedtodate.Second,hemustregisterthe
transferofthesharesallottedtohimtomakeitbindingagainstthecorporation.Hecannotdemandthat
thisbedoneunlessanduntilhehasestablishedhisspecificallotment(andprimafacieownership)ofthe
shares.WithoutthesettlementofAnastaciasestate,therecanbenodefinitepartitionanddistributionof
theestatetotheheirs.Withoutthepartitionanddistribution,therecanbenoregistrationofthetransfer.
Andwithouttheregistration,wecannotconsiderthetransfereeheirastockholderwhomayinvokethe
existence of an intracorporate relationship as premise for an intracorporate controversy within the
jurisdictionofaspecialcommercialcourt.
Insum,wefindthatinsofarasthesubjectsharesofstock(i.e.,Anastaciasshares)areconcerned
RodrigocannotbeconsideredastockholderofZenith.Consequently,wecannotdeclarethatanintra
corporaterelationshipexiststhatwouldserveasbasistobringthiscasewithinthespecialcommercial
courtsjurisdictionunderSection5(b)ofPD902A,asamended.Rodrigoscomplaint,therefore,failsthe
relationshiptest.
ApplicationoftheNatureofControversyTest
Thebodyratherthanthetitleofthecomplaintdeterminesthenatureofanaction.31Ourexaminationof
thecomplaintyieldstheconclusionthat,morethananythingelse,thecomplaintisabouttheprotection
andenforcementofsuccessionalrights.Thecontroversyitpresentsispurelycivilratherthancorporate,
althoughitisdenominatedasa"complaintforaccountingofallcorporatefundsandassets."
Contrarytothefindingsofboththetrialandappellatecourts,wereadonlyonecauseofactionallegedin
thecomplaint.The"derivativesuitforaccountingofthefundsandassetsofthecorporationwhicharein
thecontrol,custody,and/orpossessionoftherespondent[hereinpetitionerOscar]"doesnotconstitutea
separate cause of action but is, as correctly claimed by Oscar, only an incident to the "action for
determinationofthesharesofstockofdeceasedspousesPedroandAnastaciaReyesallegedlytaken
byrespondent,itsaccountingandthecorrespondingdeliveryofthesesharestothepartiesbrothersand
sisters." There can be no mistake of the relationship between the "accounting" mentioned in the
complaintandtheobjectiveofpartitionanddistributionwhenRodrigoclaimedinparagraph10.1ofthe
complaintthat:
10.1Byrefusaloftherespondenttoaccountof[sic]hisshareholdingsinthecompany,heillegally
andfraudulentlytransferredsolelyinhisnamewherein[sic]thesharesofstockofthedeceased
Anastacia C. Reyes [which] must be properly collated and/or distributed equally amongst the
childrenincludingthecomplainantRodrigoC.Reyeshereintotheirdamageandprejudice.
We particularly note that the complaint contained no sufficient allegation that justified the need for an
accountingotherthantodeterminetheextentofAnastaciasshareholdingsforpurposesofdistribution.
Another significant indicator that points us to the real nature of the complaint are Rodrigos repeated
claimsofillegalandfraudulenttransfersofAnastaciassharesbyOscartotheprejudiceoftheotherheirs
ofthedecedenthecitedtheseallegedlyfraudulentactsasbasisforhisdemandforthecollationand
distribution of Anastacias shares to the heirs. These claims tell us unequivocally that the present
controversyarosefromthepartiesrelationshipasheirsofAnastaciaandnotasshareholdersofZenith.
Rodrigo,infilingthecomplaint,isenforcinghisrightsasacoheirandnotasastockholderofZenith.The
injuryheseekstoremedyisonesufferedbyanheir(fortheimpairmentofhissuccessionalrights)and
notbythecorporationnorbyRodrigoasashareholderonrecord.
More than the matters of injury and redress, what Rodrigo clearly aims to accomplish through his
allegationsofillegalacquisitionbyOscaristhedistributionofAnastaciasshareholdingswithoutaprior
settlementofherestateanobjectivethat,bylawandestablishedjurisprudence,cannotbedone.The
RTCofMakati,actingasaspecialcommercialcourt,hasnojurisdictiontosettle,partition,anddistribute
theestateofadeceased.ArelevantprovisionSection2ofRule90oftheRevisedRulesofCourtthat
contemplatespropertiesofthedecedentheldbyoneoftheheirsdeclares:
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Questionsastoadvancementmadeorallegedtohavebeenmadebythedeceasedtoanyheir
maybeheardanddeterminedbythecourthavingjurisdictionoftheestateproceedings
andthefinalorderofthecourtthereonshallbebindingonthepersonraisingthequestionsandon
theheir.[Emphasissupplied.]
WorthnotingarethisCourtsstatementsinthecaseofNatcherv.CourtofAppeals:32
Matterswhichinvolvesettlementanddistributionoftheestateofthedecedentfallwithin
theexclusiveprovinceoftheprobatecourtintheexerciseofitslimitedjurisdiction.
xxxx
Itisclearthattrialcourtstryinganordinaryactioncannotresolvetoperformactspertaining
toaspecialproceedingbecauseitissubjecttospecificprescribedrules.[Emphasissupplied.]
ThatanaccountingofthefundsandassetsofZenithtodeterminetheextentandvalueofAnastacias
shareholdingswillbeundertakenbyaprobatecourtandnotbyaspecialcommercialcourtiscompletely
consistent with the probate courts limited jurisdiction. It has the power to enforce an accounting as a
necessarymeanstoitsauthoritytodeterminethepropertiesincludedintheinventoryoftheestatetobe
administered,dividedup,anddistributed.Beyondthis,thedeterminationoftitleorownershipoverthe
subject shares (whether belonging to Anastacia or Oscar) may be conclusively settled by the probate
courtasaquestionofcollationoradvancement.Wehadoccasiontorecognizethecourtsauthorityto
act on questions of title or ownership in a collation or advancement situation in Coca v. Pangilinan33
whereweruled:
It should be clarified that whether a particular matter should be resolved by the Court of First
Instanceintheexerciseofitsgeneraljurisdictionorofitslimitedprobatejurisdictionisinrealitynot
ajurisdictionalquestion.Inessence,itisaproceduralquestioninvolvingamodeofpractice"which
maybewaived."
Asageneralrule,thequestionastotitletopropertyshouldnotbepasseduponinthetestateor
intestateproceeding.Thatquestionshouldbeventilatedinaseparateaction.Thatgeneralrulehas
qualificationsorexceptionsjustifiedbyexpediencyandconvenience.
Thus, the probate court may provisionally pass upon in an intestate or testate proceeding the
questionofinclusionin,orexclusionfrom,theinventoryofapieceofpropertywithoutprejudiceto
itsfinaldeterminationinaseparateaction.
Althoughgenerally,aprobatecourtmaynotdecideaquestionoftitleorownership,yetif
theinterestedpartiesareallheirs,orthequestionisoneofcollationoradvancement,orthe
partiesconsenttotheassumptionofjurisdictionbytheprobatecourtandtherightsofthirdparties
are not impaired, the probate court is competent to decide the question of ownership.
[Citationsomitted.Emphasissupplied.]
Insum,weholdthatthenatureofthepresentcontroversyisnotonewhichmaybeclassifiedasanintra
corporate dispute and is beyond the jurisdiction of the special commercial court to resolve. In short,
Rodrigoscomplaintalsofailsthenatureofthecontroversytest.
DERIVATIVESUIT
Rodrigos bare claim that the complaint is a derivative suit will not suffice to confer jurisdiction on the
RTC (as a special commercial court) if he cannot comply with the requisites for the existence of a
derivativesuit.Theserequisitesare:
a. the party bringing suit should be a shareholder during the time of the act or transaction
complainedof,thenumberofsharesnotbeingmaterial
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b.thepartyhastriedtoexhaustintracorporateremedies,i.e.,hasmadeademandontheboardof
directorsfortheappropriaterelief,butthelatterhasfailedorrefusedtoheedhispleaand
c.thecauseofactionactuallydevolvesonthecorporationthewrongdoingorharmhavingbeenor
beingcausedtothecorporationandnottotheparticularstockholderbringingthesuit.34
Based on these standards, we hold that the allegations of the present complaint do not amount to a
derivativesuit.
First, as already discussed above, Rodrigo is not a shareholder with respect to the shareholdings
originally belonging to Anastacia he only stands as a transfereeheir whose rights to the share are
inchoate and unrecorded. With respect to his own individuallyheld shareholdings, Rodrigo has not
allegedanyindividualcauseorbasisasashareholderonrecordtoproceedagainstOscar.
Second,inorderthatastockholdermayshowarighttosueonbehalfofthecorporation,hemustallege
with some particularity in his complaint that he has exhausted his remedies withinthecorporation by
makingasufficientdemanduponthedirectorsorotherofficersforappropriatereliefwiththeexpressed
intenttosueifreliefisdenied.35 Paragraph 8 of the complaint hardly satisfies this requirement since
whattherulecontemplatesistheexhaustionofremedieswithinthecorporatesetting:
8.Asmembersofthesamefamily,complainantRodrigoC.Reyeshasresorted[to]andexhausted
all legal means of resolving the dispute with the end view of amicably settling the case, but the
disputebetweenthemensued.
Lastly, we find no injury, actual or threatened, alleged to have been done to the corporation due to
Oscarsacts.IfindeedheillegallyandfraudulentlytransferredAnastaciassharesinhisownname,then
thedamageisnottothecorporationbuttohiscoheirsthewrongfultransferdidnotaffectthecapital
stockortheassetsofZenith.Asalreadymentioned,neitherhasRodrigoallegedanyparticularcauseor
wrongdoingagainstthecorporationthathecanchampioninhiscapacityasashareholderonrecord.36
In summary, whether as an individual or as a derivative suit, the RTC sitting as special commercial
courthasnojurisdictiontohearRodrigoscomplaintsincewhatisinvolvedisthedeterminationand
distributionofsuccessionalrightstotheshareholdingsofAnastaciaReyes.Rodrigosproperremedy,
under the circumstances, is to institute a special proceeding for the settlement of the estate of the
deceasedAnastaciaReyes,amovethatisnotforeclosedbythedismissalofhispresentcomplaint.
WHEREFORE,weherebyGRANTthepetitionandREVERSE the decision of the Court of Appeals
datedMay26,2004inCAG.R.SPNo.74970.ThecomplaintbeforetheRegionalTrialCourt,Branch
142,Makati,docketedasCivilCaseNo.001553,isorderedDISMISSEDforlackofjurisdiction.
SOORDERED.
ARTUROD.BRION
AssociateJustice

WECONCUR:
LEONARDOA.QUISUMBING
AssociateJustice
Chairperson
*RENATOC.CORONA

AssociateJustice

CONCHITACARPIOMORALES
AssociateJustice

PRESBITEROJ.VELASCO,JR.

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PRESBITEROJ.VELASCO,JR.
AssociateJustice

ATTESTATION
IattestthattheconclusionsintheaboveDecisionhadbeenreachedinconsultationbeforethecasewas
assignedtothewriteroftheopinionoftheCourtsDivision.
LEONARDOA.QUISUMBING
AssociateJustice
Chairperson

CERTIFICATION
PursuanttoSection13,ArticleVIIIoftheConstitution,andtheDivisionChairpersonsAttestation,itis
herebycertifiedthattheconclusionsintheaboveDecisionwerereachedinconsultationbeforethecase
wasassignedtothewriteroftheopinionoftheCourtsDivision.
REYNATOS.PUNO
ChiefJustice

Footnotes
*DesignatedAdditionalMemberoftheSecondDivisionperSpecialOrderNo.512datedJuly16,

2008.
1PennedbyAssociateJusticeJuanQ.Enriquez,Jr.,withAssociateJusticeRomeoA.Brawner

(deceased)andAssociateJusticeAuroraSantiagoLagman,concurringrollo,pp.5560.
2QuotedinfullinPetition,id.,p.18.
3Id.,p.64.
4Id.,pp.6374.
5Id.,p.65.
6Id.,pp.92115.
7Section5.2thereofstates:TheCommissionsjurisdictionoverallcasesenumeratedunder

Section5ofP.D.No.902Aisherebytransferredtothecourtsofgeneraljurisdictionorthe
appropriateRegionalTrialCourt:Provided,ThattheSupremeCourtintheexerciseofitsauthority
maydesignatetheRegionalTrialCourtbranchesthatshallexercisejurisdictionoverthesecases.x
xx.
8PerA.M.No.001103SCdatedNovember21,2000.
9Rollo,pp.119132.
10Supranote2.
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11UnderRule65oftheRevisedRulesofCourt,rollo,pp.1149.
12SpeedDistributingCorp.v.CourtofAppeals,G.R.No.149351,March17,2004,425SCRA

691IntestateEstateofAlexanderTyv.CourtofAppeals,G.R.No.112872,April19,2001,356
SCRA661.
13SeeRevisedRulesofCourt,Rule6,Section1Rule7Section2(c)andRule8,Section1.
14Abadv.CFIPangasinan,G.R.No.5850708,February26,1992,206SCRA567,580.
15Santosv.Liwag,G.R.No.L24238,November28,1980,101SCRA327.
16CivilProcedureAnnotated,Vol.1(2001ed.),p.303.
17Rule1,Section8(2).
18Referringspecificallytocorporatefraudseequotedprovisionatpage5hereof.
19SeeSunsetViewCondominiumCorp.v.Campos,Jr.,104SCRA295PhilexMiningCorp.v.

Reyes,118SCRA502DesaEnterprises,Inc.v.SEC,117SCRA321.
20G.R.No.64013,November28,1983,126SCRA31.
21G.R.No.57936,September28,1984,132SCRA293.
22PSBAv.Leao,G.R.No.L58468,February24,1984,127SCRA778,783.
23CMHAgriculturalCorporationv.CourtofAppeals,G.R.No.112625,March7,2002,378

SCRA545.
24SpeedDistributingCorp.,v.CourtofAppeals,supranote12.
25Article1078oftheCivilCodestates:Wheretherearetwoormoreheirs,thewholeestateofthe

decedentis,beforeitspartition,ownedincommonbysuchheirs,subjecttothepaymentofdebts
ofthedeceased.
26Additionally,Section97oftheNationalInternalRevenueCoderequiresacertificationfromthe

CommissionerofInternalRevenuethattheestatetaxeshavebeenpaidbeforeanysharesina
domesticcorporationistransferredinthenameofthenewowner.
27G.R.No.L63558,May19,1987,149SCRA654.
28G.R.No.129777,January5,2001,349SCRA35.
29Salvadorv.Sta.Maria,G.R.No.L25952,June30,1967,20SCRA603.
30CommentsandJurisprudenceonSuccession(1991ed.),p.5.
3113Fletcher5912.
32G.R.133000,October2,2001,366SCRA385,392.
33G.R.No.L27082,January21,1978,81SCRA278.
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34Villanueva,C.,PhilippineCorporateLaw(1998ed.),p.370.
3513Fletcher5963.
36See13Fletcher5915.

TheLawphilProjectArellanoLawFoundation

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