Boman Environmental Development Corporation v. CA (G.R. No. 77860)

Facts:

Respondent Fajilan offered in writing to resign as President of petitioner BEDECO and to sell to the company all his shares, rights, and interests therein plus the transfer to him of the company’s Isuzu truck which he had been using. The Board of Directors approved his resignation and promised to pay him on a staggered basis. BEDECO was able to pay twice but defaulted in paying the balance. Respondent Fajilan then filed a complaint for collection which the trial court dismissed ruling that the controversy arose out of intra-corporate relations hence SEC has jurisdiction. On appeal, CA ruled for respondent Fajilan.

Issue:

Whether or not SEC has jurisdiction in the exercise of respondent’s appraisal right.

Ruling: YES.

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.

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.

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