MILA YAP SUMNDAD, PETITIONER, VS. JOHN WILLIAM HARRIGAN AND BORACAY BEACH CLUB HOTEL, INC., (BBCHI), RESPONDENTS.

Sumndad versus Harrigan

The Case

This is a petition for review on certiorari brought by Mila Yap Sumndad against John William Harrigan and the Boracay Beach Club Hotel, Incorporated. Harrigan had sued the corporation in the Regional Trial Court of Makati to collect a sum of money, and Sumndad, who claimed to be a stockholder and the owner of the Boracay land on which the resort stood, intervened and tried to stop the case. The case matters because it fixes two enduring rules: jurisdiction over the subject matter is determined by the allegations of the complaint, and the mere incantation of the phrase "in fraud of creditors" does not by itself drag a simple collection suit into the jurisdiction of the Securities and Exchange Commission. It is also a stern reminder that certiorari is no substitute for a lost appeal.

Procedural History

Harrigan filed a complaint for collection of a sum of money with a prayer for preliminary attachment before the Regional Trial Court of Makati, Branch 61. The trial court granted the writ of attachment after Harrigan posted an attachment bond. Harrigan then filed an amended complaint impleading the management committee of the corporation, and the trial court admitted it and issued an amended order of attachment.

Sumndad moved to intervene, and the trial court allowed her to intervene, giving her ten days to file a complaint or an answer in intervention. Instead of answering, she moved to dismiss on grounds of forum shopping, lack of jurisdiction, failure to state a cause of action, and litis pendentia. The trial court denied the motion. After several motions for additional time, the trial court declared her in default for failure to answer within the reglementary period and allowed Harrigan to present evidence ex parte. Harrigan then moved for judgment on the pleadings, and the trial court rendered judgment on the pleadings in his favor, ordering the corporation to pay eight million pesos plus twelve percent interest per annum from July 27, 1993 until fully paid, attorney's fees of 200,000 pesos, an appearance fee of 2,000 pesos per hearing, and the costs. The trial court later denied Sumndad's motion for reconsideration and granted Harrigan's motion for execution, and a writ of execution issued.

Sumndad went up to the Court of Appeals by a petition for certiorari, prohibition and mandamus. The Court of Appeals dismissed the petition for lack of merit, and denied her motion for reconsideration. Hence this petition for review on certiorari before the Supreme Court.

Facts

Harrigan and Sumndad entered into a joint venture to establish and develop a first-class tourist resort on a parcel of land in Boracay, Aklan, which was assigned to the Boracay Beach Club Hotel, Incorporated. Harrigan invested and paid one million pesos for eight thousand shares of the corporation, corresponding to forty percent of its authorized capital stock. To finance the construction of buildings and the acquisition of furniture, equipment and other facilities, Harrigan gave advances or loans to the corporation, which by October 2, 1990 already amounted to one million pesos, and which eventually reached at least eight million pesos. These loans were demandable and carried interest of twenty percent per annum accruing from September 1, 1990.

By September 1994, the corporation had failed to service and pay not only the demandable loans but even the accrued interests, which as of December 31, 1994 already amounted to 393,451.07 pesos. Harrigan demanded settlement through counsel, but the corporation refused and failed to pay.

On February 6, 1995, Harrigan filed his complaint for collection of a sum of money with a prayer for preliminary attachment against the corporation. Sumndad intervened, was declared in default for failing to file her answer in intervention, and the trial court rendered judgment on the pleadings in Harrigan's favor. Sumndad's subsequent attempts to regain her standing, and her petition before the Court of Appeals, both failed.

Issues

• Whether or not it is the regular court or the Securities and Exchange Commission that has jurisdiction over the subject matter of Harrigan's complaint for collection of a sum of money.
• Whether or not the Court of Appeals erred in holding that Sumndad's remedy before it should have been a timely appeal and not a petition for certiorari.
• Whether or not the Court of Appeals erred in ruling that the three-month reglementary period for filing a petition for certiorari had already lapsed.
• Whether or not Sumndad has the personality to question the decision rendered against the corporation.

Applicable Provisions

Section 5 of Presidential Decree Number 902-A, on the jurisdiction of the Securities and Exchange Commission, provides:

In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving devises or schemes employed by or any acts of the Board of Directors, business associates, its officers and partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or to the stockholders, partners, members of associations or organizations registered with the Commission.

This is the provision Sumndad invokes to claim that the collection suit belongs to the Securities and Exchange Commission, and the Court measures the allegations of the complaint against it.

Section 5.2 of Republic Act Number 8799, the Securities Regulation Code, provides:

The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.

This provision makes the intra-corporate argument moot and academic, since jurisdiction over intra-corporate controversies now belongs to the Regional Trial Court.

Ruling

On the first issue, the Court held that jurisdiction over the subject matter is conferred by law and determined by the allegations of the complaint. Reading the amended complaint as a whole, Harrigan sought to collect from the corporation his advances or loans of at least eight million pesos, demandable under their agreement, with interest at twenty percent per annum from September 1, 1990. The cause of action is clearly for the collection of a sum of money. The mere use of the phrase "in fraud of creditors" does not, ipso facto, throw the case within the jurisdiction of the Securities and Exchange Commission. Within the context of the complaint, that phrase can only mean "to the prejudice of creditors," and not the devises or schemes amounting to fraud and misrepresentation employed by the Board of Directors, business associates, or officers and partners to divert corporate funds and assets for personal use, as contemplated in Section 5 of Presidential Decree Number 902-A. The complaint does not sufficiently allege acts amounting to fraud and misrepresentation. The Court also held that the intra-corporate argument is moot and academic, because under the Securities Regulation Code it is now the Regional Trial Court, and no longer the Securities and Exchange Commission, that has jurisdiction over intra-corporate controversies. The Court added the rudimentary principle that administrative agencies, like the Securities and Exchange Commission, are tribunals of limited jurisdiction and can wield only such powers as are specifically granted to them by their enabling statutes.

On the second issue, since the complaint was instituted in the proper court, Sumndad's remedy before the appellate court should have been a timely appeal and not certiorari. The Court of Appeals was therefore correct in dismissing her petition for certiorari for being time-barred. Certiorari cannot be used as a substitute for the lost or lapsed remedy of appeal, especially if the loss was occasioned by one's own neglect or error in the choice of remedies. As long as a court acts within its jurisdiction, any alleged errors committed in the exercise of that jurisdiction amount to nothing more than errors of judgment, reviewable by timely appeal and not by a special civil action of certiorari.

On the third issue, the Court held that it had become moot and academic to delve into whether the three-month reglementary period had lapsed.

On the fourth issue, the Court held that any discussion of Sumndad's personality is merely academic. Whether or not she has the personality to question the order against the corporation is a matter that should have been threshed out in an appeal filed with the Court of Appeals. By allowing the order to become final and executory without interposing an appeal, and by incorrectly availing of the extraordinary remedy of certiorari, she could no longer raise the issue at that late hour. The Court also noted that the issue requires delving into the facts, and that it is not a trier of facts.

Doctrine

A Bar candidate should retain these rules. First, jurisdiction over the subject matter is conferred by law and determined by the allegations of the complaint, not by the label a party later attaches to the case. Second, the mere use of the phrase "in fraud of creditors" does not, ipso facto, confer jurisdiction on the Securities and Exchange Commission under Section 5 of Presidential Decree Number 902-A; the complaint must sufficiently allege devises or schemes amounting to fraud and misrepresentation by the Board of Directors, business associates, officers or partners. Third, administrative agencies like the Securities and Exchange Commission are tribunals of limited jurisdiction and can wield only such powers as are specifically granted to them by their enabling statutes. Fourth, under Section 5.2 of Republic Act Number 8799, jurisdiction over intra-corporate controversies has been transferred from the Securities and Exchange Commission to the Regional Trial Court. Fifth, certiorari cannot substitute for a lost or lapsed appeal, and errors committed by a court within its jurisdiction are errors of judgment reviewable by timely appeal, not by certiorari.

Disposition

The Supreme Court denied the petition for lack of merit and affirmed the decision of the Court of Appeals, with costs against Sumndad.

Remember This

Memorize this line: jurisdiction is determined by the allegations of the complaint, and the mere use of the phrase "in fraud of creditors" does not, ipso facto, throw a collection case within the jurisdiction of the Securities and Exchange Commission. Examiners like to use this case to test the limits of the Securities and Exchange Commission's jurisdiction under Section 5 of Presidential Decree Number 902-A, the transfer of intra-corporate jurisdiction to the Regional Trial Court under the Securities Regulation Code, and the rule that certiorari is no substitute for a lost appeal.