METRO MANILA TRANSIT CORPORATION, PETITIONER, VS. HON. CONCHITA C. MORALES, PRESIDING JUDGE, REGIONAL TRIAL COURT, BRANCH 110, PASAY CITY, PEDRO M. SAN JUAN, JR., PARALUMAN D. B…

Metro Manila Transit Corporation versus Morales

The Case

This is a petition brought by the Metro Manila Transit Corporation against Judge Conchita Morales of the Regional Trial Court of Pasay City and against the private respondents, who were the sole stockholders of CBL Transit Incorporated. The private respondents had filed a derivative suit in the regular court to recover control and management of their bus company from the Metro Manila Transit Corporation, which had taken over its operations. The case matters because it fixes the boundary between the regular courts and the Securities and Exchange Commission in intracorporate disputes, and because it applies the rule of acquiescence by silence, or estoppel, to stockholders who slept on their rights for five years and then complained only when a huge account had run up against them.

Procedural History

The private respondents, as stockholders of CBL Transit Incorporated, commenced a derivative suit in the Regional Trial Court of Pasay City against the Metro Manila Transit Corporation. The Metro Manila Transit Corporation questioned the jurisdiction of the regular court, and the Supreme Court, in a resolution dated March 16, 1988, held that the controversy was intracorporate and therefore cognizable by the Securities and Exchange Commission to the exclusion of the regular courts. The private respondents moved for reconsideration, arguing that the takeover had been without their consent, that the petitioner was therefore an intruder, and that the trial had already passed its halfway point. The Court heard both parties in oral argument on May 4, 1988, and directed them to submit memoranda. The Court then denied the motion for reconsideration, and that denial was declared final. This decision explains that denial.

Facts

On March 11, 1981, the Metro Manila Transit Corporation and the private respondents executed a Lease-Purchase Agreement. At that time the Metro Manila Transit Corporation was already a stockholder of CBL Transit Incorporated, holding five shares in its name and assured of one seat on the board of directors. That seat was enjoyed by then Metro Manila Commission Vice Governor Ismael Mathay, Junior. On November 25, 1982, the parties executed a Voting Trust Agreement under which the Metro Manila Transit Corporation became trustee of the private respondents' 7,475 shares, so that title to those shares passed to it together with all voting and other rights. The agreement was effective for five years and was still very much in force on August 14, 1987, when the private respondents commenced their derivative suit.

On November 10, 1982, the Metro Manila Transit Corporation took over the management and operations of CBL Transit Incorporated. Two of the private respondents allowed themselves to be named vice chairman and vice president and general chairman of the board, and so are charged with knowledge of the precise terms of the Lease-Purchase Agreement. They were aware that the takeover was at the very least irregular, since it was not provided for in the agreement. Yet they raised no overt protest against the takeover, although they were vocal about the alleged deplorable condition of the leased buses.

It was only on August 14, 1987, five years after the takeover, that the complaining stockholders filed suit demanding the return to them of the management and control of the erstwhile privately owned bus firm. They acted only after the Metro Manila Transit Corporation notified them that their past due account for unpaid rentals, interests and others had reached 21,496,637 pesos as of June 30, 1987.

Issues

• Whether or not the Metro Manila Transit Corporation was an intruder in CBL Transit Incorporated, such that no intracorporate dispute existed.
• Whether or not the private respondents consented to the takeover, and if they did not, whether their subsequent silence and inaction barred them from denying the corporate relationship.
• Whether or not the dispute falls within the exclusive original jurisdiction of the Securities and Exchange Commission, even though the trial in the lower court had already passed the halfway mark.

Applicable Provisions

Presidential Decree Number 902-A, as invoked by the Court, provides:

The SEC has the original and sole legal authority to hear and decide cases involving intracorporate disputes.

This provision is the basis for holding that the regular court had no authority over the dispute, and that the Securities and Exchange Commission had exclusive original jurisdiction over it.

Ruling

On the first issue, the Court held that it was not accurate to call the Metro Manila Transit Corporation an outsider. Upon the execution of the Lease-Purchase Agreement it was already a stockholder with five shares and an assured seat on the board, and by the Voting Trust Agreement title to the 7,475 shares passed to it with all voting and other rights. The civil action between the stockholders and their trustee was therefore within the nature of corporate relations falling under the jurisdiction of the Securities and Exchange Commission.

On the second issue, the Court acknowledged that the absence of consent would have been a strong argument, but held that the private respondents' subsequent actuations militated against it. There was no concealment and no want of knowledge, since two of them sat as officers of the board. They raised no overt protest and took no direct action to promptly disavow or disaffirm the takeover and the election of the Metro Manila Transit Corporation nominees that followed. The Court applied the rule of acquiescence by silence, holding that the private respondents were estopped at that late stage to deny the existence of a corporate relationship with the petitioner. As the Court put it:

Parties must take consequences of the position they assume. They are estopped to deny the reality of the state of things which they have made appear to exist, and upon which others have been led to rely.

On the third issue, the Court conceded that the trial had passed the halfway mark and called that regrettable, but held that the question of proper forum is not a mere technicality to be discarded for the sake of expediency. It stressed the trend toward increased reliance on the specialized training of an agency like the Securities and Exchange Commission, which is better equipped to deal with particular types of conflict.

Doctrine

First, a dispute between a corporation's stockholders and their trustee under a voting trust agreement, concerning control and management of the corporation, is an intracorporate dispute within the exclusive original jurisdiction of the Securities and Exchange Commission, to the exclusion of the regular courts. Second, the rule of acquiescence by silence applies: stockholders who, with full knowledge, permit persons to hold sway over their corporation as its officers for a prolonged period are estopped to denounce those officers as interlopers, and the officers are regarded as bona fide directors. Third, the question of proper forum is not a mere technicality, and a case already at the halfway mark in the wrong court must still yield to the agency vested by Presidential Decree Number 902-A with original and sole legal authority over intracorporate disputes.

Disposition

The Court denied the motion for reconsideration, and the denial was declared final, leaving the dispute to the Securities and Exchange Commission.

Remember This

The one line to memorize is that the rule of acquiescence by silence makes interlopers bona fide directors, and that intracorporate disputes belong exclusively to the Securities and Exchange Commission. Examiners use this case on jurisdiction over intracorporate disputes and on estoppel by silence against stockholders who sleep on their rights.