Bank of the Philippine Islands vs. Marciano S. Bacalla, Jr.

The Interim Rules of Procedure for Intra-Corporate Controversies apply when a complaint specifically pleads devices or schemes of fraud and misrepresentation by corporate officers detrimental to the public or stockholders, and the allegations, examined under the relationship test and the nature of the controversy test, reveal an intra‑corporate dispute, regardless of whether third parties are impleaded as necessary or consequential defendants. Additionally, a petition for certiorari under Rule 65 is grounded on grave abuse of discretion, not on a cause of action; consequently, the rule against splitting a cause of action under Rule 2 of the Rules of Court does not govern successive certiorari petitions directed at distinct instances of grave abuse of discretion arising from the same order.

TGICI and its affiliate corporations were placed under involuntary dissolution by the RTC of Las Piñas City, which appointed Atty. Marciano S. Bacalla, Jr. as receiver to liquidate corporate assets. Pursuant to his authority, the receiver joined by TGICI investors, filed a complaint for “Devices or Schemes Amounting to Fraud and Misrepresentation” under Presidential Decree No. 902‑A and the Interim Rules, alleging that TGICI officers had used front and conduit corporations to channel public investments into the purchase of shares of Prudential Bank and Trust Company (later succeeded by BPI). The receiver sought to recover those shares and other assets for the benefit of the defrauded investors and creditors. BPI contested the application of the Interim Rules to the proceedings and challenged the plaintiffs’ authority to sue.

• Nature: The complaint, captioned “For: Devices or Schemes Amounting to Fraud and Misrepresentation Detrimental to the Interest of the Public Under P.D. No. 902-A and the Interim Rules of Procedure Governing Intra-Corporate Controversies under R.A. 8799 with Declaration of Nullity of Contracts and Specific Performance,” sought to recover assets of the dissolved TGICI that were allegedly dissipated through fraudulent transactions.
• The Alleged Fraudulent Scheme: Respondents alleged that TGICI, through its officers, misrepresented itself as licensed to accept public investments and employed multiple front and conduit corporations to issue unregistered securities, in violation of the Securities Regulation Code. The accumulated funds were diverted to JAMCOR Holdings and then to Cielo Azul. Cielo Azul purchased 420,000 common shares of Prudential Bank at P700 per share (total acquisition cost of P294 million), and an additional 230,225 shares worth P161.16 million, using proceeds traceable to TGICI’s illegal activities.
• Receiver’s Authority and the Reliefs Sought: Pursuant to the RTC’s final order in the dissolution case, Atty. Bacalla was directed to exercise all powers under Section 5, Rule 9 of the Interim Rules. Respondents prayed for the declaration of nullity of the share purchases, recovery of the shares, and other reliefs incidental to the liquidation of TGICI’s assets.
• BPI’s Challenge: BPI moved for a declaration that respondents were non-suited and filed Requests for Admission, questioning the authority of the receiver and the investors to sue, and arguing that the Interim Rules did not govern because the complaint did not present an intra‑corporate controversy. The trial court denied all reliefs, holding that the Interim Rules were inapplicable based on the doctrine of judicial stability and prior orders, and that the Requests for Admission merely delayed the proceedings.

• Applicability of the Interim Rules: Petitioner maintained that the complaint failed both the relationship test and the nature of the controversy test. It argued that Cielo Azul, as a distinct juridical entity, had no intra‑corporate relationship with TGICI’s receiver or investors; thus, no intra‑corporate dispute existed. The controversy, it insisted, did not pertain to the internal regulation of Cielo Azul but to a separate transaction involving third parties.
• Splitting of Cause of Action and Prescription: Petitioner contended that the rule against splitting a cause of action under Rule 2, Sections 3 and 4 of the Rules of Court cannot apply to a petition for certiorari under Rule 65, which is predicated on the existence of grave abuse of discretion, not on a cause of action. It pointed out that the issue of the Interim Rules was definitively resolved only in the RTC’s August 10, 2012 Order and that, at the time the first certiorari petition was filed, a motion for reconsideration on that specific point was still pending, negating any charge of splitting.

• Intra-Corporate Nature of the Action: Respondents countered that the complaint fell squarely under Section 5(a) of P.D. No. 902-A and the Interim Rules because it alleged devices or schemes of fraud and misrepresentation detrimental to the public and to TGICI’s investors. They asserted that the action was a continuation of the dissolution proceedings and that the receiver and investors had a right of action over the wholly owned subsidiaries based on the singular identity of the holding corporation and its subsidiaries, justifying the piercing of the corporate veil.
• Procedural Bar: Respondents argued that the petition before the CA was filed out of time and that BPI violated the proscription against splitting a cause of action by filing two certiorari petitions instead of joining all objections against the RTC’s August 10, 2012 Order in a single petition.

• Applicability of the Interim Rules: Whether the Interim Rules of Procedure for Intra-Corporate Controversies govern the proceedings in Civil Case No. LP-05-0212.
• Splitting of Cause of Action: Whether petitioner was guilty of violating the rule against splitting a cause of action.

• Applicability of the Interim Rules: The Interim Rules applied. The complaint specifically pleaded that corporate officers resorted to corporate layering, improper matched orders, and other manipulative devices to defraud TGICI’s stockholders and investors. These averments satisfied the specificity required under Section 5(a) of P.D. No. 902-A and Section 1(a)(1), Rule 1 of the Interim Rules. Examining the allegations under the combined relationship test and nature of the controversy test, the Court found that the necessary intra‑corporate relationship existed between petitioner, as the issuer of shares channeled to Cielo Azul, and respondents, as court‑appointed receiver and investors of TGICI. Because any of the statutorily enumerated relationships suffices to characterize a dispute as intra‑corporate, the presence of a relationship between the corporation and its stockholders or the public was enough. Under the nature of controversy test, the dispute was intrinsically connected with the regulation of TGICI and its subsidiaries, as it sought to enforce correlative rights and obligations under the Corporation Code—specifically, the recovery of assets dissipated through fraudulent corporate acts. The receiver’s right to pierce the corporate veil and pursue assets held by conduit entities transcended the separate juridical personalities of the subsidiaries. BPI and other impleaded third parties were consequential defendants owing to their participation in the alleged fraud, but their presence did not alter the intra‑corporate character of the action.
• Splitting of Cause of Action: The rule against splitting a cause of action does not govern petitions for certiorari. A cause of action involves a violation of a right by a defendant, whereas a petition for certiorari under Rule 65 is directed against a tribunal’s grave abuse of discretion and results in the annulment or modification of proceedings, not in an award of damages for a violated right. The two certiorari petitions assailed distinct instances of grave abuse of discretion—one concerning the failure to declare respondents non-suited, the other concerning the application of the Interim Rules—both arising from the same RTC order but resolved at different procedural junctures. The CA’s contrary ruling was therefore erroneous. The error was, however, innocuous and did not affect the correctness of the appellate court’s denial of the petition, which was sustained on the merits.

• Intra‑Corporate Controversy Test — To determine whether a case involves an intra‑corporate controversy, courts must apply both the relationship test and the nature of the controversy test. Under the relationship test, the existence of any of the following relations renders the conflict intra‑corporate: (1) between the corporation, partnership, or association and the public; (2) between the corporation, partnership, or association and the State insofar as its franchise, permit, or license is concerned; (3) between the corporation, partnership, or association and its stockholders, partners, members, or officers; and (4) among the stockholders, partners, or associates themselves. The presence of any one of these relationships suffices. Under the nature of controversy test, the dispute must not only be rooted in an intra‑corporate relationship but must also pertain to the enforcement of the parties’ correlative rights and obligations under the Corporation Code and the internal and intra‑corporate regulatory rules of the corporation. In this case, the complaint alleged fraudulent schemes by corporate officers harmful to the investing public and sought recovery of assets for the dissolved corporation and its investors, thus satisfying both tests.
• Splitting of Cause of Action Inapplicable to Certiorari — A petition for certiorari under Rule 65 is not grounded on a cause of action but on the existence of grave abuse of discretion amounting to lack or excess of jurisdiction. The essential elements of a cause of action—a right, an obligation to respect that right, and an act or omission violating the right—are absent in a certiorari petition, which targets a tribunal’s act and seeks correction of proceedings, not a personal remedy against a defendant. Accordingly, the rule against splitting a cause of action under Rule 2 of the Rules of Court does not apply to successive certiorari petitions that impugn distinct instances of grave abuse of discretion.
• Specificity Requirement in Intra‑Corporate Fraud Complaints — A complaint that invokes the special commercial jurisdiction of courts under the Interim Rules must show on its face the claimed fraudulent corporate acts. Fraud in intra‑corporate controversies must be based on “devices and schemes employed by, or any act of, the board of directors, business associates, officers or partners, amounting to fraud or misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, or members,” as stated in Rule 1, Section 1(a)(1) of the Interim Rules. The act of fraud or misrepresentation complained of is the criterion for determining whether the complaint on its face has merit, falls within the jurisdiction of the special commercial court, or is merely a nuisance suit.

• “In determining whether a case is an intracorporate controversy, We resort to a combined application of the relationship test and the nature of the controversy test. Under the relationship test, the existence of any of the following relations makes the conflict intra-corporate: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the State insofar as its franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers; and (4) among the stockholders, partners or associates themselves. For as long as any of these intra-corporate relationships exists between the parties, the controversy would be characterized as intra-corporate.” — This passage articulates the controlling test for classifying a dispute as intra‑corporate.
• “Verily, a Petition for Certiorari cannot be based on a cause of action. First, the parties involved in such petition would be the petitioner and the tribunal, board or officer who purportedly exceeded its discretion in the exercise of judicial or quasi-judicial functions. In a cause of action, the parties would be the plaintiff and the defendant who violated the right of the former which he (defendant) had the obligation to respect. Second, a Petition for Certiorari cannot arise from a violation of a right belonging to the petitioner that the tribunal, board or officer has the concomitant obligation to respect. … Meanwhile, the existence of a cause of action will be the basis of every ordinary civil action. Third, a Writ of Certiorari results in the annulment or modification of the proceedings. However, the violation of a right of a plaintiff or breach of obligation by the defendant would give rise to a cause of action that will provide the plaintiff with the right to file an action in court for the recovery of damages or other relief.” — The Court distinguished the nature and object of certiorari from that of an ordinary civil action, explaining why the rule against splitting does not govern.
• “The inaccurate application by the CA of the rule against splitting a cause of action will not negatively impact the efficacy of its July 27, 2015 Decision and March 4, 2016 Resolution. … The misapplication of the rule on splitting the cause of action was merely an innocuous mistake on the part of the CA and will not disaffirm our resolve to deny the present petition due to lack of merit.” — The Court treated the procedural error as harmless.

• Guy v. Guy, 694 Phil. 354 (2012) — Followed for the rule that a complaint invoking the Interim Rules must show on its face the claimed fraudulent corporate acts; the act of fraud is the criterion for determining whether the complaint is within the special commercial court’s jurisdiction.
• Belo Medical Group, Inc. v. Santos, 817 Phil. 363 (2017) and Philex Mining Corporation v. Hon. Reyes, 204 Phil. 241 (1982) — Cited as sources of the relationship test for intra‑corporate controversies.
• Phil. Communications Satellite Corp. v. Sandiganbayan 5th Division, 760 Phil. 893 (2015) and Medical Plaza Makati Condominium Corporation v. Cullen, 720 Phil. 732 (2013) — Cited for the nature of controversy test.
• Sen. De Lima v. Judge Guerrero, 819 Phil. 616 (2017) — Cited for the settled rule that a motion for reconsideration is mandatory before filing a petition for certiorari, justifying petitioner’s filing of a second certiorari petition after the trial court resolved the Interim Rules issue.
• ASB Realty Corp. v. Ortigas & Company Limited Partnership, 775 Phil. 262 (2015) — Referenced for the definition of a cause of action as the basis for recovery of damages or other relief, distinguishing certiorari.

• Section 5, Presidential Decree No. 902-A — Transferred from the SEC to the RTC cases involving devices or schemes of fraud detrimental to the public or stockholders, and controversies arising out of intra‑corporate relations. The complaint was found to fall squarely within these provisions.
• Section 5.2, Republic Act No. 8799 (Securities Regulation Code) — Transferred jurisdiction over intra‑corporate disputes to the RTCs, serving as the statutory anchor for the Interim Rules.
• Rule 1, Section 1(a), Interim Rules of Procedure for Intra-Corporate Controversies — Restated the cases under Section 5 of P.D. No. 902-A and added derivative suits and inspection of corporate books. Applied as the governing procedural framework because the complaint sufficiently alleged fraudulent corporate acts.
• Rule 2, Sections 2, 3, and 4, Rules of Court — Defined cause of action and prohibited splitting. Held inapplicable to petitions for certiorari.
• Rule 65, Section 1, Rules of Court — Provided the basis for certiorari; the Court distinguished its object and requisites from those of an ordinary civil action grounded on a cause of action.

Leonen (Chairperson), Carandang, Zalameda, and Delos Santos, JJ., concur.