Intra-Corporate Dispute in the Philippines: What It Is and Which Court Hears It
An intra-corporate dispute is a controversy inside a corporation, such as one among stockholders, or between the corporation and its stockholders, directors or officers, over rights and duties under corporation law and the company's own rules.
Since the Securities Regulation Code took effect, these cases are heard by the Regional Trial Courts and no longer by the SEC (Republic Act No. 8799, Section 5.2). The Supreme Court designated certain branches as Special Commercial Courts, and the case follows special rules with short periods.
Read the full text: Republic Act No. 8799 (Securities Regulation Code)
What is an intra-corporate dispute?
The Supreme Court uses two tests, and both must be met (Medical Plaza Makati Condominium Corporation v. Cullen, G.R. No. 181416, November 11, 2013).
The relationship test asks who the parties are. The dispute must arise from one of these relationships:
between the corporation, partnership or association and the public;
between the corporation, partnership or association and the State, as to its franchise, permit or license to operate;
between the corporation, partnership or association and its stockholders, partners, members or officers; or
among the stockholders, partners or associates themselves.
The nature of the controversy test asks what the fight is about. The dispute must concern the enforcement of the parties' rights and duties under the Corporation Code and the corporation's internal rules. A quarrel between two stockholders over a personal loan, for example, is not about corporate rights.
What cases are covered?
The Interim Rules of Procedure Governing Intra-Corporate Controversies (A.M. No. 01-2-04-SC) list five kinds of cases:
devices or schemes of the board, business associates, officers or partners that amount to fraud or misrepresentation and may harm the public or the stockholders, partners or members;
controversies arising out of intra-corporate, partnership or association relations;
controversies in the election or appointment of directors, trustees, officers or managers;
derivative suits; and
inspection of corporate books and records.
Disputes over board and stockholders' meetings, the transfer of shares and the duties of directors often fall under these headings.
Which court hears an intra-corporate case?
The Regional Trial Court (RTC). Section 5.2 of the Securities Regulation Code transferred the SEC's jurisdiction over the cases listed in Section 5 of Presidential Decree No. 902-A to the courts of general jurisdiction, or the appropriate RTC, and allowed the Supreme Court to designate the RTC branches that will hear them. Those branches are called Special Commercial Courts.
On venue, the Interim Rules require the case to be filed with the RTC that has jurisdiction over the corporation's principal office. If the principal office is registered with the SEC as Metro Manila, the case is filed in the city or municipality where the head office is located (Rule 1, Section 5).
What if the case lands in the wrong branch?
It should not be dismissed. In Gonzales v. GJH Land, Inc., G.R. No. 202664, November 10, 2015, the Supreme Court En Banc explained that the law gives jurisdiction to the RTC as a court. The designation of Special Commercial Courts is an administrative measure on how that jurisdiction is exercised.
A commercial case wrongly raffled to a regular branch is referred to the Executive Judge, re-docketed as a commercial case, and assigned or re-raffled to a Special Commercial Court. If that RTC has no such branch, the case is referred to the nearest RTC in the judicial region that has one. The Court also directed that the complaint state the nature of the action in both the caption and the body.
How is the procedure different from an ordinary civil case?
The Interim Rules aim for a fast, summary case:
The defendant answers within 15 days from service of summons (Rule 2).
A motion to dismiss, a motion for a bill of particulars, and a motion for new trial, reconsideration or reopening are prohibited. Motions for extension and postponement are allowed only for clearly compelling reasons (Rule 1, Section 8).
Decisions and orders are immediately executory, except awards of moral damages, exemplary damages and attorney's fees. An appeal does not stop enforcement unless the appellate court restrains it (Rule 1, Section 4, as amended).
An election contest must be filed within 15 days from the election, or within 15 days from the corporation's resolution of the controversy if the by-laws provide a procedure for it (Rule 6, Section 3).
A derivative suit requires that the plaintiff was a stockholder or member when the acts happened and when the case was filed, made all reasonable efforts to exhaust the remedies under the articles of incorporation, the by-laws and the laws or rules governing the corporation, has no appraisal right for the act complained of, and is not filing a nuisance or harassment suit (Rule 8, Section 1).
Nuisance and harassment suits may be dismissed at once. The court looks at the size of the plaintiff's shareholding, the subject of the suit, its legal and factual basis, whether appraisal rights are available, and the damage to the corporation compared with the relief sought (Rule 1, Section 1(b)).
Is the removal of a corporate officer an intra-corporate dispute or a labor case?
It depends on the position. A corporate office is one that the Corporation Code or the by-laws name. The removal of a corporate officer is an intra-corporate matter for the RTC. The dismissal of a regular employee, including a manager whose position is not a corporate office, belongs to the Labor Arbiter.
In Matling Industrial and Commercial Corporation v. Coros, G.R. No. 157802, October 13, 2010, a Vice President for Finance and Administration whose position was created by the president, and not named in the by-laws, was held to be a regular employee. The test is how the office was created, not the kind of work done. For employees, see our guide on how to legally terminate an employee.
Frequently asked questions
Does the SEC still decide intra-corporate disputes?
No.
That power was transferred to the RTC. The SEC keeps its regulatory powers. For example, it may order a corporation to allow the inspection of records after a summary investigation (Revised Corporation Code, Section 73).
Is a dispute with a condominium corporation intra-corporate?
It can be. In Medical Plaza, a unit owner's dispute with the condominium corporation over assessed dues and his right to vote and be voted for was held intra-corporate and proper for a Special Commercial Court.
Does an appeal stop the decision from being enforced?
Not by itself. The decision is immediately executory, except for awards of moral damages, exemplary damages and attorney's fees, unless the appellate court restrains its enforcement.
Sources
Republic Act No. 8799 (Securities Regulation Code), Section 5.2
Presidential Decree No. 902-A, Section 5
A.M. No. 01-2-04-SC (Interim Rules of Procedure Governing Intra-Corporate Controversies), March 13, 2001, as amended, Rules 1, 2, 6 and 8
Gonzales v. GJH Land, Inc., G.R. No. 202664, November 10, 2015 (En Banc)
Medical Plaza Makati Condominium Corporation v. Cullen, G.R. No. 181416, November 11, 2013 (Third Division)
Matling Industrial and Commercial Corporation v. Coros, G.R. No. 157802, October 13, 2010 (Third Division)
Republic Act No. 11232 (Revised Corporation Code), Section 73
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This article is general information as of its publication date, not legal advice, and does not create a lawyer-client relationship. For advice on your situation, consult a lawyer.
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