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INTRA-CORPORATE DISPUTES

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By: Atty. Ellaine Anne Bernardino on November 26, 2020

An intra-corporate dispute is one that arises between a stockholder and the corporation, or among stockholders concerning the internal affairs of the corporation.

Previously, the Securities and Exchange Commission (SEC) had the jurisdiction to hear and decide intra-corporate disputes under Section 5 of Presidential Decree 902-A (1976). However, Republic Act (RA) 8799, or the Securities Regulation Code (SRC), which took effect on Aug. 8, 2000, transferred this jurisdiction to courts of general jurisdiction or the appropriate regional trial courts (RTCs) acting as special commercial courts.

Thus, the RTC, as a special commercial court, now has jurisdiction over intra-corporate disputes (Proposed Interim Rules of Procedure Governing Intra-Corporate Controversies under RA 8799 [A.M. 01-2-04-SC; 2001]), which include:

– Devices or schemes employed by, or any acts, of the board of directors, business associates, its officers or partners, amounting to fraud or misrepresentation that may be detrimental to the interest of the public and/or the stockholders, partners or members of any corporation, partnership or association.

– Controversies arising out of intra-corporate, partnership or association relations, between and among stockholders, members or associates; and between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively.

– Controversies in the election or appointment of directors, trustees, officers or managers of corporations, partnerships or associations.

However, not all controversies among stockholders constitute an intra-corporate dispute that would fall under the jurisdiction of the RTC as a special commercial court. In Intestate Estate of Alexander T. Ty vs. Court of Appeals (G.R. 112872 and 114672, April 19, 2011), a controversy on the transfer of shares from one stockholder to another of the same corporation was held not to involve an intra-corporate dispute, since the relationship of the private respondent when he sold his shares of stock to his son was one of vendor-vendee. This case involved a question on whether there was indeed a sale in the absence of cause or consideration, an issue that could be resolved by applying the Civil Code provisions on obligations and contracts. In this case, the RTC exercised its jurisdiction not as a special commercial court, but as an ordinary civil court.

Furthermore, controversies arising from the election, appointment or dismissal of corporate officers may constitute an intra-corporate dispute. In Wesleyan University-Philippines vs. Guillermo T. Maglaya Sr. (G.R. 212774, Jan. 23, 2017), the Supreme Court explained that the determination of the rights of a corporate officer dismissed from his employment is an intra-corporate dispute subject to the jurisdiction of the RTC if his position is indicated in the Corporation Code or the company’s bylaws. Otherwise, he is considered an ordinary employee whose dismissal would fall under the jurisdiction of the labor tribunals.

It should be noted that in relation to the exercise of its jurisdiction over intra-corporate disputes, the RTC can issue orders necessary or incidental to carrying out the powers expressly granted to it. Hence, the RTC may order the holding of a special meeting of stockholders or members of a corporation involving an intra-corporate dispute under its supervision. (Yujuico vs. Quiambao, G.R.168639, Jan. 29, 2007).

Residual powers of the SEC

Despite the transfer of jurisdiction over intra-corporate disputes to the RTC, the SEC is not entirely divested of its powers over them. The Supreme Court has held that the SEC could act upon those that are merely administrative and regulatory in character (Roman Jr. vs. SEC, G.R. 196329, June 1, 2016). According to the Supreme Court, the SEC was never dispossessed of the power to assume jurisdiction over complaints, even if these are riddled with intra-corporate allegations, if their invocation of authority is confined only to the extent of ensuring compliance with the law and the rules, as well as to impose fines and penalties for violation thereof. The SEC may also conduct investigations motu proprio to determine if corporations comply with the Corporation Code, the SRC, and implementing rules and regulations in relation to its supervisory, administrative and regulatory functions.
In the Government Service Insurance System vs. Court of Appeals (G.R. 183905, April 16, 2009), the Supreme Court clarified that the SEC had the power to investigate violations of the commission’s rules on proxy solicitation. However, controversies involving proxies solicited for the election of corporate directors are considered election controversies that are deemed intra-corporate disputes that fall within the original and exclusive jurisdiction of the RTC.

A new development under the Revised Corporation Code

RA 11232, or the Revised Corporation Code (RCC), introduced a new development in the resolution of intra-corporate disputes. Section 181 of the RCC provides that an arbitration agreement may be provided in the articles of incorporation or bylaws of a corporation. Thus, if such an agreement is indicated in those articles of incorporation or bylaws, disputes between the corporation, its stockholders or members arising from the implementation of those articles or bylaws, or from intra-corporate relations, shall be referred to arbitration first before they are brought to court.
This new provision on arbitration for corporations under the RCC is welcome, as it would help unclog court dockets, alleviate the problem of judicial delay in resolving intra-corporate disputes, and promote the speedy disposition of cases.

Ellaine Anne L. Bernardino is a junior associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, email the author at info@mtfcounsel.com or visit www.mtfcounsel.com.

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