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Intra-corporate and intercorporate disputes

By Ramon Vaughn Dy III on August 11,2022

DISPUTES within a corporation or between/among corporate entities or persons within a corporate entity are inevitable. These vary and are dependent on who the parties are and their relationships to each other. Generally, the disputes can be classified as either intercorporate or intra-corporate.

An intra-corporate dispute is one that generally arises between a stockholder and the corporation or among stockholders concerning issues revolving around the relationship of the complainant to the corporation or the enforcement of a right under the Revised Corporation Code (RCC).

An intercorporate dispute, meanwhile, is one that arises between two or more separate corporations. It can be said that the former is grounded upon the intra-corporate relation between the parties while the latter is more or less bound by a legal or contractual relationship.

Pursuant to the case of San Jose v. Ozamiz (GR 190590, 2017), two tests are generally applied to determine whether or not a case involves an intra-corporate dispute: the relationship and the nature of the controversy tests.

Under the relationship test, an intra-corporate controversy exists when the conflict is between the corporation, partnership or association and the public; between the corporation, partnership or association and the state insofar as its franchise, permit, or license to operate is concerned; between the corporation, partnership or association and its stockholders, partners, members or officers; and among the stockholders, partners or associates themselves.

In accordance with the nature of controversy test, an intra-corporate dispute arises when the controversy is not only rooted in the existence of an intra-corporate relationship but also in the enforcement of the parties’ correlative rights and obligations under the RCC and the internal and intra-corporate regulatory rules of the corporation.

Generally, intra-corporate and intercorporate disputes commence with the filing of a verified complaint with the appropriate court of general jurisdiction. However, intra-corporate disputes are filed exclusively with the proper regional trial courts acting as special commercial courts pursuant to Republic Act 8799 or the “Securities Regulation Code.”

It should be pointed out that if an arbitration agreement is stipulated in the articles of incorporation or by-laws of a corporation pursuant to Section 181 of the RCC or in an existing contract or agreement with an opposing corporation, the disputes should be referred to arbitration first.

Intra-corporate disputes regarding election contests (which generally refer to any controversy or dispute involving title or claim to any elective office in a stock or nonstock corporation, validation of proxies, manner and validity of elections, and the qualifications of candidates, etc.) require that all intra-corporate remedies provided in the corporation’s by-laws be exhausted first prior to filing the complaint. (Sections 2 and 3, Rule 6, Interim Rules of Procedure for Intra-corporate Controversies, A.M. 01-2-04-SC March 13, 2001). If there is an arbitration clause in the corporation’s articles of incorporation or by-laws, the dispute must again first be referred to arbitration.

Although verified complaints for intra-corporate and intercorporate disputes are filed in regular courts, they are governed by different rules of procedures. Intra-corporate disputes are exclusively governed by the Interim Rules of Procedure for Intra-corporate Controversies issued by the Supreme Court. These govern the following:

– Devices or schemes employed by or any acts of the board of directors, business associates, 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.

Intercorporate disputes, meanwhile, being civil in nature, are governed by the Rules on Civil Procedure as amended. There are several distinct provisions in the Interim Rules of Procedure for Intra-corporate Controversies that are absent in the Rules of Court such as the executory nature of decisions and orders and rules on election contests, among others.

The distinction between intercorporate and intra-corporate dispute is critical because they are governed by separate rules and are thus subject to different jurisdictional and procedural requirements. Knowing which set of rules and requirements apply is instrumental in securing the success of a cause of action.

Ramon Vaughn F. Dy III is a graduate of the Ateneo de Manila University School of Law and an associate of Mata-Perez, Tamayo & Francisco (MTF Counsel).

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