d. Stockholder Suits

Suits by Stockholders/Members

• Individual Suit – those brought by the shareholder in his own name against the corporation when a wrong is directly inflicted against him.
• Representative/Class Suit – those brought by the stockholder on behalf of himself and all other stockholders similarly situated when a wrong is committed against a group of stockholders.
• Derivative Suit – those brought by one or more stockholders/members in the name and on behalf of the corporation to redress wrongs committed against it, or protect/vindicate corporate rights whenever the officials of the corporation refuse to sue, or the ones to be sued, or has control of the corporation. (Ching v. Subic Bay Golf and Country Club, Inc., G.R. No. 174353, 10 September 2014)¹
• Under the conflicts-of-interest rules in Canon III of the Code of Professional Responsibility and Accountability (A.M. No. 22-09-01-SC), counsel for a corporation must not represent directors sued in a derivative action when that representation conflicts with the corporation’s interests. Hornilla v. Salunat illustrates the rule under the former ethics framework (Hornilla v. Salunat, A.C. No. 5804, 1 July 2003)².

Requisites of Derivative Suit

• The plaintiff was a stockholder or member both when the acts or transactions complained of occurred and when the action was filed;
• He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires;

The exhaustion of intra-corporate remedies cannot be dispensed even if the company is a family corporation (Yu v. Yukayguan, G.R. No. 177549, 18 June 2009³; Ang v. Sps. Ang, G.R. No. 201675⁴)

• No appraisal rights are available for the act or acts complained of; and
• The suit is not a nuisance or harassment suit (Interim Rules of Procedure for Intra-Corporate Controversies, A.M. No. 01-2-04-SC⁵).

As a general rule, corporate litigation must be commenced by the corporation itself, with the imprimatur of the board of directors, which, pursuant to the law, wields the power to sue. Therefore, since the derivative suit is a remedy of last resort, it must be shown that the board, to the detriment of the corporation and without a valid business consideration, refuses to remedy a corporate wrong. A derivative suit may only be instituted after such an omission. Simply put, derivative suits take a back seat to board sanctioned litigation whenever the corporation is willing and able to sue in its own name. (Ago Realty & Development Corporation v. Ago, G.R. No. 210906, 16 October 2019)⁶

Intra-Corporate Disputes

Refer to civil cases involving the following:

a. Devices or 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 of any corporation, partnership, or association

b. 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

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

d. Derivative suits

e. Inspection of corporate books [Rule 1, Sec 1(a), Interim Rules of Procedure for Intra-Corporate Controversies⁷]

The President of a corporation is considered a corporate officer. The dismissal of a corporate officer is considered an intra-corporate dispute, not a labor dispute [Malcaba v. Prohealth Pharma Philippines, Inc., G.R. No. 209085, 6 June 2018⁸].

Jurisdiction Jurisdiction over intra-corporate disputes now fall within the jurisdiction of the RTC acting as Special Commercial Court [Sec 5.2, RA 8799⁹]

• The transfer of jurisdiction is prospective, with the SEC retaining jurisdiction over pending cases involving intra-corporate disputes that had been submitted for final resolution [Sec 5.3, RA 8799¹⁰].
• Intra-corporate disputes may also be settled by arbitration if stipulated in the AOI or bylaws.

Relationship Test

An intra-corporate controversy must satisfy both the relationship test and the nature-of-the-controversy test. [Medical Plaza Makati Condominium Corporation v. Cullen, G.R. No. 181416, 11 November 2013¹¹]

Intra-corporate relationships are those between the following:

• Between or among shareholders or members, whether controlling, majority, minority, nominal, legal and/or beneficial owners
• Between shareholders and the corporation, as represented by the directors or trustees
• A dispute with an employee, creditor, supplier, contractor or other third party is not intra-corporate merely because the corporation is a party; the parties must have a qualifying corporate relationship

Updated: For a dispute to be considered intra-corporate, it must satisfy both the relationship test and the nature of the controversy test. Ago Realty & Development Corporation v. Ago, G.R. No. 210906, 16 October 2019.

Nature of the Controversy

Disagreement must not only be rooted in the existence of an intra-corporate relationship

• Must also pertain to the enforcement of the parties’ correlative rights and obligations under the RCC and the internal and intra-corporate rules of the corporation
• In other words, jurisdiction should be determined by considering both the relationship of the parties as well as the nature of the question involved. If the relationship is merely incidental to the controversy, or if there will still be conflict even if the relationship does not exist, there is no intra-corporate controversy [Id.].

Jurisdiction over Intra-corporate Disputes Jurisdiction lies with the RTC, acting as a special commercial court

• Effect of Transfer of Jurisdiction - transfer of jurisdiction over intra- corporate disputes from the SEC to the RTC did not deprive the SEC of its jurisdiction to determine if administrative rules are violated [Securities and Exchange Commission v. Subic Bay Golf and Country Club, Inc. and Universal International Group Developm, G.R. No. 179047, 11 March 2015]¹²].

Election Contests

Any controversy or dispute involving title to claim to any elective office in a stock or non- stock corporation, the validation of proxies, the manner and validity of elections, and the qualifications of candidates [Rule 6, Sec 3, Interim Rules of Procedure for Intra-Corporate Controversies¹³].

• Includes the proclamation of winners, to the office of director, trustee or other officer directly elected by the stockholders in a close corporation or by members of a non-stock corporation where the articles of incorporation or by-laws so provide [Rule 6, Sec 3, Interim Rules of Procedure for Intra- Corporate Controversies¹⁴].

Test

The power of the SEC to investigate violations of its rules on proxy solicitation is unquestioned when proxies are obtained to vote on matters unrelated to the cases enumerated under Sec 5, PD 902-A¹⁵. However, when proxies are solicited in relation to the election of corporate directors, the resulting controversy should be considered an intra-corporate dispute within the RTC’s jurisdiction [SEC v. CA, Omico Corp., G.R. No. 187702]¹⁶.

Proxy violations relating to the determination of the existence of a quorum for the election of directors are also within the RTC’s jurisdiction [SEC v. CA, Omico Corp.].

Delinquency –R.A. No. 11232, Section 21 (corporate delinquent status; section reference for owner check); Sections 67-70 (delinquent stock sales)¹⁷

A Corporation placed by the SEC under delinquency status after due notice and hearing, because it commenced its business but subsequently becomes inoperative for a period of at least five (5) consecutive years.