WHO ARE THE CORPORATE
OFFICERS
in determining whether or not a case
involves an intra-corporate dispute.
President - must be a director;
a. Treasurer - may or may not be a
director; must be a resident
b. Secretary - need not be a director
unless required by the by-laws; must be
a citizen and resident of the Philippines;
and
c. Other officers as may be provided in
the bylaws.
d. Compliance officer - only for
corporations vested with public interest.
[Sec. 24]
The two tests are the relationship test
and the nature of the controversy test.
Note: Any 2 or more positions may be
held concurrently by the same person,
EXCEPT that no one shall act as
president and secretary or as president
and treasurer at the same time, unless
otherwise allowed in the Code. [Sec 24]
The number of officers is not limited to
those three enumerated in Sec. 24. A
corporation may have such other
officers as may be provided for by its bylaws. [Garcia v. Eastern
Telecommunications Philippines, Inc.,
G.R. No. 173115 (2009)].
TESTS TO DETEMINE
INTRACORPORATE CONTROVERSY
An intra-corporate controversy is one
which arises between a stockholder and
the corporation or among the
stockholders involving internal affairs of
the corporation.
In the case of Roberto San Jose and
Delfin Angcao vs. Jose Ma. Ozamiz,
G.R. No. 190590, 12 July 2017, the
Supreme Court discussed the two tests
Relationship Test
There is an intra-corporate controversy
when the conflict is:
(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.
The Nature of Controversy Test
In accordance with the nature of
controversy test, an intra-corporate
controversy arises when the dispute 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 corporation code and the internal
and intra-corporate regulatory rules of
the corporation.
Who has jurisdiction over IntraCorporate Disputes?
The Securities and Exchange
Commission is given original and
exclusive jurisdiction to hear and decide
cases involving intra-corporate
controversies, as provided under
Section 5 of Presidential Decree No.
902-A.
DERIVATIVE SUIT
Definition
A suit brought by a stockholder for and
on
behalf of the corporation for its
protection from the wrongful acts
committed by the directors/trustees of
the corporation, when the stockholder
finds that he has no redress because
the directors/trustees, are the ones
vested by law to decide whether or not
to sue.
- It is an action brought by minority
shareholders in the name of the
corporation to redress wrongs
committed against the corporation, for
which the directors refuse to sue.
-
It is a remedy designed by equity
and has been the defense of
minority shareholders against
abuses by the majority.
[Villanueva]
Derivative Suit as Defined in
Jurisprudence
It is a suit by a shareholder to enforce a
corporate cause of action.
-
It is a condition sine qua non that
the corporation be impleaded as
a party because not only is the
corporation an indispensable
party, but it is also the present
rule that it must be served with
process.
The judgment must be made binding
upon the corporation in order that the
corporation may get the benefit of the
suit and may not bring subsequent suit
against the same defendants for the
same cause of action.
[Chua v. C.A., G.R. No. 150793 (2004)]
It is a suit 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.
[Sundiang and Aquino]
Business Judgment Rule
As a general rule, when a wrong is
committed against a corporation,
whether to bring the suit or not primarily
lies within the discretion and
exercise of business judgment of the
BOD.
But where corporate directors are guilty
of a breach of trust, not of mere error of
judgment or abuse of discretion, and
intracorporate remedy is futile or
useless, a shareholder may institute a
derivative suit in behalf of himself and
other stockholders and for the benefit of
the corporation,
The purpose of the suit is to bring about
a redress of the wrong inflicted directly
upon the corporation and indirectly upon
the stockholders. [Bitong v. C.A., G.R.
No. 123553 (1998)]
Parties to a Derivative Suit
In a derivative suit, the suing
stockholder is merely a nominal party,
while the corporation is the real party in
interest. Thus, the action must
be brought for the benefit and in the
name of the corporation. [Villanueva]
The corporation is an unwilling coplaintiff.
[Rule 3 Section 10, Rules of Court]


The corporation should be made
a party to the suit, either as
plaintiff or defendant, for res
judicata to apply.
BUT the personal injury suffered
by the stockholder cannot
disqualify him from filing a
derivative suit in behalf of the
corporation. It merely gives rise
to an additional cause of action
for damages against the erring
corporate officers. [Gochan v.
Young, G.R. No. 131889 (2001)].
b. That the stockholder or member
exerted all reasonable efforts, and
alleges the same with particularity in the
complaint, to exhaust all remedies
available under the AOI, by-laws, laws
or rules governing the corporation or
partnership to obtain the relief he
desires;
c. That there is no appraisal right
available for the act(s) complained of;
d. That the suit is not a nuisance or
harassment suit; [Rule 8, Interim Rules
of Procedure for Intra-Corporate
Controversies]
e. The action brought by the
stockholder/member be “in the name of
the corporation or association”. [implied
from 1st par. of Rule 8, Sec. 1 of the
Interim Rules; see also Florete v.
Florete, G.R. No. 174909 (2016)]
The action brought by the shareholder
or member must be in the name of the
corporation or association. [Villamor v.
Umale, G.R. No. 172843 (2014)]
VOTING/NON VOTING SHARES
Proper Forum for Derivative Suits
Nature of the Right to Vote
The Regional Trial Courts exercise
jurisdiction over derivative suits. [Sec.
5.2., Securities Regulation Code]
The right to vote is inherent and
incidental to the ownership of corporate
stocks. [Tan v. Sycip, 499 SCRA 216
(2016)]
Requisites of Derivative Actions
a. That the person instituting the action
be a stockholder or member at the time
the acts or transactions subject of the
action occurred and the time the action
was filed;
It represents the right of a stockholder to
participate in the control and
management of the corporation.
However, it is subject to the rule of the
majority. [Villanueva]
General Rule: No share may be
deprived of voting rights.
Exception: Shares classified and
issued as “preferred” or “redeemable”
may be deprived of voting rights:
Provided, that there shall always
be a class or series of shares with
complete voting rights. [Sec. 6]
Non-Voting Shares
Non-voting shares are not entitled to
vote, except as provided for in par. 3 of
Sec. 6. Holders of nonvoting shares
shall nevertheless be entitled to vote on
the following matters:
1. Amendment of the articles of
incorporation;
2. Adoption and amendment of bylaws;
3. Sale, lease, exchange, mortgage,
pledge, or other disposition of all or
substantially all of the corporate
property;
4. Incurring, creating, or increasing
bonded indebtedness;
5. Increase or decrease of authorized
capital stock;
6. Merger or consolidation of the
corporation with another corporation or
other corporations;
7. Investment of corporate funds in
another corporation or business in
accordance with this Code; and
8. Dissolution of the corporation.
Except in the above cases, the vote
necessary to approve a particular
corporate act shall be deemed to refer
only to stocks with right to vote. [Sec. 6]
Unless a higher requirement is provided
in the by-laws
Delegation to BOD of power to
amend
By vote of stockholders representing 2/3
of the Outstanding Capital Stock or 2/3
of the members. [Sec. 47]
Delegation to BOD may be revoked
Any power delegated to the BOD or
trustees to amend or repeal any by-laws
or adopt new bylaws shall be
considered as revoked whenever
stockholders owning or representing a
majority of the outstanding capital stock
or a majority of the members in nonstock corporations, shall so vote at a
regular or special meeting. [Sec. 47]
Filing with SEC
Whenever the bylaws are amended or
new bylaws are adopted, the
corporation shall file with the
Commission:
(1) Such amended or new bylaws; and,
(2) If applicable, the stockholders’ or
members’ resolution authorizing the
delegation of the power to amend and/or
adopt new bylaws, duly certified
under oath by the corporate secretary
and a majority of the directors or
trustees. [Sec. 47]
Effectivity of Amended By-Laws
AMENDMENT IN THE BYLAWS
Effected by: majority vote of the
members of the board and majority vote
of owners of the Outstanding Capital
Stock or members, in a meeting duly
called for the purpose. [Sec. 47]
The amended or new bylaws shall only
be effective upon the issuance by the
Commission of a certification that the
same is in accordance with this Code
and other relevant laws. [Sec.
47]
VACANCY IN THE BOARD; HOW TO
FILL UP
Ways which the filling of a vacancy may
occur:
(1) Expiration of term;
(2) Removal;
(3) Grounds other than the above, but
the remaining directors can constitute a
quorum.
(4) Grounds other than the above, but
the remaining directors cannot
constitute a quorum for the purpose of
filling the vacancy;
(5) By reason of an increase in the
number of
directors or trustees.
Designation of director or trustee
A vacancy may be temporarily filled
from among the officers of the
corporation by unanimous vote of the
remaining directors or trustees when:
(1) The vacancy prevents the remaining
directors from constituting a quorum;
and
(2) Emergency action is required to
prevent grave, substantial, and
irreparable loss or damage to the
corporation.
OFFENSES UNDER CORPORATION CODE
Who are liable
1. Directors, Trustees, Officers, or Other
Employees (Sec. 171)
If the offender is a corporation, the penalty
may, at the discretion of the court, be
imposed upon such corporation and/or
upon its directors, trustees, stockholders,
members, officers, or employees
responsible for the violation or
indispensable to its commission.
2. Aiders and Abettors and Other
Secondary Liability (Sec. 172)
Anyone who shall:
 Aid. abet, counsel, command, induce, or
 cause any violation of this Code, or any
rule, regulation, or order of the Commission
Shall hall be punished with a fine not exceeding
that imposed on the principal offenders, at the
discretion of the court, after taking into account
their participation in the offense.