In a case, the board of directors, at its regular meeting declared vacant all corporate positions in order to effect a

reorganization, and at the ensuing election of officers, the respondent was not re-elected as Executive Vice-President. It
was held that the controversy was fundamentally intra-corporate in nature and not a case of dismissal. An intra-corporate
controversy would call for SEC (now regional trial court) jurisdiction.

The stockholder or member must first make a demandupon the corporation or the management to sue, unless such a
demand would be futile or useless (Reyes vs. Tan, 3 SCRA 198 [1961]; Pascual vs. Del Saz Orosco, 19 Phil. 82 [1911].), and
the corporation refuses or fails to sue notwithstanding such demand. This is known as exhausting intra-corporate remedies.

The Interim Rules of Procedure Governing Intra-CorporateControversies (Appendix "C".), include the following
requirements:(1) the plaintiff must be a stockholder or member at thetime the acts or transactions subject of the action
occurred; (2) heexerted all reasonable efforts, and alleges the same with particularityin the complaint, to exhaust all
remedies available underthe articles of incorporation, by-laws, laws or rules governingthe corporation or partnership to
obtain the relief he desires; (3)No appraisal rights are available for the act or acts complained of; and (4) The suit is not a
nuisance or harassment suit.

Exhaustion of intra-corporate remedies. In addition to the existence of grievances which call for this kind of relief, it is
equally important that before the shareholder (or member) is permitted, in his own name to institute and conduct

A litigation which usually belongs to the corporation, he should show to the satisfaction of the court that he has exhausted
all the means within his reach to attain within the corporation itself, the redress of his grievances, or action in conformity
to his wishes. (1) He must make an earnest, not simulated, effort, with the managing body of the corporation, to induce
remedial action on their part. He must show, if he fails with the directors (or trustees), that he has made an honest effort
to obtain action by the stockholders as a body in the matter of which he complains. (2) A request upon the stockholders
as a body to bring suit has been required: (a) where demand upon the directors or officers is excused as where it would
be unavailing to protect the rights of the stockholders because the officers of whose management or misconduct a plaintiff
stockholder complains of, are in control of the corporation;28 or (b) where the subject matter of his complaint is within
the immediate control of the stockholders. (3) A stockholder need not seek action by the stockholders as a body, where
under the facts he cannot do so or it would be unreasonable or useless to require it. Thus, if the body of stockholders has
no adequate power or authority to remedy the wrong asserted by the individual stockholders, an application to it to
redress the wrong before bringing a representative action is unnecessary.

To allow shareholders to sue separately would conflict with the separate corporate entity principle.

(1) Meaning of an intra-corporate controversy. — It is one which arises between a stockholder and the corporation or
among the stockholders involving internal affairs of the corporation. Thus, the issue of whether or not a corporation is
bound to replace a stockholder's lost certificate of stock is a matter purely between the stockholder and the corporation,
belonging exclusively to the jurisdiction of the Commission even if there is a claim for damages for refusal of the
corporation to issue a replacement certificate. The question of damages raised is merely incidental
to the main issue.
(2) Intent of the law. — The intent is to segregate from the general jurisdiction of the regular courts controversies involving
corporations and stockholders and to bring them to the SEC for exclusive resolution, in much the same way that labor
disputes are now brought to the Department of Labor and Employment and the National Labor Relations Commission and
not to the courts. (Philex Mining Corporation vs. Reyes, 118 SCRA 602[1982].)
(3) Controversies covered. — The provision of the law is broad and covers all kinds of controversies between stockholders
and corporations. There is no distinction, qualification, nor any exemption whatsoever. (Ibid.) However, if the controversy
involves a violation of any of the provisions of the Corporation Code and the action is criminal in nature the purpose of
which is the imposition of the penalty prescribed by the Code, it is the regular courts that have jurisdiction, (see Sec. 144.)
Section 3 of Presidential Decree No. 902-A gives the Commission jurisdiction, supervision, and control over all corporations,
partnerships or associations, which are the grantees of primary franchise and/or a license or permit issued by the
Government to operate in the Philippines. In the light of the nature and function of the Commission, its regulatory and
adjudicatory functions insofar as intra-corporate controversies are concerned, come into play only if a corporation exists.
Thus, where the corporation whose properties are being contested no longer exists, it having been completely dissolved,
the supervisory authority of the Commission over the corporation has likewise come to an end. (Pascual vs. CA)
(4) Transfer of jurisdiction. — Pursuant to the Securities Regulation Code (R.A. No. 8799.) which took effect on August
8, 2000, the jurisdiction of the SEC to decide cases involving intra-corporate disputes was transferred to courts of general
jurisdiction and in accordance therewith, all cases of this nature with the exception only of those submitted for decision,
were transferred to the regular courts. An action against a delinquent stockholder to collect the amount due on unpaid
subscription involves an intra-corporate dispute.

The issue of whether or not a corporation is bound to replace a stockholder's certificate is an intra-corporate one, the
jurisdiction of which belongs to the Securities and Exchange Commission even if there is a prayer for damages for the
question of damages is merely incidental to the main issue. (Philex Mining Corporation vs. Reyes)
Arbitration of intra-corporate deadlocks by the Securities and Exchange Commission.
If the directors or stockholders of a close corporation are evenly divided respecting the management of the corporation's
business and affairs, and there is no way to settle the dispute, they may become deadlocked. The situation may lead to
the paralyzation of corporate operations which may have grave consequences to the members of the corporation. To
avoid these consequences, the Securities and Exchange Commission, upon written petition by any stockholder, shall have
power to arbitrate the dispute.
The power given to the Commission by Section 104 may be exercised, notwithstanding any provision in the articles of
incorporation or by-laws or agreement of stockholders of a close corporation to the contrary. In the exercise of its power,
the Commission may make such order as it deems appropriate under the circumstances including the dissolution of the
corporation. The SEC may order the dissolution of the corporation if it will be beneficial to the stockholders and to creditors
but where the business is successful, it may appoint instead a provisional director as additional member of the board.
The second paragraph specifies the qualifications, rights, and powers of a provisional director who may be appointed by
the Securities and Exchange Commission in the exercise of the authority conferred upon it by Section 104.

Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or
associates; between any or all of them and the corporation, partnership or association of which they are stockholders,
members or associates, respectively; and between such corporation, partnership or association and the State insofar
as it concerns their individual franchise or right to exist as such entity.

Note: The SEC retains its administratie regulatory and oversight powers over all corporations, partnerships and
associations which are grantees of primary franchises and/ or a license or permit issued by the Government, (see Orendain
vs. B.F. Homes, Inc., 506 SCRA 348 [2006].) However, intra-corporate controversies have been transferred by R.A.
No. 8799 (SRC) to regional trial courts, (see Appendix "C" ) Concomitant to the power of regional trial courts to hear and
decide, intra-corporate controversies is to authority to issue orders necessary or incideental to the carrying out of the
powers expressly granted to it.

Congress recognized that the intra-corporate disputes are not that much of a technical matter that requires the
competence of a specialized agency like the SEC. Thus, even a regular trial court can resolve such disputes.

If, for example, a person leases an apartment owned by a corporation of which he is a stockholder, a complaint for
ejectment for non-payment of rentals would come under the jurisdiction of the regular courts. (Viray vs. Court of Appeals,
191 SCRA 308 [1990]; see Torio vs. Court of Appeals, 230 SCRA 626 [1994].) His position as a stockholder of the corporation.

The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final
resolution which should be resolved within one (1) year from the enactment of this Code.
Source: Batasnatin

What are the tests to determine whether a dispute constitutes an intra-corporate controversy and dispute?

How would jurisdiction be determined?

1. Relationship Test; and 2. Nature of the Controversy Test.

Jurisdiction should be determined by considering not only the status or relationship of the parties, but also of the nature
of the question under controversy. This two-tier test was adopted in the case of Speed Distribution, Inc. vs. Court of
Appeals: “To determine whether a case involves an intra-corporate controversy, and is to be heard and decided by the
branches of the RTC specifically designated by the Court to try and decide such cases, two elements must concur:

1. the status or relationship of the parties (relationship test); and

2. the nature of the question that is subject of the controversy (nature of the controversy test).

The first element requires that the controversy must arise out of intracorporate partnership relations between any or all
of the parties and the corporation, partnership, or association of which they are stockholders, members, or associates,
respectively; and between such corporation, partnership, or association and the State insofar as it concerns their individual
franchises.

The Second element requires that the dispute among the parties be intrinsically connected with the regulation of the
corporation. If the nature of the controversy involves matters that are purely civil in character, necessarily, the case does
not involve an intra-corporate controversy. (Reyes vs. Zenith Insurance Corp., G.R. No. 165744, August 11, 2008)

What is meant by the Relationship Test?

Initially, the main consideration in determining whether a dispute constitutes an intra-corporate controversy was limited
to a consideration of the intra-corporate relationship (also known as the Relationship Test) existing between or among
parties. The types of relationships embraced under Section 5(b), as declared in the case of Union Glass & Container Corp.
vs. SEC, were as follows:

1. Between the corporation, partnership, or association and the public;

2. Between the corporation, partnership, or association and its stockholders, partners, members or officers;

3. Between the corporation, partnership, or association and the State as far as its franchise, permit or license to operate
is concerned; and

4. Among the stockholder, partners, or associates themselves. (Reyes vs. Zenith Insurance Corp., G.R. No. 165744, August
11, 2008, [Brion, J.])

What is meant by the Nature of the Controversy Test?

Under the nature of the controversy test, the incidents of that relationship must also be considered for the purpose of
ascertaining whether the controversy itself is intra-corporate. The controversy must not only be rooted in the existence
of an intra-corporate relationship, but must pertain to the enforcement of the parties’ correlative rights and obligations
under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation. If the relationship
and its incidents are merely incidental to the controversy or if there will still be conflict even if the relationship does not
exist, then no intra- corporate controversy exists. (Reyes vs. Zenith Insurance Corp., G.R. No. 165744, August 11, 2008,
[Brion, J.])