The relationship test and the nature of the controversy test in determining intra-corporate disputes

In the landmark case of STRADEC vs. SIDC, et. al. (GR No. 187872), the Supreme Court has modified and modernized the test in determining intra-corporate disputes by applying both the relationship test and the nature of the controversy test.

The ruling states that, “an intra-corporate dispute is understood as a suit arising from intra-corporate relations or between or among stockholders or between any or all of them and the corporation. Applying what has come to be known as the relationship test, it has been held that the types of actions embraced by the foregoing definition include the following suits: (a) between the corporation, partnership or association and the public; (b) between the corporation, partnership or association and its stockholders, partners, members, or officers; (c) between the corporation, partnership or association and the State insofar as its franchise, permit or license to operate is concerned; and, (d) among the stockholders, partners or associates themselves.”

On the other hand, it declares that, “Under the nature of the controversy test, the dispute must not only be rooted in the existence of an intra-corporate relationship, but must also refer to the enforcement of the parties' correlative rights and obligations under the Corporation Code as well as the internal and intra-corporate regulatory rules of the corporation.”

According to the Supreme Court, the combined application of the relationship test and the nature of the controversy test has, consequently, become the norm in determining whether a case is an intra-corporate controversy or is purely civil in character.

By applying the relationship test, the Supreme Court finds in STRADEC case “that the first and second causes of action qualify as intra-corporate disputes since STRADEC and respondent Wong are incorporators and/or stockholders of SIDC.” And “considering that they fundamentally relate to STRADEC’s status as a stockholder and the alleged fraudulent divestment of its stockholding in SIDC, the same causes of action also qualify as intra-corporate disputes under the nature of the controversy test.”

Hence, combining both tests then, the Supreme Court declares that “STRADEC’s causes of action for the nullification of the loan and pledge over its SIDC shareholdings contracted by respondents Yujuico and Sumbilla as well as the avoidance of the notarial sale conducted by respondent Raymond M. Caraos both qualify as intra-corporate disputes.”

Thinking of buying leasehold rights or subleasing real property in Subic Bay Freeport Zone?

When buying leasehold rights or leasing real properties from locators and individuals inside the Subic Bay Freeport Zone (SBFZ), “caveat emptor.” Let the buyer beware.

The Freeport is governed by a special law, Republic Act No. 7227, as amended; its implementing rules and regulations; as well as a relatively new set of rules entitled “Resident’s Handbook.”

A property being offered for transfer or sublease should have been duly approved for lease/assignment by the Subic Bay Metropolitan Authority (SBMA) board of directors. The properly signed lease agreement or deed of assignment must have been registered at the SBMA Registry Office. The subject property must also be checked whether it has unpaid accounts with the SBMA, or utility firms such as Enerzone, Subicwater and Subictel.

To be accorded legal effect especially insofar as SBMA and third parties are concerned, the succeeding deed of assignment or sublease agreement should be submitted to the SBMA for approval and registration; and the latter’s share from the total purchase price properly accounted and remitted to it. When applicable, no taxes would be assessed and paid from the transaction.

It is because RA 7227 provides that:

"(c) The provisions of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying taxes, three percent (3%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone shall be remitted to the National Government, one percent (1%) each to the local government units affected by the declaration of the zone in proportion to their population area, and other factors. In addition, there is hereby established a development fund of one percent (1%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone to be utilized for the development of municipalities outside the City of Olongapo and the Municipality of Subic, and other municipalities contiguous to the base areas.

In case of conflict between national and local laws with respect to tax exemption privileges in the Subic Special Economic Zone, the same shall be resolved in favor of the latter." (Section 12)

For that matter, the would-be assignor/sublessor must guarantee to the buyer/sublessee the following:

1. That it is not in default in its agreement with SBMA;
2. That it shall pay SBMA its due share from the total consideration of the agreement;
3. That it shall submit to SBMA a certified true copy of the deed of assignment/sublease agreement within five (5) days from its execution; and
4. That it shall pay in full the balance stipulated in the terms of its lease agreement, upon execution of the deed of assignment/sublease agreement.

Finally, it is important to remember that the original Lease Agreement between the locator/individual and the SBMA is always considered to be integral to the succeeding deed of assignment/sublease.