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.”

Costs of suit: coverage and applicability to intra-corporate controversies

Usually, when one files a suit in court, whether civil or criminal in nature, he asks the court for the payment of damages, attorney’s fees and costs of suit by the other party. A person who files a responsive pleading to a complaint can also ask for the same. This article will focus on “costs of suit.”

The party that finally prevails is entitled to the costs of suit as a matter of course, unless the court for special reasons adjudged otherwise. The Revised Rules of Court states that:

“Unless otherwise provided in these rules, cost shall be allowed to the prevailing party as a matter of course, but the court shall have power, for special reasons, to adjudge that either party shall pay the costs of an action, or that the same be divided, as may be equitable. No costs shall be allowed against the Republic of the Philippines unless otherwise provided by law.”(Section 1, Rule 142)

In first level courts (e.g., Metropolitan Trial Courts, Municipal Trial Court in Cities, Municipal Trial Court), the costs shall be taxed by the justice of the peace or municipal judge and included the judgment. In superior courts (Regional Trial Courts, Court of Appeals, Supreme Court), costs shall be taxed by the clerk of the corresponding court on five days' written notice given by the prevailing party to the adverse party.

With this notice shall be served a statement of the items of the cost claimed by the prevailing party, verified by his oath or that of his attorney. Objections to the taxation shall be made in writing, specifying the items objected to. Either party may appeal to the court from the clerk's taxation. The costs shall be inserted in the judgment if taxed before its entry, and payment thereof shall be enforced by execution. (Section 8, Rule 142)

What costs may be recovered then? The specific items and rates may be found under Sections 9, 10 & 11, of Rule 142.

May costs of suit be recovered in intra-corporate controversies? Intra-corporate controversies are not mentioned under Rule 143 and Section 2 of Rule 1. Both say that the Rules is inapplicable to cases involving land registration, cadastral and election cases, naturalization and insolvency proceedings, and other cases.

Also, the Rules of Procedure for Intra-Corporate Controversies expressly provides that: “The Rules of Court, in so far as they may be applicable and are not inconsistent with these Rules, are hereby adopted to form an integral part of these Rules.” (Section 2)

But note that while costs of suit may be allowed to the prevailing party in cases concerning intra-corporate controversies, it is not immediately executory as it must be implemented in accordance with Section 8 of Rule 142. (See also Heirs of Divinagracia vs. Ruiz, et. al., GR No. 172508 [2011])