GUTIERREZ, JR., J.

:
What is the nature of the voting trust agreement executed between two parties in this case?
Who owns the stocks of the corporation under the terms of the voting trust agreement? How
long can a voting trust agreement remain valid and effective? Did a director of the corporation
cease to be such upon the creation of the voting trust agreement? These are the questions the
answers to which are necessary in resolving the principal issue in this petition for certiorari
whether or not there was proper service of summons on Alfa Integrated Textile Mills (ALFA, for
short) through the petitioners as president and vice-president, allegedly, of the subject
corporation after the execution of a voting trust agreement between ALFA and the
Development Bank of the Philippines (DBP, for short).
From the records of the instant case, the following antecedent facts appear:
On November 15, 1985, a complaint for a sum of money was filed by the International
Corporate Bank, Inc. against the private respondents who, in turn, filed a third party complaint
against ALFA and the petitioners on March 17, 1986.
On September 17, 1987, the petitioners filed a motion to dismiss the third party complaint
which the Regional Trial Court of Makati, Branch 58 denied in an Order dated June 27, 1988.
On July 18, 1988, the petitioners filed their answer to the third party complaint.
Meanwhile, on July 12, 1988, the trial court issued an order requiring the issuance of
an alias summons upon ALFA through the DBP as a consequence of the petitioner's letter
informing the court that the summons for ALFA was erroneously served upon them considering
that the management of ALFA had been transferred to the DBP.
In a manifestation dated July 22, 1988, the DBP claimed that it was not authorized to receive
summons on behalf of ALFA since the DBP had not taken over the company which has a
separate and distinct corporate personality and existence.
On August 4, 1988, the trial court issued an order advising the private respondents to take the
appropriate steps to serve the summons to ALFA.
On August 16, 1988, the private respondents filed a Manifestation and Motion for the
Declaration of Proper Service of Summons which the trial court granted on August 17, 1988.
On September 12, 1988, the petitioners filed a motion for reconsideration submitting that Rule
14, section 13 of the Revised Rules of Court is not applicable since they were no longer officers
of ALFA and that the private respondents should have availed of another mode of service
under Rule 14, Section 16 of the said Rules, i.e.,through publication to effect proper service
upon ALFA.
In their Comment to the Motion for Reconsideration dated September 27, 1988, the private
respondents argued that the voting trust agreement dated March 11, 1981 did not divest the
petitioners of their positions as president and executive vice-president of ALFA so that service
of summons upon ALFA through the petitioners as corporate officers was proper.
On January 2, 1989, the trial court upheld the validity of the service of summons on ALFA
through the petitioners, thus, denying the latter's motion for reconsideration and requiring
ALFA to filed its answer through the petitioners as its corporate officers.
On January 19, 1989, a second motion for reconsideration was filed by the petitioners
reiterating their stand that by virtue of the voting trust agreement they ceased to be officers
and directors of ALFA, hence, they could no longer receive summons or any court processes for
or on behalf of ALFA. In support of their second motion for reconsideration, the petitioners
attached thereto a copy of the voting trust agreement between all the stockholders of ALFA
(the petitioners included), on the one hand, and the DBP, on the other hand, whereby the
management and control of ALFA became vested upon the DBP.
On April 25, 1989, the trial court reversed itself by setting aside its previous Order dated
January 2, 1989 and declared that service upon the petitioners who were no longer corporate
officers of ALFA cannot be considered as proper service of summons on ALFA.
On May 15, 1989, the private respondents moved for a reconsideration of the above Order
which was affirmed by the court in its Order dated August 14, 1989 denying the private
respondent's motion for reconsideration.
On September 18, 1989, a petition for certiorari was belatedly submitted by the private
respondent before the public respondent which, nonetheless, resolved to give due course
thereto on September 21, 1989.

Page1

G.R. No. 93695 February 4, 1992

RAMON C. LEE and ANTONIO DM. LACDAO, petitioners,
vs.
THE HON. COURT OF APPEALS, SACOBA MANUFACTURING
CORP.,
PABLO
GONZALES,
JR.
and
THOMAS
GONZALES, respondents.
Cayanga, Zuniga & Angel Law Offices for petitioners.
Timbol & Associates for private respondents.

Page1

On October 17, 1989, the trial court, not having been notified of the pending petition
for certiorari with public respondent issued an Order declaring as final the Order dated April 25,
1989. The private respondents in the said Order were required to take positive steps in
prosecuting the third party complaint in order that the court would not be constrained to
dismiss the same for failure to prosecute. Subsequently, on October 25, 1989 the private
respondents filed a motion for reconsideration on which the trial court took no further action.
On March 19, 1990, after the petitioners filed their answer to the private respondents' petition
for certiorari, the public respondent rendered its decision, the dispositive portion of which
reads:
WHEREFORE, in view of the foregoing, the orders of respondent judge dated April 25, 1989 and
August 14, 1989 are hereby SET ASIDE and respondent corporation is ordered to file its answer
within the reglementary period. (CA Decision, p. 8; Rollo, p. 24)
On April 11, 1990, the petitioners moved for a reconsideration of the decision of the public
respondent which resolved to deny the same on May 10, 1990. Hence, the petitioners filed
this certiorari petition imputing grave abuse of discretion amounting to lack of jurisdiction on
the part of the public respondent in reversing the questioned Orders dated April 25, 1989 and
August 14, 1989 of the court a quo, thus, holding that there was proper service of summons on
ALFA through the petitioners.
In the meantime, the public respondent inadvertently made an entry of judgment on July 16,
1990 erroneously applying the rule that the period during which a motion for reconsideration
has been pending must be deducted from the 15-day period to appeal. However, in its
Resolution dated January 3, 1991, the public respondent set aside the aforestated entry of
judgment after further considering that the rule it relied on applies to appeals from decisions of
the Regional Trial Courts to the Court of Appeals, not to appeals from its decision to us
pursuant to our ruling in the case of Refractories Corporation of the Philippines v. Intermediate
Appellate Court, 176 SCRA 539 [1989]. (CA Rollo, pp. 249-250)
In their memorandum, the petitioners present the following arguments, to wit:
(1) that the execution of the voting trust agreement by a stockholders whereby all his shares
to the corporation have been transferred to the trustee deprives the stockholders of his
position as director of the corporation; to rule otherwise, as the respondent Court of Appeals
did, would be violative of section 23 of the Corporation Code ( Rollo, pp. 270-3273); and
(2) that the petitioners were no longer acting or holding any of the positions provided under
Rule 14, Section 13 of the Rules of Court authorized to receive service of summons for and in
behalf of the private domestic corporation so that the service of summons on ALFA effected
through the petitioners is not valid and ineffective; to maintain the respondent Court of
Appeals' position that ALFA was properly served its summons through the petitioners would be
contrary to the general principle that a corporation can only be bound by such acts which are
within the scope of its officers' or agents' authority (Rollo, pp. 273-275)
In resolving the issue of the propriety of the service of summons in the instant case, we dwell
first on the nature of a voting trust agreement and the consequent effects upon its creation in
the light of the provisions of the Corporation Code.
A voting trust is defined in Ballentine's Law Dictionary as follows:
(a) trust created by an agreement between a group of the stockholders of a corporation and
the trustee or by a group of identical agreements between individual stockholders and a
common trustee, whereby it is provided that for a term of years, or for a period contingent
upon a certain event, or until the agreement is terminated, control over the stock owned by
such stockholders, either for certain purposes or for all purposes, is to be lodged in the trustee,
either with or without a reservation to the owners, or persons designated by them, of the
power to direct how such control shall be used. (98 ALR 2d. 379 sec. 1 [d]; 19 Am J 2d Corp.
sec. 685).
Under Section 59 of the new Corporation Code which expressly recognizes voting trust
agreements, a more definitive meaning may be gathered. The said provision partly reads:
Sec. 59. Voting Trusts One or more stockholders of a stock corporation may create a voting
trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights
pertaining to the share for a period rights pertaining to the shares for a period not exceeding
five (5) years at any one time: Provided, that in the case of a voting trust specifically required
as a condition in a loan agreement, said voting trust may be for a period exceeding (5) years
but shall automatically expire upon full payment of the loan. A voting trust agreement must be
in writing and notarized, and shall specify the terms and conditions thereof. A certified copy of
such agreement shall be filed with the corporation and with the Securities and Exchange
Commission; otherwise, said agreement is ineffective and unenforceable. The certificate or
certificates of stock covered by the voting trust agreement shall be cancelled and new ones
shall be issued in the name of the trustee or trustees stating that they are issued pursuant to
said agreement. In the books of the corporation, it shall be noted that the transfer in the name
of the trustee or trustees is made pursuant to said voting trust agreement.
By its very nature, a voting trust agreement results in the separation of the voting rights of a
stockholder from his other rights such as the right to receive dividends, the right to inspect the
books of the corporation, the right to sell certain interests in the assets of the corporation and

Page1

other rights to which a stockholder may be entitled until the liquidation of the corporation.
However, in order to distinguish a voting trust agreement from proxies and other voting pools
and agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the
stock are separated from the other attributes of ownership; (2) that the voting rights granted
are intended to be irrevocable for a definite period of time; and (3) that the principal purpose
of the grant of voting rights is to acquire voting control of the corporation. (5
Fletcher, Cyclopedia of the Law on Private Corporations, section 2075 [1976] p.
331citing Tankersly v. Albright, 374 F. Supp. 538)
Under section 59 of the Corporation Code, supra, a voting trust agreement may confer upon a
trustee not only the stockholder's voting rights but also other rights pertaining to his shares as
long as the voting trust agreement is not entered "for the purpose of circumventing the law
against monopolies and illegal combinations in restraint of trade or used for purposes of
fraud." (section 59, 5th paragraph of the Corporation Code) Thus, the traditional concept of a
voting trust agreement primarily intended to single out a stockholder's right to vote from his
other rights as such and made irrevocable for a limited duration may in practice become a
legal device whereby a transfer of the stockholder's shares is effected subject to the specific
provision of the voting trust agreement.
The execution of a voting trust agreement, therefore, may create a dichotomy between the
equitable or beneficial ownership of the corporate shares of a stockholders, on the one hand,
and the legal title thereto on the other hand.
The law simply provides that a voting trust agreement is an agreement in writing whereby one
or more stockholders of a corporation consent to transfer his or their shares to a trustee in
order to vest in the latter voting or other rights pertaining to said shares for a period not
exceeding five years upon the fulfillment of statutory conditions and such other terms and
conditions specified in the agreement. The five year-period may be extended in cases where
the voting trust is executed pursuant to a loan agreement whereby the period is made
contingent upon full payment of the loan.
In the instant case, the point of controversy arises from the effects of the creation of the voting
trust agreement. The petitioners maintain that with the execution of the voting trust
agreement between them and the other stockholders of ALFA, as one party, and the DBP, as
the other party, the former assigned and transferred all their shares in ALFA to DBP, as trustee.
They argue that by virtue to of the voting trust agreement the petitioners can no longer be
considered directors of ALFA. In support of their contention, the petitioners invoke section 23 of
the Corporation Code which provides, in part, that:
Every director must own at least one (1) share of the capital stock of the corporation of which
he is a director which share shall stand in his name on the books of the corporation. Any
director who ceases to be the owner of at least one (1) share of the capital stock of the
corporation of which he is a director shall thereby cease to be director . . . (Rollo, p. 270)
The private respondents, on the contrary, insist that the voting trust agreement between ALFA
and the DBP had all the more safeguarded the petitioners' continuance as officers and
directors of ALFA inasmuch as the general object of voting trust is to insure permanency of the
tenure of the directors of a corporation. They cited the commentaries by Prof. Aguedo
Agbayani on the right and status of the transferring stockholders, to wit:
The "transferring stockholder", also called the "depositing stockholder", is equitable owner for
the stocks represented by the voting trust certificates and the stock reversible on termination
of the trust by surrender. It is said that the voting trust agreement does not destroy the status
of the transferring stockholders as such, and thus render them ineligible as directors. But a
more accurate statement seems to be that for some purposes the depositing stockholder
holding voting trust certificates in lieu of his stock and being the beneficial owner thereof,
remains and is treated as a stockholder. It seems to be deducible from the case that he may
sue as a stockholder if the suit is in equity or is of an equitable nature, such as, a technical
stockholders' suit in right of the corporation. [Commercial Laws of the Philippines by Agbayani,
Vol. 3 pp. 492-493, citing 5 Fletcher 326, 327] (Rollo, p. 291)
We find the petitioners' position meritorious.
Both under the old and the new Corporation Codes there is no dispute as to the most
immediate effect of a voting trust agreement on the status of a stockholder who is a party to
its execution from legal titleholder or owner of the shares subject of the voting trust
agreement, he becomes the equitable or beneficial owner. (Salonga,Philippine Law on Private
Corporations, 1958 ed., p. 268; Pineda and Carlos, The Law on Private Corporations and
Corporate Practice, 1969 ed., p. 175; Campos and Lopez-Campos, The Corporation Code;
Comments, Notes & Selected Cases, 1981, ed., p. 386; Agbayani, Commentaries and
Jurisprudence on the Commercial Laws of the Philippines, Vol. 3, 1988 ed., p. 536). The
penultimate question, therefore, is whether the change in his status deprives the stockholder
of the right to qualify as a director under section 23 of the present Corporation Code which
deletes the phrase "in his own right." Section 30 of the old Code states that:
Every director must own in his own right at least one share of the capital stock of the stock
corporation of which he is a director, which stock shall stand in his name on the books of the
corporation. A director who ceases to be the owner of at least one share of the capital stock of

Page1

a stock corporation of which is a director shall thereby cease to be a director . . . (Emphasis

supplied)
Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be
adversely affected by the simple act of such director being a party to a voting trust agreement
inasmuch as he remains owner (although beneficial or equitable only) of the shares subject of
the voting trust agreement pursuant to which a transfer of the stockholder's shares in favor of
the trustee is required (section 36 of the old Corporation Code). No disqualification arises by
virtue of the phrase "in his own right" provided under the old Corporation Code.
With the omission of the phrase "in his own right" the election of trustees and other persons
who in fact are not beneficial owners of the shares registered in their names on the books of
the corporation becomes formally legalized (see Campos and Lopez-Campos, supra, p. 296)
Hence, this is a clear indication that in order to be eligible as a director, what is material is the
legal title to, not beneficial ownership of, the stock as appearing on the books of the
corporation (2 Fletcher, Cyclopedia of the Law of Private Corporations, section 300, p. 92
[1969]citing People v. Lihme, 269 Ill. 351, 109 N.E. 1051).
The facts of this case show that the petitioners, by virtue of the voting trust agreement
executed in 1981 disposed of all their shares through assignment and delivery in favor of the
DBP, as trustee. Consequently, the petitioners ceased to own at least one share standing in
their names on the books of ALFA as required under Section 23 of the new Corporation Code.
They also ceased to have anything to do with the management of the enterprise. The
petitioners ceased to be directors. Hence, the transfer of the petitioners' shares to the DBP
created vacancies in their respective positions as directors of ALFA. The transfer of shares from
the stockholder of ALFA to the DBP is the essence of the subject voting trust agreement as
evident from the following stipulations:
1. The TRUSTORS hereby assign and deliver to the TRUSTEE the certificate of the shares of the
stocks owned by them respectively and shall do all things necessary for the transfer of their
respective shares to the TRUSTEE on the books of ALFA.
2. The TRUSTEE shall issue to each of the TRUSTORS a trust certificate for the number of
shares transferred, which shall be transferrable in the same manner and with the same effect
as certificates of stock subject to the provisions of this agreement;
3. The TRUSTEE shall vote upon the shares of stock at all meetings of ALFA, annual or special,
upon any resolution, matter or business that may be submitted to any such meeting, and shall
possess in that respect the same powers as owners of the equitable as well as the legal title to
the stock;
4. The TRUSTEE may cause to be transferred to any person one share of stock for the purpose
of qualifying such person as director of ALFA, and cause a certificate of stock evidencing the
share so transferred to be issued in the name of such person;
xxx xxx xxx
9. Any stockholder not entering into this agreement may transfer his shares to the same
trustees without the need of revising this agreement, and this agreement shall have the same
force and effect upon that said stockholder. (CA Rollo, pp. 137-138; Emphasis supplied)
Considering that the voting trust agreement between ALFA and the DBP transferred legal
ownership of the stock covered by the agreement to the DBP as trustee, the latter became the
stockholder of record with respect to the said shares of stocks. In the absence of a showing
that the DBP had caused to be transferred in their names one share of stock for the purpose of
qualifying as directors of ALFA, the petitioners can no longer be deemed to have retained their
status as officers of ALFA which was the case before the execution of the subject voting trust
agreement. There appears to be no dispute from the records that DBP has taken over full
control and management of the firm.
Moreover, in the Certification dated January 24, 1989 issued by the DBP through one Elsa A.
Guevarra, Vice-President of its Special Accounts Department II, Remedial Management Group,
the petitioners were no longer included in the list of officers of ALFA "as of April 1982."
(CA Rollo, pp. 140-142)
Inasmuch as the private respondents in this case failed to substantiate their claim that the
subject voting trust agreement did not deprive the petitioners of their position as directors of
ALFA, the public respondent committed a reversible error when it ruled that:
. . . while the individual respondents (petitioners Lee and Lacdao) may have ceased to be
president and vice-president, respectively, of the corporation at the time of service of
summons on them on August 21, 1987, they were at least up to that time, still directors . . .
The aforequoted statement is quite inaccurate in the light of the express terms of Stipulation
No. 4 of the subject voting trust agreement. Both parties, ALFA and the DBP, were aware at the
time of the execution of the agreement that by virtue of the transfer of shares of ALFA to the
DBP, all the directors of ALFA were stripped of their positions as such.
There can be no reliance on the inference that the five-year period of the voting trust
agreement in question had lapsed in 1986 so that the legal title to the stocks covered by the
said voting trust agreement ipso facto reverted to the petitioners as beneficial owners pursuant
to the 6th paragraph of section 59 of the new Corporation Code which reads:

MATLING INDUSTRIAL AND COMMERCIAL CORPORATION,

RICHARD K. SPENCER, CATHERINE SPENCER,

Page1

Unless expressly renewed, all rights granted in a voting trust agreement shall automatically
expire at the end of the agreed period, and the voting trust certificate as well as the
certificates of stock in the name of the trustee or trustees shall thereby be deemed cancelled
and new certificates of stock shall be reissued in the name of the transferors.
On the contrary, it is manifestly clear from the terms of the voting trust agreement between
ALFA and the DBP that the duration of the agreement is contingent upon the fulfillment of
certain obligations of ALFA with the DBP. This is shown by the following portions of the
agreement.
WHEREAS, the TRUSTEE is one of the creditors of ALFA, and its credit is secured by a first
mortgage on the manufacturing plant of said company;
WHEREAS, ALFA is also indebted to other creditors for various financial accomodations and
because of the burden of these obligations is encountering very serious difficulties in
continuing with its operations.
WHEREAS, in consideration of additional accommodations from the TRUSTEE, ALFA had offered
and the TRUSTEE has accepted participation in the management and control of the company
and to assure the aforesaid participation by the TRUSTEE, the TRUSTORS have agreed to
execute a voting trust covering their shareholding in ALFA in favor of the TRUSTEE;
AND WHEREAS, DBP is willing to accept the trust for the purpose aforementioned.
NOW, THEREFORE, it is hereby agreed as follows:
xxx xxx xxx
6. This Agreement shall last for a period of Five (5) years, and is renewable for as long as the
obligations of ALFA with DBP, or any portion thereof, remains outstanding; (CA Rollo, pp. 137138)
Had the five-year period of the voting trust agreement expired in 1986, the DBP would not
have transferred all its rights, titles and interests in ALFA "effective June 30, 1986" to the
national government through the Asset Privatization Trust (APT) as attested to in a Certification
dated January 24, 1989 of the Vice President of the DBP's Special Accounts Department II. In
the same certification, it is stated that the DBP, from 1987 until 1989, had handled APT's
account which included ALFA's assets pursuant to a management agreement by and between
the DBP and APT (CA Rollo, p. 142) Hence, there is evidence on record that at the time of the
service of summons on ALFA through the petitioners on August 21, 1987, the voting trust
agreement in question was not yet terminated so that the legal title to the stocks of ALFA,
then, still belonged to the DBP.
In view of the foregoing, the ultimate issue of whether or not there was proper service of
summons on ALFA through the petitioners is readily answered in the negative.
Under section 13, Rule 14 of the Revised Rules of Court, it is provided that:
Sec. 13. Service upon private domestic corporation or partnership. If the defendant is a
corporation organized under the laws of the Philippines or a partnership duly registered,
service may be made on the president, manager, secretary, cashier, agent or any of its
directors.
It is a basic principle in Corporation Law that a corporation has a personality separate and
distinct from the officers or members who compose it. (See Sulo ng Bayan Inc. v. Araneta, Inc.,
72 SCRA 347 [1976]; Osias Academy v. Department of Labor and Employment, et al., G.R. Nos.
83257-58, December 21, 1990). Thus, the above rule on service of processes of a corporation
enumerates the representatives of a corporation who can validly receive court processes on its
behalf. Not every stockholder or officer can bind the corporation considering the existence of a
corporate entity separate from those who compose it.
The rationale of the aforecited rule is that service must be made on a representative so
integrated with the corporation sued as to make it a priori supposable that he will realize his
responsibilities and know what he should do with any legal papers served on him. (Far
Corporation v. Francisco, 146 SCRA 197 [1986] citing Villa Rey Transit, Inc. v. Far East Motor
Corp. 81 SCRA 303 [1978]).
The petitioners in this case do not fall under any of the enumerated officers. The service of
summons upon ALFA, through the petitioners, therefore, is not valid. To rule otherwise, as
correctly argued by the petitioners, will contravene the general principle that a corporation can
only be bound by such acts which are within the scope of the officer's or agent's authority.
(see Vicente v. Geraldez, 52 SCRA 210 [1973]).
WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed decision
dated March 19, 1990 and the Court of Appeals' resolution of May 10, 1990 are SET ASIDE and
the Orders dated April 25, 1989 and October 17, 1989 issued by the Regional Trial Court of
Makati, Branch 58 are REINSTATED.

AND ALEX MANCILLA, Petitioners -versus - RICARDO R. COROS,

Respondent.
BERSAMIN, J.:
This case reprises the jurisdictional conundrum of whether a complaint for illegal dismissal is
cognizable by the Labor Arbiter (LA) or by the Regional Trial Court (RTC). The determination of
whether the dismissed officer was a regular employee or a corporate officer unravels the
conundrum. In the case of the regular employee, the LA has jurisdiction; otherwise, the RTC
exercises the legal authority to adjudicate.
In this appeal via petition for review on certiorari, the petitioners challenge the decision dated
September 13, 2002[1] and the resolution dated April 2, 2003,[2] both promulgated in C.A.-G.R.
SP No. 65714 entitled Matling Industrial and Commercial Corporation, et al. v. Ricardo R. Coros
and National Labor Relations Commission, whereby by the Court of Appeals (CA) sustained the
ruling of the National Labor Relations Commission (NLRC) to the effect that the LA had
jurisdiction because the respondent was not a corporate officer of petitioner Matling Industrial
and Commercial Corporation (Matling).
Antecedents
After his dismissal by Matling as its Vice President for Finance and Administration, the
respondent filed on August 10, 2000 acomplaint for illegal suspension and illegal dismissal
against Matling and some of its corporate officers (petitioners) in the NLRC, Sub-Regional
Arbitration Branch XII, Iligan City.[3]
The petitioners moved to dismiss the complaint,[4] raising the ground, among others, that the
complaint pertained to the jurisdiction of the Securities and Exchange Commission (SEC) due
to the controversy being intra-corporate inasmuch as the respondent was a member of
Matlings Board of Directors aside from being its Vice-President for Finance and Administration
prior to his termination.
The respondent opposed the petitioners motion to dismiss,[5] insisting that his status as a
member of Matlings Board of Directors was doubtful, considering that he had not been formally
elected as such; that he did not own a single share of stock in Matling, considering that he had
been made to sign in blank an undated indorsement of the certificate of stock he had been
given in 1992; that Matling had taken back and retained the certificate of stock in its custody;
and that even assuming that he had been a Director of Matling, he had been removed as the
Vice President for Finance and Administration, not as a Director, a fact that the notice of his
termination dated April 10, 2000 showed.
On October 16, 2000, the LA granted the petitioners motion to dismiss,[6] ruling that the
respondent was a corporate officer because he was occupying the position of Vice President for
Finance and Administration and at the same time was a Member of the Board of Directors of
Matling; and that, consequently, his removal was a corporate act of Matling and the
controversy resulting from such removal was under the jurisdiction of the SEC, pursuant to
Section 5, paragraph (c) of Presidential Decree No. 902.
Ruling of the NLRC
The respondent appealed to the NLRC,[7] urging that:
I
THE HONORABLE LABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION GRANTING
APPELLEES MOTION TO DISMISS WITHOUT GIVING THE APPELLANT AN OPPORTUNITY TO FILE
HIS OPPOSITION THERETO THEREBY VIOLATING THE BASIC PRINCIPLE OF DUE PROCESS.
II
THE HONORABLE LABOR ARBITER COMMITTED AN ERROR IN DISMISSING THE CASE FOR LACK
OF JURISDICTION.

WHEREFORE, the Order appealed from is SET ASIDE. A new one is entered declaring and
holding that the case at bench does not involve any intracorporate matter. Hence, jurisdiction
to hear and act on said case is vested with the Labor Arbiter, not the SEC, considering that the
position of Vice-President for Finance and Administration being held by complainant-appellant
is not listed as among respondent's corporate officers.

Page1

On March 13, 2001, the NLRC set aside the dismissal, concluding that the
respondents complaint for illegal dismissal was properly cognizable by the LA, not by the SEC,
because he was not a corporate officer by virtue of his position in Matling, albeit high ranking
and managerial, not being among the positions listed in Matlings Constitution and By-Laws.
[8]
The NLRC disposed thuswise:

Accordingly, let the records of this case be REMANDED to the Arbitration Branch of origin in
order that the Labor Arbiter below could act on the case at bench, hear both parties, receive
their respective evidence and position papers fully observing the requirements of due process,
and resolve the same with reasonable dispatch.
SO ORDERED.
The petitioners sought reconsideration, [9] reiterating that the respondent, being a member of
the Board of Directors, was a corporate officer whose removal was not within the LAs
jurisdiction.
The petitioners later submitted to the NLRC in support of the motion for reconsideration the
certified machine copies of Matlings Amended Articles of Incorporation and By Laws to prove
that the President of Matling was thereby granted full power to create new offices and appoint
the officers thereto, and the minutes of special meeting held on June 7, 1999 by Matlings Board
of Directors to prove that the respondent was, indeed, a Member of the Board of Directors. [10]
Nonetheless, on April 30, 2001, the NLRC denied the petitioners motion for reconsideration.[11]
Ruling of the CA
The petitioners elevated the issue to the CA by petition for certiorari, docketed as C.A.-G.R.
No. SP 65714, contending that the NLRC committed grave abuse of discretion amounting to
lack of jurisdiction in reversing the correct decision of the LA.
In its assailed decision promulgated on September 13, 2002, [12] the CA dismissed the petition
for certiorari, explaining:
For a position to be considered as a corporate office, or, for that matter, for one to be
considered as a corporate officer, the position must, if not listed in the by-laws, have been
created by the corporation's board of directors, and the occupant thereof appointed or elected
by the same board of directors or stockholders. This is the implication of the ruling in Tabang v.
National Labor Relations Commission, which reads:
The president, vice president, secretary and treasurer are commonly regarded as the principal
or executive officers of a corporation, and modern corporation statutes usually designate them
as the officers of the corporation. However, other offices are sometimes created by the charter
or by-laws of a corporation, or the board of directors may be empowered under the by-laws of
a corporation to create additional offices as may be necessary.
It has been held that an 'office' is created by the charter of the corporation and the officer is
elected by the directors or stockholders. On the other hand, an 'employee' usually occupies no
office and generally is employed not by action of the directors or stockholders but by the
managing officer of the corporation who also determines the compensation to be paid to such
employee.
This ruling was reiterated in the subsequent cases of Ongkingco v. National Labor Relations
Commission and De Rossi v. National Labor Relations Commission.
The position of vice-president for administration and finance, which Coros used to hold in the
corporation, was not created by the corporations board of directors but only by its president or
executive vice-president pursuant to the by-laws of the corporation. Moreover, Coros
appointment to said position was not made through any act of the board of directors
or stockholders of the corporation. Consequently, the position to which Coros was appointed
and later on removed from, is not a corporate office despite its nomenclature, but an ordinary
office in the corporation.
Coros alleged illegal dismissal therefrom is, therefore, within the jurisdiction of the labor
arbiter.
WHEREFORE, the petition for certiorari is hereby DISMISSED.
SO ORDERED.
The CA denied the petitioners motion for reconsideration on April 2, 2003.[13]
Issue

The decisive issue is whether the respondent was a corporate officer of Matling or not. The
resolution of the issue determines whether the LA or the RTC had jurisdiction over
his complaint for illegal dismissal.

Page1

Thus, the petitioners are now before the Court for a review on certiorari, positing that the
respondent was a stockholder/member of the Matlings Board of Directors as well as its Vice
President for Finance and Administration; and that the CA consequently erred in holding that
the LA had jurisdiction.

Ruling
The appeal fails.
I
The Law on Jurisdiction in Dismissal Cases
As a rule, the illegal dismissal of an officer or other employee of a private employer is properly
cognizable by the LA. This is pursuant to Article 217 (a) 2 of the Labor Code, as amended,
which provides as follows:
Article 217. Jurisdiction of the Labor Arbiters and the Commission. - (a) Except as otherwise
provided under this Code, the Labor Arbiters shall have original and exclusive
jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the
case by the parties for decision without extension, even in the absence of stenographic
notes, the following cases involving all workers, whether agricultural or nonagricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that workers may file involving
wages, rates of pay, hours of work and other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of damages arising from the
employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code, including questions involving the
legality of strikes and lockouts; and
6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims arising from employer-employee relations, including those of persons
in domestic or household service, involving an amount exceeding five thousand pesos
(P5,000.00) regardless of whether accompanied with a claim for reinstatement.
(b) The Commission shall have exclusive appellate jurisdiction over all cases decided
by Labor Arbiters.
(c) Cases arising from the interpretation or implementation of collective bargaining
agreements and those arising from the interpretation or enforcement of company personnel
policies shall be disposed of by the Labor Arbiter by referring the same to the grievance
machinery and voluntary arbitration as may be provided in said agreements. (As amended by
Section 9, Republic Act No. 6715, March 21, 1989).
Where the complaint for illegal dismissal concerns a corporate officer, however, the
controversy falls under the jurisdiction of the Securities and Exchange Commission (SEC),
because the controversy arises out of intra-corporate or partnership relations between and
among stockholders, members, or associates, or 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 the controversy concerns their individual franchise or right to exist as such
entity; or because the controversy involves the election or appointment of a director, trustee,
officer, or manager of such corporation, partnership, or association. [14] Such controversy,
among others, is known as an intra-corporate dispute.

5.2. The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the
appropriate Regional Trial Court: Provided, that the Supreme Court in the exercise of its
authority may designate the Regional Trial Court branches that shall exercise jurisdiction over
these cases. 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. The Commission shall retain

Page1

Effective on August 8, 2000, upon the passage of Republic Act No. 8799, [15] otherwise known
as The Securities Regulation Code, the SECs jurisdiction over all intra-corporate disputes was
transferred to the RTC, pursuant to Section 5.2 of RA No. 8799, to wit:

jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June

2000 until finally disposed.
Considering that the respondents complaint for illegal dismissal was commenced on August
10, 2000, it might come under the coverage of Section 5.2 of RA No. 8799, supra, should it turn
out that the respondent was a corporate, not a regular, officer of Matling.
II
Was the Respondents Position of Vice President
for Administration and Finance a Corporate Office?
We must first resolve whether or not the respondents position as Vice President for Finance and
Administration was a corporate office. If it was, his dismissal by the Board of Directors
rendered the matter an intra-corporate dispute cognizable by the RTC pursuant to RA No. 8799.
The petitioners contend that the position of Vice President for Finance and Administration was
a corporate office, having been created by Matlings President pursuant to By-Law No. V, as
amended,[16] to wit:
BY LAW NO. V
Officers
The President shall be the executive head of the corporation; shall preside over the meetings
of the stockholders and directors; shall countersign all certificates, contracts and other
instruments of the corporation as authorized by the Board of Directors; shall have full power to
hire and discharge any or all employees of the corporation; shall have full power to create
new offices and to appoint the officers thereto as he may deem proper and
necessary in the operations of the corporation and as the progress of the business
and welfare of the corporation may demand; shall make reports to the directors and
stockholders and perform all such other duties and functions as are incident to his office or are
properly required of him by the Board of Directors. In case of the absence or disability of the
President, the Executive Vice President shall have the power to exercise his functions.
The petitioners argue that the power to create corporate offices and to appoint the individuals
to assume the offices was delegated by Matlings Board of Directors to its President through ByLaw No. V, as amended; and that any office the President created, like the position of the
respondent, was as valid and effective a creation as that made by the Board of Directors,
making the office a corporate office. In justification, they cite Tabang v. National Labor
Relations Commission,[17] which held that other offices are sometimes created by the charter or
by-laws of a corporation, or the board of directors may be empowered under the by-laws of a
corporation to create additional officers as may be necessary.
The respondent counters that Matlings By-Laws did not list his position as Vice President for
Finance and Administration as one of the corporate offices; that Matlings By-Law No. III listed
only four corporate officers, namely: President, Executive Vice President, Secretary, and
Treasurer; [18] that the corporate offices contemplated in the phrase and such other officers as
may be provided for in the by-laws found in Section 25 of the Corporation Code should be
clearly and expressly stated in the By-Laws; that the fact that Matlings By-Law No. III dealt
with Directors & Officers while its By-Law No. V dealt with Officers proved that there was a
differentiation between the officers mentioned in the two provisions, with those classified
under By-Law No. V being ordinary ornon-corporate officers; and that the officer, to be
considered as a corporate officer, must be elected by the Board of Directors or the
stockholders, for the President could only appoint an employee to a position pursuant to ByLaw No. V.
We agree with respondent.

Section 25. Corporate officers, quorum.--Immediately after their election, the directors of a
corporation must formally organize by the election of a president, who shall be a director, a
treasurer who may or may not be a director, a secretary who shall be a resident and citizen of
the Philippines, and such other officers as may be provided for in the by-laws. Any two
(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.

Page1

Section 25 of the Corporation Code provides:

The directors or trustees and officers to be elected shall perform the duties enjoined on them
by law and the by-laws of the corporation. Unless the articles of incorporation or the by-laws
provide for a greater majority, a majority of the number of directors or trustees as fixed in the
articles of incorporation shall constitute a quorum for the transaction of corporate business,
and every decision of at least a majority of the directors or trustees present at a meeting at
which there is a quorum shall be valid as a corporate act, except for the election of officers
which shall require the vote of a majority of all the members of the board.
Directors or trustees cannot attend or vote by proxy at board meetings.
Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order
to be considered as a corporate office. Thus, the creation of an office pursuant to or under a
By-Law enabling provision is not enough to make a position a corporate office. Guerrea v.
Lezama,[19] the first ruling on the matter, held that the only officers of a corporation were those
given that character either by the Corporation Code or by the By-Laws; the rest of the
corporate officers could be considered only as employees or subordinate officials. Thus, it was
held in Easycall Communications Phils., Inc. v. King:[20]
An office is created by the charter of the corporation and the officer is elected by the directors
or stockholders. On the other hand, an employee occupies no office and generally is employed
not by the action of the directors or stockholders but by the managing officer of the
corporation who also determines the compensation to be paid to such employee.
In this case, respondent was appointed vice president for nationwide expansion by Malonzo,
petitioner's general manager, not by the board of directors of petitioner. It was also Malonzo
who determined the compensation package of respondent. Thus, respondent was an
employee, not a corporate officer. The CA was therefore correct in ruling that jurisdiction over
the case was properly with the NLRC, not the SEC (now the RTC).
This interpretation is the correct application of Section 25 of the Corporation Code, which
plainly states that the corporate officers are the President, Secretary, Treasurer and such other
officers as may be provided for in the By-Laws. Accordingly, the corporate officers in the
context of PD No. 902-A are exclusively those who are given that character either by
the Corporation Codeor by the corporations By-Laws.
A different interpretation can easily leave the way open for the Board of Directors to
circumvent the constitutionally guaranteed security of tenure of the employee by the
expedient inclusion in the By-Laws of an enabling clause on the creation of just any corporate
officer position.
It is relevant to state in this connection that the SEC, the primary agency administering
the Corporation Code, adopted a similar interpretation of Section 25 of the Corporation Code in
its Opinion dated November 25, 1993,[21] to wit:
Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the
corporate officers enumerated in the by-laws are the exclusive Officers of the
corporation and the Board has no power to create other Offices without amending
first the corporate By-laws. However, the Board may create appointive positions
other than the positions of corporate Officers, but the persons occupying such
positions are not considered as corporate officers within the meaning of Section 25
of the Corporation Code and are not empowered to exercise the functions of the
corporate Officers, except those functions lawfully delegated to them. Their
functions and duties are to be determined by the Board of Directors/Trustees.

To emphasize, the power to create new offices and the power to appoint the officers to occupy
them vested by By-Law No. V merely allowed Matlings President to create non-corporate
offices to be occupied by ordinary employees of Matling. Such powers were incidental to the
Presidents duties as the executive head of Matling to assist him in the daily operations of the
business.

Page1

Moreover, the Board of Directors of Matling could not validly delegate the power to create
a corporate office to the President, in light of Section 25 of the Corporation Code requiring the
Board of Directors itself to elect the corporate officers. Verily, the power to elect
the corporate officers was a discretionary power that the law exclusively vested in the Board of
Directors, and could not be delegated to subordinate officers or agents. [22] The office of Vice
President for Finance and Administration created by Matlings President pursuant to By Law No.
V was an ordinary, not a corporate, office.

The petitioners reliance on Tabang, supra, is misplaced. The statement in Tabang, to the effect
that offices not expressly mentioned in the By-Laws but were created pursuant to a By-Law
enabling provision were also considered corporate offices, was plainlyobiter dictum due to the
position subject of the controversy being mentioned in the By-Laws. Thus, the Court held
therein that the position was a corporate office, and that the determination of the rights and
liabilities arising from the ouster from the position was an intra-corporate controversy within
the SECs jurisdiction.
In Nacpil v. Intercontinental Broadcasting Corporation, [23] which may be the more appropriate
ruling, the position subject of the controversy was not expressly mentioned in the By-Laws, but
was created pursuant to a By-Law enabling provision authorizing the Board of Directors to
create other offices that the Board of Directors might see fit to create. The Court held there
that the position was a corporate office, relying on the obiter dictum in Tabang.
Considering that the observations earlier made herein show that the soundness of their dicta is
not unassailable, Tabang and Nacpilshould no longer be controlling.
III
Did Respondents Status as Director and
Stockholder Automatically Convert his Dismissal
into an Intra-Corporate Dispute?
Yet, the petitioners insist that because the respondent was a Director/stockholder of Matling,
and relying on Paguio v. National Labor Relations Commission [24] and Ongkingko v. National
Labor Relations Commission,[25] the NLRC had no jurisdiction over his complaint, considering
that any case for illegal dismissal brought by a stockholder/officer against the corporation was
an intra-corporate matter that must fall under the jurisdiction of the SEC conformably with the
context of PD No. 902-A.
The petitioners insistence is bereft of basis.
To begin with, the reliance on Paguio and Ongkingko is misplaced. In both rulings, the
complainants were undeniably corporate officers due to their positions being expressly
mentioned in the By-Laws, aside from the fact that both of them had been duly elected by the
respective Boards of Directors. But the herein respondents position of Vice President for
Finance and Administration was not expressly mentioned in the By-Laws; neither was the
position of Vice President for Finance and Administration created by Matlings Board of
Directors. Lastly, the President, not the Board of Directors, appointed him.
True it is that the Court pronounced in Tabang as follows:
Also, an intra-corporate controversy is one which arises between a stockholder and the
corporation. There is no distinction, qualification or any exemption whatsoever. The provision is
broad and covers all kinds of controversies between stockholders and corporations. [26]
However, the Tabang pronouncement is not controlling because it is too sweeping and does
not accord with reason, justice, and fair play. In order to determine whether a dispute
constitutes an intra-corporate controversy or not, the Court considers two elements instead,
namely: (a) the status or relationship of the parties; and (b) the nature of the question that is
the subject of their controversy.This was our thrust in Viray v. Court of Appeals:[27]

Not every conflict between a corporation and its stockholders involves corporate matters that
only the SEC can resolve in the exercise of its adjudicatory or quasi-judicial powers. If, for
example, a person leases an apartment owned by a corporation of which he is a stockholder,
there should be no question that a complaint for his ejectment for non-payment of rentals
would still come under the jurisdiction of the regular courts and not of the SEC. By the same
token, if one person injures another in a vehicular accident, the complaint for damages filed by
the victim will not come under the jurisdiction of the SEC simply because of the happenstance
that both parties are stockholders of the same corporation. A contrary interpretation would
dissipate the powers of the regular courts and distort the meaning and intent of PD No. 902-A.

Page1

The establishment of any of the relationships mentioned above will not necessarily always
confer jurisdiction over the dispute on the SEC to the exclusion of regular courts. The
statement made in one case that the rule admits of no exceptions or distinctions is not that
absolute. The better policy in determining which body has jurisdiction over a case would be to
consider not only the status or relationship of the parties but also the nature of the question
that is the subject of their controversy.

In another case, Mainland Construction Co., Inc. v. Movilla,[28] the Court reiterated these
determinants thuswise:
In order that the SEC (now the regular courts) can take cognizance of a case, the controversy
must pertain to any of the following relationships:
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 as far as its franchise,
permit or license to operate is concerned; and
d) among the stockholders, partners or associates themselves.
The fact that the parties involved in the controversy are all stockholders or that the parties
involved are the stockholders and the corporation does not necessarily place the dispute within
the ambit of the jurisdiction of SEC. The better policy to be followed in determining jurisdiction
over a case should be to consider concurrent factors such as the status or relationship of the
parties or the nature of the question that is the subject of their controversy. In the absence of
any one of these factors, the SEC will not have jurisdiction. Furthermore, it does not necessarily
follow that every conflict between the corporation and its stockholders would involve such
corporate matters as only the SEC can resolve in the exercise of its adjudicatory or quasijudicial powers.[29] The criteria for distinguishing between corporate officers who may be ousted
from office at will, on one hand, and ordinary corporate employees who may only be
terminated for just cause, on the other hand, do not depend on the nature of the services
performed, but on the manner of creation of the office. In the respondents case, he was
supposedly at once an employee, a stockholder, and a Director of Matling. The circumstances
surrounding his appointment to office must be fully considered to determine whether the
dismissal constituted an intra-corporate controversy or a labor termination dispute. We must
also consider whether his status as Director and stockholder had any relation at all to his
appointment and subsequent dismissal as Vice President for Finance and Administration.
Obviously enough, the respondent was not appointed as Vice President for Finance and
Administration because of his being a stockholder or Director of Matling. He had started
working for Matling on September 8, 1966, and had been employed continuously for 33 years
until his termination on April 17, 2000, first as a bookkeeper, and his climb in 1987 to his last
position as Vice President for Finance and Administration had been gradual but steady, as the
following sequence indicates:
Bookkeeper
Senior Accountant
Chief Accountant
Office Supervisor
Assistant Treasurer
Special Assistant for Finance
Assistant Comptroller
Finance and Administrative Manager
Asst. Vice President for Finance and Administration
to April 17, 2000 Vice President for Finance and Administration

Even though he might have become a stockholder of Matling in 1992, his promotion to the
position of Vice President for Finance and Administration in 1987 was by virtue of the length of
quality service he had rendered as an employee of Matling. His subsequent acquisition of the
status of Director/stockholder had no relation to his promotion. Besides, his status of
Director/stockholder was unaffected by his dismissal from employment as Vice President for
Finance and Administration.
In Prudential Bank and Trust Company v. Reyes,[30] a case involving a lady bank manager who
had risen from the ranks but was dismissed, the Court held that her complaint for illegal
dismissal was correctly brought to the NLRC, because she was deemed a regular employee of
the bank. The Court observed thus:
It appears that private respondent was appointed Accounting Clerk by the Bank on July 14,
1963. From that position she rose to become supervisor. Then in 1982, she was appointed
Assistant Vice-President which she occupied until her illegal dismissal on July 19, 1991. The
banks contention that she merely holds an elective position and that in effect she is
not a regular employee is belied by the nature of her work and her length of service
with the Bank. As earlier stated, she rose from the ranks and has been employed with the
Bank since 1963 until the termination of her employment in 1991. As Assistant Vice President
of the Foreign Department of the Bank, she is tasked, among others, to collect checks drawn
against overseas banks payable in foreign currency and to ensure the collection of foreign bills

Page1

1966
1968
1969
1972
1973
1978
1980
1983
1985
1987

or checks purchased, including the signing of transmittal letters covering the same. It has
been stated that the primary standard of determining regular employment is the reasonable
connection between the particular activity performed by the employee in relation to the usual
trade or business of the employer. Additionally, an employee is regular because of the nature
of work and the length of service, not because of the mode or even the reason for hiring them.
As Assistant Vice-President of the Foreign Department of the Bank she performs tasks integral
to the operations of the bank and her length of service with the bank totaling 28 years speaks
volumes of her status as a regular employee of the bank. In fine, as a regular employee, she is
entitled to security of tenure; that is, her services may be terminated only for a just or
authorized cause. This being in truth a case of illegal dismissal, it is no wonder then that the
Bank endeavored to the very end to establish loss of trust and confidence and serious
misconduct on the part of private respondent but, as will be discussed later, to no avail.
WHEREFORE, we deny the petition for review on certiorari, and affirm the decision of the
Court of Appeals.

MARC II MARKETING, INC. and LUCILA V. JOSON,

Petitioners, - versus - ALFREDO M. JOSON,
Respondent.
PEREZ, J.:
In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, herein petitioners
Marc II Marketing, Inc. and Lucila V. Joson assailed the Decision [1] dated 20 June 2005 of the
Court of Appeals in CA-G.R. SP No. 76624 for reversing and setting aside the Resolution [2] of the
National Labor Relations Commission (NLRC) dated 15 October 2002, thereby affirming the
Labor Arbiters Decision [3] dated 1 October 2001 finding herein respondent Alfredo M. Josons
dismissal from employment as illegal. In the questioned Decision, the Court of Appeals upheld
the Labor Arbiters jurisdiction over the case on the basis that respondent was not an officer but
a mere employee of petitioner Marc II Marketing, Inc., thus, totally disregarding the latters
allegation of intra-corporate controversy. Nonetheless, the Court of Appeals remanded the case
to the NLRC for further proceedings to determine the proper amount of monetary awards that
should be given to respondent.
Assailed as well is the Court of Appeals Resolution [4] dated 7 March 2006 denying their Motion
for Reconsideration.
Petitioner Marc II Marketing, Inc. (petitioner corporation) is a corporation duly organized and
existing under and by virtue of the laws of the Philippines. It is primarily engaged in buying,
marketing, selling and distributing in retail or wholesale for export or import household
appliances and products and other items. [5] It took over the business operations of Marc
Marketing, Inc. which was made non-operational following its incorporation and registration
with the Securities and Exchange Commission (SEC).Petitioner Lucila V. Joson (Lucila) is the
President and majority stockholder of petitioner corporation. She was also the former President
and majority stockholder of the defunct Marc Marketing, Inc.
Respondent Alfredo M. Joson (Alfredo), on the other hand, was the General Manager,
incorporator, director and stockholder of petitioner corporation.
The controversy of this case arose from the following factual milieu:
Before petitioner corporation was officially incorporated, [6] respondent has already been
engaged by petitioner Lucila, in her capacity as President of Marc Marketing, Inc., to work as
the General Manager of petitioner corporation. It was formalized through the execution of a
Management Contract[7] dated 16 January 1994 under the letterhead of Marc Marketing, Inc.
[8]
as petitioner corporation is yet to be incorporated at the time of its execution. It was
explicitly provided therein that respondent shall be entitled to 30% of its net income for his
work as General Manager. Respondent will also be granted 30% of its net profit to compensate
for the possible loss of opportunity to work overseas. [9]

Page1

Pending incorporation of petitioner corporation, respondent was designated as the General

Manager of Marc Marketing, Inc., which was then in the process of winding up its business. For
occupying the said position, respondent was among its corporate officers by the express
provision of Section 1, Article IV[10] of its by-laws.[11]

On 15 August 1994, petitioner corporation was officially incorporated and registered with the
SEC. Accordingly, Marc Marketing, Inc. was made non-operational. Respondent continued to
discharge his duties as General Manager but this time under petitioner corporation.
Pursuant to Section 1, Article IV [12] of petitioner corporations by-laws, [13] its corporate officers
are as follows: Chairman, President, one or more Vice-President(s), Treasurer and Secretary. Its
Board of Directors, however, may, from time to time, appoint such other officers as it may
determine to be necessary or proper.
Per an undated Secretarys Certificate, [14] petitioner corporations Board of Directors conducted a
meeting on 29 August 1994 where respondent was appointed as one of its corporate officers
with the designation or title of General Manager to function as a managing director with other
duties and responsibilities that the Board of Directors may provide and authorized. [15]
Nevertheless, on 30 June 1997, petitioner corporation decided to stop and cease its operations,
as evidenced by an Affidavit of Non-Operation [16] dated 31 August 1998, due to poor sales
collection aggravated by the inefficient management of its affairs.On the same date, it formally
informed respondent of the cessation of its business operation. Concomitantly, respondent was
apprised of the termination of his services as General Manager since his services as such
would no longer be necessary for the winding up of its affairs. [17]
Feeling aggrieved, respondent filed a Complaint for Reinstatement and Money Claim against
petitioners before the Labor Arbiter which was docketed as NLRC NCR Case No. 00-03-0410299.
In his complaint, respondent averred that petitioner Lucila dismissed him from his employment
with petitioner corporation due to the feeling of hatred she harbored towards his family. The
same was rooted in the filing by petitioner Lucilas estranged husband, who happened to be
respondents brother, of a Petition for Declaration of Nullity of their Marriage. [18]
For the parties failure to settle the case amicably, the Labor Arbiter required them to submit
their respective position papers.Respondent complied but petitioners opted to file a Motion to
Dismiss grounded on the Labor Arbiters lack of jurisdiction as the case involved an intracorporate controversy, which jurisdiction belongs to the SEC [now with the Regional Trial Court
(RTC)].[19]Petitioners similarly raised therein the ground of prescription of respondents monetary
claim.
On 5 September 2000, the Labor Arbiter issued an Order [20] deferring the resolution of
petitioners Motion to Dismiss until the final determination of the case. The Labor Arbiter also
reiterated his directive for petitioners to submit position paper. Still, petitioners did not
comply. Insisting that the Labor Arbiter has no jurisdiction over the case, they instead filed an
Urgent Motion to Resolve the Motion to Dismiss and the Motion to Suspend Filing of Position
Paper.
In an Order[21] dated 15 February 2001, the Labor Arbiter denied both motions and declared
final the Order dated 5 September 2000. The Labor Arbiter then gave petitioners a period of
five days from receipt thereof within which to file position paper, otherwise, their Motion to
Dismiss will be treated as their position paper and the case will be considered submitted for
decision.
Petitioners, through counsel, moved for extension of time to submit position paper. Despite the
requested extension, petitioners still failed to submit the same. Accordingly, the case was
submitted for resolution.
On 1 October 2001, the Labor Arbiter rendered his Decision in favor of respondent. Its decretal
portion reads as follows:

1.
To reinstate [respondent] to his former or equivalent position without loss of seniority
rights, benefits, and privileges;
2.
Jointly and severally liable to pay [respondents] unpaid wages in the amount
of P450,000.00 per month from [26 March 1996] up to time of dismissal in the total amount
of P6,300,000.00;
3.
Jointly and severally liable to pay [respondents] full backwages in the amount
of P450,000.00 per month from date of dismissal until actual reinstatement which at the time
of promulgation amounted to P21,600,000.00;

Page1

WHEREFORE, premises considered, judgment is hereby rendered declaring [respondents]

dismissal from employment illegal.Accordingly, [petitioners] are hereby ordered:

4.
Jointly and severally liable to pay moral damages in the amount of P100,000.00 and
attorneys fees in the amount of 5% of the total monetary award. [22] [Emphasis supplied.]
In the aforesaid Decision, the Labor Arbiter initially resolved petitioners Motion to Dismiss by
finding the ground of lack of jurisdiction to be without merit. The Labor Arbiter elucidated that
petitioners failed to adduce evidence to prove that the present case involved an intracorporate controversy. Also, respondents money claim did not arise from his being a director or
stockholder of petitioner corporation but from his position as being its General Manager. The
Labor Arbiter likewise held that respondent was not a corporate officer under petitioner
corporations by-laws. As such, respondents complaint clearly arose from an employeremployee relationship, thus, subject to the Labor Arbiters jurisdiction.
The Labor Arbiter then declared respondents dismissal from employment as
illegal. Respondent, being a regular employee of petitioner corporation, may only be dismissed
for a valid cause and upon proper compliance with the requirements of due process.The
records, though, revealed that petitioners failed to present any evidence to justify respondents
dismissal.
Aggrieved, petitioners appealed the aforesaid Labor Arbiters Decision to the NLRC.
In its Resolution dated 15 October 2002, the NLRC ruled in favor of petitioners by giving
credence to the Secretarys Certificate, which evidenced petitioner corporations Board of
Directors meeting in which a resolution was approved appointing respondent as its corporate
officer with designation as General Manager. Therefrom, the NLRC reversed and set aside the
Labor Arbiters Decision dated 1 October 2001 and dismissed respondents Complaint for want
of jurisdiction.[23]
The NLRC enunciated that the validity of respondents appointment and termination from the
position of General Manager was made subject to the approval of petitioner corporations Board
of Directors. Had respondent been an ordinary employee, such board action would not have
been required. As such, it is clear that respondent was a corporate officer whose dismissal
involved a purely intra-corporate controversy. The NLRC went further by stating that
respondents claim for 30% of the net profit of the corporation can only emanate from his right
of ownership therein as stockholder, director and/or corporate officer. Dividends or profits are
paid only to stockholders or directors of a corporation and not to any ordinary employee in the
absence of any profit sharing scheme. In addition, the question of remuneration of a person
who is not a mere employee but a stockholder and officer of a corporation is not a simple labor
problem. Such matter comes within the ambit of corporate affairs and management and is an
intra-corporate controversy in contemplation of the Corporation Code. [24]
When respondents Motion for Reconsideration was denied in another Resolution [25] dated 23
January 2003, he filed a Petition for Certiorari with the Court of Appeals ascribing grave abuse
of discretion on the part of the NLRC.
On 20 June 2005, the Court of Appeals rendered its now assailed Decision declaring that the
Labor Arbiter has jurisdiction over the present controversy. It upheld the finding of the Labor
Arbiter that respondent was a mere employee of petitioner corporation, who has been illegally
dismissed from employment without valid cause and without due process. Nevertheless, it
ordered the records of the case remanded to the NLRC for the determination of the appropriate
amount of monetary awards to be given to respondent. The Court of Appeals, thus, decreed:
WHEREFORE, the petition is by us PARTIALLY GRANTED. The Labor Arbiter is DECLARED to have
jurisdiction over the controversy. The records are REMANDED to the NLRC for further
proceedings to determine the appropriate amount of monetary awards to be adjudged in favor
of [respondent]. Costs against the [petitioners] in solidum.[26]
Petitioners moved for its reconsideration but to no avail.[27]
Petitioners are now before this Court with the following assignment of errors:

II.

Page1

I.
THE COURT OF APPEALS ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN DECIDING
THAT THE NLRC HAS THE JURISDICTION IN RESOLVING A PURELY INTRA-CORPORATE MATTER
WHICH IS COGNIZABLE BY THE SECURITIES AND EXCHANGE COMMISSION/REGIONAL TRIAL
COURT.

ASSUMING, GRATIS ARGUENDO, THAT THE NLRC HAS JURISDICTION OVER THE CASE, STILL THE
COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT THERE IS NO EMPLOYEREMPLOYEE RELATIONSHIP BETWEEN [RESPONDENT] ALFREDO M. JOSON AND MARC II
MARKETING, INC. [PETITIONER CORPORATION].
III.
ASSUMING GRATIS ARGUENDO THAT THE NLRC HAS JURISDICTION OVER THE CASE, THE COURT
OF APPEALS ERRED IN NOT RULING THAT THE LABOR ARBITER COMMITTED GRAVE ABUSE OF
DISCRETION IN AWARDING MULTI-MILLION PESOS IN COMPENSATION AND BACKWAGES BASED
ON THE PURPORTED GROSS INCOME OF [PETITIONER CORPORATION].
IV.
THE COURT OF APPEALS SERIOUSLY ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN
NOT MAKING ANY FINDINGS AND RULING THAT [PETITIONER LUCILA] SHOULD NOT BE HELD
SOLIDARILY LIABLE IN THE ABSENCE OF EVIDENCE OF MALICE AND BAD FAITH ON HER PART. [28]
Petitioners fault the Court of Appeals for having sustained the Labor Arbiters finding that
respondent was not a corporate officer under petitioner corporations by-laws. They insist that
there is no need to amend the corporate by-laws to specify who its corporate officers are. The
resolution issued by petitioner corporations Board of Directors appointing respondent as
General Manager, coupled with his assumption of the said position, positively made him its
corporate officer. More so, respondents position, being a creation of petitioner corporations
Board of Directors pursuant to its by-laws, is a corporate office sanctioned by the Corporation
Code and the doctrines previously laid down by this Court. Thus, respondents removal as
petitioner corporations General Manager involved a purely intra-corporate controversy over
which the RTC has jurisdiction.
Petitioners further contend that respondents claim for 30% of the net profit of petitioner
corporation was anchored on the purported Management Contract dated 16 January 1994. It
should be noted, however, that said Management Contract was executed at the time petitioner
corporation was still nonexistent and had no juridical personality yet. Such being the case,
respondent cannot invoke any legal right therefrom as it has no legal and binding effect on
petitioner corporation. Moreover, it is clear from the Articles of Incorporation of petitioner
corporation that respondent was its director and stockholder. Indubitably, respondents claim
for his share in the profit of petitioner corporation was based on his capacity as such and not
by virtue of any employer-employee relationship.
Petitioners further avow that even if the present case does not pose an intra-corporate
controversy, still, the Labor Arbiters multi-million peso awards in favor of respondent were
erroneous. The same was merely based on the latters self-serving computations without any
supporting documents.
Finally, petitioners maintain that petitioner Lucila cannot be held solidarily liable with petitioner
corporation. There was neither allegation nor iota of evidence presented to show that she
acted with malice and bad faith in her dealings with respondent.Moreover, the Labor Arbiter, in
his Decision, simply concluded that petitioner Lucila was jointly and severally liable with
petitioner corporation without making any findings thereon. It was, therefore, an error for the
Court of Appeals to hold petitioner Lucila solidarily liable with petitioner corporation.

While Article 217(a)2[29] of the Labor Code, as amended, provides that it is the Labor Arbiter
who has the original and exclusive jurisdiction over cases involving termination or dismissal of
workers when the person dismissed or terminated is a corporate officer, the case automatically
falls within the province of the RTC. The dismissal of a corporate officer is always regarded as a
corporate act and/or an intra-corporate controversy. [30]
Under Section 5[31] of Presidential Decree No. 902-A, intra-corporate controversies are those
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,

Page1

From the foregoing arguments, the initial question is which between the Labor Arbiter or the
RTC, has jurisdiction over respondents dismissal as General Manager of petitioner
corporation. Its resolution necessarily entails the determination of whether respondent as
General Manager of petitioner corporation is a corporate officer or a mere employee of the
latter.

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. It also includes
controversies in the election or appointments of directors, trustees, officers or
managers of such corporations,partnerships or associations.[32]
Accordingly, in determining whether the SEC (now the RTC) has jurisdiction over the
controversy, the status or relationship of the parties and the nature of the question that is the
subject of their controversy must be taken into consideration. [33]
In Easycall Communications Phils., Inc. v. King, this Court held that in the context of
Presidential Decree No. 902-A,corporate officers are those officers of a corporation who are
given that character either by the Corporation Code or by the corporations bylaws. Section 25[34] of the Corporation Code specifically enumerated who are these corporate
officers, to wit: (1) president; (2) secretary; (3) treasurer; and (4) such other officers as may
be provided for in the by-laws.[35]
The aforesaid Section 25 of the Corporation Code, particularly the phrase such other officers as
may be provided for in the by-laws, has been clarified and elaborated in this Courts recent
pronouncement in Matling Industrial and Commercial Corporation v. Coros, where it held, thus:
Conformably with Section 25, a position must be expressly mentioned in the [b]y-[l]aws
in order to be considered as a corporate office. Thus, the creation of an office
pursuant to or under a [b]y-[l]aw enabling provision is not enough to make a
position a corporate office. [In] Guerrea v. Lezama [citation omitted] the first ruling on the
matter, held that the only officers of a corporation were those given that character
either by the Corporation Code or by the [b]y-[l]aws; the rest of the corporate
officers could be considered only as employees or subordinate officials. Thus, it was
held in Easycall Communications Phils., Inc. v. King[citation omitted]:
An "office" is created by the charter of the corporation and the officer is elected by the
directors or stockholders. On the other hand, an employee occupies no office and
generally is employed not by the action of the directors or stockholders but by the
managing officer of the corporation who also determines the compensation to be
paid to such employee.
xxxx
This interpretation is the correct application of Section 25 of the Corporation
Code, which plainly states that the corporate officers are the President, Secretary, Treasurer
and such other officers as may be provided for in the [b]y-[l]aws. Accordingly, the corporate
officers in the context of PD No. 902-A are exclusively those who are given that
character either by the Corporation Code or by the corporations [b]y[l]aws.
A different interpretation can easily leave the way open for the Board of Directors to
circumvent the constitutionally guaranteed security of tenure of the employee by
the expedient inclusion in the [b]y-[l]aws of an enabling clause on the creation of
just any corporate officer position.
It is relevant to state in this connection that the SEC, the primary agency administering
the Corporation Code, adopted a similar interpretation of Section 25 of the
Corporation Code in its Opinion dated November 25, 1993 [citation omitted], to wit:

A careful perusal of petitioner corporations by-laws, particularly paragraph 1, Section 1, Article

IV,[37] would explicitly reveal that its corporate officers are composed only of: (1) Chairman; (2)
President; (3) one or more Vice-President; (4) Treasurer; and (5) Secretary. [38] The position of
General Manager was not among those enumerated.

Page1

Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the
corporate officers enumerated in the by-laws are the exclusive Officers of the
corporation and the Board has no power to create other Offices without amending
first the corporate [b]y-laws. However, the Board may create appointive positions
other than the positions of corporate Officers, but the persons occupying such
positions are not considered as corporate officers within the meaning of Section 25
of the Corporation Code and are not empowered to exercise the functions of the corporate
Officers, except those functions lawfully delegated to them. Their functions and duties are to
be determined by the Board of Directors/Trustees. [36][Emphasis supplied.]

Paragraph 2, Section 1, Article IV of petitioner corporations by-laws, empowered its Board of

Directors to appoint such other officers as it may determine necessary or proper. [39] It is by
virtue of this enabling provision that petitioner corporations Board of Directors allegedly
approved a resolution to make the position of General Manager a corporate office, and,
thereafter, appointed respondent thereto making him one of its corporate officers. All of these
acts were done without first amending its by-laws so as to include the General Manager in its
roster of corporate officers.
With the given circumstances and in conformity with Matling Industrial and Commercial
Corporation v. Coros, this Court rules that respondent was not a corporate officer of petitioner
corporation because his position as General Manager was not specifically mentioned in the
roster of corporate officers in its corporate by-laws. The enabling clause in petitioner
corporations by-laws empowering its Board of Directors to create additional officers, i.e.,
General Manager, and the alleged subsequent passage of a board resolution to that effect
cannot make such position a corporate office. Matling clearly enunciated that the board of
directors has no power to create other corporate offices without first amending the corporate
by-laws so as to include therein the newly created corporate office. Though the board of
directors may create appointive positions other than the positions of corporate officers, the
persons occupying such positions cannot be viewed as corporate officers under Section 25 of
the Corporation Code.[40]In view thereof, this Court holds that unless and until petitioner
corporations by-laws is amended for the inclusion of General Manager in the list of its
corporate officers, such position cannot be considered as a corporate office within the realm of
Section 25 of the Corporation Code.
This Court considers that the interpretation of Section 25 of the Corporation Code laid down
in Matling safeguards the constitutionally enshrined right of every employee to security of
tenure. To allow the creation of a corporate officer position by a simple inclusion in the
corporate by-laws of an enabling clause empowering the board of directors to do so can result
in the circumvention of that constitutionally well-protected right. [41]
It is also of no moment that respondent, being petitioner corporations General Manager, was
given the functions of a managing director by its Board of Directors. As held in Matling, the
only officers of a corporation are those given that character either by the Corporation Code or
by the corporate by-laws. It follows then that the corporate officers enumerated in the by-laws
are the exclusive officers of the corporation while the rest could only be regarded as mere
employees or subordinate officials. [42]Respondent, in this case, though occupying a high
ranking and vital position in petitioner corporation but which position was not specifically
enumerated or mentioned in the latters by-laws, can only be regarded as its employee or
subordinate official.Noticeably, respondents compensation as petitioner corporations General
Manager was set, fixed and determined not by the latters Board of Directors but simply by its
President, petitioner Lucila. The same was not subject to the approval of petitioner
corporations Board of Directors. This is an indication that respondent was an employee and not
a corporate officer.
To prove that respondent was petitioner corporations corporate officer, petitioners presented
before the NLRC an undated Secretarys Certificate showing that corporations Board of
Directors approved a resolution making respondents position of General Manager a corporate
office. The submission, however, of the said undated Secretarys Certificate will not change the
fact that respondent was an employee. The certification does not amount to an amendment of
the by-laws which is needed to make the position of General Manager a corporate office.

The board resolution is an obvious fabrication. Firstly, if it had been in existence since [29
August 1994], why did not [herein petitioners] attach it to their [M]otion to [D]ismiss filed on
[26 August 1999], when it could have been the best evidence that [herein respondent] was a
corporate officer? Secondly, why did they report the [respondent] instead as [herein petitioner
corporations] employee to the Social Security System [(SSS)] on [11 October 1994] or a later
date than their [29 August 1994] board resolution? Thirdly, why is there no indication that the
[respondent], the person concerned himself, and the [SEC] were furnished with copies of said
board resolution? And, lastly, why is the corporate [S]ecretarys [C]ertificate not notarized in
keeping with the customary procedure? That is why we called it manipulative evidence as it
was a shameless sham meant to be thrown in as a wild card to muddle up the [D]ecision of the
Labor Arbiter to the end that it be overturned as the latter had firmly pointed out that
[respondent] is not a corporate officer under [petitioner corporations by-laws]. Regrettably, the

Page1

Moreover, as has been aptly observed by the Court of Appeals, the board resolution mentioned
in that undated Secretarys Certificate and the latter itself were obvious fabrications, a mere
afterthought. Here we quote with conformity the Court of Appeals findings on this matter
stated in this wise:

[NLRC] swallowed the bait hook-line-and sinker. It failed to see through its nature as a
belatedly manufactured evidence. And even on the assumption that it were an
authentic board resolution, it did not make [respondent] a corporate officer as the
board did not first and properly create the position of a [G]eneral [M]anager by
amending its by-laws.
(2) The scope of the term officer in the phrase and such other officers as may be provided for
in the by-laws[] (Sec. 25, par. 1), would naturally depend much on the provisions of the by-laws
of the corporation. (SEC Opinion, [4 December 1991.]) If the by-laws enumerate the officers to
be elected by the board, the provision is conclusive, and the board is without power to
create new offices without amending the by-laws. (SEC Opinion, [19 October 1971.])
(3) If, for example, the general manager of a corporation is not listed as an officer, he is to be
classified as an employee although he has always been considered as one of the principal
officers of a corporation [citing De Leon, H. S., The Corporation Code of the Philippines
Annotated, 1993 Ed., p. 215.][43] [Emphasis supplied.]
That respondent was also a director and a stockholder of petitioner corporation will not
automatically make the case fall within the ambit of intra-corporate controversy and be
subjected to RTCs jurisdiction. To reiterate, not all conflicts between the stockholders and the
corporation are classified as intra-corporate. Other factors such as the status or relationship of
the parties and the nature of the question that is the subject of the controversy [44] must be
considered in determining whether the dispute involves corporate matters so as to regard
them as intra-corporate controversies. [45] As previously discussed, respondent was not a
corporate officer of petitioner corporation but a mere employee thereof so there was no intracorporate relationship between them. With regard to the subject of the controversy or issue
involved herein, i.e., respondents dismissal as petitioner corporations General Manager, the
same did not present or relate to an intra-corporate dispute. To note, there was no evidence
submitted to show that respondents removal as petitioner corporations General Manager
carried with it his removal as its director and stockholder. Also, petitioners allegation that
respondents claim of 30% share of petitioner corporations net profit was by reason of his being
its director and stockholder was without basis, thus, self-serving. Such an allegation was
tantamount to a mere speculation for petitioners failure to substantiate the same.
In addition, it was not shown by petitioners that the position of General Manager was offered to
respondent on account of his being petitioner corporations director and stockholder. Also, in
contrast to NLRCs findings, neither petitioner corporations by-laws nor the Management
Contract stated that respondents appointment and termination from the position of General
Manager was subject to the approval of petitioner corporations Board of Directors. If, indeed,
respondent was a corporate officer whose termination was subject to the approval of its Board
of Directors, why is it that his termination was effected only by petitioner Lucila, President of
petitioner corporation? The records are bereft of any evidence to show that respondents
dismissal was done with the conformity of petitioner corporations Board of Directors or that the
latter had a hand on respondents dismissal. No board resolution whatsoever was ever
presented to that effect.
With all the foregoing, this Court is fully convinced that, indeed, respondent, though occupying
the General Manager position, was not a corporate officer of petitioner corporation rather he
was merely its employee occupying a high-ranking position.
Accordingly, respondents dismissal as petitioner corporations General Manager did not amount
to an intra-corporate controversy. Jurisdiction therefor properly belongs with the Labor Arbiter
and not with the RTC.
Having established that respondent was not petitioner corporations corporate officer but
merely its employee, and that, consequently, jurisdiction belongs to the Labor Arbiter, this
Court will now determine if respondents dismissal from employment is illegal.

In termination cases, the burden of proving just and valid cause for dismissing an employee
from his employment rests upon the employer. The latter's failure to discharge that burden
would necessarily result in a finding that the dismissal is unjustified. [46]

Page1

It was not disputed that respondent worked as petitioner corporations General Manager from
its incorporation on 15 August 1994 until he was dismissed on 30 June 1997. The cause of his
dismissal was petitioner corporations cessation of business operations due to poor sales
collection aggravated by the inefficient management of its affairs.

Under Article 283 of the Labor Code, as amended, one of the authorized causes in
terminating the employment of an employee is the closing or cessation of operation
of the establishment or undertaking. Article 283 of the Labor Code, as amended, reads,
thus:
ART. 283. Closure of establishment and reduction of personnel. The employer may also
terminate the employment of any employee due to the installation of labor saving-devices,
redundancy, retrenchment to prevent losses or the closing or cessation of operation of
the establishment or undertaking unless the closing is for the purpose of circumventing
the provisions of this Title, by serving a written notice on the workers and the Department of
Labor and Employment at least one (1) month before the intended date thereof. x x x In case
of retrenchment to prevent losses and in cases of closures or cessation of operations of
establishment or undertaking not due to serious business losses or financial
reverses, the separation pay shall be equivalent to one (1) month pay or to at least
one-half (1/2) month pay for every year of service, whichever is higher. A fraction of
at least six (6) months shall be considered one (1) whole year. [Emphasis supplied.]
From the afore-quoted provision, the closure or cessation of operations of establishment
or undertaking may either be due to serious business losses or financial reverses or
otherwise. If the closure or cessation was due to serious business losses or financial reverses,
it is incumbent upon the employer to sufficiently and convincingly prove the same. If it is
otherwise, the employer can lawfully close shop anytime as long as it was bona fide in
character and not impelled by a motive to defeat or circumvent the tenurial rights of
employees and as long as the terminated employees were paid in the amount corresponding
to their length of service.[47]
Accordingly, under Article 283 of the Labor Code, as amended, there are three requisites for
a valid cessation of business operations: (a) service of a written notice to the
employees and to the Department of Labor and Employment (DOLE) at least one
month before the intended date thereof; (b) the cessation of business must be bona
fide in character; and (c) payment to the employees of termination pay amounting to
one month pay or at least one-half month pay for every year of service, whichever is higher.
In this case, it is obvious that petitioner corporations cessation of business operations was not
due to serious business losses.Mere poor sales collection, coupled with mismanagement of its
affairs does not amount to serious business losses. Nonetheless, petitioner corporation can still
validly cease or close its business operations because such right is legally allowed, so long as it
was not done for the purpose of circumventing the provisions on termination of employment
embodied in the Labor Code.[48] As has been stressed by this Court in Industrial Timber
Corporation v. Ababon, thus:
Just as no law forces anyone to go into business, no law can compel anybody to continue the
same. It would be stretching the intent and spirit of the law if a court interferes with
management's prerogative to close or cease its business operations just because the business
is not suffering from any loss or because of the desire to provide the workers continued
employment.[49]
A careful perusal of the records revealed that, indeed, petitioner corporation has stopped and
ceased business operations beginning30 June 1997. This was evidenced by a notarized
Affidavit of Non-Operation dated 31 August 1998. There was also no showing that the
cessation of its business operations was done in bad faith or to circumvent the Labor
Code. Nevertheless, in doing so, petitioner corporation failed to comply with the one-month
prior written notice rule. The records disclosed that respondent, being petitioner corporations
employee, and the DOLE were not given a written notice at least one month before petitioner
corporation ceased its business operations. Moreover, the records clearly show that
respondents dismissal was effected on the same date that petitioner corporation decided to
stop and cease its operation. Similarly, respondent was not paid separation pay upon
termination of his employment.

The grant of separation pay, as an incidence of termination of employment under

Article 283, is a statutory obligation on the part of the employer and a demandable
right on the part of the employee, except only where the closure or cessation of operations
was due to serious business losses or financial reverses and there is sufficient proof of this fact
or condition. In the absence of such proof of serious business losses or financial

Page1

As respondents dismissal was not due to serious business losses, respondent is entitled to
payment of separation pay equivalent to one month pay or at least one-half month pay for
every year of service, whichever is higher. The rationale for this was laid down inReahs
Corporation v. National Labor Relations Commission,[50] thus:

reverses, the employer closing his business is obligated to pay his employees and
workers their separation pay.
The rule, therefore, is that in all cases of business closure or cessation of operation or
undertaking of the employer, the affected employee is entitled to separation
pay. This is consistent with the state policy of treating labor as a primary social
economic force, affording full protection to its rights as well as its welfare. The
exception is when the closure of business or cessation of operations is due to serious business
losses or financial reverses duly proved, in which case, the right of affected employees to
separation pay is lost for obvious reasons.[51] [Emphasis supplied.]
As previously discussed, respondents dismissal was due to an authorized cause, however,
petitioner corporation failed to observe procedural due process in effecting such
dismissal. In Culili v. Eastern Telecommunications Philippines, Inc., [52] this Court made the
following pronouncements, thus:
x x x there are two aspects which characterize the concept of due process under the
Labor Code: one is substantive whether the termination of employment was based on the
provision of the Labor Code or in accordance with the prevailing jurisprudence; the other
isprocedural the manner in which the dismissal was effected.
Section 2(d), Rule I, Book VI of the Rules Implementing the Labor Code provides:
(d) In all cases of termination of employment, the following standards of due process shall be
substantially observed:
xxxx
For termination of employment as defined in Article 283 of the Labor Code, the requirement
of due process shall be deemed complied with upon service of a written notice to
the employee and the appropriate Regional Office of the Department of Labor and
Employment at least thirty days before effectivity of the termination, specifying the
ground or grounds for termination.
In Mayon Hotel & Restaurant v. Adana, [citation omitted] we observed:
The requirement of law mandating the giving of notices was intended not only to enable the
employees to look for another employment and therefore ease the impact of the loss of their
jobs and the corresponding income, but more importantly, to give the Department of Labor
and Employment (DOLE) the opportunity to ascertain the verity of the alleged authorized
cause of termination.[53] [Emphasis supplied].

x x x Over the years, this Court has had the opportunity to reexamine the sanctions imposed
upon employers who fail to comply with the procedural due process requirements in
terminating its employees. In Agabon v. National Labor Relations Commission [citation
omitted], this Court reverted back to the doctrine in Wenphil Corporation v. National Labor
Relations Commission [citation omitted] and held thatwhere the dismissal is due to a just
or authorized cause, but without observance of the due process requirements, the
dismissal may be upheld but the employer must pay an indemnity to the employee.
The sanctions to be imposed however, must be stiffer than those imposed in Wenphil to
achieve a result fair to both the employers and the employees.

Page1

The records of this case disclosed that there was absolutely no written notice given by
petitioner corporation to the respondent and to the DOLE prior to the cessation of its business
operations. This is evident from the fact that petitioner corporation effected respondents
dismissal on the same date that it decided to stop and cease its business operations. The
necessary consequence of such failure to comply with the one-month prior written notice rule,
which constitutes a violation of an employees right to statutory due process, is the payment of
indemnity in the form of nominal damages. [54] In Culili v. Eastern Telecommunications
Philippines, Inc., this Court further held:
In Serrano v. National Labor Relations Commission [citation omitted], we noted that a job is
more than the salary that it carries. There is a psychological effect or a stigma in immediately
finding ones self laid off from work. This is exactly why our labor laws have provided for
mandating procedural due process clauses. Our laws, while recognizing the right of
employers to terminate employees it cannot sustain, also recognize the employees
right to be properly informed of the impending severance of his ties with the
company he is working for. x x x.

In Jaka Food Processing Corporation v. Pacot [citation omitted], this Court, taking a cue
from Agabon, held that since there is a clear-cut distinction between a dismissal due to a just
cause and a dismissal due to an authorized cause, the legal implications for employers who fail
to comply with the notice requirements must also be treated differently:
Accordingly, it is wise to hold that: (1) if the dismissal is based on a just cause under Article
282 but the employer failed to comply with the notice requirement, the sanction to be imposed
upon him should be tempered because the dismissal process was, in effect, initiated by an act
imputable to the employee; and (2) if the dismissal is based on an authorized cause under
Article 283 but the employer failed to comply with the notice requirement, the sanction should
be stiffer because the dismissal process was initiated by the employer's exercise of his
management prerogative.[55] [Emphasis supplied.]
Thus, in addition to separation pay, respondent is also entitled to an award of nominal
damages. In conformity with this Courts ruling in Culili v. Eastern Telecommunications
Philippines, Inc. and Shimizu Phils. Contractors, Inc. v. Callanta, both citingJaka Food
Processing Corporation v. Pacot,[56] this Court fixed the amount of nominal damages
to P50,000.00.
With respect to petitioners contention that the Management Contract executed between
respondent and petitioner Lucila has no binding effect on petitioner corporation for having
been executed way before its incorporation, this Court finds the same meritorious.
Section 19 of the Corporation Code expressly provides:
Sec. 19. Commencement of corporate existence. - A private corporation formed or
organized under this Code commences to have corporate existence and juridical
personality and is deemed incorporated from the date the Securities and Exchange
Commission issues a certificate of incorporation under its official seal; and thereupon
the incorporators, stockholders/members and their successors shall constitute a body politic
and corporate under the name stated in the articles of incorporation for the period of time
mentioned therein, unless said period is extended or the corporation is sooner dissolved in
accordance with law. [Emphasis supplied.]
Logically, there is no corporation to speak of prior to an entitys incorporation. And no contract
entered into before incorporation can bind the corporation.

As a rule, corporation has a personality separate and distinct from its officers, stockholders and
members such that corporate officers are not personally liable for their official acts
unless it is shown that they have exceeded their authority. However, this corporate veil
can be pierced when the notion of the legal entity is used as a means to perpetrate fraud, an
illegal act, as a vehicle for the evasion of an existing obligation, and to confuse legitimate
issues. Under the Labor Code, for instance, when a corporation violates a provision declared to
be penal in nature, the penalty shall be imposed upon the guilty officer or officers of the
corporation.[57]

Page1

As can be gleaned from the records, the Management Contract dated 16 January 1994 was
executed between respondent and petitioner Lucila months before petitioner corporations
incorporation on 15 August 1994. Similarly, it was done when petitioner Lucila was still the
President of Marc Marketing, Inc. Undeniably, it cannot have any binding and legal effect on
petitioner corporation. Also, there was no evidence presented to prove that petitioner
corporation adopted, ratified or confirmed the Management Contract. It is for the same reason
that petitioner corporation cannot be considered estopped from questioning its binding effect
now that respondent was invoking the same against it. In no way, then, can it be enforced
against petitioner corporation, much less, its provisions fixing respondents compensation as
General Manager to 30% of petitioner corporations net profit. Consequently, such percentage
cannot be the basis for the computation of respondents separation pay. This finding, however,
will not affect the undisputed fact that respondent was, indeed, the General Manager of
petitioner corporation from its incorporation up to the time of his dismissal.
Accordingly, this Court finds it necessary to still remand the present case to the Labor Arbiter
to conduct further proceedings for the sole purpose of determining the compensation that
respondent was actually receiving during the period that he was the General Manager of
petitioner corporation, this, for the proper computation of his separation pay.
As regards petitioner Lucilas solidary liability, this Court affirms the same.

Based on the prevailing circumstances in this case, petitioner Lucila, being the President of
petitioner corporation, acted in bad faith and with malice in effecting respondents dismissal
from employment. Although petitioner corporation has a valid cause for dismissing respondent
due to cessation of business operations, however, the latters dismissal therefrom was done
abruptly by its President, petitioner Lucila. Respondent was not given the required one-month
prior written notice that petitioner corporation will already cease its business operations. As
can be gleaned from the records, respondent was dismissed outright by petitioner Lucila on the
same day that petitioner corporation decided to stop and cease its business operations. Worse,
respondent was not given separation pay considering that petitioner corporations cessation of
business was not due to business losses or financial reverses.
WHEREFORE, premises considered, the Decision and Resolution dated 20 June 2005 and 7
March 2006, respectively, of the Court of Appeals in CA-G.R. SP No. 76624 are
hereby AFFIRMED with the MODIFICATION finding respondents dismissal from employment
legal but without proper observance of due process. Accordingly, petitioner corporation, jointly
and solidarily liable with petitioner Lucila, is hereby ordered to pay respondent the following;
(1) separation pay equivalent to one month pay or at least one-half month pay for every year
of service, whichever is higher, to be computed from the commencement of employment until
termination; and (2) nominal damages in the amount of P50,000.00.
This Court, however, finds it proper to still remand the records to the Labor Arbiter to conduct
further proceedings for the sole purpose of determining the compensation that respondent was
actually receiving during the period that he was the General Manager of petitioner corporation
for the proper computation of his separation pay.

vs. COURT

OF

Before us is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) in
CA-G.R. SP No. 61000 dismissing the petition for certiorari and mandamus filed by Expertravel
and Tours, Inc. (ETI).
The Antecedents
Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea
and licensed to do business in the Philippines. Its general manager in the Philippines is Suk
Kyoo Kim, while its appointed counsel was Atty. Mario Aguinaldo and his law firm.
On September 6, 1999, KAL, through Atty. Aguinaldo, filed a Complaint[2] against ETI with the
Regional Trial Court (RTC) of Manila, for the collection of the principal amount of P260,150.00,
plus attorneys fees and exemplary damages. The verification and certification against forum
shopping was signed by Atty. Aguinaldo, who indicated therein that he was the resident agent
and legal counsel of KAL and had caused the preparation of the complaint.
ETI filed a motion to dismiss the complaint on the ground that Atty. Aguinaldo was not
authorized to execute the verification and certificate of non-forum shopping as required by
Section 5, Rule 7 of the Rules of Court. KAL opposed the motion, contending that Atty.
Aguinaldo was its resident agent and was registered as such with the Securities and Exchange
Commission (SEC) as required by the Corporation Code of the Philippines. It was further
alleged that Atty. Aguinaldo was also the corporate secretary of KAL. Appended to the said
opposition was the identification card of Atty. Aguinaldo, showing that he was the lawyer of
KAL.
During the hearing of January 28, 2000, Atty. Aguinaldo claimed that he had been authorized to
file the complaint through a resolution of the KAL Board of Directors approved during a special
meeting held on June 25, 1999. Upon his motion, KAL was given a period of 10 days within
which to submit a copy of the said resolution. The trial court granted the motion. Atty.
Aguinaldo subsequently filed other similar motions, which the trial court granted.
Finally, KAL submitted on March 6, 2000 an Affidavit [3] of even date, executed by its general
manager Suk Kyoo Kim, alleging that the board of directors conducted a special teleconference
on June 25, 1999, which he and Atty. Aguinaldo attended. It was also averred that in that same
teleconference, the board of directors approved a resolution authorizing Atty. Aguinaldo to
execute the certificate of non-forum shopping and to file the complaint. Suk Kyoo Kim also
alleged, however, that the corporation had no written copy of the aforesaid resolution.
On April 12, 2000, the trial court issued an Order [4] denying the motion to dismiss, giving
credence to the claims of Atty. Aguinaldo and Suk Kyoo Kim that the KAL Board of Directors
indeed conducted a teleconference on June 25, 1999, during which it approved a resolution as
quoted in the submitted affidavit.

Page1

EXPERTRAVEL & TOURS, INC., petitioner,

APPEALS and KOREAN AIRLINES, respondents.
DECISION
CALLEJO, SR., J.:

ETI filed a motion for the reconsideration of the Order, contending that it was inappropriate for
the court to take judicial notice of the said teleconference without any prior hearing. The trial
court denied the motion in its Order[5] dated August 8, 2000.
ETI then filed a petition for certiorari and mandamus, assailing the orders of the RTC. In its
comment on the petition, KAL appended a certificate signed by Atty. Aguinaldo dated January
10, 2000, worded as follows:
SECRETARYS/RESIDENT AGENTS CERTIFICATE
KNOW ALL MEN BY THESE PRESENTS:
I, Mario A. Aguinaldo, of legal age, Filipino, and duly elected and appointed Corporate Secretary
and Resident Agent of KOREAN AIRLINES, a foreign corporation duly organized and existing
under and by virtue of the laws of the Republic of Korea and also duly registered and
authorized to do business in the Philippines, with office address at Ground Floor, LPL Plaza
Building, 124 Alfaro St., Salcedo Village, Makati City, HEREBY CERTIFY that during a special
meeting of the Board of Directors of the Corporation held on June 25, 1999 at which a quorum
was present, the said Board unanimously passed, voted upon and approved the following
resolution which is now in full force and effect, to wit:
RESOLVED, that Mario A. Aguinaldo and his law firm M.A. Aguinaldo & Associates or any of its
lawyers are hereby appointed and authorized to take with whatever legal action necessary to
effect the collection of the unpaid account of Expert Travel & Tours. They are hereby
specifically authorized to prosecute, litigate, defend, sign and execute any document or paper
necessary to the filing and prosecution of said claim in Court, attend the Pre-Trial Proceedings
and enter into a compromise agreement relative to the above-mentioned claim.
IN WITNESS WHEREOF, I have hereunto affixed my signature this 10 th day of January, 1999, in
the City of Manila, Philippines.
(Sgd.)
MARIO A. AGUINALDO
Resident Agent
SUBSCRIBED AND SWORN to before me this 10th day of January, 1999, Atty. Mario A. Aguinaldo
exhibiting to me his Community Tax Certificate No. 14914545, issued on January 7, 2000 at
Manila, Philippines.
(Sgd.)
Doc. No. 119; ATTY. HENRY D. ADASA
Page No. 25; Notary Public
Book No. XXIV Until December 31, 2000
Series of 2000. PTR #889583/MLA 1/3/2000 [6]
On December 18, 2001, the CA rendered judgment dismissing the petition, ruling that the
verification and certificate of non-forum shopping executed by Atty. Aguinaldo was sufficient
compliance with the Rules of Court. According to the appellate court, Atty. Aguinaldo had been
duly authorized by the board resolution approved on June 25, 1999, and was the resident
agent of KAL. As such, the RTC could not be faulted for taking judicial notice of the said
teleconference of the KAL Board of Directors.
ETI filed a motion for reconsideration of the said decision, which the CA denied. Thus, ETI, now
the petitioner, comes to the Court by way of petition for review on certiorari and raises the
following issue:
DID PUBLIC RESPONDENT COURT OF APPEALS DEPART FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS WHEN IT RENDERED ITS QUESTIONED DECISION AND
WHEN IT ISSUED ITS QUESTIONED RESOLUTION, ANNEXES A AND B OF THE INSTANT PETITION?
The petitioner asserts that compliance with Section 5, Rule 7, of the Rules of Court can be
determined only from the contents of the complaint and not by documents or pleadings
outside thereof. Hence, the trial court committed grave abuse of discretion amounting to
excess of jurisdiction, and the CA erred in considering the affidavit of the respondents general
manager, as well as the Secretarys/Resident Agents Certification and the resolution of the
board of directors contained therein, as proof of compliance with the requirements of Section
5, Rule 7 of the Rules of Court. The petitioner also maintains that the RTC cannot take judicial
notice of the said teleconference without prior hearing, nor any motion therefor. The petitioner
reiterates its submission that the teleconference and the resolution adverted to by the
respondent was a mere fabrication.
The respondent, for its part, avers that the issue of whether modern technology is used in the
field of business is a factual issue; hence, cannot be raised in a petition for review
on certiorari under Rule 45 of the Rules of Court. On the merits of the petition, it insists that
Atty. Aguinaldo, as the resident agent and corporate secretary, is authorized to sign and
execute the certificate of non-forum shopping required by Section 5, Rule 7 of the Rules of
Court, on top of the board resolution approved during the teleconference of June 25, 1999. The
respondent insists that technological advances in this time and age are as commonplace as
daybreak. Hence, the courts may take judicial notice that the Philippine Long Distance
Telephone Company, Inc. had provided a record of corporate conferences and meetings
through FiberNet using fiber-optic transmission technology, and that such technology

Page1

[7]

Page1

facilitates voice and image transmission with ease; this makes constant communication
between a foreign-based office and its Philippine-based branches faster and easier, allowing for
cost-cutting in terms of travel concerns. It points out that even the E-Commerce Law has
recognized this modern technology. The respondent posits that the courts are aware of this
development in technology; hence, may take judicial notice thereof without need of hearings.
Even if such hearing is required, the requirement is nevertheless satisfied if a party is allowed
to file pleadings by way of comment or opposition thereto.
In its reply, the petitioner pointed out that there are no rulings on the matter of
teleconferencing as a means of conducting meetings of board of directors for purposes of
passing a resolution; until and after teleconferencing is recognized as a legitimate means of
gathering a quorum of board of directors, such cannot be taken judicial notice of by the court.
It asserts that safeguards must first be set up to prevent any mischief on the public or to
protect the general public from any possible fraud. It further proposes possible amendments to
the Corporation Code to give recognition to such manner of board meetings to transact
business for the corporation, or other related corporate matters; until then, the petitioner
asserts, teleconferencing cannot be the subject of judicial notice.
The petitioner further avers that the supposed holding of a special meeting on June 25, 1999
through teleconferencing where Atty. Aguinaldo was supposedly given such an authority is a
farce, considering that there was no mention of where it was held, whether in this country or
elsewhere. It insists that the Corporation Code requires board resolutions of corporations to be
submitted to the SEC. Even assuming that there was such a teleconference, it would be against
the provisions of the Corporation Code not to have any record thereof.
The petitioner insists that the teleconference and resolution adverted to by the respondent in
its
pleadings
were
mere
fabrications
foisted
by
the
respondent and its counsel on the RTC, the CA and this Court.
The petition is meritorious.
Section 5, Rule 7 of the Rules of Court provides:
SEC. 5. Certification against forum shopping. The plaintiff or principal party shall certify under
oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn
certification annexed thereto and simultaneously filed therewith: (a) that he has not
theretofore commenced any action or filed any claim involving the same issues in any court,
tribunal or quasi-judicial agency and, to the best of his knowledge, no such other action or
claim is pending therein; (b) if there is such other pending action or claim, a complete
statement of the present status thereof; and (c) if he should thereafter learn that the same or
similar action or claim has been filed or is pending, he shall report that fact within five (5) days
therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere amendment of
the complaint or other initiatory pleading but shall be cause for the dismissal of the case
without prejudice, unless otherwise provided, upon motion and after hearing. The submission
of a false certification or non-compliance with any of the undertakings therein shall constitute
indirect contempt of court, without prejudice to the corresponding administrative and criminal
actions. If the acts of the party or his counsel clearly constitute willful and deliberate forum
shopping, the same shall be ground for summary dismissal with prejudice and shall constitute
direct contempt, as well as a cause for administrative sanctions.
It is settled that the requirement to file a certificate of non-forum shopping is mandatory [8] and
that the failure to comply with this requirement cannot be excused. The certification is a
peculiar and personal responsibility of the party, an assurance given to the court or other
tribunal that there are no other pending cases involving basically the same parties, issues and
causes of action. Hence, the certification must be accomplished by the party himself because
he has actual knowledge of whether or not he has initiated similar actions or proceedings in
different courts or tribunals. Even his counsel may be unaware of such facts. [9] Hence, the
requisite certification executed by the plaintiffs counsel will not suffice. [10]
In a case where the plaintiff is a private corporation, the certification may be signed, for and on
behalf of the said corporation, by a specifically authorized person, including its retained
counsel, who has personal knowledge of the facts required to be established by the
documents. The reason was explained by the Court in National Steel Corporation v. Court of
Appeals,[11] as follows:
Unlike natural persons, corporations may perform physical actions only through properly
delegated individuals; namely, its officers and/or agents.
The corporation, such as the petitioner, has no powers except those expressly conferred on it
by the Corporation Code and those that are implied by or are incidental to its existence. In
turn, a corporation exercises said powers through its board of directors and/or its dulyauthorized officers and agents. Physical acts, like the signing of documents, can be performed
only by natural persons duly-authorized for the purpose by corporate by-laws or by specific act
of the board of directors. All acts within the powers of a corporation may be performed by
agents of its selection; and except so far as limitations or restrictions which may be imposed
by special charter, by-law, or statutory provisions, the same general principles of law which
govern the relation of agency for a natural person govern the officer or agent of a corporation,

Page1

of whatever status or rank, in respect to his power to act for the corporation; and agents once
appointed, or members acting in their stead, are subject to the same rules, liabilities and
incapacities as are agents of individuals and private persons.
For who else knows of the circumstances required in the Certificate but its own retained
counsel. Its regular officers, like its board chairman and president, may not even know the
details required therein.
Indeed, the certificate of non-forum shopping may be incorporated in the complaint or
appended thereto as an integral part of the complaint. The rule is that compliance with the rule
after the filing of the complaint, or the dismissal of a complaint based on its non-compliance
with the rule, is impermissible. However, in exceptional circumstances, the court may allow
subsequent compliance with the rule.[12] If the authority of a partys counsel to execute a
certificate of non-forum shopping is disputed by the adverse party, the former is required to
show proof of such authority or representation.
In this case, the petitioner, as the defendant in the RTC, assailed the authority of Atty.
Aguinaldo to execute the requisite verification and certificate of non-forum shopping as the
resident agent and counsel of the respondent. It was, thus, incumbent upon the respondent, as
the plaintiff, to allege and establish that Atty. Aguinaldo had such authority to execute the
requisite verification and certification for and in its behalf. The respondent, however, failed to
do so.
The verification and certificate of non-forum shopping which was incorporated in the complaint
and signed by Atty. Aguinaldo reads:
I, Mario A. Aguinaldo of legal age, Filipino, with office address at Suite 210 Gedisco Centre,
1564 A. Mabini cor. P. Gil Sts., Ermita, Manila, after having sworn to in accordance with law
hereby deposes and say: THAT 1. I am the Resident Agent and Legal Counsel of the plaintiff in the above entitled case and
have caused the preparation of the above complaint;
2. I have read the complaint and that all the allegations contained therein are true and correct
based on the records on files;
3. I hereby further certify that I have not commenced any other action or proceeding involving
the same issues in the Supreme Court, the Court of Appeals, or different divisions thereof, or
any other tribunal or agency. If I subsequently learned that a similar action or proceeding has
been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions
thereof, or any tribunal or agency, I will notify the court, tribunal or agency within five (5) days
from such notice/knowledge.
(Sgd.)
MARIO A. AGUINALDO
Affiant
CITY OF MANILA
SUBSCRIBED AND SWORN TO before me this 30 th day of August, 1999, affiant exhibiting to me
his Community Tax Certificate No. 00671047 issued on January 7, 1999 at Manila, Philippines.
(Sgd.)
Doc. No. 1005; ATTY. HENRY D. ADASA
Page No. 198; Notary Public
Book No. XXI Until December 31, 2000
Series of 1999. PTR No. 320501 Mla. 1/4/99[13]
As gleaned from the aforequoted certification, there was no allegation that Atty. Aguinaldo had
been authorized to execute the certificate of non-forum shopping by the respondents Board of
Directors; moreover, no such board resolution was appended thereto or incorporated therein.
While Atty. Aguinaldo is the resident agent of the respondent in the Philippines, this does not
mean that he is authorized to execute the requisite certification against forum shopping. Under
Section 127, in relation to Section 128 of the Corporation Code, the authority of the resident
agent of a foreign corporation with license to do business in the Philippines is to receive, for
and in behalf of the foreign corporation, services and other legal processes in all actions and
other legal proceedings against such corporation, thus:
SEC. 127. Who may be a resident agent. A resident agent may either be an individual residing
in the Philippines or a domestic corporation lawfully transacting business in the
Philippines: Provided, That in the case of an individual, he must be of good moral character
and of sound financial standing.
SEC. 128. Resident agent; service of process. The Securities and Exchange Commission shall
require as a condition precedent to the issuance of the license to transact business in the
Philippines by any foreign corporation that such corporation file with the Securities and
Exchange Commission a written power of attorney designating some persons who must be a
resident of the Philippines, on whom any summons and other legal processes may be served in
all actions or other legal proceedings against such corporation, and consenting that service
upon such resident agent shall be admitted and held as valid as if served upon the dulyauthorized officers of the foreign corporation as its home office. [14]
Under the law, Atty. Aguinaldo was not specifically authorized to execute a certificate of nonforum shopping as required by Section 5, Rule 7 of the Rules of Court. This is because while a

resident agent may be aware of actions filed against his principal (a foreign corporation doing
business in the Philippines), such resident may not be aware of actions initiated by its
principal, whether in the Philippines against a domestic corporation or private individual, or in
the country where such corporation was organized and registered, against a Philippine
registered corporation or a Filipino citizen.
The respondent knew that its counsel, Atty. Aguinaldo, as its resident agent, was not
specifically authorized to execute the said certification. It attempted to show its compliance
with the rule subsequent to the filing of its complaint by submitting, on March 6, 2000, a
resolution purporting to have been approved by its Board of Directors during a teleconference
held on June 25, 1999, allegedly with Atty. Aguinaldo and Suk Kyoo Kim in attendance.
However, such attempt of the respondent casts veritable doubt not only on its claim that such
a teleconference was held, but also on the approval by the Board of Directors of the resolution
authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping.
In its April 12, 2000 Order, the RTC took judicial notice that because of the onset of modern
technology, persons in one location may confer with other persons in other places, and, based
on the said premise, concluded that Suk Kyoo Kim and Atty. Aguinaldo had a teleconference
with the respondents Board of Directors in South Korea on June 25, 1999. The CA, likewise,
gave credence to the respondents claim that such a teleconference took place, as contained in
the affidavit of Suk Kyoo Kim, as well as Atty. Aguinaldos certification.
Generally speaking, matters of judicial notice have three material requisites: (1) the matter
must be one of common and general knowledge; (2) it must be well and authoritatively settled
and not doubtful or uncertain; and (3) it must be known to be within the limits of the
jurisdiction of the court. The principal guide in determining what facts may be assumed to be
judicially known is that of notoriety. Hence, it can be said that judicial notice is limited to facts
evidenced by public records and facts of general notoriety. [15] Moreover, a judicially noticed fact
must be one not subject to a reasonable dispute in that it is either: (1) generally known within
the territorial jurisdiction of the trial court; or (2) capable of accurate and ready determination
by resorting to sources whose accuracy cannot reasonably be questionable. [16]
Things of common knowledge, of which courts take judicial matters coming to the knowledge
of men generally in the course of the ordinary experiences of life, or they may be matters
which are generally accepted by mankind as true and are capable of ready and unquestioned
demonstration. Thus, facts which are universally known, and which may be found in
encyclopedias, dictionaries or other publications, are judicially noticed, provided, they are of
such universal notoriety and so generally understood that they may be regarded as forming
part of the common knowledge of every person. As the common knowledge of man ranges far
and wide, a wide variety of particular facts have been judicially noticed as being matters of
common knowledge. But a court cannot take judicial notice of any fact which, in part, is
dependent on the existence or non-existence of a fact of which the court has no constructive
knowledge.[17]
In this age of modern technology, the courts may take judicial notice that business
transactions may be made by individuals through teleconferencing. Teleconferencing is
interactive group communication (three or more people in two or more locations) through an
electronic medium. In general terms, teleconferencing can bring people together under one
roof even though they are separated by hundreds of miles. [18] This type of group
communication may be used in a number of ways, and have three basic types: (1) video
conferencing - television-like communication augmented with sound; (2) computer
conferencing - printed communication through keyboard terminals, and (3) audio-conferencingverbal communication via the telephone with optional capacity for telewriting or telecopying.
A teleconference represents a unique alternative to face-to-face (FTF) meetings. It was first
introduced in the 1960s with American Telephone and Telegraphs Picturephone. At that time,
however, no demand existed for the new technology. Travel costs were reasonable and
consumers were unwilling to pay the monthly service charge for using the picturephone, which
was regarded as more of a novelty than as an actual means for everyday communication. [20] In
time, people found it advantageous to hold teleconferencing in the course of business and
corporate governance, because of the money saved, among other advantages include:
1. People (including outside guest speakers) who wouldnt normally attend a distant FTF
meeting can participate.
2. Follow-up to earlier meetings can be done with relative ease and little expense.
3. Socializing is minimal compared to an FTF meeting; therefore, meetings are shorter and
more oriented to the primary purpose of the meeting.
4. Some routine meetings are more effective since one can audio-conference from any location
equipped with a telephone.
5. Communication between the home office and field staffs is maximized.
6. Severe climate and/or unreliable transportation may necessitate teleconferencing.
7. Participants are generally better prepared than for FTF meetings.
8. It is particularly satisfactory for simple problem-solving, information exchange, and
procedural tasks.

Page1

[19]

Page1

9. Group members participate more equally in well-moderated teleconferences than an FTF

meeting.[21]
On the other hand, other private corporations opt not to hold teleconferences because of the
following disadvantages:
1. Technical failures with equipment, including connections that arent made.
2. Unsatisfactory for complex interpersonal communication, such as negotiation or bargaining.
3. Impersonal, less easy to create an atmosphere of group rapport.
4. Lack of participant familiarity with the equipment, the medium itself, and meeting skills.
5. Acoustical problems within the teleconferencing rooms.
6. Difficulty in determining participant speaking order; frequently one person monopolizes the
meeting.
7. Greater participant preparation time needed.
8. Informal, one-to-one, social interaction not possible. [22]
Indeed, teleconferencing can only facilitate the linking of people; it does not alter the
complexity
of
group
communication.
Although
it
may
be
easier
to
communicate via teleconferencing, it may also be easier to miscommunicate. Teleconferencing
cannot satisfy the individual needs of every type of meeting. [23]
In the Philippines, teleconferencing and videoconferencing of members of board of directors of
private corporations is a reality, in light of Republic Act No. 8792. The Securities and Exchange
Commission issued SEC Memorandum Circular No. 15, on November 30, 2001, providing the
guidelines to be complied with related to such conferences. [24] Thus, the Court agrees with the
RTC that persons in the Philippines may have a teleconference with a group of persons in South
Korea relating to business transactions or corporate governance.
Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim participated in a
teleconference along with the respondents Board of Directors, the Court is not convinced that
one was conducted; even if there had been one, the Court is not inclined to believe that a
board resolution was duly passed specifically authorizing Atty. Aguinaldo to file the complaint
and execute the required certification against forum shopping.
The records show that the petitioner filed a motion to dismiss the complaint on the ground that
the respondent failed to comply with Section 5, Rule 7 of the Rules of Court. The respondent
opposed the motion on December 1, 1999, on its contention that Atty. Aguinaldo, its resident
agent, was duly authorized to sue in its behalf. The respondent, however, failed to establish its
claim that Atty. Aguinaldo was its resident agent in the Philippines. Even the identification
card[25] of Atty. Aguinaldo which the respondent appended to its pleading merely showed that
he is the company lawyer of the respondents Manila Regional Office.
The respondent, through Atty. Aguinaldo, announced the holding of the teleconference only
during the hearing of January 28, 2000; Atty. Aguinaldo then prayed for ten days, or until
February 8, 2000, within which to submit the board resolution purportedly authorizing him to
file the complaint and execute the required certification against forum shopping. The court
granted the motion.[26] The respondent, however, failed to comply, and instead prayed for 15
more days to submit the said resolution, contending that it was with its main office in Korea.
The court granted the motion per its Order [27] dated February 11, 2000. The respondent again
prayed for an extension within which to submit the said resolution, until March 6, 2000. [28] It
was on the said date that the respondent submitted an affidavit of its general manager Suk
Kyoo Kim, stating, inter alia, that he and Atty. Aguinaldo attended the said teleconference on
June 25, 1999, where the Board of Directors supposedly approved the following resolution:
RESOLVED, that Mario A. Aguinaldo and his law firm M.A. Aguinaldo & Associates or any of its
lawyers are hereby appointed and authorized to take with whatever legal action necessary to
effect the collection of the unpaid account of Expert Travel & Tours. They are hereby
specifically authorized to prosecute, litigate, defend, sign and execute any document or paper
necessary to the filing and prosecution of said claim in Court, attend the Pre-trial Proceedings
and enter into a compromise agreement relative to the above-mentioned claim. [29]
But then, in the same affidavit, Suk Kyoo Kim declared that the respondent do[es] not keep a
written copy of the aforesaid Resolution because no records of board resolutions approved
during teleconferences were kept. This belied the respondents earlier allegation in its February
10, 2000 motion for extension of time to submit the questioned resolution that it was in the
custody of its main office in Korea. The respondent gave the trial court the impression that it
needed time to secure a copy of the resolution kept in Korea, only to allege later ( viathe
affidavit of Suk Kyoo Kim) that it had no such written copy. Moreover, Suk Kyoo Kim stated in
his affidavit that the resolution was embodied in the Secretarys/Resident Agents Certificate
signed by Atty. Aguinaldo. However, no such resolution was appended to the said certificate.
The respondents allegation that its board of directors conducted a teleconference on June 25,
1999 and approved the said resolution (with Atty. Aguinaldo in attendance) is incredible, given
the additional fact that no such allegation was made in the complaint. If the resolution had
indeed been approved on June 25, 1999, long before the complaint was filed, the respondent
should have incorporated it in its complaint, or at least appended a copy thereof. The
respondent failed to do so. It was only on January 28, 2000 that the respondent claimed, for
the first time, that there was such a meeting of the Board of Directors held on June 25, 1999; it

even represented to the Court that a copy of its resolution was with its main office in Korea,
only to allege later that no written copy existed. It was only on March 6, 2000 that the
respondent alleged, for the first time, that the meeting of the Board of Directors where the
resolution was approved was held viateleconference.
Worse still, it appears that as early as January 10, 1999, Atty. Aguinaldo had signed a
Secretarys/Resident Agents Certificate alleging that the board of directors held a
teleconference on June 25, 1999. No such certificate was appended to the complaint, which
was filed on September 6, 1999. More importantly, the respondent did not explain why the said
certificate was signed by Atty. Aguinaldo as early as January 9, 1999, and yet was notarized
one year later (on January 10, 2000); it also did not explain its failure to append the said
certificate to the complaint, as well as to its Compliance dated March 6, 2000. It was only on
January 26, 2001 when the respondent filed its comment in the CA that it submitted the
Secretarys/Resident Agents Certificate [30] dated January 10, 2000.
The Court is, thus, more inclined to believe that the alleged teleconference on June 25, 1999
never took place, and that the resolution allegedly approved by the respondents Board of
Directors during the said teleconference was a mere concoction purposefully foisted on the
RTC, the CA and this Court, to avert the dismissal of its complaint against the petitioner.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of
Appeals in CA-G.R. SP No. 61000 is REVERSED and SET ASIDE. The Regional Trial Court of
Manila is hereby ORDERED to dismiss, without prejudice, the complaint of the respondent.

VALLE VERDE COUNTRY CLUB, INC., ERNESTO VILLALUNA, RAY

GAMBOA, AMADO M.SANTIAGO, JR., FORTUNATO DEE, AUGUSTO
SUNICO, VICTOR SALTA, FRANCISCO ORTIGAS III, ERIC ROXAS,
in their capacities as members of the Board of Directors of
Valle Verde Country Club, Inc., and JOSE RAMIREZ,
Petitioners versus VICTOR AFRICA,
In this petition for review on certiorari,[1] the parties raise a legal question on corporate
governance: Can the members of a corporations board of directors elect another director to fill
in a vacancy caused by the resignation of a hold-over director?
THE FACTUAL ANTECEDENTS
On February 27, 1996, during the Annual Stockholders Meeting of petitioner Valle Verde
Country Club, Inc. (VVCC), the following were elected as members of the VVCC Board of
Directors: Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal (Makalintal),
Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and
Ray Gamboa.[2] In the years 1997, 1998, 1999, 2000, and 2001, however, the requisite quorum
for the holding of the stockholders meeting could not be obtained. Consequently, the abovenamed directors continued to serve in the VVCC Board in a hold-over capacity.
On September 1, 1998, Dinglasan resigned from his position as member of the VVCC Board. In
a meeting held on October 6, 1998, the remaining directors, still constituting a quorum of
VVCCs nine-member board, elected Eric Roxas (Roxas) to fill in the vacancy created by the
resignation of Dinglasan.
A year later, or on November 10, 1998, Makalintal also resigned as member of the VVCC
Board. He was replaced by Jose Ramirez (Ramirez), who was elected by the remaining
members of the VVCC Board on March 6, 2001.
Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and Ramirez
as members of the VVCC Board with the Securities and Exchange Commission (SEC) and the
Regional Trial Court (RTC), respectively. The SEC case questioning the validity of Roxas
appointment was docketed as SEC Case No. 01-99-6177. The RTC case questioning the validity
of Ramirez appointment was docketed as Civil Case No. 68726.

Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of
directors or trustees to be elected from among the holders of stocks, or where there is no
stock, from among the members of the corporation, who shall hold office for one (1) year
until their successors are elected and qualified.

Page1

In his nullification complaint[3] before the RTC, Africa alleged that the election of Roxas was
contrary to Section 29, in relation to Section 23, of the Corporation Code of
the Philippines (Corporation Code). These provisions read:

Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the
board of directors or trustees other than by removal by the stockholders or
members or by expiration of term, may be filled by the vote of at least a majority of
the remaining directors or trustees, if still constituting a quorum; otherwise, said
vacancies must be filled by the stockholders in a regular or special meeting called
for that purpose. A director or trustee so elected to fill a vacancy shall be elected only for
the unexpired term of his predecessor in office. xxx. [Emphasis supplied.]
Africa claimed that a year after Makalintals election as member of the VVCC Board in 1996, his
[Makalintals] term as well as those of the other members of the VVCC Board should be
considered to have already expired. Thus, according to Africa, the resulting vacancy should
have been filled by the stockholders in a regular or special meeting called for that purpose,
and not by the remaining members of the VVCC Board, as was done in this case.
Africa additionally contends that for the members to exercise the authority to fill in vacancies
in the board of directors, Section 29 requires, among others, that there should be an unexpired
term during which the successor-member shall serve. Since Makalintals term had already
expired with the lapse of the one-year term provided in Section 23, there is no more unexpired
term during which Ramirez could serve.
Through a partial decision [4] promulgated on January 23, 2002, the RTC ruled in favor
of Africa and declared the election of Ramirez, as Makalintals replacement, to the VVCC Board
as null and void.
Incidentally, the SEC issued a similar ruling on June 3, 2003, nullifying the election of Roxas as
member of the VVCC Board, vicehold-over director Dinglasan. While VVCC manifested its intent
to appeal from the SECs ruling, no petition was actually filed with the Court of Appeals; thus,
the appellate court considered the case closed and terminated and the SECs ruling final and
executory.[5]
THE PETITION
VVCC now appeals to the Court to assail the RTCs January 23, 2002 partial decision for being
contrary to law and jurisprudence.VVCC made a direct resort to the Court via a petition for
review on certiorari, claiming that the sole issue in the present case involves a purely legal
question.
As framed by VVCC, the issue for resolution is whether the remaining directors of the
corporations Board, still constituting a quorum, can elect another director to fill in a
vacancy caused by the resignation of a hold-over director.
Citing law and jurisprudence, VVCC posits that the power to fill in a vacancy created by the
resignation of a hold-over director is expressly granted to the remaining members of the
corporations board of directors.

As the vacancy in this case was caused by Makalintals resignation, not by the expiration of his
term, VVCC insists that the board rightfully appointed Ramirez to fill in the vacancy.
In support of its arguments, VVCC cites the Courts ruling in the 1927 El Hogar[6] case which
states: Owing to the failure of a quorum at most of the general meetings since the
respondent has been in existence, it has been the practice of the directors to fill in
vacancies in the directorate by choosing suitable persons from among the
stockholders. This custom finds its sanction in Article 71 of the By-Laws, which reads as
follows:
Art. 71. The directors shall elect from among the shareholders members to fill the vacancies
that may occur in the board of directors until the election at the general meeting.
Upon failure of a quorum at any annual meeting the directorate naturally holds over and
continues to function until another directorate is chosen and qualified. Unless the law or the
charter of a corporation expressly provides that an office shall become vacant at the expiration
of the term of office for which the officer was elected, the general rule is to allow the officer to
hold over until his successor is duly qualified. Mere failure of a corporation to elect officers

Page1

Under the above-quoted Section 29 of the Corporation Code, a vacancy occurring in the board
of directors caused by the expiration of a members term shall be filled by the corporations
stockholders. Correlating Section 29 with Section 23 of the same law, VVCC alleges that a
members term shall be for one year and until his successor is elected and
qualified; otherwise stated,a members term expires only when his successor to the Board is
elected and qualified. Thus, until such time as [a successor is] elected or qualified in an annual
election where a quorum is present, VVCC contends that the term of [a member] of the board
of directors has yet not expired.

does not terminate the terms of existing officers nor dissolve the corporation. The doctrine
above stated finds expression in article 66 of the by-laws of the respondent which declares in
so many words that directors shall hold office "for the term of one year or until their successors
shall have been elected and taken possession of their offices." xxx.
It results that the practice of the directorate of filling vacancies by the action of the
directors themselves is valid. Nor can any exception be taken to the personality of the
individuals chosen by the directors to fill vacancies in the body. [Emphasis supplied. Africa, in
opposing VVCCs contentions, raises the same arguments that he did before the trial court.
THE COURTS RULING
We are not persuaded by VVCCs arguments and, thus, find its petition
unmeritorious.
To repeat, the issue for the Court to resolve is whether the remaining directors of a
corporations Board, still constituting a quorum, can elect another director to fill in a
vacancy caused by the resignation of a hold-over director. The resolution of this legal
issue is significantly hinged on the determination of what constitutes a directors term of office.
The holdover period is not part of the term of office of a member of the board of
directors The word term has acquired a definite meaning in jurisprudence. In several cases,
we have defined term as the time during which the officer may claim to hold the
office as of right, and fixes the interval after which the several incumbents shall succeed one
another.[7] The term of office is not affected by the holdover. [8] The term is fixed by
statute and it does not change simply because the office may have become vacant, nor
because the incumbent holds over in office beyond the end of the term due to the fact that a
successor has not been elected and has failed to qualify. Term is distinguished from tenure in
that an officers tenure represents the term during which the incumbent actually holds
office. The tenure may be shorter (or, in case of holdover, longer) than the term for reasons
within or beyond the power of the incumbent.
Based on the above discussion, when Section 23 [9] of the Corporation Code declares that the
board of directorsshall hold office for one (1) year until their successors are elected and
qualified, we construe the provision to mean that the term of the members of the board of
directors shall be only for one year; their term expires one year after election to the
office. The holdover period that time from the lapse of one year from a members election to
the Board and until his successors election and qualification is not part of the directors
original term of office, nor is it a new term; the holdover period, however, constitutes part of
his tenure. Corollary, when an incumbent member of the board of directors continues to serve
in a holdover capacity, it implies thatthe office has a fixed term, which has expired, and
the incumbent is holding the succeeding term.[10]
After the lapse of one year from his election as member of the VVCC Board in 1996, Makalintals
term of office is deemed to have already expired. That he continued to serve in the VVCC
Board in a holdover capacity cannot be considered as extending his term.To be precise,
Makalintals term of office began in 1996 and expired in 1997, but, by virtue of the holdover
doctrine in Section 23 of the Corporation Code, he continued to hold office until his resignation
on November 10, 1998. This holdover period, however, is not to be considered as part of his
term, which, as declared, had already expired.
With the expiration of Makalintals term of office, a vacancy resulted which, by the terms of
Section 29[11] of the Corporation Code, must be filled by the stockholders of VVCC in a regular
or special meeting called for the purpose. To assume as VVCC does that the vacancy is caused
by Makalintals resignation in 1998, not by the expiration of his term in 1997, is both illogical
and unreasonable. His resignation as a holdover director did not change the nature of the
vacancy; the vacancy due to the expiration of Makalintals term had been created long before
his resignation.

VVCCs construction of Section 29 of the Corporation Code on the authority to fill up vacancies
in the board of directors, in relation to Section 23 thereof, effectively weakens the stockholders
power to participate in the corporate governance by electing their representatives to the board
of directors. The board of directors is the directing and controlling body of the corporation. It is
a creation of the stockholders and derives its power to control and direct the affairs of the
corporation from them. The board of directors, in drawing to themselves the powers of the
corporation, occupies a position of trusteeship in relation to the stockholders, in the sense that
the board should exercise not only care and diligence, but utmost good faith in the
management of corporate affairs.[12] The underlying policy of the Corporation Code is that the
business and affairs of a corporation must be governed by a board of directors whose
members have stood for election, and who have actually been elected by the stockholders, on

Page1

The powers of the corporations board of directors emanate from its stockholders

an annual basis. Only in that way can the directors' continued accountability to shareholders,
and the legitimacy of their decisions that bind the corporation's stockholders, be assured. The
shareholder vote is critical to the theory that legitimizes the exercise of power by the directors
or officers over properties that they do not own. [13] This theory of delegated power of the board
of directors similarly explains why, under Section 29 of the Corporation Code, in cases where
the vacancy in the corporations board of directors is caused not by the expiration of a
members term, the successor so elected to fill in a vacancy shall be elected only for the
unexpired term of the his predecessor in office. The law has authorized the remaining
members of the board to fill in a vacancy only in specified instances, so as not to retard or
impair the corporations operations; yet, in recognition of the stockholders right to elect the
members of the board, it limited the period during which the successor shall serve only to
the unexpired term of his predecessor in office. While the Court in El Hogar approved of the
practice of the directors to fill vacancies in the directorate, we point out that this ruling was
made before the present Corporation Code was enacted [14] and before its Section 29 limited the
instances when the remaining directors can fill in vacancies in the board, i.e., when the
remaining directors still constitute a quorum and when the vacancy is caused for reasons other
than by removal by the stockholders or by expiration of the term. It also bears noting that
the vacancy referred to in Section 29 contemplates a vacancy occurring within the
directors term of office. When a vacancy is created by the expiration of a term, logically,
there is no more unexpired term to speak of. Hence, Section 29 declares that it shall be the
corporations stockholders who shall possess the authority to fill in a vacancy caused by the
expiration of a members term. As correctly pointed out by the RTC, when remaining members
of the VVCC Board elected Ramirez to replace Makalintal, there was no more unexpired term to
speak of, as Makalintals one-year term had already expired. Pursuant to law, the authority to
fill in the vacancy caused by Makalintals leaving lies with the VVCCs stockholders, not the
remaining members of its board of directors. WHEREFORE, we DENY the petitioners petition
for review on certiorari, and AFFIRM the partial decision of the Regional Trial Court, Branch
152, Manila, promulgated on January 23, 2002, in Civil Case No. 68726. Costs against the
petitioners.

This is a petition for review on certiorari of the Court of Appeals Decision [1] dated July
22, 2005 in CA-G.R. CV No. 87684, and its Resolution [2] dated November 24, 2005,
denying petitioners motion for reconsideration.
The Court of Appeals held that Judge Antonio I. De Castro of the Regional Trial Court
(RTC) of Manila, Branch 3, did not commit grave abuse of discretion in issuing the
Orders dated July 21, 2004 and September 24, 2004 in Civil Case No. 04-109655,
denying petitioners Motion to Admit Second Amended Complaint.
The facts, as stated by the Court of Appeals, are as follows:
Pursuant to the by-laws of Legaspi Towers 300, Inc., petitioners Lilia Marquinez
Palanca, Rosanna D. Imai, Gloria Domingo and Ray Vincent, the incumbent Board of
Directors, set the annual meeting of the members of the condominium corporation
and the election of the new Board of Directors for the years 2004-2005 on April 2,
2004 at 5:00 p.m. at the lobby of Legaspi Towers 300, Inc.
Out of a total number of 5,723 members who were entitled to vote, 1,358 were
supposed to vote through their respective proxies and their votes were critical in
determining the existence of a quorum, which was at least 2,863 (50% plus 1). The
Committee on Elections of Legaspi Towers 300, Inc., however, found most of the
proxy votes, at its face value, irregular, thus, questionable; and for lack of time to
authenticate the same, petitioners adjourned the meeting for lack of quorum.
However, the group of respondents challenged the adjournment of the
meeting. Despite petitioners' insistence that no quorum was obtained during the
annual meeting held on April 2, 2004, respondents pushed through with the
scheduled election and were elected as the new Board of Directors and officers

Page1

LEGASPI TOWERS 300,

INC.,
LILIA
MARQUINEZ
PALANCA,ROSANNA D. IMAI, GLORIA DOMINGO and RAY
VINCENT,
Petitioners - versus AMELIA P. MUER, SAMUEL M. TANCHOCO, ROMEO TANKIANG,
RUDEL PANGANIBAN, DOLORES AGBAYANI, ARLENEDAL A.
YASUMA, GODOFREDO M. CAGUIOA and EDGARDO M.
SALANDANAN,
Respondents.

of Legaspi Towers 300, Inc. Subsequently, they submitted a General Information

Sheet to the Securities and Exchange Commission (SEC) with the following new set of
officers: Amelia P. Muer, President; Samuel M. Tanchoco, Internal Vice President;
Romeo V. Tankiang, External Vice-President; Rudel H. Panganiban, Secretary; Dolores
B. Agbayani, Assistant Secretary; Arlenedal A. Yasuma, Treasurer; Godofredo M.
Caguioa, Assistant Treasurer; and Edgardo M. Salandanan, Internal Auditor.
On April 13, 2004, petitioners filed a Complaint for the Declaration of Nullity of
Elections with Prayers for the lssuance of Temporary Restraining Orders and Writ of
Preliminary Injunction and Damages against respondents with the RTC of Manila.
Before respondents could file an Answer to the original Complaint, petitioners filed
an Amended Complaint, which was admitted by the RTC in an Order dated April 14,
2004.
On April 20, 2004, before respondents could submit an Answer to the Amended
Complaint, petitioners again filed an Urgent Ex-Parte Motion to Admit Second
Amended Complaint and for the lssuance of Ex-Parte Temporary Restraining Order
Effective only for Seventy-Two (72) Hours. It was stated in the said pleading that the
case was raffled to Branch 24, but Presiding Judge Antonio Eugenio, Jr. inhibited
himself from handling the case; and when the case was assigned to Branch 46,
Presiding Judge Artemio S. Tipon also inhibited himself from the case.
On April 21, 2004, Executive Judge Enrico A. Lanzanas of the RTC of Manila acted on
the Motion for the Issuance of an Ex Parte Temporary Restraining Order, and issued
an Order disposing, thus:
WHEREFORE, pursuant to administrative Circular No. 20-95 of the Supreme Court,
a seventy-two (72) hour Temporary Restraining Order is hereby issued, enjoining
defendants from taking over management, or to maintain a status quo, in order to
prevent further irreparable damages and prejudice to the corporation, as day-to-day
activities will be disrupted and will be paralyzed due to the legal controversy. [3]
On the same date, April 21, 2004, respondents filed their Answer [4] to the Amended
Complaint,
alleging
that
the
election
onApril
2,
2004 was
lawfully
conducted. Respondents cited the Report[5] of SEC Counsel Nicanor P. Patricio, who
was ordered by the SEC to attend the annual meeting of Legaspi Towers 300, Inc.
on April 2, 2004. Atty. Patricio stated in his Report that at 5:40 p.m. of April 2, 2004, a
representative of the Board of the condominium corporation stated that the
scheduled elections could not proceed because the Election Committee was not able
to validate the authenticity of the proxies prior to the election due to limited time
available as the submission was made only the day before. Atty. Patricio noted that
the Board itself fixed the deadline for submission of proxies at 5:00 p.m. of April 1,
2004. One holder of proxy stood up and questioned the motives of the Board in
postponing the elections. The Board objected to this and moved for a declaration of
adjournment. There was an objection to the adjournment, which was ignored by the
Board. When the Board adjourned the meeting despite the objections of the unit
owners, the unit owners who objected to the adjournment gathered themselves at
the same place of the meeting and proceeded with the meeting. The attendance was
checked from among the members who stayed at the meeting. Proxies were counted
and recorded, and there was a declaration of a quorum out of a total of 5,721 votes,
2,938 were present either in person or proxy. Thereafter, ballots were prepared,
proxies were counterchecked with the number of votes entitled to each unit owner,
and then votes were cast. At about 9:30 p.m., canvassing started, and by 11:30 p.m.,
the newly-elected members of the Board of Directors for the years 2004-2005 were
named.
Respondents contended that from the proceedings of the election reported by SEC
representative, Atty. Patricio, it was clear that the election held on April 2, 2004 was
legitimate and lawful; thus, they prayed for the dismissal of the complaint for lack
cause of action against them.

On April 26, 2004, the trial court conducted a hearing on the injunction sought by
petitioners, and issued an Order clarifying that the TRO issued by Executive Judge

Page1

This case was scheduled to be re-raffled to regular courts on April 22, 2004, and was
assigned to Judge Antonio I. De Castro of the RTC of Manila, Branch 3 (trial court).

Enrico A. Lanzanas, enjoining respondents from taking over management, was not
applicable as the current Board of Directors (respondents) had actually assumed
management of the corporation. The trial court stated that the status quo mentioned
in the said TRO shall mean that the current board of directors shall continue to
manage the affairs of the condominium corporation, but the court shall monitor all
income earned and expenses incurred by the corporation. The trial court stated:
Precisely this complaint seeks to annul the election of the Board due to alleged
questionable proxy votes which could not have produced a quorum. As such, there is
nothing to enjoin and so injunction shall fail. As an answer has been filed, the case is
ripe for pre-trial and the parties are directed to file their pre-trial briefs by May 3,
2004.
As plaintiffs second amended complaint is admitted by the Court,
defendants are given up to May 3, 2004 to file a comment thereto. In the
meantime, the banks and other persons & entities are advised to recognize the Board
headed by its president, Amelia Muer.All transactions made by the Board and its
officers for the corporation are considered legal for all intents and purposes. [6]
On May 3, 2004, respondents filed a Comment on the Motion to Amend Complaint,
praying that the name of Legaspi Towers 300, Inc., as party-plaintiff in the Second
Amended Complaint, be deleted as the said inclusion by petitioners was made
without the authority of the current Board
of Directors, which had been recognized by the trial court in its Order dated April 26,
2004.
During the pre-trial conference held on July 21, 2004, the trial court resolved various
incidents in the case and other issues raised by the contending parties. One of the
incidents acted upon by the trial court was petitioners' motion to amend complaint to
implead Legaspi Towers 300, Inc. as plaintiff, which motion was denied with the
issuance of two Orders both dated July 21, 2004. The first Order [7] held that the said
motion could not be admitted for being improper, thus:
On plaintiffs motion to admit amended complaint (to include Legaspi Towers 300, Inc.
as plaintiff), the Court rules to deny the motion for being improper. (A separate Order
of even date is issued.) As prayed for, movants are given 10 days from today to file a
motion for reconsideration thereof, while defendants are given 10 days from receipt
thereof to reply.[8]
The second separate Order,[9] also dated July 21, 2004, reads:
This resolves plaintiffs motion to amend complaint to include Legaspi Towers 300, Inc.
as party-plaintiff and defendants comment thereto. Finding no merit therein and for
the reasons stated in the comment, the motion is hereby DENIED.
Petitioners filed a Motion for Reconsideration of the Orders dated July 21, 2004. In the
Order[10] dated September 24, 2004, the trial court denied the motion for
reconsideration for lack of merit.
Petitioners filed a petition for certiorari with the Court of Appeals alleging that the
trial court gravely abused its discretion amounting to lack or excess of jurisdiction in
issuing the Orders dated July 21, 2004 and September 24, 2004, and praying that
judgment be rendered annulling the said Orders and directing RTC Judge De Castro to
admit their Second Amended Complaint.

Petitioners motion for reconsideration was denied by the Court of Appeals in a

Resolution dated November 24, 2005.

Page1

In a Decision dated July 22, 2005, the Court of Appeals dismissed the petition for lack
of merit. It held that RTC Judge De Castro did not commit grave abuse of discretion in
denying petitioners' Motion To Admit Second Amended Complaint.
The Court of Appeals stated that petitioners complaint sought to nullify the election
of the Board of Directors held on April 2, 2004, and to protect and enforce their
individual right to vote. The appellate court held that as the right to vote is a
personal right of a stockholder of a corporation, such right can only be enforced
through a direct action; hence, Legaspi Towers 300, Inc. cannot be impleaded as
plaintiff in this case.

Petitioners filed this petition raising the following issues:

THE HONORABLE COURT OF APPEALS ERRED IN RESOLVING THAT PUBLIC
RESPONDENT-APPELLEE DID NOT COMMIT ANY WHIMSICAL, ARBITRARY AND
OPPRESSIVE EXERCISE OF JUDICIAL AUTHORITY WHEN THE LATTER REVERSED HIS
EARLIER RULING ALREADY ADMITTING THE SECOND AMENDED COMPLAINT OF
PETITIONERS-APPELLANTS.
THERE IS NO LEGAL BASIS FOR THE HONORABLE COURT OF APPEALS TO RESOLVE
THAT PETITIONERS-APPELLANTS HAVE NO RIGHT AS BOARD OF DIRECTORS TO BRING
AN ACTION IN BEHALF OF LEGASPI TOWERS 300, INC.
THERE IS NO LEGAL BASIS FOR THE HONORABLE COURT OF APPEALS TO RESOLVE
THAT THE ELECTIONS CONDUCTED IN LEGASPI TOWERS 300, INC. FOR THE PERIOD
OF 2005 TO 2006 HAVE RENDERED THE ISSUE IN CIVIL CASE NO. 04-10655 MOOT
AND ACADEMIC.[11]
Petitioners contend that the Court of Appeals erred in not finding that RTC Judge
Antonio I. De Castro committed grave abuse of discretion amounting to lack or excess
of jurisdiction in denying the admission of the Second Amended Complaint in the
Orders dated July 21, 2004 and September 24, 2004, despite the fact that he had
already ordered its admission in a previous Order dated April 26, 2004.
Petitioners contention is unmeritorious.
It is clear that in the Orders dated July 21, 2004, the trial court did not admit the
Second Amended Complaint wherein petitioners made the condominium corporation,
Legaspi Towers 300, Inc., the party-plaintiff. In the Order dated September 24, 2004,
denying petitioners motion for reconsideration of the Orders dated July 21, 2004, the
RTC explained its action, thus:
x x x The word admitted in the 3 rd paragraph of the Order dated April 26, 2004 should
read received for which defendants were told to comment thereon as an answer has
been filed. It was an oversight of the clerical error in said Order.
The Order of July 21, 2004 states amended complaint in the 3 rd paragraph thereof
and so it does not refer to the second amended complaint. The amended complaint
was admitted by the court of origin Br. 24 in its Order of April 14, 2004 as there was
no responsive pleading yet.
Nonetheless, admission of the second amended complaint is improper. Why should
Legaspi Towers 300, Inc. x x x be included as party-plaintiff when defendants are
members thereof too like plaintiffs. Both parties are deemed to be acting in their
personal capacities as they both claim to be the lawful board of directors. The motion
for reconsideration for the admission of the second amended complaint is hereby
DENIED.[12]
The courts have the inherent power to amend and control their processes and orders
so as to make them conformable to law and justice. [13] A judge has an inherent right,
while his judgment is still under his control, to correct errors, mistakes, or injustices.
Next, petitioners state that the Court of Appeals seems to be under the impression
that the action instituted by them is one brought forth solely by way of a derivative
suit. They clarified that the inclusion of Legaspi Towers 300, Inc. as a party-plaintiff in
the Second Amended Complaint was, first and foremost, intended as a direct action
by the corporation acting through them (petitioners) as the reconstituted Board of
Directors of Legaspi Towers 300, Inc. Petitioners allege that their act of including the
corporation as party-plaintiff is consistent with their position that the election
conducted by respondents was invalid; hence, petitioners, under their by-laws, could
reconstitute themselves as the Board of Directors of Legaspi Towers 300, Inc. in a
hold-over capacity for the succeeding term. By so doing, petitioners had the right as
the rightful Board of Directors to bring the action in representation of Legaspi Towers
300, Inc. Thus, the Second Amended Complaint was intended by the petitioners as a
direct suit by the corporation joined in by the petitioners to protect and enforce their
common rights.

Page1

[14]

Petitioners argument is unmeritorious. The Court notes that in the Amended

Complaint, petitioners as plaintiffs stated that they are the incumbent reconstituted
Board of Directors of Legaspi Towers 300, Inc., and that defendants, herein
respondents, are the newly-elected members of the Board of Directors; while in the
Second Amended Complaint, the plaintiff is Legaspi Towers 300, Inc., represented by
petitioners as the allegedly incumbent reconstituted Board of Directors of Legaspi
Towers 300, Inc.
The Second Amended Complaint states who the plaintiffs are, thus: 1.
That the
plaintiffs are: LEGASPI TOWERS 300, INC., non-stock corporation xxx duly
represented by the incumbent reconstituted Board of Directors of Legaspi
Towers 300, Inc., namely: ELIADORA FE BOTE VERA xxx, as President; BRUNO C.
HAMAN xxx, as Director; LILY MARQUINEZ PALANCA xxx, as Secretary; ROSANNA
DAVID IMAI xxx, as Treasurer; and members of the Board of Directors, namely:
ELIZABETH GUERRERO xxx, GLORIA DOMINGO xxx, and RAY VINCENT. The Court
agrees with the Court of Appeals that the Second Amended Complaint is meant to be
a derivative suit filed by petitioners in behalf of the corporation. The Court of Appeals
stated in its Decision that petitioners justified the inclusion of Legaspi Towers 300,
Inc. as plaintiff in Civil Case No. 0410655 by invoking the doctrine of derivative suit,
as petitioners specifically argued, thus:
[T]he sudden takeover by private
respondents of the management of Legaspi Towers 300, Inc. has only proven the
rightfulness of petitioners move to include Legaspi Towers 300, Inc. as party-plaintiff.
This is because every resolution passed by private respondents sitting as a board
result[s] in violation of Legaspi Towers 300, Inc.s right to be managed and
represented by herein petitioners. In short, the amendment of the complaint [to
include] Legaspi Towers 300, Inc. was done in order to protect the interest and
enforce the right of the Legaspi [Towers 300,] Inc. to be administered and managed
[by petitioners] as the duly constituted Board of Directors.This is no different from
and may in fact be considered as a DERIVATIVE SUIT instituted by an
individual stockholder against those controlling the corporation but is
being instituted in the name of and for the benefit of the corporation whose
right/s are being violated.[16]
Is a derivative suit proper in this case? Cua, Jr. v. Tan[17] differentiates a derivative
suit and an individual/class suit as follows: A derivative suit must be differentiated
from individual and representative or class suits, thus: Suits by stockholders or
members of a corporation based on wrongful or fraudulent acts of directors or other
persons may be classified into individual suits, class suits, and derivative suits.
Where a stockholder or member is denied the right of inspection, his suit would
be individual because the wrong is done to him personally and not to the
other stockholders or the corporation. Where the wrong is done to a group of
stockholders, as where preferred stockholders' rights are violated, a class or
representative suit will be proper for the protection of all stockholders
belonging to the same group. But where the acts complained of constitute a
wrong to the corporation itself, the cause of action belongs to the
corporation and not to the individual stockholder or member. Although in most
every case of wrong to the corporation, each stockholder is necessarily affected
because the value of his interest therein would be impaired, this fact of itself is not
sufficient to give him an individual cause of action since the corporation is a person
distinct and separate from him, and can and should itself sue the wrongdoer.
Otherwise, not only would the theory of separate entity be violated, but there would
be multiplicity of suits as well as a violation of the priority rights of creditors.

Page1

Petitioners contend that Legaspi Towers 300, Inc. is a real party-in- interest as it
stands to be affected the most by the controversy, because it involves the
determination of whether or not the corporations by-laws was properly carried out in
the meeting held on April 2, 2004, when despite the adjournment of the meeting for
lack of quorum, the elections were still conducted. Although petitioners admit that
the action involves their right to vote, they argue that it also involves the right of the
condominium corporation to be managed and run by the duly-elected Board of
Directors, and to seek redress against those who wrongfully occupy positions of the
corporation and who may mismanage the corporation.

Page1

Furthermore, there is the difficulty of determining the amount of damages that should
be
paid
to
each
individual
stockholder.
However,
in
cases
of mismanagement where the wrongful acts are committed by the directors
or trustees themselves,a stockholder or member may find that he has no redress
because the former are vested by law with the right to decide whether or not the
corporation should sue, and they will never be willing to sue themselves. The
corporation would thus be helpless to seek remedy. Because of the frequent
occurrence of such a situation, the common law gradually recognized the
right of a stockholder to sue on behalf of a corporation in what eventually
became known as a "derivative suit."It has been proven to be an effective
remedy of the minority against the abuses of management. Thus, an individual
stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holds stock in order to protect or vindicate
corporate rights, whenever officials of the corporation refuse to sue or are
the ones to be sued or hold the control of the corporation. In such actions,
the suing stockholder is regarded as the nominal party, with the
corporation as the party-in- interest.[18]
Since it is the corporation that is the real party-in-interest in a derivative suit, then
the reliefs prayed for must be for the benefit or interest of the corporation. [19] When
the reliefs prayed for do not pertain to the corporation, then it is an improper
derivative suit.[20]
The requisites for a derivative suit are as follows: a) the party bringing suit should be
a shareholder as of the time of the act or transaction complained of, the number of
his shares not being material; b) he has tried to exhaust intra-corporate
remedies, i.e., has made a demand on the board of directors for the appropriate relief
but the latter has failed or refused to heed his plea; and c)
the cause of action
actually devolves on the corporation, the wrongdoing or harm having been, or being
caused to the corporation and not to the particular stockholder bringing the suit.[21]
In this case, petitioners, as members of the Board of Directors of the condominium
corporation before the election in question, filed a complaint against the newlyelected members of the Board of Directors for the years 2004-2005, questioning the
validity of the election held on April 2, 2004, as it was allegedly marred by lack of
quorum, and praying for the nullification of the said election.
As stated by the Court of Appeals, petitioners complaint seek to nullify the said
election, and to protect and enforce their individual right to vote. Petitioners seek the
nullification of the election of the Board of Directors for the years 2004-2005,
composed of herein respondents, who pushed through with the election even if
petitioners had adjourned the meeting allegedly due to lack of quorum. Petitioners
are the injured party, whose rights to vote and to be voted upon were directly
affected by the election of the new set of board of directors. The party-in-interest are
the petitioners as stockholders, who wield such right to vote. The cause of action
devolves on petitioners, not the condominium corporation, which did not have the
right to vote. Hence, the complaint for nullification of the election is a direct
action by petitioners, who were the members of the Board of Directors of the
corporationbefore the election, against respondents, who are the newly-elected
Board of Directors. Under the circumstances, the derivative suit filed by petitioners in
behalf of the condominium corporation in the Second Amended Complaint is
improper. The stockholders right to file a derivative suit is not based on any express
provision of The Corporation Code, but is impliedly recognized when the law makes
corporate directors or officers liable for damages suffered by the corporation and its
stockholders for violation of their fiduciary duties, [22] which is not the issue in this
case. Further, petitioners change of argument before this Court, asserting that the
Second Amended Complaint is a direct action filed by the corporation, represented by
the
petitioners
as
the
incumbent
Board
of
Directors,
is
an
afterthought, and lacks merit,considering that the newly-elected Board of Directors
had assumed their function to manage corporate affairs.[23]
In fine, the Court of Appeals correctly upheld the Orders of the trial court dated July
21, 2004 and September 24, 2004denying petitioners Motion to Admit Second
Amended Complaint.
Lastly, petitioners contend that the Court of Appeals erred in resolving that the recent
elections conducted by LegaspiTowers, 300, Inc. have rendered the issue

Page1

raised via the special civil action for certiorari before the appellate court moot and
academic.
The Court of Appeals, in its Resolution dated November 24, 2005, stated:
x x x [T]he election of the corporations new set of directors for the years 2005-2006
has, finally, rendered the petition at bench moot and academic. As correctly argued
by private respondents, the nullification of the orders assailed by petitioners would,
therefore, be of little or no practical and legal purpose. [24]
The statement of the Court of Appeals is correct. Petitioners question the validity of
the election of the Board of Directors for the years 2004-2005, which election they
seek to nullify in Civil Case No. 04-109655. However, the valid election of a new set
of Board of Directors for the years 2005-2006 would, indeed, render this petition
moot and academic.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CAG.R. CV No. 87684, dated July 22, 2005, and its Resolution dated November 24, 2005
are AFFIRMED.