Termination of corporate officer is intracorporate suit, not labor case; RTC has jurisdiction, not Labor Arbiter - G.R. No. 171993

G.R. No. 171993

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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, 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 corporation’s by-laws. 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 Court’s 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.

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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 corporation’s [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:

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.]

A careful perusal of petitioner corporation’s 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.

Paragraph 2, Section 1, Article IV of petitioner corporation’s 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 corporation’s 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 corporation’s 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 corporation’s 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 corporation’s 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 latter’s by-laws, can only be regarded as its employee or subordinate official. Noticeably, respondent’s compensation as petitioner corporation’s General Manager was set, fixed and determined not by the latter’s Board of Directors but simply by its President, petitioner Lucila. The same was not subject to the approval of petitioner corporation’s Board of Directors. This is an indication that respondent was an employee and not a corporate officer.

To prove that respondent was petitioner corporation’s corporate officer, petitioners presented before the NLRC an undated Secretary’s Certificate showing that corporation’s Board of Directors approved a resolution making respondent’s position of General Manager a corporate office. The submission, however, of the said undated Secretary’s 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.

Moreover, as has been aptly observed by the Court of Appeals, the board resolution mentioned in that undated Secretary’s 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:

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 corporation’s] 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]ecretary’s [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 corporation’s by-laws]. Regrettably, the [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 RTC’s 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 intra-corporate relationship between them. With regard to the subject of the controversy or issue involved herein, i.e., respondent’s dismissal as petitioner corporation’s General Manager, the same did not present or relate to an intra-corporate dispute. To note, there was no evidence submitted to show that respondent’s removal as petitioner corporation’s General Manager carried with it his removal as its director and stockholder. Also, petitioners’ allegation that respondent’s claim of 30% share of petitioner corporation’s 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 corporation’s director and stockholder. Also, in contrast to NLRC’s findings, neither petitioner corporation’s by-laws nor the Management Contract stated that respondent’s appointment and termination from the position of General Manager was subject to the approval of petitioner corporation’s 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 respondent’s dismissal was done with the conformity of petitioner corporation’s Board of Directors or that the latter had a hand on respondent’s 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, respondent’s dismissal as petitioner corporation’s 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 corporation’s corporate officer but merely its employee, and that, consequently, jurisdiction belongs to the Labor Arbiter, this Court will now determine if respondent’s dismissal from employment is illegal.

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