Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 161886 March 16, 2007

FILIPINAS PORT SERVICES, INC., represented by stockholders, ELIODORO C. CRUZ and

MINDANAO TERMINAL AND BROKERAGE SERVICES, INC., Petitioners,

vs.

VICTORIANO S. GO, ARSENIO LOPEZ CHUA, EDGAR C. TRINIDAD, HERMENEGILDO

M. TRINIDAD, JESUS SYBICO, MARY JEAN D. CO, HENRY CHUA, JOSELITO S. JAYME,

ERNESTO S. JAYME, and ELIEZER B. DE JESUS, Respondents.

D E C I S I O N

GARCIA, J.:

Assailed and sought to be set aside in this petition for review on certiorari is the Decision1 dated 19

January 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 73827, reversing an earlier decision of

the Regional Trial Court (RTC) of Davao City and accordingly dismissing the derivative suit instituted

by petitioner Eliodoro C. Cruz for and in behalf of the stockholders of co-petitioner Filipinas Port

Services, Inc. (Filport, hereafter).

The case is actually an intra-corporate dispute involving Filport, a domestic corporation engaged in

stevedoring services with principal office in Davao City. It was initially instituted with the Securities

and Exchange Commission (SEC) where the case hibernated and remained unresolved for several years

until it was overtaken by the enactment into law, on 19 July 2000, of Republic Act (R.A.) No. 8799,

otherwise known as the Securities Regulation Code. From the SEC and consistent with R.A. No. 8799,

the case was transferred to the RTC of Manila, Branch 14, sitting as a corporate court. Subsequently,

upon respondents motion, the case eventually landed at the RTC of Davao City where it was docketed as Civil Case No. 28,552-2001. RTC-Davao City, Branch 10, ruled in favor of the petitioners prompting

respondents to go to the CA in CA-G.R. CV No. 73827. This time, the respondents prevailed, hence, this

petition for review by the petitioners.

The relevant facts:

On 4 September 1992, petitioner Eliodoro C. Cruz, Filports president from 1968 until he lost his bid for reelection as Filports president during the general stockholders meeting in 1991, wrote a letter2 to the corporations Board of Directors questioning the boards creation of the following positions with a monthly remuneration of P13,050.00 each, and the election thereto of certain members of the board, to

wit:

Asst. Vice-President for Corporate Planning - Edgar C. Trinidad (Director)

Asst. Vice-President for Operations - Eliezer B. de Jesus (Director)

Asst. Vice-President for Finance - Mary Jean D. Co (Director)

Asst. Vice-President for Administration - Henry Chua (Director)

Special Asst. to the Chairman - Arsenio Lopez Chua (Director)

Special Asst. to the President - Fortunato V. de Castro

In his aforesaid letter, Cruz requested the board to take necessary action/actions to recover from those

elected to the aforementioned positions the salaries they have received.

On 15 September 1992, the board met and took up Cruzs letter. The records do not show what specific action/actions the board had taken on the letter. Evidently, whatever action/actions the board took did

not sit well with Cruz.

On 14 June 1993, Cruz, purportedly in representation of Filport and its stockholders, among which is

herein co-petitioner Mindanao Terminal and Brokerage Services, Inc. (Minterbro), filed with the SEC a

petition3 which he describes as a derivative suit against the herein respondents who were then the

incumbent members of Filports Board of Directors, for alleged acts of mismanagement detrimental to the interest of the corporation and its shareholders at large, namely:

1. creation of an executive committee in 1991 composed of seven (7) members of the

board with compensation of P500.00 for each member per meeting, an office which, to

Cruz, is not provided for in the by-laws of the corporation and whose function merely

duplicates those of the President and General Manager;

2. increase in the emoluments of the Chairman, Vice-President, Treasurer and Assistant

General Manager which increases are greatly disproportionate to the volume and

character of the work of the directors holding said positions;

3. re-creation of the positions of Assistant Vice-Presidents (AVPs) for Corporate

Planning, Operations, Finance and Administration, and the election thereto of board

members Edgar C. Trinidad, Eliezer de Jesus, Mary Jean D. Co and Henry Chua,

respectively; and

4. creation of the additional positions of Special Assistants to the President and the Board

Chairman, with Fortunato V. de Castro and Arsenio Lopez Chua elected to the same, the

directors elected/appointed thereto not doing any work to deserve the monthly

remuneration of P13,050.00 each.

In the same petition, docketed as SEC Case No. 06-93-4491, Cruz alleged that despite demands made

upon the respondent members of the board of directors to desist from creating the positions in question

and to account for the amounts incurred in creating the same, the demands were unheeded. Cruz thus

prayed that the respondent members of the board of directors be made to pay Filport, jointly and

severally, the sums of money variedly representing the damages incurred as a result of the creation of

the offices/positions complained of and the aggregate amount of the questioned increased salaries.

In their common Answer with Counterclaim,4 the respondents denied the allegations of mismanagement

and materially averred as follows:

1. the creation of the executive committee and the grant of per diems for the attendance

of each member are allowed under the by-laws of the corporation;

2. the increases in the salaries/emoluments of the Chairman, Vice-President, Treasurer

and Assistant General Manager were well within the financial capacity of the corporation

and well-deserved by the officers elected thereto; and

3. the positions of AVPs for Corporate Planning, Operations, Finance and Administration

were already in existence during the tenure of Cruz as president of the corporation, and

were merely recreated by the Board, adding that all those appointed to said positions of

Assistant Vice Presidents, as well as the additional position of Special Assistants to the

Chairman and the President, rendered services to deserve their compensation.

In the same Answer, respondents further averred that Cruz and his co-petitioner Minterbro, while

admittedly stockholders of Filport, have no authority nor standing to bring the so-called "derivative suit"

for and in behalf of the corporation; that respondent Mary Jean D. Co has already ceased to be a

corporate director and so with Fortunato V. de Castro, one of those holding an assailed position; and that

no demand to cease and desist from further committing the acts complained of was made upon the

board. By way of affirmative defenses, respondents asserted that (1) the petition is not duly verified by

petitioner Filport which is the real party-in-interest; (2) Filport, as represented by Cruz and Minterbro,

failed to exhaust remedies for redress within the corporation before bringing the suit; and (3) the petition

does not show that the stockholders bringing the suit are joined as nominal parties. In support of their

counterclaim, respondents averred that Cruz filed the alleged derivative suit in bad faith and purely for

harassment purposes on account of his non-reelection to the board in the 1991 general stockholders meeting.

As earlier narrated, the derivative suit (SEC Case No. 06-93-4491) hibernated with the SEC for a long

period of time. With the enactment of R.A. No. 8799, the case was first turned over to the RTC of

Manila, Branch 14, sitting as a corporate court. Thereafter, on respondents motion, it was eventually transferred to the RTC of Davao City whereat it was docketed as Civil Case No. 28,552-2001 and

raffled to Branch 10 thereof.

On 10 December 2001, RTC-Davao City rendered its decision5 in the case. Even as it found that (1)

Filports Board of Directors has the power to create positions not provided for in the by-laws of the corporation since the board is the governing body; and (2) the increases in the salaries of the board

chairman, vice-president, treasurer and assistant general manager are reasonable, the trial court

nonetheless rendered judgment against the respondents by ordering the directors holding the positions of

Assistant Vice President for Corporate Planning, Special Assistant to the President and Special Assistant

to the Board Chairman to refund to the corporation the salaries they have received as such officers

"considering that Filipinas Port Services is not a big corporation requiring multiple executive positions"

and that said positions "were just created for accommodation." We quote the fallo of the trial courts decision.

WHEREFORE, judgment is rendered ordering:

Edgar C. Trinidad under the third and fourth causes of action to restore to the corporation the total

amount of salaries he received as assistant vice president for corporate planning; and likewise ordering

Fortunato V. de Castro and Arsenio Lopez Chua under the fourth cause of action to restore to the

corporation the salaries they each received as special assistants respectively to the president and board

chairman. In case of insolvency of any or all of them, the members of the board who created their

positions are subsidiarily liable.

The counter claim is dismissed.

From the adverse decision of the trial court, herein respondents went on appeal to the CA in CA-G.R.

CV No. 73827.

In its decision6 of 19 January 2004, the CA, taking exceptions to the findings of the trial court that the

creation of the positions of Assistant Vice President for Corporate Planning, Special Assistant to the

President and Special Assistant to the Board Chairman was merely for accommodation purposes,

granted the respondents appeal, reversed and set aside the appealed decision of the trial court and accordingly dismissed the so-called derivative suit filed by Cruz, et al., thus:

IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the challenged decision is

REVERSED and SET ASIDE, and a new one entered DISMISSING Civil Case No. 28,552-2001 with

no pronouncement as to costs.

SO ORDERED.

Intrigued, and quite understandably, by the fact that, in its decision, the CA, before proceeding to

address the merits of the appeal, prefaced its disposition with the statement reading "[T]he appeal is

bereft of merit,"7 thereby contradicting the very fallo of its own decision and the discussions made in the

body thereof, respondents filed with the appellate court a Motion For Nunc Pro Tunc Order,8 thereunder

praying that the phrase "[T]he appeal is bereft of merit," be corrected to read "[T]he appeal is impressed

with merit." In its resolution9 of 23 April 2004, the CA granted the respondents motion and accordingly

effected the desired correction.

Hence, petitioners present recourse.

Petitioners assigned four (4) errors allegedly committed by the CA. For clarity, we shall formulate the

issues as follows:

1. Whether the CA erred in holding that Filports Board of Directors acted within its powers in creating the executive committee and the positions of AVPs for Corporate

Planning, Operations, Finance and Administration, and those of the Special Assistants to

the President and the Board Chairman, each with corresponding remuneration, and in

increasing the salaries of the positions of Board Chairman, Vice-President, Treasurer and

Assistant General Manager; and

2. Whether the CA erred in finding that no evidence exists to prove that (a) the positions

of AVP for Corporate Planning, Special Assistant to the President and Special Assistant

to the Board Chairman were created merely for accommodation, and (b) the

salaries/emoluments corresponding to said positions were actually paid to and received

by the directors appointed thereto.

For their part, respondents, aside from questioning the propriety of the instant petition as the same

allegedly raises only questions of fact and not of law, also put in issue the purported derivative nature of

the main suit initiated by petitioner Eliodoro C. Cruz allegedly in representation of and in behalf of

Filport and its stockholders.

The petition is bereft of merit.

It is axiomatic that in petitions for review on certiorari under Rule 45 of the Rules of Court, only

questions of law may be raised and passed upon by the Court. Factual findings of the CA are binding

and conclusive and will not be reviewed or disturbed on appeal.10

Of course, the rule is not cast in stone;

it admits of certain exceptions, such as when the findings of fact of the appellate court are at variance

with those of the trial court,11

as here. For this reason, and for a proper and complete resolution of the

case, we shall delve into the records and reexamine the same.

The governing body of a corporation is its board of directors. Section 23 of the Corporation Code12

explicitly provides that unless otherwise provided therein, the corporate powers of all corporations

formed under the Code shall be exercised, all business conducted and all property of the corporation

shall be controlled and held by a board of directors. Thus, with the exception only of some powers

expressly granted by law to stockholders (or members, in case of non-stock corporations), the board of

directors (or trustees, in case of non-stock corporations) has the sole authority to determine policies,

enter into contracts, and conduct the ordinary business of the corporation within the scope of its charter,

i.e., its articles of incorporation, by-laws and relevant provisions of law. Verily, the authority of the

board of directors is restricted to the management of the regular business affairs of the corporation,

unless more extensive power is expressly conferred.

The raison detre behind the conferment of corporate powers on the board of directors is not lost on the Court. Indeed, the concentration in the board of the powers of control of corporate business and of

appointment of corporate officers and managers is necessary for efficiency in any large organization.

Stockholders are too numerous, scattered and unfamiliar with the business of a corporation to conduct its

business directly. And so the plan of corporate organization is for the stockholders to choose the

directors who shall control and supervise the conduct of corporate business.13

In the present case, the boards creation of the positions of Assistant Vice Presidents for Corporate Planning, Operations, Finance and Administration, and those of the Special Assistants to the President

and the Board Chairman, was in accordance with the regular business operations of Filport as it is

authorized to do so by the corporations by-laws, pursuant to the Corporation Code.

The election of officers of a corporation is provided for under Section 25 of the Code which reads:

Sec. 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. (Emphasis supplied.)

In turn, the amended Bylaws of Filport14

provides the following:

Officers of the corporation, as provided for by the by-laws, shall be elected by the board of directors at

their first meeting after the election of Directors. xxx

The officers of the corporation shall be a Chairman of the Board, President, a Vice-President, a

Secretary, a Treasurer, a General Manager and such other officers as the Board of Directors may from

time to time provide, and these officers shall be elected to hold office until their successors are elected

and qualified. (Emphasis supplied.)

Likewise, the fixing of the corresponding remuneration for the positions in question is provided for in

the same by-laws of the corporation, viz:

xxx The Board of Directors shall fix the compensation of the officers and agents of the corporation.

(Emphasis supplied.)

Unfortunately, the bylaws of the corporation are silent as to the creation by its board of directors of an

executive committee. Under Section 3515

of the Corporation Code, the creation of an executive

committee must be provided for in the bylaws of the corporation.

Notwithstanding the silence of Filports bylaws on the matter, we cannot rule that the creation of the executive committee by the board of directors is illegal or unlawful. One reason is the absence of a

showing as to the true nature and functions of said executive committee considering that the "executive

committee," referred to in Section 35 of the Corporation Code which is as powerful as the board of

directors and in effect acting for the board itself, should be distinguished from other committees which

are within the competency of the board to create at anytime and whose actions require ratification and

confirmation by the board.16

Another reason is that, ratiocinated by both the two (2) courts below, the

Board of Directors has the power to create positions not provided for in Filports bylaws since the board is the corporations governing body, clearly upholding the power of its board to exercise its prerogatives in managing the business affairs of the corporation.

As well, it may not be amiss to point out that, as testified to and admitted by petitioner Cruz himself, it

was during his incumbency as Filport president that the executive committee in question was created,

and that he was even the one who moved for the creation of the positions of the AVPs for Operations,

Finance and Administration. By his acquiescence and/or ratification of the creation of the aforesaid

offices, Cruz is virtually precluded from suing to declare such acts of the board as invalid or illegal. And

it makes no difference that he sues in behalf of himself and of the other stockholders. Indeed, as his

voice was not heard in protest when he was still Filports president, raising a hue and cry only now leads

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to the inevitable conclusion that he did so out of spite and resentment for his non-reelection as president

of the corporation.

With regard to the increased emoluments of the Board Chairman, Vice-President, Treasurer and

Assistant General Manager which are supposedly disproportionate to the volume and nature of their

work, the Court, after a judicious scrutiny of the increase vis--vis the value of the services rendered to

the corporation by the officers concerned, agrees with the findings of both the trial and appellate courts

as to the reasonableness and fairness thereof.

Continuing, petitioners contend that the CA did not appreciate their evidence as to the alleged acts of

mismanagement by the then incumbent board. A perusal of the records, however, reveals that petitioners

merely relied on the testimony of Cruz in support of their bold claim of mismanagement. To the mind of

the Court, Cruz testimony on the matter of mismanagement is bereft of any foundation. As it were, his testimony consists merely of insinuations of alleged wrongdoings on the part of the board. Without

more, petitioners posture of mismanagement must fall and with it goes their prayer to hold the respondents liable therefor.

But even assuming, in gratia argumenti, that there was mismanagement resulting to corporate damages

and/or business losses, still the respondents may not be held liable in the absence, as here, of a showing

of bad faith in doing the acts complained of.

If the cause of the losses is merely error in business judgment, not amounting to bad faith or negligence,

directors and/or officers are not liable.17

For them to be held accountable, the mismanagement and the

resulting losses on account thereof are not the only matters to be proven; it is likewise necessary to show

that the directors and/or officers acted in bad faith and with malice in doing the assailed acts. Bad faith

does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral

obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or

ill-will partaking of the nature of fraud.18

We have searched the records and nowhere do we find a

"dishonest purpose" or "some moral obliquity," or "conscious doing of a wrong" on the part of the

respondents that "partakes of the nature of fraud."

We thus extend concurrence to the following findings of the CA, affirmatory of those of the trial court:

xxx As a matter of fact, it was during the term of appellee Cruz, as president and director, that the

executive committee was created. What is more, it was appellee himself who moved for the creation of

the positions of assistant vice presidents for operations, for finance, and for administration. He should

not be heard to complain thereafter for similar corporate acts.

The increase in the salaries of the board chairman, president, treasurer, and assistant general manager are

indeed reasonable enough in view of the responsibilities assigned to them, and the special knowledge

required, to be able to effectively discharge their respective functions and duties.

Surely, factual findings of trial courts, especially when affirmed by the CA, are binding and conclusive

on this Court.

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There is, however, a factual matter over which the CA and the trial court parted ways. We refer to the

accommodation angle.

The trial court was with petitioner Cruz in saying that the creation of the positions of the three (3) AVPs

for Corporate Planning, Special Assistant to the President and Special Assistant to the Board Chairman,

each with a salary of P13,050.00 a month, was merely for accommodation purposes considering that

Filport is not a big corporation requiring multiple executive positions. Hence, the trial courts order for said officers to return the amounts they received as compensation.

On the other hand, the CA took issue with the trial court and ruled that Cruzs accommodation theory is not based on facts and without any evidentiary substantiation.

We concur with the line of the appellate court. For truly, aside from Cruzs bare and self-serving testimony, no other evidence was presented to show the fact of "accommodation." By itself, the

testimony of Cruz is not enough to support his claim that accommodation was the underlying factor

behind the creation of the aforementioned three (3) positions.

It is elementary in procedural law that bare allegations do not constitute evidence adequate to support a

conclusion. It is basic in the rule of evidence that he who alleges a fact bears the burden of proving it by

the quantum of proof required. Bare allegations, unsubstantiated by evidence, are not equivalent to proof

under the Rules of Court.19

The party having the burden of proof must establish his case by a

preponderance of evidence.20

Besides, the determination of the necessity for additional offices and/or positions in a corporation is a

management prerogative which courts are not wont to review in the absence of any proof that such

prerogative was exercised in bad faith or with malice.1awphi1.nt

Indeed, it would be an improper judicial intrusion into the internal affairs of Filport were the Court to

determine the propriety or impropriety of the creation of offices therein and the grant of salary increases

to officers thereof. Such are corporate and/or business decisions which only the corporations Board of Directors can determine.

So it is that in Philippine Stock Exchange, Inc. v. CA,21

the Court unequivocally held:

Questions of policy or of management are left solely to the honest decision of the board as the business

manager of the corporation, and the court is without authority to substitute its judgment for that of the

board, and as long as it acts in good faith and in the exercise of honest judgment in the interest of the

corporation, its orders are not reviewable by the courts.

In a last-ditch attempt to salvage their cause, petitioners assert that the CA went beyond the issues raised

in the court of origin when it ruled on the absence of receipt of actual payment of the

salaries/emoluments pertaining to the positions of Assistant Vice-President for Corporate Planning,

Special Assistant to the Board Chairman and Special Assistant to the President. Petitioners insist that the

issue of nonpayment was never raised by the respondents before the trial court, as in fact, the latter

allegedly admitted the same in their Answer With Counterclaim.

We are not persuaded.

By claiming that Filport suffered damages because the directors appointed to the assailed positions are

not doing anything to deserve their compensation, petitioners are saddled with the burden of proving that

salaries were actually paid. Since the trial court, in effect, found that the petitioners successfully proved

payment of the salaries when it directed the reimbursements of the same, respondents necessarily have

to raise the issue on appeal. And the CA rightly resolved the issue when it found that no evidence of

actual payment of the salaries in question was actually adduced. Respondents alleged admission of the fact of payment cannot be inferred from a reading of the pertinent portions of the parties respective initiatory pleadings. Respondents allegations in their Answer With Counterclaim that the officers corresponding to the positions created "performed the work called for in their positions" or "deserve

their compensation," cannot be interpreted to mean that they were "actually paid" such compensation.

Directly put, the averment that "one deserves ones compensation" does not necessarily carry the implication that "such compensation was actually remitted or received." And because payment was not

duly proven, there is no evidentiary or factual basis for the trial court to direct respondents to make

reimbursements thereof to the corporation.

This brings us to the respondents claim that the case filed by the petitioners before the SEC, which eventually landed in RTC-Davao City as Civil Case No. 28,552-2001, is not a derivative suit, as

maintained by the petitioners.

We sustain the petitioners.

Under the Corporation Code, where a corporation is an injured party, its power to sue is lodged with its

board of directors or trustees. But an individual stockholder may be permitted to institute a derivative

suit in behalf of the corporation in order to protect or vindicate corporate rights whenever the officials of

the corporation refuse to sue, or when a demand upon them to file the necessary action would be futile

because they are the ones to be sued, or because they hold control of the corporation.22

In such actions,

the corporation is the real party-in-interest while the suing stockholder, in behalf of the corporation, is

only a nominal party.23

Here, the action below is principally for damages resulting from alleged mismanagement of the affairs

of Filport by its directors/officers, it being alleged that the acts of mismanagement are detrimental to the

interests of Filport. Thus, the injury complained of primarily pertains to the corporation so that the suit

for relief should be by the corporation. However, since the ones to be sued are the directors/officers of

the corporation itself, a stockholder, like petitioner Cruz, may validly institute a "derivative suit" to

vindicate the alleged corporate injury, in which case Cruz is only a nominal party while Filport is the

real party-in-interest. For sure, in the prayer portion of petitioners petition before the SEC, the reliefs prayed were asked to be made in favor of Filport.

Besides, the requisites before a derivative suit can be filed by a stockholder are present in this case, to

wit:

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.24

Indisputably, petitioner Cruz (1) is a stockholder of Filport; (2) he sought without success to have its

board of directors remedy what he perceived as wrong when he wrote a letter requesting the board to do

the necessary action in his complaint; and (3) the alleged wrong was in truth a wrong against the

stockholders of the corporation generally, and not against Cruz or Minterbro, in particular. In the end, it

is Filport, not Cruz which directly stands to benefit from the suit. And while it is true that the

complaining stockholder must show to the satisfaction of the court that he has exhausted all the means

within his reach to attain within the corporation itself the redress for his grievances, or actions in

conformity to his wishes, nonetheless, where the corporation is under the complete control of the

principal defendants, as here, there is no necessity of making a demand upon the directors. The reason is

obvious: a demand upon the board to institute an action and prosecute the same effectively would have

been useless and an exercise in futility. In fine, we rule and so hold that the petition filed with the SEC

at the instance of Cruz, which ultimately found its way to the RTC of Davao City as Civil Case No.

28,552-2001, is a derivative suit of which Cruz has the necessary legal standing to institute.

WHEREFORE, the petition is DENIED and the challenged decision of the CA is AFFIRMED in all

respects.

No pronouncement as to costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 157802 October 13, 2010

MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, RICHARD K. SPENCER,

CATHERINE SPENCER, AND ALEX MANCILLA, Petitioners,

vs.

RICARDO R. COROS, Respondent.

D E C I S I O N

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, 20021 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 a complaint 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

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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.

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:

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.

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.

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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.

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WHEREFORE, the petition for certiorari is hereby DISMISSED.

SO ORDERED.

The CA denied the petitioners motion for reconsideration on April 2, 2003.13

Issue

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.

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.

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 non-agricultural:

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

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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.

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:

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 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?

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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 By-Law 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 or non-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 By-Law No. V.

We agree with respondent.

Section 25 of the Corporation Code provides:

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

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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.

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 Code or 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:

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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.

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.

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.

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 plainly obiter 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 Nacpil should 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 Commission24

and Ongkingko v. National Labor Relations

Commission,25

the NLRC had no jurisdiction over his complaint, considering that any case for illegal

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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

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.

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.

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:

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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 quasi-judicial 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:

1966 Bookkeeper

1968 Senior Accountant

1969 Chief Accountant

1972 Office Supervisor

1973 Assistant Treasurer

1978 Special Assistant for Finance

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1980 Assistant Comptroller

1983 Finance and Administrative Manager

1985 Asst. Vice President for Finance and Administration

1987 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.1avvphi1

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 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.

Costs of suit to be paid by the petitioners.

SO ORDERED.

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Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 149660 January 20, 2009

MARANAW HOTELS AND RESORT CORP., Petitioner,

vs.

COURT OF APPEALS, SHERYL OABEL AND MANILA RESOURCE DEVELOPMENT

CORP., Respondents.

D E C I S I O N

PUNO, C.J.:

Before the Court is a petition for review on certiorari assailing a resolution issued by the Court of

Appeals. The resolution denied the petition for review filed by petitioner Maranaw Hotels and Resort

Corp.

The present proceedings emanate from a complaint for regularization, subsequently converted into one

for illegal dismissal, filed before Labor Arbiter Madjayran H. Ajan by private respondent Sheryl Oabel.

It appears that private respondent Oabel was initially hired by petitioner as an extra beverage attendant

on April 24, 1995. This lasted until February 7, 1997.1 Respondent worked in Century Park Hotel, an

establishment owned by the petitioner.

On September 16, 1996,2 petitioner contracted with Manila Resource Development Corporation.

3

Subsequently, private respondent Oabel was transferred to MANRED, with the latter deporting itself as

her employer.4 MANRED has intervened at all stages of these proceedings and has consistently claimed

to be the employer of private respondent Oabel. For the duration of her employment, private respondent

Oabel performed the following functions:

Secretary, Public Relations Department: February 10, 1997 - March 6, 1997

Gift Shop Attendant: April 7, 1997 - April 21, 1997

Waitress: April 22, 1997 - May 20, 1997

Shop Attendant: May 21, 1997 - July 30, 19985

On July 20, 1998, private respondent filed before the Labor Arbiter a petition for regularization of

employment against the petitioner. On August 1, 1998, however, private respondent Oabel was

dismissed from employment.6 Respondent converted her petition for regularization into a complaint for

illegal dismissal.

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Labor Arbiter Madjayran H. Ajan rendered a decision on July 13, 1999, dismissing the complaint

against the petitioner. The decision held:

While complainant alleged that she has been working with the respondent hotel in different department

(sic) of the latter on (sic) various capacities (although not all departments are part and parcel of the

hotels), complainant never disputed the fact that her work with the same were on a per function basis or

on a "need basis" co-terminus with the function she was hired for.Considering that complainant job (sic) with the respondent hotel was on a per function basis or on a "need basis", complainant could not

even be considered as casual employee or provisional employee. Respondent hotel consider (sic)

complainant, at most, a project employee which does not ripened (sic) into regular employee (sic).7

Private respondent appealed before the National Labor Relations Commission (NLRC). The NLRC

reversed the ruling of the Labor Arbiter and held that: (1) MANRED is a labor-only contractor, and (2)

private respondent was illegally dismissed.

Of the first holding, the NLRC observed that under the very terms of the service contract, MANRED

shall provide the petitioner not specific jobs or services but personnel and that MANRED had

insufficient capitalization and was not sufficiently equipped to provide specific jobs.8 The NLRC

likewise observed that the activities performed by the private respondent were directly related to and

usually necessary or desirable in the business of the petitioner.9

With respect to the termination of private respondents employment, the NLRC held that it was not effected for a valid or just cause and was therefore illegal. The dispositive portion of the ruling reads

thus:

WHEREFORE, the decision appealed from is hereby REVERSED. xxxx Respondents Century Park

Hotel and Manila Resource Development Corporation are hereby declared jointly and severally liable

for the following awards in favor of complainant: 1) her full backwages and benefits from August 1,

1998 up to the date of her actual reinstatement; 2) her salary differentials, share in the service charges,

service incentive leave pay and 13th month pay from July 20, 1995 to July 31, 1998.

SO ORDERED.10

Petitioner subsequently appealed before the Court of Appeals. In a resolution, the appellate court

dismissed the petition on account of the failure of the petitioner to append the board resolution

authorizing the counsel for petitioner to file the petition before the Court of Appeals. The Court of

Appeals held:

After a careful perusal of the records of the case, We resolve to DISMISS the present petition on the

ground of non-compliance with the rule on certification against forum shopping taking into account that

the aforesaid certification was subscribed and verified by the Personnel Director of petitioner

corporation without attaching thereto his authority to do so for and in behalf of petitioner corporation per

board resolution or special power of attorney executed by the latter.11

Petitioner duly filed its motion for reconsideration which was denied by the Court of Appeals in a

resolution dated August 30, 2001.12

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In the present petition for review, the petitioner invokes substantial justice as justification for a reversal

of the resolution of the Court of Appeals.13

Petitioner likewise contends that the filing of a motion for

reconsideration with the certificate of non-forum shopping attached constitutes substantial compliance

with the requirement.14

There is no merit to the petition.

Well-settled is the rule that the certificate of non-forum shopping is a mandatory requirement.

Substantial compliance applies only with respect to the contents of the certificate but not as to its

presence in the pleading wherein it is required.

Petitioners contention that the filing of a motion for reconsideration with an appended certificate of non forum-shopping suffices to cure the defect in the pleading is absolutely specious. It negates the very

purpose for which the certification against forum shopping is required: to inform the Court of the

pendency of any other case which may present similar issues and involve similar parties as the one

before it. The requirement applies to both natural and juridical persons.

Petitioner relies upon this Courts ruling in Digital Microwave Corp. v. Court of Appeals15 to show that its Personnel Director has been duly authorized to sign pleadings for and in behalf of the petitioner.

Petitioner, however, has taken the ruling in Digital Microwave out of context. The portion of the ruling

in Digital Microwave upon which petitioner relies was in response to the issue of impossibility of

compliance by juridical persons with the requirements of Circular 28-91.16

The Courts identification of duly authorized officers or directors as the proper signatories of a certificate of non forum-shopping was

in response to that issue. The ruling does not, however, ipso facto clothe a corporate officer or director

with authority to execute a certificate of non-forum shopping by virtue of the formers position alone.

Any doubt on the matter has been resolved by the Courts ruling in BPI Leasing Corp. v. Court of Appeals

17 where this Court emphasized that the lawyer acting for the corporation must be specifically

authorized to sign pleadings for the corporation.18

Specific authorization, the Court held, could only

come in the form of a board resolution issued by the Board of Directors that specifically authorizes the

counsel to institute the petition and execute the certification, to make his actions binding on his

principal, i.e., the corporation.19

This Court has not wavered in stressing the need for strict adherence to procedural requirements. The

rules of procedure exist to ensure the orderly administration of justice. They are not to be trifled with

lightly.

For this reason alone, the petition must already be dismissed. However, even if this grave procedural

infirmity is set aside, the petition must still fail. In the interest of averting further litigation arising from

the present controversy, and in light of the respective positions asserted by the parties in the pleadings

and other memoranda filed before this Court, the Court now proceeds to resolve the case on the merits.

Petitioner posits that it has entered into a service agreement with intervenor MANRED. The latter, in

turn, maintains that private respondent Oabel is its employee and subsequently holds itself out as the

employer and offers the reinstatement of private respondent.

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Notably, private respondents purported employment with MANRED commenced only in 1996, way after she was hired by the petitioner as extra beverage attendant on April 24, 1995. There is thus much

credence in the private respondents claim that the service agreement executed between the petitioner and MANRED is a mere ploy to circumvent the law on employment, in particular that which pertains on

regularization.

In this regard, it has not escaped the notice of the Court that the operations of the hotel itself do not

cease with the end of each event or function and that there is an ever present need for individuals to

perform certain tasks necessary in the petitioners business. Thus, although the tasks themselves may vary, the need for sufficient manpower to carry them out does not. In any event, as borne out by the

findings of the NLRC, the petitioner determines the nature of the tasks to be performed by the private

respondent, in the process exercising control.

This being so, the Court finds no difficulty in sustaining the finding of the NLRC that MANRED is a

labor-only contractor.20

Concordantly, the real employer of private respondent Oabel is the petitioner.

It appears further that private respondent has already rendered more than one year of service to the

petitioner, for the period 1995-1998, for which she must already be considered a regular employee,

pursuant to Article 280 of the Labor Code:

Art. 280. Regular and casual employment. The provisions of written agreement to the contrary

notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to

be regular where the employee has been engaged to perform activities which are usually necessary or

desirable in the usual business or trade of the employer, except where the employment has been fixed for

a specific project or undertaking the completion or termination of which has been determined at the time

of the engagement of the employee or where the work or service to be performed is seasonal in nature

and the employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding paragraph:

Provided, That any employee who has rendered at least one year of service, whether such service

is continuous or broken, shall be considered a regular employee with respect to the activity in

which he is employed and his employment shall continue while such activity exists. (Emphasis

supplied)

IN VIEW WHEREOF, the present petition is DENIED. The resolution of the Court of Appeals dated

June 15, 2001 is affirmed.

Costs against petitioner.

SO ORDERED.

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Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 153653 October 2, 2009

SAN MIGUEL BUKID HOMEOWNERS ASSOCIATION, INC., herein represented by its

PRESIDENT, MR. EVELIO BARATA, Petitioner,

vs.

THE CITY OF MANDALUYONG, represented by the HON. MAYOR BENJAMIN ABALOS,

JR.; A.F. CALMA GENERAL CONSTRUCTION, represented by its President, ARMENGO F.

CALMA, Respondents.

D E C I S I O N

PERALTA, J.:

This resolves the petition for certiorari under Rule 65 of the Rules of Court, seeking nullification of the

Resolutions of the Court of Appeals (CA) dated April 16, 20021 and May 14, 2002,

2 in CA-G.R. SP No.

69827, dismissing the petition for certiorari filed by herein petitioner.

The undisputed facts are as follows.

Petitioner San Miguel Bukid Homeowners Association, Inc. (formerly known as Bukid Neighborhood

Landless Association), an association of urban poor dwellers of San Miguel Bukid Compound,

Plainview, Mandaluyong City, filed with the Regional Trial Court (RTC) of Mandaluyong City a

Complaint3 for specific performance and damages against respondents City of Mandaluyong (City) and

A.F. Calma General Construction (Calma). It is alleged therein that pursuant to the Citys Land for the Landless Program, petitioner and the City entered into a Memorandum of Agreement (MOA), whereby

the City purchased lots and then transferred the same to petitioner with a first real estate mortgage in

favor of the City. Subsequently, the City and Calma entered into a Contract Agreement for the latter to

construct row houses and medium-rise buildings on the aforementioned lots within 540 calendar days

for the benefit of petitioners members. In June 1995, Calma began construction, but in June 1996, work on the project was stopped. The period of 540 days elapsed sometime in November 1996, but the houses

and buildings were not yet completed. Petitioners letters sent to the Mayor of the City requesting an update on the project remained unanswered. Hence, petitioner filed the complaint praying that the City

and Calma be ordered to perform their respective undertakings and obligations under the Contract

Agreement and to pay petitioner attorneys fees, exemplary damages and litigation expenses.

The City filed an Answer4 within the extended period granted by the trial court. The Citys main defense

was that the MOA had already been abrogated due to petitioners failure to secure a loan from the Home Mortgage and Finance Corporation, and that petitioner had no standing or personality to institute the

action, as it was not a party to the Contract Agreement.

Calma did not file an Answer.

On September 12, 2000, petitioner filed a Motion to Declare Defendant in Default. It pointed out that the

lawyer who signed the Citys Answer was a private counsel, not the Office of the City Legal Officer which, according to petitioner, was the only office authorized under Section 248 of the Local

Government Code to represent the local government unit in all civil actions. Thus, petitioner prayed that

the City be declared in default on the ground that the Citys Answer was a mere scrap of paper and should not be admitted in court for being an unsigned pleading, the same not having been signed and

filed by a duly authorized representative of the City.

In its Order5 dated June 4, 2001, the RTC denied petitioners motion, ruling that a party should only be

declared in default in cases showing clear obstinate refusal or inordinate neglect in complying with the

Orders of the court. Petitioners motion for reconsideration of said order was also denied per Order6 dated January 7, 2002.1avvphi1

The matter was elevated by petitioner to the CA via a petition for certiorari. However, in the assailed

Resolution7 dated April 16, 2002, the CA dismissed the petition outright because the person who signed

the Verification/Certification of Non-Forum Shopping thereof did not appear to be authorized by

petitioner. Petitioner filed a motion for reconsideration but the same was denied in the second assailed

Resolution8 dated May 14, 2002.

Hence, petitioner came to this Court seeking the issuance of a writ of certiorari against the CA, on the

following grounds:

I. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION

WHEN IT HELD THAT THE REPRESENTATIVE OF THE PETITIONER WHO SIGNED THE

VERIFICATION/CERTIFICATION OF NON-FORUM SHOPPING "DID NOT APPEAR TO BE

DULY AUTHORIZED TO DO SO," WHEN IN FACT THE SAID REPRESENTATIVE WAS DULY

AUTHORIZED BY THE PETITIONER CORPORATIONS BOARD OF DIRECTORS.

II. THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE RULING IN BA

SAVINGS BANK VS. SIA (336 SCRA 484) AGAINST THE PETITIONER AND DISMISSED THE

PETITION FOR CERTIORARI.

III. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION

IN DENYING THE MOTION FOR RECONSIDERATION WHEN IT HELD THAT THE LACK OF

CERTIFICATION AGAINST FORUM SHOPPING IS GENERALLY NOT CURABLE BY THE

SUBMISSION THEREOF AFTER THE FILING OF THE PETITION, WHEN IN TRUTH, WHAT

WAS SUBMITTED BY PETITIONER WITH THE MOTION FOR RECONSIDERATION WAS NOT

A CERTIFICATION AGAINST FORUM SHOPPING BUT A SECRETARYS CERTIFICATE OF A BOARD RESOLUTION CONFIRMING AND RATIFYING THE AUTHORITY OF THE

REPRESENTATIVE TO ACT AS SUCH.9

The petition is doomed to fail.

Section 1, Rule 65 of the Rules of Court states that certiorari may be resorted to when there is no

appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law. Thus, in Abedes v.

Court of Appeals,10

the Court held that:

x x x for a petition for certiorari or prohibition to be granted, it must set out and demonstrate, plainly and

distinctly, all the facts essential to establish a right to a writ. The petitioner must allege in his petition

and has the burden of establishing facts to show that any other existing remedy is not speedy or adequate

and that (a) the writ is directed against a tribunal, board or officer exercising judicial or quasi-judicial

functions; (b) such tribunal, board or officer has acted without or in excess of jurisdiction, or with grave

abuse of discretion amounting to excess or lack of jurisdiction; and, (c) there is no appeal or any plain,

speedy and adequate remedy in the ordinary course of law. These matters must be threshed out and

shown by petitioner.11

The Resolutions of the CA which petitioner seeks to nullify are orders of dismissal. In Magestrado v.

People,12

the Court explained that an order of dismissal is a final order which is a proper subject of an

appeal, not certiorari. This was reiterated in Pasiona v. Court of Appeals,13

where it was emphasized

that if what is being assailed is a decision, final order or resolution of the CA, then appeal to this Court

is via a verified petition for review on certiorari under Rule 45 of the Rules of Court. In cases where an

appeal was available, certiorari will not prosper, even if the ground therefor is grave abuse of

discretion.14

The existence and availability of the right of appeal are antithetical to the availability of the

special civil action for certiorari, although where it is shown that the appeal would be inadequate, slow,

insufficient, and will not promptly relieve a party from the injurious effects of the order complained of,

or where appeal is inadequate and ineffectual, the extraordinary writ of certiorari may be granted.15

Clearly, since the present case involves a final order of dismissal issued by the CA, the proper course of

action would have been to file a petition for review on certiorari under Rule 45. Although there are

exceptions to the general rule, petitioner utterly failed to allege and prove that the extraordinary remedy

of the writ of certiorari should be granted, because an appeal, although available, would be inadequate,

insufficient and not speedy enough to address the urgency of the matter. There is nothing in the petition

to show that this case qualifies as an exception to the general rule. The circumstances prevailing in this

case reveal that whatever grievance petitioner may be suffering from the dismissal of its petition with

the CA could be properly addressed through a petition for review on certiorari.

On the ground alone that petitioner resorted to an improper remedy, the present petition is already

dismissible and undeserving of the Courts attention. However, even on the merits, the petition must be struck down.

In Fuentebella v. Castro,16

the Court categorically stated that "if the real party-in-interest is a corporate

body, an officer of the corporation can sign the certification against forum shopping so long as he has

been duly authorized by a resolution of its board of directors."17

In this case, the Certificate of Board

Resolution attached to the petition for certiorari filed with the CA reads as follows:

x x x in a meeting of the Board of Directors of the SAN MIGUEL BUK