G.R. No. 93695 February 4, 1992

RAMON C. LEE and ANTONIO DM. LACDAO,petitioners,vs.THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS GONZALES,respondents.

Cayanga, Zuniga & Angel Law Offices for petitioners.

Timbol & Associates for private respondents.

GUTIERREZ, JR.,J.:What is the nature of the voting trust agreement executed between two parties in this case? Who owns the stocks of the corporation under the terms of the voting trust agreement? How long can a voting trust agreement remain valid and effective? Did a director of the corporation cease to be such upon the creation of the voting trust agreement? These are the questions the answers to which are necessary in resolving the principal issue in this petition forcertiorari whether or not there was proper service of summons on Alfa Integrated Textile Mills (ALFA, for short) through the petitioners as president and vice-president, allegedly, of the subject corporation after the execution of a voting trust agreement between ALFA and the Development Bank of the Philippines (DBP, for short).

From the records of the instant case, the following antecedent facts appear:

On November 15, 1985, a complaint for a sum of money was filed by the International Corporate Bank, Inc. against the private respondents who, in turn, filed a third party complaint against ALFA and the petitioners on March 17, 1986.

On September 17, 1987, the petitioners filed a motion to dismiss the third party complaint which the Regional Trial Court of Makati, Branch 58 denied in an Order dated June 27, 1988.

On July 18, 1988, the petitioners filed their answer to the third party complaint.

Meanwhile, on July 12, 1988, the trial court issued an order requiring the issuance of analiassummons upon ALFA through the DBP as a consequence of the petitioner's letter informing the court that the summons for ALFA was erroneously served upon them considering that the management of ALFA had been transferred to the DBP.

In a manifestation dated July 22, 1988, the DBP claimed that it was not authorized to receive summons on behalf of ALFA since the DBP had not taken over the company which has a separate and distinct corporate personality and existence.

On August 4, 1988, the trial court issued an order advising the private respondents to take the appropriate steps to serve the summons to ALFA.

On August 16, 1988, the private respondents filed a Manifestation and Motion for the Declaration of Proper Service of Summons which the trial court granted on August 17, 1988.

On September 12, 1988, the petitioners filed a motion for reconsideration submitting that Rule 14, section 13 of the Revised Rules of Court is not applicable since they were no longer officers of ALFA and that the private respondents should have availed of another mode of service under Rule 14, Section 16 of the said Rules,i.e.,through publication to effect proper service upon ALFA.

In their Comment to the Motion for Reconsideration dated September 27, 1988, the private respondents argued that the voting trust agreement dated March 11, 1981 did not divest the petitioners of their positions as president and executive vice-president of ALFA so that service of summons upon ALFA through the petitioners as corporate officers was proper.

On January 2, 1989, the trial court upheld the validity of the service of summons on ALFA through the petitioners, thus, denying the latter's motion for reconsideration and requiring ALFA to filed its answer through the petitioners as its corporate officers.

On January 19, 1989, a second motion for reconsideration was filed by the petitioners reiterating their stand that by virtue of the voting trust agreement they ceased to be officers and directors of ALFA, hence, they could no longer receive summons or any court processes for or on behalf of ALFA. In support of their second motion for reconsideration, the petitioners attached thereto a copy of the voting trust agreement between all the stockholders of ALFA (the petitioners included), on the one hand, and the DBP, on the other hand, whereby the management and control of ALFA became vested upon the DBP.

On April 25, 1989, the trial court reversed itself by setting aside its previous Order dated January 2, 1989 and declared that service upon the petitioners who were no longer corporate officers of ALFA cannot be considered as proper service of summons on ALFA.

On May 15, 1989, the private respondents moved for a reconsideration of the above Order which was affirmed by the court in its Order dated August 14, 1989 denying the private respondent's motion for reconsideration.

On September 18, 1989, a petition forcertiorariwas belatedly submitted by the private respondent before the public respondent which, nonetheless, resolved to give due course thereto on September 21, 1989.

On October 17, 1989, the trial court, not having been notified of the pending petition forcertiorariwith public respondent issued an Order declaring as final the Order dated April 25, 1989. The private respondents in the said Order were required to take positive steps in prosecuting the third party complaint in order that the court would not be constrained to dismiss the same for failure to prosecute. Subsequently, on October 25, 1989 the private respondents filed a motion for reconsideration on which the trial court took no further action.

On March 19, 1990, after the petitioners filed their answer to the private respondents' petition forcertiorari, the public respondent rendered its decision, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, the orders of respondent judge dated April 25, 1989 and August 14, 1989 are hereby SET ASIDE and respondent corporation is ordered to file its answer within the reglementary period. (CA Decision, p. 8;Rollo, p. 24)

On April 11, 1990, the petitioners moved for a reconsideration of the decision of the public respondent which resolved to deny the same on May 10, 1990. Hence, the petitioners filed thiscertioraripetition imputing grave abuse of discretion amounting to lack of jurisdiction on the part of the public respondent in reversing the questioned Orders dated April 25, 1989 and August 14, 1989 of the courta quo, thus, holding that there was proper service of summons on ALFA through the petitioners.

In the meantime, the public respondent inadvertently made an entry of judgment on July 16, 1990 erroneously applying the rule that the period during which a motion for reconsideration has been pending must be deducted from the 15-day period to appeal. However, in its Resolution dated January 3, 1991, the public respondent set aside the aforestated entry of judgment after further considering that the rule it relied on applies to appeals from decisions of the Regional Trial Courts to the Court of Appeals, not to appeals from its decision to us pursuant to our ruling in the case ofRefractories Corporation of the Philippines v.Intermediate Appellate Court, 176 SCRA 539 [1989]. (CARollo, pp. 249-250)

In their memorandum, the petitioners present the following arguments, to wit:

(1) that the execution of the voting trust agreement by a stockholders whereby all his shares to the corporation have been transferred to the trustee deprives the stockholders of his position as director of the corporation; to rule otherwise, as the respondent Court of Appeals did, would be violative of section 23 of the Corporation Code (Rollo, pp. 270-3273); and

(2) that the petitioners were no longer acting or holding any of the positions provided under Rule 14, Section 13 of the Rules of Court authorized to receive service of summons for and in behalf of the private domestic corporation so that the service of summons on ALFA effected through the petitioners is not valid and ineffective; to maintain the respondent Court of Appeals' position that ALFA was properly served its summons through the petitioners would be contrary to the general principle that a corporation can only be bound by such acts which are within the scope of its officers' or agents' authority (Rollo, pp. 273-275)

In resolving the issue of the propriety of the service of summons in the instant case, we dwell first on the nature of a voting trust agreement and the consequent effects upon its creation in the light of the provisions of the Corporation Code.

A voting trust is defined in Ballentine's Law Dictionary as follows:

(a) trust created by an agreement between a group of the stockholders of a corporation and the trustee or by a group of identical agreements between individual stockholders and a common trustee, whereby it is provided that for a term of years, or for a period contingent upon a certain event, or until the agreement is terminated, control over the stock owned by such stockholders, either for certain purposes or for all purposes, is to be lodged in the trustee, either with or without a reservation to the owners, or persons designated by them, of the power to direct how such control shall be used. (98 ALR 2d. 379 sec. 1 [d]; 19 Am J 2d Corp. sec. 685).

Under Section 59 of the new Corporation Code which expressly recognizes voting trust agreements, a more definitive meaning may be gathered. The said provision partly reads:

Sec. 59. Voting Trusts One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the share for a period rights pertaining to the shares for a period not exceeding five (5) years at any one time: Provided, that in the case of a voting trust specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding (5) years but shall automatically expire upon full payment of the loan. A voting trust agreement must be in writing and notarized, and shall specify the terms and conditions thereof. A certified copy of such agreement shall be filed with the corporation and with the Securities and Exchange Commission; otherwise, said agreement is ineffective and unenforceable. The certificate or certificates of stock covered by the voting trust agreement shall be cancelled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement.

By its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights such as the right to receive dividends, the right to inspect the books of the corporation, the right to sell certain interests in the assets of the corporation and other rights to which a stockholder may be entitled until the liquidation of the corporation. However, in order to distinguish a voting trust agreement from proxies and other voting pools and agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the stock are separated from the other attributes of ownership; (2) that the voting rights granted are intended to be irrevocable for a definite period of time; and (3) that the principal purpose of the grant of voting rights is to acquire voting control of the corporation. (5 Fletcher,Cyclopedia of the Law on Private Corporations, section 2075 [1976] p. 331citingTankersly v. Albright, 374 F. Supp. 538)

Under section 59 of the Corporation Code,supra,a voting trust agreement may confer upon a trustee not only the stockholder's voting rights but also other rights pertaining to his shares as long as the voting trust agreement is not entered "for the purpose of circumventing the law against monopolies and illegal combinations in restraint of trade or used for purposes of fraud." (section 59, 5th paragraph of the Corporation Code) Thus, the traditional concept of a voting trust agreement primarily intended to single out a stockholder's right to vote from his other rights as such and made irrevocable for a limited duration may in practice become a legal device whereby a transfer of the stockholder's shares is effected subject to the specific provision of the voting trust agreement.

The execution of a voting trust agreement, therefore, may create a dichotomy between the equitable or beneficial ownership of the corporate shares of a stockholders, on the one hand, and the legal title thereto on the other hand.

The law simply provides that a voting trust agreement is an agreement in writing whereby one or more stockholders of a corporation consent to transfer his or their shares to a trustee in order to vest in the latter voting or other rights pertaining to said shares for a period not exceeding five years upon the fulfillment of statutory conditions and such other terms and conditions specified in the agreement. The five year-period may be extended in cases where the voting trust is executed pursuant to a loan agreement whereby the period is made contingent upon full payment of the loan.

In the instant case, the point of controversy arises from the effects of the creation of the voting trust agreement. The petitioners maintain that with the execution of the voting trust agreement between them and the other stockholders of ALFA, as one party, and the DBP, as the other party, the former assigned and transferred all their shares in ALFA to DBP, as trustee. They argue that by virtue to of the voting trust agreement the petitioners can no longer be considered directors of ALFA. In support of their contention, the petitioners invoke section 23 of the Corporation Code which provides, in part, that:

Every director must own at least one (1) share of the capital stock of the corporation of which he is a director which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be director . . . (Rollo, p. 270)

The private respondents, on the contrary, insist that the voting trust agreement between ALFA and the DBP had all the more safeguarded the petitioners' continuance as officers and directors of ALFA inasmuch as the general object of voting trust is to insure permanency of the tenure of the directors of a corporation. They cited the commentaries by Prof. Aguedo Agbayani on the right and status of the transferring stockholders,to wit:

The "transferring stockholder", also called the "depositing stockholder", is equitable owner for the stocks represented by the voting trust certificates and the stock reversible on termination of the trust by surrender. It is said that the voting trust agreement does not destroy the status of the transferring stockholders as such, and thus render them ineligible as directors. But a more accurate statement seems to be that for some purposes the depositing stockholder holding voting trust certificates in lieu of his stock and being the beneficial owner thereof, remains and is treated as a stockholder. It seems to be deducible from the case that he may sue as a stockholder if the suit is in equity or is of an equitable nature, such as, a technical stockholders' suit in right of the corporation. [Commercial Laws of the Philippines by Agbayani, Vol. 3 pp. 492-493,citing5 Fletcher 326, 327] (Rollo, p. 291)

We find the petitioners' position meritorious.

Both under the old and the new Corporation Codes there is no dispute as to the most immediate effect of a voting trust agreement on the status of a stockholder who is a party to its execution from legal titleholder or owner of the shares subject of the voting trust agreement, he becomes the equitable or beneficial owner. (Salonga,Philippine Law on Private Corporations, 1958 ed., p. 268; Pineda and Carlos,The Law on Private Corporations and Corporate Practice, 1969 ed., p. 175; Campos and Lopez-Campos,The Corporation Code; Comments, Notes & Selected Cases,1981, ed., p. 386; Agbayani,Commentaries and Jurisprudence on the Commercial Laws of the Philippines,Vol. 3, 1988 ed., p. 536). The penultimate question, therefore, is whether the change in his status deprives the stockholder of the right to qualify as a director under section 23 of the present Corporation Code which deletes the phrase "in his own right." Section 30 of the old Code states that:

Every director must ownin his own rightat least one share of the capital stock of the stock corporation of which he is a director, which stock shall stand in his name on the books of the corporation. A director who ceases to be the owner of at least one share of the capital stock of a stock corporation of which is a director shall thereby cease to be a director . . . (Emphasis supplied)

Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be adversely affected by the simple act of such director being a party to a voting trust agreement inasmuch as he remains owner (although beneficial or equitable only) of the shares subject of the voting trust agreement pursuant to which a transfer of the stockholder's shares in favor of the trustee is required (section 36 of the old Corporation Code). No disqualification arises by virtue of the phrase "in his own right" provided under the old Corporation Code.

With the omission of the phrase "in his own right" the election of trustees and other persons who in fact are not beneficial owners of the shares registered in their names on the books of the corporation becomes formally legalized (seeCampos and Lopez-Campos,supra, p. 296) Hence, this is a clear indication that in order to be eligible as a director, what is material is the legal title to, not beneficial ownership of, the stock as appearing on the books of the corporation (2 Fletcher,Cyclopedia of the Law of Private Corporations, section 300, p. 92 [1969]citingPeople v. Lihme, 269 Ill. 351, 109 N.E. 1051).

The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981 disposed ofall their shares through assignment and delivery in favor of the DBP, as trustee. Consequently, the petitioners ceased to own at least one share standing in their names on the books of ALFA as required under Section 23 of the new Corporation Code. They also ceased to have anything to do with the management of the enterprise. The petitioners ceased to be directors. Hence, the transfer of the petitioners' shares to the DBP created vacancies in their respective positions as directors of ALFA. The transfer of shares from the stockholder of ALFA to the DBP is the essence of the subject voting trust agreement as evident from the following stipulations:

1. The TRUSTORS hereby assign and deliver to the TRUSTEE the certificate of the shares of the stocks owned by them respectively and shall do all things necessary for the transfer of their respective shares to the TRUSTEE on the books of ALFA.

2. The TRUSTEE shall issue to each of the TRUSTORS a trust certificate for the number of shares transferred, which shall be transferrable in the same manner and with the same effect as certificates of stock subject to the provisions of this agreement;

3. The TRUSTEE shall vote upon the shares of stock at all meetings of ALFA, annual or special, upon any resolution, matter or business that may be submitted to any such meeting,and shall possess in that respect the same powers as owners of the equitable as well as the legal title to the stock;

4. The TRUSTEE may cause to be transferred to any person one share of stock for the purpose of qualifying such person as director of ALFA, and cause a certificate of stock evidencing the share so transferred to be issued in the name of such person;

xxx xxx xxx

9. Any stockholder not entering into this agreement may transfer his shares to the same trustees without the need of revising this agreement, and this agreement shall have the same force and effect upon that said stockholder. (CARollo, pp. 137-138; Emphasis supplied)

Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of the stock covered by the agreement to the DBP as trustee, the latter became the stockholder of record with respect to the said shares of stocks. In the absence of a showing that the DBP had caused to be transferred in their names one share of stock for the purpose of qualifying as directors of ALFA, the petitioners can no longer be deemed to have retained their status as officers of ALFA which was the case before the execution of the subject voting trust agreement. There appears to be no dispute from the records that DBP has taken over full control and management of the firm.

Moreover, in the Certification dated January 24, 1989 issued by the DBP through one Elsa A. Guevarra, Vice-President of its Special Accounts Department II, Remedial Management Group, the petitioners were no longer included in the list of officers of ALFA "as of April 1982." (CARollo, pp. 140-142)

Inasmuch as the private respondents in this case failed to substantiate their claim that the subject voting trust agreement did not deprive the petitioners of their position as directors of ALFA, the public respondent committed a reversible error when it ruled that:

. . . while the individual respondents (petitioners Lee and Lacdao) may have ceased to be president and vice-president, respectively, of the corporation at the time of service of summons on them on August 21, 1987, they were at least up to that time, still directors . . .

The aforequoted statement is quite inaccurate in the light of the express terms of Stipulation No. 4 of the subject voting trust agreement. Both parties, ALFA and the DBP, were aware at the time of the execution of the agreement that by virtue of the transfer of shares of ALFA to the DBP, all the directors of ALFA were stripped of their positions as such.

There can be no reliance on the inference that the five-year period of the voting trust agreement in question had lapsed in 1986 so that the legal title to the stocks covered by the said voting trust agreementipso factoreverted to the petitioners as beneficial owners pursuant to the 6th paragraph of section 59 of the new Corporation Code which reads:

Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period, and the voting trust certificate as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed cancelled and new certificates of stock shall be reissued in the name of the transferors.

On the contrary, it is manifestly clear from the terms of the voting trust agreement between ALFA and the DBP that the duration of the agreement is contingent upon the fulfillment of certain obligations of ALFA with the DBP. This is shown by the following portions of the agreement.

WHEREAS, the TRUSTEE is one of the creditors of ALFA, and its credit is secured by a first mortgage on the manufacturing plant of said company;

WHEREAS, ALFA is also indebted to other creditors for various financial accomodations and because of the burden of these obligations is encountering very serious difficulties in continuing with its operations.

WHEREAS, in consideration of additional accommodations from the TRUSTEE, ALFA had offered and the TRUSTEE has accepted participation in the management and control of the company and to assure the aforesaid participation by the TRUSTEE, the TRUSTORS have agreed to execute a voting trust covering their shareholding in ALFA in favor of the TRUSTEE;

AND WHEREAS, DBP is willing to accept the trust for the purpose aforementioned.

NOW, THEREFORE, it is hereby agreed as follows:

xxx xxx xxx

6. This Agreement shall last for a period of Five (5) years, and is renewable for as long as the obligations of ALFA with DBP, or any portion thereof, remains outstanding; (CARollo, pp. 137-138)

Had the five-year period of the voting trust agreement expired in 1986, the DBP would not have transferred all its rights, titles and interests in ALFA "effective June 30, 1986" to the national government through the Asset Privatization Trust (APT) as attested to in a Certification dated January 24, 1989 of the Vice President of the DBP's Special Accounts Department II. In the same certification, it is stated that the DBP, from 1987 until 1989, had handled APT's account which included ALFA's assets pursuant to a management agreement by and between the DBP and APT (CARollo, p. 142) Hence, there is evidence on record that at the time of the service of summons on ALFA through the petitioners on August 21, 1987, the voting trust agreement in question was not yet terminated so that the legal title to the stocks of ALFA, then, still belonged to the DBP.

In view of the foregoing, the ultimate issue of whether or not there was proper service of summons on ALFA through the petitioners is readily answered in the negative.

Under section 13, Rule 14 of the Revised Rules of Court, it is provided that:

Sec. 13. Service upon private domestic corporation or partnership. If the defendant is a corporation organized under the laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent or any of its directors.

It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from the officers or members who compose it. (SeeSulo ng Bayan Inc. v. Araneta, Inc., 72 SCRA 347 [1976]; Osias Academy v. Department of Labor and Employment, et al., G.R. Nos. 83257-58, December 21, 1990). Thus, the above rule on service of processes of a corporation enumerates the representatives of a corporation who can validly receive court processes on its behalf. Not every stockholder or officer can bind the corporation considering the existence of a corporate entity separate from those who compose it.

The rationale of the aforecited rule is that service must be made on a representative so integrated with the corporation sued as to make ita priorisupposable that he will realize his responsibilities and know what he should do with any legal papers served on him. (Far Corporation v. Francisco, 146 SCRA 197 [1986]citingVilla Rey Transit, Inc. v. Far East Motor Corp. 81 SCRA 303 [1978]).

The petitioners in this case do not fall under any of the enumerated officers. The service of summons upon ALFA, through the petitioners, therefore, is not valid. To rule otherwise, as correctly argued by the petitioners, will contravene the general principle that a corporation can only be bound by such acts which are within the scope of the officer's or agent's authority. (seeVicente v. Geraldez, 52 SCRA 210 [1973]).

WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed decision dated March 19, 1990 and the Court of Appeals' resolution of May 10, 1990 are SET ASIDE and the Orders dated April 25, 1989 and October 17, 1989 issued by the Regional Trial Court of Makati, Branch 58 are REINSTATED.

MATLING INDUSTRIAL AND COMMERCIAL CORPORATION,

RICHARD K. SPENCER, CATHERINE SPENCER,

AND ALEX MANCILLA, Petitioners -versus - RICARDO R. COROS, Respondent.BERSAMIN,J.:This case reprises the jurisdictional conundrum of whether a complaint for illegal dismissal is cognizable by the Labor Arbiter (LA) or by the Regional Trial Court (RTC). The determination of whether the dismissed officer was a regular employee or a corporate officer unravels the conundrum. In the case of the regular employee, the LA has jurisdiction; otherwise, the RTC exercises the legal authority to adjudicate.

In this appealviapetition for review oncertiorari, the petitioners challenge thedecision dated September 13, 2002[1]and the resolution dated April 2, 2003,[2]both promulgated in C.A.-G.R. SP No. 65714 entitledMatling 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).

AntecedentsAfter his dismissal by Matling as its Vice President for Finance and Administration, the respondent filed onAugust 10, 2000acomplaintfor illegal suspension and illegal dismissal against Matling and some of its corporate officers (petitioners) in the NLRC, Sub-Regional Arbitration Branch XII,IliganCity.[3]

The petitioners moved to dismiss thecomplaint,[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 petitionersmotion to dismiss,[5]insisting that his status as a member of Matlings Board of Directors was doubtful, considering that he had not been formally elected as such; that he did not own a single share of stock in Matling, considering that he had been made to sign in blank an undated indorsement of the certificate of stock he had been given in 1992; that Matling had taken back and retained the certificate of stock in its custody; and that even assuming that he had been a Director of Matling, he had been removed as the Vice President for Finance and Administration, not as a Director, a fact that the notice of his termination dated April 10, 2000 showed.

On October 16, 2000, the LA granted the petitionersmotion 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 NLRCThe 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 ANOPPORTUNITYTO 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 respondentscomplaintfor 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 isSET 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 beREMANDEDto the Arbitration Branch of origin in order that the Labor Arbiter below could act on the case at bench, hear both parties, receive their respective evidence and position papers fully observing the requirements of due process, and resolve the same with reasonable dispatch.

SO ORDERED.

The petitioners sought reconsideration,[9]reiterating that the respondent, being a member of the Board of Directors, was a corporate officer whose removal was not within the LAs jurisdiction.

The petitioners later submitted to the NLRC in support of themotion for reconsiderationthe 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 theminutes of special meetingheld 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, onApril 30, 2001, the NLRC denied the petitionersmotion for reconsideration.[11]

Ruling of the CAThe petitioners elevated the issue to the CA by petition forcertiorari, 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 onSeptember 13, 2002,[12]the CA dismissed the petition forcertiorari, 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 inTabang 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 ofOngkingco v. National Labor Relations CommissionandDe 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 orstockholders of the corporation. Consequently, the position to which Coros was appointed and later on removed from, is not a corporate office despite its nomenclature, but an ordinary office in the corporation.

Coros alleged illegal dismissal therefrom is, therefore, within the jurisdiction of the labor arbiter.

WHEREFORE, the petition forcertiorariis hereby DISMISSED.

SO ORDERED.

The CA denied the petitionersmotion for reconsiderationonApril 2, 2003.[13]

IssueThus, the petitioners are now before the Court for a review oncertiorari, 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 hiscomplaintfor illegal dismissal.

Ruling

The appeal fails.

IThe 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 theLabor 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

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 thecomplaintfor 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 suchcorporation, partnership, or association.[14]Such controversy, among others, is known as an intra-corporate dispute.

Effective onAugust 8, 2000, upon the passage of Republic Act No. 8799,[15]otherwise known asTheSecurities 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 ofPresidential Decree No. 902-Ais herebytransferred 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 of30 June 2000until finally disposed.

Considering that the respondentscomplaintfor 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.

IIWas the Respondents Position ofVice Presidentfor Administration and Financea Corporate Office?

We must first resolve whether or not the respondents position as Vice President for Finance and Administration was a corporate office. If it was, his dismissal by the Board of Directors rendered the matter an intra-corporate dispute cognizable by the RTC pursuant to RA No. 8799.

The petitioners contend that the position of Vice President for Finance and Administration was a corporate office, having been created by Matlings President pursuant to By-Law No. V, as amended,[16]to wit:

BYLAW NO. V

Officers

The Presidentshall 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 citeTabang 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 phraseand such other officers as may be provided for in the by-lawsfound in Section 25 of theCorporation Codeshould be clearly and expressly stated in the By-Laws; that the fact that Matlings By-Law No. III dealt withDirectors & Officerswhile its By-Law No. V dealt withOfficersproved that there was a differentiation between the officers mentioned in the two provisions, with those classified under By-Law No. V beingordinaryornon-corporateofficers; 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 theCorporation Codeprovides:

Section 25.Corporate officers,quorum.--Immediately after their election, the directors of a corporation must formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of thePhilippines,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 ortrustees 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 theCorporation Codeor by the By-Laws; the rest of the corporate officers could be considered only as employees or subordinate officials. Thus, it was held inEasycall 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 wasan 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 theCorporation Code, which plainly states that the corporate officers are the President, Secretary, Treasurerandsuch 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 theCorporation Codeor by the corporations By-Laws.

A different interpretation can easily leave the way open for the Board of Directors to circumvent the constitutionally guaranteed security of tenure of the employee by the expedient inclusion in the By-Laws of an enabling clause on the creation of just any corporate officer position.

It is relevant to state in this connection that the SEC, the primary agency administering theCorporation Code, adopted a similar interpretation of Section 25 of theCorporation Codein its Opinion datedNovember 25, 1993,[21]to wit:

Thus, pursuant to the above provision (Section 25 of the Corporation Code),whoever are the corporate officers enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no power to create other Offices without amending first the corporate By-laws.However, the Board may create appointive positions other than the positions of corporate Officers, but the persons occupying such positions are not considered as corporate officers within the meaning of Section 25 of the Corporation Codeand 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 acorporateoffice to the President, in light of Section 25 of theCorporation Coderequiring the Board of Directors itself to elect the corporate officers. Verily, the power to elect thecorporateofficers 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 onTabang, supra,is misplaced. The statement inTabang, to the effect that offices not expressly mentioned in the By-Laws but were created pursuant to a By-Law enabling provision were also considered corporate offices, was plainlyobiter dictumdue 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.

InNacpil v. Intercontinental Broadcasting Corporation,[23]whichmay 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 theobiter dictuminTabang.

Considering that the observations earlier made herein show that the soundness of theirdictais not unassailable,TabangandNacpilshould no longer be controlling.

IIIDid Respondents Status as Director andStockholder Automatically Convert his Dismissalinto an Intra-Corporate Dispute?

Yet, the petitioners insist that because the respondent was a Director/stockholder of Matling, and relying onPaguio v. National Labor Relations Commission[24]andOngkingko v. National Labor Relations Commission,[25]the NLRC had no jurisdiction over hiscomplaint, considering that any case for illegal dismissal brought by a stockholder/officer against the corporation was an intra-corporate matter that must fall under the jurisdiction of the SEC conformably with the context of PD No. 902-A.

The petitioners insistence is bereft of basis.

To begin with, the reliance onPaguioandOngkingkois 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 inTabangas 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, theTabangpronouncement 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 inViray 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:

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 onSeptember 8, 1966, and had been employed continuously for 33 years until his termination onApril 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:

1966Bookkeeper

1968Senior Accountant

1969Chief Accountant

1972Office Supervisor

1973Assistant Treasurer

1978Special Assistant for Finance

1980Assistant Comptroller

1983Finance and Administrative Manager

1985Asst. Vice President for Finance andAdministration

1987 toApril 17, 2000Vice 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.

InPrudential 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 onJuly 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 onJuly 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 performstasks 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 oncertiorari, and affirm the decision of the Court of Appeals.MARC II MARKETING, INC. and LUCILA V. JOSON,

Petitioners, -versus- ALFREDO M. JOSON,

Respondent.

PEREZ,J.:

In this Petition for Review onCertiorariunder Rule 45 of the Rules of Court, herein petitioners Marc II Marketing, Inc. and Lucila V. Joson assailed the Decision[1]dated 20 June 2005 of the Court of Appeals in CA-G.R. SP No. 76624 for reversing and setting aside the Resolution[2]of the National Labor Relations Commission (NLRC) dated 15 October 2002, thereby affirming the Labor Arbiters Decision[3]dated 1 October 2001 finding herein respondent Alfredo M. Josons dismissal from employment as illegal.In the questioned Decision, the Court of Appeals upheld the Labor Arbiters jurisdiction over the case on the basis that respondent was not an officer but a mere employee of petitioner Marc II Marketing, Inc., thus, totally disregarding the latters allegation of intra-corporate controversy.Nonetheless, the Court of Appeals remanded the case to the NLRC for further proceedings to determine the proper amount of monetary awards that should be given to respondent.

Assailed as well is the Court of Appeals Resolution[4]dated7 March 2006denying their Motion for Reconsideration.

Petitioner Marc II Marketing, Inc. (petitioner corporation) is a corporation duly organized and existing under and by virtue of the laws of thePhilippines.It is primarily engaged in buying, marketing, selling and distributing in retail or wholesale for export or import household appliances and products and other items.[5]It took over the business operations of Marc Marketing, Inc. which was made non-operational following its incorporation and registration with the Securities and Exchange Commission (SEC).Petitioner Lucila V. Joson (Lucila) is the President and majority stockholder of petitioner corporation.She was also the former President and majority stockholder of the defunct Marc Marketing, Inc.

Respondent Alfredo M. Joson (Alfredo), on the other hand, was the General Manager, incorporator, director and stockholder of petitioner corporation.

The controversy of this case arose from the following factual milieu:

Before petitioner corporation was officially incorporated,[6]respondent has already been engaged by petitioner Lucila, in her capacity as President of Marc Marketing, Inc., to work as the General Manager of petitioner corporation.It was formalized through the execution of a Management Contract[7]dated16 January 1994under the letterhead of Marc Marketing, Inc.[8]as petitioner corporation is yet to be incorporated at the time of its execution.It was explicitly provided therein that respondent shall be entitled to 30% of its net income for his work as General Manager.Respondent will also be granted 30% of its net profit to compensate for the possible loss of opportunity to work overseas.[9]

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

On15 August 1994, petitioner corporation was officially incorporated and registered with the SEC.Accordingly, Marc Marketing, Inc. was made non-operational.Respondent continued to discharge his duties as General Manager but this time under petitioner corporation.

Pursuant to Section 1, Article IV[12]of petitioner corporations by-laws,[13]its corporate officers are as follows: Chairman, President, one or more Vice-President(s), Treasurer and Secretary.Its Board of Directors, however, may, from time to time, appoint such other officers as it may determine to be necessary or proper.

Per an undated Secretarys Certificate,[14]petitioner corporations Board of Directors conducted a meeting on 29 August 1994 where respondent was appointed as one of its corporate officers with the designation or title of General Manager to function as a managing director with other duties and responsibilities that the Board of Directors may provide and authorized.[15]

Nevertheless, on30 June 1997, petitioner corporation decided to stop and cease its operations, as evidenced by an Affidavit of Non-Operation[16]dated31 August 1998, due to poor sales collection aggravated by the inefficient management of its affairs.On the same date, it formally informed respondent of the cessation of its business operation.Concomitantly, respondent was apprised of the termination of his services as General Manager since his services as such would no longer be necessary for the winding up of its affairs.[17]

Feeling aggrieved, respondent filed a Complaint for Reinstatement and Money Claim against petitioners before the Labor Arbiter which was docketed as NLRC NCR Case No. 00-03-04102-99.

In his complaint, respondent averred that petitioner Lucila dismissed him from his employment with petitioner corporation due to the feeling of hatred she harbored towards his family.The same was rooted in the filing by petitioner Lucilas estranged husband, who happened to be respondents brother, of a Petition for Declaration of Nullity of their Marriage.[18]

For the parties failure to settle the case amicably, the Labor Arbiter required them to submit their respective position papers.Respondent complied but petitioners opted to file a Motion to Dismiss grounded on the Labor Arbiters lack of jurisdiction as the case involved an intra-corporate controversy, which jurisdiction belongs to the SEC [now with the Regional Trial Court (RTC)].[19]Petitioners similarly raised therein the ground of prescription of respondents monetary claim.

On5 September 2000, the Labor Arbiter issued an Order[20]deferring the resolution of petitioners Motion to Dismiss until the final determination of the case.The Labor Arbiter also reiterated his directive for petitioners to submit position paper.Still, petitioners did not comply.Insisting that the Labor Arbiter has no jurisdiction over the case, they instead filed an Urgent Motion to Resolve the Motion to Dismiss and the Motion to Suspend Filing of Position Paper.

In an Order[21]dated15 February 2001, the Labor Arbiter denied both motions and declared final the Order dated5 September 2000.The Labor Arbiter then gave petitioners a period of five days from receipt thereof within which to file position paper, otherwise, their Motion to Dismiss will be treated as their position paper and the case will be considered submitted for decision.

Petitioners, through counsel, moved for extension of time to submit position paper.Despite the requested extension, petitioners still failed to submit the same.Accordingly, the case was submitted for resolution.

On1 October 2001, the Labor Arbiter rendered his Decision in favor of respondent.Its decretal portion reads as follows:

WHEREFORE, premises considered, judgment is hereby rendereddeclaring [respondents] dismissal from employment illegal.Accordingly, [petitioners] are hereby ordered:

1.To reinstate [respondent] to his former or equivalent position without loss of seniority rights, benefits, and privileges;

2.Jointly and severally liable to pay [respondents] unpaid wages in the amount ofP450,000.00 per month from [26 March 1996] up to time of dismissal in the total amount ofP6,300,000.00;

3.Jointly and severally liable to pay [respondents] full backwages in the amount ofP450,000.00 per month from date of dismissal until actual reinstatement which at the time of promulgation amounted toP21,600,000.00;

4.Jointly and severally liable to pay moral damages in the amount ofP100,000.00 and attorneys fees in the amount of 5% of the total monetary award.[22][Emphasis supplied.]

In the aforesaid Decision, the Labor Arbiter initially resolved petitioners Motion to Dismiss by finding the ground of lack of jurisdiction to be without merit.The Labor Arbiter elucidated that petitioners failed to adduce evidence to prove that the present case involved an intra-corporate controversy.Also, respondents money claim did not arise from his being a director or stockholder of petitioner corporation but from his position as being its General Manager.The Labor Arbiter likewise held that respondent was not a corporate officer under petitioner corporations by-laws.As such, respondents complaint clearly arose from an employer-employee relationship, thus, subject to the Labor Arbiters jurisdiction.

The Labor Arbiter then declared respondents dismissal from employment as illegal.Respondent, being a regular employee of petitioner corporation, may only be dismissed for a valid cause and upon proper compliance with the requirements of due process.The records, though, revealed that petitioners failed to present any evidence to justify respondents dismissal.

Aggrieved, petitioners appealed the aforesaid Labor Arbiters Decision to the NLRC.

In its Resolution dated15 October 2002, the NLRC ruled in favor of petitioners by giving credence to the Secretarys Certificate, which evidenced petitioner corporations Board of Directors meeting in which a resolution was approved appointing respondent as its corporate officer with designation as General Manager.Therefrom, the NLRC reversed and set aside the Labor Arbiters Decision dated1 October 2001and dismissed respondents Complaint for want of jurisdiction.[23]

The NLRC enunciated that the validity of respondents appointment and termination from the position of General Manager was made subject to the approval of petitioner corporations Board of Directors.Had respondent been an ordinary employee, such board action would not have been required.As such, it is clear that respondent was a corporate officer whose dismissal involved a purely intra-corporate controversy.The NLRC went further by stating that respondents claim for 30% of the net profit of the corporation can only emanate from his right of ownership therein as stockholder, director and/or corporate officer.Dividends or profits are paid only to stockholders or directors of a corporation and not to any ordinary employee in the absence of any profit sharing scheme.In addition, the question of remuneration of a person who is not a mere employee but a stockholder and officer of a corporation is not a simple labor problem.Such matter comes within the ambit of corporate affairs and management and is an intra-corporate controversy in contemplation of the Corporation Code.[24]

When respondents Motion for Reconsideration was denied in another Resolution[25]dated23 January 2003, he filed a Petition forCertiorariwith the Court of Appeals ascribing grave abuse of discretion on the part of the NLRC.

On20 June 2005, the Court of Appeals rendered its now assailed Decision declaring that the Labor Arbiter has jurisdiction over the present controversy.It upheld the finding of the Labor Arbiter that respondent was a mere employee of petitioner corporation, who has been illegally dismissed from employment without valid cause and without due process.Nevertheless, it ordered the records of the case remanded to the NLRC for the determination of the appropriate amount of monetary awards to be given to respondent.The Court of Appeals, thus, decreed:

WHEREFORE, the petition is by us PARTIALLY GRANTED.The Labor Arbiter is DECLARED to have jurisdiction over the controversy.The records are REMANDED to the NLRC for further proceedings to determine the appropriate amount of monetary awards to be adjudged in favor of [respondent].Costs against the [petitioners]in solidum.[26]

Petitioners moved for its reconsideration but to no avail.[27]

Petitioners are now before this Court with the following assignment of errors:

I.

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

II.

ASSUMING,GRATIS ARGUENDO, THAT THE NLRC HAS JURISDICTION OVER THE CASE, STILL THE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN [RESPONDENT] ALFREDO M. JOSON AND MARC II MARKETING, INC. [PETITIONER CORPORATION].

III.

ASSUMINGGRATIS ARGUENDOTHAT THE NLRC HAS JURISDICTION OVER THE CASE, THE COURT OF APPEALS ERRED INNOT RULING THAT THELABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION IN AWARDING MULTI-MILLION PESOS IN COMPENSATION AND BACKWAGES BASED ON THE PURPORTED GROSS INCOME OF [PETITIONER CORPORATION].

IV.

THE COURT OF APPEALS SERIOUSLY ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN NOT MAKING ANY FINDINGS AND RULING THAT [PETITIONER LUCILA] SHOULD NOT BE HELD SOLIDARILY LIABLE IN THE ABSENCE OF EVIDENCE OF MALICE AND BAD FAITH ON HER PART.[28]

Petitioners fault the Court of Appeals for having sustained the Labor Arbiters finding that respondent was not a corporate officer under petitioner corporations by-laws.They insist that there is no need to amend the corporate by-laws to specify who its corporate officers are.The resolution issued by petitioner corporations Board of Directors appointing respondent as General Manager, coupled with his assumption of the said position, positively made him its corporate officer.More so, respondents position, being a creation of petitioner corporations Board of Directors pursuant to its by-laws, is a corporate office sanctioned by the Corporation Code and the doctrines previously laid down by this Court.Thus, respondents removal as petitioner corporations General Manager involved a purely intra-corporate controversy over which the RTC has jurisdiction.

Petitioners further contend that respondents claim for 30% of the net profit of petitioner corporation was anchored on the purported Management Contract dated16 January 1994.It should be noted, however, that said Management Contract was executed at the time petitioner corporation was still nonexistent and had no juridical personality yet.Such being the case, respondent cannot invoke any legal right therefrom as it has no legal and binding effect on petitioner corporation.Moreover, it is clear from the Articles of Incorporation of petitioner corporation that respondent was its director and stockholder.Indubitably, respondents claim for his share in the profit of petitioner corporation was based on his capacity as such and not by virtue of any employer-employee relationship.

Petitioners further avow that even if the present case does not pose an intra-corporate controversy, still, the Labor Arbiters multi-million peso awards in favor of respondent were erroneous.The same was merely based on the latters self-serving computations without any supporting documents.

Finally, petitioners maintain that petitioner Lucila cannot be held solidarily liable with petitioner corporation.There was neither allegation nor iota of evidence presented to show that she acted with malice and bad faith in her dealings with respondent.Moreover, the Labor Arbiter, in his Decision, simply concluded that petitioner Lucila was jointly and severally liable with petitioner corporation without making any findings thereon.It was, therefore, an error for the Court of Appeals to hold petitioner Lucila solidarily liable with petitioner corporation.

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

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 ofdirectors, 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]

InEasycall Communications Phils., Inc. v. King, this Court held that in the context of Presidential Decree No. 902-A,corporate officersare those officers of a corporation whoare given that character either by the Corporation Code or by the corporations 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 Courts recent pronouncement inMatling 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 thatthe 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 inEasycall Communications Phils., Inc. v. King[citation omitted]:

An "office" is created by the charter of the corporationand the officer is elected by the directors or stockholders. On the other hand, anemployee occupies no office and generally is employednot by the action of the directors or stockholders butby the managing officer of the corporation who also determines the compensation to be paid to such employee.

x x x xThis interpretation is the correct application of Section 25 of the Corporation Code,which plainly states that the corporate officers are the President, Secretary, Treasurer and such other officers as may be provided for in the [b]y-[l]aws.Accordingly, the corporate officers in the context of PD No. 902-A are exclusively those who are given that character either by the Corporation Code or by the corporations [b]y[l]aws.

A different interpretation can easily leave the way open for the Board of Directors to circumvent the constitutionally guaranteed security of tenure of the employee by the expedient inclusion in the [b]y-[l]aws of an enabling clause on the creation of just any corporate officer position.

It is relevant to state in this connection that theSEC, 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 Codeand 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 corporations by-laws, particularly paragraph 1, Section 1, Article IV,[37]would explicitly reveal that its corporate officers are composed only of: (1) Chairman; (2) President; (3) one or more Vice-President; (4) Treasurer; and (5) Secretary.[38]The position of General Manager was not among those enumerated.

Paragraph 2, Section 1, Article IV of petitioner corporations by-laws, empowered its Board of Directors to appoint such other officers as it may determine necessary or proper.[39]It is by virtue of this enabling provision that petitioner corporations Board of Directors allegedly approved a resolution to make the position of General Manager a corporate office, and, thereafter, appointed respondent thereto making him one of its corporate officers.All of these acts were done without first amending its by-laws so as to include the General Manager in its roster of corporate officers.

With the given circumstances andin conformity withMatling Industrial and Commercial Corporation v. Coros,this Court rules thatrespondent was not a corporate officer of petitioner corporation because his position as General Manager was not specifically mentioned in the roster of corporate officers in its corporate by-laws.The enabling clause in petitioner corporations by-laws empowering its Board of Directors to create additional officers,i.e., General Manager, and the alleged subsequent passage of a board resolution to that effect cannot make such position a corporate office.Matlingclearly enunciated thatthe 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 thatunless and until petitioner corporations by-laws is amended for the inclusion of General Manager in the list of its corporate officers, such position cannot be considered as a corporate office within the realm of Section 25 of the Corporation Code.This Court considers that theinterpretation of Section 25 of the Corporation Codelaid down inMatlingsafeguards the constitutionally enshrined right of every employee to security of tenure.To allow the creation of a corporate officer position by a simple inclusion in the corporate by-laws of an enabling clause empowering the board of directors to do so can result in the circumvention of that constitutionally well-protected right.[41]It is also of no moment that respondent, being petitioner corporations General Manager, was given the functions of a managing director by its Board of Directors.As held inMatling,the only officers of a corporation are those giventhat character either by the Corporation Code or by the corporate by-laws.It follows then that the corporate officers enumerated in the by-laws are the exclusive officers of the corporation while the rest could only be regarded as mere employees or subordinate officials.[42]Respondent,in this case,though occupying a high ranking and vital position in petitioner corporation but which position was not specifically enumerated or mentioned in the latters by-laws, can only be regarded as its employee or subordinate official.Noticeably, respondents compensation as petitioner corporations General Manager was set, fixed and determined not by the latters Board of Directors but simply by its President, petitioner Lucila.The same was not subject to the approval of petitioner corporations Board of Directors.This is an indication that respondent was an employee and not a corporate officer.To prove that respondent was petitioner corporations corporate officer, petitioners presented before the NLRC an undated Secretarys Certificate showing that corporations Board of Directors approved a resolution making respondents position of General Manager a corporate office.The submission, however, of the said undated Secretarys Certificate will not change the fact that respondent was an employee.The certification does not amount to an amendment of the by-laws which is needed to make the position of General Manager a corporate office.

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

The board resolution is an obvious fabrication.Firstly, if it had been in existence since [29 August 1994], why did not [herein petitioners] attach it to their [M]otion to [D]ismiss filed on [26 August 1999], when it could have been the best evidence that [herein respondent] was a corporate officer?Secondly, why did they report the [respondent] instead as [herein petitioner corporations] employee to the Social Security System [(SSS)] on [11 October 1994] or a later date than their [29 August 1994] board resolution?Thirdly, why is there no indication that the [respondent], the person concerned himself, and the [SEC] were furnished with copies of said board resolution?And, lastly, why is the corporate [S]ecretarys [C]ertificate not notarized in keeping with the customary procedure?That is why we called it manipulative evidence as it was a shameless sham meant to be thrown in as a wild card to muddle up the [D]ecision of the Labor Arbiter to the end that it be overturned as the latter had firmly pointed out that [respondent] is not a corporate officer under [petitioner corporations by-laws].Regrettably, the [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 theboard is without power to create new offices without amending the by-laws.(SEC Opinion, [19 October 1971.])

(3) If, for example, the general manager of a corporation is not listed as an officer, he is to be classified as an employee although he has always been considered as one of the principal officers of a corporation [citing De Leon, H. S., The Corporation Code of the Philippines Annotated, 1993 Ed., p. 215.][43][Emphasis supplied.]

That respondent was also a director and a stockholder of petitioner corporation will not automatically make the case fall within the ambit of intra-corporate controversy and be subjected to RTCs jurisdiction.To reiterate, not all conflicts between the stockholders and the corporation are classified as intra-corporate.Other factors such asthe 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., respondents dismissal as petitioner corporations General Manager, the same did not present or relate to an intra-corporate dispute.To note, there was no evidence submitted to show that respondents removal as petitioner corporations General Manager carried with it his removal as its director and stockholder.Also, petitioners allegation that respondents claim of 30% share of petitioner corporations net profit was by reason of his being its director and stockholder was without basis, thus, self-serving.Such an allegation was tantamount to a mere speculation for petitioners failure to substantiate the same.

In addition, it was not shown by petitioners that the position of General Manager was offered to respondent on account of his being petitioner corporations director and stockholder.Also, in contrast to NLRCs findings, neither petitioner corporations by-laws nor the Management Contract stated that respondents appointment and termination from the position of General Manager was subject to the approval of petitioner corporations Board of Directors.If, indeed, respondent was a corporate officer whose termination was subject to the approval of its Board of Directors, why is it that his termination was effected only by petitioner Lucila, President of petitioner corporation?The records are bereft of any evidence to show that respondents dismissal was done with the conformity of petitioner corporations Board of Directors or that the latter had a hand on respondents dismissal.No board resolution whatsoever was ever presented to that effect.

With all the foregoing, this Court is fully convince