MATLING INDUSTRIAL G.R. No.

157802
AND COMMERCIAL CORPORATION,
RICHARD K. SPENCER, Present:
CATHERINE SPENCER,
AND ALEX MANCILLA, CARPIO MORALES, Chairperson,
Petitioners, BRION,
BERSAMIN,
VILLARAMA, JR., and
-versus -
SERENO, JJ.

RICARDO R. COROS, Promulgated:

Respondent. October 13, 2010
x-----------------------------------------------------------------------------------------x

DECISION

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

In this appeal via petition for review on certiorari, the petitioners challenge
the decision dated September 13, 2002[1] and the resolution dated April 2,
2003,[2] both promulgated in C.A.-G.R. SP No. 65714 entitled Matling Industrial and
Commercial Corporation, et al. v. Ricardo R. Coros and National Labor Relations
Commission, whereby by the Court of Appeals (CA) sustained the ruling of the
National Labor Relations Commission (NLRC) to the effect that the LA had
jurisdiction because the respondent was not a corporate officer of petitioner
Matling Industrial and Commercial Corporation (Matling).
 Antecedents

After his dismissal by Matling as its Vice President for Finance and Administration,
the respondent filed on August 10, 2000 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 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.

The petitioners later submitted to the NLRC in support of the motion for
reconsideration the certified machine copies of Matlings Amended Articles of
Incorporation and By Laws to prove that the President of Matling was thereby
granted full power to create new offices and appoint the officers thereto, and
the minutes of special meeting held on June 7, 1999 by Matlings Board of Directors
to prove that the respondent was, indeed, a Member of the Board of Directors.[10]
 Nonetheless, on April 30, 2001, the NLRC denied the petitioners motion for
reconsideration.[11]

Ruling of the CA

The petitioners elevated the issue to the CA by petition for certiorari, docketed as
C.A.-G.R. No. SP 65714, contending that the NLRC committed grave abuse of
discretion amounting to lack of jurisdiction in reversing the correct decision of the
LA.

In its assailed decision promulgated on September 13, 2002,[12] the CA dismissed the
petition for certiorari, explaining:

For a position to be considered as a corporate office, or, for that matter, for one to be
considered as a corporate officer, the position must, if not listed in the by-laws, have been
created by the corporation's board of directors, and the occupant thereof appointed or
elected by the same board of directors or stockholders. This is the implication of the ruling
in Tabang v. National Labor Relations Commission, which reads:
The president, vice president, secretary and treasurer are commonly
regarded as the principal or executive officers of a corporation, and modern
corporation statutes usually designate them as the officers of the corporation.
However, other offices are sometimes created by the charter or by-laws of a
corporation, or the board of directors may be empowered under the by-laws of
a corporation to create additional offices as may be necessary.
It has been held that an 'office' is created by the charter of the corporation
and the officer is elected by the directors or stockholders. On the other hand, an
'employee' usually occupies no office and generally is employed not by action of
the directors or stockholders but by the managing officer of the corporation who
also determines the compensation to be paid to such employee.
This ruling was reiterated in the subsequent cases of Ongkingco v. National Labor
Relations Commission and De Rossi v. National Labor Relations Commission.
The position of vice-president for administration and finance, which Coros used to
hold in the corporation, was not created by the corporations board of directors but only
by its president or executive vice-president pursuant to the by-laws of the corporation.
Moreover, Coros appointment to said position was not made through any act of the board
of directors or stockholders of the corporation. Consequently, the position to which Coros
was appointed and later on removed from, is not a corporate office despite its
nomenclature, but an ordinary office in the corporation.
Coros alleged illegal dismissal therefrom is, therefore, within the jurisdiction of the
labor arbiter.
WHEREFORE, the petition for certiorari is hereby DISMISSED.
 SO ORDERED.
The CA denied the petitioners motion for reconsideration on April 2, 2003.[13]

Issue

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

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?

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-
lawsfound in Section 25 of the Corporation Codeshould 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-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 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 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:

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 corporateofficers 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
Commission[24] and Ongkingko v. National Labor Relations Commission,[25] the NLRC
had no jurisdiction over his complaint, considering that any case for illegal dismissal
brought by a stockholder/officer against the corporation was an intra-corporate
matter that must fall under the jurisdiction of the SEC conformably with the context
of PD No. 902-A.

The petitioners insistence is bereft of basis.

To begin with, the reliance on Paguio and Ongkingko is misplaced. In both rulings,
the complainants were undeniably corporate officers due to their positions being
expressly mentioned in the By-Laws, aside from the fact that both of them had been
duly elected by the respective Boards of Directors. But the herein respondents
position of Vice President for Finance and Administration was not expressly
mentioned in the By-Laws; neither was the position of Vice President for Finance
and Administration created by Matlings Board of Directors. Lastly, the President, not
the Board of Directors, appointed him.

True it is that the Court pronounced in Tabangas 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:

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
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.
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.

Republic of the Philippines

SUPREME COURT
G.R. No. 167291 January 12, 2011
PRINCE TRANSPORT, Inc. and Mr. RENATO CLAROS,Petitioners,
vs.
DIOSDADO GARCIA, LUISITO GARCIA, RODANTE ROMERO, REX BARTOLOME, FELICIANO GASCO, JR.,
DANILO ROJO, EDGAR SANFUEGO, AMADO GALANTO, EUTIQUIO LUGTU, JOEL GRAMATICA, MIEL
CERVANTES, TERESITA CABANES, ROE DELA CRUZ, RICHELO BALIDOY, VILMA PORRAS, MIGUELITO
SALCEDO, CRISTINA GARCIA, MARIO NAZARENO, DINDO TORRES, ESMAEL RAMBOYONG, ROBETO*MANO,
ROGELIO BAGAWISAN, ARIEL SNACHEZ, ESTAQULO VILLAREAL, NELSON MONTERO, GLORIA ORANTE,
HARRY TOCA, PABLITO MACASAET and RONALD GARCITA Respondents.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court praying for the
annulment of the Decision1 and Resolution2 of the Court of Appeals (CA) dated December 20, 2004 and
February 24, 2005, respectively, in CA-G.R. SP No. 80953. The assailed Decision reversed and set aside the
Resolutions dated May 30, 20033 and September 26, 20034 of the National Labor Relations Commission
(NLRC) in CA No. 029059-01, while the disputed Resolution denied petitioners' Motion for Reconsideration.
The present petition arose from various complaints filed by herein respondents charging petitioners with
illegal dismissal, unfair labor practice and illegal deductions and praying for the award of premium pay for
holiday and rest day, holiday pay, service leave pay, 13th month pay, moral and exemplary damages and
attorney's fees.
Respondents alleged in their respective position papers and other related pleadings that they were
employees of Prince Transport, Inc. (PTI), a company engaged in the business of transporting passengers
by land; respondents were hired either as drivers, conductors, mechanics or inspectors, except for
respondent Diosdado Garcia (Garcia), who was assigned as Operations Manager; in addition to their regular
monthly income, respondents also received commissions equivalent to 8 to 10% of their wages; sometime
in October 1997, the said commissions were reduced to 7 to 9%; this led respondents and other employees
of PTI to hold a series of meetings to discuss the protection of their interests as employees; these meetings
led petitioner Renato Claros, who is the president of PTI, to suspect that respondents are about to form a
union; he made known to Garcia his objection to the formation of a union; in December 1997, PTI
employees requested for a cash advance, but the same was denied by management which resulted in
demoralization on the employees' ranks; later, PTI acceded to the request of some, but not all, of the
employees; the foregoing circumstances led respondents to form a union for their mutual aid and
protection; in order to block the continued formation of the union, PTI caused the transfer of all union
members and sympathizers to one of its sub-companies, Lubas Transport (Lubas); despite such transfer,
the schedule of drivers and conductors, as well as their company identification cards, were issued by PTI;
the daily time records, tickets and reports of the respondents were also filed at the PTI office; and, all claims
for salaries were transacted at the same office; later, the business of Lubas deteriorated because of the
refusal of PTI to maintain and repair the units being used therein, which resulted in the virtual stoppage of
its operations and respondents' loss of employment.
Petitioners, on the other hand, denied the material allegations of the complaints contending that herein
respondents were no longer their employees, since they all transferred to Lubas at their own request;
petitioners have nothing to do with the management and operations of Lubas as well as the control and
supervision of the latter's employees; petitioners were not aware of the existence of any union in their
company and came to know of the same only in June 1998 when they were served a copy of the summons
in the petition for certification election filed by the union; that before the union was registered on April 15,
1998, the complaint subject of the present petition was already filed; that the real motive in the filing of
the complaints was because PTI asked respondents to vacate the bunkhouse where they (respondents) and
their respective families were staying because PTI wanted to renovate the same.
Subsequently, the complaints filed by respondents were consolidated.
On October 25, 2000, the Labor Arbiter rendered a Decision,5 the dispositive portion of which reads as
follows:
WHEREFORE, judgment is hereby rendered:
1. Dismissing the complaints for Unfair Labor Practice, non-payment of holiday pay and holiday premium,
service incentive leave pay and 13th month pay;
Dismissing the complaint of Edgardo Belda for refund of boundary-hulog;
2. Dismissing the complaint for illegal dismissal against the respondents Prince Transport, Inc. and/or Prince
Transport Phils. Corporation, Roberto Buenaventura, Rory Bayona, Ailee Avenue, Nerissa Uy, Mario Feranil
and Peter Buentiempo;
3. Declaring that the complainants named below are illegally dismissed by Lubas Transport; ordering said
Lubas Transport to pay backwages and separation pay in lieu of reinstatement in the following amount:
Complainants Backwages Separation Pay
(1) Diosdado Garcia ₱222,348.70 ₱79,456.00
(2) Feliciano Gasco, Jr. 203,350.00 54,600.00
(3) Pablito Macasaet 145,250.00 13,000.00
(4) Esmael Ramboyong 221,500.00 30,000.00
(5) Joel Gramatica 221,500.00 60,000.00
(6) Amado Galanto 130,725.00 29,250.00
(7) Miel Cervantes 265,800.00 60,000.00
(8) Roberto Mano 221,500.00 50,000.00
(9) Roe dela Cruz 265,800.00 60,000.00
(10) Richelo Balidoy 130,725.00 29,250.00
(11) Vilma Porras 221,500.00 70,000.00
(12) Miguelito Salcedo 265,800.00 60,000.00
(13) Cristina Garcia 130,725.00 35,100.00
(14) Luisito Garcia 145,250.00 19,500.00
(15) Rogelio Bagawisan 265,800.00 60,000.00
(16) Rodante H. Romero 221,500.00 60,000.00
(17) Dindo Torres 265,800.00 50,000.00
(18) Edgar Sanfuego 221,500.00 40,000.00
(19) Ronald Gacita 221,500.00 40,000.00
(20) Harry Toca 174,300.00 23,400.00
(21) Amado Galanto 130,725.00 17,550.00
(22) Teresita Cabañes 130,725.00 17,550.00
(23) Rex Bartolome 301,500.00 30,000.00
(24) Mario Nazareno 221,500.00 30,000.00
(25) Eustaquio Villareal 145,250.00 19,500.00
(26) Ariel Sanchez 265,800.00 60,000.00
(27) Gloria Orante 263,100.00 60,000.00
(28) Nelson Montero 264,600.00 60,000.00
(29) Rizal Beato 295,000.00 40,000.00
(30) Eutiquio Lugtu 354,000.00 48,000.00
(31) Warlito Dickensomn 295,000.00 40,000.00
(32) Edgardo Belda 354,000.00 84,000.00
(33) Tita Go 295,000.00 70,000.00
(34) Alex Lodor 295,000.00 50,000.00
(35) Glenda Arguilles 295,000.00 40,000.00
(36) Erwin Luces 354,000.00 48,000.00
(37) Jesse Celle 354,000.00 48,000.00
(38) Roy Adorable 295,000.00 40,000.00
(39) Marlon Bangcoro 295,000.00 40,000.00
(40)Edgardo Bangcoro 354,000.00 36,000.00
4. Ordering Lubas Transport to pay attorney's fees equivalent to ten (10%) of the total monetary award;
and
6. Ordering the dismissal of the claim for moral and exemplary damages for lack merit.
SO ORDERED.6
The Labor Arbiter ruled that petitioners are not guilty of unfair labor practice in the absence of evidence to
show that they violated respondents’ right to self-organization. The Labor Arbiter also held that Lubas is
the respondents’ employer and that it (Lubas) is an entity which is separate, distinct and independent from
PTI. Nonetheless, the Labor Arbiter found that Lubas is guilty of illegally dismissing respondents from their
employment.
Respondents filed a Partial Appeal with the NLRC praying, among others, that PTI should also be held equally
liable as Lubas.
In a Resolution dated May 30, 2003, the NLRC modified the Decision of the Labor Arbiter and disposed as
follows:
WHEREFORE, premises considered, the appeal is hereby PARTIALLY GRANTED. Accordingly, the Decision
appealed from is SUSTAINED subject to the modification that Complainant-Appellant Edgardo Belda
deserves refund of his boundary-hulog in the amount of ₱446,862.00; and that Complainants-Appellants
Danilo Rojo and Danilo Laurel should be included in the computation of Complainants-Appellants claim as
follows:
Complainants Backwages Separation Pay
41. Danilo Rojo ₱355,560.00 ₱48,000.00
42. Danilo Laurel ₱357,960.00 ₱72,000.00
As regards all other aspects, the Decision appealed from is SUSTAINED.
SO ORDERED.7
Respondents filed a Motion for Reconsideration, but the NLRC denied it in its Resolution8 dated September
26, 2003.
Respondents then filed a special civil action for certiorari with the CA assailing the Decision and Resolution
of the NLRC.
On December 20, 2004, the CA rendered the herein assailed Decision which granted respondents' petition.
The CA ruled that petitioners are guilty of unfair labor practice; that Lubas is a mere instrumentality, agent
conduit or adjunct of PTI; and that petitioners’ act of transferring respondents’ employment to Lubas is
indicative of their intent to frustrate the efforts of respondents to organize themselves into a union.
Accordingly, the CA disposed of the case as follows:
WHEREFORE, the Petition for Certiorari is hereby GRANTED. Accordingly, the subject decision is hereby
REVERSED and SET ASIDE and another one ENTERED finding the respondents guilty of unfair labor practice
and ordering them to reinstate the petitioners to their former positions without loss of seniority rights and
with full backwages.
With respect to the portion ordering the inclusion of Danilo Rojo and Danilo Laurel in the computation of
petitioner's claim for backwages and with respect to the portion ordering the refund of Edgardo Belda's
boundary-hulog in the amount of ₱446,862.00, the NLRC decision is affirmed and maintained.
SO ORDERED.9
Petitioners filed a Motion for Reconsideration, but the CA denied it via its Resolution10 dated February 24,
2005.
Hence, the instant petition for review on certiorari based on the following grounds:
A
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN GIVING DUE COURSE TO THE
RESPONDENTS' PETITION FOR CERTIORARI
1. THE COURT OF APPEALS SHOULD HAVE RESPECTED THE FINDINGS OF THE LABOR ARBITER AND
AFFIRMED BY THE NLRC
2. ONLY ONE PETITIONER EXECUTED AND VERIFIED THE PETITION
3. THE COURT OF APPEALS SHOULD NOT HAVE GIVEN DUE COURSE TO THE PETITION WITH RESPECT TO
RESPONDENTS REX BARTOLOME, FELICIANO GASCO, DANILO ROJO, EUTIQUIO LUGTU, AND NELSON
MONTERO AS THEY FAILED TO FILE AN APPEAL TO THE NLRC
B
THE COURT OF APPEALS SERIOUSLY ERRED IN DECLARING THAT PETITIONERS PRINCE TRANSPORT, INC.
AND MR. RENATO CLAROS AND LUBAS TRANSPORT ARE ONE AND THE SAME CORPORATION AND THUS,
LIABLE IN SOLIDUM TO RESPONDENTS.
C
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN ORDERING THE REINSTATEMENT
OF RESPONDENTS TO THEIR PREVIOUS POSITION WHEN IT IS NOT ONE OF THE ISSUES RAISED IN
RESPONDENTS' PETITION FOR CERTIORARI.11
Petitioners assert that factual findings of agencies exercising quasi-judicial functions like the NLRC are
accorded not only respect but even finality; that the CA should have outrightly dismissed the petition filed
before it because in certiorari proceedings under Rule 65 of the Rules of Court it is not within the province
of the CA to evaluate the sufficiency of evidence upon which the NLRC based its determination, the inquiry
being limited essentially to whether or not said tribunal has acted without or in excess of its jurisdiction or
with grave abuse of discretion. Petitioners assert that the CA can only pass upon the factual findings of the
NLRC if they are not supported by evidence on record, or if the impugned judgment is based on
misapprehension of facts — which circumstances are not present in this case. Petitioners also emphasize
that the NLRC and the Labor Arbiter concurred in their factual findings which were based on substantial
evidence and, therefore, should have been accorded great weight and respect by the CA.
Respondents, on the other hand, aver that the CA neither exceeded its jurisdiction nor committed error in
re-evaluating the NLRC’s factual findings since such findings are not in accord with the evidence on record
and the applicable law or jurisprudence.
The Court agrees with respondents.
The power of the CA to review NLRC decisions via a petition for certiorari under Rule 65 of the Rules of
Court has been settled as early as this Court’s decision in St. Martin Funeral Homes v. NLRC.12 In said case,
the Court held that the proper vehicle for such review is a special civil action for certiorari under Rule 65 of
the said Rules, and that the case should be filed with the CA in strict observance of the doctrine of hierarchy
of courts. Moreover, it is already settled that under Section 9 of Batas Pambansa Blg. 129, as amended by
Republic Act No. 7902, the CA — pursuant to the exercise of its original jurisdiction over petitions for
certiorari — is specifically given the power to pass upon the evidence, if and when necessary, to resolve
factual issues.13 Section 9 clearly states:
xxxx
The Court of Appeals shall have the power to try cases and conduct hearings, receive evidence and perform
any and all acts necessary to resolve factual issues raised in cases falling within its original and appellate
jurisdiction, including the power to grant and conduct new trials or further proceedings. x x x
However, equally settled is the rule that factual findings of labor officials, who are deemed to have acquired
expertise in matters within their jurisdiction, are generally accorded not only respect but even finality by
the courts when supported by substantial evidence, i.e., the amount of relevant evidence which a
reasonable mind might accept as adequate to justify a conclusion.14 But these findings are not infallible.
When there is a showing that they were arrived at arbitrarily or in disregard of the evidence on record, they
may be examined by the courts.15 The CA can grant the petition for certiorari if it finds that the NLRC, in
its assailed decision or resolution, made a factual finding not supported by substantial evidence.16 It is
within the jurisdiction of the CA, whose jurisdiction over labor cases has been expanded to review the
findings of the NLRC.17
In this case, the NLRC sustained the factual findings of the Labor Arbiter. Thus, these findings are generally
binding on the appellate court, unless there was a showing that they were arrived at arbitrarily or in
disregard of the evidence on record. In respondents' petition for certiorari with the CA, these factual
findings were reexamined and reversed by the appellate court on the ground that they were not in accord
with credible evidence presented in this case. To determine if the CA's reexamination of factual findings
and reversal of the NLRC decision are proper and with sufficient basis, it is incumbent upon this Court to
make its own evaluation of the evidence on record.18
After a thorough review of the records at hand, the Court finds that the CA did not commit error in arriving
at its own findings and conclusions for reasons to be discussed hereunder.
Firstly, petitioners posit that the petition filed with the CA is fatally defective, because the attached
verification and certificate against forum shopping was signed only by respondent Garcia.
The Court does not agree.
While the general rule is that the certificate of non-forum shopping must be signed by all the plaintiffs in a
case and the signature of only one of them is insufficient, the Court has stressed that the rules on forum
shopping, which were designed to promote and facilitate the orderly administration of justice, should not
be interpreted with such absolute literalness as to subvert its own ultimate and legitimate objective.19
Strict compliance with the provision regarding the certificate of non-forum shopping underscores its
mandatory nature in that the certification cannot be altogether dispensed with or its requirements
completely disregarded.20 It does not, however, prohibit substantial compliance therewith under
justifiable circumstances, considering especially that although it is obligatory, it is not jurisdictional.21
In a number of cases, the Court has consistently held that when all the petitioners share a common interest
and invoke a common cause of action or defense, the signature of only one of them in the certification
against forum shopping substantially complies with the rules.22In the present case, there is no question
that respondents share a common interest and invoke a common cause of action. Hence, the signature of
respondent Garcia is a sufficient compliance with the rule governing certificates of non-forum shopping. In
the first place, some of the respondents actually executed a Special Power of Attorney authorizing Garcia
as their attorney-in-fact in filing a petition for certiorari with the CA.23
The Court, likewise, does not agree with petitioners' argument that the CA should not have given due course
to the petition filed before it with respect to some of the respondents, considering that these respondents
did not sign the verification attached to the Memorandum of Partial Appeal earlier filed with the NLRC.
Petitioners assert that the decision of the Labor Arbiter has become final and executory with respect to
these respondents and, as a consequence, they are barred from filing a petition for certiorari with the CA.
With respect to the absence of some of the workers’ signatures in the verification, the verification
requirement is deemed substantially complied with when some of the parties who undoubtedly have
sufficient knowledge and belief to swear to the truth of the allegations in the petition had signed the same.
Such verification is deemed a sufficient assurance that the matters alleged in the petition have been made
in good faith or are true and correct, and not merely speculative. Moreover, respondents' Partial Appeal
shows that the appeal stipulated as complainants-appellants "Rizal Beato, et al.", meaning that there were
more than one appellant who were all workers of petitioners.
In any case, the settled rule is that a pleading which is required by the Rules of Court to be verified, may be
given due course even without a verification if the circumstances warrant the suspension of the rules in the
interest of justice.24 Indeed, the absence of a verification is not jurisdictional, but only a formal defect,
which does not of itself justify a court in refusing to allow and act on a case.25 Hence, the failure of some
of the respondents to sign the verification attached to their Memorandum of Appeal filed with the NLRC is
not fatal to their cause of action.
Petitioners also contend that the CA erred in applying the doctrine of piercing the corporate veil with respect
to Lubas, because the said doctrine is applicable only to corporations and Lubas is not a corporation but a
single proprietorship; that Lubas had been found by the Labor Arbiter and the NLRC to have a personality
which is separate and distinct from that of PTI; that PTI had no hand in the management and operation as
well as control and supervision of the employees of Lubas.
The Court is not persuaded.
On the contrary, the Court agrees with the CA that Lubas is a mere agent, conduit or adjunct of PTI. A settled
formulation of the doctrine of piercing the corporate veil is that when two business enterprises are owned,
conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights
of third parties, disregard the legal fiction that these two entities are distinct and treat them as identical or
as one and the same.26 In the present case, it may be true that Lubas is a single proprietorship and not a
corporation. However, petitioners’ attempt to isolate themselves from and hide behind the supposed
separate and distinct personality of Lubas so as to evade their liabilities is precisely what the classical
doctrine of piercing the veil of corporate entity seeks to prevent and remedy.
Thus, the Court agrees with the observations of the CA, to wit:
As correctly pointed out by petitioners, if Lubas were truly a separate entity, how come that it was Prince
Transport who made the decision to transfer its employees to the former? Besides, Prince Transport never
regarded Lubas Transport as a separate entity. In the aforesaid letter, it referred to said entity as "Lubas
operations." Moreover, in said letter, it did not transfer the employees; it "assigned" them. Lastly, the
existing funds and 201 file of the employees were turned over not to a new company but a "new
management."27
The Court also agrees with respondents that if Lubas is indeed an entity separate and independent from
PTI why is it that the latter decides which employees shall work in the former?
What is telling is the fact that in a memorandum issued by PTI, dated January 22, 1998, petitioner company
admitted that Lubas is one of its sub-companies.28 In addition, PTI, in its letters to its employees who were
transferred to Lubas, referred to the latter as its "New City Operations Bus."29
Moreover, petitioners failed to refute the contention of respondents that despite the latter’s transfer to
Lubas of their daily time records, reports, daily income remittances of conductors, schedule of drivers and
conductors were all made, performed, filed and kept at the office of PTI. In fact, respondents’ identification
cards bear the name of PTI.
It may not be amiss to point out at this juncture that in two separate illegal dismissal cases involving
different groups of employees transferred by PTI to other companies, the Labor Arbiter handling the cases
found that these companies and PTI are one and the same entity; thus, making them solidarily liable for the
payment of backwages and other money claims awarded to the complainants therein.30
Petitioners likewise aver that the CA erred and committed grave abuse of discretion when it ordered
petitioners to reinstate respondents to their former positions, considering that the issue of reinstatement
was never brought up before it and respondents never questioned the award of separation pay to them.
The Court is not persuaded.
It is clear from the complaints filed by respondents that they are seeking reinstatement.31
In any case, Section 2 (c), Rule 7 of the Rules of Court provides that a pleading shall specify the relief sought,
but may add a general prayer for such further or other reliefs as may be deemed just and equitable. Under
this rule, a court can grant the relief warranted by the allegation and the proof even if it is not specifically
sought by the injured party; the inclusion of a general prayer may justify the grant of a remedy different
from or together with the specific remedy sought, if the facts alleged in the complaint and the evidence
introduced so warrant.321avvphi1
Moreover, in BPI Family Bank v. Buenaventura,33 this Court ruled that the general prayer is broad enough
"to justify extension of a remedy different from or together with the specific remedy sought." Even without
the prayer for a specific remedy, proper relief may be granted by the court if the facts alleged in the
complaint and the evidence introduced so warrant. The court shall grant relief warranted by the allegations
and the proof even if no such relief is prayed for. The prayer in the complaint for other reliefs equitable and
just in the premises justifies the grant of a relief not otherwise specifically prayed for.34 In the instant case,
aside from their specific prayer for reinstatement, respondents, in their separate complaints, prayed for
such reliefs which are deemed just and equitable.
As to whether petitioners are guilty of unfair labor practice, the Court finds no cogent reason to depart
from the findings of the CA that respondents’ transfer of work assignments to Lubas was designed by
petitioners as a subterfuge to foil the former’s right to organize themselves into a union. Under Article 248
(a) and (e) of the Labor Code, an employer is guilty of unfair labor practice if it interferes with, restrains or
coerces its employees in the exercise of their right to self-organization or if it discriminates in regard to
wages, hours of work and other terms and conditions of employment in order to encourage or discourage
membership in any labor organization.
Indeed, evidence of petitioners' unfair labor practice is shown by the established fact that, after
respondents' transfer to Lubas, petitioners left them high and dry insofar as the operations of Lubas was
concerned. The Court finds no error in the findings and conclusion of the CA that petitioners "withheld the
necessary financial and logistic support such as spare parts, and repair and maintenance of the transferred
buses until only two units remained in running condition." This left respondents virtually jobless.
WHEREFORE, the instant petition is denied. The assailed Decision and Resolution of the Court of Appeals,
dated December 20, 2004 and February 24, 2005, respectively, in CA-G.R. SP No. 80953, are AFFIRMED.
SO ORDERED.

G.R. No. 171993 December 12, 2011

MARC II MARKETING, INC. and LUCILA V. JOSON,Petitioners,
vs.
ALFREDO M. JOSON, Respondent.
DECISION
PEREZ, J.:
In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, herein petitioners Marc II
Marketing, Inc. and Lucila V. Joson assailed the Decision1 dated 20 June 2005 of the Court of Appeals in CA-
G.R. SP No. 76624 for reversing and setting aside the Resolution2 of the National Labor Relations
Commission (NLRC) dated 15 October 2002, thereby affirming the Labor Arbiter’s Decision3 dated 1
October 2001 finding herein respondent Alfredo M. Joson’s dismissal from employment as illegal. In the
questioned Decision, the Court of Appeals upheld the Labor Arbiter’s 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 latter’s 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 Resolution4dated 7 March 2006 denying their Motion for
Reconsideration.
Petitioner Marc II Marketing, Inc. (petitioner corporation) is a corporation duly organized and existing under
and by virtue of the laws of the Philippines. It is primarily engaged in buying, marketing, selling and
distributing in retail or wholesale for export or import household appliances and products and other items.5
It took over the business operations of Marc Marketing, Inc. which was made non-operational following its
incorporation and registration with the Securities and Exchange Commission (SEC). Petitioner Lucila V.
Joson (Lucila) is the President and majority stockholder of petitioner corporation. She was also the former
President and majority stockholder of the defunct Marc Marketing, Inc.
Respondent Alfredo M. Joson (Alfredo), on the other hand, was the General Manager, incorporator,
director and stockholder of petitioner corporation.
The controversy of this case arose from the following factual milieu:
Before petitioner corporation was officially incorporated,6respondent 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 Contract7 dated 16
January 1994 under the letterhead of Marc Marketing, Inc.8 as petitioner corporation is yet to be
incorporated at the time of its execution. It was explicitly provided therein that respondent shall be entitled
to 30% of its net income for his work as General Manager. Respondent will also be granted 30% of its net
profit to compensate for the possible loss of opportunity to work overseas.9
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 IV10 of
its by-laws.11
On 15 August 1994, petitioner corporation was officially incorporated and registered with the SEC.
Accordingly, Marc Marketing, Inc. was made non-operational. Respondent continued to discharge his
duties as General Manager but this time under petitioner corporation.
Pursuant to Section 1, Article IV12 of petitioner corporation’s 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 Secretary’s Certificate,14 petitioner corporation’s Board of Directors conducted a meeting
on 29 August 1994 where respondent was appointed as one of its corporate officers with the designation
or title of General Manager to function as a managing director with other duties and responsibilities that
the Board of Directors may provide and authorized.15
Nevertheless, on 30 June 1997, petitioner corporation decided to stop and cease its operations, as
evidenced by an Affidavit of Non-Operation16 dated 31 August 1998, due to poor sales collection
aggravated by the inefficient management of its affairs. On the same date, it formally informed respondent
of the cessation of its business operation. Concomitantly, respondent was apprised of the termination of
his services as General Manager since his services as such would no longer be necessary for the winding up
of its affairs.17
Feeling aggrieved, respondent filed a Complaint for Reinstatement and Money Claim against petitioners
before the Labor Arbiter which was docketed as NLRC NCR Case No. 00-03-04102-99.
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 Lucila’s estranged husband, who happened to be respondent’s 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 Arbiter’s lack of jurisdiction as the case involved an intra-corporate controversy,
which jurisdiction belongs to the SEC [now with the Regional Trial Court (RTC)].19Petitioners similarly raised
therein the ground of prescription of respondent’s monetary claim.
On 5 September 2000, the Labor Arbiter issued an Order20 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 Order21 dated 15 February 2001, the Labor Arbiter denied both motions and declared final the Order
dated 5 September 2000. The Labor Arbiter then gave petitioners a period of five days from receipt thereof
within which to file position paper, otherwise, their Motion to Dismiss will be treated as their position paper
and the case will be considered submitted for decision.
Petitioners, through counsel, moved for extension of time to submit position paper. Despite the requested
extension, petitioners still failed to submit the same. Accordingly, the case was submitted for resolution.
On 1 October 2001, the Labor Arbiter rendered his Decision in favor of respondent. Its decretal portion
reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered declaring [respondent’s] 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 [respondent’s] unpaid wages in the amount of ₱450,000.00 per month
from [26 March 1996] up to time of dismissal in the total amount of ₱6,300,000.00;
3. Jointly and severally liable to pay [respondent’s] full backwages in the amount of ₱450,000.00 per month
from date of dismissal until actual reinstatement which at the time of promulgation amounted to
₱21,600,000.00;
4. Jointly and severally liable to pay moral damages in the amount of ₱100,000.00 and attorney’s 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, respondent’s
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 corporation’s by-laws. As such, respondent’s complaint clearly arose from an
employer-employee relationship, thus, subject to the Labor Arbiter’s jurisdiction.
The Labor Arbiter then declared respondent’s 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 respondent’s dismissal.
Aggrieved, petitioners appealed the aforesaid Labor Arbiter’s Decision to the NLRC.
In its Resolution dated 15 October 2002, the NLRC ruled in favor of petitioners by giving credence to the
Secretary’s Certificate, which evidenced petitioner corporation’s 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 Arbiter’s Decision dated 1 October 2001
and dismissed respondent’s Complaint for want of jurisdiction.23
The NLRC enunciated that the validity of respondent’s appointment and termination from the position of
General Manager was made subject to the approval of petitioner corporation’s 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 respondent’s 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 respondent’s Motion for Reconsideration was denied in another Resolution25 dated 23 January
2003, he filed a Petition for Certiorari with the Court of Appeals ascribing grave abuse of discretion on the
part of the NLRC.
On 20 June 2005, the Court of Appeals rendered its now assailed Decision declaring that the Labor Arbiter
has jurisdiction over the present controversy. It upheld the finding of the Labor Arbiter that respondent
was a mere employee of petitioner corporation, who has been illegally dismissed from employment without
valid cause and without due process. Nevertheless, it ordered the records of the case remanded to the
NLRC for the determination of the appropriate amount of monetary awards to be given to respondent. The
Court of Appeals, thus, decreed:
WHEREFORE, the petition is by us PARTIALLY GRANTED. The Labor Arbiter is DECLARED to have jurisdiction
over the controversy. The records are REMANDED to the NLRC for further proceedings to determine the
appropriate amount of monetary awards to be adjudged in favor of [respondent]. Costs against the
[petitioners] in solidum.26
Petitioners moved for its reconsideration but to no avail.27
Petitioners are now before this Court with the following assignment of errors:
THE COURT OF APPEALS ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN DECIDING THAT THE
NLRC HAS THE JURISDICTION IN RESOLVING A PURELY INTRA-CORPORATE MATTER WHICH IS COGNIZABLE
BY THE SECURITIES AND EXCHANGE COMMISSION/REGIONAL TRIAL COURT.
ASSUMING, GRATIS ARGUENDO, THAT THE NLRC HAS JURISDICTION OVER THE CASE, STILL THE COURT OF
APPEALS SERIOUSLY ERRED IN NOT RULING THAT THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP
BETWEEN [RESPONDENT] ALFREDO M. JOSON AND MARC II MARKETING, INC. [PETITIONER
CORPORATION].
ASSUMING GRATIS ARGUENDO THAT THE NLRC HAS JURISDICTION OVER THE CASE, THE COURT OF
APPEALS ERRED IN NOT RULING THAT THE LABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION IN
AWARDING MULTI-MILLION PESOS IN COMPENSATION AND BACKWAGES BASED ON THE PURPORTED
GROSS INCOME OF [PETITIONER CORPORATION].
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 Arbiter’s finding that respondent was
not a corporate officer under petitioner corporation’s 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
corporation’s Board of Directors appointing respondent as General Manager, coupled with his assumption
of the said position, positively made him its corporate officer. More so, respondent’s position, being a
creation of petitioner corporation’s 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,
respondent’s removal as petitioner corporation’s General Manager involved a purely intra-corporate
controversy over which the RTC has jurisdiction.
Petitioners further contend that respondent’s claim for 30% of the net profit of petitioner corporation was
anchored on the purported Management Contract dated 16 January 1994. It should be noted, however,
that said Management Contract was executed at the time petitioner corporation was still nonexistent and
had no juridical personality yet. Such being the case, respondent cannot invoke any legal right therefrom
as it has no legal and binding effect on petitioner corporation. Moreover, it is clear from the Articles of
Incorporation of petitioner corporation that respondent was its director and stockholder. Indubitably,
respondent’s 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 Arbiter’s multi-million peso awards in favor of respondent were erroneous. The same was merely
based on the latter’s 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 respondent’s 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)229 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 531 of Presidential Decree No. 902-A, intra-corporate controversies are those controversies
arising out of intra-corporate or partnership relations, between and among stockholders, members or
associates; between any or all of them and the corporation, partnership or association of which they are
stockholders, members or associates, respectively; and between such corporation, partnership or
association and the State insofar as it concerns their individual franchise or right to exist as such entity. It
also includes controversies in the election or appointments of directors, trustees, officers or managers of
such corporations, partnerships or associations.32
Accordingly, in determining whether the SEC (now the RTC) has jurisdiction over the controversy, the status
or relationship of the parties and the nature of the question that is the subject of their controversy must
be taken into consideration.33
In Easycall Communications Phils., Inc. v. King, this Court held that in the context of Presidential Decree No.
902-A, corporate officers are those officers of a corporation who are given that character either by the
Corporation Code or by the corporation’s by-laws. Section 2534 of the Corporation Code specifically
enumerated who are these corporate officers, to wit: (1) president; (2) secretary; (3) treasurer; and (4) such
other officers as may be provided for in the by-laws.35
The aforesaid Section 25 of the Corporation Code, particularly the phrase "such other officers as may be
provided for in the by-laws," has been clarified and elaborated in this Court’s recent pronouncement in
Matling Industrial and Commercial Corporation v. Coros, where it held, thus:
Conformably with Section 25, a position must be expressly mentioned in the [b]y-[l]aws in order to be
considered as a corporate office. Thus, the creation of an office pursuant to or under a [b]y-[l]aw enabling
provision is not enough to make a position a corporate office. [In] Guerrea v. Lezama [citation omitted] the
first ruling on the matter, held that the only officers of a corporation were those given that character either
by the Corporation Code or by the [b]y-[l]aws; the rest of the corporate officers could be considered only
as employees or subordinate officials. Thus, it was held in Easycall Communications Phils., Inc. v. King
[citation omitted]:
An "office" is created by the charter of the corporation and the officer is elected by the directors or
stockholders. On the other hand, an employee occupies no office and generally is employed not by the
action of the directors or stockholders but by the managing officer of the corporation who also determines
the compensation to be paid to such employee.
xxxx
This interpretation is the correct application of Section 25 of the Corporation Code, which plainly states
that the corporate officers are the President, Secretary, Treasurer and such other officers as may be
provided for in the [b]y-[l]aws. Accordingly, the corporate officers in the context of PD No. 902-A are
exclusively those who are given that character either by the Corporation Code or by the corporation’s
[b]y[l]aws.
A different interpretation can easily leave the way open for the Board of Directors to circumvent the
constitutionally guaranteed security of tenure of the employee by the expedient inclusion in the [b]y-[l]aws
of an enabling clause on the creation of just any corporate officer position.
It is relevant to state in this connection that the SEC, the primary agency administering the Corporation
Code, adopted a similar interpretation of Section 25 of the Corporation Code in its Opinion dated November
25, 1993 [citation omitted], to wit:
Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the corporate
officers enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no power
to create other Offices without amending first the corporate [b]y-laws. However, the Board may create
appointive positions other than the positions of corporate Officers, but the persons occupying such
positions are not considered as corporate officers within the meaning of Section 25 of the Corporation Code
and are not empowered to exercise the functions of the corporate Officers, except those functions lawfully
delegated to them. Their functions and duties are to be determined by the Board of Directors/Trustees.36
[Emphasis supplied.]
A careful perusal of petitioner corporation’s by-laws, particularly paragraph 1, Section 1, Article IV,37 would
explicitly reveal that its corporate officers are composed only of: (1) Chairman; (2) President; (3) one or
more Vice-President; (4) Treasurer; and (5) Secretary.38 The position of General Manager was not among
those enumerated.
Paragraph 2, Section 1, Article IV of petitioner corporation’s by-laws, empowered its Board of Directors to
appoint such other officers as it may determine necessary or proper.39 It is by virtue of this enabling
provision that petitioner corporation’s Board of Directors allegedly approved a resolution to make the
position of General Manager a corporate office, and, thereafter, appointed respondent thereto making him
one of its corporate officers. All of these acts were done without first amending its by-laws so as to include
the General Manager in its roster of corporate officers.
With the given circumstances and in conformity with Matling Industrial and Commercial Corporation v.
Coros, this Court rules that respondent was not a corporate officer of petitioner corporation because his
position as General Manager was not specifically mentioned in the roster of corporate officers in its
corporate by-laws. The enabling clause in petitioner corporation’s by-laws empowering its Board of
Directors to create additional officers, i.e., General Manager, and the alleged subsequent passage of a
board resolution to that effect cannot make such position a corporate office. Matling clearly enunciated
that the board of directors has no power to create other corporate offices without first amending the
corporate by-laws so as to include therein the newly created corporate office. Though the board of directors
may create appointive positions other than the positions of corporate officers, the persons occupying such
positions cannot be viewed as corporate officers under Section 25 of the Corporation Code.40 In view
thereof, this Court holds that unless and until petitioner corporation’s by-laws is amended for the inclusion
of General Manager in the list of its corporate officers, such position cannot be considered as a corporate
office within the realm of Section 25 of the Corporation Code.
This Court considers that the interpretation of Section 25 of the Corporation Code laid down in Matling
safeguards the constitutionally enshrined right of every employee to security of tenure. To allow the
creation of a corporate officer position by a simple inclusion in the corporate by-laws of an enabling clause
empowering the board of directors to do so can result in the circumvention of that constitutionally well-
protected right.41
It is also of no moment that respondent, being petitioner corporation’s General Manager, was given the
functions of a managing director by its Board of Directors. As held in Matling, the only officers of a
corporation are those given that character either by the Corporation Code or by the corporate by-laws. It
follows then that the corporate officers enumerated in the by-laws are the exclusive officers of the
corporation while the rest could only be regarded as mere employees or subordinate
officials.42Respondent, in this case, though occupying a high ranking and vital position in petitioner
corporation but which position was not specifically enumerated or mentioned in the latter’s by-laws, can
only be regarded as its employee or subordinate official. Noticeably, respondent’s compensation as
petitioner corporation’s General Manager was set, fixed and determined not by the latter’s Board of
Directors but simply by its President, petitioner Lucila. The same was not subject to the approval of
petitioner corporation’s Board of Directors. This is an indication that respondent was an employee and not
a corporate officer.
To prove that respondent was petitioner corporation’s corporate officer, petitioners presented before the
NLRC an undated Secretary’s Certificate showing that corporation’s Board of Directors approved a
resolution making respondent’s position of General Manager a corporate office. The submission, however,
of the said undated Secretary’s Certificate will not change the fact that respondent was an employee. The
certification does not amount to an amendment of the by-laws which is needed to make the position of
General Manager a corporate office.
Moreover, as has been aptly observed by the Court of Appeals, the board resolution mentioned in that
undated Secretary’s Certificate and the latter itself were obvious fabrications, a mere afterthought. Here
we quote with conformity the Court of Appeals findings on this matter stated in this wise:
The board resolution is an obvious fabrication. Firstly, if it had been in existence since [29 August 1994],
why did not [herein petitioners] attach it to their [M]otion to [D]ismiss filed on [26 August 1999], when it
could have been the best evidence that [herein respondent] was a corporate officer? Secondly, why did
they report the [respondent] instead as [herein petitioner corporation’s] employee to the Social Security
System [(SSS)] on [11 October 1994] or a later date than their [29 August 1994] board resolution? Thirdly,
why is there no indication that the [respondent], the person concerned himself, and the [SEC] were
furnished with copies of said board resolution? And, lastly, why is the corporate [S]ecretary’s [C]ertificate
not notarized in keeping with the customary procedure? That is why we called it manipulative evidence as
it was a shameless sham meant to be thrown in as a wild card to muddle up the [D]ecision of the Labor
Arbiter to the end that it be overturned as the latter had firmly pointed out that [respondent] is not a
corporate officer under [petitioner corporation’s by-laws]. Regrettably, the [NLRC] swallowed the bait
hook-line-and sinker. It failed to see through its nature as a belatedly manufactured evidence. And even on
the assumption that it were an authentic board resolution, it did not make [respondent] a corporate officer
as the board did not first and properly create the position of a [G]eneral [M]anager by amending its by-
laws.
(2) The scope of the term "officer" in the phrase "and such other officers as may be provided for in the by-
laws["] (Sec. 25, par. 1), would naturally depend much on the provisions of the by-laws of the corporation.
(SEC Opinion, [4 December 1991.]) If the by-laws enumerate the officers to be elected by the board, the
provision is conclusive, and the board is without power to create new offices without amending the by-
laws. (SEC Opinion, [19 October 1971.])
(3) If, for example, the general manager of a corporation is not listed as an officer, he is to be classified as
an employee although he has always been considered as one of the principal officers of a corporation [citing
De Leon, H. S., The Corporation Code of the Philippines Annotated, 1993 Ed., p. 215.]43 [Emphasis
supplied.]
That respondent was also a director and a stockholder of petitioner corporation will not automatically make
the case fall within the ambit of intra-corporate controversy and be subjected to RTC’s jurisdiction. To
reiterate, not all conflicts between the stockholders and the corporation are classified as intra-corporate.
Other factors such as the status or relationship of the parties and the nature of the question that is the
subject of the controversy44 must be considered in determining whether the dispute involves corporate
matters so as to regard them as intra-corporate controversies.45 As previously discussed, respondent was
not a corporate officer of petitioner corporation but a mere employee thereof so there was no intra-
corporate relationship between them. With regard to the subject of the controversy or issue involved
herein, i.e., respondent’s dismissal as petitioner corporation’s General Manager, the same did not present
or relate to an intra-corporate dispute. To note, there was no evidence submitted to show that
respondent’s removal as petitioner corporation’s General Manager carried with it his removal as its director
and stockholder. Also, petitioners’ allegation that respondent’s claim of 30% share of petitioner
corporation’s net profit was by reason of his being its director and stockholder was without basis, thus, self-
serving. Such an allegation was tantamount to a mere speculation for petitioners’ failure to substantiate
the same.
In addition, it was not shown by petitioners that the position of General Manager was offered to respondent
on account of his being petitioner corporation’s director and stockholder. Also, in contrast to NLRC’s
findings, neither petitioner corporation’s by-laws nor the Management Contract stated that respondent’s
appointment and termination from the position of General Manager was subject to the approval of
petitioner corporation’s Board of Directors. If, indeed, respondent was a corporate officer whose
termination was subject to the approval of its Board of Directors, why is it that his termination was effected
only by petitioner Lucila, President of petitioner corporation? The records are bereft of any evidence to
show that respondent’s dismissal was done with the conformity of petitioner corporation’s Board of
Directors or that the latter had a hand on respondent’s dismissal. No board resolution whatsoever was ever
presented to that effect.
With all the foregoing, this Court is fully convinced that, indeed, respondent, though occupying the General
Manager position, was not a corporate officer of petitioner corporation rather he was merely its employee
occupying a high-ranking position.
Accordingly, respondent’s dismissal as petitioner corporation’s General Manager did not amount to an
intra-corporate controversy. Jurisdiction therefor properly belongs with the Labor Arbiter and not with the
RTC.
Having established that respondent was not petitioner corporation’s corporate officer but merely its
employee, and that, consequently, jurisdiction belongs to the Labor Arbiter, this Court will now determine
if respondent’s dismissal from employment is illegal.
It was not disputed that respondent worked as petitioner corporation’s General Manager from its
incorporation on 15 August 1994 until he was dismissed on 30 June 1997. The cause of his dismissal was
petitioner corporation’s cessation of business operations due to poor sales collection aggravated by the
inefficient management of its affairs.
In termination cases, the burden of proving just and valid cause for dismissing an employee from his
employment rests upon the employer. The latter's failure to discharge that burden would necessarily result
in a finding that the dismissal is unjustified.46
Under Article 283 of the Labor Code, as amended, one of the authorized causes in terminating the
employment of an employee is the closing or cessation of operation of the establishment or undertaking.
Article 283 of the Labor Code, as amended, reads, thus:
ART. 283. Closure of establishment and reduction of personnel. – The employer may also terminate the
employment of any employee due to the installation of labor saving-devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation of the establishment or undertaking unless the
closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the
workers and the Department of Labor and Employment at least one (1) month before the intended date
thereof. x x x In case of retrenchment to prevent losses and in cases of closures or cessation of operations
of establishment or undertaking not due to serious business losses or financial reverses, the separation pay
shall be equivalent to one (1) month pay or to at least one-half (1/2) month pay for every year of service,
whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year. [Emphasis
supplied.]
From the afore-quoted provision, the closure or cessation of operations of establishment or undertaking
may either be due to serious business losses or financial reverses or otherwise. If the closure or cessation
was due to serious business losses or financial reverses, it is incumbent upon the employer to sufficiently
and convincingly prove the same. If it is otherwise, the employer can lawfully close shop anytime as long as
it was bona fide in character and not impelled by a motive to defeat or circumvent the tenurial rights of
employees and as long as the terminated employees were paid in the amount corresponding to their length
of service.47
Accordingly, under Article 283 of the Labor Code, as amended, there are three requisites for a valid
cessation of business operations: (a) service of a written notice to the employees and to the Department
of Labor and Employment (DOLE) at least one month before the intended date thereof; (b) the cessation
of business must be bona fide in character; and (c) payment to the employees of termination pay amounting
to one month pay or at least one-half month pay for every year of service, whichever is higher.
In this case, it is obvious that petitioner corporation’s cessation of business operations was not due to
serious business losses. Mere poor sales collection, coupled with mismanagement of its affairs does not
amount to serious business losses. Nonetheless, petitioner corporation can still validly cease or close its
business operations because such right is legally allowed, so long as it was not done for the purpose of
circumventing the provisions on termination of employment embodied in the Labor Code.48 As has been
stressed by this Court in Industrial Timber Corporation v. Ababon, thus:
Just as no law forces anyone to go into business, no law can compel anybody to continue the same. It would
be stretching the intent and spirit of the law if a court interferes with management's prerogative to close
or cease its business operations just because the business is not suffering from any loss or because of the
desire to provide the workers continued employment.49
A careful perusal of the records revealed that, indeed, petitioner corporation has stopped and ceased
business operations beginning 30 June 1997. This was evidenced by a notarized Affidavit of Non-Operation
dated 31 August 1998. There was also no showing that the cessation of its business operations was done
in bad faith or to circumvent the Labor Code. Nevertheless, in doing so, petitioner corporation failed to
comply with the one-month prior written notice rule. The records disclosed that respondent, being
petitioner corporation’s employee, and the DOLE were not given a written notice at least one month before
petitioner corporation ceased its business operations. Moreover, the records clearly show that
respondent’s dismissal was effected on the same date that petitioner corporation decided to stop and
cease its operation. Similarly, respondent was not paid separation pay upon termination of his employment.
As respondent’s dismissal was not due to serious business losses, respondent is entitled to payment of
separation pay equivalent to one month pay or at least one-half month pay for every year of service,
whichever is higher. The rationale for this was laid down in Reahs Corporation v. National Labor Relations
Commission,50thus:
The grant of separation pay, as an incidence of termination of employment under Article 283, is a statutory
obligation on the part of the employer and a demandable right on the part of the employee, except only
where the closure or cessation of operations was due to serious business losses or financial reverses and
there is sufficient proof of this fact or condition. In the absence of such proof of serious business losses or
financial reverses, the employer closing his business is obligated to pay his employees and workers their
separation pay.
The rule, therefore, is that in all cases of business closure or cessation of operation or undertaking of the
employer, the affected employee is entitled to separation pay. This is consistent with the state policy of
treating labor as a primary social economic force, affording full protection to its rights as well as its welfare.
The exception is when the closure of business or cessation of operations is due to serious business losses
or financial reverses duly proved, in which case, the right of affected employees to separation pay is lost
for obvious reasons.51 [Emphasis supplied.]
As previously discussed, respondent’s dismissal was due to an authorized cause, however, petitioner
corporation failed to observe procedural due process in effecting such dismissal. In Culili v. Eastern
Telecommunications Philippines, Inc.,52 this Court made the following pronouncements, thus:
x x x there are two aspects which characterize the concept of due process under the Labor Code: one is
substantive — whether the termination of employment was based on the provision of the Labor Code or
in accordance with the prevailing jurisprudence; the other is procedural — the manner in which the
dismissal was effected.
Section 2(d), Rule I, Book VI of the Rules Implementing the Labor Code provides:
(d) In all cases of termination of employment, the following standards of due process shall be substantially
observed:
xxxx
For termination of employment as defined in Article 283 of the Labor Code, the requirement of due process
shall be deemed complied with upon service of a written notice to the employee and the appropriate
Regional Office of the Department of Labor and Employment at least thirty days before effectivity of the
termination, specifying the ground or grounds for termination.
In Mayon Hotel & Restaurant v. Adana, [citation omitted] we observed:
The requirement of law mandating the giving of notices was intended not only to enable the employees to
look for another employment and therefore ease the impact of the loss of their jobs and the corresponding
income, but more importantly, to give the Department of Labor and Employment (DOLE) the opportunity
to ascertain the verity of the alleged authorized cause of termination.53[Emphasis supplied].
The records of this case disclosed that there was absolutely no written notice given by petitioner
corporation to the respondent and to the DOLE prior to the cessation of its business operations. This is
evident from the fact that petitioner corporation effected respondent’s dismissal on the same date that it
decided to stop and cease its business operations. The necessary consequence of such failure to comply
with the one-month prior written notice rule, which constitutes a violation of an employee’s right to
statutory due process, is the payment of indemnity in the form of nominal damages.54 In Culili v. Eastern
Telecommunications Philippines, Inc., this Court further held:
In Serrano v. National Labor Relations Commission [citation omitted], we noted that "a job is more than the
salary that it carries." There is a psychological effect or a stigma in immediately finding one’s self laid off
from work. This is exactly why our labor laws have provided for mandating procedural due process clauses.
Our laws, while recognizing the right of employers to terminate employees it cannot sustain, also recognize
the employee’s right to be properly informed of the impending severance of his ties with the company he
is working for. x x x.
x x x Over the years, this Court has had the opportunity to reexamine the sanctions imposed upon
employers who fail to comply with the procedural due process requirements in terminating its employees.
In Agabon v. National Labor Relations Commission [citation omitted], this Court reverted back to the
doctrine in Wenphil Corporation v. National Labor Relations Commission [citation omitted] and held that
where the dismissal is due to a just or authorized cause, but without observance of the due process
requirements, the dismissal may be upheld but the employer must pay an indemnity to the employee. The
sanctions to be imposed however, must be stiffer than those imposed in Wenphil to achieve a result fair to
both the employers and the employees.
In Jaka Food Processing Corporation v. Pacot [citation omitted], this Court, taking a cue from Agabon, held
that since there is a clear-cut distinction between a dismissal due to a just cause and a dismissal due to an
authorized cause, the legal implications for employers who fail to comply with the notice requirements
must also be treated differently:
Accordingly, it is wise to hold that: (1) if the dismissal is based on a just cause under Article 282 but the
employer failed to comply with the notice requirement, the sanction to be imposed upon him should be
tempered because the dismissal process was, in effect, initiated by an act imputable to the employee; and
(2) if the dismissal is based on an authorized cause under Article 283 but the employer failed to comply
with the notice requirement, the sanction should be stiffer because the dismissal process was initiated by
the employer's exercise of his management prerogative.55 [Emphasis supplied.]
Thus, in addition to separation pay, respondent is also entitled to an award of nominal damages. In
conformity with this Court’s ruling in Culili v. Eastern Telecommunications Philippines, Inc. and Shimizu
Phils. Contractors, Inc. v. Callanta, both citing Jaka Food Processing Corporation v. Pacot,56 this Court fixed
the amount of nominal damages to ₱50,000.00.
With respect to petitioners’ contention that the Management Contract executed between respondent and
petitioner Lucila has no binding effect on petitioner corporation for having been executed way before its
incorporation, this Court finds the same meritorious.
Section 19 of the Corporation Code expressly provides:
Sec. 19. Commencement of corporate existence. - A private corporation formed or organized under this
Code commences to have corporate existence and juridical personality and is deemed incorporated from
the date the Securities and Exchange Commission issues a certificate of incorporation under its official seal;
and thereupon the incorporators, stockholders/members and their successors shall constitute a body
politic and corporate under the name stated in the articles of incorporation for the period of time
mentioned therein, unless said period is extended or the corporation is sooner dissolved in accordance with
law. [Emphasis supplied.]
Logically, there is no corporation to speak of prior to an entity’s incorporation. And no contract entered
into before incorporation can bind the corporation.
As can be gleaned from the records, the Management Contract dated 16 January 1994 was executed
between respondent and petitioner Lucila months before petitioner corporation’s incorporation on 15
August 1994. Similarly, it was done when petitioner Lucila was still the President of Marc Marketing, Inc.
Undeniably, it cannot have any binding and legal effect on petitioner corporation. Also, there was no
evidence presented to prove that petitioner corporation adopted, ratified or confirmed the Management
Contract. It is for the same reason that petitioner corporation cannot be considered estopped from
questioning its binding effect now that respondent was invoking the same against it. In no way, then, can it
be enforced against petitioner corporation, much less, its provisions fixing respondent’s compensation as
General Manager to 30% of petitioner corporation’s net profit. Consequently, such percentage cannot be
the basis for the computation of respondent’s separation pay. This finding, however, will not affect the
undisputed fact that respondent was, indeed, the General Manager of petitioner corporation from its
incorporation up to the time of his dismissal.
Accordingly, this Court finds it necessary to still remand the present case to the Labor Arbiter to conduct
further proceedings for the sole purpose of determining the compensation that respondent was actually
receiving during the period that he was the General Manager of petitioner corporation, this, for the proper
computation of his separation pay.
As regards petitioner Lucila’s solidary liability, this Court affirms the same.
As a rule, corporation has a personality separate and distinct from its officers, stockholders and members
such that corporate officers are not personally liable for their official acts unless it is shown that they have
exceeded their authority. However, this corporate veil can be pierced when the notion of the legal entity is
used as a means to perpetrate fraud, an illegal act, as a vehicle for the evasion of an existing obligation, and
to confuse legitimate issues. Under the Labor Code, for instance, when a corporation violates a provision
declared to be penal in nature, the penalty shall be imposed upon the guilty officer or officers of the
corporation.57
Based on the prevailing circumstances in this case, petitioner Lucila, being the President of petitioner
corporation, acted in bad faith and with malice in effecting respondent’s dismissal from employment.
Although petitioner corporation has a valid cause for dismissing respondent due to cessation of business
operations, however, the latter’s dismissal therefrom was done abruptly by its President, petitioner Lucila.
Respondent was not given the required one-month prior written notice that petitioner corporation will
already cease its business operations. As can be gleaned from the records, respondent was dismissed
outright by petitioner Lucila on the same day that petitioner corporation decided to stop and cease its
business operations. Worse, respondent was not given separation pay considering that petitioner
corporation’s cessation of business was not due to business losses or financial reverses.
WHEREFORE, premises considered, the Decision and Resolution dated 20 June 2005 and 7 March 2006,
respectively, of the Court of Appeals in CA-G.R. SP No. 76624 are hereby AFFIRMED with the MODIFICATION
finding respondent’s dismissal from employment legal but without proper observance of due process.
Accordingly, petitioner corporation, jointly and solidarily liable with petitioner Lucila, is hereby ordered to
pay respondent the following; (1) separation pay equivalent to one month pay or at least one-half month
pay for every year of service, whichever is higher, to be computed from the commencement of employment
until termination; and (2) nominal damages in the amount of ₱50,000.00.
This Court, however, finds it proper to still remand the records to the Labor Arbiter to conduct further
proceedings for the sole purpose of determining the compensation that respondent was actually receiving
during the period that he was the General Manager of petitioner corporation for the proper computation
of his separation pay.
Costs against petitioners.
SO ORDERED.

G.R. No. 157549 May 30, 2011

DONNINA C. HALLEY, Petitioner,
vs.
PRINTWELL, INC., Respondent.
DECISION
BERSAMIN, J:
Stockholders of a corporation are liable for the debts of the corporation up to the extent of their unpaid
subscriptions. They cannot invoke the veil of corporate identity as a shield from liability, because the veil
may be lifted to avoid defrauding corporate creditors.
Weaffirm with modification the decisionpromulgated on August 14, 2002,1whereby the Court of
Appeals(CA) upheld thedecision of the Regional Trial Court, Branch 71, in Pasig City (RTC),2ordering the
defendants (including the petitioner)to pay to Printwell, Inc. (Printwell) the principal sum of ₱291,342.76
plus interest.
Antecedents
The petitioner wasan incorporator and original director of Business Media Philippines, Inc. (BMPI), which,
at its incorporation on November 12, 1987,3had an authorized capital stock of ₱3,000,000.00 divided into
300,000 shares each with a par value of ₱10.00,of which 75,000 were initially subscribed, to wit:
Subscriber No. of shares Total subscription Amount paid
Donnina C. Halley 35,000 ₱ 350,000.00 ₱87,500.00
Roberto V. Cabrera, Jr. 18,000 ₱ 180,000.00 ₱45,000.00
Albert T. Yu 18,000 ₱ 180,000.00 ₱45,000.00
Zenaida V. Yu 2,000 ₱ 20,000.00 ₱5,000.00
Rizalino C. Vineza 2,000 ₱ 20,000.00 ₱5,000.00
TOTAL 75,000 ₱750,000.00 ₱187,500.00
Printwellengaged in commercial and industrial printing.BMPI commissioned Printwell for the printing of the
magazine Philippines, Inc. (together with wrappers and subscription cards) that BMPI published and sold.
For that purpose, Printwell extended 30-day credit accommodations to BMPI.
In the period from October 11, 1988 until July 12, 1989, BMPI placedwith Printwell several orders on credit,
evidenced byinvoices and delivery receipts totaling₱316,342.76.Considering that BMPI
paidonly₱25,000.00,Printwell suedBMPIon January 26, 1990 for the collection of the unpaid balance of
₱291,342.76 in the RTC.4
On February 8, 1990,Printwell amended thecomplaint in order to implead as defendants all the original
stockholders and incorporators to recover on theirunpaid subscriptions, as follows:5
Name Unpaid Shares
Donnina C. Halley ₱ 262,500.00
Roberto V. Cabrera, Jr. ₱135,000.00
Albert T. Yu ₱135,000.00
Zenaida V. Yu ₱15,000.00
Rizalino C. Viñeza ₱15,000.00
TOTAL ₱ 562,500.00
The defendants filed a consolidated answer,6averring that they all had paid their subscriptions in full; that
BMPI had a separate personality from those of its stockholders; thatRizalino C. Viñeza had assigned his fully-
paid up sharesto a certain Gerardo R. Jacinto in 1989; andthat the directors and stockholders of BMPI had
resolved to dissolve BMPI during the annual meetingheld on February 5, 1990.
To prove payment of their subscriptions, the defendantstockholderssubmitted in evidenceBMPI official
receipt (OR) no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222, OR no. 223, andOR no. 227,to wit:
Receipt No. Date Name Amount
217 November 5, 1987 Albert T. Yu ₱ 45,000.00
218 May 13, 1988 Albert T. Yu ₱ 135,000.00
220 May 13, 1988 Roberto V. Cabrera, Jr. ₱ 135,000.00
221 November 5, 1987 Roberto V. Cabrera, Jr. ₱ 45,000.00
222 November 5, 1987 Zenaida V. Yu ₱ 5,000.00
223 May 13, 1988 Zenaida V. Yu ₱ 15,000.00
227 May 13, 1988 Donnina C. Halley ₱ 262,500.00
In addition, the stockholderssubmitted other documentsin evidence, namely:(a) an audit report dated
March 30, 1989 prepared by Ilagan, Cepillo & Associates (submitted to the SEC and the BIR);7(b)
BMPIbalance sheet8 and income statement9as of December 31, 1988; (c) BMPI income tax return for the
year 1988 (stamped "received" by the BIR);10(d) journal vouchers;11(e) cash deposit slips;12 and(f)Bank of
the Philippine Islands (BPI) savings account passbookin the name of BMPI.13
Ruling of the RTC
On November 3, 1993, the RTC rendereda decision in favor of Printwell, rejecting the allegation of payment
in full of the subscriptions in view of an irregularity in the issuance of the ORs and observingthat the
defendants had used BMPI’s corporate personality to evade payment and create injustice, viz:
The claim of individual defendants that they have fully paid their subscriptions to defend[a]nt corporation,
is not worthy of consideration, because: —
a) in the case of defendants-spouses Albert and Zenaida Yu, it will be noted that the alleged payment made
on May 13, 1988 amounting to ₱135,000.00, is covered by Official Receipt No. 218 (Exh. "2"), whereas the
alleged payment made earlier on November 5, 1987, amounting to ₱5,000.00, is covered by Official Receipt
No. 222 (Exh. "3"). This is cogent proof that said receipts were belatedly issued just to suit their theory since
in the ordinary course of business, a receipt issued earlier must have serial numbers lower than those issued
on a later date. But in the case at bar, the receipt issued on November 5, 1987 has serial numbers (222)
higher than those issued on a later date (May 13, 1988).
b) The claim that since there was no call by the Board of Directors of defendant corporation for the payment
of unpaid subscriptions will not be a valid excuse to free individual defendants from liability. Since the
individual defendants are members of the Board of Directors of defendantcorporation, it was within their
exclusive power to prevent the fulfillment of the condition, by simply not making a call for the payment of
the unpaid subscriptions. Their inaction should not work to their benefit and unjust enrichment at the
expense of plaintiff.
Assuming arguendo that the individual defendants have paid their unpaid subscriptions, still, it is very
apparent that individual defendants merely used the corporate fiction as a cloak or cover to create an
injustice; hence, the alleged separate personality of defendant corporation should be disregarded (Tan
Boon Bee & Co., Inc. vs. Judge Jarencio, G.R. No. 41337, 30 June 1988).14
Applying the trust fund doctrine, the RTC declared the defendant stockholders liable to Printwell pro rata,
thusly:
Defendant Business Media, Inc. is a registered corporation (Exhibits "A", "A-1" to "A-9"), and, as appearing
from the Articles of Incorporation, individual defendants have the following unpaid subscriptions:
Names Unpaid Subscription
Donnina C. Halley ₱262,500.00
Roberto V. Cabrera, Jr. 135.000.00
Albert T. Yu 135,000.00
Zenaida V. Yu 15,000.00
Rizalino V. Vineza 15,000.00
--------------------------------
Total ₱562,500.00
and it is an established doctrine that subscriptions to the capital stock of a corporation constitute a fund to
which creditors have a right to look for satisfaction of their claims (Philippine National Bank vs. Bitulok
Sawmill, Inc., 23 SCRA 1366) and, in fact, a corporation has no legal capacity to release a subscriber to its
capital stock from the obligation to pay for his shares, and any agreement to this effect is invalid (Velasco
vs. Poizat, 37 Phil. 802).
The liability of the individual stockholders in the instant case shall be pro-rated as follows:
Names Amount
Donnina C. Halley ₱149,955.65
Roberto V. Cabrera, Jr. 77,144.55
Albert T. Yu 77,144.55
Zenaida V. Yu 8,579.00
Rizalino V. Vineza 8,579.00
--------------------------------
Total ₱321,342.7515

The RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering defendants
to pay to plaintiff the amount of ₱291,342.76, as principal, with interest thereon at 20% per annum, from
date of default, until fully paid, plus ₱30,000.00 as attorney’s fees, plus costs of suit.
Defendants’ counterclaims are ordered dismissed for lack of merit.
SO ORDERED.16
Ruling of the CA
All the defendants, except BMPI, appealed.
Spouses Donnina and Simon Halley, andRizalinoViñeza defined the following errors committed by the RTC,
as follows:
I.
THE TRIAL COURT ERRED IN HOLDING APPELLANTS-STOCKHOLDERS LIABLE FOR THE LIABILITIES OF THE
DEFENDANT CORPORATION.
II.
ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO THE EXTENT OF THEIR UNPAID SUBSCRIPTION
OF SHARES OF STOCK, IF ANY, THE TRIAL COURT NONETHELESS ERRED IN NOT FINDING THAT APPELLANTS-
STOCKHOLDERS HAVE, AT THE TIME THE SUIT WAS FILED, NO SUCH UNPAID SUBSCRIPTIONS.
On their part, Spouses Albert and Zenaida Yu averred:
I.
THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT TO DEFENDANTS-APPELLANTS SPOUSES
ALBERT AND ZENAIDA YU’S EXHIBITS 2 AND 3 DESPITE THE UNREBUTTED TESTIMONY THEREON BY
APPELLANT ALBERT YU AND THE ABSENCE OF PROOF CONTROVERTING THEM.
II.
THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YU PERSONALLY
LIABLE FOR THE CONTRACTUAL OBLIGATION OF BUSINESS MEDIA PHILS., INC. DESPITE FULL PAYMENT BY
SAID DEFENDANTS-APPELLANTS OF THEIR RESPECTIVE SUBSCRIPTIONS TO THE CAPITAL STOCK OF
BUSINESS MEDIA PHILS., INC.
Roberto V. Cabrera, Jr. argued:
I.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO APPLY THE DOCTRINE OF PIERCING THE VEIL
OF CORPORATE PERSONALITY IN ABSENCE OF ANY SHOWING OF EXTRA-ORDINARY CIRCUMSTANCES THAT
WOULD JUSTIFY RESORT THERETO.
II.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO RULE THAT INDIVIDUAL DEFENDANTS ARE
LIABLE TO PAY THE PLAINTIFF-APPELLEE’S CLAIM BASED ON THEIR RESPECTIVE SUBSCRIPTION.
NOTWITHSTANDING OVERWHELMING EVIDENCE SHOWING FULL SETTLEMENT OF SUBSCRIBED CAPITAL
BY THE INDIVIDUAL DEFENDANTS.
On August 14, 2002, the CA affirmed the RTC, holding that the defendants’ resort to the corporate
personality would createan injustice becausePrintwell would thereby be at a loss against whom it would
assert the right to collect, viz:
Settled is the rule that when the veil of corporate fiction is used as a means of perpetrating fraud or an
illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the
achievements or perfection of monopoly or generally the perpetration of knavery or crime, the veil with
which the law covers and isolates the corporation from the members or stockholders who compose it will
be lifted to allow for its consideration merely as an aggregation of individuals (First Philippine International
Bank vs. Court of Appeals, 252 SCRA 259). Moreover, under this doctrine, the corporate existence may be
disregarded where the entity is formed or used for non-legitimate purposes, such as to evade a just and
due obligations or to justify wrong (Claparols vs. CIR, 65 SCRA 613).
In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL
involving the printing of business magazines, wrappers and subscription cards, in the total amount of
P291,342.76 (Record pp. 3-5, Annex "A") which facts were never denied by appellants’ stockholders that
they owe appellee the amount of P291,342.76. The said goods were delivered to and received by BMPI but
it failed to pay its overdue account to appellee as well as the interest thereon, at the rate of 20% per annum
until fully paid. It was also during this time that appellants stockholders were in charge of the operation of
BMPI despite the fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly
benefited from said transactions. In view of the unpaid subscriptions, BMPI failed to pay appellee of its
liability, hence appellee in order to protect its right can collect from the appellants’ stockholders regarding
their unpaid subscriptions. To deny appellee from recovering from appellants would place appellee in a
limbo on where to assert their right to collect from BMPI since the stockholders who are appellants herein
are availing the defense of corporate fiction to evade payment of its obligations.17
Further, the CA concurred with the RTC on theapplicability of thetrust fund doctrine, under which corporate
debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate debts, stating thus:
It is an established doctrine that subscription to the capital stock of a corporation constitute a fund to which
creditors have a right to look up to for satisfaction of their claims, and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts
(PNB vs. Bitulok Sawmill, 23 SCRA 1366).
Premised on the above-doctrine, an inference could be made that the funds, which consists of the payment
of subscriptions of the stockholders, is where the creditors can claim monetary considerations for the
satisfaction of their claims. If these funds which ought to be fully subscribed by the stockholders were not
paid or remain an unpaid subscription of the corporation then the creditors have no other recourse to
collect from the corporation of its liability. Such occurrence was evident in the case at bar wherein the
appellants as stockholders failed to fully pay their unpaid subscriptions, which left the creditors helpless in
collecting their claim due to insufficiency of funds of the corporation. Likewise, the claim of appellants that
they already paid the unpaid subscriptions could not be given weight because said payment did not reflect
in the Articles of Incorporations of BMPI that the unpaid subscriptions were fully paid by the appellants’
stockholders. For it is a rule that a stockholder may be sued directly by creditors to the extent of their
unpaid subscriptions to the corporation (Keller vs. COB Marketing, 141 SCRA 86).
Moreover, a corporation has no power to release a subscription or its capital stock, without valuable
consideration for such releases, and as against creditors, a reduction of the capital stock can take place only
in the manner and under the conditions prescribed by the statute or the charter or the Articles of
Incorporation. (PNB vs. Bitulok Sawmill, 23 SCRA 1366).18
The CAdeclared thatthe inconsistency in the issuance of the ORs rendered the claim of full payment of the
subscriptions to the capital stock unworthy of consideration; andheld that the veil of corporate fiction could
be pierced when it was used as a shield to perpetrate a fraud or to confuse legitimate issues, to wit:
Finally, appellants SPS YU, argued that the fact of full payment for the unpaid subscriptions was
incontrovertibly established by competent testimonial and documentary evidence, namely – Exhibits "1",
"2", "3" & "4", which were never disputed by appellee, clearly shows that they should not be held liable for
payment of the said unpaid subscriptions of BMPI.
The reliance is misplaced.
We are hereby reproducing the contents of the above-mentioned exhibits, to wit:
Exh: "1" – YU – Official Receipt No. 217 dated November 5, 1987 amounting to ₱45,000.00 allegedly
representing the initial payment of subscriptions of stockholder Albert Yu.
Exh: "2" – YU – Official Receipt No. 218 dated May 13, 1988 amounting to ₱135,000.00 allegedly
representing full payment of balance of subscriptions of stockholder Albert Yu. (Record p. 352).
Exh: "3" – YU – Official Receipt No. 222 dated November 5, 1987 amounting to ₱5,000.00 allegedly
representing the initial payment of subscriptions of stockholder Zenaida Yu.
Exh: "4" – YU – Official Receipt No. 223 dated May 13, 1988 amounting to ₱15,000.00 allegedly representing
the full payment of balance of subscriptions of stockholder Zenaida Yu. (Record p. 353).
Based on the above exhibits, we are in accord with the lower court’s findings that the claim of the individual
appellants that they fully paid their subscription to the defendant BMPI is not worthy of consideration,
because, in the case of appellants SPS. YU, there is an inconsistency regarding the issuance of the official
receipt since the alleged payment made on May 13, 1988 amounting to ₱135,000.00 was covered by
Official Receipt No. 218 (Record, p. 352), whereas the alleged payment made earlier on November 5, 1987
amounting to ₱5,000.00 is covered by Official Receipt No. 222 (Record, p. 353). Such issuance is a clear
indication that said receipts were belatedly issued just to suit their claim that they have fully paid the unpaid
subscriptions since in the ordinary course of business, a receipt is issued earlier must have serial numbers
lower than those issued on a later date. But in the case at bar, the receipt issued on November 5, 1987 had
a serial number (222) higher than those issued on May 13, 1988 (218). And even assuming arguendo that
the individual appellants have paid their unpaid subscriptions, still, it is very apparent that the veil of
corporate fiction may be pierced when made as a shield to perpetuate fraud and/or confuse legitimate
issues. (Jacinto vs. Court of Appeals, 198 SCRA 211).19
Spouses Halley and Viñeza moved for a reconsideration, but the CA denied their motion for reconsideration.
Issues
Only Donnina Halley has come to the Court to seek a further review, positing the following for our
consideration and resolution, to wit:
I.
THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION THAT DID NOTSTATE THE FACTS AND
THE LAW UPON WHICH THE JUDGMENT WAS BASED BUT MERELY COPIED THE CONTENTS OF
RESPONDENT’S MEMORANDUM ADOPTING THE SAME AS THE REASON FOR THE DECISION
II.
THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT WHICH
ESSENTIALLY ALLOWED THE PIERCING OF THE VEIL OF CORPORATE FICTION
III.
THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE TRUST FUND DOCTRINE WHEN THE
GROUNDS THEREFOR HAVE NOT BEEN SATISFIED.
On the first error, the petitioner contends that the RTC lifted verbatim from the memorandum of Printwell;
and submits that the RTCthereby violatedthe requirement imposed in Section 14, Article VIII of the
Constitution20as well as in Section 1,Rule 36 of the Rules of Court,21to the effect that a judgment or final
order of a court should state clearly and distinctly the facts and the law on which it is based. The petitioner
claims that the RTC’s violation indicated that the RTC did not analyze the case before rendering its decision,
thus denying her the opportunity to analyze the decision; andthat a suspicion of partiality arose from the
fact that the RTC decision was but a replica of Printwell’s memorandum.She cites Francisco v. Permskul,22
in which the Court has stated that the reason underlying the constitutional requirement, that every decision
should clearly and distinctly state the facts and the law on which it is based, is to inform the reader of how
the court has reached its decision and thereby give the losing party an opportunity to study and analyze
the decision and enable such party to appropriately assign the errors committed therein on appeal.
On the second and third errors, the petitioner maintains that the CA and the RTC erroneously pierced the
veil of corporate fiction despite the absence of cogent proof showing that she, as stockholder of BMPI, had
any hand in transacting with Printwell; thatthe CA and the RTC failed to appreciate the evidence that she
had fully paid her subscriptions; and the CA and the RTCwrongly relied on the articles of incorporation in
determining the current list of unpaid subscriptions despite the articles of incorporationbeing at best
reflectiveonly of the pre-incorporation status of BMPI.
As her submissions indicate, the petitioner assails the decisions of the CA on: (a) the propriety of
disregarding the separate personalities of BMPI and its stockholdersby piercing the thin veil that separated
them; and (b) the application of the trust fund doctrine.
Ruling
The petition for review fails.
I
The RTC did not violate
the Constitution and the Rules of Court
The contention of the petitioner, that the RTC merely copied the memorandum of Printwell in writing its
decision, and did not analyze the records on its own, thereby manifesting a bias in favor of Printwell, is
unfounded.
It is noted that the petition for review merely generally alleges that starting from its page 5, the decision of
the RTC "copied verbatim the allegations of herein Respondents in its Memorandum before the said court,"
as if "the Memorandum was the draft of the Decision of the Regional Trial Court of Pasig,"23but fails to
specify either the portions allegedly lifted verbatim from the memorandum, or why she regards the decision
as copied. The omission renders thepetition for review insufficient to support her contention, considering
that the mere similarityin language or thought between Printwell’s memorandum and the trial court’s
decisiondid not necessarily justify the conclusion that the RTC simply lifted verbatim or copied from
thememorandum.
It is to be observed in this connection that a trial or appellate judge may occasionally viewa party’s
memorandum or brief as worthy of due consideration either entirely or partly. When he does so, the
judgemay adopt and incorporatein his adjudicationthe memorandum or the parts of it he deems
suitable,and yet not be guilty of the accusation of lifting or copying from the memorandum.24 This
isbecause ofthe avowed objective of the memorandum to contribute in the proper illumination and correct
determination of the controversy.Nor is there anything untoward in the congruence of ideas and views
about the legal issues between himself and the party drafting the memorandum.The frequency of
similarities in argumentation, phraseology, expression, and citation of authorities between the decisions of
the courts and the memoranda of the parties, which may be great or small, can be fairly attributable tothe
adherence by our courts of law and the legal profession to widely knownor universally accepted precedents
set in earlier judicial actions with identical factual milieus or posing related judicial dilemmas.
We also do not agree with the petitioner that the RTC’s manner of writing the decisiondeprivedher ofthe
opportunity to analyze its decisionas to be able to assign errors on appeal. The contrary appears,
considering that she was able to impute and assignerrors to the RTCthat she extensively discussed in her
appeal in the CA, indicating her thorough analysis ofthe decision of the RTC.
Our own readingof the trial court’s decision persuasively shows that the RTC did comply with the
requirements regarding the content and the manner of writing a decision prescribed in the Constitution
and the Rules of Court. The decision of the RTC contained clear and distinct findings of facts, and stated the
applicablelaw and jurisprudence, fully explaining why the defendants were being held liable to the plaintiff.
In short, the reader was at once informed of the factual and legal reasons for the ultimate result.
II
Corporate personality not to be used to foster injustice
Printwell impleaded the petitioner and the other stockholders of BMPI for two reasons, namely: (a) to reach
the unpaid subscriptions because it appeared that such subscriptions were the remaining visible assets of
BMPI; and (b) to avoid multiplicity of suits.25
The petitionersubmits that she had no participation in the transaction between BMPI and Printwell;that
BMPI acted on its own; and that shehad no hand in persuading BMPI to renege on its obligation to pay.
Hence, she should not be personally liable.
We rule against the petitioner’s submission.
Although a corporation has a personality separate and distinct from those of its stockholders, directors, or
officers,26such separate and distinct personality is merely a fiction created by law for the sake of
convenience and to promote the ends of justice.27The corporate personality may be disregarded, and the
individuals composing the corporation will be treated as individuals, if the corporate entity is being used as
a cloak or cover for fraud or illegality;as a justification for a wrong; as an alter ego, an adjunct, or a business
conduit for the sole benefit of the stockholders.28 As a general rule, a corporation is looked upon as a legal
entity, unless and until sufficient reason to the contrary appears. Thus,the courts always presume good
faith, andfor that reason accord prime importance to the separate personality of the corporation,
disregarding the corporate personality only after the wrongdoing is first clearly and convincingly
established.29It thus behooves the courts to be careful in assessing the milieu where the piercing of the
corporate veil shall be done.30
Although nowhere in Printwell’s amended complaint or in the testimonies Printwell offered can it be read
or inferred from that the petitioner was instrumental in persuading BMPI to renege onits obligation to pay;
or that sheinduced Printwell to extend the credit accommodation by misrepresenting the solvency of BMPI
toPrintwell, her personal liability, together with that of her co-defendants, remainedbecause the CA found
her and the other defendant stockholders to be in charge of the operations of BMPI at the time the unpaid
obligation was transacted and incurred, to wit:
In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL
involving the printing of business magazines, wrappers and subscription cards, in the total amount of
₱291,342.76 (Record pp. 3-5, Annex "A") which facts were never denied by appellants’ stockholders that
they owe(d) appellee the amount of ₱291,342.76. The said goods were delivered to and received by BMPI
but it failed to pay its overdue account to appellee as well as the interest thereon, at the rate of 20% per
annum until fully paid. It was also during this time that appellants stockholders were in charge of the
operation of BMPI despite the fact that they were not able to pay their unpaid subscriptions to BMPI yet
greatly benefited from said transactions. In view of the unpaid subscriptions, BMPI failed to pay appellee
of its liability, hence appellee in order to protect its right can collect from the appellants stockholders
regarding their unpaid subscriptions. To deny appellee from recovering from appellants would place
appellee in a limbo on where to assert their right to collect from BMPI since the stockholders who are
appellants herein are availing the defense of corporate fiction to evade payment of its obligations.31
It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on its obligations to pay,
and whether or not she induced Printwell to transact with BMPI were not gooddefensesin the suit.1avvphi1
III
Unpaid creditor may satisfy its claim from
unpaid subscriptions;stockholders must
prove full payment oftheir subscriptions
Both the RTC and the CA applied the trust fund doctrineagainst the defendant stockholders, including the
petitioner.
The petitionerargues, however,that the trust fund doctrinewas inapplicablebecause she had already fully
paid her subscriptions to the capital stock of BMPI. She thus insiststhat both lower courts erred in
disregarding the evidence on the complete payment of the subscription, like receipts, income tax returns,
and relevant financial statements.
The petitioner’s argumentis devoid of substance.
The trust fund doctrineenunciates a –
xxx rule that the property of a corporation is a trust fund for the payment of creditors, but such property
can be called a trust fund ‘only by way of analogy or metaphor.’ As between the corporation itself and its
creditors it is a simple debtor, and as between its creditors and stockholders its assets are in equity a fund
for the payment of its debts.32
The trust fund doctrine, first enunciated in the American case of Wood v. Dummer,33was adopted in our
jurisdiction in Philippine Trust Co. v. Rivera,34where thisCourt declared that:
It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which
creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain
an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. (Velasco
vs. Poizat, 37 Phil., 802) xxx35
We clarify that the trust fund doctrineis not limited to reaching the stockholder’s unpaid subscriptions. The
scope of the doctrine when the corporation is insolvent encompasses not only the capital stock, but also
other property and assets generally regarded in equity as a trust fund for the payment of corporate
debts.36All assets and property belonging to the corporation held in trust for the benefit of creditors
thatwere distributed or in the possession of the stockholders, regardless of full paymentof their
subscriptions, may be reached by the creditor in satisfaction of its claim.
Also, under the trust fund doctrine,a corporation has no legal capacity to release an original subscriber to
its capital stock from the obligation of paying for his shares, in whole or in part,37 without a valuable
consideration,38or fraudulently, to the prejudice of creditors.39The creditor is allowed to maintain an
action upon any unpaid subscriptions and thereby steps into the shoes of the corporation for the
satisfaction of its debt.40To make out a prima facie case in a suit against stockholders of an insolvent
corporation to compel them to contribute to the payment of its debts by making good unpaid balances
upon their subscriptions, it is only necessary to establish that thestockholders have not in good faith paid
the par value of the stocks of the corporation.41
The petitionerposits that the finding of irregularity attending the issuance of the receipts (ORs) issued to
the other stockholders/subscribers should not affect her becauseher receipt did not suffer similar
irregularity.
Notwithstanding that the RTC and the CA did not find any irregularity in the OR issued in her favor,we still
cannot sustain the petitioner’s defense of full payment of her subscription.
In civil cases, theparty who pleads payment has the burden of proving it, that even where the plaintiff must
allege nonpayment, the general rule is that the burden rests on the defendant to prove payment, rather
than on the plaintiff to prove nonpayment. In other words, the debtor bears the burden of showing with
legal certainty that the obligation has been discharged by payment.42
Apparently, the petitioner failed to discharge her burden.
A receipt is the written acknowledgment of the fact of payment in money or other settlement between the
seller and the buyer of goods, thedebtor or thecreditor, or theperson rendering services, and theclient or
thecustomer.43Althougha receipt is the best evidence of the fact of payment, it isnot conclusive, but
merely presumptive;nor is it exclusive evidence,considering thatparole evidence may also establishthe fact
of payment.44
The petitioner’s ORNo. 227,presentedto prove the payment of the balance of her subscription, indicated
that her supposed payment had beenmade by means of a check. Thus, to discharge theburden to prove
payment of her subscription, she had to adduce evidence satisfactorily proving that her payment by check
wasregardedas payment under the law.
Paymentis defined as the delivery of money.45Yet, because a check is not money and only substitutes for
money, the delivery of a check does not operate as payment and does not discharge the obligation under
a judgment.46 The delivery of a bill of exchange only produces the fact of payment when the bill has been
encashed.47The following passage fromBank of Philippine Islands v. Royeca48is enlightening:
Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore,
cannot constitute a valid tender of payment. Since a negotiable instrument is only a substitute for money
and not money, the delivery of such an instrument does not, by itself, operate as payment. Mere delivery
of checks does not discharge the obligation under a judgment. The obligation is not extinguished and
remains suspended until the payment by commercial document is actually realized.
To establish their defense, the respondents therefore had to present proof, not only that they delivered
the checks to the petitioner, but also that the checks were encashed. The respondents failed to do so. Had
the checks been actually encashed, the respondents could have easily produced the cancelled checks as
evidence to prove the same. Instead, they merely averred that they believed in good faith that the checks
were encashed because they were not notified of the dishonor of the checks and three years had already
lapsed since they issued the checks.
Because of this failure of the respondents to present sufficient proof of payment, it was no longer necessary
for the petitioner to prove non-payment, particularly proof that the checks were dishonored. The burden
of evidence is shifted only if the party upon whom it is lodged was able to adduce preponderant evidence
to prove its claim.
Ostensibly, therefore, the petitioner’s mere submission of the receipt issued in exchange of the check did
not satisfactorily establish her allegation of full payment of her subscription. Indeed, she could not even
inform the trial court about the identity of her drawee bank,49and about whether the check was cleared
and its amount paid to BMPI.50In fact, she did not present the check itself.
Theincome tax return (ITR) and statement of assets and liabilities of BMPI, albeit presented, had no bearing
on the issue of payment of the subscription because they did not by themselves prove payment.
ITRsestablish ataxpayer’s liability for taxes or a taxpayer’s claim for refund. In the same manner, the deposit
slips and entries in the passbook issued in the name of BMPI were hardly relevant due to their not reflecting
the alleged payments.
It is notable, too, that the petitioner and her co-stockholders did not support their allegation of complete
payment of their respective subscriptions with the stock and transfer book of BMPI. Indeed, books and
records of a corporation (including the stock and transfer book) are admissible in evidence in favor of or
against the corporation and its members to prove the corporate acts, its financial status and other matters
(like the status of the stockholders), and are ordinarily the best evidence of corporate acts and
proceedings.51Specifically, a stock and transfer book is necessary as a measure of precaution, expediency,
and convenience because it provides the only certain and accurate method of establishing the various
corporate acts and transactions and of showing the ownership of stock and like matters.52That she
tendered no explanation why the stock and transfer book was not presented warrants the inference that
the book did not reflect the actual payment of her subscription.
Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a certificate covering her
subscription might have been a reliable evidence of full payment of the subscriptions, considering that
under Section 65 of the Corporation Code a certificate of stock issues only to a subscriber who has fully
paid his subscription. The lack of any explanation for the absence of a stock certificate in her favor likewise
warrants an unfavorable inference on the issue of payment.
Lastly, the petitioner maintains that both lower courts erred in relying on the articles of incorporationas
proof of the liabilities of the stockholders subscribing to BMPI’s stocks, averring that the articles of
incorporationdid not reflect the latest subscription status of BMPI.
Although the articles of incorporation may possibly reflect only the pre-incorporation status of a
corporation, the lower courts’ reliance on that document to determine whether the original
subscribersalready fully paid their subscriptions or not was neither unwarranted nor erroneous. As earlier
explained, the burden of establishing the fact of full payment belonged not to Printwell even if it was the
plaintiff, but to the stockholders like the petitioner who, as the defendants, averredfull payment of their
subscriptions as a defense. Their failure to substantiate their averment of full payment, as well as their
failure to counter the reliance on the recitals found in the articles of incorporation simply meant their failure
or inability to satisfactorily prove their defense of full payment of the subscriptions.
To reiterate, the petitionerwas liablepursuant to the trust fund doctrine for the corporate obligation of
BMPI by virtue of her subscription being still unpaid. Printwell, as BMPI’s creditor,had a right to reachher
unpaid subscription in satisfaction of its claim.
IV
Liability of stockholders for corporate debts isup
to the extentof their unpaid subscription
The RTC declared the stockholders pro rata liable for the debt(based on the proportion to their shares in
the capital stock of BMPI); and held the petitionerpersonally liable onlyin the amount of ₱149,955.65.
We do not agree. The RTC lacked the legal and factual support for its prorating the liability. Hence, we need
to modify the extent of the petitioner’s personal liability to Printwell. The prevailing rule is that a
stockholder is personally liable for the financial obligations of the corporation to the extent of his unpaid
subscription.53In view ofthe petitioner’s unpaid subscription being worth ₱262,500.00, shewas liable up to
that amount.
Interest is also imposable on the unpaid obligation. Absent any stipulation, interest is fixed at 12% per
annum from the date the amended complaint was filed on February 8, 1990 until the obligation (i.e., to the
extent of the petitioner’s personal liability of ₱262,500.00) is fully paid.54
Lastly, we find no basis togrant attorney’s fees, the award for which must be supported by findings of fact
and of law as provided under Article 2208 of the Civil Code55incorporated in the body of decision of the
trial court. The absence of the requisite findings from the RTC decision warrants the deletion of the
attorney’s fees.
ACCORDINGLY, we deny the petition for review on certiorari;and affirm with modification the decision
promulgated on August 14, 2002by ordering the petitionerto pay to Printwell, Inc. the sum of ₱262,500.00,
plus interest of 12% per annum to be computed from February 8, 1990 until full payment.
The petitioner shall paycost of suit in this appeal.
SO ORDERED.
G.R. No. 182397 September 14, 2011
ALERT SECURITY AND INVESTIGATION AGENCY, INC. AND/OR MANUEL D. DASIG, Petitioners,
vs.
SAIDALI PASAWILAN, WILFREDO VERCELES AND MELCHOR BULUSAN, Respondents.
DECISION
VILLARAMA, JR., J.:
This petition for review on certiorari assails the Decision1dated February 1, 2008 of the Court of Appeals
(CA) in CA-G.R. SP No. 99861. The appellate court reversed and set aside the January 31, 2007 Decision2
and March 15, 2007 Resolution3 of the National Labor Relations Commission (NLRC) and reinstated the
Labor Arbiter’s Decision4 finding petitioners guilty of illegal dismissal.
The facts follow.
Respondents Saidali Pasawilan, Wilfredo Verceles and Melchor Bulusan were all employed by petitioner
Alert Security and Investigation Agency, Inc. (Alert Security) as security guards beginning March 31, 1996,
January 14, 1997, and January 24, 1997, respectively. They were paid 165.00 pesos a day as regular
employees, and assigned at the Department of Science and Technology (DOST) pursuant to a security
service contract between the DOST and Alert Security.
Respondents aver that because they were underpaid, they filed a complaint for money claims against Alert
Security and its president and general manager, petitioner Manuel D. Dasig, before Labor Arbiter Ariel C.
Santos. As a result of their complaint, they were relieved from their posts in the DOST and were not given
new assignments despite the lapse of six months. On January 26, 1999, they filed a joint complaint for illegal
dismissal against petitioners.
Petitioners, on the other hand, deny that they dismissed the respondents. They claimed that from the
DOST, respondents were merely detailed at the Metro Rail Transit, Inc. at the Light Rail Transit Authority
(LRTA) Compound in Aurora Blvd. because the wages therein were already adjusted to the latest minimum
wage. Petitioners presented "Duty Detail Orders"5 that Alert Security issued to show that respondents were
in fact assigned to LRTA. Respondents, however, failed to report at the LRTA and instead kept loitering at
the DOST and tried to convince other security guards to file complaints against Alert Security. Thus, on
August 3, 1998, Alert Security filed a "termination report"6 with the Department of Labor and Employment
relative to the termination of the respondents.
Upon motion of the respondents, the joint complaint for illegal dismissal was ordered consolidated with
respondents’ earlier complaint for money claims. The records of the illegal dismissal case were sent to Labor
Arbiter Ariel C. Santos, but later returned to the Office of the Labor Arbiter hearing the illegal dismissal
complaint because a Decision7 has already been rendered in the complaint for money claims on July 14,
1999. In that decision, the complaint for money claims was dismissed for lack of merit but petitioners were
ordered to pay respondents their latest salary differentials.
On July 28, 2000, Labor Arbiter Melquiades Sol D. Del Rosario rendered a Decision8 on the complaint for
illegal dismissal. The Labor Arbiter ruled:
CONFORMABLY WITH THE FOREGOING, judgment is hereby rendered finding complainants to have been
illegally dismissed. Consequently, each complainant should be paid in solidum by the respondents the
individual awards computed in the body of the decision, which is hereto adopted as part of this disposition.
SO ORDERED.9
Aggrieved, petitioners appealed the decision to the NLRC claiming that the Labor Arbiter erred in deciding
a re-filed case when it was filed in violation of the prohibitions against litis pendencia and forum shopping.
Further, petitioners argued that complainants were not illegally dismissed but were only transferred. They
claimed that it was the respondents who refused to report for work in their new assignment.
On January 31, 2007, the NLRC rendered a Decision10ruling that Labor Arbiter Del Rosario did not err in
taking cognizance of respondents’ complaint for illegal dismissal because the July 14, 1999 Decision of Labor
Arbiter Santos on the complaint for money claims did not at all pass upon the issue of illegal dismissal. The
NLRC, however, dismissed the complaint for illegal dismissal after ruling that the fact of dismissal or
termination of employment was not sufficiently established. According to the NLRC, "[the] sweeping
generalization that the complainants were constructively dismissed is not sufficient to establish the
existence of illegal dismissal."11 The dispositive portion of the NLRC decision reads:
WHEREFORE, premises considered, the respondents’ appeal is hereby given due course and the decision
dated July 28, 2000 is hereby REVERSED and SET-ASIDE and a new one entered DISMISSING the complaint
for illegal dismissal for lack of merit.
SO ORDERED.12
Unfazed, respondents filed a petition for certiorari with the CA questioning the NLRC decision and alleging
grave abuse of discretion.
On February 1, 2008, the CA rendered the assailed Decision13 reversing and setting aside the NLRC decision
and reinstating the July 28, 2000 Decision of Labor Arbiter Del Rosario. The CA ruled that Alert Security, as
an employer, failed to discharge its burden to show that the employee’s separation from employment was
not motivated by discrimination, made in bad faith, or effected as a form of punishment or demotion
without sufficient cause. The CA also found that respondents were never informed of the "Duty Detail
Orders" transferring them to a new post, thereby making the alleged transfer ineffective. The dispositive
portion of the CA decision states:
WHEREFORE, premises considered, the January 31, 2007 decision of the NLRC is hereby REVERSED and SET
ASIDE and the July 28, 2000 decision of the Labor Arbiter is hereby REVIVED.
SO ORDERED.14
Petitioners filed a motion for reconsideration, but the motion was denied in a Resolution15 dated March
31, 2008.
Petitioners are now before this Court to seek relief by way of a petition for review on certiorari under Rule
45 of the 1997 Rules of Civil Procedure, as amended.
Petitioners argue that the CA erred when it held that the NLRC committed grave abuse of discretion.
According to petitioners, the NLRC was correct when it ruled that there was no sufficient basis to rule that
respondents were terminated from their employment while there was proof that they were merely
transferred from DOST to LRTA as shown in the "Duty Detail Orders". Verily, petitioners claim that there
was no termination at all; instead, respondents abandoned their employment by refusing to report for duty
at the LRTA Compound.
Further, petitioners argue that the CA erred when it reinstated the July 28, 2000 Decision of Labor Arbiter
Del Rosario in its entirety. The dispositive portion of said decision ruled that respondents should be paid
their monetary awards in solidum by Alert Security and Manuel D. Dasig, its President and General Manager.
They argue that Alert Security is a duly organized domestic corporation which has a legal personality
separate and distinct from its members or owners. Hence, liability for whatever compensation or money
claims owed to employees must be borne solely by Alert Security and not by any of its individual
stockholders or officers.
On the other hand, respondents claim that the NLRC committed a serious error in ruling that they failed to
provide factual substantiation of their claim of constructive dismissal. Respondents aver that their
Complaint Form16 sufficiently constitutes the basis of their claim of illegal dismissal. Also, respondents aver
that Alert Security itself admitted that respondents were relieved from their posts as security guards in
DOST, albeit raising the defense that it was a mere transfer as shown by "Duty Detail Orders", which,
however, were never received by respondents, as observed by the Labor Arbiter.
Essentially, the issue for resolution is whether respondents were illegally dismissed.
We rule in the affirmative.
As a rule, employment cannot be terminated by an employer without any just or authorized cause. No less
than the 1987 Constitution in Section 3, Article 13 guarantees security of tenure for workers and because
of this, an employee may only be terminated for just17 or authorized18 causes that
must comply with the due process requirements mandated19 by law. Hence, employers are barred from
arbitrarily removing their workers whenever and however they want. The law sets the valid grounds for
termination as well as the proper procedure to take when terminating the services of an employee.
In De Guzman, Jr. v. Commission on Elections,20 the Court, speaking of the Constitutional guarantee of
security of tenure to all workers, ruled:
x x x It only means that an employee cannot be dismissed (or transferred) from the service for causes other
than those provided by law and after due process is accorded the employee. What it seeks to prevent is
capricious exercise of the power to dismiss. x x x (Emphasis supplied.)
Although we recognize the right of employers to shape their own work force, this management prerogative
must not curtail the basic right of employees to security of tenure. There must be a valid and lawful reason
for terminating the employment of a worker. Otherwise, it is illegal and would be dealt with by the courts
accordingly.
As stated in Bascon v. Court of Appeals:21
x x x The employer’s power to dismiss must be tempered with the employee’s right to security of tenure.
Time and again we have said that the preservation of the lifeblood of the toiling laborer comes before
concern for business profits. Employers must be reminded to exercise the power to dismiss with great
caution, for the State will not hesitate to come to the succor of workers wrongly dismissed by capricious
employers.
In the case at bar, respondents were relieved from their posts because they filed with the Labor Arbiter a
complaint against their employer for money claims due to underpayment of wages. This reason is
unacceptable and illegal. Nowhere in the law providing for the just and authorized causes of termination of
employment is there any direct or indirect reference to filing a legitimate complaint for money claims
against the employer as a valid ground for termination.
The Labor Code, as amended, enumerates several just and authorized causes for a valid termination of
employment. An employee asserting his right and asking for minimum wage is not among those causes.
Dismissing an employee on this ground amounts to retaliation by management for an employee’s legitimate
grievance without due process. Such stroke of retribution has no place in Philippine Labor Laws.
Petitioners aver that respondents were merely transferred to a new post wherein the wages are adjusted
to the current minimum wage standards. They maintain that the respondents voluntarily abandoned their
jobs when they failed to report for duty in the new location.
Assuming this is true, we still cannot hold that the respondents abandoned their posts. For abandonment
of work to fall under Article 282 (b) of the Labor Code, as amended, as gross and habitual neglect of duties
there must be the concurrence of two elements. First, there should be a failure of the employee to report
for work without a valid or justifiable reason, and second, there should be a showing that the employee
intended to sever the employer-employee relationship, the second element being the more determinative
factor as manifested by overt acts.22
As regards the second element of intent to sever the employer-employee relationship, the CA correctly
ruled that:
x x x the fact that petitioners filed a complaint for illegal dismissal is indicative of their intention to remain
employed with private respondent considering that one of their prayers in the complaint is for re-
instatement. As declared by the Supreme Court, a complaint for illegal dismissal is inconsistent with the
charge of abandonment, because when an employee takes steps to protect himself against a dismissal, this
cannot, by logic, be said to be abandonment by him of his right to be able to work.23
Further, according to Alert Security itself, respondents continued to report for work and loiter in the DOST
after the alleged transfer order was issued. Such circumstance makes it unlikely that respondents have clear
intention of leaving their respective jobs. In any case, there is no dispute that in cases of abandonment of
work, notice shall be served at the worker’s last known address.24This petitioners failed to do.
On the element of the failure of the employee to report for work, we also cannot accept the allegations of
petitioners that respondents unjustifiably refused to report for duty in their new posts. A careful review of
the records reveals that there is no showing that respondents were notified of their new assignments.
Granting that the "Duty Detail Orders" were indeed issued, they served no purpose unless the intended
recipients of the orders are informed of such.
The employer cannot simply conclude that an employee is ipso facto notified of a transfer when there is no
evidence to indicate that the employee had knowledge of the transfer order. Hence, the failure of an
employee to report for work at the new location cannot be taken against him as an element of
abandonment.
We acknowledge and recognize the right of an employer to transfer employees in the interest of the service.
This exercise is a management prerogative which is a lawful right of an employer. However, like all rights,
there are limitations to the right to transfer employees. As ruled in the case of Blue Dairy Corporation v.
NLRC:25
x x x The managerial prerogative to transfer personnel must be exercised without grave abuse of discretion,
bearing in mind the basic elements of justice and fair play. Having the right should not be confused with
the manner in which that right is exercised. Thus, it cannot be used as a subterfuge by the employer to rid
himself of an undesirable worker. In particular, the employer must be able to show that the transfer is not
unreasonable, inconvenient or prejudicial to the employee; nor does it involve a demotion in rank or a
diminution of his salaries, privileges and other benefits. x x x
In addition to these tests for a valid transfer, there should be proper and effective notice to the employee
concerned. It is the employer’s burden to show that the employee was duly notified of the transfer. Verily,
an employer cannot reasonably expect an employee to report for work in a new location without first
informing said employee of the transfer. Petitioners’ insistence on the sufficiency of mere issuance of the
transfer order is indicative of bad faith on their part.
Besides, according to petitioners, the reason for the transfer to LRTA of the respondents was that the wages
in LRTA were already adjusted to comply with the minimum wage rates. Now it is hard to believe that after
being ordered to transfer to LRTA where the wages are better, the respondents would still refuse the
transfer. That would mean that the respondents refused better wages and instead chose to remain in DOST,
underpaid, and go through the lengthy process of claiming and asking for minimum wage. This proposed
scenario of petitioners simply does not jibe with human logic and experience.
On the question of the propriety of holding petitioner Manuel D. Dasig, president and general manager of
Alert Security, solidarily liable with Alert Security for the payment of the money awards in favor of
respondents, we find petitioners’ arguments meritorious.
Basic is the rule that a corporation has a separate and distinct personality apart from its directors, officers,
or owners. In exceptional cases, courts find it proper to breach this corporate personality in order to make
directors, officers, or owners solidarily liable for the companies’ acts. Section 31, Paragraph 1 of the
Corporation Code26 provides:
Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote
for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith
in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their
duty as such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other persons.
xxxx
Jurisprudence has been consistent in defining the instances when the separate and distinct personality of
a corporation may be disregarded in order to hold the directors, officers, or owners of the corporation
liable for corporate debts. In McLeod v. National Labor Relations Commission,27 the Court ruled:
Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the corporate fiction
is used to defeat public convenience, justify wrong, protect fraud, or defend crime. In the absence of malice,
bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be
made personally liable for corporate liabilities. x x x
Further, in Carag v. National Labor Relations Commission,28 the Court clarified the McLeod doctrine as
regards labor laws, to wit:
We have already ruled in McLeod v. NLRC29 and Spouses Santos v. NLRC30 that Article 212(e)31 of the
Labor Code, by itself, does not make a corporate officer personally liable for the debts of the
corporation.1awphi1 The governing law on personal liability of directors for debts of the corporation is still
Section 31 of the Corporation Code. x x x
In the present case, there is no evidence to indicate that Manuel D. Dasig, as president and general manager
of Alert Security, is using the veil of corporate fiction to defeat public convenience, justify wrong, protect
fraud, or defend crime. Further, there is no showing that Alert Security has folded up its business or is
reneging in its obligations. In the final analysis, it is Alert Security that respondents are after and it is also
Alert Security who should take responsibility for their illegal dismissal.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in CA-
G.R. SP No. 99861 and the Decision dated July 28, 2000 of the Labor Arbiter are MODIFIED. Petitioner
Manuel D. Dasig is held not solidarily liable with petitioner Alert Security and Investigation, Inc. for the
payment of the monetary awards in favor of respondents. Said Decision of the Court of Appeals in all other
aspects is AFFIRMED.
With costs against the petitioners.
SO ORDERED.

FIRST DIVISION
G.R. No. 141994 January 17, 2005
FILIPINAS BROADCASTING NETWORK, INC., petitioner,
vs.
AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and
ANGELITA F. AGO, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review1 assails the 4 January 1999 Decision2 and 26 January 2000 Resolution of the Court
of Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December
1992 Decision3 of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of
Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo
Rima liable for libel and ordered them to solidarily pay Ago Medical and Educational Center-Bicol Christian
College of Medicine moral damages, attorney’s fees and costs of suit.
The Antecedents
"Exposé" is a radio documentary4 program hosted by Carmelo ‘Mel’ Rima ("Rima") and Hermogenes ‘Jun’
Alegre ("Alegre").5 Exposé is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting
Network, Inc. ("FBNI"). "Exposé" is heard over Legazpi City, the Albay municipalities and other Bicol areas.6
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from
students, teachers and parents against Ago Medical and Educational Center-Bicol Christian College of
Medicine ("AMEC") and its administrators. Claiming that the broadcasts were defamatory, AMEC and
Angelita Ago ("Ago"), as Dean of AMEC’s College of Medicine, filed a complaint for damages7 against FBNI,
Rima and Alegre on 27 February 1990. Quoted are portions of the allegedly libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise
them to pass all subjects because if they fail in any subject they will repeat their year level, taking up all
subjects including those they have passed already. Several students had approached me stating that they
had consulted with the DECS which told them that there is no such regulation. If [there] is no such regulation
why is AMEC doing the same?
xxx
Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by
DECS. xxx
Third: Students are required to take and pay for the subject even if the subject does not have an instructor
- such greed for money on the part of AMEC’s administration. Take the subject Anatomy: students would
pay for the subject upon enrolment because it is offered by the school. However there would be no
instructor for such subject. Students would be informed that course would be moved to a later date
because the school is still searching for the appropriate instructor.
xxx
It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving
for the past few years since its inception because of funds support from foreign foundations. If you will take
a look at the AMEC premises you’ll find out that the names of the buildings there are foreign soundings.
There is a McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable
evidence that the support of foreign foundations for AMEC is substantial, isn’t it? With the report which is
the basis of the expose in DZRC today, it would be very easy for detractors and enemies of the Ago family
to stop the flow of support of foreign foundations who assist the medical school on the basis of the latter’s
purpose. But if the purpose of the institution (AMEC) is to deceive students at cross purpose with its reason
for being it is possible for these foreign foundations to lift or suspend their donations temporarily.8
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute
of Mass Communication in their effort to minimize expenses in terms of salary are absorbing or continues
to accept "rejects". For example how many teachers in AMEC are former teachers of Aquinas University but
were removed because of immorality? Does it mean that the present administration of AMEC have the
total definite moral foundation from catholic administrator of Aquinas University. I will prove to you my
friends, that AMEC is a dumping ground, garbage, not merely of moral and physical misfits. Probably they
only qualify in terms of intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family name
implies. She is too old to work, being an old woman. Is the AMEC administration exploiting the very
[e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just patiently making use
of Dean Justita Lola were if she is very old. As in atmospheric situation – zero visibility – the plane cannot
land, meaning she is very old, low pay follows. By the way, Dean Justita Lola is also the chairman of the
committee on scholarship in AMEC. She had retired from Bicol University a long time ago but AMEC has
patiently made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people.
What does this mean? Immoral and physically misfits as teachers.
May I say I’m sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to
teach. You are too old. As an aviation, your case is zero visibility. Don’t insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that.
The reason is practical cost saving in salaries, because an old person is not fastidious, so long as she has
money to buy the ingredient of beetle juice. The elderly can get by – that’s why she (Lola) was taken in as
Dean.
xxx
xxx On our end our task is to attend to the interests of students. It is likely that the students would be
influenced by evil. When they become members of society outside of campus will be liabilities rather than
assets. What do you expect from a doctor who while studying at AMEC is so much burdened with
unreasonable imposition? What do you expect from a student who aside from peculiar problems – because
not all students are rich – in their struggle to improve their social status are even more burdened with false
regulations. xxx9 (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposés,
FBNI, Rima and Alegre "transmitted malicious imputations, and as such, destroyed plaintiffs’ (AMEC and
Ago) reputation." AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence
in the selection and supervision of its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer10 alleging that the
broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled
by a sense of public duty to report the "goings-on in AMEC, [which is] an institution imbued with public
interest."
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea,
collaborating counsel of Atty. Lozares, filed a Motion to Dismiss11 on FBNI’s behalf. The trial court denied
the motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due diligence
in the selection and supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the
broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an apprenticeship and
training program after passing the interview. FBNI likewise claimed that it always reminds its broadcasters
to "observe truth, fairness and objectivity in their broadcasts and to refrain from using libelous and indecent
language." Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga Brodkaster sa Pilipinas
("KBP") accreditation test and to secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision12 finding FBNI and Alegre liable for libel except
Rima. The trial court held that the broadcasts are libelous per se. The trial court rejected the broadcasters’
claim that their utterances were the result of straight reporting because it had no factual basis. The
broadcasters did not even verify their reports before airing them to show good faith. In holding FBNI liable
for libel, the trial court found that FBNI failed to exercise diligence in the selection and supervision of its
employees.
In absolving Rima from the charge, the trial court ruled that Rima’s only participation was when he agreed
with Alegre’s exposé. The trial court found Rima’s statement within the "bounds of freedom of speech,
expression, and of the press." The dispositive portion of the decision reads:
WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages
caused by the controversial utterances, which are not found by this court to be really very serious and
damaging, and there being no showing that indeed the enrollment of plaintiff school dropped, defendants
Hermogenes "Jun" Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio station DZRC), are
hereby jointly and severally ordered to pay plaintiff Ago Medical and Educational Center-Bicol Christian
College of Medicine (AMEC-BCCM) the amount of ₱300,000.00 moral damages, plus ₱30,000.00
reimbursement of attorney’s fees, and to pay the costs of suit.
SO ORDERED. 13 (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the
decision to the Court of Appeals. The Court of Appeals affirmed the trial court’s judgment with modification.
The appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court denied Ago’s
claim for damages and attorney’s fees because the broadcasts were directed against AMEC, and not against
her. The dispositive portion of the Court of Appeals’ decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster
Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.14
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January
2000 Resolution.
Hence, FBNI filed this petition.15
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial court’s ruling that the questioned broadcasts are libelous per se and
that FBNI, Rima and Alegre failed to overcome the legal presumption of malice. The Court of Appeals found
Rima and Alegre’s claim that they were actuated by their moral and social duty to inform the public of the
students’ gripes as insufficient to justify the utterance of the defamatory remarks.
Finding no factual basis for the imputations against AMEC’s administrators, the Court of Appeals ruled that
the broadcasts were made "with reckless disregard as to whether they were true or false." The appellate
court pointed out that FBNI, Rima and Alegre failed to present in court any of the students who allegedly
complained against AMEC. Rima and Alegre merely gave a single name when asked to identify the students.
According to the Court of Appeals, these circumstances cast doubt on the veracity of the broadcasters’
claim that they were "impelled by their moral and social duty to inform the public about the students’
gripes."
The Court of Appeals found Rima also liable for libel since he remarked that "(1) AMEC-BCCM is a dumping
ground for morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to
minimize expenses on its employees’ salaries; and (3) AMEC burdened the students with unreasonable
imposition and false regulations."16
The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its
employees for allowing Rima and Alegre to make the radio broadcasts without the proper KBP
accreditation. The Court of Appeals denied Ago’s claim for damages and attorney’s fees because the
libelous remarks were directed against AMEC, and not against her. The Court of Appeals adjudged FBNI,
Rima and Alegre solidarily liable to pay AMEC moral damages, attorney’s fees and costs of suit.1awphi1.nét
Issues
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEY’S FEES IS PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES,
ATTORNEY’S FEES AND COSTS OF SUIT.
The Court’s Ruling
We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against
AMEC.17 While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint
reveals that AMEC’s cause of action is based on Articles 30 and 33 of the Civil Code. Article 3018 authorizes
a separate civil action to recover civil liability arising from a criminal offense. On the other hand, Article
3319 particularly provides that the injured party may bring a separate civil action for damages in cases of
defamation, fraud, and physical injuries. AMEC also invokes Article 1920 of the Civil Code to justify its claim
for damages. AMEC cites Articles 217621 and 218022 of the Civil Code to hold FBNI solidarily liable with
Rima and Alegre.
I.
Whether the broadcasts are libelous
A libel23 is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act
or omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a
natural or juridical person, or to blacken the memory of one who is dead.24
There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances
tending to cause it dishonor, discredit and contempt. Rima and Alegre’s remarks such as "greed for money
on the part of AMEC’s administrators"; "AMEC is a dumping ground, garbage of xxx moral and physical
misfits"; and AMEC students who graduate "will be liabilities rather than assets" of the society are libelous
per se. Taken as a whole, the broadcasts suggest that AMEC is a money-making institution where physically
and morally unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were
plainly impelled by their civic duty to air the students’ gripes. FBNI alleges that there is no evidence that ill
will or spite motivated Rima and Alegre in making the broadcasts. FBNI further points out that Rima and
Alegre exerted efforts to obtain AMEC’s side and gave Ago the opportunity to defend AMEC and its
administrators. FBNI concludes that since there is no malice, there is no libel.
FBNI’s contentions are untenable.
Every defamatory imputation is presumed malicious.25Rima and Alegre failed to show adequately their
good intention and justifiable motive in airing the supposed gripes of the students. As hosts of a
documentary or public affairs program, Rima and Alegre should have presented the public issues "free from
inaccurate and misleading information."26 Hearing the students’ alleged complaints a month before the
exposé,27 they had sufficient time to verify their sources and information. However, Rima and Alegre hardly
made a thorough investigation of the students’ alleged gripes. Neither did they inquire about nor confirm
the purported irregularities in AMEC from the Department of Education, Culture and Sports. Alegre testified
that he merely went to AMEC to verify his report from an alleged AMEC official who refused to disclose any
information. Alegre simply relied on the words of the students "because they were many and not because
there is proof that what they are saying is true."28 This plainly shows Rima and Alegre’s reckless disregard
of whether their report was true or not.
Contrary to FBNI’s claim, the broadcasts were not "the result of straight reporting." Significantly, some
courts in the United States apply the privilege of "neutral reportage" in libel cases involving matters of
public interest or public figures. Under this privilege, a republisher who accurately and disinterestedly
reports certain defamatory statements made against public figures is shielded from liability, regardless of
the republisher’s subjective awareness of the truth or falsity of the accusation.29 Rima and Alegre cannot
invoke the privilege of neutral reportage because unfounded comments abound in the broadcasts.
Moreover, there is no existing controversy involving AMEC when the broadcasts were made. The privilege
of neutral reportage applies where the defamed person is a public figure who is involved in an existing
controversy, and a party to that controversy makes the defamatory statement.30
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of
Appeals,31FBNI contends that the broadcasts "fall within the coverage of qualifiedly privileged
communications" for being commentaries on matters of public interest. Such being the case, AMEC should
prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual malice, there is no libel.
FBNI’s reliance on Borjal is misplaced. In Borjal, the Court elucidated on the "doctrine of fair comment,"
thus:
[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action
for libel or slander. The doctrine of fair comment means that while in general every discreditable imputation
publicly made is deemed false, because every man is presumed innocent until his guilt is judicially proved,
and every false imputation is deemed malicious, nevertheless, when the discreditable imputation is
directed against a public person in his public capacity, it is not necessarily actionable. In order that such
discreditable imputation to a public official may be actionable, it must either be a false allegation of fact or
a comment based on a false supposition. If the comment is an expression of opinion, based on established
facts, then it is immaterial that the opinion happens to be mistaken, as long as it might reasonably be
inferred from the facts.32 (Emphasis supplied)
True, AMEC is a private learning institution whose business of educating students is "genuinely imbued with
public interest." The welfare of the youth in general and AMEC’s students in particular is a matter which
the public has the right to know. Thus, similar to the newspaper articles in Borjal, the subject broadcasts
dealt with matters of public interest. However, unlike in Borjal, the questioned broadcasts are not based
on established facts. The record supports the following findings of the trial court:
xxx Although defendants claim that they were motivated by consistent reports of students and parents
against plaintiff, yet, defendants have not presented in court, nor even gave name of a single student who
made the complaint to them, much less present written complaint or petition to that effect. To accept this
defense of defendants is too dangerous because it could easily give license to the media to malign people
and establishments based on flimsy excuses that there were reports to them although they could not
satisfactorily establish it. Such laxity would encourage careless and irresponsible broadcasting which is
inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their
duties, did not verify and analyze the truth of the reports before they aired it, in order to prove that they
are in good faith.
Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses.
Yet, plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before
the controversial broadcast, accreditation to offer Physical Therapy course had already been given the
plaintiff, which certificate is signed by no less than the Secretary of Education and Culture herself, Lourdes
R. Quisumbing (Exh. C-rebuttal). Defendants could have easily known this were they careful enough to
verify. And yet, defendants were very categorical and sounded too positive when they made the erroneous
report that plaintiff had no permit to offer Physical Therapy courses which they were offering.
The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald
Foundation prove not to be true also. The truth is there is no Mcdonald Foundation existing. Although a big
building of plaintiff school was given the name Mcdonald building, that was only in order to honor the first
missionary in Bicol of plaintiffs’ religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants
over the air, not a single centavo appears to be received by plaintiff school from the aforementioned
McDonald Foundation which does not exist.
Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical
students fail in one subject, they are made to repeat all the other subject[s], even those they have already
passed, nor their claim that the school charges laboratory fees even if there are no laboratories in the
school. No evidence was presented to prove the bases for these claims, at least in order to give semblance
of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s]
singled out Dean Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in court
last Jan. 21, 1991, and was found to be 75 years old. xxx Even older people prove to be effective teachers
like Supreme Court Justices who are still very much in demand as law professors in their late years. Counsel
for defendants is past 75 but is found by this court to be still very sharp and effective.l^vvphi1.net So is
plaintiffs’ counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert
and docile.
The contention that plaintiffs’ graduates become liabilities rather than assets of our society is a mere
conclusion. Being from the place himself, this court is aware that majority of the medical graduates of
plaintiffs pass the board examination easily and become prosperous and responsible professionals.33
Had the comments been an expression of opinion based on established facts, it is immaterial that the
opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.34 However, the
comments of Rima and Alegre were not backed up by facts. Therefore, the broadcasts are not privileged
and remain libelous per se.
The broadcasts also violate the Radio Code35 of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. ("Radio
Code"). Item I(B) of the Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1. x x x
4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate and
misleading information. x x x Furthermore, the station shall strive to present balanced discussion of issues.
x x x.
xxx
7. The station shall be responsible at all times in the supervision of public affairs, public issues and
commentary programs so that they conform to the provisions and standards of this code.
8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public
interest, general welfare and good order in the presentation of public affairs and public issues.36(Emphasis
supplied)
The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical
conduct governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code of
conduct imposed by the radio broadcast industry on its own members. The Radio Code is a public warranty
by the radio broadcast industry that radio broadcast practitioners are subject to a code by which their
conduct are measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to the code of
conduct of their profession, just like other professionals. A professional code of conduct provides the
standards for determining whether a person has acted justly, honestly and with good faith in the exercise
of his rights and performance of his duties as required by Article 1937 of the Civil Code. A professional code
of conduct also provides the standards for determining whether a person who willfully causes loss or injury
to another has acted in a manner contrary to morals or good customs under Article 2138 of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a corporation.39
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or
moral shock.40 The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.41 to justify the award of
moral damages. However, the Court’s statement in Mambulaothat "a corporation may have a good
reputation which, if besmirched, may also be a ground for the award of moral damages" is an obiter
dictum.42
Nevertheless, AMEC’s claim for moral damages falls under item 7 of Article 221943 of the Civil Code. This
provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of
defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore,
a juridical person such as a corporation can validly complain for libel or any other form of defamation and
claim for moral damages.44
Moreover, where the broadcast is libelous per se, the law implies damages.45 In such a case, evidence of
an honest mistake or the want of character or reputation of the party libeled goes only in mitigation of
damages.46Neither in such a case is the plaintiff required to introduce evidence of actual damages as a
condition precedent to the recovery of some damages.47 In this case, the broadcasts are libelous per se.
Thus, AMEC is entitled to moral damages.
However, we find the award of ₱300,000 moral damages unreasonable. The record shows that even though
the broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its
reputation. Therefore, we reduce the award of moral damages from ₱300,000 to ₱150,000.
III.
Whether the award of attorney’s fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of
attorney’s fees. FBNI adds that the instant case does not fall under the enumeration in Article 220848 of
the Civil Code.
The award of attorney’s fees is not proper because AMEC failed to justify satisfactorily its claim for
attorney’s fees. AMEC did not adduce evidence to warrant the award of attorney’s fees. Moreover, both
the trial and appellate courts failed to explicitly state in their respective decisions the rationale for the
award of attorney’s fees.49In Inter-Asia Investment Industries, Inc. v. Court of Appeals ,50 we held that:
[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the
rule, and counsel’s fees are not to be awarded every time a party wins a suit. The power of the court to
award attorney’s fees under Article 2208 of the Civil Code demands factual, legal and equitable justification,
without which the award is a conclusion without a premise, its basis being improperly left to speculation
and conjecture. In all events, the court must explicitly state in the text of the decision, and not only in the
decretal portion thereof, the legal reason for the award of attorney’s fees.51 (Emphasis supplied)
While it mentioned about the award of attorney’s fees by stating that it "lies within the discretion of the
court and depends upon the circumstances of each case," the Court of Appeals failed to point out any
circumstance to justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorney’s fees and costs of suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorney’s
fees because it exercised due diligence in the selection and supervision of its employees, particularly Rima
and Alegre. FBNI maintains that its broadcasters, including Rima and Alegre, undergo a "very regimented
process" before they are allowed to go on air. "Those who apply for broadcaster are subjected to interviews,
examinations and an apprenticeship program."
FBNI further argues that Alegre’s age and lack of training are irrelevant to his competence as a broadcaster.
FBNI points out that the "minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way
prove that FBNI did not exercise the diligence of a good father of a family in selecting and supervising them."
Rima’s accreditation lapsed due to his non-payment of the KBP annual fees while Alegre’s accreditation
card was delayed allegedly for reasons attributable to the KBP Manila Office. FBNI claims that membership
in the KBP is merely voluntary and not required by any law or government regulation.
FBNI’s arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which
they commit.52 Joint tort feasors are all the persons who command, instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if
done for their benefit.53 Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176
and 2180 of the Civil Code.1a\^/phi1.net
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages
arising from the libelous broadcasts. As stated by the Court of Appeals, "recovery for defamatory
statements published by radio or television may be had from the owner of the station, a licensee, the
operator of the station, or a person who procures, or participates in, the making of the defamatory
statements."54 An employer and employee are solidarily liable for a defamatory statement by the
employee within the course and scope of his or her employment, at least when the employer authorizes or
ratifies the defamation.55 In this case, Rima and Alegre were clearly performing their official duties as hosts
of FBNI’s radio program Exposé when they aired the broadcasts. FBNI neither alleged nor proved that Rima
and Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did
not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in the selection
andsupervision of its employees, particularly Rima and Alegre. FBNI merely showed that it exercised
diligence in the selection of its broadcasters without introducing any evidence to prove that it observed the
same diligence in the supervision of Rima and Alegre. FBNI did not show how it exercised diligence in
supervising its broadcasters. FBNI’s alleged constant reminder to its broadcasters to "observe truth, fairness
and objectivity and to refrain from using libelous and indecent language" is not enough to prove due
diligence in the supervision of its broadcasters. Adequate training of the broadcasters on the industry’s
code of conduct, sufficient information on libel laws, and continuous evaluation of the broadcasters’
performance are but a few of the many ways of showing diligence in the supervision of broadcasters.
FBNI claims that it "has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing
in mind their qualifications." However, no clear and convincing evidence shows that Rima and Alegre
underwent FBNI’s "regimented process" of application. Furthermore, FBNI admits that Rima and Alegre had
deficiencies in their KBP accreditation,56 which is one of FBNI’s requirements before it hires a broadcaster.
Significantly, membership in the KBP, while voluntary, indicates the broadcaster’s strong commitment to
observe the broadcast industry’s rules and regulations. Clearly, these circumstances show FBNI’s lack of
diligence in selecting and supervising Rima and Alegre. Hence, FBNI is solidarily liable to pay damages
together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of
26 January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award
of moral damages is reduced from ₱300,000 to ₱150,000 and the award of attorney’s fees is deleted. Costs
against petitioner.
SO ORDERED.