Marc II Marketing, Inc. and Lucila V. Joson vs. Alfredo M. Joson

A position is a corporate office only if expressly enumerated in the corporation’s by-laws; an enabling clause empowering the board of directors to appoint additional officers does not elevate an appointee to the status of a corporate officer. The dismissal of a person occupying a position not listed in the by-laws is a termination dispute subject to the jurisdiction of the Labor Arbiter under Article 217 of the Labor Code, not an intra-corporate controversy under Section 5 of Presidential Decree No. 902-A.

Petitioner Marc II Marketing, Inc. was incorporated on 15 August 1994, taking over the business of the defunct Marc Marketing, Inc. Petitioner Lucila V. Joson, the President and majority stockholder of both corporations, engaged respondent Alfredo M. Joson as General Manager even before incorporation. Respondent was also an incorporator, director, and stockholder of the petitioner corporation. A Management Contract dated 16 January 1994—executed prior to incorporation—promised respondent 30% of net income. On 30 June 1997, the corporation ceased operations due to poor sales and mismanagement, and respondent was dismissed the same day without prior written notice.

• The Management Contract: On 16 January 1994, before petitioner corporation was incorporated, respondent and petitioner Lucila V. Joson executed a Management Contract under the letterhead of Marc Marketing, Inc. It provided that respondent would serve as General Manager and receive 30% of the net income of the prospective corporation, plus 30% of net profit as compensation for forgone overseas work.

• Incorporation and Appointment as General Manager: Petitioner Marc II Marketing, Inc. was incorporated on 15 August 1994. Its by-laws, Article IV, Section 1, enumerated its corporate officers as Chairman, President, one or more Vice-Presidents, Treasurer, and Secretary. The same section contained an enabling clause: “The Board may, from time to time, appoint such other officers as it may determine to be necessary or proper.” An undated Secretary’s Certificate recorded that on 29 August 1994, the Board of Directors appointed respondent as General Manager, to function as a managing director. Respondent assumed the position and served continuously. His compensation was set by petitioner Lucila, not by board resolution.

• Cessation of Operations and Dismissal: On 30 June 1997, petitioner corporation decided to cease operations due to poor sales collection and inefficient management. On the same day, respondent was informed of the cessation and of the termination of his services. No prior written notice was given to respondent or to the Department of Labor and Employment (DOLE). Respondent was not paid any separation pay. An Affidavit of Non-Operation was later executed on 31 August 1998.

• Complaint before Labor Arbiter: Respondent filed a complaint for reinstatement and money claims, alleging that petitioner Lucila dismissed him out of personal animosity—Lucila’s estranged husband was respondent’s brother, who had filed a petition to nullify their marriage. Petitioners moved to dismiss for lack of jurisdiction, contending that respondent was a corporate officer and the dispute was intra-corporate. The Labor Arbiter denied the motion, found respondent to be an employee, and declared the dismissal illegal for lack of just cause and due process, awarding multi-million peso backwages, moral damages, and attorney’s fees.

• Jurisdiction: Intra-Corporate Controversy: Petitioners maintained that respondent, as General Manager, was a corporate officer because the Board of Directors created the position and appointed him pursuant to the enabling clause in the by-laws. Consequently, his dismissal was an intra-corporate controversy under Section 5 of Presidential Decree No. 902-A, cognizable by the Regional Trial Court, not the Labor Arbiter.

• Validity of Management Contract: Petitioners argued that the Management Contract dated 16 January 1994 was executed before petitioner corporation’s incorporation and could not bind it, as the corporation had no juridical personality at that time. Respondent’s claim for 30% of net profit was thus baseless.

• Computation of Monetary Awards: Petitioners contended that even if jurisdiction lay with the Labor Arbiter, the multi-million peso awards for backwages and unpaid wages were erroneous, being based on respondent’s self-serving computations without supporting evidence.

• Solidary Liability of Lucila V. Joson: Petitioners asserted that petitioner Lucila could not be held solidarily liable with the corporation. There was no allegation or proof that she acted with malice and bad faith, and the Labor Arbiter made no specific finding of such.

• Jurisdiction of the Labor Arbiter: Respondent maintained that he was an employee, not a corporate officer, because the by-laws did not list “General Manager” among the corporate officers. His complaint for illegal dismissal thus fell squarely under Article 217 of the Labor Code, conferring jurisdiction on the Labor Arbiter.

• Illegal Dismissal: Respondent claimed that his dismissal was without just or authorized cause and without due process. He was dismissed outright on the same day the corporation decided to cease operations, without any prior notice.

• Entitlement to Monetary Claims: Respondent relied on the Management Contract and his actual service as General Manager to support his claim for unpaid wages, backwages, and separation pay. He asserted that his dismissal was motivated by personal ill will.

• Jurisdiction over the Dismissal: Whether the Labor Arbiter had jurisdiction over the dismissal of respondent as General Manager, or whether the dispute was an intra-corporate controversy cognizable by the Regional Trial Court.

• Validity of Dismissal: Whether respondent’s dismissal was valid, and if so, whether procedural due process was observed.

• Binding Effect of the Management Contract: Whether the pre-incorporation Management Contract could bind petitioner corporation and serve as basis for respondent’s compensation.

• Solidary Liability of Lucila V. Joson: Whether petitioner Lucila V. Joson should be held solidarily liable with the corporation for the monetary awards.

• Jurisdiction over the Dismissal: The Labor Arbiter properly exercised jurisdiction. Under Section 25 of the Corporation Code, corporate officers are exclusively those given that character by the Code or by the corporation’s by-laws. Petitioner corporation’s by-laws enumerated only Chairman, President, Vice-President, Treasurer, and Secretary. The position of General Manager was not listed. The enabling clause empowering the Board to appoint “such other officers as it may determine to be necessary or proper” did not transform the General Manager into a corporate office. As held in Matling Industrial and Commercial Corporation v. Coros, the board has no power to create corporate offices without amending the by-laws; persons occupying positions created under such enabling clauses are mere employees or subordinate officials. The undated Secretary’s Certificate purporting to make the General Manager a corporate office was an afterthought and did not constitute an amendment of the by-laws. Respondent’s compensation was set by the President, not the Board, a further indication of employee status. Because respondent was an employee, his dismissal constituted a termination dispute under Article 217(a)2 of the Labor Code, not an intra-corporate controversy under PD 902-A.

• Validity of Dismissal: The dismissal was based on an authorized cause—closure or cessation of business operations under Article 283 of the Labor Code—but procedural due process was not observed. The cessation was bona fide and not undertaken to circumvent the Labor Code. However, the records showed no service of a written notice to respondent or to the DOLE at least one month before the intended date of closure. Respondent was dismissed on the very day the corporation decided to cease operations. The failure to comply with the one-month prior written notice rule entitled respondent to nominal damages of ₱50,000.00, in line with Jaka Food Processing Corporation v. Pacot and Culili v. Eastern Telecommunications Philippines, Inc. Respondent was also entitled to separation pay equivalent to one month pay or at least one-half month pay for every year of service, whichever is higher, as the closure was not due to serious business losses.

• Binding Effect of the Management Contract: The Management Contract dated 16 January 1994 was executed prior to petitioner corporation’s incorporation and under the letterhead of Marc Marketing, Inc. Under Section 19 of the Corporation Code, a corporation acquires juridical personality only from the date of issuance of its certificate of incorporation. A pre-incorporation contract cannot bind the corporation absent evidence of adoption, ratification, or confirmation. Thus, the provision fixing respondent’s compensation at 30% of net profit could not be enforced against petitioner corporation and could not serve as the basis for computing separation pay. The case was remanded to the Labor Arbiter to determine respondent’s actual compensation for proper computation.

• Solidary Liability of Lucila V. Joson: Petitioner Lucila V. Joson was solidarily liable with the corporation. The corporate veil may be pierced when the corporate fiction is used to perpetrate an illegal act or evade an obligation. As President, Lucila dismissed respondent abruptly on the same day cessation was decided, without the required prior written notice and without separation pay. This constituted bad faith and malice, justifying the piercing of the corporate veil and the imposition of solidary liability.

• Doctrine on Corporate Officers vs. Employees (Matling Rule): The only officers of a corporation are those given that character either by the Corporation Code or by the corporation’s by-laws. Section 25 of the Corporation Code enumerates the president, secretary, treasurer, and “such other officers as may be provided for in the by-laws.” To be a corporate office, the position must be expressly mentioned in the by-laws. An enabling clause that allows the board to appoint additional officers does not make a position a corporate office without amending the by-laws. Persons occupying positions created only by board resolution under an enabling clause are employees or subordinate officials, not corporate officers. This interpretation safeguards the constitutionally guaranteed security of tenure of employees by preventing the board from unilaterally creating corporate offices to circumvent labor protections.

• Doctrine on Closure of Business under Article 283: Closure or cessation of operations is an authorized cause for termination. Three requisites must be met: (a) service of a written notice to the employee and DOLE at least one month before the intended date; (b) the cessation must be bona fide; and (c) payment of separation pay equivalent to one month pay or at least one-half month pay per year of service, whichever is higher. If closure is due to serious business losses, the employer must prove the losses; if not, separation pay is mandatory. The failure to serve the one-month notice, even if the closure is bona fide, entitles the employee to nominal damages.

• Doctrine on Pre-Incorporation Contracts: Under Section 19 of the Corporation Code, a corporation acquires juridical personality only upon issuance of its certificate of incorporation. Contracts entered into before incorporation do not bind the corporation unless subsequently adopted, ratified, or confirmed.

• “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.”

• “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.”

• “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.”

• “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.”

• Matling Industrial and Commercial Corporation v. Coros, G.R. No. 157802, 13 October 2010 — Controlling precedent that clarified Section 25 of the Corporation Code: a position must be expressly mentioned in the by-laws to be a corporate office; an enabling clause is insufficient.

• Easycall Communications Phils., Inc. v. King, 514 Phil. 296 (2005) — Cited for the definition of corporate officers and the distinction between an “office” created by charter and an “employee” hired by the managing officer.

• Culili v. Eastern Telecommunications Philippines, Inc., G.R. No. 165381, 9 February 2011 — Applied for the rule on nominal damages when dismissal is for an authorized cause but procedural due process is lacking.

• Jaka Food Processing Corporation v. Pacot, 494 Phil. 114 (2005) — Distinguished sanctions for failure to observe due process in just cause dismissals versus authorized cause dismissals; the latter warrant stiffer sanctions.

• Industrial Timber Corporation v. Ababon, 515 Phil. 805 (2006) — Cited for the principle that management has the prerogative to close its business even absent serious losses, provided the closure is bona fide.

• Section 25, Corporation Code (Batas Pambansa Blg. 68) — Enumerates corporate officers as president, secretary, treasurer, and such other officers as may be provided for in the by-laws. Applied to determine that respondent’s position was not a corporate office because it was not listed in the by-laws.

• Section 19, Corporation Code — States that a corporation commences its corporate existence from the date of issuance of the certificate of incorporation. Applied to hold that the pre-incorporation Management Contract had no binding effect on petitioner corporation.

• Article 283, Labor Code — Governs termination due to closure of establishment. Applied to find that the closure was an authorized cause but the employer failed to comply with the one-month notice requirement and payment of separation pay.

• Article 217(a)2, Labor Code — Grants Labor Arbiters original and exclusive jurisdiction over termination disputes. Applied to affirm the Labor Arbiter’s jurisdiction.

• Section 5, Presidential Decree No. 902-A — Defines intra-corporate controversies. Distinguished as inapplicable because respondent was an employee, not a corporate officer.

Associate Justices Antonio T. Carpio (Chairperson), Arturo D. Brion, Maria Lourdes P. A. Sereno, and Bienvenido L. Reyes concurred.