J.A.B. Bulao & Associates

SOURCE: RENATO REAL VS. SANGU PHILIPPINES, INC. AND/ OR KIICHI ABE (G.R. NO.  168757, 19 JANUARY 2011,  DEL CASTILLO, J.) SUBJECT WHETHER A COMPLAINT FOR ILLEGAL DISMISSAL IS AN INTRA-CORPORATE CONTROVERSY. (BRIEF TITLE: REAL VS. SANGU PHILIPPINES ET AL.)

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HOW DO YOU DETERMINE WHETHER A COMPLAINT FOR ILLEGAL DISMISSAL  IS AN  IN-TRACORPORATE  CONTROVERSY? IF INTRACORPORATE, RTC HAS JUDICDICTION. IF NOT, NLRC HAS JURISDICTION.

YOU CONSIDER THE STATUS OR RELATIONSHIP OF THE PARTIES AND  THE NATURE OF THE QUESTION UNDER CONTROVERSY.

THIS IS CALLED THE TWO-TIER TEST: THE RELATIONSHIP TEST AND THE NATURE OF THE CONTROVERSY TEST.

SAID THE COURT:

The Court then combined the two tests and declared that jurisdiction should be determined by considering not only the status or relationship of the parties, but also the nature of the question under controversy.  This two-tier test was adopted in the recent case of Speed Distribution Inc. v. Court of Appeals:

‘To determine whether a case involves an intra-corporate controversy, and is to be heard and decided by the branches of the RTC specifically designated by the Court to try and decide such cases, two elements must concur: (a) the status or relationship of the parties, and (2) the nature of the question that is the subject of their controversy.

The first element requires that the controversy must arise out of intra-corporate or partnership relations between any or all of the parties and the corporation, partnership, or association of which they are not 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 the individual franchises.  The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation.  If the nature of the controversy involves matters that are purely civil in character, necessarily, the case does not involve an intra-corporate controversy.’ [Citations omitted.]

WHAT IS THE RELATIONSHIP TEST?

UNDER THIS TEST YOU CONSIDER THE  INTRA-CORPORATE RELATIONSHIP EXISTING BETWEEN OR AMONG THE PARTIES.  THE TYPES OF RELATIONSHIPS EMBRACED UNDER SECTION 5(B) X X X WERE AS FOLLOWS:

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.

THIS WAS THE TEST EARLIER FOLLOWED. THE COURT DESCRIBED THIS AS FOLLOWS:

A review of relevant jurisprudence shows a development in the Court’s approach in classifying what constitutes an intra-corporate controversy.  Initially, the main consideration in determining whether a dispute constitutes an intra-corporate controversy was limited to a consideration of the intra-corporate relationship existing between or among the parties.  The types of relationships embraced under Section 5(b) x x x were as follows:

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 existence of any of the above intra-corporate relations was sufficient to confer jurisdiction to the SEC (now the RTC), regardless of the subject matter of the dispute.  This came to be known as the relationship test.

WHAT IS THE NATURE OF THE QUESTION  UNDER CONTROVERSY TEST?

THE COURT DEFINES IT IN A 1984 CASE OF DMRC (BELOW) AS: UNDER THE NATURE OF THE CONTROVERSY TEST, THE INCIDENTS OF THAT RELATIONSHIP MUST ALSO BE CONSIDERED FOR THE PURPOSE OF ASCERTAINING WHETHER THE CONTROVERSY ITSELF IS INTRA-CORPORATE.  THE CONTROVERSY MUST NOT ONLY BE ROOTED IN THE EXISTENCE OF AN INTRA-CORPORATE RELATIONSHIP, BUT MUST AS WELL PERTAIN TO THE ENFORCEMENT OF THE PARTIES’ CORRELATIVE RIGHTS AND OBLIGATIONS UNDER THE CORPORATION CODE AND THE INTERNAL AND INTRA-CORPORATE REGULATORY RULES OF THE CORPORATION.  IF THE RELATIONSHIP AND ITS INCIDENTS ARE MERELY INCIDENTAL TO THE CONTROVERSY OR IF THERE WILL STILL BE CONFLICT EVEN IF THE RELATIONSHIP DOES NOT EXIST, THEN NO INTRA-CORPORATE CONTROVERSY EXISTS.

NOTE IN THE SPEED DISTRIBUTION INC. CASE (BELOW) THE COURT COMBINED THE TWO TESTS AND CALLED IT THE TWO-TIER TEST.

THE DISCOURSE ON THE HISTORICAL DEVELOPMENT OF THE TWO-TIER TEST  ITS APPLICATION ON THE 2011 CASE STATED ABOVE (REAL VS. SANGU PHILIPPINES ET AL) IS AS FOLLOWS:

Our Ruling

Two-tier test in determining the existence of intra-corporate controversy

                Respondents strongly rely on this Court’s pronouncement in the 1997 case of Tabang v. National Labor Relations Commission, to wit:

[A]n intra-corporate controversy is one which arises between a stockholder and the corporation.  There is no distinction, qualification nor any exemption whatsoever. The provision is broad and covers all kinds of controversies between stockholders and corporations.^[1][16]

                In view of this, respondents contend that even if petitioner challenges his being a corporate officer, the present case still constitutes an intra-corporate controversy as petitioner is undisputedly a stockholder and a director of respondent corporation.

            It is worthy to note, however, that before the promulgation of the Tabang case, the Court provided in Mainland Construction Co., Inc. v. Movilla^[2][17] a “better policy” in determining which between the Securities and Exchange Commission (SEC) and the Labor Arbiter has jurisdiction over termination disputes,^[3][18] or similarly, whether they are intra-corporate or not, viz:

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 the SEC (now the Regional Trial Court^[4][19]).  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 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 SEC (now the Regional Trial Court^[5][20]) can resolve in the exercise of its adjudicatory or quasi-judicial powers.  (Emphasis ours)

            And, while Tabang was promulgated later than Mainland Construction Co., Inc., the “better policy” enunciated in the latter appears to have developed into a standard approach in classifying what constitutes an intra-corporate controversy.  This is explained lengthily in Reyes v. Regional Trial Court of Makati, Br. 142,^[6][21] to wit:

Intra-Corporate Controversy

            A review of relevant jurisprudence shows a development in the Court’s approach in classifying what constitutes an intra-corporate controversy.  Initially, the main consideration in determining whether a dispute constitutes an intra-corporate controversy was limited to a consideration of the intra-corporate relationship existing between or among the parties.  The types of relationships embraced under Section 5(b) x x x were as follows:

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 existence of any of the above intra-corporate relations was sufficient to confer jurisdiction to the SEC (now the RTC), regardless of the subject matter of the dispute.  This came to be known as the relationship test.

However, in the 1984 case of DMRC Enterprises v. Esta del Sol Mountain Reserve, Inc., the Court introduced the nature of the controversy test.  We declared in this case that it is not the mere existence of an intra-corporate relationship that gives rise to an intra-corporate controversy; to rely on the relationship test alone will divest the regular courts of their jurisdiction for the sole reason that the dispute involves a corporation, its directors, officers, or stockholders.  We saw that there is no legal sense in disregarding or minimizing the value of the nature of the transactions which gives rise to the dispute.

Under the nature of the controversy test, the incidents of that relationship must also be considered for the purpose of ascertaining whether the controversy itself is intra-corporate.  The controversy must not only be rooted in the existence of an intra-corporate relationship, but must as well pertain to the enforcement of the parties’ correlative rights and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation.  If the relationship and its incidents are merely incidental to the controversy or if there will still be conflict even if the relationship does not exist, then no intra-corporate controversy exists.

The Court then combined the two tests and declared that jurisdiction should be determined by considering not only the status or relationship of the parties, but also the nature of the question under controversy.  This two-tier test was adopted in the recent case of Speed Distribution Inc. v. Court of Appeals:

‘To determine whether a case involves an intra-corporate controversy, and is to be heard and decided by the branches of the RTC specifically designated by the Court to try and decide such cases, two elements must concur: (a) the status or relationship of the parties, and (2) the nature of the question that is the subject of their controversy.

The first element requires that the controversy must arise out of intra-corporate or partnership relations between any or all of the parties and the corporation, partnership, or association of which they are not 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 the individual franchises.  The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation.  If the nature of the controversy involves matters that are purely civil in character, necessarily, the case does not involve an intra-corporate controversy.’ [Citations omitted.]

                Guided by this recent jurisprudence, we thus find no merit in respondents’ contention that the fact alone that petitioner is a stockholder and director of respondent corporation automatically classifies this case as an intra-corporate controversy.  To reiterate, not all conflicts between the stockholders and the corporation are classified as intra-corporate.  There are other factors to consider in determining whether the dispute involves corporate matters as to consider them as intra-corporate controversies.

What then is the nature of petitioner’s Complaint for Illegal Dismissal? Is it intra-corporate and thus beyond the jurisdiction of the Labor Arbiter?  We shall answer this question by using the standards set forth in the Reyes case. 

No intra-corporate relationship between the parties

As earlier stated, petitioner’s status as a stockholder and director of respondent corporation is not disputed.  What the parties disagree on is the finding of the NLRC and the CA that petitioner is a corporate officer.  An examination of the complaint for illegal dismissal, however, reveals that the root of the controversy is petitioner’s dismissal as Manager of respondent corporation, a position which respondents claim to be a corporate office.   Hence, petitioner is involved in this case not in his capacity as a stockholder or director, but as an alleged corporate officer.  In applying the relationship test, therefore, it is necessary to determine if petitioner is a corporate officer of respondent corporation so as to establish the intra-corporate relationship between the parties.  And albeit respondents claim that the determination of whether petitioner is a corporate officer is a question of fact which this Court cannot pass upon in this petition for review on certiorari, we shall nonetheless proceed to consider the same because such question is not the main issue to be resolved in this case but is merely collateral to the core issue earlier mentioned.

Petitioner negates his status as a corporate officer by pointing out that although he was removed as Manager through a board resolution, he was never elected to said position nor was he appointed thereto by the Board of Directors. While the By-Laws of respondent corporation provides that the Board may from time to time appoint such officers as it may deem necessary or proper, he avers that respondents failed to present any board resolution that he was appointed pursuant to said By-Laws.  He instead alleges that he was hired as Manager of respondent corporation solely by respondent Abe.  For these reasons, petitioner claims to be a mere employee of respondent corporation rather than as a corporate officer.

We find merit in petitioner’s contention.

“‘Corporate officers’ in the context of Presidential Decree No. 902-A are those officers of the corporation who are given that character by the Corporation Code or by the corporation’s by-laws.  There are three specific officers whom a corporation must have under Section 25 of the Corporation Code.  These are the president, secretary and the treasurer.  The number of officers is not limited to these three.  A corporation may have such other officers as may be provided for by its by-laws like, but not limited to, the vice-president, cashier, auditor or general manager.  The number of corporate officers is thus limited by law and by the corporation’s by-laws.”^[7][22]

            Respondents claim that petitioner was appointed Manager by virtue of Section 1, Article IV of respondent corporation’s By-Laws which provides:

ARTICLE IV

OFFICER

                Section 1.  Election/Appointment – Immediately after their election, the Board of Directors shall formally organize by electing the President, Vice-President, the Secretary at said meeting.

                The Board, may from time to time, appoint such other officers as it may determine to be necessary or proper.  Any two (2) or more positions may be held concurrently by the same person, except that no one shall act as President and Treasurer or Secretary at the same time. 

x x x x^[8][23] (Emphasis ours)

We have however examined the records of this case and we find nothing to prove that petitioner’s appointment was made pursuant to the above-quoted provision of respondent corporation’s By-Laws.  No copy of board resolution appointing petitioner as Manager or any other document showing that he was appointed to said position by action of the board was submitted by respondents. What we found instead were mere allegations of respondents in their various pleadings^[9][24] that petitioner was appointed as Manager of respondent corporation and nothing more.  “The Court has stressed time and again that allegations must be proven by sufficient evidence because mere allegation is definitely not evidence.”^[10][25]

It also does not escape our attention that respondents made the following conflicting allegations in their Memorandum on Appeal^[11][26] filed before the NLRC which cast doubt on petitioner’s status as a corporate officer, to wit:

x x x x

24.  Complainant-appellee Renato Real was appointed as the manager of respondent-appellant Sangu on November 6, 1998.  Priorly [sic], he was working at Atlas Ltd. Co. at Mito-shi, Ibaraki-ken Japan.  He was staying in Japan as an illegal alien for the past eleven (11) years.  He had a problem with his family here in the Philippines which prompted him to surrender himself to Japan’s Bureau of Immigration and was deported back to the Philippines.  His former employer, Mr. Tsutomo Nogami requested Mr. Masahiko Shibata, one of respondent-appellant Sangu’s Board of Directors, if complainant-appellee Renato Real could work as one of its employees here in the Philippines because he had been blacklisted at Japan’s Immigration Office and could no longer go back to Japan.  And so it was arranged that he would serve as respondent-appellant Sangu’s manager, receiving a salary of P25,000.00.  As such, he was tasked to oversee the operations of the company. x x x  (Emphasis ours)

x x x x

As earlier stated, complainant-appellee Renato Real was hired as the manager of respondent-appellant Sangu.  As such, his position was reposed with full trust and confidence. x x x

            While respondents repeatedly claim that petitioner was appointed as Manager pursuant to the corporation’s By-Laws, the above-quoted inconsistencies in their allegations as to how petitioner was placed in said position, coupled by the fact that they failed to produce any documentary evidence to prove that petitioner was appointed thereto by action or with approval of the board, only leads this Court to believe otherwise.  It has been consistently held that “[a]n ‘office’ is created by the charter of the corporation and the officer is elected (or appointed) by the directors or stockholders.”^[12][27]  Clearly here, respondents failed to prove that petitioner was appointed by the board of directors.  Thus, we cannot subscribe to their claim that petitioner is a corporate officer.  Having said this, we find that there is no intra-corporate relationship between the parties insofar as petitioner’s complaint for illegal dismissal is concerned and that same does not satisfy the relationship test.

Present controversy does not relate to intra-corporate dispute       

            We now go to the nature of controversy test. As earlier stated, respondents terminated the services of petitioner for the following reasons: (1) his continuous absences at his post at Ogino Philippines, Inc; (2) respondents’ loss of trust and confidence on petitioner; and, (3) to cut down operational expenses to reduce further losses being experienced by the corporation.  Hence, petitioner filed a complaint for illegal dismissal and sought reinstatement, backwages, moral damages and attorney’s fees.  From these, it is not difficult to see that the reasons given by respondents for dismissing petitioner have something to do with his being a Manager of respondent corporation and nothing with his being a director or stockholder. For one, petitioner’s continuous absences in his post in Ogino relates to his performance as Manager.  Second, respondents’ loss of trust and confidence in petitioner stemmed from his alleged acts  of establishing a company engaged in the same line of business as respondent corporation’s and submitting proposals to the latter’s clients while he was still serving as its Manager.  While we note that respondents also claim these acts as constituting acts of disloyalty of petitioner as director and stockholder, we, however, think that same is a mere afterthought on their part to make it appear that the present case involves an element of intra-corporate controversy.  This is because before the Labor Arbiter, respondents did not see such acts to be disloyal acts of a director and stockholder but rather, as constituting willful breach of the trust reposed upon petitioner as Manager.^[13][28]  It was only after respondents invoked the Labor Arbiter’s lack of jurisdiction over petitioner’s complaint in the Supplemental Memorandum of Appeal^[14][29] filed before the NLRC that respondents started considering said acts as such. Third, in saying that they were dismissing petitioner to cut operational expenses, respondents actually want to save on the salaries and other remunerations being given to petitioner as its Manager.  Thus, when petitioner sought for reinstatement, he wanted to recover his position as Manager, a position which we have, however, earlier declared to be not a corporate position.  He is not trying to recover a seat in the board of directors or to any appointive or elective corporate position which has been declared vacant by the board.  Certainly, what we have here is a case of termination of employment which is a labor controversy and not an intra-corporate dispute.  In sum, we hold that petitioner’s complaint likewise does not satisfy the nature of controversy test. 

            With the elements of intra-corporate controversy being absent in this case, we thus hold that petitioner’s complaint for illegal dismissal against respondents is not intra-corporate. Rather, it is a termination dispute and, consequently, falls under the jurisdiction of the Labor Arbiter pursuant to Section 217^[15][30] of the Labor Code.

            We take note of the cases cited by respondents and find them inapplicable to the case at bar.  Fortune Cement Corporation v. National Labor Relations Commission^[16][31] involves a member of the board of directors and at the same time a corporate officer who claims he was illegally dismissed after he was stripped of his corporate position of Executive Vice-President because of loss of trust and confidence.  On the other hand, Philippine School of Business Administration v. Leano^[17][32] and Pearson & George v. National Labor Relations Commission^[18][33] both concern a complaint for illegal dismissal by corporate officers who were not re-elected to their respective corporate positions.  The Court declared all these cases as involving intra-corporate controversies and thus affirmed the jurisdiction of the SEC (now the RTC)^[19][34] over them precisely because they all relate to corporate officers and their removal or non-reelection to their respective corporate positions.  Said cases are by no means similar to the present case because as discussed earlier, petitioner here is not a corporate officer.

            With the foregoing, it is clear that the CA erred in affirming the decision of the NLRC which dismissed petitioner’s complaint for lack of jurisdiction.  In cases such as this, the Court normally remands the case to the NLRC and directs it to properly dispose of the case on the merits.  “However, when there is enough basis on which a proper evaluation of the merits of petitioner’s case may be had, the Court may dispense with the time-consuming procedure of remand in order to prevent further delays in the disposition of the case.”^[20][35]  “It is already an accepted rule of procedure for us to strive to settle the entire controversy in a single proceeding, leaving no root or branch to bear the seeds of litigation.  If, based on the records, the pleadings, and other evidence, the dispute can be resolved by us, we will do so to serve the ends of justice instead of remanding the case to the lower court for further proceedings.”^[21][36]  We have gone over the records before us and we are convinced that we can now altogether resolve the issue of the validity of petitioner’s dismissal and hence, we shall proceed to do so.

Petitioner’s dismissal not in accordance with law

            “In an illegal dismissal case, the onus probandi rests on the employer to prove that [the] dismissal of an employee is for a valid cause.”^[22][37]  Here, as correctly observed by the Labor Arbiter, respondents failed to produce any convincing proof to support the grounds for which they terminated petitioner.  Respondents contend that petitioner has been absent for several months, yet they failed to present any proof that petitioner was indeed absent for such a long time.  Also, the fact that petitioner was still able to collect his salaries after his alleged absences casts doubts on the truthfulness of such charge.  Respondents likewise allege that petitioner engaged in a heated argument with the employees of Epson, one of respondents’ clients. But just like in the charge of absenteeism, there is no showing that an investigation on the matter was done and that disciplinary action was imposed upon petitioner.  At any rate, we have reviewed the records of this case and we agree with the Labor Arbiter that under the circumstances, said charges are not sufficient bases for petitioner’s termination. As to the charge of breach of trust allegedly committed by petitioner when he established a new company engaged in the same line of business as respondent corporation’s and submitted proposals to two of the latter’s clients while he was still a Manager, we again observe that these are mere allegations without sufficient proof.  To reiterate, allegations must be proven by sufficient evidence because mere allegation is definitely not evidence.^[23][38]  

            Moreover, petitioner’s dismissal was effected without due process of law.  “The twin requirements of notice and hearing constitute the essential elements of due process.  The law requires the employer to furnish the employee sought to be dismissed with two written notices before termination of employment can be legally effected: (1) a written notice apprising the employee of the particular acts or omissions for which his dismissal is sought in order to afford him an opportunity to be heard and to defend himself with the assistance of counsel, if he desires, and (2) a subsequent notice informing the employee of the employer’s decision to dismiss him.  This procedure is mandatory and its absence taints the dismissal with illegality.”^[24][39]  Since in this case, petitioner’s dismissal was effected through a board resolution and all that petitioner received was a letter informing him of the board’s decision to terminate him, the abovementioned procedure was clearly not complied with.  All told, we agree with the findings of the Labor Arbiter that petitioner has been illegally dismissed.  And, as an illegally dismissed employee is entitled to the two reliefs of backwages and reinstatement,^[25][40] we affirm the Labor Arbiter’s judgment ordering petitioner’s reinstatement to his former position without loss of seniority rights and other privileges and awarding backwages from the time of his dismissal until actually reinstated.  Considering that petitioner has to secure the services of counsel to protect his interest and necessarily has to incur expenses, we likewise affirm the award of attorney’s fees which is equivalent to 10% of the total backwages that respondents must pay petitioner in accordance with this Decision.

            WHEREFORE, the petition is hereby GRANTED.  The assailed June 28, 2005 Decision of the Court of Appeals insofar as it affirmed the National Labor Relations Commission’s dismissal of petitioner’s complaint for lack of jurisdiction, is hereby REVERSED and SET ASIDE.  The June 5, 2003 Decision of the Labor Arbiter with respect to petitioner Renato Real is AFFIRMED and this case is ordered REMANDED to the National Labor Relations Commission for the computation of petitioner’s backwages and attorney’s fees in accordance with this Decision.

            SO ORDERED.