Easycall Communications Phils., Inc. vs. Edward King, G.R. No. 145901, December 15, 2005

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Easycall Communications Phils., Inc. vs. Edward King

G.R. No. 145901, December 15, 2005

THIRD DIVISION, CORONA J. 

 

Corporate Office; Distinction between corporate officer and employee, and the proper jurisdiction

 

Corporate officers in the context of Revised Corporation Code are those officers of a corporation who are given that character either by the Corporation Code or by the corporation’s by-laws.

 

Edward King was initially hired by Easycall Communications as Assistant to the General Manager and later promoted to Vice President for Nationwide Expansion. His appointment and compensation were determined by the General Manager, not the Board of Directors. Due to alleged poor sales performance and excessive time spent in the field, the company asked for his resignation. When King refused, he was issued a notice of termination, citing loss of confidence. King filed a complaint for illegal dismissal before the NLRC. The Labor Arbiter ruled that his termination was valid due to loss of trust and confidence, which the NLRC affirmed. However, the NLRC also dismissed the case on jurisdictional grounds, holding that King was a corporate officer, and thus, his dismissal was an intra-corporate controversy within the jurisdiction of the SEC (under PD 902-A). 

King elevated the case to the Court of Appeals, which reversed the NLRC’s findings. The CA ruled that King was not a corporate officer as defined by the Corporation Code and that the NLRC had jurisdiction over his complaint. The appellate court further held that King was illegally dismissed, as there was no sufficient factual basis for loss of confidence and the requirements of due process were not complied with. The case was then brought before the Supreme Court via a petition for review on certiorari. 

 

Whether or not Edward King was a corporate officer or an employee for jurisdictional purposes. 

NO.  The Supreme Court denied the petition and affirmed the decision of the Court of Appeals. The Court ruled that Edward King was not a corporate officer within the purview of the Corporation Code or the company’s by-laws. Citing Section 25 of the Corporation Code, the Court emphasized that corporate officers are those who are either expressly mentioned in the Code—namely, the president, secretary, and treasurer—or those created by the corporation’s by-laws. Since Easycall failed to prove that the position of Vice President for Nationwide Expansion was created by its by-laws, and because King was appointed by the General Manager rather than elected by the Board of Directors, he could not be considered a corporate officer. As such, his removal did not fall under the jurisdiction of the SEC (as provided under PD 902-A) but under the NLRC, pursuant to the Labor Code.

 

Whether or not Edward King is illegally dismissed. 

YES. On the matter of the dismissal, the Court found that the alleged loss of trust and confidence was not supported by clearly established facts. The grounds cited by Easycall—King’s sales performance and time spent in the field—were found insufficient to justify dismissal. In fact, the company had previously praised his performance for the same period it later criticized, even promoting him twice during that time. This inconsistency weakened the credibility of Easycall’s claim of loss of confidence. Moreover, the company failed to observe due process, as King was given only one notice—of his termination—and was not given the opportunity to respond to specific charges in a formal setting. The mere existence of internal dialogues did not satisfy the requirement for notice and hearing.

Since petitioner failed to satisfy the burden of proof that was required of it, we cannot sanction its claim that respondent was a ‘corporate officer’ whose removal was cognizable by the SEC under PD 902-A and not by the NLRC under the Labor Code.

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Philippine Stock Exchange, Inc. v. Court of Appeals [G.R. No. 125469 | October 27, 1997]

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Philippine Stock Exchange, Inc. v. Court of Appeals

G.R. No. 125469 | October 27, 1997

SECOND DIVISION, TORRES, JR. J.

 

Business Judgement Rule 

 

Questions of policy and of management are left to the honest decision of the officers and directors of a corporation, and the courts are without authority to substitute their judgment for the judgment of the board of directors. The board is the business manager of the corporation, and so long as it acts in good faith, its orders are not reviewable by the courts. 

 

Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, sought to list its shares in the Philippine Stock Exchange (PSE) after obtaining a Securities and Exchange Commission (SEC) permit to sell shares to the public. The PSE’s Listing Committee initially recommended approval. However, the PSE Board of Governors denied the application, citing unresolved legal claims over PALI’s assets, including a claim by the Marcos family and sequestration by the Presidential Commission on Good Government (PCGG). 

PALI appealed to the SEC, which reversed the PSE’s decision, ordering the immediate listing of PALI’s shares. The PSE challenged this order before the Court of Appeals, arguing that the SEC had no authority to interfere with the PSE’s business discretion. The appellate court upheld the SEC’s ruling, prompting PSE to elevate the case to the Supreme Court.

 

Whether the SEC had the authority to overturn the PSE’s decision denying PALI’s listing application. 

YES. he Supreme Court ruled in favor of the PSE, holding that the SEC acted arbitrarily in reversing the PSE’s decision. The PSE, as a corporate entity, had the discretion to deny the listing of PALI based on legitimate concerns about the ownership and integrity of its assets. The Court recognized that while the SEC has regulatory power, it cannot override business decisions made in good faith and within the corporation’s legal authority. Thus, absent bad faith or clear abuse of discretion, regulatory authorities cannot interfere with the reasonable exercise of corporate management decisions.

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Montelibano V. Bacolod-Murcia Milling Co. [G.R. No. L-15092 | May 18, 1962]

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MONTELIBANO V. BACOLOD-MURCIA MILLING CO.

G.R. No. L-15092 | May 18, 1962

EN BANC, REYES, J.B.L

 

Business Judgement Rule

 

It is a well-known rule of law that questions of policy or of management are left solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment for that of the board of directors; the board is the business manager of the corporation, and so long as it acts in good faith, its orders are not reviewable by the courts.

  

Plaintiffs-appellants, including Alfredo and Alejandro Montelibano and Gonzaga & Co., were sugar planters with milling contracts with Bacolod-Murcia Milling Co., Inc. The original 1919 milling contract stipulated a 45%-55% division of sugar production (mill-planters). In 1936, an amended contract increased the planters' share to 60%, extending the contract for an additional 15 years. Additionally, the milling company’s Board of Directors passed a resolution (August 20, 1936) stating that if other sugar centrals in Negros Occidental granted better terms to their planters, Bacolod-Murcia would provide the same to its own planters. 

By 1951-1952, other sugar mills had increased planters’ shares beyond 60%. Plaintiffs demanded similar adjustments based on the 1936 resolution. The milling company refused, arguing that the resolution was ultra vires (beyond corporate powers) and amounted to an unenforceable donation. The trial court ruled in favor of the defendant, dismissing the complaint. Plaintiffs appealed.

 

Whether the resolution passed by Bacolod-Murcia Milling Co. increasing planters’ shares upon fulfilment of a condition was a valid corporate act and enforceable against the company. 

YES. The Supreme Court reversed the lower court’s ruling, holding that the resolution was a valid corporate act and binding upon Bacolod-Murcia Milling Co. The resolution was not a donation but an amendment to the milling contract meant to induce planters to agree to a longer contract term. The resolution was passed in good faith and was within the authority of the Board of Directors. 

Thus, since the Board of Directors acted within its discretion and in furtherance of corporate objectives, the resolution was enforceable, requiring the milling company to grant the increased sugar shares to the planters.

 

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Metropolitan Waterworks and Sewerage System v. Central Board of Assessment Appeals, G.R. No. 215955, [January 13, 2021]

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Metropolitan Waterworks and Sewerage System v. Central Board of Assessment Appeals, G.R. No. 215955, [January 13, 2021]

SECOND, LOPEZ, M.V 

Local Taxation; Real Property Taxation; Remedies of Taxpayer in Local Tax Disputes (RPT); Exhaustion of Administrative Remedies

 

The tax-exempt status of a government instrumentality is not lost when it grants the beneficial use of its real property to a taxable person; only the exemption of the real property ceases in such case. Indeed, it is a fundamental principle in real property taxation that the assessment of real property shall be based on its actual use. The Court has consistently ruled that while the liability for taxes generally rests on the owner of the real property, personal liability for real property taxes may also expressly rest on the entity with the beneficial use of the real property at the time the tax accrues.

 

The case involves MWSS (Metropolitan Waterworks and Sewerage System) disputing the imposition of real property taxes by Pasay City for the taxable year 2008. Established by RA No. 6234 in 1971, MWSS was granted authority over waterworks and sewerage systems in Metro Manila, Rizal, and part of Cavite. In 1997, under RA No. 8041, MWSS entered a concessionaire agreement with Maynilad to service the West Zone, including Pasay City. Pasay City demanded P166,629.36 in real property taxes, prompting MWSS to protest, claiming exemption as a government instrumentality under the Local Government Code (LGC). The LBAA ruled against MWSS, asserting it is a government-owned corporation (GOCC) and subject to taxation. Despite acknowledging MWSS as a government instrumentality, the CBAA upheld the tax, arguing that MWSS's tax exemption under RA No. 6234 had been withdrawn by Section 234 of the LGC. The CA dismissed MWSS's appeal for failure to exhaust administrative remedies. Hence this petition. 

 

Whether it is correct to dismiss the appeal for failure to exhaust administrative remedies.

NO. The CA erred in dismissing MWSS's appeal solely on the ground of the alleged non-exhaustion of administrative remedies under the LGC. Administrative remedies are inapplicable when the issue presented is a pure question of law. A careful reading of MWSS's arguments and allegations reveals that it is assailing the authority of the city assessor and treasurer to assess and collect real property taxes against it. The issue of whether a local government is authorized to assess and collect real property taxes from a government entity is a pure question of law, which is beyond the LBAA and CBAA's jurisdiction. The protest contemplated under Section 252 of the LGC is required when there is question as to the reasonableness or correctness of the amount assessed, while an appeal to the LBAA under Section 226 is fruitful only where questions of fact are involved. When the very authority and power of the assessor to impose the assessment, and of the treasurer to collect real property taxes are in question, the proper recourse is a judicial action. Thus, despite the alleged non-exhaustion of administrative remedies, the Court gives due course to this petition on the ground that the controversy only involves a question of law.

 

Whether the City of Pasay is authorized to assess and collect real property taxes from MWSS.

NO. MWSS is a government instrumentality with corporate powers, not liable to the local government of Pasay City for real property taxes. The tax exemption that its properties carry, however, ceases when their beneficial use has been extended to a taxable person. The liability to pay real property taxes on government-owned properties, the beneficial or actual use of which was granted to a taxable entity, devolves on the taxable beneficial user. Beneficial use means actual use or possession of the property. Actual use refers to the purpose for which the property is principally or predominantly utilized by the person in possession thereof.

The respondents have not alleged that the beneficial use of any of MWSS’s properties was extended to a taxable person. In the absence of any allegation to the contrary, MWSS’s properties in Quezon City are not subject to the levy of real property taxes. Although there was an allegation that the beneficial use of MWSS's properties in Pasay were given to Maynilad by virtue of a concession agreement, this however, was not proved and was merely based on a sweeping conclusion that when MWSS entered into a concession agreement, all its properties were effectively turned over to the concessionaires for their operations. At any rate, the tax-exempt status of a government instrumentality is not lost when it grants the beneficial use of its real property to a taxable person; only the exemption of the real property ceases in such case.

Indeed, it is a fundamental principle in real property taxation that the assessment of real property shall be based on its actual use. The Court has consistently ruled that while the liability for taxes generally rests on the owner of the real property, personal liability for real property taxes may also expressly rest on the entity with the beneficial use of the real property at the time the tax accrues.

 

 

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