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.

5. ID.; ID.; ID.; ID.; RELIEFS GRANTED TO A DISMISSED EMPLOYEE DUE TO CLOSURE OF BUSINESS DONE IN GOOD FAITH. 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 onemonth 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 affected 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. 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 onehalf month pay for every year of service, whichever is higher.

As

6. ID.; ID.; ID.; ID.; ID.; EMPLOYER'S FAILURE

TO COMPLY WITH ONE-MONTH PRIOR WRITTEN NOTICE RULE ENTITLES THE EMPLOYEE TO AN AWARD OF NOMINAL DAMAGES.-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.

7. ID.; ID.; ID.; ID.; ID.; A PRESIDENT OF THE CORPORATION WHO ACTED IN BAD

FAITH IS HELD SOLIDARILY LIABLE FOR EMPLOYEE'S DISMISSAL.-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. 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.

PEREZ, J.:

OPINION OF THE COURT

In the 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

1 Penned by Associate Justice Salvador J. Valdez Jr. with Associate Justices Mariano C. Del Castillo (now a member of this Court and Magdangal M. De Leon, concurring, Rollo, pp. 3452.

2 Penned by Commissioner Victorino R. Calayan with Presiding Commissioner Raul T. Aquino and Commissioner Angelita A. Gacutan, concurring, Id. at 124-133.

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 Resolution1 dated 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. It took over the business operations of Marc Marketing, Inc. which was made nonoperational 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:

3 Penned by Labor Arbiter Pablo C. Espiritu Jr. Id. at 81-88.

4 Penned by Associate Justice Magdangal M. De Leon with Associate Justices Edgardo P. Cruz and Mariano C. Del Castillo (now a Member of this Court), concurring. Id. at 54-55.

5 Articles of Incorporation of Marc II Marketing, Inc. Id. at 59.

Before petitioner corporation was officially incorporated, respondent has already been engaged by petitioner Lucila, in her capacity as President of Marc Marketing, Inc., to work as the General Manager of petitioner corporation. It was formalized through the execution of a Management Contract dated 16 January 1994 under the letterhead of Marc Marketing, Inc. 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.

Arbiter's lack of jurisdiction as the case involved an intra-corporate controversy, which jurisdiction belongs to the SEC [now with the Regional Trail Court (RTC)].19 Petitioners 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 petitioner's 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 Resolved 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 as 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.

19 This is pursuant to Section 5.2 of Republic Act No. 8799, known as "Securities Regulation Code." Which was signed into law on 19 July 2000. It expressly provides that: "The Commission's 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 the 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 payment/ rehabilitation cases filed as of 30 June 2000 until finally disposed [Emphasis supplied].

20 Penned by Labor Arbiter Pablo C. Espiritu, Jr. CA rollo, pp. 191-192.

21 Id. at 193-194.

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;

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 tis corporate officer with designation as General

unpaid wages in the amount of P450,000.00 per month from [26 March 1996] up to time of dismissal in the total amount of P6,300,000.00;

3. Jointly and severally liable to pay [respondent's] full backwages in the amount of P450,000.00 per month from date of dismissal until actual reinstatement which at the time of promulgation amounted to P21,600.000.00;

4. Jointly and severally liable to pay moral damages in the amount of P100,000.00 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 intracorporate 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.

22 Labor Arbiter's Decision dated 1 October 2001. Rollo, pp. 87-88.

set aside the Labor Arbiter's Decision dated 1 October 2001 and dismissed respondent's Complaint for want of jurisdiction.23

Had

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. 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

23 Id. at 132.

24 NLRC Resolution dated 15 October 2002. CA rollo, pp. 23-24.

25 Penned by Presiding Commissioner Victoriano R. Calaycay with Presiding Commissioner Raul T. Aquino and Commissioner Angelita A. Gacutan, concurring. Id. at 27-28.

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

1.

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

II.

ASSUMING, GRATIS ARGUENDO, THAT THE NLRC

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

26 Rollo, pp. 51-52.

27 Per Court of Appeals Resolution dated 7 March 2006. Id. at 54-55.

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

28 Petition for Review. Id. at 10-11.

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