Case Summary (G.R. No. L-27524)
Key Dates
Trial court decision and proceedings culminating in certification to the Supreme Court occurred prior to the Supreme Court’s final disposition. The Supreme Court decision on the legal question was rendered in 1958. (Applicable constitutional framework: the 1935 Philippine Constitution.)
Applicable Law and Governing Documents
- Corporation Law, specifically Section 33 (as quoted in the record): directors must organize immediately after election by electing a president (who must be one of their number), a secretary or clerk (resident of the Philippines), and “such other officers as may be provided for in the by-laws.”
- By-laws of La Paz Ice Plant and Cold Storage Co., Inc.: provide that the board shall include president, vice-president, secretary and treasurer; specify that administration is by stockholders, the board of directors and the manager; and contain a provision that, with the exception of the president, officers may be removed or suspended by the affirmative vote of two-thirds of the paid-up shares (Exhibit A). The manager (gerente) is mentioned in the by-laws as the person in whom administration is vested but is not listed among the articles that set out duties under the heading “Funcionarios.”
Procedural History
- Plaintiff (Gurrea) filed suit in the Court of First Instance of Iloilo seeking annulment of Resolution No. 65 of the company’s board removing him as manager and seeking damages. A preliminary injunction to restrain respondent Lezama from managing the corporation was denied after hearing.
- Parties agreed to submit the case on the single legal issue (no trial on the merits): whether removal of the manager required a two-thirds vote of paid-up shares or could be effected by board resolution. Trial court held removal was legal by board resolution and dismissed the complaint. Plaintiff appealed; the Court of Appeals, characterizing the question as one of law, certified the case to the Supreme Court.
Legal Issue Presented
Can the manager of this corporation be removed only by the two-thirds affirmative vote of the paid-up shares pursuant to the by-laws, or may the manager be suspended/removed by the board of directors by resolution, given that the by-laws enumerate certain officers but do not name the manager among the specified officers?
Majority Holding
The Supreme Court affirmed the trial court: the manager is not an “officer” for purposes of the by-law removal provision and therefore could be properly removed by the board of directors by resolution. Costs were awarded against the appellant.
Majority Reasoning — Definition and Source of “Officers”
- The Court concluded that an individual is an “officer” of a corporation only if that status is conferred either by the Corporation Law or by the corporation’s charter or by-laws. Because the by-laws expressly enumerate certain officers (president, vice-president, secretary, treasurer) and do not list the manager as one of those officers, the manager must be regarded as an employee or subordinate official rather than an officer within the charter/by-laws’ meaning.
- The manager in the present corporation was appointed by the board of directors and was therefore a creation of the board; the power that appoints generally carries the power to remove. Thus, it would be incongruous to treat someone appointed by the board as removable only by stockholder vote. The manager holds his position at the pleasure of the board unless his tenure is fixed by contract.
Majority Reasoning — Support from Authorities
- The Court relied on American authorities and treatises (Fletcher, Grange, Thompson) discussing the distinction between “officers” and mere agents/employees. Excerpts emphasize that officers are generally enumerated in charter or by-laws (president, secretary, treasurer, etc.), while a general manager is often treated as an employee or agent whose position is derivative and subject to removal by those who appoint him.
- The Court rejected the dissent’s reliance on other authorities, stressing that many cited cases addressing the manager’s status related to external relations (whether a manager’s acts bind the corporation as to outsiders) rather than to internal governance (the manager’s relation to the corporation and whether the board may remove him). When the question concerns internal organization, the charter and by-laws control.
Majority Reasoning — On Statutory Criminal Liability and Manager’s Duties
- The Court addressed the dissent’s point that various statutes impose criminal liability on a “manager” for corporate violations and explained that statutory liability does not of itself make the manager an “officer” under the charter/by-laws. Such liability arises from the nature of delegated duties entrusted to the manager by the board, not from a designation in the charter or by-laws.
Majority Conclusion on Remedy and Contractual Limits
- The Court recognized that where the manager’s appointment is governed by contract or a fixed term, or where the by-laws or charter expressly confer officer status, the manager’s removal may be limited. In the absence of such express by-law enumeration or contractual tenure, the board’s appointing power included the power to remove.
Dissenting Opinions — Overview
Three justices dissented (Justice Bengzon authored the principal dissent, joined by Labrador; Justice Reyes filed a separate dissent). Their positions converged on the view that the manager is an officer of the corporation and thus removable only pursuant to the by-laws’ two-thirds paid-up share requirement.
Bengzon Dissent — Principal Arguments
- The manager should be considered a principal executive officer: leading treatises and many authorities define the general manager as the person with the most general control over corporate affairs and thus as the principal officer. Several U.S. state decisions and numerous Philippine statutes that impose criminal responsibility specifically on the “manager” imply legislative recognition of the manager’s status as principal executive officer.
- The by-laws, in Spanish, expressly designate the administration of the corporation to be vested in (1) the general meeting of stockholders, (2) the board of directors, and (3) the manager (gerente). That language, Bengzon argued, shows the stockholders intended the manager to be an administrative official or “funcionario” and to enjoy the removal protections provided in the by-laws. He contended that the absence of a separate duties article for the manager under the “Funcionarios” heading does not negate his officer status, particularly when the manager is expressly named in the administration articles.
- Bengzon criticized the majority’s reliance on certain treatises and a narrow selection of cases, arguing the majority adopted a minority view and engaged in equivocation by conflating “agent” in different senses. He maintained that numerous jurisdictions treat the manager as an officer and that congressional statutes’ specific reference to managers supports his position. Bengzon concluded that, on the facts and by the parties’ presumed intent in adopting the by-laws, Gurrea’s removal should have required a two-thirds vote and that appellant should be reinstated and compensated.
Labrador Concurrence with the Dissent
- Justice Labrador concurred with Justice Bengzon’s dissent, emphasizing that Article 13 of the by-laws names the manager (gerente) in the administration scheme and that, under those by-laws, the manager must be treated as an officer removable only by the two-thirds vote of paid-up shares.
Reyes Dissent — Principal Arguments
- Justice Reyes likewise rejected the majority’s characterization of the manager as a non-officer. Reyes obse
Case Syllabus (G.R. No. L-27524)
Case Citation and Forum
- 103 Phil. 553; G.R. No. L-10556; April 30, 1958.
- Decided by the Supreme Court of the Philippines (Opinion by Bautista Angelo, J.).
Parties and Relief Sought
- Plaintiff and Appellant: Ricardo Gureba.
- Defendants and Appellees: Jose Manuel Lezama, et al.
- Relief sought by plaintiff: Declaration that Resolution No. 65 of the Board of Directors of La Paz Ice Plant and Cold Storage Co., Inc., removing him as manager was null and void; recovery of damages incident thereto; preliminary injunction to restrain defendant Jose Manuel Lezama from managing the corporation pending determination of the case.
Facts
- Plaintiff had been appointed manager of La Paz Ice Plant and Cold Storage Co., Inc.
- The Board of Directors adopted Resolution No. 65 removing plaintiff as manager.
- Plaintiff alleged the resolution was adopted in contravention of the corporation's by-laws, the Corporation Law, and the understanding, intention and agreement reached among its stockholders.
- Plaintiff moved for a writ of preliminary injunction to restrain defendant Lezama from managing the corporation pending litigation; after hearing testimonial and documentary evidence, the trial court denied the motion.
- The parties agreed to submit the case for judgment without trial on the sole legal question of whether the board of directors could remove the manager by board resolution alone or whether removal required the affirmative vote of two-thirds (2/3) of paid shares as provided in the by-laws.
- The trial court held the removal legal and dismissed the complaint without pronouncement as to costs.
- Plaintiff appealed to the Court of Appeals; the Court of Appeals found the question to be one of law and certified the case to the Supreme Court for decision.
Procedural Posture
- Trial court denied preliminary injunction, accepted submission on single legal issue, held removal valid, dismissed complaint.
- Court of Appeals certified the case to the Supreme Court for resolution of the legal question.
- Supreme Court reviewed the question of law and issued a final decision affirming the trial court.
Legal Question Presented
- Whether the plaintiff (manager) could be legally removed by mere resolution of the Board of Directors, or whether the affirmative vote of two-thirds (2/3) of the paid shares of stock was necessary for removal under the corporation’s by-laws and the Corporation Law.
Relevant Statutory and By-law Provisions Quoted in Opinion
- Section S3 of the Corporation Law (as quoted in the opinion): "Immediately after the election, the directors of a corporation must organize by the election of a president, who must be one of their number, a secretary or clerk who shall be a resident of the Philippines * * * and such other officers as may be provided for in the by-laws."
- By-laws of La Paz Ice Plant and Cold Storage Co., Inc.:
- Provide that, in the board of directors, there shall be a president, a vice-president, a secretary and a treasurer — these are the only ones specifically mentioned under "Funcionarios" as officers in the articles defining duties.
- Provide that the manager is the person in whom the administration of the corporation is vested (administration section), but the manager is not enumerated under the specific officers section.
- Provide that, with the exception of the president, the officers of the corporation may be removed or suspended by the affirmative vote of 2/3 of the paid-up shares of the corporation (Exhibit A).
- Articles under "Administracion" (in Spanish) state administration is to be exercised successively by: (1) the general meeting of stockholders; (2) the Board of Directors; and (3) the manager (gerente).
Trial Court Determination (as certified)
- The trial court decided that the board resolution removing plaintiff as manager was valid.
- The trial court found that the single legal question should be resolved in favor of allowing the board to remove the manager and dismissed the complaint.
Supreme Court Majority Holding
- The removal of plaintiff as manager by approval of Resolution No. 65 on June 3, 1948 by the Board of Directors was proper.
- The manager of the corporation, not being enumerated as an officer in the charter or by-laws as constituting an officer, is to be regarded as an employee or subordinate official rather than an officer for purposes of the by-laws’ removal provision.
- Consequently, because the manager was appointed by the board of directors and did not have the character of an officer under the Corporation Law or the corporation’s by-laws, he could be removed by the board under such terms as the board might see fit; the power to appoint carries with it the power to remove.
- Decision appealed from is affirmed, with costs against appellant.
Majority Reasoning — Core Points
- Legal characterization of corporate positions:
- Only persons given the character of "officer" by the Corporation Law or by the corporation’s charter/by-laws are to be regarded as officers; others are mere employees or subordinate officials.
- The manager was not enumerated among the officers provided for in the by-laws (president, vice-president, secretary, treasurer).
- The by-laws, although mentioning administration vested in the manager, do not include the manager under the specific enumeration of officers whose removal requires a 2/3 vote; therefore manager is not an officer within the purview of the by-laws’ removal provision.
- Appointment and removal principles:
- The appointing authority (board of directors) that appoints a subordinate (manager) ordinarily retains the power to remove that subordinate; the power to appoint carries with it the power to remove.
- It would be incongruous to hold that someone appointed by the board could only be removed by stockholders.
- Distinction between officers and employees/agents:
- Officers are generally those named in charter or by-laws (president, vice-president, secretary, treasurer and sometimes others).
- The manager, while vested with administration, is not shown to have the status of an officer in the charter or by-laws and thus is an agent/employee.
- Reliance on authorities:
- The majority found support in American authorities and treatises (Fletcher, Grange) holding that positions not enumerated in charter or by-laws are not officers and that general managers are often treated as employees or agents rather than officers.
- Fletcher’s Cyclopedia and Grange’s Corporation Law for Officers and Directors are quoted to support the proposition that officers are generally enumerated and that a person whose position is not enumerated is not an officer.
- Numerous American cases and treatises cited to substantiate the view that general managers are not necessarily officers and that appointment confers removal power on appointing authority.
Authorities and Precedents Cited in Majority Opinion
- Treatises and texts:
- Fletcher, Cyclopedia of the Law of Private Corporations, Vol. II, p. 19.
- Grange, Corporation Law for Officers and Directors, p. 432.
- 21 Am. & Eng. Enc. Law (2d Ed.) 836.
- Thompson on Corporations (extensively cited in opinion excerpts).
- American cases and authorities quoted or cited in support:
- Wheeler & Wilson Mfg. Co. vs. Lawson, 57 Wis. 400, 15 N. W. 398.
- Farmers' Loan & Trust Co. vs. Warring, 20 Wis. 305.
- Meton vs. Isham Wagon Co. (Sup.), 4 N. Y. Supp. 215.
- Raleig