[G.R. No. 106212.
March 7, 1997] wage and that when they demanded payment of the benefits due them, they were
PROGRESS HOMES and ERMELO ALMEDA, petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION, GREGORIO A. MEDRANO, DANTE BAGUIO,
JAIME GUAN, JOSE SAPALARAN, RONNIE DELPINO, DIONISIO
FRANCISCO and ELMER BAGUIO, respondents.
DECISION
ROMERO, J.:
Petitioners seek to set aside the decision of the National Labor Relations
Commission (NLRC) which affirmed the decision of the Labor Arbiter, the dispositive
portion of which states:
"WHEREFORE, judgement (sic) is rendered directing respondents Progress
Homes and Ermelo Almeda jointly and severally liable to pay the petitioners
within ten (10) days from receipt hereof thru this Branch the aggregate
amount of EIGHTY THREE THOUSAND EIGHT HUNDRED PESOS
(P83,800.00) as Backwages and Separation pay.
All other claims are denied for lack of merit.
SO ORDERED."
Petitioner Progress Homes Subdivision (Progress Homes), is a housing project
undertaken by the Ermelo M. Almeda Foundation, Inc., a non-stock organization duly
registered with the Securities and Exchange Commission (SEC). When it engaged in
constructing low-cost housing units for low-income employees, it named its project
"Progress Homes Subdivision" in Camarines Sur. The other petitioner, Ermelo Almeda,
is the President and General Manager of Progress Homes and the owner of the land
where the Progress Homes Subdivision is located.
Private respondents allegedly were among the workers employed by petitioners in
their construction and development of the subdivision from 1986 to 1988. They were
paid varying salaries.
Forty of these workers, including private respondents, filed before the NLRC
Arbitration Branch a petition for reinstatement, salary adjustment, ECOLA, overtime
pay and 13th month pay.
Petitioners amicably settled the case with thirty-three of the laborers, leaving
private respondents as the only claimants. Private respondents alleged that they
worked as laborers and carpenters for 8.5 hours a day at a salary below the minimum
summarily dismissed and barred from entering the workplace.
Petitioners denied that private respondents were regular employees claiming that
they were only project employees and that there was no employer-employee
relationship between them.
On December 27, 1991, the Labor Arbiter in Legazpi City forthwith issued a
decision in favor of private respondents.
On appeal, the NLRC affirmed the Labor Arbiter's decision.
Hence, this petition.
Petitioners maintain that there never existed an employer- employee relationship
between them and private respondents and that due process was denied them in
proceedings before the Labor Arbiter and in the NLRC.
Moreover, they point out that private respondents could not say who hired them,
nor could they produce pay slips to prove that they were on petitioners'
payroll. Petitioners present the affidavit of their foreman stating that he never hired the
workers, as evidence of the alleged non-hiring of private respondents.
We find merit in this petition.
The Labor Arbiter, in finding that an employer-employee relationship existed
between the parties, said:
"This Branch holds that herein petitioners were illegally dismissed by the
respondents, it being an established fact that employer-employee
relationship exists. Respondents hired all the petitioners thru the former's
foreman Rodolfo Badillo. Although this foreman denied hiring the
petitioners an admission was made that oftentimes said foreman saw these
petitioners working in the residential units which the respondents were
constructing at that time. The affidavit of foreman Rodolfo Badillo to the
contrary is without merit for being self-serving, particularly in the light that
the same was never alleged and/or utilized when the amicable settlement
was entered into by and between the respondents and the other co-
employees/co-petitioners of herein petitioners. To argue that the affiant
considers the latter employees who opted to amicably settle their disputes
with the same respondents, as having 'actually work (sic) for Progress
Homes Subdivision' while maintaining that the former (petitioners) were
not, without any other basis other than said self-serving allegation, is
patently untenable. The least that the respondents could have done was to
present the alleged written contracts of all the petitioners expressly stating
1
 therein the terms and conditions of their employment if indeed they were
executed. Finding none in the records except a xerox copy of one supposedly
entered by a certain Salvador B. Aonuevo, who is not even one of the
petitioners in the instant cases respondents' argument not only lack factual
basis but borders on insult to ones (sic) sensibility. Apparently, said piece of
document (Annex 'D') together with the xerox copy of the alleged Certificate
of Filing of Amended Articles of Incorporation from the Securities and
Exchange Commission (SEC) were not even certified true copies and/or
properly authenticated."
The evidence on record fails to convince the Court that private respondents were
indeed employed by petitioners. The Labor Arbiter does not give credence to the
affidavit of petitioners' foreman that he did not hire private respondents.
Said affidavit cannot just be perfunctorily dismissed as "self-serving," absent any
showing that he was lying when he made the statements therein.The question that
obtrudes itself at this stage is: who did hire them? Private respondents have not
presented any evidence that petitioners were their immediate employers.
It does not make sense to require petitioners to produce contracts when they
categorically deny having entered into any contract of employment with private
respondents.
To determine the existence of an employer-employee relationship, the courts
have generally sought the answer to these guidelines:
(1) the selection and engagement of the employee;
(2) the payment of wages;
(3) the power of dismissing; and
(4) the power to control the employee's conduct.[1]
Under the so-called "right of control" test, the person for whom the services are
performed reserves a right to control, not only the end to be achieved, but the means to
be used in reaching such an end. In addition, this Court has also considered the
existing economic conditions prevailing between the parties, such as the inclusion of
the employee in the payroll.[2]
It was speculative and conjectural on the part of the NLRC to declare petitioners'
argument as "mere alibi." The employment contract presented by petitioners, while
admittedly defective, did not refer to any of the private respondents. No evidence was
presented to show that petitioners engaged the services of private respondents.
As regards the matter of evidence, it is clear that the Labor Arbiter relied solely on
the bare allegations of the parties in their position papers in rendering his now assailed
decision. Rule V, Sections 4 and 5(b) of The New Rules of Procedure of the National
Labor Relations Commission states:
"Section 4. Determination of Necessity of Hearing. - Immediately after the
submission by the parties of their position papers/memorandum, the Labor
Arbiter shall motu proprio determine whether there is need for a formal trial
or hearing. At this stage, he may, at his discretion and for the purpose of
making such determination, ask clarificatory questions to further elicit facts
or information, including but not limited to the subpoena of relevant
documentary evidence, if any from any party or witness.
Section 5. x x x.
(b) If the Labor Arbiter finds no necessity of further hearing after the parties
have submitted their position papers and supporting documents, he shall
issue an Order to that effect and shall inform the parties, stating the reasons
therefor. In any event, he shall render his decision in the case within the
same period provided in paragraph (a) hereof."
In Greenhills Airconditioning and Services, Inc. v. NLRC,[3] whose issues are
similar to instant case, we stated that there was grave abuse of discretion on the part of
the labor arbiter when he submitted the case for decision solely on the basis of the
position papers:
"It is of note that certain important issues are raised by the position papers
filed before the labor arbiter among which are:
1. whether respondent Abellano was a project employee whose employment was
deemed ended when the project was cancelled or whether he was a regular employee;
2. If he was a regular employee, whether he voluntarily resigned as alleged by
petitioners or was dismissed;
3. If he was dismissed, whether there were valid grounds for his dismissal.
The nature of the above issues shows that there was indeed grave abuse of
discretion on the part of the labor arbiter in issuing the order dated 18
September 1992 submitting the case for decision, without any hearing.
Article 221 of the Labor Code states in part:
'Art. 221. Technical rules not binding and prior resort to amicable settlement.
- In any proceeding before the Commission or any of the Labor Arbiters, the
2
 rules of evidence prevailing in courts of law or equity shall not be controlling
and it is the spirit and intention of this Code that the Commission and its
members and the Labor Arbiters shall use every and all reasonable means to
ascertain the facts in each case speedily and objectively and without regard
to technicalities of law or procedure, all in the interest of due process. x x x'
In rendering his now assailed decision, the labor arbiter relied solely on the
bare allegations of the parties in their position papers. There is nothing in
the labor arbiter's decision to show how he arrived at the conclusion that it
was respondent Abellano's allegations that deserved belief. The prudent and
logical action which the labor arbiter should have taken was to set the case
for hearing particularly on the abovementioned three (3) issues to avoid any
impression of denial of due process to either or both of the parties.
While it is true that the employer has the burden of proving the presence of
valid grounds for dismissal of a worker, the abovestated issues in this case
require a hearing and reception of evidence before the issue of the validity
of Abellano's dismissal can be resolved. The respondent NLRC in sustaining
and affirming the decision of the labor arbiter which was arrived at without
hearing on the vital issues involved, itself committed grave abuse of
discretion."
The same issues are raised in the instant case and the Labor Arbiter should have
set the case for further presentation of evidence considering the dearth of evidence
supporting private respondents' claims.
Furthermore, the NLRC committed grave abuse of discretion when it affirmed the
Labor Arbiter's decision holding petitioner Almeda jointly and severally liable with
Progress Homes. The Court has held that corporate directors and officers are solidarily
liable with the corporation for the termination of employment of employees only if the
termination is done with malice or in bad faith.[4] The Labor Arbiter's decision failed to
disclose why Almeda was made personally liable. There appears no evidence on record
that he acted maliciously or in bad faith in terminating the services of private
respondents.[5] Petitioner Almeda, therefore, should not have been made personally
answerable for the payment of private respondents' salaries.
WHEREFORE, the decision of respondent National Labor Relations Commission
is hereby SET ASIDE. The complaint of private respondents against herein petitioner is
hereby REMANDED to the Labor Arbiter of Naga City for hearing, reception of
evidence and decision. No pronouncement as to costs.
SO ORDERED.
[G.R. No. 117473. April 15, 1997]
REAHS CORPORATION, SEVERO CASTULO, ROMEO PASCUA, and DANIEL
VALENZUELA, petitioners, vs. NATIONAL LABOR RELATIONS
COMMISSION, BONIFACIO RED, VICTORIA PADILLA, MA. SUSAN R.
CALWIT, SONIA DELA CRUZ, SUSAN DE LA CRUZ, EDNA WAHINGON,
NANCY B. CENITA and BENEDICTO A. TULABING, respondents.
DECISION
PADILLA, J.:
This is a petition for certiorari under Rule 65 of the Rules of Court to annul and
set aside the decision dated 29 April 1994 rendered by the National Labor Relations
Commission (NLRC) in NLRC Case No. 005024-93 entitled "Bonifacio Red, et al., v.
Reah's Corporation, et. al.", which affirmed the decision of the Labor arbiter holding
individual petitioners jointly and severally liable with petitioner Reah's Corporation to
pay private respondents' claims for underpayment of wages, holiday pay, 13th month
pay and separation pay.
The facts, as culled by the labor arbiter from the position papers of both parties,
are as follows:
"Complainant Bonifacio Red alleges that he started working as a supervisor at the
health and sauna parlor of respondents from September 5, 1977 to November 6, 1990,
with a salary of P50.00, that the said establishment was closed by respondents on
November 6, 1990, without any notice and without paying his wages, separation pay
and other benefits under the law; and that he works a minimum of twelve (12) hours a
day without being paid overtime.
Complainant Benedicto Tulabing alleges that he started on December 16, 1986 up to
November 6, 1990 in the same establishment with a salary of P26.00 a day; that he
works thirteen (13) hours a day without payment of overtime pay.
Complainant Nancy Cenita and Susan Calwit alleges [sic] that they were hired as
waitresses on May 20, 1990 up to November 6, 1990 and paid on commission basis
at P0.25 per bottle of beer sold to or consumed by the customers and that they work
ten (10) hours a day without being paid overtime.
Complainants Edna Wahingon, Susan dela Cruz, Sonia dela Cruz and Victoria Padilla
claims [sic] working as attendants and were hired on different dates until November 6,
1990. All were paid on commission basis at the rate of twenty (20%) percent of the
service fee paid by the customers, P90.00 and P110.00 respectively, for ordinary and VIP
3
service; that they render(ed) eleven (11) hours of work a day without being paid
overtime; and that the closure of the health parlor was illegal as they were not notified.
On the other hand, respondents allege that sometime in 1986, a certain Ms. Soledad
Domingo, the sole proprietress and operator of Rainbow Sauna located at 316 Araneta
Avenue, Quezon City, offered to sell her business to respondent Reah's
Corporation. After the sale, all the assets of Ms. Domingo were turned over to
respondent Reah's, which put a sing-along coffee shop and massage clinic; that
complainant Red started his employment on the first week of December 1988 as a
roomboy at P50.00/day and was given living quarters inside the premises as he
requested; that sometime in March 1989, complainant Red asked permission to go to
Bicol for a period of ten (10) days, which was granted, and was given an advance money
of P1,200.00 to bring some girls from the province to work as attendants at the
respondent's massage clinic; that it was only on January 1, 1990 that complainant Red
returned and was re-hired under the same terms and conditions of his previous
employment with the understanding that he will have to refund the P1,200.00 cash
advance given to him; that due to poor business, increase in the rental cost and the
failure of Meralco to reconnect the electrical services in the establishment, it suffered
losses leading to its closure."[1]
On 6 May 1993, the labor arbiter rendered judgment dismissing private
respondents' complaints for unfair labor practice and illegal dismissal but upholding
the claims for separation pay, underpayment of wages, holiday pay and 13th month
pay. All eight (8) private respondents were awarded separation pay. However, only
Bonifacio Red and Benedicto Tulabing were declared entitled to the claimed labor
standard benefits as the rest were found to have been employed on commission
basis. The labor arbiter further awarded attorney's fees to private respondents Bonifacio
Red and Benedicto Tulabing amounting to ten (10%) percent of their adjudged money
claims.
Petitioners appealed the labor arbiter's decision to the NLRC, contending mainly
that Article 283 of the Labor Code, "exempts establishment(s) from payment of
termination pay when the closure of business is due to serious business losses or
financial reverses"; that petitioners Castulo, Pascua and Valenzuela, while admittedly
the acting chairman of the board, board member and accountant acting manager
respectively of Reah's Corporation, cannot be held jointly and severally liable with
Reah's "unless there is evidence to show that the cause of the closure of the business
was due to the criminal negligence of the [respondent] officers."
The NLRC dismissed the appeal based on the following dispositions:
"Anent the issue on separation pay, Article 283 of the Labor Code provides that '[T]he
employer may x x x terminate the employment of any employee due to x x x the closing
or cessation of operation of the establishment or undertaking x x x by serving a written
notice on the workers and the Ministry of Labor and Employment at least one (1)
month before the intended date thereof. x x x.' This, respondents failed to
comply. Neither did respondents present any evidence to prove that Reah's closure was
really due to SERIOUS business losses or financial reverses. We only have respondents'
mere say-so on the matter.
The Supreme Court held in Basilio Balasbas vs. NLRC, et. al. (G.R. No. 85286, August
24, 1992, 3rd Division, Romero, J.) that -
'Under Article 283 of the Labor Code, the closure of a business establishment or
reduction of personnel is a ground for the termination of the services of any employee
unless the closing or retrenching is for the purpose of circumventing the provision of
the law. But while business reverses can be a just cause for terminating employees,
these must be sufficiently proved by the employer. (Indino vs. NLRC, G.R. No. 80352,
September 29, 1989, 178 SCRA 168).'
Thus, we cannot but agree that complainants are entitled to the payment of separation
pay."[2]
Petitioners filed a motion for reconsideration but this was denied by the NLRC on
30 August 1994. In the present petition, petitioners raise three (3) issues which, for
brevity and clarity, may be simplified as follows:
I.
WHETHER OR NOT PETITIONERS-OFFICERS CAN BE HELD JOINTLY AND
SEVERALLY LIABLE WITH THE CORPORATION IN THE PAYMENT OF
SEPARATION PAY TO PRIVATE RESPONDENTS UNDER ARTICLE 283 OF THE
LABOR CODE.
II.
WHETHER OR NOT THE OFFICERS OF REAH'S CORPORATION CAN BE HELD
JOINTLY AND SEVERALLY LIABLE WITH THE CORPORATION IN PAYMENT OF
THE MONETARY CLAIMS AWARDED PRIVATE RESPONDENTS IN THE ABSENCE
OF ANY FINDING OF UNFAIR LABOR PRACTICES OR ILLEGAL DISMISSAL.
III.
WHETHER OR NOT THERE IS LEGAL BASIS FOR THE NLRC TO AFFIRM THE
AWARD OF 10% ATTORNEY'S FEES TO PRIVATE RESPONDENTS.
Petitioners argue that since the charges of illegal dismissal and unfair labor
practices were dismissed by the labor arbiter, they cannot be held solidarily liable with
the corporation for the payment of separation pay and labor standard benefits to
private respondents, when they used their business judgment to close the
establishment because of serious business losses. They contend that even if they were
4
the top corporate officers of Reah's corporation at the time they closed the business,
the corporation has a personality that is separate and distinct from its officers and
stockholders. Since there was no finding that they violated Sec. 31 of the Corporation
Code[3] they cannot be held solidarily liable with the corporation. Petitioners further
maintain that the corporation also cannot be held liable because Article 283 of the
Labor Code "orders payment of separation pay only when the closure of the business is
due to causes other than serious business losses or financial reverses".
Petitioners have obviously resorted to a misreading of the last sentence of Article
283 which provides that -
" x x x In case of retrenchment to prevent losses and in cases of closures or cessation of
operations of establishment or undertaking not due to serious business losses or
financial reverses, the separation pay shall be equivalent to one (1) month pay or at
least () month pay for every year of service, whichever is higher. A fraction of at least six
(6) months shall be considered as one (1) whole year."
It is not the function of the law nor its intent to supplant the prerogative of
management in running its business, such as, to compel the latter to operate at a
continuing loss. Thus, Article 283 provides as an authorized cause in the termination of
employment the "closing or cessation of operation of the establishment or
undertaking". However, the burden of proving that the termination was for a valid or
authorized cause shall rest on the employer.[4] If the business closure is due to serious
losses or financial reverses, the employer must present sufficient proof of its actual or
imminent losses; it must show proof that the cessation of or withdrawal from business
operations was bona fide in character.[5]
The grant of separation pay, as an incidence of termination of employment under
Article 283, is a statutory obligation on the part of the employer and a demandable
right on the part of the employee, except only where the closure or cessation of
operations was due to serious business losses or financial reverses and there is
sufficient proof of this fact or condition. In the absence of such proof of serious
business losses or financial reverses, the employer closing his business is obligated to
pay his employees and workers their separation pay.
The rule, therefore, is that in all cases of business closure or cessation of operation
or undertaking of the employer, the affected employee is entitled to separation
pay. This is consistent with the state policy of treating labor as a primary social
economic force, affording full protection to its rights as well as its welfare. [6] The
exception is when the closure of business or cessation of operations is due to serious
business losses or financial reverses; duly proved, in which case, the right of affected
employees to separation pay is lost for obvious reasons. In the case at bar, the
corporation's alleged serious business losses and financial reverses were not amply
shown or proved.
We now proceed to rule on the corollary issue of whether or not individual
petitioners Castulo, Pascua and Valenzuela should be held liable in solidum with the
corporation (REAH's) in the payment to private respondents of separation pay and
labor standard benefits.
As a general rule established by legal fiction, the corporation has a personality
separate and distinct from its officers, stockholders and members.Hence, officers of a
corporation are not personally liable for their official acts unless it is shown that they
have exceeded their authority. This fictional veil, however, can be pierced by the very
same law which created it 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.[7]
The Solicitor General, in behalf of private respondents, argues that the doctrine
laid down in the case of A.C. Ransom Labor Union - CCLU v. NLRC[8] should be applied
to the case at bar. In that case, a judgment against a corporation (A.C. Ransom) to
reinstate its dismissed employees with back wages was declared to be a continuing
solidary liability of the company president and all who may have thereafter succeeded
to said office after the records failed to identify the officer or agents directly responsible
for failure to pay the back wages of its employees. The Court noted Ransom's
subterfuge in organizing another family corporation while the case was on litigation
with the intent to phase out the existing corporation in case of an adverse decision, as
what actually happened when it ceased operations a few months after the labor arbiter
ruled in favor of Ransom's employees.
The basis, said the Court, is found in Article 212(c) of the Labor Code which
provides that "an employer includes any person acting in the interest of an employer,
directly or indirectly." "Since Ransom is an artificial person, it must have an officer who
can be presumed to be the employer, x x x.The corporation only in the technical sense
is the employer."
This ruling was eventually applied by the Court in the following cases: Maglutac v.
NLRC[9] an illegal dismissal case, where the most ranking officer of Commart, petitioner
therein, was held solidarily liable with the corporation which thereafter became
insolvent and suspended operations; Chua v. NLRC,[10] also an illegal dismissal case,
where the vice-president of a corporation was held solidarily liable with the corporation
for the payment of the unpaid salaries of its president; and in Gudez v. NLRC,[11] where
the president and treasurer were held solidarily liable with the corporation which had
ceased operations but failed to pay the wage and money claims of its employees.
These cases, however, should be construed still as exceptions to the doctrine of
separate personality of a corporation which should remain as the guiding rule in
determining corporate liability to its employees. At the very least, as what we held
in Pabalan v. NLRC,[12] to justify solidary liability, "there must be an allegation or
5
showing that the officers of the corporation deliberately or maliciously designed to
evade the financial obligation of the corporation to its employees", or a showing that
the officers indiscriminately stopped its business to perpetrate an illegal act, as a
vehicle for the evasion of existing obligations, in circumvention of statutes, and to
confuse legitimate issues.
In the case at bar, the thrust of petitioners' arguments was aimed at confining
liability solely to the corporation, as if the entity were an automaton designed to
perform functions at the push of a button. The issue, however, is not limited to
payment of separation pay under Article 283 but also payment of labor standard
benefits such as underpayment of wages, holiday pay and 13th month pay to two of the
private respondents. While there is no sufficient evidence to conclude that petitioners
have indiscriminately stopped the entity's business, at the same time, petitioners have
opted to abstain from presenting sufficient evidence to establish the serious and
adverse financial condition of the company.
As the NLRC aptly stated:
"Neither did respondents (petitioners) present any evidence to prove that Reah's
closure was really due to SERIOUS business losses or financial reverses. We only have
respondents mere say-so on the matter."[13]
This uncaring attitude on the part of the officers of Reah's gives credence to the
supposition that they simply ignored the side of the workers who, more or less, were
only demanding what is due them in accordance with law. In fine, these officers were
conscious that the corporation was violating labor standard provisions but they did not
act to correct these violations; instead, they abruptly closed business. Neither did they
offer separation pay to the employees as they conveniently resorted to a lame excuse
that they suffered serious business losses, knowing fully well that they had no
substantial proof in their hands to prove such losses.
The findings of the NLRC did not indicate whether or not Reah's Corporation has
continued its personality after it had stopped operations when it closed its sing-along,
coffee shop, and massage clinic in November 1990. But in its petition, petitioners aver,
among others, that the "company totally folded for lack of patrons, (disconnection of)
light and discontinuance of the leased premises [sic] for failure to pay the increased
monthly rentals from P8,000 to P20,000."[14] Under the Rules of Evidence, petitioners
are bound by the allegations contained in their pleading. Since petitioners themselves
have admitted that they have dissolved the corporation de facto, the Court presumes
that Reah's Corporation had become insolvent and therefore would be unable to satisfy
the judgment in favor of its employees. Under these circumstances, we cannot allow
labor to go home with an empty victory. Neither would it be oppressive to capital to
hold petitioners Castulo, Pascua and Valenzuela solidarily liable with Reah's
Corporation because the law presumes that they have acted in the latter's interest when
they obstinately refused to grant the labor standard benefits and separation pay due
private respondent-employees.
The last issue raised by petitioners is whether there is legal basis for the payment
of 10% attorney's fees out of the total amount awarded to private respondents Red and
Tulabing. The Court finds this portion of the assailed decision to have been rendered
with grave abuse of discretion as both the labor arbiter and the NLRC failed to make an
express finding of fact and cite the applicable law to justify the grant of such
award. Under Article 111 of the Labor Code, 10% attorneys fees may be assessed only in
cases where there is an unlawful withholding of wages,[15] or under Article 222 those
arising from collective bargaining negotiations that may be charged against union
funds in an amount to be agreed upon by the parties.None of these situations exists in
the case at bar.
WHEREFORE, the decision of respondent National Labor Relations Commission
is hereby AFFIRMED in so far as it holds petitioners Castulo, Pascua, and Valenzuela
jointly and severally liable with Reah's Corporation to pay all private respondents
separation pay and private respondents Red and Tulabing other monetary benefits but
the award of ten percent (10%) attorneys fees is hereby DELETED for lack of factual and
legal basis.
SO ORDERED.
[G.R. No. 115795. March 6, 1998]
JOSE S. SANTOS, JR., petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION, HAGONOY INSTITUTE INC., ITS DIRECTRESS,MARTA B.
ZUNIGA and PRINCIPAL B. BANAG, respondent.
DECISION
ROMERO, J.:
It is to state the obvious that schools, next only to the home, wield a weighty
influence upon the students, especially during the latters formative years, for it instills
in them the values and mores which shall prepare them to discharge their rightful
responsibilities as mature individuals in society. At the vanguard in nurturing their
growth are the teachers who are directly charged with rearing and educating them. As
such, a teacher serves as a role model for his students. Corollarily, he must not bring
the teaching profession into public disrespect or disgrace.[1] For failure to live up to the
exacting moral standards demanded by his profession, petitioner Jose Santos was
dismissed from his employment on the ground of immorality. We uphold his dismissal.
The following facts are hereunder narrated.
6
 Petitioner, a married man, was employed as a teacher by the private respondent
Hagonoy Institute Inc. from June 1980 until his dismissal on June 1, 1991. Likewise
working as a teacher for the private respondent was Mrs. Arlene T. Martin, also
married. In the course of their employment, the couple fell in love. Thereafter, rumors
regarding the couples relationship spread, especially among the faculty members and
school officials.
Concerned about the rumors, on November 3, 1990, the private respondent
advised Mrs. Martin to take a leave of absence which she ignored, as she continued to
report for work. Consequently, on November 9, 1990, she was barred from reporting for
work and was not allowed to enter the private respondents premises, effectively
dismissing her from her employment.
In view of her termination from the service, on November 13, 1990, Mrs. Martin
filed a case for illegal dismissal before the NLRC Regional Arbitration Branch No. III,
San Fernando, Pampanga[2] against the private respondent. After the parties had
submitted their respective evidence and position paper, Labor Arbiter Ariel Santos
rendered a decision dismissing the complaint, the dispositive part of which states:
WHEREFORE, the complaint filed by the complainant Arlene Martin is hereby
DISMISSED for utter lack of merit.
However, considering the length of service of complaint and for humanitarian reason
she would be given financial assistance based on one-month pay on every year of
service.
On appeal, the NLRC in a decision dated February 26, 1993, reversed the labor
arbiters ruling, the dispositive portion of the decision[3] reads:
WHEREFORE, the appealed Decision is hereby SET ASIDE and VACATED. Another
one ENTERED ordering respondent to pay complainant her backwages and separation
pay in the total amount of P83,392.40. Complainants other claims are hereby
DISMISSED for lack of merit.
SO ORDERED.
The reversal was anchored on the failure by the private respondent, in dismissing
Mrs. Martin, to accord her the necessary procedural due process.[4]
Meanwhile, private respondent set up a committee to investigate the veracity
of the rumors. After two weeks of inquiry, the committee rendered its report
confirming the illicit relationship between the petitioner and Mrs. Martin.[5]
In view of the committees finding, on December 19, 1990, petitioner was charged
administratively for immorality and was required to present his side on the
controversy. Five months later or in May 1991, petitioner was informed by the private
respondents Board of Directors of his dismissal effective June 1, 1991.[6] Unable to accept
such verdict, petitioner filed a complaint for illegal dismissal on August 12, 1991 before
the NLRC Regional Arbitration Branch No. III, San Fernando, Pampanga.After a full
blown trial was conducted, Labor Arbiter Quintin C. Mendoza rendered a decision
dated January 12, 1993, dismissing petitioners complaint but at the same time awarding
monetary sums as financial assistance, the dispositive portion of which reads, thus:
WHEREFORE, judgement is hereby issued dismissing the complaint, but ordering
respondent Hagonoy Institute Inc. and/or Mrs. Elisea B. Banag (respondent Principal)
or Mrs. Marta B. Zuniga (respondent Directress) to pay complainant (petitioner) the
sum of thirteen thousand and seven hundred fifty (P13,750.00) pesos (as financial
assistance), the rest of the complaint being hereby dismissed for lack of basis or merit.
SO ORDERED.
In an effort to seek the reversal of the labor arbiters decision, petitioner filed an
appeal before the NLRC, which, however, did not find any substantial reason to
overturn the labor arbiters ruling. Thus, in a decision[7] dated November 29, 1993, the
NLRC dismissed the appeal, to wit:
WHEREFORE, premises considered, the instant appeal should be, as it is hereby,
dismissed for lack of merit.
SO ORDERED.
Petitioners motion for reconsideration suffered the same fate.[8] Thus, this
petition for certiorari under Rule 65 of the Rules of Court.
We hereby uphold the NLRCs finding dismissing petitioner from his employment.
The crux of the controversy is whether the illicit relationship between the
petitioner and Mrs. Martin could be considered immoral as to constitute just cause to
terminate an employee under Article 282 of the Labor Code.
We have consistently held that in order to constitute a valid dismissal, two
requisites must concur: (a) the dismissal must be for any of the causes expressed in Art.
282 of the Labor Code, and (b) the employee must be accorded due process, basic of
which are the opportunity to be heard and defend himself.[9]
Under Article 282 of the Labor Code, as amended, the following are deemed just
causes to terminate an employee:
(a) Serious misconduct or willful disobedience by the employee of the lawful orders of
his employer or representative in connection with his work;
7
(b) Gross and habitual neglect by the employee of his duties:
(c) Fraud or willfull breach by the employee of the trust reposed in him by his employer
or duly authorized representative;
(d) Commission of a crime or offense by the employee against the person of his
employer or any immediate member of his family or his duly authorize representative;
and
(e) Other causes analogous to the foregoing.
Moreover, it is provided inter alia under Section 94[10] of the Manual of
Regulations for Private Schools:
Section 94. Causes of Terminating Employment. In addition to the just cases
enumerated in the Labor Code, the employment of school personnels, including
faculty, may be terminated for any of the following causes:
xxx xxx xxx
E. Disgraceful or immoral conduct.
Private respondent, in justifying the termination of the petitioner, contends that
being a teacher, he must live up to the high moral standards required of his position. In
other words, it asserts that its purpose in dismissing the petitioner was to preserve the
respect of the community towards the teachers and to strengthen the educational
system.[11]
On the other hand, petitioner merely argues that the alleged illicit relationship
was not substantially proven by convincing evidence by the private respondent as to
justify his dismissal.
On the outset, it must be stressed that to constitute immorality, the
circumstances of each particular case must be holistically considered and evaluated in
light of the prevailing norms of conduct and applicable laws.[12] American jurisprudence
has defined immorality as a course of conduct which offends the morals of the
community and is a bad example to the youth whose ideals a teacher is supposed to
foster and to elevate,[13] the same including sexual misconduct.[14] Thus, in petitioners
case, the gravity and seriousness of the charges against him stem from his being a
married man and at the same time a teacher.
We cannot overemphasize that having an extra-marital affair is an afront to the
sanctity of marriage, which is a basic institution of society. Even our Family Code
provides that husband and wife must live together, observe mutual love, respect and
fidelity.[15] This is rooted in the fact that both our Constitution and our laws cherish the
validity of marriage and unity of the family.[16] Our laws, in implementing this
constitutional edict on marriage and the family underscore their permanence,
inviolability and solidarity.[17]
As a teacher, petitioner serves as an example to his pupils, especially during their
formative years[18] and stands in loco parentis to them.[19] To stress their importance in
our society, teachers are given substitute and special parental authority under our
laws.[20]
Consequently, it is but stating the obvious to assert that teachers must adhere to
the exacting standards of morality and decency. There is no dichotomy of morality. A
teacher, both in his official and personal conduct, must display exemplary behavior. He
must freely and willingly accept restrictions on his conduct that might be viewed
irksome by ordinary citizens. In other words, the personal behavior of teachers, in and
outside the classroom, must be beyond reproach.
Accordingly, teachers must abide by a standard of personal conduct which not
only proscribes the commission of immoral acts, but also prohibits behavior creating a
suspicion of immorality because of the harmful impression it might have on the
students.[21] Likewise, they must observe a high standard of integrity and honesty.[22]
From the foregoing, it seems obvious that when a teacher engages in extra-marital
relationship, especially when the parties are both married, such behavior amounts to
immorality, justifying his termination from employment.[23]
Having concluded that immorality is a just cause for dismissing petitioner, it is
imperative that the private respondent prove the same. Since the burden of proof rests
upon the employer to show that the dismissal was for a just and valid cause,[24] the
same must be supported by substantial evidence.[25]
Undoubtedly, the question of immorality by the petitioner is factual in
nature. Thus, we reiterate the well-settled rule that factual findings by the NLRC,
particularly when it coincides with those by the Labor Arbiter, are accorded respect,
even finality, and will not be disturbed for as long as such findings are supported by
substantial evidence.[26] A scrutiny of the records of the instant petition leads us to
concur with the NLRCs finding that petitioner indeed entered into an illicit
relationship with his co-teacher.This fact was attested to by the testimonies of nine
witnesses (a fourth year student, a security guard, a janitor and six co-teachers) which
petitioner failed to rebut.
In fact, the petitioners only recourse was to deny the accusation and insinuate
that these witnesses were coerced by the private respondent to give their
testimonies.However, under such circumstances, it is not enough for petitioner to
simply cast doubt on the motives of the witnesses; he must present countervailing
evidence to prove that no such affair took place.
8
 In short, we cannot just ignore the witnesses affidavits and their subsequent
testimonies during the investigation as to the culpability of the petitioner on the sole
basis of the latters denial. In any event, we have held that denial, if unsubstantiated by
clear and convincing evidence, is a negative and self-serving evidence which has no
weight in law and cannot be given greater evidentiary value over the testimony of
credible witnesses who testified on affirmative matters.[27]
Further bolstering the witnesses testimonies is the the absence of any motive on
their part to falsely testify against the petitioner. Thus, since there is nothing to
indicate that the witnesses were moved by dubious or improper motives to testify
falsely against the petitioner, their testimonies are hereby accorded full faith and credit.
Likewise, petitioner cannot take comfort from the letter dated November 7, 1990
signed by 28 of his co-teachers, expressing their unequivocal support for Mrs. Arlene
Martin.[28] It must be noted that the said letter did not in any way absolve Mrs. Martin
from any wrongdoing. It merely affirmed the fact that when she was forcibly asked to
take a leave of absence on November 3, 1990 the same was done in a precipitous
manner, without the benefit of due process. Moreover, it must be stressed that the
expression of support was personal to Mrs. Martin, and the same should not redound to
the benefit of the petitioner. Indeed, if petitioner really had the support of his peers,
then it should have been easy for him to obtain a similar letter from them in the course
of his administrative investigation. However, not only did he not get such support, but
six of his co-teachers even testified against him during the inquiry.
Finally, petitioner cannot invoke in his favor the ruling in the Arlene Martin case,
wherein the NLRC ruled that her dismissal was illegal. It must be noted that the reason
for declaring Martins dismissal as illegal was the failure by the private respondent to
accord her the required due process.[29]
As aptly observed by the NLRC in its decision:[30]
In the case at bar, the complainant was amply afforded the due process requirements of
law. He was dismissed only on June 1, 1991 after an exhaustive investigation. A
committee was formed to conduct an inquiry. (Rollo, pp. 43-44) An administrative
charge for immorality was filed against him. (Rollo, p. 45) He was even required to
testify in said case. (Rollo, p. 46) He was given the opportunity to answer said
accusation. (Rollo, p. 47) He was in fact present during the hearing on January 17, 1991
and gave his side. x x x In fine, herein complainant (petitioner) cannot successfully seek
refuge in the cited case of Martin. (Rollo, pp. 48-49)
In view of our finding that petitioners dismissal was for a just and valid cause, the
grant of financial assistance by the NLRC is without any factual and legal
basis. In PLDT v. NLRC, [31] we held that:
We hold henceforth separation pay shall be as a measure of social justice only in these
instances where the employee is validly dismissed for cause other than serious
misconduct or those reflecting his moral character. Where the reason for the valid
dismissal is, for example, habitual intoxication or an offense involving moral turpitude,
like theft or illicit sexual relationship with a fellow worker, the employer may not be
required to give the dismissed employee separation pay, or financial assistance, or
whatever other name it is called, on the ground of social justice.
The above ruling has consistently been applied in terminating an employee when
it involves his moral character.[32]
WHEREFORE, in view of the foregoing, the petition is hereby DISMISSED. The
questioned Resolution dated March 8, 1994 and the decision of the National Labor
Relations Commission dated November 29, 1993, are AFFIRMED with the
MODIFICATION deleting the financial assistance granted to petitioner in the amount
of P13,750.00. Costs against petitioner.
SO ORDERED.
G.R. No. L-30896 April 28, 1983
JOSE O. SIA, petitioner,
vs.
THE PEOPLE OF THE PHILIPPINES, respondent.
DE CASTRO, J.:
Petition for review of the decision of the Court of Appeals affirming the decision of the
Court of First Instance of Manila convicting the appellant of estafa, under an
information which reads:
That in, about or during the period comprised' between July 24, 1963
and December 31, 1963, both dates inclusive, in the City of Manila,
Philippines, the said accused did then and there willfully, unlawfully
and feloniously defraud the Continental Bank, a banking institution
duly organized and doing business in the City of Manila, in the
following manner, to wit: the said accused, in his capacity as
9
 president and general manager of the Metal Manufacturing of the
Philippines, Inc. (MEMAP) and on behalf of said company, obtained
delivery of 150 M/T Cold Rolled Steel Sheets valued at P 71,023.60
under a trust receipt agreement under L/C No. 63/109, which cold
rolled steel sheets were consigned to the Continental Bank, under
the express obligation on the part of said accused of holding the said
steel sheets in trust and selling them and turning over the proceeds
of the sale to the Continental Bank; but the said accused, once in
possession of the said goods, far from complying with his aforesaid
obligation and despite demands made upon him to do so, with intent
to defraud, failed and refused to return the said cold rolled sheets or
account for the proceeds thereof, if sold, which the said accused
willfully, unlawfully and feloniously misappropriated, misapplied
and converted to his own personal use and benefit, to the damage
and prejudice of the said Continental Bank in the total amount of
P146,818.68, that is the balance including the interest after deducting
the sum of P28,736.47 deposited by the said accused with the bank as
marginal deposit and forfeited by the said from the value of the said
goods, in the said sum of P71,023.60. (Original Records, p. 1).
In reviewing the evidence, the Court of Appeals came up with the following findings of
facts which the Solicitor General alleges should be conclusive upon this Court:
There is no debate on certain antecedents: Accused Jose 0. Sia
sometime prior to 24 May, 1963, was General Manager of the Metal
Manufacturing Company of the Philippines, Inc. engaged in the
manufacture of steel office equipment; on 31 May, 1963, because his
company was in need of raw materials to be imported from abroad,
he applied for a letter of credit to import steel sheets from Mitsui
Bussan Kaisha, Ltd. of Tokyo, Japan, the application being directed
to the Continental Bank, herein complainant, Exhibit B and his
application having been approved, the letter of credit was opened on
5 June, 1963 in the amount of $18,300, Exhibit D; and the goods
arrived sometime in July, 1963 according to accused himself, tsn. II:7;
now from here on there is some debate on the evidence; according to
Complainant Bank, there was permitted delivery of the steel sheets
only upon execution of a trust receipt, Exhibit A; while according to
the accused, the goods were delivered to him sometime before he
executed that trust receipt in fact they had already been converted
into steel office equipment by the time he signed said trust receipt,
tsn. II:8; but there is no question - and this is not debated - that the
bill of exchange issued for the purpose of collecting the unpaid
account thereon having fallen due (see Exh. B) neither accused nor
his company having made payment thereon notwithstanding
demands, Exh. C and C-1, dated 17 and 27 December, 1963, and the
accounts having reached the sum in pesos of P46,818.68 after
deducting his deposit valued at P28,736.47; that was the reason why
upon complaint by Continental Bank, the Fiscal filed the information
after preliminary investigation as has been said on 22 October, 1964.
(Rollo [CA], pp. 103- 104).
The first issue raised, which in effect combines the first three errors assigned, is
whether petitioner Jose O. Sia, having only acted for and in behalf of the Metal
Manufacturing Company of the Philippines (Metal Company, for short) as President
thereof in dealing with the complainant, the Continental Bank, (Bank for short) he may
be liable for the crime charged.
In discussing this question, petitioner proceeds, in the meantime, on the assumption
that the acts imputed to him would constitute the crime of estafa, which he also
disputes, but seeks to avoid liability on his theory that the Bank knew all along that
petitioner was dealing with him only as an officer of the Metal Company which was the
true and actual applicant for the letter of credit (Exhibit B) and which, accordingly,
assumed sole obligation under the trust receipt (Exhibit A). In disputing the theory of
petitioner, the Solicitor General relies on the general principle that when a corporation
commits an act which would constitute a punishable offense under the law, it is the
responsible officers thereof, acting for the corporation, who would be punished for the
crime, The Court of Appeals has subscribed to this view when it quoted approvingly
from the decision of the trial court the following:
A corporation is an artificial person, an abstract being. If the defense
theory is followed unscrupulously legions would form corporations
to commit swindle right and left where nobody could be convicted,
for it would be futile and ridiculous to convict an abstract being that
can not be pinched and confined in jail like a natural, living person,
hence the result of the defense theory would be hopeless chose in
business and finance. It is completely untenable. (Rollo [CA], p. 108.)
The above-quoted observation of the trial court would seem to be merely restating a
general principle that for crimes committed by a corporation, the responsible officers
thereof would personally bear the criminal liability. (People vs. Tan Boon Kong, 54 Phil.
607. See also Tolentino, Commercial Laws of the Philippines, p. 625, citing cases.)
The case cited by the Court of Appeals in support of its stand-Tan Boon Kong
case, supra-may however not be squarely applicable to the instant case in that the
corporation was directly required by law to do an act in a given manner, and the same
law makes the person who fails to perform the act in the prescribed manner expressly
liable criminally. The performance of the act is an obligation directly imposed by the
law on the corporation. Since it is a responsible officer or officers of the corporation
who actually perform the act for the corporation, they must of necessity be the ones to
assume the criminal liability; otherwise this liability as created by the law would be
illusory, and the deterrent effect of the law, negated.
10
In the present case, a distinction is to be found with the Tan Boon Kong case in that the
act alleged to be a crime is not in the performance of an act directly ordained by law to
be performed by the corporation. The act is imposed by agreement of parties, as a
practice observed in the usual pursuit of a business or a commercial transaction. The
offense may arise, if at all, from the peculiar terms and condition agreed upon by the
parties to the transaction, not by direct provision of the law. The intention of the
parties, therefore, is a factor determinant of whether a crime was committed or
whether a civil obligation alone intended by the parties. With this explanation, the
distinction adverted to between the Tan Boon Kong case and the case at bar should
come out clear and meaningful. In the absence of an express provision of law making
the petitioner liable for the criminal offense committed by the corporation of which he
is a president as in fact there is no such provisions in the Revised Penal Code under
which petitioner is being prosecuted, the existence of a criminal liability on his part
may not be said to be beyond any doubt. In all criminal prosecutions, the existence of
criminal liability for which the accused is made answerable must be clear and certain.
The maxim that all doubts must be resolved in favor of the accused is always of
compelling force in the prosecution of offenses. This Court has thus far not ruled on
the criminal liability of an officer of a corporation signing in behalf of said corporation
a trust receipt of the same nature as that involved herein. In the case of Samo vs.
People, L-17603-04, May 31, 1962, the accused was not clearly shown to be acting other
than in his own behalf, not in behalf of a corporation.
The next question is whether the violation of a trust receipt constitutes estafa under
Art. 315 (1-[2]) of the Revised Penal Code, as also raised by the petitioner. We now
entertain grave doubts, in the light of the promulgation of P.D. 115 providing for the
regulation of trust receipts transaction, which is a very comprehensive piece of
legislation, and includes an express provision that if the violation or offense is
committed by a corporation, partnership, association or other juridical entities the
penalty provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without
prejudice to civil liabilities arising from the criminal offense. The question that suggests
itself is, therefore, whether the provisions of the Revised Penal Code, Article 315, par. 1
(b) are not adequate to justify the punishment of the act made punishable by P.D. 115,
that the necessity was felt for the promulgation of the decree. To answer this question,
it is imperative to make an indepth analysis of the conditions usually embodied in a
trust receipt to best their legal sufficiency to constitute the basis for holding the
violation of said conditions as estafa under Article 315 of the Revised Penal Code which
P.D. 115 now seeks to punish expressly.
As executed, the trust receipt in question reads:
I/WE HEREBY AGREE TO HOLD SAID GOODS IN TRUST FOR
THE SAID BANK as its property with liberty to sell the same for its
account but without authority to make any other disposition
whatsoever of the said goods or any part thereof (or the proceeds
thereof) either way of conditional sale, pledge or otherwise;
In case of sale I/we further agree to hand the proceeds as soon as
received to the BANK to apply against the relative acceptance (as
described above) and for the payment of any other indebtedness of
mine/ours to CONTINENTAL BANK. (Original Records, p. 108)
One view is to consider the transaction as merely that of a security of a loan, and that
the trust element is but and inherent feature of the security aspect of the arrangement
where the goods are placed in the possession of the "entrustee," to use the term used in
P.D. 115, violation of the element of trust not being intended to be in the same concept
as how it is understood in the criminal sense. The other view is that the bank as the
owner and "entrustor" delivers the goods to the "entrustee, " with the authority to sell
the goods, but with the obligation to give the proceeds to the "entrustor" or return the
goods themselves if not sold, a trust being thus created in the full sense as
contemplated by Art. 315, par. 1 (b).
We consider the view that the trust receipt arrangement gives rise only to civil liability
as the more feasible, before the promulgation of P.D. 115. The transaction being
contractual, the intent of the parties should govern. Since the trust receipt has, by its
nature, to be executed upon the arrival of the goods imported, and acquires legal
standing as such receipt only upon acceptance by the "entrustee," the trust receipt
transaction itself, the antecedent acts consisting of the application of the L/C, the
approval of the L/C and the making of the marginal deposit and the effective
importation of the goods, all through the efforts of the importer who has to find his
supplier, arrange for the payment and shipment of the imported goods-all these
circumstances would negate any intent of subjecting the importer to criminal
prosecution, which could possibly give rise to a case of imprisonment for non-payment
of a debt. The parties, therefore, are deemed to have consciously entered into a purely
commercial transaction that could give rise only to civil liability, never to subject the
"entrustee" to criminal prosecution. Unlike, for instance, when several pieces of jewelry
are received by a person from the owner for sale on commission, and the former
misappropriates for his personal use and benefit, either the jewelries or the proceeds of
the sale, instead of returning them to the owner as is his obligation, the bank is not in
the same concept as the jewelry owner with full power of disposition of the goods,
which the bank does not have, for the bank has previously extended a loan which the
L/C represents to the importer, and by that loan, the importer should be the real owner
of the goods. If under the trust receipt the bank is made to appear as the owner, it was
but an artificial expedient, more of a legal fiction than fact, for if it were really so, it
could dispose of the goods in any manner it wants, which it cannot do, just to give
consistency with the purpose of the trust receipt of giving a stronger security for the
loan obtained by the importer. To consider the bank as the true owner from the
inception of the transaction would be to disregard the loan feature thereof, a feature
totally absent in the case of the transaction between the jewel-owner and his agent.
Consequently, if only from the fact that the trust receipt transaction is susceptible to
two reasonable interpretation, one as giving rise only to civil liability for the violation of
the condition thereof, and the other, as generating also criminal liability, the former
11
should be adopted as more favorable to the supposed offender. (Duran vs. CA, L-39758,
May 7, 1976, 71 SCRA 68; People vs. Parayno, L-24804, July 5, 1968, 24 SCRA 3; People
vs. Abendan, L-1481, January 28,1949,82 Phil. 711; People vs. Bautista, L-1502, May 24,
1948, 81 Phil. 78; People vs. Abana, L-39, February 1, 1946, 76 Phil. 1.)
There is, moreover, one circumstance appearing on record, the significance of which
should be properly evaluated. As stated in petitioner's brief (page 2), not denied by the
People, "before the Continental Bank approved the application for a letter of credit
(Exhibit 'D'), subsequently covered by the trust receipt, the Continental Bank examined
the financial capabilities of the applicant, Metal Manufacturing Company of the
Philippines because that was the bank's standard procedure (Testimony of Mr. Ernesto
Garlit, Asst. Manager of the Foreign Department, Continental Bank, t.s.n., August 30,
1965). The Continental Bank did not examine the financial capabilities of herein
petitioner, Jose O. Sia, in connection with the same letter of credit. (Ibid). " From this
fact, it would appear as positively established that the intention of the parties in
entering into the "trust receipt" agreement is merely to afford a stronger security for
the loan evidenced by the letter of credit, may be not as an ordinary pledge as observed
in P.N.B. vs. Viuda e Hijos de Angel Jose, et al., 63 Phil. 814, citing In re Dunlap C (206
Fed. 726) but neither as a transaction falling under Article 315-1 (b) of the Revised Penal
Code giving rise to criminal liability, as previously explained and demonstrated.
It is worthy of note that the civil liability imposed by the trust receipt is exclusively on
the Metal Company. Speaking of such liability alone, as one arising from the contract,
as distinguished from the civil liability arising out of a crime, the petitioner was never
intended to be equally liable as the corporation. Without being made so liable
personally as the corporation is, there would then be no basis for holding him
criminally liable, for any violation of the trust receipt. This is made clearly so upon
consideration of the fact that in the violation of the trust agreement and in the absence
of positive evidence to the contrary, only the corporation benefited, not the petitioner
personally, yet, the allegation of the information is to effect that the misappropriation
or conversion was for the personal use and benefit of the petitioner, with respect to
which there is variance between the allegation and the evidence.
It is also worthy of note that while the trust receipt speaks of authority to sell, the fact
is undisputed that the imported goods were to be manufactured into finished products
first before they could be sold, as the Bank had full knowledge of. This fact is, however,
not embodied in the trust agreement, thus impressing on the trust receipt vagueness
and ambiguity which should not be the basis for criminal prosecution, in the event of a
violation of the terms of the trust receipt. Again, P.D. 115 has express provision relative
to the "manufacture or process of the good with the purpose of ultimate sale," as a
distinct condition from that of "to sell the goods or procure their sale" (Section 4, (1).
Note that what is embodied in the receipt in question is the sale of imported goods, the
manufacture thereof not having been mentioned. The requirement in criminal
prosecution, that there must be strict harmony, not variance, between the allegation
and the evidence, may therefore, not be said to have been satisfied in the instance case.
FOR ALL THE FOREGOING, We reverse the decision of the Court of Appeals and
hereby acquit the petitioner, with costs de oficio.
SO ORDERED.
Concepcion, Jr., Guerrero, Vasquez, Relova and Gutierrez, JJ., concur.
Fernando, CJ., Escolin, Plana, Abad Santos, JJ., concur in the result.
Separate Opinions
TEEHANKEE, J., concurring:
In concur. Petitioner personally cannot be charged and convicted for the crime of estafa
for failure of the corporation(MEMAP) represented by him as president and general
manager to pay "the balance of P46,818.68 .... including the interest after deducting the
sum of P28,736.47" which sum, according to the very information, it was "deposited by
the said accused with the [Continental] bank as marginal deposit and forfeited by the
said bank from the value of said goods, in the said sum of P 71,023.60" representing the
value of the cold rolled steel sheets imported by the corporation with the bank's
financing under its letter of credit and released to the importer corporation under trust
receipt in favor of the bank.
All these acts were corporate acts with the accused duly representing the corporation as
its president and general manager: the application for bank financing,
the deposit (which was from corporate funds, and not a deposit made by the petitioner,
as wrongly alleged in the information), the receipt of the steel sheets,
then manufactured into finished products (which could not technically be done under
the terms of the trust receipt required by the bank, under which the very sheets were
supposed to be sold by the corporation) and the non-payment of the credit extended by
the bank. There is not the slightest evidence nor intimation that these corporate acts
were unauthorized or that petitioner personally had committed any fraud or deceit in
connection therewith or that he had personallybeen responsible for or benefited from
the corporation's failure to pay the bank the balance due under the trust receipt.
In the recent case of People vs. Cuevo, G. R. No. L-27607, decided by the Court on May
7, 1981, the Court, for lack of necessary votes, affirmed the dismissal of the same charge
of estafa, for non-payment of the debt evidenced by the trust receipt, by the trial court
presided by Judge Ruperto Kapunan, Jr. who ruled that "the holder of a trust receipt
12
who disposed of the goods covered thereby and in violation of its terms, failed to
deliver to the bank the proceeds of the sale as payment of the debt secured by the trust
receipt" incurs only civil and not criminal liability for non-payment of the debt thus
incurred. I reiterate my separate opinion therein supporting the more liberal
interpretation that the trust receipt transaction "gives rise only to civil liability on the
part of the offender" and holding that the very definition of a trust receipt, to wit," ' (A)
trust receipt is considered as a security transaction intended to aid in financing
importers and retail dealers who do not have sufficient funds or resources to finance the
importation or purchase of merchandise, and who may not be able to acquire credit
except through utilization, as collateral, of the merchandise imported or purchased' (53
Am. Jr. 961, cited in Samo vs. People, 115 Phil. 346, 349), sustains the lower court's
rationale in dismissing the information that the contract covered by a trust receipt
is merely a secured loan. The goods imported by the small importer and retail dealer
through the bank's financing remain of their own property and risk and the old
capitalist orientation of putting them in jail for estafa for non-payment of the secured
loan (granted after they had been fully investigated by the bank as good credit risks)
through the fiction of the trust receipt device should no longer be permitted in this day
and age." **
The charge in the case at bar against petitioner-accused must accordingly be dismissed.
MELENCIO-HERRERA, J., concurring and dissenting:
I dissent in so far as the Decision states that violation of the terms of a trust receipt
does not constitute Estafa under Art. 315, par. 1 (b) of the Revised Penal Code, for being
contrary to the rulings in People vs. Yu Chai Ho, 53 Phil. 874 (1928); PNB vs. Arrozal, 103
Phil. 213 (1958), and Samo vs. People, 5 SCRA 355 (1962).
I concur in so far as the Decision holds that petitioner should not be held liable for the
crime of Estafa considering that in the cases above enumerated, the persons who
executed the trust receipts acted in their own individual capacities unlike in this case
where petitioner acted for and on behalf of the Metal Manufacturing Company, as its
General Manager, and was presumably authorized to do so. This Court has not as yet
laid down a ruling on the criminal liability of a corporation officer signing a trust
receipt on behalf of the corporation, a trust receipt being essentially a financing
transaction. It was only upon the promulgation of PD 115 on January 29, 1973 that
responsible directors, officers, employees or other officials of a corporation,
partnership, associations or other juridical entities are made expressly responsible for
violation of the terms of a trust receipt agreement committed by said corporation,
partnership, association or other juridical entities.
G.R. No. 111008 November 7, 1994
TRAMAT MERCANTILE, INC. AND DAVID ONG, petitioners,
vs.
HON. COURT OF APPEALS AND MELCHOR DE LA CUESTA, respondents.
Emilio G. Abrogena for petitioners.
Constante B. Albano for private respondent.
VITUG, J.:
This petition for review on certiorari challenges the 04th March 1993 decision of the
Court of Appeals and its resolution of 01 July 1993 denying the motion for
reconsideration.
On 09 April 1984, Melchor de la Cuesta, doing business under the name and style of
"Farmers Machineries," sold to Tramat Mercantile, Inc. ("Tramat"), one (1) unit
HINOMOTO TRACTOR Model MB 1100D powered by a 13 H.P. diesel engine. In
payment, David Ong, Tramat's president and manager, issued a check for P33,500.00
(apparently replacing an earlier postdated check for P33,080.00). Tramat, in turn, sold
the tractor, together with an attached lawn mower fabricated by it, to the Metropolitan
Waterworks and Sewerage System ("NAWASA") for P67,000.00. David Ong caused a
"stop payment" of the check when NAWASA refused to pay the tractor and lawn mower
after discovering that, aside from some stated defects of the attached lawn mower, the
engine (sold by de la Cuesta) was a reconditioned unit.
On 28 May 1985, de la Cuesta filed an action for the recovery of P33,500.00, as well as
attorney's fees of P10,000.00, and the costs of suit. Ong, in his answer, averred, among
other things, that de la Cuesta had no cause of action; that the questioned transaction
was between plaintiff and Tramat Mercantile, Inc., and not with Ong in his personal
capacity; and that the payment of the check was stopped because the subject tractor
had been priced as a brand new, not as a reconditioned unit.
On 02 November 1989, after the reception of evidence, the trial court rendered a
decision, the dispositive portions of which read:
WHEREFORE, in view of the foregoing consideration, judgment is
hereby rendered:
1. Ordering the defendants, jointly and severally,
to pay the plaintiff the sum of P33,500.00 with
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 legal interest thereon at the rate of 12% per
annum from July 7, 1984 until fully paid; and
2. Ordering the defendants, jointly and severally,
to pay the plaintiff the sum of P10,000.00 as
attorney's fees, and the costs of this suit.
SO ORDERED. 1
An appeal was timely interposed by the defendants. On 04 March 1993, the Court of
Appeals affirmed in toto the decision of the trial court. Defendant-appellants' motion
for reconsideration was denied.
Hence, the instant petition.
We could find no reason to reverse the factual findings of both the trial court and the
appellate court, particularly in holding that the contract between de la Cuesta and
TRAMAT was one of absolute, not conditional, sale of the tractor and that de la Cuesta
did not violate any warranty on the sale of the tractor to TRAMAT. The appellate court,
in its decision, adequately explained:
If the perfection of the sale was dependent upon acceptance by the
MWSS of the subject tractor why did the appellants issue a check in
payment of the item to the appellee? And long after MWSS had
complained about the defective tractor engine, and after the appellee
had failed to remedy the defect, why did the appellants still draw and
deliver a replacement check to the appellee for the increased amount
of P33,500.00?
These payments argue against the claim now made by the
defendants that the sale was conditional.
According to the appellee, the additional amount covered the cost of
replacing the oil gasket of the tractor engine when it was repaired in
Soledad Cac's gasoline station in Quezon City. The appellants, on the
other hand, claims the amount represented the freight charges for
transporting the tractor from Cauayan, Isabela to Metro Manila.
The appellants should have explained why they failed to include the
freight charges in the first check. The tractor was transported from
Isabela to Metro Manila as early as April 1984, and the first check was
drawn at about the same time. The freight charges cannot be said to
have been incurred when the tractor engine was delivered back to
the supplier for repairs. The appellants admitted that the engine was
not brought back to Isabela. The repairs were done at Soledad Cac's
gasoline station in Quezon City.
Anent the first assigned error, We sustain the trial court's finding
that at the time of the purchase, the appellants did not reveal to the
appellee the true purpose for which the tractor would be used.
Granting that the appellants informed the appellee that they would
be reselling the unit to the MWSS, an entity admittedly not engaged
in farming, and that they ordered the tractor without the power
tiller, an indispensable accessory if the tractor would be used in
farming, these in themselves would not constitute the required
implied notice to the appellee as seller.
xxx xxx xxx
In regard to the second assigned error, We do not agree that the
appellee should have been held liable for the tractor's alleged hidden
defects. . . .
It has to be noted in this regard that, to satisfy the requirements of
the MWSS, the appellants borrowed a lawn mower from the MWSS
so they could fabricate one such mower. The appellants' witness
stated that the kind of mid-mounted lawn mower was being
manufactured by their competitor, Alpha Machinery, which had by
then stopped supplying the same (tsn,
Nov. 29, 1988, pp. 73-74). There is no showing that the appellants
had had any previous experience in the fabrication of this lawn
mower. In fact, as aforesaid, they had to borrow one from the MWSS
which they could copy. But although they made a copy with the
same specifications and design, there was no assurance that the copy
would function as well as with the model.
xxx xxx xxx
Although the trial court discussed it in a different light, We view the
matter in the same way the trial court did — that the lawn mower as
fabricated by the appellants was the root of the parties' problems.
Having had no previous experience in the manufacture of lawn
mowers of the same type as that in litigation, and in a possibly
patent-infringing effort to undercut their competition, the appellants
gathered enough daring to do the fabrication themselves. But the
product might have proved too much for the subject tractor to
power, and the tractor's engine was strained beyond its limits,
causing it to overheat and damage its gaskets.
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 No wonder, then, it was a gasket Soledad Cac had to replace, at a
cost chargeable to the appellants. No wonder, furthermore, the
appellants' witness declared that even after the replacement of that
one gasket, the engine still leaked oil after being torture-tested. The
integrity of the other engine gaskets might have been impaired, too.
Such was the burden placed on the engine. The engine
malfunctioned not necessarily because the engine, as alleged by the
appellants, had been a reconditioned, and not a brand new, one. It
malfunctioned because it was made to do what it simply could not.2

It was, nevertheless, an error to hold David Ong jointly and severally liable with
TRAMAT to de la Cuesta under the questioned transaction. Ong had there so acted,
not in his personal capacity, but as an officer of a corporation, TRAMAT, with a distinct
and separate personality. As such, it should only be the corporation, not the person
acting for and on its behalf, that properly could be made liable thereon.3

Personal liability of a corporate director, trustee or officer along (although not

necessarily) with the corporation may so validly attach, as a rule, only when —

1. He assents (a) to a patently unlawful act of the corporation, or

(b) for bad faith, or gross negligence in directing its affairs, or (c) for conflict of interest,
resulting in damages to the corporation, its stockholders or other persons;4

2. He consents to the issuance of watered stocks or who, having knowledge thereof,

does not forthwith file with the corporate secretary his written objection thereto;5

3. He agrees to hold himself personally and solidarily liable with the corporation;6 or

4. He is made, by a specific provision of law, to personally answer for his corporate

action.7

In the case at bench, there is no indication that petitioner David Ong could be held
personally accountable under any of the abovementioned cases.

WHEREFORE, the petition is given DUE COURSE and the decision of the trial court,
affirmed by the appellate court, is MODIFIED insofar as it holds petitioner David Ong
jointly and severally liable with Tramat Mercantile, Inc., which portion of the
questioned judgment is SET ASIDE. In all other respects, the decision appealed from is
AFFIRMED. No costs.

SO ORDERED.

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