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[G.R. No. 106212.

March 7, 1997] wage and that when they demanded payment of the benefits due them, they were
summarily dismissed and barred from entering the workplace.
PROGRESS HOMES and ERMELO ALMEDA, petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION, GREGORIO A. MEDRANO, DANTE BAGUIO, Petitioners denied that private respondents were regular employees claiming that
JAIME GUAN, JOSE SAPALARAN, RONNIE DELPINO, DIONISIO they were only project employees and that there was no employer-employee
FRANCISCO and ELMER BAGUIO, respondents. relationship between them.

DECISION On December 27, 1991, the Labor Arbiter in Legazpi City forthwith issued a
decision in favor of private respondents.
ROMERO, J.:
On appeal, the NLRC affirmed the Labor Arbiter's decision.
Petitioners seek to set aside the decision of the National Labor Relations
Commission (NLRC) which affirmed the decision of the Labor Arbiter, the dispositive Hence, this petition.
portion of which states:
Petitioners maintain that there never existed an employer- employee relationship
"WHEREFORE, judgement (sic) is rendered directing respondents Progress between them and private respondents and that due process was denied them in
Homes and Ermelo Almeda jointly and severally liable to pay the petitioners proceedings before the Labor Arbiter and in the NLRC.
within ten (10) days from receipt hereof thru this Branch the aggregate
amount of EIGHTY THREE THOUSAND EIGHT HUNDRED PESOS Moreover, they point out that private respondents could not say who hired them,
(P83,800.00) as Backwages and Separation pay. 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
All other claims are denied for lack of merit. workers, as evidence of the alleged non-hiring of private respondents.

SO ORDERED." We find merit in this petition.

Petitioner Progress Homes Subdivision (Progress Homes), is a housing project The Labor Arbiter, in finding that an employer-employee relationship existed
undertaken by the Ermelo M. Almeda Foundation, Inc., a non-stock organization duly between the parties, said:
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 "This Branch holds that herein petitioners were illegally dismissed by the
"Progress Homes Subdivision" in Camarines Sur. The other petitioner, Ermelo Almeda, respondents, it being an established fact that employer-employee
is the President and General Manager of Progress Homes and the owner of the land relationship exists. Respondents hired all the petitioners thru the former's
where the Progress Homes Subdivision is located. foreman Rodolfo Badillo. Although this foreman denied hiring the
petitioners an admission was made that oftentimes said foreman saw these
Private respondents allegedly were among the workers employed by petitioners in petitioners working in the residential units which the respondents were
their construction and development of the subdivision from 1986 to 1988. They were constructing at that time. The affidavit of foreman Rodolfo Badillo to the
paid varying salaries. 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
Forty of these workers, including private respondents, filed before the NLRC was entered into by and between the respondents and the other co-
Arbitration Branch a petition for reinstatement, salary adjustment, ECOLA, overtime employees/co-petitioners of herein petitioners. To argue that the affiant
pay and 13th month pay. considers the latter employees who opted to amicably settle their disputes
with the same respondents, as having 'actually work (sic) for Progress
Petitioners amicably settled the case with thirty-three of the laborers, leaving Homes Subdivision' while maintaining that the former (petitioners) were
private respondents as the only claimants. Private respondents alleged that they not, without any other basis other than said self-serving allegation, is
worked as laborers and carpenters for 8.5 hours a day at a salary below the minimum patently untenable. The least that the respondents could have done was to
present the alleged written contracts of all the petitioners expressly stating

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therein the terms and conditions of their employment if indeed they were As regards the matter of evidence, it is clear that the Labor Arbiter relied solely on
executed. Finding none in the records except a xerox copy of one supposedly the bare allegations of the parties in their position papers in rendering his now assailed
entered by a certain Salvador B. Aonuevo, who is not even one of the decision. Rule V, Sections 4 and 5(b) of The New Rules of Procedure of the National
petitioners in the instant cases respondents' argument not only lack factual Labor Relations Commission states:
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 "Section 4. Determination of Necessity of Hearing. - Immediately after the
of Filing of Amended Articles of Incorporation from the Securities and submission by the parties of their position papers/memorandum, the Labor
Exchange Commission (SEC) were not even certified true copies and/or Arbiter shall motu proprio determine whether there is need for a formal trial
properly authenticated." 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
The evidence on record fails to convince the Court that private respondents were or information, including but not limited to the subpoena of relevant
indeed employed by petitioners. The Labor Arbiter does not give credence to the documentary evidence, if any from any party or witness.
affidavit of petitioners' foreman that he did not hire private respondents.
Section 5. x x x.
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 (b) If the Labor Arbiter finds no necessity of further hearing after the parties
obtrudes itself at this stage is: who did hire them? Private respondents have not have submitted their position papers and supporting documents, he shall
presented any evidence that petitioners were their immediate employers. 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
It does not make sense to require petitioners to produce contracts when they same period provided in paragraph (a) hereof."
categorically deny having entered into any contract of employment with private
respondents. 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
To determine the existence of an employer-employee relationship, the courts the labor arbiter when he submitted the case for decision solely on the basis of the
have generally sought the answer to these guidelines: position papers:

(1) the selection and engagement of the employee; "It is of note that certain important issues are raised by the position papers
filed before the labor arbiter among which are:
(2) the payment of wages;
1. whether respondent Abellano was a project employee whose employment was
(3) the power of dismissing; and deemed ended when the project was cancelled or whether he was a regular employee;

(4) the power to control the employee's conduct.[1] 2. If he was a regular employee, whether he voluntarily resigned as alleged by
petitioners or was dismissed;
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 3. If he was dismissed, whether there were valid grounds for his dismissal.
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 nature of the above issues shows that there was indeed grave abuse of
the employee in the payroll.[2] discretion on the part of the labor arbiter in issuing the order dated 18
September 1992 submitting the case for decision, without any hearing.
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 Article 221 of the Labor Code states in part:
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. '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

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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 [G.R. No. 117473. April 15, 1997]
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' REAHS CORPORATION, SEVERO CASTULO, ROMEO PASCUA, and DANIEL
VALENZUELA, petitioners, vs. NATIONAL LABOR RELATIONS
In rendering his now assailed decision, the labor arbiter relied solely on the COMMISSION, BONIFACIO RED, VICTORIA PADILLA, MA. SUSAN R.
bare allegations of the parties in their position papers. There is nothing in CALWIT, SONIA DELA CRUZ, SUSAN DE LA CRUZ, EDNA WAHINGON,
the labor arbiter's decision to show how he arrived at the conclusion that it NANCY B. CENITA and BENEDICTO A. TULABING, respondents.
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 DECISION
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. PADILLA, J.:

While it is true that the employer has the burden of proving the presence of This is a petition for certiorari under Rule 65 of the Rules of Court to annul and
valid grounds for dismissal of a worker, the abovestated issues in this case set aside the decision dated 29 April 1994 rendered by the National Labor Relations
require a hearing and reception of evidence before the issue of the validity Commission (NLRC) in NLRC Case No. 005024-93 entitled "Bonifacio Red, et al., v.
of Abellano's dismissal can be resolved. The respondent NLRC in sustaining Reah's Corporation, et. al.", which affirmed the decision of the Labor arbiter holding
and affirming the decision of the labor arbiter which was arrived at without individual petitioners jointly and severally liable with petitioner Reah's Corporation to
hearing on the vital issues involved, itself committed grave abuse of pay private respondents' claims for underpayment of wages, holiday pay, 13th month
discretion." pay and separation pay.

The same issues are raised in the instant case and the Labor Arbiter should have The facts, as culled by the labor arbiter from the position papers of both parties,
set the case for further presentation of evidence considering the dearth of evidence are as follows:
supporting private respondents' claims.
"Complainant Bonifacio Red alleges that he started working as a supervisor at the
Furthermore, the NLRC committed grave abuse of discretion when it affirmed the health and sauna parlor of respondents from September 5, 1977 to November 6, 1990,
Labor Arbiter's decision holding petitioner Almeda jointly and severally liable with with a salary of P50.00, that the said establishment was closed by respondents on
Progress Homes. The Court has held that corporate directors and officers are solidarily November 6, 1990, without any notice and without paying his wages, separation pay
liable with the corporation for the termination of employment of employees only if the and other benefits under the law; and that he works a minimum of twelve (12) hours a
termination is done with malice or in bad faith.[4] The Labor Arbiter's decision failed to day without being paid overtime.
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 Complainant Benedicto Tulabing alleges that he started on December 16, 1986 up to
respondents.[5] Petitioner Almeda, therefore, should not have been made personally November 6, 1990 in the same establishment with a salary of P26.00 a day; that he
answerable for the payment of private respondents' salaries. works thirteen (13) hours a day without payment of overtime pay.

WHEREFORE, the decision of respondent National Labor Relations Commission Complainant Nancy Cenita and Susan Calwit alleges [sic] that they were hired as
is hereby SET ASIDE. The complaint of private respondents against herein petitioner is waitresses on May 20, 1990 up to November 6, 1990 and paid on commission basis
hereby REMANDED to the Labor Arbiter of Naga City for hearing, reception of at P0.25 per bottle of beer sold to or consumed by the customers and that they work
evidence and decision. No pronouncement as to costs. ten (10) hours a day without being paid overtime.

SO ORDERED. 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

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service; that they render(ed) eleven (11) hours of work a day without being paid comply. Neither did respondents present any evidence to prove that Reah's closure was
overtime; and that the closure of the health parlor was illegal as they were not notified. really due to SERIOUS business losses or financial reverses. We only have respondents'
mere say-so on the matter.
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 The Supreme Court held in Basilio Balasbas vs. NLRC, et. al. (G.R. No. 85286, August
Avenue, Quezon City, offered to sell her business to respondent Reah's 24, 1992, 3rd Division, Romero, J.) that -
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 'Under Article 283 of the Labor Code, the closure of a business establishment or
complainant Red started his employment on the first week of December 1988 as a reduction of personnel is a ground for the termination of the services of any employee
roomboy at P50.00/day and was given living quarters inside the premises as he unless the closing or retrenching is for the purpose of circumventing the provision of
requested; that sometime in March 1989, complainant Red asked permission to go to the law. But while business reverses can be a just cause for terminating employees,
Bicol for a period of ten (10) days, which was granted, and was given an advance money these must be sufficiently proved by the employer. (Indino vs. NLRC, G.R. No. 80352,
of P1,200.00 to bring some girls from the province to work as attendants at the September 29, 1989, 178 SCRA 168).'
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 Thus, we cannot but agree that complainants are entitled to the payment of separation
employment with the understanding that he will have to refund the P1,200.00 cash pay."[2]
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 Petitioners filed a motion for reconsideration but this was denied by the NLRC on
losses leading to its closure."[1] 30 August 1994. In the present petition, petitioners raise three (3) issues which, for
brevity and clarity, may be simplified as follows:
On 6 May 1993, the labor arbiter rendered judgment dismissing private
respondents' complaints for unfair labor practice and illegal dismissal but upholding I.
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 WHETHER OR NOT PETITIONERS-OFFICERS CAN BE HELD JOINTLY AND
Bonifacio Red and Benedicto Tulabing were declared entitled to the claimed labor SEVERALLY LIABLE WITH THE CORPORATION IN THE PAYMENT OF
standard benefits as the rest were found to have been employed on commission SEPARATION PAY TO PRIVATE RESPONDENTS UNDER ARTICLE 283 OF THE
basis. The labor arbiter further awarded attorney's fees to private respondents Bonifacio LABOR CODE.
Red and Benedicto Tulabing amounting to ten (10%) percent of their adjudged money
claims.
II.
Petitioners appealed the labor arbiter's decision to the NLRC, contending mainly
WHETHER OR NOT THE OFFICERS OF REAH'S CORPORATION CAN BE HELD
that Article 283 of the Labor Code, "exempts establishment(s) from payment of
JOINTLY AND SEVERALLY LIABLE WITH THE CORPORATION IN PAYMENT OF
termination pay when the closure of business is due to serious business losses or
THE MONETARY CLAIMS AWARDED PRIVATE RESPONDENTS IN THE ABSENCE
financial reverses"; that petitioners Castulo, Pascua and Valenzuela, while admittedly
OF ANY FINDING OF UNFAIR LABOR PRACTICES OR ILLEGAL DISMISSAL.
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
III.
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."
WHETHER OR NOT THERE IS LEGAL BASIS FOR THE NLRC TO AFFIRM THE
AWARD OF 10% ATTORNEY'S FEES TO PRIVATE RESPONDENTS.
The NLRC dismissed the appeal based on the following dispositions:

Petitioners argue that since the charges of illegal dismissal and unfair labor
"Anent the issue on separation pay, Article 283 of the Labor Code provides that '[T]he
practices were dismissed by the labor arbiter, they cannot be held solidarily liable with
employer may x x x terminate the employment of any employee due to x x x the closing
the corporation for the payment of separation pay and labor standard benefits to
or cessation of operation of the establishment or undertaking x x x by serving a written
private respondents, when they used their business judgment to close the
notice on the workers and the Ministry of Labor and Employment at least one (1)
establishment because of serious business losses. They contend that even if they were
month before the intended date thereof. x x x.' This, respondents failed to
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the top corporate officers of Reah's corporation at the time they closed the business, We now proceed to rule on the corollary issue of whether or not individual
the corporation has a personality that is separate and distinct from its officers and petitioners Castulo, Pascua and Valenzuela should be held liable in solidum with the
stockholders. Since there was no finding that they violated Sec. 31 of the Corporation corporation (REAH's) in the payment to private respondents of separation pay and
Code[3] they cannot be held solidarily liable with the corporation. Petitioners further labor standard benefits.
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 As a general rule established by legal fiction, the corporation has a personality
due to causes other than serious business losses or financial reverses". 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
Petitioners have obviously resorted to a misreading of the last sentence of Article have exceeded their authority. This fictional veil, however, can be pierced by the very
283 which provides that - 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
" x x x In case of retrenchment to prevent losses and in cases of closures or cessation of to confuse legitimate issues". Under the Labor Code, for instance, when a corporation
operations of establishment or undertaking not due to serious business losses or violates a provision declared to be penal in nature, the penalty shall be imposed upon
financial reverses, the separation pay shall be equivalent to one (1) month pay or at the guilty officer or officers of the corporation.[7]
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." 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
It is not the function of the law nor its intent to supplant the prerogative of to the case at bar. In that case, a judgment against a corporation (A.C. Ransom) to
management in running its business, such as, to compel the latter to operate at a reinstate its dismissed employees with back wages was declared to be a continuing
continuing loss. Thus, Article 283 provides as an authorized cause in the termination of solidary liability of the company president and all who may have thereafter succeeded
employment the "closing or cessation of operation of the establishment or to said office after the records failed to identify the officer or agents directly responsible
undertaking". However, the burden of proving that the termination was for a valid or for failure to pay the back wages of its employees. The Court noted Ransom's
authorized cause shall rest on the employer.[4] If the business closure is due to serious subterfuge in organizing another family corporation while the case was on litigation
losses or financial reverses, the employer must present sufficient proof of its actual or with the intent to phase out the existing corporation in case of an adverse decision, as
imminent losses; it must show proof that the cessation of or withdrawal from business what actually happened when it ceased operations a few months after the labor arbiter
operations was bona fide in character.[5] ruled in favor of Ransom's employees.

The grant of separation pay, as an incidence of termination of employment under The basis, said the Court, is found in Article 212(c) of the Labor Code which
Article 283, is a statutory obligation on the part of the employer and a demandable provides that "an employer includes any person acting in the interest of an employer,
right on the part of the employee, except only where the closure or cessation of directly or indirectly." "Since Ransom is an artificial person, it must have an officer who
operations was due to serious business losses or financial reverses and there is can be presumed to be the employer, x x x.The corporation only in the technical sense
sufficient proof of this fact or condition. In the absence of such proof of serious is the employer."
business losses or financial reverses, the employer closing his business is obligated to
pay his employees and workers their separation pay. 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
The rule, therefore, is that in all cases of business closure or cessation of operation therein, was held solidarily liable with the corporation which thereafter became
or undertaking of the employer, the affected employee is entitled to separation insolvent and suspended operations; Chua v. NLRC,[10] also an illegal dismissal case,
pay. This is consistent with the state policy of treating labor as a primary social where the vice-president of a corporation was held solidarily liable with the corporation
economic force, affording full protection to its rights as well as its welfare. [6] The for the payment of the unpaid salaries of its president; and in Gudez v. NLRC,[11] where
exception is when the closure of business or cessation of operations is due to serious the president and treasurer were held solidarily liable with the corporation which had
business losses or financial reverses; duly proved, in which case, the right of affected ceased operations but failed to pay the wage and money claims of its employees.
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 These cases, however, should be construed still as exceptions to the doctrine of
shown or proved. 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
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showing that the officers of the corporation deliberately or maliciously designed to The last issue raised by petitioners is whether there is legal basis for the payment
evade the financial obligation of the corporation to its employees", or a showing that of 10% attorney's fees out of the total amount awarded to private respondents Red and
the officers indiscriminately stopped its business to perpetrate an illegal act, as a Tulabing. The Court finds this portion of the assailed decision to have been rendered
vehicle for the evasion of existing obligations, in circumvention of statutes, and to with grave abuse of discretion as both the labor arbiter and the NLRC failed to make an
confuse legitimate issues. 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
In the case at bar, the thrust of petitioners' arguments was aimed at confining cases where there is an unlawful withholding of wages,[15] or under Article 222 those
liability solely to the corporation, as if the entity were an automaton designed to arising from collective bargaining negotiations that may be charged against union
perform functions at the push of a button. The issue, however, is not limited to funds in an amount to be agreed upon by the parties.None of these situations exists in
payment of separation pay under Article 283 but also payment of labor standard the case at bar.
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 WHEREFORE, the decision of respondent National Labor Relations Commission
have indiscriminately stopped the entity's business, at the same time, petitioners have is hereby AFFIRMED in so far as it holds petitioners Castulo, Pascua, and Valenzuela
opted to abstain from presenting sufficient evidence to establish the serious and jointly and severally liable with Reah's Corporation to pay all private respondents
adverse financial condition of the company. 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
As the NLRC aptly stated: legal basis.

"Neither did respondents (petitioners) present any evidence to prove that Reah's SO ORDERED.
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 [G.R. No. 115795. March 6, 1998]
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 JOSE S. SANTOS, JR., petitioner, vs. NATIONAL LABOR RELATIONS
conscious that the corporation was violating labor standard provisions but they did not COMMISSION, HAGONOY INSTITUTE INC., ITS DIRECTRESS,MARTA B.
act to correct these violations; instead, they abruptly closed business. Neither did they ZUNIGA and PRINCIPAL B. BANAG, respondent.
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
DECISION
substantial proof in their hands to prove such losses.
ROMERO, J.:
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,
It is to state the obvious that schools, next only to the home, wield a weighty
coffee shop, and massage clinic in November 1990. But in its petition, petitioners aver,
influence upon the students, especially during the latters formative years, for it instills
among others, that the "company totally folded for lack of patrons, (disconnection of)
in them the values and mores which shall prepare them to discharge their rightful
light and discontinuance of the leased premises [sic] for failure to pay the increased
responsibilities as mature individuals in society. At the vanguard in nurturing their
monthly rentals from P8,000 to P20,000."[14] Under the Rules of Evidence, petitioners
growth are the teachers who are directly charged with rearing and educating them. As
are bound by the allegations contained in their pleading. Since petitioners themselves
such, a teacher serves as a role model for his students. Corollarily, he must not bring
have admitted that they have dissolved the corporation de facto, the Court presumes
the teaching profession into public disrespect or disgrace.[1] For failure to live up to the
that Reah's Corporation had become insolvent and therefore would be unable to satisfy
exacting moral standards demanded by his profession, petitioner Jose Santos was
the judgment in favor of its employees. Under these circumstances, we cannot allow
dismissed from his employment on the ground of immorality. We uphold his dismissal.
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 The following facts are hereunder narrated.
they obstinately refused to grant the labor standard benefits and separation pay due
private respondent-employees.
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Petitioner, a married man, was employed as a teacher by the private respondent controversy. Five months later or in May 1991, petitioner was informed by the private
Hagonoy Institute Inc. from June 1980 until his dismissal on June 1, 1991. Likewise respondents Board of Directors of his dismissal effective June 1, 1991.[6] Unable to accept
working as a teacher for the private respondent was Mrs. Arlene T. Martin, also such verdict, petitioner filed a complaint for illegal dismissal on August 12, 1991 before
married. In the course of their employment, the couple fell in love. Thereafter, rumors the NLRC Regional Arbitration Branch No. III, San Fernando, Pampanga.After a full
regarding the couples relationship spread, especially among the faculty members and blown trial was conducted, Labor Arbiter Quintin C. Mendoza rendered a decision
school officials. 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:
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 WHEREFORE, judgement is hereby issued dismissing the complaint, but ordering
report for work. Consequently, on November 9, 1990, she was barred from reporting for respondent Hagonoy Institute Inc. and/or Mrs. Elisea B. Banag (respondent Principal)
work and was not allowed to enter the private respondents premises, effectively or Mrs. Marta B. Zuniga (respondent Directress) to pay complainant (petitioner) the
dismissing her from her employment. 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.
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, SO ORDERED.
San Fernando, Pampanga[2] against the private respondent. After the parties had
submitted their respective evidence and position paper, Labor Arbiter Ariel Santos In an effort to seek the reversal of the labor arbiters decision, petitioner filed an
rendered a decision dismissing the complaint, the dispositive part of which states: 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
WHEREFORE, the complaint filed by the complainant Arlene Martin is hereby NLRC dismissed the appeal, to wit:
DISMISSED for utter lack of merit.
WHEREFORE, premises considered, the instant appeal should be, as it is hereby,
However, considering the length of service of complaint and for humanitarian reason dismissed for lack of merit.
she would be given financial assistance based on one-month pay on every year of
service. SO ORDERED.

On appeal, the NLRC in a decision dated February 26, 1993, reversed the labor Petitioners motion for reconsideration suffered the same fate.[8] Thus, this
arbiters ruling, the dispositive portion of the decision[3] reads: petition for certiorari under Rule 65 of the Rules of Court.

WHEREFORE, the appealed Decision is hereby SET ASIDE and VACATED. Another We hereby uphold the NLRCs finding dismissing petitioner from his employment.
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 The crux of the controversy is whether the illicit relationship between the
DISMISSED for lack of merit. petitioner and Mrs. Martin could be considered immoral as to constitute just cause to
terminate an employee under Article 282 of the Labor Code.
SO ORDERED.
We have consistently held that in order to constitute a valid dismissal, two
The reversal was anchored on the failure by the private respondent, in dismissing requisites must concur: (a) the dismissal must be for any of the causes expressed in Art.
Mrs. Martin, to accord her the necessary procedural due process.[4] 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]
Meanwhile, private respondent set up a committee to investigate the veracity
of the rumors. After two weeks of inquiry, the committee rendered its report Under Article 282 of the Labor Code, as amended, the following are deemed just
confirming the illicit relationship between the petitioner and Mrs. Martin.[5] causes to terminate an employee:

In view of the committees finding, on December 19, 1990, petitioner was charged (a) Serious misconduct or willful disobedience by the employee of the lawful orders of
administratively for immorality and was required to present his side on the his employer or representative in connection with his work;

7
(b) Gross and habitual neglect by the employee of his duties: validity of marriage and unity of the family.[16] Our laws, in implementing this
constitutional edict on marriage and the family underscore their permanence,
(c) Fraud or willfull breach by the employee of the trust reposed in him by his employer inviolability and solidarity.[17]
or duly authorized representative;
As a teacher, petitioner serves as an example to his pupils, especially during their
(d) Commission of a crime or offense by the employee against the person of his formative years[18] and stands in loco parentis to them.[19] To stress their importance in
employer or any immediate member of his family or his duly authorize representative; our society, teachers are given substitute and special parental authority under our
and laws.[20]

(e) Other causes analogous to the foregoing. 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
Moreover, it is provided inter alia under Section 94[10] of the Manual of teacher, both in his official and personal conduct, must display exemplary behavior. He
Regulations for Private Schools: 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
Section 94. Causes of Terminating Employment. In addition to the just cases outside the classroom, must be beyond reproach.
enumerated in the Labor Code, the employment of school personnels, including
faculty, may be terminated for any of the following causes: 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
xxx xxx xxx 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]
E. Disgraceful or immoral conduct.
From the foregoing, it seems obvious that when a teacher engages in extra-marital
Private respondent, in justifying the termination of the petitioner, contends that relationship, especially when the parties are both married, such behavior amounts to
being a teacher, he must live up to the high moral standards required of his position. In immorality, justifying his termination from employment.[23]
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 Having concluded that immorality is a just cause for dismissing petitioner, it is
system.[11] 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
On the other hand, petitioner merely argues that the alleged illicit relationship same must be supported by substantial evidence.[25]
was not substantially proven by convincing evidence by the private respondent as to
justify his dismissal. 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,
On the outset, it must be stressed that to constitute immorality, the particularly when it coincides with those by the Labor Arbiter, are accorded respect,
circumstances of each particular case must be holistically considered and evaluated in even finality, and will not be disturbed for as long as such findings are supported by
light of the prevailing norms of conduct and applicable laws.[12] American jurisprudence substantial evidence.[26] A scrutiny of the records of the instant petition leads us to
has defined immorality as a course of conduct which offends the morals of the concur with the NLRCs finding that petitioner indeed entered into an illicit
community and is a bad example to the youth whose ideals a teacher is supposed to relationship with his co-teacher.This fact was attested to by the testimonies of nine
foster and to elevate,[13] the same including sexual misconduct.[14] Thus, in petitioners witnesses (a fourth year student, a security guard, a janitor and six co-teachers) which
case, the gravity and seriousness of the charges against him stem from his being a petitioner failed to rebut.
married man and at the same time a teacher.
In fact, the petitioners only recourse was to deny the accusation and insinuate
We cannot overemphasize that having an extra-marital affair is an afront to the that these witnesses were coerced by the private respondent to give their
sanctity of marriage, which is a basic institution of society. Even our Family Code testimonies.However, under such circumstances, it is not enough for petitioner to
provides that husband and wife must live together, observe mutual love, respect and simply cast doubt on the motives of the witnesses; he must present countervailing
fidelity.[15] This is rooted in the fact that both our Constitution and our laws cherish the evidence to prove that no such affair took place.

8
In short, we cannot just ignore the witnesses affidavits and their subsequent misconduct or those reflecting his moral character. Where the reason for the valid
testimonies during the investigation as to the culpability of the petitioner on the sole dismissal is, for example, habitual intoxication or an offense involving moral turpitude,
basis of the latters denial. In any event, we have held that denial, if unsubstantiated by like theft or illicit sexual relationship with a fellow worker, the employer may not be
clear and convincing evidence, is a negative and self-serving evidence which has no required to give the dismissed employee separation pay, or financial assistance, or
weight in law and cannot be given greater evidentiary value over the testimony of whatever other name it is called, on the ground of social justice.
credible witnesses who testified on affirmative matters.[27]
The above ruling has consistently been applied in terminating an employee when
Further bolstering the witnesses testimonies is the the absence of any motive on it involves his moral character.[32]
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 WHEREFORE, in view of the foregoing, the petition is hereby DISMISSED. The
falsely against the petitioner, their testimonies are hereby accorded full faith and credit. questioned Resolution dated March 8, 1994 and the decision of the National Labor
Relations Commission dated November 29, 1993, are AFFIRMED with the
Likewise, petitioner cannot take comfort from the letter dated November 7, 1990 MODIFICATION deleting the financial assistance granted to petitioner in the amount
signed by 28 of his co-teachers, expressing their unequivocal support for Mrs. Arlene of P13,750.00. Costs against petitioner.
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 SO ORDERED.
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 G.R. No. L-30896 April 28, 1983
accord her the required due process.[29]
JOSE O. SIA, petitioner,
As aptly observed by the NLRC in its decision:[30] vs.
THE PEOPLE OF THE PHILIPPINES, respondent.
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 DE CASTRO, J.:
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 Petition for review of the decision of the Court of Appeals affirming the decision of the
and gave his side. x x x In fine, herein complainant (petitioner) cannot successfully seek Court of First Instance of Manila convicting the appellant of estafa, under an
refuge in the cited case of Martin. (Rollo, pp. 48-49) information which reads:

In view of our finding that petitioners dismissal was for a just and valid cause, the That in, about or during the period comprised' between July 24, 1963
grant of financial assistance by the NLRC is without any factual and legal and December 31, 1963, both dates inclusive, in the City of Manila,
basis. In PLDT v. NLRC, [31] we held that: Philippines, the said accused did then and there willfully, unlawfully
and feloniously defraud the Continental Bank, a banking institution
We hold henceforth separation pay shall be as a measure of social justice only in these duly organized and doing business in the City of Manila, in the
instances where the employee is validly dismissed for cause other than serious following manner, to wit: the said accused, in his capacity as
9
president and general manager of the Metal Manufacturing of the deducting his deposit valued at P28,736.47; that was the reason why
Philippines, Inc. (MEMAP) and on behalf of said company, obtained upon complaint by Continental Bank, the Fiscal filed the information
delivery of 150 M/T Cold Rolled Steel Sheets valued at P 71,023.60 after preliminary investigation as has been said on 22 October, 1964.
under a trust receipt agreement under L/C No. 63/109, which cold (Rollo [CA], pp. 103- 104).
rolled steel sheets were consigned to the Continental Bank, under
the express obligation on the part of said accused of holding the said The first issue raised, which in effect combines the first three errors assigned, is
steel sheets in trust and selling them and turning over the proceeds whether petitioner Jose O. Sia, having only acted for and in behalf of the Metal
of the sale to the Continental Bank; but the said accused, once in Manufacturing Company of the Philippines (Metal Company, for short) as President
possession of the said goods, far from complying with his aforesaid thereof in dealing with the complainant, the Continental Bank, (Bank for short) he may
obligation and despite demands made upon him to do so, with intent be liable for the crime charged.
to defraud, failed and refused to return the said cold rolled sheets or
account for the proceeds thereof, if sold, which the said accused In discussing this question, petitioner proceeds, in the meantime, on the assumption
willfully, unlawfully and feloniously misappropriated, misapplied that the acts imputed to him would constitute the crime of estafa, which he also
and converted to his own personal use and benefit, to the damage disputes, but seeks to avoid liability on his theory that the Bank knew all along that
and prejudice of the said Continental Bank in the total amount of petitioner was dealing with him only as an officer of the Metal Company which was the
P146,818.68, that is the balance including the interest after deducting true and actual applicant for the letter of credit (Exhibit B) and which, accordingly,
the sum of P28,736.47 deposited by the said accused with the bank as assumed sole obligation under the trust receipt (Exhibit A). In disputing the theory of
marginal deposit and forfeited by the said from the value of the said petitioner, the Solicitor General relies on the general principle that when a corporation
goods, in the said sum of P71,023.60. (Original Records, p. 1). 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
In reviewing the evidence, the Court of Appeals came up with the following findings of crime, The Court of Appeals has subscribed to this view when it quoted approvingly
facts which the Solicitor General alleges should be conclusive upon this Court: from the decision of the trial court the following:

There is no debate on certain antecedents: Accused Jose 0. Sia A corporation is an artificial person, an abstract being. If the defense
sometime prior to 24 May, 1963, was General Manager of the Metal theory is followed unscrupulously legions would form corporations
Manufacturing Company of the Philippines, Inc. engaged in the to commit swindle right and left where nobody could be convicted,
manufacture of steel office equipment; on 31 May, 1963, because his for it would be futile and ridiculous to convict an abstract being that
company was in need of raw materials to be imported from abroad, can not be pinched and confined in jail like a natural, living person,
he applied for a letter of credit to import steel sheets from Mitsui hence the result of the defense theory would be hopeless chose in
Bussan Kaisha, Ltd. of Tokyo, Japan, the application being directed business and finance. It is completely untenable. (Rollo [CA], p. 108.)
to the Continental Bank, herein complainant, Exhibit B and his
application having been approved, the letter of credit was opened on The above-quoted observation of the trial court would seem to be merely restating a
5 June, 1963 in the amount of $18,300, Exhibit D; and the goods general principle that for crimes committed by a corporation, the responsible officers
arrived sometime in July, 1963 according to accused himself, tsn. II:7; thereof would personally bear the criminal liability. (People vs. Tan Boon Kong, 54 Phil.
now from here on there is some debate on the evidence; according to 607. See also Tolentino, Commercial Laws of the Philippines, p. 625, citing cases.)
Complainant Bank, there was permitted delivery of the steel sheets
only upon execution of a trust receipt, Exhibit A; while according to The case cited by the Court of Appeals in support of its stand-Tan Boon Kong
the accused, the goods were delivered to him sometime before he case, supra-may however not be squarely applicable to the instant case in that the
executed that trust receipt in fact they had already been converted corporation was directly required by law to do an act in a given manner, and the same
into steel office equipment by the time he signed said trust receipt, law makes the person who fails to perform the act in the prescribed manner expressly
tsn. II:8; but there is no question - and this is not debated - that the liable criminally. The performance of the act is an obligation directly imposed by the
bill of exchange issued for the purpose of collecting the unpaid law on the corporation. Since it is a responsible officer or officers of the corporation
account thereon having fallen due (see Exh. B) neither accused nor who actually perform the act for the corporation, they must of necessity be the ones to
his company having made payment thereon notwithstanding assume the criminal liability; otherwise this liability as created by the law would be
demands, Exh. C and C-1, dated 17 and 27 December, 1963, and the illusory, and the deterrent effect of the law, negated.
accounts having reached the sum in pesos of P46,818.68 after

10
In the present case, a distinction is to be found with the Tan Boon Kong case in that the In case of sale I/we further agree to hand the proceeds as soon as
act alleged to be a crime is not in the performance of an act directly ordained by law to received to the BANK to apply against the relative acceptance (as
be performed by the corporation. The act is imposed by agreement of parties, as a described above) and for the payment of any other indebtedness of
practice observed in the usual pursuit of a business or a commercial transaction. The mine/ours to CONTINENTAL BANK. (Original Records, p. 108)
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 One view is to consider the transaction as merely that of a security of a loan, and that
parties, therefore, is a factor determinant of whether a crime was committed or the trust element is but and inherent feature of the security aspect of the arrangement
whether a civil obligation alone intended by the parties. With this explanation, the where the goods are placed in the possession of the "entrustee," to use the term used in
distinction adverted to between the Tan Boon Kong case and the case at bar should P.D. 115, violation of the element of trust not being intended to be in the same concept
come out clear and meaningful. In the absence of an express provision of law making as how it is understood in the criminal sense. The other view is that the bank as the
the petitioner liable for the criminal offense committed by the corporation of which he owner and "entrustor" delivers the goods to the "entrustee, " with the authority to sell
is a president as in fact there is no such provisions in the Revised Penal Code under the goods, but with the obligation to give the proceeds to the "entrustor" or return the
which petitioner is being prosecuted, the existence of a criminal liability on his part goods themselves if not sold, a trust being thus created in the full sense as
may not be said to be beyond any doubt. In all criminal prosecutions, the existence of contemplated by Art. 315, par. 1 (b).
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 We consider the view that the trust receipt arrangement gives rise only to civil liability
compelling force in the prosecution of offenses. This Court has thus far not ruled on as the more feasible, before the promulgation of P.D. 115. The transaction being
the criminal liability of an officer of a corporation signing in behalf of said corporation contractual, the intent of the parties should govern. Since the trust receipt has, by its
a trust receipt of the same nature as that involved herein. In the case of Samo vs. nature, to be executed upon the arrival of the goods imported, and acquires legal
People, L-17603-04, May 31, 1962, the accused was not clearly shown to be acting other standing as such receipt only upon acceptance by the "entrustee," the trust receipt
than in his own behalf, not in behalf of a corporation. 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
The next question is whether the violation of a trust receipt constitutes estafa under importation of the goods, all through the efforts of the importer who has to find his
Art. 315 (1-[2]) of the Revised Penal Code, as also raised by the petitioner. We now supplier, arrange for the payment and shipment of the imported goods-all these
entertain grave doubts, in the light of the promulgation of P.D. 115 providing for the circumstances would negate any intent of subjecting the importer to criminal
regulation of trust receipts transaction, which is a very comprehensive piece of prosecution, which could possibly give rise to a case of imprisonment for non-payment
legislation, and includes an express provision that if the violation or offense is of a debt. The parties, therefore, are deemed to have consciously entered into a purely
committed by a corporation, partnership, association or other juridical entities the commercial transaction that could give rise only to civil liability, never to subject the
penalty provided for in this Decree shall be imposed upon the directors, officers, "entrustee" to criminal prosecution. Unlike, for instance, when several pieces of jewelry
employees or other officials or persons therein responsible for the offense, without are received by a person from the owner for sale on commission, and the former
prejudice to civil liabilities arising from the criminal offense. The question that suggests misappropriates for his personal use and benefit, either the jewelries or the proceeds of
itself is, therefore, whether the provisions of the Revised Penal Code, Article 315, par. 1 the sale, instead of returning them to the owner as is his obligation, the bank is not in
(b) are not adequate to justify the punishment of the act made punishable by P.D. 115, the same concept as the jewelry owner with full power of disposition of the goods,
that the necessity was felt for the promulgation of the decree. To answer this question, which the bank does not have, for the bank has previously extended a loan which the
it is imperative to make an indepth analysis of the conditions usually embodied in a L/C represents to the importer, and by that loan, the importer should be the real owner
trust receipt to best their legal sufficiency to constitute the basis for holding the of the goods. If under the trust receipt the bank is made to appear as the owner, it was
violation of said conditions as estafa under Article 315 of the Revised Penal Code which but an artificial expedient, more of a legal fiction than fact, for if it were really so, it
P.D. 115 now seeks to punish expressly. 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
As executed, the trust receipt in question reads: 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
I/WE HEREBY AGREE TO HOLD SAID GOODS IN TRUST FOR totally absent in the case of the transaction between the jewel-owner and his agent.
THE SAID BANK as its property with liberty to sell the same for its
account but without authority to make any other disposition Consequently, if only from the fact that the trust receipt transaction is susceptible to
whatsoever of the said goods or any part thereof (or the proceeds two reasonable interpretation, one as giving rise only to civil liability for the violation of
thereof) either way of conditional sale, pledge or otherwise; 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, FOR ALL THE FOREGOING, We reverse the decision of the Court of Appeals and
May 7, 1976, 71 SCRA 68; People vs. Parayno, L-24804, July 5, 1968, 24 SCRA 3; People hereby acquit the petitioner, with costs de oficio.
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.) SO ORDERED.

There is, moreover, one circumstance appearing on record, the significance of which Concepcion, Jr., Guerrero, Vasquez, Relova and Gutierrez, JJ., concur.
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 Fernando, CJ., Escolin, Plana, Abad Santos, JJ., concur in the result.
(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
Separate Opinions
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 TEEHANKEE, J., concurring:
Code giving rise to criminal liability, as previously explained and demonstrated.
In concur. Petitioner personally cannot be charged and convicted for the crime of estafa
It is worthy of note that the civil liability imposed by the trust receipt is exclusively on for failure of the corporation(MEMAP) represented by him as president and general
the Metal Company. Speaking of such liability alone, as one arising from the contract, manager to pay "the balance of P46,818.68 .... including the interest after deducting the
as distinguished from the civil liability arising out of a crime, the petitioner was never sum of P28,736.47" which sum, according to the very information, it was "deposited by
intended to be equally liable as the corporation. Without being made so liable the said accused with the [Continental] bank as marginal deposit and forfeited by the
personally as the corporation is, there would then be no basis for holding him said bank from the value of said goods, in the said sum of P 71,023.60" representing the
criminally liable, for any violation of the trust receipt. This is made clearly so upon value of the cold rolled steel sheets imported by the corporation with the bank's
consideration of the fact that in the violation of the trust agreement and in the absence financing under its letter of credit and released to the importer corporation under trust
of positive evidence to the contrary, only the corporation benefited, not the petitioner receipt in favor of the bank.
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 All these acts were corporate acts with the accused duly representing the corporation as
which there is variance between the allegation and the evidence. 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,
It is also worthy of note that while the trust receipt speaks of authority to sell, the fact as wrongly alleged in the information), the receipt of the steel sheets,
is undisputed that the imported goods were to be manufactured into finished products then manufactured into finished products (which could not technically be done under
first before they could be sold, as the Bank had full knowledge of. This fact is, however, the terms of the trust receipt required by the bank, under which the very sheets were
not embodied in the trust agreement, thus impressing on the trust receipt vagueness supposed to be sold by the corporation) and the non-payment of the credit extended by
and ambiguity which should not be the basis for criminal prosecution, in the event of a the bank. There is not the slightest evidence nor intimation that these corporate acts
violation of the terms of the trust receipt. Again, P.D. 115 has express provision relative were unauthorized or that petitioner personally had committed any fraud or deceit in
to the "manufacture or process of the good with the purpose of ultimate sale," as a connection therewith or that he had personallybeen responsible for or benefited from
distinct condition from that of "to sell the goods or procure their sale" (Section 4, (1). the corporation's failure to pay the bank the balance due under the trust receipt.
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 In the recent case of People vs. Cuevo, G. R. No. L-27607, decided by the Court on May
prosecution, that there must be strict harmony, not variance, between the allegation 7, 1981, the Court, for lack of necessary votes, affirmed the dismissal of the same charge
and the evidence, may therefore, not be said to have been satisfied in the instance case. 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 G.R. No. 111008 November 7, 1994
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 TRAMAT MERCANTILE, INC. AND DAVID ONG, petitioners,
incurred. I reiterate my separate opinion therein supporting the more liberal vs.
interpretation that the trust receipt transaction "gives rise only to civil liability on the HON. COURT OF APPEALS AND MELCHOR DE LA CUESTA, respondents.
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 Emilio G. Abrogena for petitioners.
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 Constante B. Albano for private respondent.
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
VITUG, J.:
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
This petition for review on certiorari challenges the 04th March 1993 decision of the
loan (granted after they had been fully investigated by the bank as good credit risks)
Court of Appeals and its resolution of 01 July 1993 denying the motion for
through the fiction of the trust receipt device should no longer be permitted in this day
reconsideration.
and age." **

On 09 April 1984, Melchor de la Cuesta, doing business under the name and style of
The charge in the case at bar against petitioner-accused must accordingly be dismissed.
"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
MELENCIO-HERRERA, J., concurring and dissenting:
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
I dissent in so far as the Decision states that violation of the terms of a trust receipt the tractor, together with an attached lawn mower fabricated by it, to the Metropolitan
does not constitute Estafa under Art. 315, par. 1 (b) of the Revised Penal Code, for being Waterworks and Sewerage System ("NAWASA") for P67,000.00. David Ong caused a
contrary to the rulings in People vs. Yu Chai Ho, 53 Phil. 874 (1928); PNB vs. Arrozal, 103 "stop payment" of the check when NAWASA refused to pay the tractor and lawn mower
Phil. 213 (1958), and Samo vs. People, 5 SCRA 355 (1962). after discovering that, aside from some stated defects of the attached lawn mower, the
engine (sold by de la Cuesta) was a reconditioned unit.
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 On 28 May 1985, de la Cuesta filed an action for the recovery of P33,500.00, as well as
executed the trust receipts acted in their own individual capacities unlike in this case attorney's fees of P10,000.00, and the costs of suit. Ong, in his answer, averred, among
where petitioner acted for and on behalf of the Metal Manufacturing Company, as its other things, that de la Cuesta had no cause of action; that the questioned transaction
General Manager, and was presumably authorized to do so. This Court has not as yet was between plaintiff and Tramat Mercantile, Inc., and not with Ong in his personal
laid down a ruling on the criminal liability of a corporation officer signing a trust capacity; and that the payment of the check was stopped because the subject tractor
receipt on behalf of the corporation, a trust receipt being essentially a financing had been priced as a brand new, not as a reconditioned unit.
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,
On 02 November 1989, after the reception of evidence, the trial court rendered a
partnership, associations or other juridical entities are made expressly responsible for
decision, the dispositive portions of which read:
violation of the terms of a trust receipt agreement committed by said corporation,
partnership, association or other juridical entities.
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

13
legal interest thereon at the rate of 12% per not brought back to Isabela. The repairs were done at Soledad Cac's
annum from July 7, 1984 until fully paid; and gasoline station in Quezon City.

2. Ordering the defendants, jointly and severally, Anent the first assigned error, We sustain the trial court's finding
to pay the plaintiff the sum of P10,000.00 as that at the time of the purchase, the appellants did not reveal to the
attorney's fees, and the costs of this suit. appellee the true purpose for which the tractor would be used.
Granting that the appellants informed the appellee that they would
SO ORDERED. 1 be reselling the unit to the MWSS, an entity admittedly not engaged
in farming, and that they ordered the tractor without the power
An appeal was timely interposed by the defendants. On 04 March 1993, the Court of tiller, an indispensable accessory if the tractor would be used in
Appeals affirmed in toto the decision of the trial court. Defendant-appellants' motion farming, these in themselves would not constitute the required
for reconsideration was denied. implied notice to the appellee as seller.

Hence, the instant petition. xxx xxx xxx

We could find no reason to reverse the factual findings of both the trial court and the In regard to the second assigned error, We do not agree that the
appellate court, particularly in holding that the contract between de la Cuesta and appellee should have been held liable for the tractor's alleged hidden
TRAMAT was one of absolute, not conditional, sale of the tractor and that de la Cuesta defects. . . .
did not violate any warranty on the sale of the tractor to TRAMAT. The appellate court,
in its decision, adequately explained: 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
If the perfection of the sale was dependent upon acceptance by the so they could fabricate one such mower. The appellants' witness
MWSS of the subject tractor why did the appellants issue a check in stated that the kind of mid-mounted lawn mower was being
payment of the item to the appellee? And long after MWSS had manufactured by their competitor, Alpha Machinery, which had by
complained about the defective tractor engine, and after the appellee then stopped supplying the same (tsn,
had failed to remedy the defect, why did the appellants still draw and Nov. 29, 1988, pp. 73-74). There is no showing that the appellants
deliver a replacement check to the appellee for the increased amount had had any previous experience in the fabrication of this lawn
of P33,500.00? 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
These payments argue against the claim now made by the same specifications and design, there was no assurance that the copy
defendants that the sale was conditional. would function as well as with the model.

According to the appellee, the additional amount covered the cost of xxx xxx xxx
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 Although the trial court discussed it in a different light, We view the
other hand, claims the amount represented the freight charges for matter in the same way the trial court did — that the lawn mower as
transporting the tractor from Cauayan, Isabela to Metro Manila. fabricated by the appellants was the root of the parties' problems.

The appellants should have explained why they failed to include the Having had no previous experience in the manufacture of lawn
freight charges in the first check. The tractor was transported from mowers of the same type as that in litigation, and in a possibly
Isabela to Metro Manila as early as April 1984, and the first check was patent-infringing effort to undercut their competition, the appellants
drawn at about the same time. The freight charges cannot be said to gathered enough daring to do the fabrication themselves. But the
have been incurred when the tractor engine was delivered back to product might have proved too much for the subject tractor to
the supplier for repairs. The appellants admitted that the engine was 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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