digests corpo rehab selected

8/22/2019 digests corpo rehab selected

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Merrill Lynch Futures vs. CA Case DigestMerrill Lynch Futures vs. Court of Appeals[GR 97816, 24 July 1992]

Facts: On 23 November 1987, Merrill Lynch futures, Inc.(ML FUTURES) filed a complaint with the Regional TrialCourt at Quezon City against the Spouses Pedro M. Laraand Elisa G. Lara for the recovery of a debt and interestthereon, damages, and attorney's fees. In its complaint MLFUTURES described itself as (a) "a non-resident foreign

corporation, not doing business in the Philippines, dulyorganized and existing under and by virtue of the laws ofthe state of Delaware, U.S.A.;" as well as (b) a 'futurescommission merchant' duly licensed to act as such in thefutures markets and exchanges in the United States, . . .essentially functioning as a broker (executing) orders tobuy and sell futures contracts received from its customerson U.S. futures exchanges." In its complaint ML

FUTURES alleged (1) that on 28 September 1983 itentered into a Futures Customer Agreement with thespouses (Account 138-12161), in virtue of which it agreedto act as the latter's broker for the purchase and sale offutures contracts in the U.S.; (2) that pursuant to thecontract, orders to buy and sell futures contracts weretransmitted to ML FUTURES by the Lara Spouses

"through the facilities of Merrill Lynch Philippines, Inc., aPhilippine corporation and a company servicing MLFutures' customers;" (3) that from the outset, the LaraSpouses "knew and were duly advised that Merrill LynchPhilippines, Inc. was not a broker in futures contracts," and


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that it "did not have a license from the Securities andExchange Commission to operate as a commodity tradingadvisor (i.e., "and entity which, not being a broker,

furnishes advice on commodity futures to persons whotrade in futures contracts"); (4) that in line with the abovementioned agreement and through said Merill LynchPhilippines, Inc., the Lara Spouses actively traded infutures contracts, including "stock index futures" for fouryears or so, i.e., from 1983 to October, 1987, there beingmore or less regular accounting and correspondingremittances of money (or crediting or debiting) made

between the spouses and ML FUTURES; (5) that becauseof a loss amounting to US $160,749.69 incurred in respectof 3 transactions involving "index futures," and after settingthis off against an amount of US $75,913.42 then owing byML FUTURES to the Lara Spouses, said spouses becameindebted to ML FUTURES for the ensuing balance of US$84,836.27, which the latter asked them to pay; (6) that

the Lara Spouses however refused to pay this balance,"alleging that the transactions were null and void becauseMerrill Lynch Philippines, Inc., the Philippine companyservicing accounts of ML Futures, had no license tooperate as a "commodity and/or financial futures broker."

On the foregoing essential facts, ML FUTURES prayed (1)for a preliminary attachment against the spouses'properties "up to the value of at least P2,267,139.50," and(2) for judgment, after trial, sentencing the spouses to payML FUTURES: (a) the Philippine peso equivalent of$84,836.27 at the applicable exchange rate on date ofpayment, with legal interest from the date of demand until


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full payment; (b) exemplary damages in the sum of at leastP500,000,00; and (c) attorney's fees and expenses oflitigation as may be proven at the trial. Preliminary

attachment issued ex parte on 2 December 1987, and thespouses were duly served with summons. The spousesfiled a motion to dismiss dated 18 December 1987 on thegrounds that (1) ML FUTURES had "no legal capacity tosue" and (2) its "complaint states no cause of action sinceit is not the real party in interest." On 12 January 1988, theTrial Court promulgated an Order sustaining the motion todismiss, directing the dismissal of the case and

discharging the writ of preliminary attachment. It laterdenied ML FUTURES's motion for reconsideration, byOrder dated 29 February 1988. ML FUTURES appealed tothe Court of Appeals. In its own decision promulgated on27 November 1990, the Court of Appeals affirmed the TrialCourt's judgment. Its motion for reconsideration havingbeen denied, ML FUTURES appealed to the Supreme

Court on certiorari.

Issue:1. Whether ML FUTURES was doing business inthe Philippines without license.

2. Whether in light of the fact that the Laras werefully aware of its lack of license to do business in the

Philippines, and in relation to those transactions hadmade payments to, and received money from it forseveral years the Lara Spouses are estopped toimpugn ML FUTURES capacity to sue them in thecourts of the forum.

Held:


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1. The facts on record adequately establish that MLFUTURES, operating in the United States, had indeed

done business with the Lara Spouses in the Philippinesover several years, had done so at all times through MerrillLynch Philippines, Inc. (MLPI), a corporation organized inthis country, and had executed all these transactionswithout ML FUTURES being licensed to so transactbusiness here, and without MLPI being authorized tooperate as a commodity futures trading advisor. These arethe factual findings to both the Trial Court and the Court of

Appeals. These, too, are the conclusions of the Securities& Exchange Commission which denied MLPI's applicationto operate as a commodity futures trading advisor, adenial subsequently affirmed by the Court of Appeals.Prescinding from the proposition that factual findings ofthe Court of Appeals are generally conclusive, theSupreme Court has been cited to no circumstance of

substance to warrant reversal of said Appellate Court'sfindings or conclusions in this case. Further, the Laras didtransact business with ML FUTURES through its agentcorporation organized in the Philippines, it beingunnecessary to determine whether this domestic firm wasMLPI (Merrill Lynch Philippines, Inc.) or Merrill LynchPierce Fenner & Smith (MLPI's alleged predecessor). Thefact is that ML FUTURES did deal with futures contracts inexchanges in the United States in behalf and for theaccount of the Lara Spouses, and that on severaloccasions the latter received account documents andmoney in connection with those transactions. Given thesefacts, if indeed the last transaction executed by ML


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FUTURES in the Laras's behalf had resulted in a lossamounting to US $160,749.69; that in relation to this loss,ML FUTURES had credited the Laras with the amount of

US $ 75,913.42 which it (ML FUTURES) thenadmittedly owed the spouses and thereafter sought tocollect the balance, US $84,836.27, but the Laras hadrefused to pay (for the reasons already above stated).

2. The Laras received benefits generated by theirbusiness relations with ML FUTURES. Those businessrelations, according to the Laras themselves, spanned a

period of 7 years; and they evidently found those relationsto be of such profitability as warranted their maintainingthem for that not insignificant period of time; otherwise, itis reasonably certain that they would have terminated theirdealings with ML FUTURES much, much earlier. In fact,even as regards their last transaction, in which the Larasallegedly suffered a loss in the sum of US$160,749.69, the

Laras nonetheless still received some monetaryadvantage, for ML FUTURES credited them with theamount of US $75,913.42 then due to them, thus reducingtheir debt to US $84,836.27. Given these facts, andassuming that the Lara Spouses were aware from theoutset that ML FUTURES had no license to do business inthis country and MLPI, no authority to act as broker for it, itwould appear quite inequitable for the Laras to evadepayment of an otherwise legitimate indebtedness due andowing to ML FUTURES upon the plea that it should nothave done business in this country in the first place, orthat its agent in this country, MLPI, had no license either tooperate as a "commodity and/or financial futures broker."


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Considerations of equity dictate that, at the very least, theissue of whether the Laras are in truth liable to MLFUTURES and if so in what amount, and whether they

were so far aware of the absence of the requisite licenseson the part of ML FUTURES and its Philippinecorrespondent, MLPI, as to be estopped from alleging thatfact as a defense to such liability, should be ventilated andadjudicated on the merits by the proper trial court.

FIRST DIVISION

G.R. No. L-44944 August 9, 1985

TOP-WELD MANUFACTURING, INC., petitioner,vs.ECED, S.A., IRTI, S.A., EUTECTIC CORPORATION,

VICTOR C. GAERLAN, and THE HON. COURT OFAPPEALS, respondents.

Angara, Conception, Regula & Cruz Law Office forpetitioner.

Alonzo Q. Ancheta for respondents.

GUTIERREZ, JR., J.:

This is a petition to review the decision of the Court ofAppeals now Intermediate Appellate Court annulling


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portions of the orders issued by Judge Gregorio Pineda ofthe Court of First Instance of Rizal.

Petitioner Top-weld Manufacturing, Inc. (Top-weld) is a

Philippine corporation engaged in the business ofmanufacturing and selling welding supplies andequipment.

In pursuance of its business, the petitioner entered intoseparate contracts with two different foreign entities. Onecontract, entitled a "LICENSE AND TECHNICAL

ASSISTANCE AGREEMENT" and dated January 2, 1972was entered into with IRTI, S.A., (IRTI), a corporationorganized and existing under the laws of Switzerland withprincipal office at Fribourg, Switzerland. By virtue of thisagreement, the petitioner was constituted a licensee ofIRTI to manufacture welding products under certainspecifications, with raw materials to be purchased by theformer from suppliers designated by IRTI, for a period of

three (3) years or up to January 1, 1975. This contract waslater extended up to December 31, 1975 in a subsequentagreement.

The other contract was a "DISTRIBUTOR AGREEMENT"dated January 1, 1975 entered into with ECED, S.A.,(ECED), a company organized and existing under the lawsof Panama with principal office at Apartado 1903, PanamaI, City of Panama. Under this agreement, the petitionerwas designated as ECED's distributor in the Philippines ofcertain welding products and equipment. By its terms, thecontract was to remain effective until terminated by either


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party upon giving six (6) months or 180 days written noticeto the other.

Upon learning that the two foreign entities were

negotiating with another group to replace the petitioner astheir licensee and distributor, the latter instituted on June16, 1975, Civil Case No. 21409 against IRTI, ECEDanother corporation named EUTECTIC Corporation,organized under the laws of the State of New York,U.S.A., and an individual named Victor C. Gaerlan, aFilipino citizen alleged to be the representative and

employee of these three corporations.

In its complaint, the petitioner sought the issuance of a writof preliminary injunction to restrain the corporations fromnegotiating with third persons or from actually carrying outthe transfer of its distributorship and franchising rights, Italso asked the court to prohibit the defendants fromterminating their contracts with the petitioner, and if said

termination had already been accomplished, from puttinginto effect and carrying out the terms and theconsequences of said termination until after good faithnegotiations on existing contracts between them had beencarried out and completed.

On June 17, 1975, the lower court issued a restrainingorder against the corporation pending the hearing on theissuance of a writ of preliminary injunction.

On July 25,1975, IRTI and ECED wrote Top-weldseparate notices about the termination of their respectivecontracts.


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On September 3,1975, Top-weld filed an amendedcomplaint together with a supplemental complaint whichembodied a new application for a preliminary mandatory

injunction to compel ECED to ship and deliver variousitems covered by the distributorship contract, and toprohibit the corporations from importing into thePhilippines directly or indirectly any EUTECTIC materials,supplies or equipment except to and/or through thepetitioner.

Among others, the petitioner invoked the provisions of No.

9. Section 4 of Republic Act 5455 on alien firms doingbusiness in the Philippines.

The corporations filed their answers setting up asaffirmative defenses violations of the contracts allegedlycommitted by the petitioner consisting of the following:

a) Failure to pay respondent IRTI the stipulated

3% royalties;

b) The use of other wrong materials in themanufacture of welding products bearing theEutectic label;

c) The use of the wrong core wire in themanufacture of Eutectic 680;

d) The use of obsolete and antiquatedequipment;


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e) Rebranding of other manufactured weldingproducts or non-Eutectic products with theEutectic label;

f) The manufacture and sale of inferior andsubstandard quality products bearing the Eutecticlabel resulting in numerous complaints fromcustomers such as Saulog Transit and ManilaMining Corporation;

g) The falsification of ECED pro-forma invoices in

order to procure Eutectic goods at lower prices;h) The illegal channeling of sales of Eutecticproducts through the Que Pe Hardware Store;and

i) The sale of welding products bearing brandsother than Eutectic, such as Fujiweld, and even

Eutectic products not included in its authority andfor which it has never been supplied byrespondent EUTECTIC with the raw materials forits manufacture nor with finished productsthereof.

The respondent corporation further alleged that Section 4(9) of R.A. No. 5455 cannot possibly apply to the instant

case because:

a) With the violations of the contracts by theplaintiff and "other just causes" earlier mentioned,the defendants IRTI and ECED are fully justifiedin terminating them without being obliged to pay


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any compensation nor to reimburse plaintiff ofinvestment or other expenses;

b) In fact, the defendants have sent written

notices dated July 25, 1975 of the termination oftheir respective agreements with plaintiffs; and

c) Since no written certificate was applied for norobtained by defendant entities from the Board ofInvestments, the latter cannot legally require ofthem compliance with No. 9, Section 4, R.A. No,

5455.On October 9, 1975, the trial court issued an ordergranting the petitioner's application for preliminaryinjunction embodied in the amended complaint and itsapplication for a writ of mandatory preliminary injunctionembodied in the supplemental complaint,

The corporations filed with the trial court a motion forreconsideration.

On December 18, 1975, the trial court issued anotherorder denying the said motion for reconsideration withrespect to the lifting of the writ of preliminary injunction butgranting the prayer for the lifting of the writ of preliminarymandatory injunction.

The case was elevated to the Court of Appeals on apetition for certiorari with preliminary injunction filed by thecorporations. In setting aside the questioned orders, theappelate court held that:


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The determinative question defined by thecontentions of the parties in this case is, whetheror not TOP-WELD may rightfully invoke the

provisions of Sec. 4, Republic Act No. 5455 toenjoin petitioner corporations from terminatingthe subject licensing and distributorship contractsthey have with TOP-WELD. The pertinent portionof the provision reads:

Section 4. Licenses to do business.-Noalien, and no firm, association,

partnership, corporation, or any otherform of business organization formed,organized, chartered or existing underany laws other than those of thePhilippines, or which is not a PhilippineNational, or more than thirty per cent ofthe outstanding capital of which is

owned or controlled by aliens shall dobusiness or engage in any economicactivity in alien the Philippines, or beregistered, licensed, or permitted by theSecurities and Exchange Commission,or by any other bureau, office, agency,political subdivision, or instrumentality ofthe government, to do business, or

engage in an economic activity in thePhilippines without first securing awritten certificate from the Board ofInvestments to the effect ... .


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Upon granting said certificate, the Boardshall impose the following requirementson the alien or the firm, association,

partnership, corporation, or other form ofbusiness organization that is notorganized or existing under the laws ofthe Philippines. ... .

(9) Not to terminate any franchise,licensing or other agreement thatapplicant may have with a resident of

the Philippines, authorizing the latter toassemble, manufacture or sell within thePhilippines the products of the applicant,except for violation thereof or other justcause and upon payment ofcompensation and reimbursement andother expenses incurred by the licensee

in developing a market for the saidproducts; Provided. however, That incase of disagreement, the amount ofcompensation or reimbursement shallbe determined by the court where thelicensee is domiciled or has its principaloffice who shall require the applicant tofile a bond in such amount as, in its

opinion, is sufficient for this purpose.

By the licensing and distributorship arrangementshad with TOPWELD, there is no doubt that IRTIand ECED were doing business and engaging in


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economic activity in the Philippines (see Sections1 and 4, R.A. No. 5455), as a prerequisite towhich they should have first secured a written

certificate from the Board of Investments. It is notdisputed, however, that IRTI and ECED have notsecured such written certificate in consequenceof which there was no occasion for the Board ofInvestments to impose the requirementsprescribed in the aforequoted provisions of Sec.4, R.A. No. 5455, among which is that thegrantee of the certificate shall not terminate any

franchise, licensing or other agreement it mayhave with a resident of the Philippines for theassembly, manufacture or sale within the countryof the products of said grantee, except forviolation thereof or other just cause and uponpayment of compensation and reimbursementand other expenses incurred by the resident

licensee in developing a market for said products.In this case, while the parties are in dispute as tothe existence of a violation of the contractsinvolved or of other just cause, there is no quarrelover the fact that IRTI and ECED have not paid,and do not intend to pay, such compensation orreimbursement contemplated in the law,maintaining that TOPWELD is not entitled to thesame.

Under the particular situation obtaining in thiscase, this Court is of the opinion that petitionercorporations are not bound by the requirement on


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termination, and TOPWELD cannot invoke thesame against the former. The reason is notsimply because IRTI and ECED, by failing to get

the required certificate from the Board ofInvestment, were not made subject by the saidBoard to the requirement on termination, asmaintained by petitioners. To impose suchrequirement on petitioners would be toperpetuate, and force them to remain in, anunlawful business operation. Moreover, it wasincumbent upon TOPWELD to know whether or

not IRTI and ECED were properly authorized toengage into the licensing and distributorshipagreements. At the very least TOPWELD has notcome to court with clear hands, and cannot beheard to invoke the equitable remedy ofinjunction to perpetuate an illegal situation itvoluntarily helped bring about.

If only for the foregoing considerations, thereappears a grave abuse of discretion on the partof respondent Judge in issuing the orderscomplained of.

Petitioner, TOP-WELD filed this present petition putting inissue the following assignments of errors:

I

Respondent Court of Appeals committed a graveerror when it held that a foreign corporation,which is admittedly 'doing business in the


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Philippines' but which has failed to secure therequired certificate and license to do business inthe Philippines, is not subject to the stricture

imposed by Sec. 4 (9) of Republic Act No. 5455.II

Respondent Court of Appeals committed a graveerror when it held that the failure of petitioner toknow at the outset whether or not respondentswere properly authorized to engage in business

in the Philippines stops petitioner to invoke theprotection of Sec. 4 (9) of Republic Act No. 5455.

III

Respondent Court of Appeals committed a graveerror when it held that petitioner cannot invokethe remedy of injunction against respondents.

At the vortex of the controversy is the issue whether or notrespondent corporations can be considered as "doingbusiness" in the Philippines and, therefore, subject to theprovisions of R.A. No. 5455. There is no dispute thatrespondents are foreign corporations not licensed to dobusiness in the Philippines. More important, however,there is no serious objection interposed by the

respondents as to their amenability to the jurisdiction ofour courts.

There is no general rule or governing principle laid downas to what constitutes "doing" or engaging in" or"transacting" business in the Philippines. Each case must


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be judged in the light of its peculiar circumstances.(Mentholatum Co. V. Mangaliman, 72 Phil. 524). Thus, aforeign corporation with a settling agent in the Philippines

which issued twelve marine policies covering differentshipments to the Philippines (General Corporation of thePhilippines v. Union Insurance Society of Canton, Ltd., 87Phil. 313) and a foreign corporation which had beencollecting premiums on outstanding policies(Manufacturing Life Insurance Co. v. Meer, 89 Phil. 351)were regarded as doing business here. The acts of thesecorporations should be distinguished from a single or

isolated business transaction or occasional, incidental andcasual transactions which do not come within the meaningof the law. Where a single act or transaction, however, isnot merely incidental or casual but indicates the foreigncorporation's intention to do other business in thePhilippines, said single act or transaction constitutes"doing" or "engaging in" or "transacting" business in the

Philippines. (Far East International Import and ExportCorporation v. Nankai Kogyo, Co., 6 SCRA 725).

In the Mentholatum Co. v. Mangaliman case earlier cited,this Court held:

xxx xxx xxx

... The true test, however, seems to be whetherthe foreign corporation is continuing the body orsubstance of the business or enterprise for whichit was organized or whether it has substantiallyretired from it and turned it over to another.(Traction Cos. v. Collectors of Int. Revenue


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[C.C.A. Ohio], 223 F. 984, 987.) The term impliesa continuity of commercial dealings andarrangements, and contemplates, to that extent,

the performance of acts or works or the exerciseof some of the functions normally incident to, andin progressive prosecution of, the purpose andobject of its organization. (Griffin v. ImplementDealers' Mut. Fire Ins. Co., 241 N.W. 75, 77,Pauline Oil & Gas Co. v. Mutual Tank Line Co.,246 P. 851, 852, 118 Okl. 111 AutomotiveMaterial Co. v. American Standard Metal

Products Corp., 158 N.E. 698, 703, 327 111.367.)

Judged by the foregoing standards, we agree with theCourt of Appeals in considering the respondents as "doingbusiness" in the Philippines. When the respondentsentered into the disputed contracts with the petitioner, they

were carrying out the purposes for which they werecreated, i.e. to manufacture and market welding productsand equipment. The terms and conditions of the contractsas well as the respondents' conduct indicate that theyestablished within our country a continuous business, andnot merely one of a temporary character. This fact is evenmore strengthened by the admission of the respondentsthat they are negotiating with another group for the

transfer of the distributorship and franchising rights fromthe petitioner.

Respondents' acts enabled them to enter into themainstream of our economic life in competition with our


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local business interests. This necessarily brings themunder the provisions of R.A. No. 5455.

The respondents contend that they should be exempted

from the requirements of R.A. 5455 because the petitionermaintained an independent status during the existence ofthe disputed contracts.

This may be true if the petitioner is an independent entitywhich buys and distributes products not only of thepetitioner but also of other manufacturers or transacts

business in its name and for its account and not in thename or for the account of the foreign principal.

A perusal of the agreements between the petitioner andthe respondents shows that they are highly restrictive innature. The agreements provide in part the followingterms:

xxx xxx xxx10. No Sales in Territory by IRTI

IRTI shall not solicitor or cause or permit itsemployees, licensees or agents to solicit ormake any sales, directly or indirectly, ofWELDING PRODUCTS within or to the

Philippines. IRTI agrees to refer to LICENSEEall product inquiries received by IRTI forWELDING PRODUCTS destined forPhilippines.

xxx xxx xxx


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16. x x x x x x x x x

Restrictive Covenant

LICENSEE will not, directly or indirectly,without the written consent of IRTI at any timeduring the continuance of this Agreement andfor a period of two years after the date of thetermination of this Agreement, engage eitherdirectly or indirectly in the business of sellingproducts similar to said WELDING

PRODUCTS, either as principal, agent,employee or through stock or proprietaryinterests in a third part entity.

xxx xxx xxx

RESTRICTI

VE COVENANT

6. DISTRIBUTOR shall not during thecontinuance of this agreement distributeproducts of any other manufacturer orsupplier in the Territory assigned to him,which are similar to the Products.

Upon the termination of this agreement by

either party, DISTRIBUTOR agrees not toengage, directly or indirectly, in thecommercialization, distribution and/ormanufacture of products competing with anyEUTECTIC + CASTOLIN products covered by


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this agreement, or of products likely to affectthe sale of any EUTECTIC + CASTOLINproducts, either as principal, agent or

employee in the Territory, this prohibition toextend for a period of two (2) years from thedate of termination, except for the explicitpurpose of selling any remaining Productsstill in DISTRIBUTOR's possession on thedate of termination of this agreement whichsales shall not be below the DISTRIBUTOR'spretermination selling price for such Products

unless such sale is to ECED or its nominee inwhich case Clause 19 hereof shall govern.

xxx xxx xxx

We can conclude that assuming the petitioner maintainsan independent status, in essence it merely extends to thePhilippines the business of the foreign corporations.

On the basis of the foregoing, we uphold the appellatecourt's finding that "IRTI AND ECED were doing businessand engaging in economic activity in the Philippines ... asa prerequisite to which they should have first secured awritten certificate from the Board of Investments."

The respondent court, however, erred in holding that "IRTI

and ECED have not secured such written certificate inconsequence of which there is no occasion for the Boardof Investments to impose the requirements prescribed inthe aforequoted provisions of Sec. 4, R.A. No. 5455 ... ."To accept this view would open the way for an


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interpretation that by doing business in the country withoutfirst securing the required written certificate from the Boardof Investments, a foreign corporation may violate or

disregard the safeguards which the law, by its provisions,seeks to establish.

We agree, however, that there is a more compellingreason behind the finding that the "corporations are notbound by the requirement on termination, and TOP-WELDcannot invoke the same against the former."

As between the parties themselves, R.A. No. 5455 doesnot declare as void or invalid the contracts entered intowithout first securing a license or certificate to do businessin the Philippines. Neither does it appear to intend toprevent the courts from enforcing contracts made incontravention of its licensing provisions. There is nodenying, though, that an "illegal situation," as the appellatecourt has put it, was created when the parties voluntarily

contracted without such license.

The parties are charged with knowledge of the existing lawat the time they enter into the contract and at the time it isto become operative. (Twiehaus v. Rosner, 245 SW 2d107; Hall v. Bucher, 227 SW 2d 98). Moreover, a person ispresumed to be more knowledgeable about his own statelaw than his alien or foreign contemporary. In this case,the record shows that, at least, petitioner had actualknowledge of the applicability of R.A. No. 5455 at the timethe contract was executed and at all times thereafter. Thisconclusion is compelled by the fact that the same statuteis now being propounded by the petitioner to bolster its


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claim. We, therefore, sustain the appellate court's viewthat "it was incumbent upon TOP-WELD to know whetheror not IRTI and ECED were properly authorized to engage

in business in the Philippines when they entered into thelicensing and distributorship agreements." The verypurpose of the law was circumvented and evaded whenthe petitioner entered into said agreements despite theprohibition of R.A. No. 5455. The parties in this case beingequally guilty of violating R.A, No. 5455, they are in paridelicto, in which case it follows as a consequence thatpetitioner is not entitled to the relief prayed for in this case.

In Bough v. Cantiveros (40 Phil. 210), the principle is laiddown in these words: "The rule of pari delicto is expressedin the maxims "ex dolo malo non eritur actio" and "in paridelicto potior est conditio defedentis." The law will not aideither party to an illegal agreement. It leaves the partieswhere it finds them."

No remedy could be afforded to the parties because oftheir presumptive knowledge that the transaction wastainted with illegality. (Soriano v. Ong Hoo, 103 Phil. 829).Equity cannot lend its aid to the enforcement of an allegedright claimed by virtue of an agreement entered into incontravention of law.

Lastly, we come to the issue of "just cause" for thetermination of the contracts or the alleged violations of thecontracts made by petitioner. Though properly ventilatedbelow, this factual issue was not determined by both thetrial court and the appellate court.


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The record shows that respondents, in opposing theinjunction suit and alleging the violations of the contracts,submitted and relied on their affidavits. The petitioner,

however, to refute these charges, submitted a "Reply toOpposition" which is neither verified nor supported bycounter-affidavits. There is no showing in the recordsbefore us whether oral testimony was presented by any ofthe parties or whether the affiants were subjected to thetest of cross-examination and if any, what was statedduring the oral testimony.

The burden of overcoming the responsive effect of theanswer is upon the petitioner. He who alleges a fact hasthe burden of proving it and a mere allegation is notevidence. (Legasca v. De Vera, 79 Phil. 376) Hearsayevidence alone may be insufficient to establish a fact in aninjunction suit (Parker v. Furlong, 62 P. 490) but, when noobjection is made thereto, it is, like any other evidence, to

be considered and given the importance it deserves.(Smith v. Delaware & Atlantic Telegraph & Telephone Co.,51 A 464). Although we should warn of the undesirabilityof issuing judgments solely on the basis of the affidavitssubmitted, where as here, said affidavits areoverwhelming, uncontroverted by competent evidence andnot inherently improbable, we are constrained to upholdthe allegations of the respondents regarding the

multifarious violations of the contracts made by thepetitioner. Accordingly, we rule that there exists a justcause for respondents to move for the termination of theircontracts with the petitioner.


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Moreover, the facts on record show that the "License andTechnical Assistance Agreement" between petitioner andrespondent IRTI was extended only for a period of one

year or to be precise, from January 1, 1975 to December31, 1975. The original injunction suit was brought in thecourt a quo in June1975, the purpose being to stop therespondent from terminating the contract. This purposewas realized when the court granted the injunction. By thetime respondents' appeal was decided by the Court of

Appeals, it was already past the extended period. Thedispute between the parties had been rendered moot and

academic. It should be stated that the courts be it theoriginal trial court or the appellate court have no power tomake contracts for the parties. No court would be justifiedin extending the life of the contracts, subject of thiscontroversy, since that would do violence to the basicprinciple that contracts must be the voluntary agreementsof parties,

Parties can not be coerced to enter into a contract whereno agreement is had between them as to the principalterms and condition of the contract (Republic v. PhilippineLong Distance Telephone Co., 26 SCRA 620).

With the above observations, there is nothing more for thisCourt to do except to dismiss the petition.

FIRST DIVISION

G.R. No. 165476 March 10, 2006


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AGRIPINO V. MOLINA, Petitioner,vs.PACIFIC PLANS, INC., Respondent.

D E C I S I O N

CALLEJO, SR.,J.:

Before us is a Petition for Review on Certiorari assailingthe Decision1 and Resolution2 of the Court of Appeals (CA)in CA-G.R. SP No. 81298 reversing the Decision3 of theNational Labor Relations Commission (NLRC) in NLRC-

NCR (South) Case No. 30-07-03393-01.

Pacific Plans, Inc. (PPI) is a domestic corporationengaged in the business of selling pre-need plans, suchas educational, pension, and memorial plans.4 It maintainsregional offices throughout the Philippines. At the timematerial to this case, Metro Manila regional offices were

divided into two sales divisions - the South Sales Divisionand the North Sales Division. Metro Manila VI was part ofthe North Sales Division.5 Among the corporate officers ofPPI were Geoffrey Martinez, Executive Vice-President forFinance; Luciano Abia, Senior Assistant Vice-President,Metro Manila Marketing Division; and Atty. Manuel Reyes,the Head of the Legal Department.6 Roy Padiernos thenoccupied the position of Regional Manager of Metro

Manila VI.7

PPI solicited subscribers and buyers of its pre-need plansthrough clusters of sales associates. One of them wasRuth Padiernos, wife of Roy Padiernos.8
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Sometime in October 1994, PPI hired Agripino Molina asRegional Manager of Metro Manila VI, replacing RoyPadiernos who was promoted as First Vice-President for

Marketing Operations. As Regional Manager, Molinaperformed both administrative and marketing functions,whose duties and responsibilities included the following:

a. formulating and recommending short and longrange marketing plans for the Region and executingapproved plans;

b. generating new and conserving existing pre-needplan businesses;

c. motivating, training, and developing a dedicatedand effective counselor force;

d. conducting researches to determine salespotentials and share of the market, pricing, and

profitability of Company's products, competition andthe directing of product development for the Region;

e. hiring and terminating counselors, unit managers orgroup managers in accordance with policiespreviously laid out;

f. recommending the creation of additional positions

or termination of services of any employee within theRegion;

g. recommending promotions or changes in salariesof personnel within the Region and lateral shifts of


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supervisor, their assistants, understudies of positionsof equal rank;

h. training and developing understudies for each

position within the Region to provide immediatereplacement whenever vacated;

i. changing methods and procedures not affecting theother Regions, provided, however, that radicalchanges should first be cleared with [the] superior;

j. controlling the operations of the Region and

establishing a system of periodic work reporting;

k. coordinating the Regions activities with those ofthe other Regions;

l. keeping [the] superior informed of [the] Region'sactivities and specially of [the] decision on matters forwhich he may be held responsible;

m. realizing the Companys objective for service,growth, and profit;

n. establishing and maintaining harmonious anddignified relationship with plan holders, counselors,employees, the public, government instrumentalities,other pre-need plan companies; [and]

o. further enhancing the prestige of the Company andmaintaining its position of leadership in its field.9

Since Metro Manila VI was consistently on top in terms ofnationwide sales and productivity, Molina was promoted
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Assistant Vice-President with the same functions as thoseof a regional manager of the same sales region.10

Caritas Health Shield, Inc. (Caritas for brevity), a health

maintenance organization (HMO) engaged in sellinghealth and hospitalization plans, was established onDecember 16, 1998. Geoffrey Martinez resigned asExecutive Vice-President of PPI and became thePresident and Chief Executive Officer of Caritas.11 Amongthe incorporators and members of the Board of Directorswere Luciano Abia and Atty. Manuel Reyes.12 Molina was

hired as Assistant Vice-President and Marketing Head ofArea 10. His wife, Fe Molina, was the head of a salesagency of Caritas.

In the meantime, from February 2000, there was aconsiderable decrease in the sales output production ofPPIs Metro Manila Region VI.13

On March 21, 2000, Molina received a Memorandum fromPPI, through its Senior Assistant Vice-President forHuman Relations, Patricio A. Picazo, informing him that,based on written reports, he committed the following: 1)recruiting and pirating activities in favor of Caritas, inparticular, initiating talks and enticing associates to joinCaritas, and a number of associates have already signedup; 2) he called for a meeting with his associatessometime in November 1999, and solicited contributionsfrom them for the bill but later asked for reimbursementfrom the company; and 3) acts of misdemeanor on severaloccasions, such as coming to the office under theinfluence of liquor, initiating a smear campaign against
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PPI, and other acts inimical to the companysinterest.14Molina was also required to submit, on March 23,2000, a written explanation why he should not be held

administratively liable for said acts which, it opined, mightconstitute conduct unbecoming of an officer, conflict ofinterest, and breach of trust and confidence. Molina wasalso informed that he was preventively suspendedpending formal investigation effective immediately until

April 24, 2000.15

In a letter addressed to Picazo dated March 22, 2000,

Molina categorically denied the acts attributed to him. He,however, requested that he be furnished with copies of thealleged written reports to enable him to prepare therequired written explanation.16 However, instead ofacceding to the request of copies of the written reports,Picazo wrote a letter dated April 3, 2000, citing theparticulars of the charges against Molina, thus:

I. Conflict of Interest

1. Recruiting and pirating activities in favor ofCaritas Health Shield, Inc.

* You have acted as conduit for Caritas inrecruiting/pirating Mr. Restie Acosta onMarch 04, 2000 and Ms. Eppie Acosta on

March 06, 2000.

*Your failure to stop and/or tolerating yourwife's activities in recruiting for Caritas Ms.
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Lennie Gatmaitan who belongs to Ms.Celeste Villena, a PPI GA.

II. Misappropriation of Funds

1. Solicitation of associates' personal funds in theamount of P200.00 per person, to which 12persons contributed for a total P2,400.00, forpayment of official function during the meetingheld at Barrio Fiesta last November 27, 1999.

Amount solicited was subsequently reimbursed

from the company but not returned to theassociates concerned.

III. Dereliction of Duties

1. You failed to prevent associates from leavingthe company in favor of competitors, thuscausing demoralization among your sales

associates.2. You even encouraged associates to transfer toCaritas.

IV. Conduct unbecoming of a Company Officer

1. Often reporting to office under the influence ofliquor.

2. Sowing intrigue in the case of Vilma delRosario which almost caused her early retirementfrom the company and transfer to Caritas.


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3. Sowing intrigues between Mr. Roy Padiernosand Mr. Abia.

4. Showing disrespect to immediate superior, Mr.

Roy Padiernos, by shouting at him and walkingout in one of the meetings called by him after theretirement of Atty. Haceta.17

During the investigation the following day, April 4, 2000,Molina reiterated his request to be provided with a copy ofthe written reports.18 Picazo denied the request in a

Memorandum dated April 6, 2000, and reiterated his orderfor Molina to submit his written explanation on April 11,2000, and to address his concerns during the investigationscheduled on April 14, 2000.19 Molina failed to submit anywritten explanation. On April 24, 2000, PPI issued aMemorandum advising Molina that he would be reinstatedin the payroll effective April 25, 2000 without requiring himto report for work during the pendency of his

investigation.20

Molina filed a "Motion to Dismiss Complaints and Motionfor Full Reinstatement" on May 2, 2000.21 He asserted thatthe charges should be dismissed since he was compelledto prepare a written explanation on the basis of"summarized specific acts," denying him the right to beinformed of the exact charges and to confront those whomade written reports against him. As to the issue ofreinstatement, he alleged that he should be allowed toreport for work, conformably with Rule XIV, Section 4 ofthe Implementing Rules of the Labor Code.22
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On May 11, 2000, Picazo wrote Molina that his motion todismiss the charges would be resolved after theinvestigation. He was warned that his non-appearance at

the investigation would be considered a waiver of his rightto be heard.23

On the same day, May 11, 2000, Abia issued an inter-office Memorandum announcing the appointment of SercyF. Picache as the Officer-In-Charge (OIC) for Metro VI andXVI effective May 6, 2000.24

Molina and his counsel attended the May 19, 2000investigation and filed a Motion to SuspendProceedings,25praying that the administrative investigationbe deferred until the resolution of the "prejudicial" issuesraised in his previous motion.26

When Picazo failed to respond, Molina filed, on June 1,2000, a complaint for damages with a prayer for a

temporary restraining order and preliminary injunctionbased on Article 19 of the New Civil Code. PPI filed aMotion to Dismiss, maintaining that the courts have no

jurisdiction over matters arising from employee-employerrelationship. The trial court denied the motion as well asPPIs motion for reconsideration.27

Meanwhile, in letter dated June 13, 2000, Molina was

notified of the termination of administrative investigation.PPI considered his failure to submit a written explanationas a waiver of his right to be heard, and as such, theinvestigating committee had evaluated the evidence athand and submitted its recommendations to the "higher
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management" for decision. Also, it confirmed the denial ofhis Motion to Suspend Proceedings.28

On June 23, 2000, the trial court issued an Order granting

Molina's prayer for temporary restraining order, which waslater made permanent per its Order dated July 12, 2000.The motion for reconsideration filed by PPI on July 26,2000 was likewise denied. Thereafter, it filed a petition forcertiorari before the CA, assailing the writ of preliminaryinjunction issued by the RTC and its order denying themotion to dismiss the complaint. On July 16, 2001, the CA

rendered judgment in favor of PPI and nullified the writ ofpreliminary injunction issued by the RTC as well as theorder denying the motion of PPI for the dismissal of thecomplaint.29

On July 30, 2001, PPI resolved to dismiss Molina fromemployment on its finding that the latter violated itsstandard operating procedure.30

Molina forthwith filed a complaint with the NLRC againstPPI and Alfredo C. Antonio, Patricio A. Picazo, andCerterio B. Uy, in their capacity as President, Senior

Assistant Vice-President of Human ResourcesDevelopment, and Division Head, respectively, for illegaldismissal and illegal suspension with claim for monetarybenefits.

In his Position Paper,31 Molina principally argued that hewas denied the right to due process due to the failure ofPPI to furnish him a copy of the written reports of the salesassociates and co-employees, the basis of the


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accusations against him. Since an OIC for his position wasalready appointed even before all his pending motionswere resolved, he surmised that there were really no such

reports, and that the alleged accusations were merelyconcocted in order to replace him with someone close toPicazo. Molina maintained that since he was denied theopportunity to dispute the authenticity and substantivecontents of the reports, his alleged violations of companyrules and policies were hearsay and, therefore, lackedprobative value. Besides, the termination of hisemployment was made without the 30-day prior notice; his

dismissal from employment took effect immediately, onlysix days after PPI received the CA decision decreeing thatthe NLRC has the rightful jurisdiction over the case. Thus,he prayed for the following relief:

1. Total Money Claims

a) Salary with (overriding) commission from

March 21 to April 24, 2000 - suspended w/o pay-P45,000.00 (P25,000[.00] mo. salary& P20,000[.00] [overriding])

b) Unpaid (overriding) commission from April 25,2000 to present - P400,000[.00]

c) Unpaid salary from August 1, 2001 to present

- P125,000[.00]

d) One mo. salary for every yr. of service in lieuof reinstatement - 7 years = P175,000.00

2. Leave Credits - P100,000.00 for 7 years


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3. Profit Bonus for Year 2000 & 2001 - P400,000.00

4. Moral Damages - P300,000.00

5. Exemplary Damages - P500,000.00

6. Actual Damages - for lifetime medical attendanceand medicines at 16 more years life expectancy-P1,249,384.00

7. Attorney's Fees - P300,000.00

8. Amount debited from complainant's ATM [as partialpayment for hospitalization expenses incurred by himwhich PPI had advanced] - P12,000.00

9. Retention of complainant's car, as additionalpenalty for illegal dismissal.32

For its part, PPI stressed that Caritas was its competitor in

the pre-need plans business, and that Molina and his wiferecruited and enticed some of the sales associates of PPIto work for Caritas, in violation of its policy against conflictof interest. Some of these sales associates were thespouses Eppie and Restie Acosta, Lenita Gatmaitan,Lolita Casaje, Lydia Magalso, Lydia San Miguel, and AliceHalili, and including Vilma del Rosario, the secretary ofRoy Padiernos. PPI, likewise, averred that Molina had the

habit of coming to the office under the influence of liquor;he constantly shouted to lady employees and solicitedmoney from his sales associates in connection with anofficial company function without returning the same afterPPI reimbursed him for the expenses incurred;


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disseminated intrigues and created divisiveness amongthe employees and PPIs senior officers; and disrespectedPadiernos, his superior, by shouting at him during one of

the meetings with other senior officers, and walked out ofthe meeting afterwards. Supporting its claims that Molinacommitted breach of trust, serious misconduct, fraud, andgross neglect of duty by reason thereof, PPI appended toits position paper the statements/affidavits of Marivic Uy,Ruth and Roy Padiernos, Eppie and Restie Acosta,Celeste Villena, and Vilma del Rosario.33

On the claim of Molina that he was denied due process,PPI averred that he was given sufficient opportunity topresent his personal submissions before finally issuing thenotice of dismissal but Molina persistently refused tosubmit his explanation.34 PPI further argued that he wasnot entitled to the payment of 13th and 14th monthsalaries, overriding commission, profit bonus, actual,

moral or exemplary damages, and attorneys fees. PPImaintained that, under Article 217(a) of the Labor Code,as amended, and the ruling of this Court in Baez v.Valdevilla,35 Molina should be held liable for P1,000,000 asmoral damages and an amount not less thanP428,400.00for the salary he received during the time when therestraining order/ writ of injunction was erroneouslyenforced.36

In his Reply, Molina averred that the affidavits submittedby PPI were antedated since he was never furnishedcopies of said reports/affidavits despite demands. PPIeven failed to present the reports/affidavits before the RTC


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where his complaint for damages against PPI and itsofficers was pending. He and Roy Padiernos had been atodds because the latter appointed his brother and wife as

agency manager and group manager of PPI to which heobjected. Molina averred that the P200.00 collected fromeach of the employees of PPI during their luncheonmeeting was a voluntary contribution, and that theyspent P4,000.00, more than the amount collected from theemployees. He contended that he had no motive to recruitsales associates or employees of PPI to be employed byCaritas because the depletion of sales associates would

diminish his effectiveness as an area manager, includinghis overriding commission, profit bonus and fringebenefits. He admitted that he may have raised his voice inthe heat of arguing a point during meetings, but averredthat it should not be considered as disrespect ormisdemeanor.

Molina further emphasized that Caritas was not acompetitor of PPI, as the former was engaged in sellinghealth care and is supervised by the Department of Health(DOH), while the latter is into the business of selling pre-need plans and supervised by the Securities andExchange Commission (SEC). Finally, he averred that theso-called "associates" of PPI were not actually employeesbut "independent journeymen" who derived income on

commission basis, free to engage in any kind of sellingactivities not in direct competition with PPI.

Molina admitted having had drinking sessions withCerterio Uy, Ilustre Acosta and Reynaldo Villena, who


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provided the hard liquor and pulutan, but only after officehours. He claimed that his officemates mistook him forbeing drunk when he went to his office even after office

hours because of his "mestizo complexion."In its response, PPI averred that, based on the sales data,the acts of Molina caused demoralization of the salesassociates, resulting in a sudden decrease of the region'soutput from P343,009,643.00 in 1998 toP263,099,773.00in 1999, and P228,752,090.00 in 2000.37 PPI insisted thathe should be held liable for not less

than P507,348.00, P2,000,000, and P1,000,000 as actual,moral and exemplary damages, and attorney's fees,respectively, and P273,600.00 which was the balance onhis car plan agreement with PPI.38

In his Rejoinder39 and Sur-Rejoinder40 Molina submittedthe affidavit of Geoffrey Martinez, who belied the reports ofUy, Villena, Del Rosario, and the spouses Padiernos and

Acosta.41 He also appended the affidavits of NatividadGatchalian,42 San Miguel,43 Gatmaitan,44 andMagalso,45 who all disputed, in one way or another,Molina's alleged violations. To counter the imputations ofconflict of interest, Molina also alleged that Abia and Atty.Reyes were incorporators of Caritas,46 and that Villena hadin her possession a license to sell Caritas products.47 With

regard to the declining sales output of his region, Molinaattributed the same to the Asian regional crisis that hit thePhilippines sometime in 1997. He noted, however, that thesame records revealed that despite the financial bane,
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Metro VI still managed to be on top from 1998 up to 2000in terms of its sales relative to the other regions.

Molina denied any liability for the car plan, claiming that he

already settled the obligation when PPI demanded fullpayment as, in fact, all the papers related thereto,including the Release of Mortgage, were already in hispossession.

In its Sur-Rejoinder,48 PPI stressed its claim that Caritaswas a business competitor, as may be inferred from the

benefits available under its health care agreement and thepre-need contract of PPI. Particularly with regard to thepension plan contract, it noted the following similarities: (a)Caritas also provides Term Life Insurance, AccidentalDeath Insurance, Credit Life Insurance, and Waiver ofInstallment Due to Disability; (b) there are similarities inthe provisions on contract price, grace period,cancellation, reinstatement, and transfer and termination;

and (c) unlike other health care programs that provide aone-year coverage, renewable every year thereafter,Caritas offers a continuous five year coverage and sellsthe same in units payable in five-year installment basis,with maturity period and guaranteed return of investmentin the form of Full-Term Medical Expense Fund computedatP10,000.00 for every unit purchased with increment of

10% yearly after the maturity period, which may bewithdrawn in cash by its member. It stressed that this wassimilar to the pension program offered by PPI which wasalso sold in per unit basis, payable by installment incertain number of years or lump sum payment, and upon


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maturity also gives P10,000.00 pension benefit per unitpurchased by the plan holder. With respect to the allegedinterest of Atty. Reyes with Caritas, PPI adduced in

evidence a Deed of Sale to prove that as early asFebruary 1999 he had already divested his stockholdingsin Caritas.49

On November 18, 2002, Labor Arbiter Roma C. Asinasrendered a Decision50 dismissing the complaint and thecounterclaims for lack of merit. The labor arbiter ruled thatMolina was lawfully dismissed from his employment for

serious misconduct in office and fraud or willful breach oftrust and confidence. It declared that Molinas mere denialof the charges against him did not overthrow theoverwhelming evidence against him tending to show thathe committed the allegations against him. Moreover, hiswife was then an agency manager of Caritas, and somePPI sales associates were with Caritas because they were

recruited by Molina. The labor arbiter also ruled that otheremployees of respondent attested to the fact that theywere being recruited and enticed by the complainant to

join Caritas. This act of pirating constituted seriousmisconduct in office, fraud or willful breach of trust andconfidence, which are just causes for termination ofemployment under Article 282 of the Labor Code, asamended. As such, PPI could not legally be compelled to

continue Molinas employment due to breach of trust.

The labor arbiter likewise held that Molina was affordedhis right to due process, but that he refused to give ananswer to the charges leveled against him, and instead
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insisted that he be furnished a copy of the alleged reportsagainst him. Since he was given ample opportunity toanswer the charges and explain his side during the

investigation, and a formal or trial-type hearing is not at alltimes essential, Molinas right to due process was notviolated. The labor arbiter stressed that the requirementsof due process are satisfied where the parties are affordedfair and reasonable opportunity to explain their side of thecontroversy at hand.51

Molina appealed the decision to the NLRC, which

rendered judgment in his favor. The NLRC reversed thedecision of the Labor Arbiter and ordered Molinasimmediate reinstatement to his former position as

Assistant Vice President without demotion in rank andsalary; and the payment of his backwages from August 1,2001 up to his actual reinstatement, and other accruedmonetary benefits. However, the NLRC denied all other

claims for damages.

52

According to the NLRC, the charges of coming to theoffice under the influence of liquor and making PPIreimburse the expenses already paid by Molina's co-employees were not supported by the records. The "lossof trust and confidence" had no factual basis since thealleged acts of Molina did not result to any loss in favor of

PPI.

Anent Molinas recruitment activities, the NLRCratiocinated that PPI failed to show that Caritas was acompetitor of PPI. Caritas caters to the health care needsof its clients while PPI to the pre-need (pension,


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educational, and memorial) requirements of its planholders. Any similarity between PPI and Caritas extrafeatures like term life insurance, accidental death

insurance, credit life insurance, and waiver of installmentdue to disability, did not ipso facto make Caritas acompetitor of PPI. Thus, there was no conflict of interest inMolinas act of trying to recruit counselors for Caritas tohelp his wife. Moreover, PPI failed to establish thatrecruiting for Caritas affected Molinas decisions in theperformance of his duties with PPI. According to theNLRC, the drop in the sales and productivity of

complainants area of responsibility may be due to marketforces and depressed economic condition at that time;absent any clear and convincing proof, it cannot beattributed to the alleged acts of Molina which constitutedwillful breach of trust or confidence.53

PPI filed a motion for reconsideration, and appended a

Letter dated June 13, 2002 from the SEC to Caritas,indicating that its HMO Plan was similar to the previousplans offered by pre-need companies, hence, under theregulatory suspension of the SEC;54 another letter of SECordering Caritas to immediately desist from selling itsHMO plan with the full term medial expense fund;55 andthe letter of Caritas, through counsel, endorsing theobjectionable features of the HMO plan.56

The NLRC, however, was not persuaded, and resolved todeny PPIs motion in its Order dated September 30,2003.57 On November 19, 2003, the NLRC declared itsDecision final and executory as of November 14, 2003.58
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PPI filed a Petition for Certiorari with the CA for thenullification of the decision and resolution of the NLRC andthe reinstatement of the decision of the Labor Arbiter.59

On August 13, 2004, the CA rendered a decision reversingthe Decision and Resolution of the NLRC, and reinstatingthe November 18, 2002 Decision of the Labor

Arbiter.60 Later, the CA denied Molinas Motion forReconsideration61 in its Resolution dated September 27,2004.62

The issues for resolution are the following: whether thedecision of the NLRC was already final and executorywhen PPI filed its petition for certiorari in the CA; andwhether the NLRC committed grave abuse of discretionamounting to excess or lack of jurisdiction in issuing theassailed decision and resolution.

On the first issue, we find and so hold that the decision of

the NLRC had become final and executory when PPI filedits Petition for Certiorari in the CA. PPI received a copy ofthe NLRC Decision on July 11, 2003 and filed the Motionfor Reconsideration thereof on July 18, 2003, whichmotion was denied on September 30, 2003. Under RuleVII, Section 2 of the NLRC Omnibus Rules of Procedure,the decision of the NLRC becomes final and executoryafter ten (10) calendar days from receipt of the same. PPIreceived a copy of the NLRC decision on November 30,2003; hence, such decision became final and executoryon December 3, 2003. Nonetheless, the Court ruled in St.Martin Funeral Home v. NLRC63 that, although the 10-dayperiod for finality of the NLRC decision may have elapsed
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as contemplated in the last paragraph of Section 223 ofthe Labor Code, the CA may still take cognizance of andresolve a petition for certiorari for the nullification of the

decision of the NLRC on jurisdictional and due processconsiderations. Indeed, the remedy of the aggrieved partyfrom an adverse decision of the NLRC is to timely file amotion for reconsideration as a precondition for any furtheror subsequent remedy, and if the motion is denied, suchparty may file a special civil action in accordance with lawand jurisprudence considering that these matters areinseparable in resolving the main issue of whether the

NLRC committed grave abuse of discretion.

The Labor Arbiter and the NLRC act in quasi-judicialcapacity in resolving cases after hearing and on appeal,respectively. On the presumption that they have alreadyacquired expertise in their jurisdiction, which is confinedon specific matters, their findings of facts are oftentimes

accorded not only with respect but even finality ifsupported by substantial evidence. However, in spite ofthe statutory provision making "final" the decision of theNLRC, the Court has taken cognizance of petitionschallenging such decision where there is a clear showingthat there is want of jurisdiction, grave abuse of discretion,violation of due process, denial of substantial justice, orerroneous interpretation of law.64

In this case, the Labor Arbiter declared that there issubstantial evidence on record warranting the dismissal ofpetitioner as Assistant Vice President for seriousmisconduct in office, fraud or willful breach of trust and


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confidence. The NLRC disagreed with the Labor Arbiterand reversed the latters findings. The CA, for its part,concurred with the findings of the Labor Arbiter. In view of

the discordance between the findings of the Labor Arbiterand the CA on one hand, and the NLRC on the other,there is a need for the Court to review the factual findingsand the conclusions based on the said findings. As thisCourt held in Diamond Motors Corporation v. Court of

Appeals:65

A disharmony between the factual findings of the Labor

Arbiter and the National Labor Relations Commissionopens the door to a review thereof by this Court. Factualfindings of administrative agencies are not infallible andwill be set aside when they fail the test of arbitrariness.Moreover, when the findings of the National LaborRelations Commission contradict those of the labor arbiter,this Court, in the exercise of its equity jurisdiction, may

look into the records of the case and reexamine thequestioned findings.66

Article 282 of the Labor Code of the Philippines provides:

Art. 282. Termination by employer. An employer mayterminate an employment for any of the following causes:

a. Serious misconduct or willful disobedience by the

employee of the lawful orders of his employer orrepresentative in connection with his work;

b. Gross and habitual neglect by the employee of hisduties;


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c. Fraud or willful breach by the employee of hisduties of the trust reposed in him by his employer orduly authorized representative;

d. Commission of a crime or offense by the employeeagainst the person of his employer or any immediatemember of his family or his duly authorizedrepresentative; and

e. Other causes analogous to the foregoing.

Misconduct has been defined as improper or wrong

conduct; the transgression of some established anddefinite rule of action; a forbidden act, a dereliction of duty,unlawful in character and implies wrongful intent and notmere error of judgment. The misconduct to be seriousmust be of such grave and aggravated character and notmerely trivial and unimportant. Such misconduct, however,serious, must nevertheless, be in connection with the

employees work to constitute just cause for hisseparation.67

The loss of trust and confidence, in turn, must be basedon the willful breach of the trust reposed in the employeeby his employer. Ordinary breach will not suffice. A breachof trust is willful if it is done intentionally, knowingly andpurposely without justifiable excuse, as distinguished from

an act done carelessly, thoughtlessly, heedlessly orinadvertently.68

The Court has laid down the guidelines for the applicationof the doctrine for loss of confidence, thus:


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1. the loss of confidence must not be simulated;

2. it should not be used as a subterfuge for causeswhich are illegal, improper or unjustified;

3. it may not be arbitrarily asserted in the face ofoverwhelming evidence to the contrary;

4. it must be genuine, not a mere afterthought, tojustify earlier action taken in bad faith; and

5. the employee involved holds a position of trust and

confidence.69

In Samson v. Court of Appeals,70 the Court enumeratedthe conditions for one to be considered a managerialemployee:

(1) Their primary duty consists of the management ofthe establishment in which they are employed or of a

department or subdivision thereof;

(2) They customarily and regularly direct the work oftwo or more employees therein;

(3) They have the authority to hire or fire otheremployees of lower rank; or their suggestions andrecommendations as to the hiring and firing and as to

the promotion or any other change of status of otheremployees are given particular weight.71

As a general rule, employers are allowed wide latitude ofdiscretion in terminating the employment of managerialpersonnel.72 The mere existence of a basis for believing


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that such employee has breached the trust and confidenceof his employer would suffice for his dismissal.73

In this case, petitioner was not a mere employee of

respondent. He was the Assistant Vice-President with thesame functions of a regional manager of the same salesregion, Metro Manila VI. Taking into account his jobdescription, he was one of the top managers of therespondent, tasked to perform key and sensitive functionsin the interest of his employer and, thus, bound by themore exacting work ethic.

We find, however, that the charge of misappropriation offunds was not proven with substantial evidence. Asgleaned from the handwritten statement of Ilustre Acosta,the General Manager of the Springs and BlessingsGeneral Agency under Metro Manila VI, it appears that,aside from him and petitioner, there were 10 otherattendees during the luncheon conference on November

27, 1999 at the Barrio Fiesta, Cubao, Quezon City.Petitioner received the amount of only P2,386.00 fromrespondent to pay for the cost of the luncheon for theconference, based on Petty Cash Voucher signed bypetitioner,74 but the conferees spent more than P4,000.00.Upon petitioners suggestion, the conferees agreed tocontribute P200.00 each, or the total amount of P2000.00

to answer for the difference. Petitioner had no obligation toreturn the contributions of the conferees, nor was he liablefor said amount. Significantly, except for Ilustre Acosta,the other attendees in the conference never complained


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against petitioner or requested him to return theirrespective contributions of P200.00.

Regarding the charge that the petitioner peddled false and

malicious informations against Abia and Padiernos, Abiahas not executed any affidavit to confirm paragraph 9 ofthe affidavit of Roy Padiernos. As admitted by del Rosario,the informations allegedly relayed to her by the petitionerpertaining to Roy Padiernos were confirmed by ZitaDomingo.75

The petitioner does not deny having had a heatedexchange of words with Roy Padiernos in the course of ameeting. However, such incident does not constitute proofthat the petitioner thereby showed disrespect to RoyPadiernos, nor a valid cause for petitioners dismissal. Itdoes happen that in the course of exchange of viewsduring a meeting, participants may become so assertive tothe point of being overbearing or unyielding and in the

process lose their temper, on their sincere belief of beingright. There is no evidence on record that petitionercommitted the same or similar acts thereafter.

To prove its charge of conduct unbecoming of a companyofficer, more specifically of drinking alcoholic beverageswithin the premises of the company during office hours orgoing to work drunk, respondent relied on thestatement/affidavit of Celeste Villena, the Agency Managerof the Wondrous and Miraculous General Agency underMetro Manila VI;76 and Marivic Uy, the General Manager ofthe DMBP General Agency under Metro Manila VI. Bothclaimed that they always saw petitioner drunk during office


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hours, most especially during cut-offs when many salescounselors were present.77 Petitioner admitted having haddrinking sessions with Certerio Uy, the husband of Marivic

Uy, Ilustre Acosta and Reynaldo Villena, the husband ofCeleste Villena, and who, according to petitioner, providedthe hard liquor and the pulutan.78 He, however, deniedreporting to office drunk and insisted that he reported forwork sober.

We are inclined to give credence to petitioners claim,noting that in her handwritten letter-report to Norman

Gonzales dated March 10, 2000, Villena made no mentionof the petitioner going to office drunk.79 It was only in heraffidavit dated January 16, 2002 that Villena made suchdeclaration.80 Villena did not explain her failure to reportthe matter to Gonzales on March 10, 2000, and why shemade the charge for the first time in her Affidavit datedJanuary 16, 2002. Uy is the wife of no less than Certerio

Uy, the Senior Vice-President of the Manila North SalesDivision of respondent. If petitioners "drinking problem"had any ring of truth, she should have immediatelyreported the matter to her husband or to other officialsconcerned. Uys unexplained silence until March 10, 2000thus renders her report implausible.

Respondent avers that petitioner served directly as agent

of Caritas, a business competitor of the respondent, whenhe connived with his wife in recruiting Sales Associates ofthe Metro Sales Division VI to transfer to Caritas as salesassociates. Respondent claims that, by his acts, petitionerfailed to dedicate his full time on the job with respondent


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and prevented said sales associates from doing the same.Aside from violating its policy against conflict of interest,petitioners acts adversely affected his decisions in the

performance of his duties and obligations to respondent.

81

Loyalty of an employee to his employer consists of certainvery basic and common sense obligations. An employeemust not, while employed, act contrary to the employersinterest.82 The scope of the duty of loyalty that anemployee owes to his employer may vary with the natureof their relationship. Employees occupying a position of

trust and confidence owe a higher duty than thoseperforming low-level tasks. Assisting an employeescompetitor can even constitute a breach of the employeesduty of loyalty. An employees self-dealing may breachthat duty.83 However, it has been ruled that

A reality of contemporary life is that many families willconsist of two wage earners, one wage earner with two

jobs, or both. For some employees, particularly thoseearning low or modest incomes, second sources ofincome are an economic necessity. For them, a second

job or "moonlighting" is the only way to make ends meet.Conversely, employers need the assurance thatemployees will not disserve them by furthering their owninterests or those of competitors at the employers

expense.84

A slight assistance to a direct competitor could constitute abreach of the employees duty of loyalty. However, whencompetition is indirect or minimal, the employer may berequired to show that the employee received substantial


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assistance from the competitor. If an employee usurped acorporate opportunity or secretly profited from acompetitive activity, the employer may receive the value of

the lost opportunity or the secret profit.

85

An employees skill, aptitude, and other subjectiveknowledge obtained in the course of employment are notthe property of his employer.86 However, an employeeoccupying a managerial position or office is obliged toprotect the trade secret of his employer consisting offormula, process, device or compilation which it uses in its

business and gives it an opportunity to obtain anadvantage over competitors who do not know of suchtrade secret. However, the rule does not apply to a matterof public knowledge or of general knowledge within theindustry.87Moreover, an employer has a protectible interestin the customer relationships of its former employeeestablished and/or nurtured while employed by the

employer, and is entitled to protect itself from the risk thata former employee might appropriate customers by takingunfair advantage of the contract de

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