Community Rural Bank of San Isidro (N.E.), Inc. vs. Paez

A managerial employee may be validly dismissed on the ground of loss of trust and confidence upon mere existence of a basis for believing that the employee has breached the trust reposed, and proof beyond reasonable doubt of direct participation in the alleged wrongful act is not required. Gross negligence and incompetence in the performance of supervisory duties that result in loss constitute sufficient basis for loss of confidence.

Ysagani V. Paez had been employed by Community Rural Bank of San Isidro since 1983 and rose to Chief of the Loans Division before being appointed OIC-Manager of the bank’s extension office in San Isidro, Nueva Ecija, in February 1996. On March 20, 1997, depositor Angelito Santos deposited checks totaling ₱4,344,545.00 into his account, which held a balance of only ₱108,482.93. Despite the checks not having been cleared, Santos was permitted to withdraw the full amount the same day. The checks were subsequently dishonored for “account closed.” The bank’s president demanded an explanation from Paez, leading to preventive suspension and eventually termination for gross negligence and loss of trust.

• Employment and Promotion: Ysagani V. Paez commenced employment with petitioner Community Rural Bank of San Isidro in 1983. He was later promoted to Chief of the Loans Division and, in February 1996, was appointed Officer-In-Charge (OIC)-Manager of the bank’s extension office in San Isidro, Nueva Ecija.
• The March 20, 1997 Transaction: On March 20, 1997, a depositor, Angelito Santos, deposited several checks amounting to ₱4,344,545.00 into his Current Account No. 61-00022, which then had a balance of ₱108,482.93. Before the checks cleared, Santos was allowed to withdraw ₱4,344,545.00 on the same day, leaving only the original balance. The checks were later dishonored for “account closed.”
• Internal Show-Cause Proceedings: Twelve days later, in a Memorandum dated April 1, 1997, bank President Abelardo P. Samson directed respondent to explain within 48 hours why he accepted a demand deposit from a client whose previous account had been closed and why an unfunded check was allowed to be cleared. Respondent replied on April 3, 1997 that the client was a walk-in depositor, he had no knowledge of the closed account, and he had earlier instructed his staff not to allow withdrawal of unfunded checks without sufficient deposit. In a second memorandum dated April 2, 1997, respondent was required to explain why the incident was not immediately reported to the head office. Respondent answered on April 4, 1997 that the transaction was handled solely by bookkeeper Joey M. Aligora without his permission, and that he learned of it only on March 26, 1997 from Internal Auditor Rogelio Vargas while he was still investigating.
• Preventive Suspension and Audit Findings: Respondent was placed under preventive suspension on April 11, 1997, initially for 15 days, later extended by another 60 days. External Auditor Jaime S. Vergel de Dios submitted a memorandum noting that respondent was comparatively new to the managerial position, his experience was in loans, and a more experienced manager would not have allowed the bookkeeper and cashier to transact business without his knowledge. The memorandum further observed that the proof sheet respondent recalled signing was dated March 7, 1997, indicating a two-week delay in the review of transactions.
• Termination: In a Letter dated July 7, 1997, respondent was required to explain why he should not be dismissed for “acts and omissions which constitute gross dishonesty, negligence, and misconduct and/or serious breach of trust and confidence” in the mishandling of Santos’s account, which caused a great loss to the bank. Respondent reiterated his non-participation. On August 13, 1997, the Board of Directors approved a resolution terminating respondent, together with Aligora and cashier Maricel B. Ferraris, for the stated grounds. Respondent received his letter of termination on August 15, 1997.
• Criminal Case and Evidence in Labor Proceedings: A criminal case for estafa was filed against Santos, respondent, Aligora, and Ferraris. In the preliminary investigation, Internal Auditor Vargas testified and allegedly exonerated respondent, pointing to Aligora, Ferraris, and clearing clerk Ben Eligino as the employees involved. The Provincial Prosecutor’s Resolution dated January 6, 1999 referred to a Memorandum dated August 7, 1997 that purportedly granted branch managers authority to approve checks for payment only after the incident. Respondent attached the Resolution and the stenographic notes of Vargas’s testimony in the labor case.
• Labor Arbiter and NLRC Findings: The Labor Arbiter found that Aligora and Ferraris were responsible for consummating the transaction and that respondent’s involvement was never established; the dismissal was declared illegal, and backwages for excessive suspension were awarded. The NLRC affirmed, relying on Vargas’s testimony exonerating respondent and on the absence of authority to approve checks when the transaction occurred. The CA upheld these findings, ruling that the admission of the stenographic notes was not improper and that the clearing and payment of checks were not among respondent’s duties.

• Management Prerogative: Petitioner argued that the CA committed serious errors of law and prevented the bank from exercising its management prerogative to dismiss respondent for gross negligence and breach of trust and confidence.
• Misplaced Reliance on Auditor’s Testimony: Petitioner contended that the NLRC and CA gave undue probative value to Internal Auditor Vargas’s testimony in the criminal preliminary investigation, which was aimed at determining criminal liability, not the existence of gross negligence or loss of trust as a ground for dismissal. The stenographic notes were uncertified and admitted without petitioner being given an opportunity to contest their inclusion.
• Gross Negligence of Managerial Employee: Petitioner maintained that respondent, as OIC-Manager, held a position of trust and confidence. His gross negligence in failing to review daily ledgers, perform occasional cross-credit checks, accomplish the required daily proof sheets, and supervise his subordinates was sufficient to justify dismissal for loss of trust and confidence, without needing to prove direct involvement in the fraud.

• Finality of Factual Findings: Respondent submitted that the factual findings of the Labor Arbiter, as affirmed by the NLRC and CA, should be accorded respect and finality and are binding upon the Court.
• Admission of Evidence: Respondent argued that petitioner never objected to the introduction of the stenographic notes on Internal Auditor Vargas’s testimony.
• Lack of Authority: Respondent contended that at the time of Santos’s transaction, he had no power to approve or disapprove check withdrawals, as such authority was granted to managers only after he was placed under preventive suspension.

• Loss of Trust and Confidence: Whether respondent’s dismissal on the ground of loss of trust and confidence was valid despite the absence of proof of his direct participation in the fraudulent transaction.
• Gross Negligence: Whether respondent’s acts and omissions as OIC-Manager constituted gross negligence sufficient to justify loss of trust and confidence.
• Evidentiary Reliance on Criminal Case Testimony: Whether the NLRC and CA erred in relying on the testimony of the internal auditor given in the preliminary investigation of the criminal case to determine the legality of the dismissal.
• Preventive Suspension: Whether respondent is entitled to backwages for the period of preventive suspension exceeding the maximum of thirty days.

• Loss of Trust and Confidence: The dismissal was valid. As a managerial employee, respondent could be terminated for loss of trust and confidence upon the mere existence of a basis for believing that he breached the trust reposed; proof of direct involvement in the fraud was not required. Respondent’s gross negligence in supervising his staff, his failure to review daily proof sheets, and his delay in discovering and reporting the anomalous withdrawal of a substantial sum provided sufficient basis for the bank’s loss of confidence. A bank cannot be compelled to retain an employee in whom it has lost trust, especially when continued employment would be inimical to the bank’s interest.
• Gross Negligence: Respondent’s duties as OIC-Manager included reviewing daily proof sheets and supervising subordinates. The withdrawal of ₱4,344,545.00 was not a sum that could go unnoticed had respondent diligently performed his review. His excuse that he did not sign the proof sheets because the statements of accounts on demand deposits were not attached showed a lackadaisical attitude; he should have demanded the submission of required documents. His admission that he learned of the incident only from the internal auditor on March 26, 1997, instead of discovering it himself earlier, evidenced gross negligence and incompetence, justifying the bank’s loss of trust and confidence.
• Evidentiary Reliance on Criminal Case Testimony: The reliance by the NLRC and CA on Internal Auditor Vargas’s testimony in the criminal preliminary investigation was misplaced. In labor proceedings, only substantial evidence is required, not proof beyond reasonable doubt. An employee may be dismissed for loss of trust and confidence even if acquitted or if criminal charges are dropped. Moreover, the alleged Memorandum dated August 7, 1997 granting managers authority to approve checks was not part of the records of the case; no evidentiary weight can be given to absent evidence. Thus, the conclusion that respondent lacked authority to approve checks was unsupported.
• Preventive Suspension: Section 9, Rule XXIII, Book V of the Implementing Rules of the Labor Code provides that preventive suspension shall not exceed thirty days; any extension requires the employer to pay wages and benefits. Respondent was suspended from April 11, 1997 until his dismissal on August 15, 1997, a total of 126 days. He is entitled to backwages for the 96 days exceeding the 30-day maximum. The Labor Arbiter’s award of ₱39,064.00 as backwages for illegal suspension was affirmed.

• Loss of Trust and Confidence for Managerial Employees — For a managerial employee, the mere existence of a basis for believing that the employee has breached the trust of the employer suffices for a valid dismissal. Unlike rank-and-file personnel who require proof of involvement, a managerial employee’s breach of trust can be established by gross negligence and incompetence in the performance of duties reposed with trust and confidence. Upon accepting a position of responsibility, the employee gives up some of the rigid guaranties available to ordinary workers; infractions that would otherwise be overlooked may be visited with more severe disciplinary action, and the company’s resort to self-defense is more easily justified.
• Substantial Evidence in Termination Cases — Proof beyond reasonable doubt is not required in administrative and quasi-judicial proceedings determining the legality of dismissal. Substantial evidence—more than a mere scintilla, or such relevant evidence as a reasonable mind might accept as adequate to support a conclusion—is sufficient. Acquittal in a criminal case or the dropping of charges does not preclude a finding of loss of trust and confidence as a ground for dismissal.
• Preventive Suspension Limitation — Under Section 9, Rule XXIII, Book V of the Implementing Rules of the Labor Code, preventive suspension must not exceed thirty days. If the suspension is extended, the employer must pay the employee’s wages and other benefits during the extended period; the employee is not required to reimburse those amounts if subsequently dismissed.

• “As regards a managerial employee, the mere existence of a basis for believing that such employee has breached the trust of his employer would suffice for his dismissal because: ‘[w]hen an employee accepts a promotion to a managerial position or to an office requiring full trust and confidence, she gives up some of the rigid guaranties available to ordinary workers. Infractions which if committed by others would be overlooked or condoned or penalties mitigated may be visited with more severe disciplinary action. A company’s resort to acts of self-defense would be more easily justified.’”
• “It is worth stressing that a bank owes great fidelity to the public it deals with, its operation being essentially imbued with public interest. In turn, it cannot be compelled to continue in its employ a person in whom it has lost trust and confidence and whose continued employment would patently be inimical to the bank’s interest. … Unlike other just causes for dismissal, trust in an employee, once lost, is difficult, if not impossible, to regain.”

• Maquiling v. Philippine Tuberculosis Society, Inc., G.R. No. 143384, February 4, 2005 — Followed as controlling precedent that for managerial employees, mere existence of a basis for believing a breach of trust suffices, distinguishing them from rank-and-file personnel who require proof of involvement.
• Etcuban, Jr. v. Sulpicio Lines, Inc., G.R. No. 148410, January 17, 2005 — Cited for the principle that loss of confidence is a just cause for termination when the employee holds a position of trust and the act complained of is work-related.
• Salvador v. Philippine Mining Services Corp., 443 Phil. 880 (2003) — Relied upon for the rule that substantial evidence, not proof beyond reasonable doubt, is the quantum required in termination disputes.
• Caoile v. National Labor Relations Commission, 359 Phil. 399 (1998) — Applied for the doctrine that loss of trust and confidence is a valid ground for dismissal.
• Metro Transit Organization, Inc. v. Court of Appeals, 440 Phil. 743 (2002) and Nicolas v. National Labor Relations Commission, 327 Phil. 883 (1996) — Cited to support the rule that an employee may be dismissed for loss of trust and confidence even if not convicted in a criminal case arising from the same act.

• Article 282(c), Labor Code — Provides that an employer may terminate employment for fraud or willful breach of the trust reposed in the employee. Applied as the statutory basis for the dismissal of the managerial employee for loss of trust and confidence.
• Section 9, Rule XXIII, Book V of the Implementing Rules of the Labor Code — Limits preventive suspension to thirty days; if extended, the employer must pay the employee’s wages and benefits during the extension. Applied to award backwages for the period exceeding thirty days.
• Section 2, Republic Act No. 8791 (The General Banking Law of 2000) — Stresses the high standards of integrity and performance required of banks, cited to underscore the necessity of trust in banking employment.

Chief Justice Artemio V. Panganiban (Chairperson), Associate Justice Consuelo Ynares-Santiago, Associate Justice Romeo J. Callejo, Sr., Associate Justice Minita V. Chico-Nazario.