Grandteq Industrial Steel Products, Inc. vs. Margallo

A contractual stipulation in an employer-sponsored car loan agreement that mandates forfeiture of all payments made by the employee and surrender of the car upon resignation is null and void for being contrary to morals, good customs, and public policy, as it results in unjust enrichment on the part of the employer. The principle against unjust enrichment obliges the employer to refund the employee's car loan payments where the employee never actually acquired the car, and the employer resold the same vehicle to another employee under a similar contract.

Grandteq Industrial Steel Products, Inc. is a domestic corporation engaged in the business of selling welding electrodes, alloy steels, aluminum and copper alloys, with Abelardo M. Gonzales as its President/Owner. Grandteq employed Edna Margallo as a Sales Engineer beginning 3 August 1999, under terms providing for field sales with commission on sales made after a month's training. As a reward for being named "Salesman of the Year," Margallo was offered a car loan program through which she purchased a brand new Toyota Corolla, paying the down payment of ₱201,000.00 from her own funds and sharing the monthly amortization of ₱10,302.00 with Grandteq (₱5,302.00 as her share and ₱5,000.00 as the company's share). The car loan agreement contained a forfeiture clause providing that, in case of resignation, all payments made by the employee would be forfeited in favor of the company, and the company would regain possession of the car.

Grandteq Industrial Steel Products, Inc. is a domestic corporation engaged in selling welding electrodes, alloy steels, aluminum and copper alloys, with Abelardo M. Gonzales serving as its President/Owner. The company employed Edna Margallo as a Sales Engineer beginning 3 August 1999, under terms providing that she would do field sales with commission on sales made after a month's training. At an unstated date, Margallo availed herself of a car loan program offered by Grandteq as a reward for being named "Salesman of the Year." She paid the down payment of ₱201,000.00 on a brand new Toyota Corolla out of her own pocket, and the monthly amortization of ₱10,302.00 was split between her share of ₱5,302.00 and Grandteq's share of ₱5,000.00. The car loan agreement contained a provision stating that, in case of resignation, all payments made by the employee would be forfeited in favor of the company, and the company would regain possession of the car before the expiration of the loan term.

On 29 December 2003, Margallo received a letter signed by Gonzales and Vice-President for Administration Rolando de Leon, informing her that company records showed she had instructed the company driver and helper to load tool steel for delivery at Circle Freight, had shipped items to Moog Control Corp. Phils. Branch — a Grandteq client for which she was the authorized salesman — using the Sales Invoice of JVM Industrial Supply and Allied Services, and was working concurrently with JVM Industrial Supply while employed at Grandteq. She was given twenty-four hours to submit a written explanation for allegedly committing moonlighting, sabotage, and breach of trust and confidence, and was invited to a meeting on 5 January 2004. She was also placed under preventive suspension effective 29 December 2003. Margallo responded the following day, explaining that she had merely followed instructions from Steve D. Rivera, one of her superiors, to have the items delivered to Circle Freight, and denied ever working with JVM. She apologized for not asking what to do, stating she was only following orders from her superiors as an ordinary employee.

In January 2004, De Leon asked Margallo to simply resign, promising that if she did, she would still be paid her commissions and other benefits and be reimbursed her car loan payments. Relying on this promise, Margallo tendered an irrevocable resignation on 13 January 2004, effective immediately. She was never paid her money claims. Grandteq failed to pay her commissions in the sum of ₱87,508.00, equivalent to 5% of the total sales she collected as of January 2004, amounting to ₱1,750,148.84, and also failed to refund the sales accommodations or advances she had given her customers. After Margallo's resignation, Grandteq resold her car to another employee, Annaliza Estrella, for ₱550,000.00 under a similar contract bearing the same terms and conditions. These events prompted Margallo to file a complaint before the Labor Arbiter for recovery of sales commission, cash incentive, and car loan payment, plus damages and attorney's fees.

Grandteq and Gonzales opposed the claims, maintaining that Margallo was not entitled to sales commissions because company policy required computation based on actual collections within 180 days from invoice date, and all her credit sales transactions were unpaid, outstanding, and past due. They also argued that the cash incentive was intended for customers, not sales personnel, and that the car loan agreement expressly provided for forfeiture of payments upon resignation. The Labor Arbiter dismissed all claims, finding that Margallo failed to prove her entitlement to commissions and that the car loan agreement's forfeiture clause governed the refund claim. The NLRC reversed, finding that Margallo's resignation was induced by an unfulfilled promise of payment, that the forfeiture clause was null and void for being contrary to morals and public policy, and that Margallo was entitled to unpaid commissions based on actual collections of ₱217,815.94. The Court of Appeals affirmed, and Grandteq and Gonzales elevated the matter to the Supreme Court.

• Validity of Car Loan Agreement: Petitioners asserted that the Court of Appeals erred in declaring the car loan agreement between Grandteq and Margallo, particularly the provision on forfeiture of car loan payments in favor of Grandteq upon resignation, as null and void.
• Non-Entitlement to Sales Commissions: Petitioners maintained that Margallo was not entitled to sales commissions because company policy required computation based on actual collections within 180 days from invoice date, and all of Margallo's credit sales transactions were unpaid, outstanding, and past due, rendering them bad debts.
• Non-Entitlement to Cash Incentive: Petitioners insisted that the cash incentive was intended for customers, not for sales personnel.
• Forfeiture Under Car Loan Agreement: Petitioners argued that Margallo had no right to a refund of her car loan payments under the express terms of the car loan agreement, which stipulated that in the event of resignation or termination for cause, all payments made would be forfeited in favor of Grandteq, and Grandteq would regain possession of the car.

• Induced Resignation: Respondent claimed that De Leon asked her to resign with a promise that she would still be paid her commissions and other benefits and be reimbursed her car loan payments, and that she relied on this promise in tendering her resignation.
• Unjust Enrichment: Respondent contended that the forfeiture clause was unjust and inequitable, as she had paid the down payment, the entire first amortization, insurance, and her share in the monthly amortizations for seventeen months, yet did not get to keep the car, which was resold to another employee at the original price.
• Entitlement to Sales Commissions: Respondent asserted entitlement to unpaid sales commissions equivalent to 5% of her total collections as of January 2004, amounting to ₱1,750,148.84.

• Validity of Forfeiture Clause: Whether the provision in the car loan agreement mandating forfeiture of all payments made by the employee and surrender of the car upon resignation is null and void.
• Sales Commission: Whether Margallo is entitled to unpaid sales commissions, and whether the employer bears the burden of proving that such commissions have been paid.

• Validity of Forfeiture Clause: Yes, the forfeiture clause is null and void. It is contrary to morals, good customs, and public policy, and results in unjust enrichment on the part of the employer, who retained the employee's payments and resold the car to another employee.
• Sales Commission: Yes, Margallo is entitled to unpaid sales commissions. In cases involving money claims of employees, the employer bears the burden of proving that wages and benefits were paid; Grandteq and Gonzales failed to discharge this burden.

• Validity of Forfeiture Clause: While contracts are generally respected as the law between the parties under Article 1306 of the Civil Code, stipulations must not be contrary to law, morals, good customs, public order, or public policy. The forfeiture clause plainly contravened fundamental principles of justice and fairness. Margallo paid the down payment and her share of the monthly amortizations, yet did not leave with the car upon resignation. She parted with her money for nothing. The inequitableness was compounded by Grandteq's resale of the car to another employee under a similar contract. The principle against unjust enrichment, embodied in Article 22 of the Civil Code, obliges Grandteq and Gonzales to refund Margallo's car loan payments since she never actually acquired the car. Unjust enrichment exists when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another. Although the car loan agreement is not strictly a labor contract, it involves a benefit extended by the employer to the employee and should benefit, not unduly burden, the latter. Upholding such a forfeiture clause would permit the employer to use the agreement as an instrument to hold the employee hostage to the job or punish the employee for resigning, contrary to the constitutional and statutory mandate to protect labor.

• Sales Commission: Under the terms of Margallo's employment, she was entitled to commission on sales made. Once an employee sets out with particularity the labor standard benefits to which she is entitled and which the employer allegedly failed to pay, the burden shifts to the employer to prove payment. One who pleads payment has the burden of proving it; even where the employee must allege nonpayment, the general rule is that the burden rests on the defendant to prove payment rather than on the plaintiff to prove nonpayment. The rationale is that pertinent personnel files, payrolls, records, and similar documents are in the custody and absolute control of the employer. Grandteq and Gonzales failed to present company records to prove their claim that Margallo's credit sales remained outstanding and unpaid beyond 180 days, nullifying her right to commissions. The failure of employers to submit necessary documents in their possession gives rise to the presumption that such presentation is prejudicial to their cause. The Labor Arbiter therefore erred in denying the claim for failure to state particulars; the onus was on the employer to disprove entitlement.

• Principle Against Unjust Enrichment (Nemo cum alteris detrimento locupletari potest) — Embodied in Article 22 of the Civil Code, this principle provides that every person who, through an act or performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same. Unjust enrichment exists when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another. One condition for invoking the principle is that the aggrieved party has no other action based on a contract, quasi-contract, crime, quasi-delict, or any other provision of law. Applied in this case to obligate the employer to refund car loan payments where the employee never acquired the car and the employer resold it to another employee.

• Freedom of Contract and Limits Thereon (Article 1306, Civil Code) — The contracting parties may establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. The law overrides conditions prejudicial to the interest of the worker, particularly where the sheer inequality of employer-employee relations scarcely provides the employee real and better options.

• Burden of Proof in Employee Money Claims — In cases involving money claims of employees, the employer has the burden of proving that the employees received their wages and benefits and that the same were paid in accordance with law. One who pleads payment has the burden of proving it; even where the employee must allege nonpayment, the burden rests on the defendant to prove payment. The failure of employers to submit necessary documents in their possession gives rise to the presumption that the presentation thereof is prejudicial to their cause.

• Protection of Labor — The Constitution and the Labor Code mandate the protection of labor. As a matter of judicial policy, the Court leans backwards to protect labor and the working class against the machinations of their more financially entrenched employers. Contracts that demonstrate a clear attempt to exploit the employee and deprive him of protection sanctioned by the Constitution and the Labor Code are rigorously disapproved.

• "Said provisions plainly are contrary to the fundamental principles of justice and fairness. It must be remembered that Margallo herself paid for the down payment and her share in the monthly amortization of the car. However, she did not get to leave with the car when she resigned from Grandteq. In effect, Margallo parted with her hard-earned money for nothing, being left, as she is, with an empty bag." — This passage articulates the ratio decidendi for nullifying the forfeiture clause, grounding the ruling in the inequity of the employer's retention of the employee's payments without corresponding benefit.

• "The principle against unjust enrichment obliges Grandteq and Gonzales to refund to Margallo the car loan payments she had made, since she has not actually acquired the car. To relieve Grandteq and Gonzales of their obligation to reimburse Margallo would, indeed, be to sanction unjust enrichment in favor of the first two and cause unjust poverty to the latter." — This statement directly applies Article 22 of the Civil Code to the facts, establishing the link between unjust enrichment and the employer's obligation to refund.

• "The Court cannot, in any way, uphold a car loan agreement that threatens the employee with the forfeiture of all the car loan payments he/she had previously made, plus loss of the possession of the car, should the employee wish to resign; otherwise, said agreement can then be used by the employer as an instrument to either hold said employee hostage to the job or punish him/her for resigning." — This passage defines the policy rationale against forfeiture clauses in employer-sponsored benefit agreements, framing such clauses as instruments of coercion incompatible with the constitutional mandate to protect labor.

• "It is settled that once the employee has set out with particularity in his complaint, position paper, affidavits and other documents the labor standard benefits he is entitled to, and which the employer allegedly failed to pay him, it becomes the employer's burden to prove that it has paid these money claims." — This is the canonical formulation of the burden of proof rule in employee money claims, frequently cited in subsequent labor jurisprudence.

• Baguio Country Club vs. NLRC, 206 SCRA 643 — Cited by the NLRC for the proposition that the law overrides contracts prepared by employers to circumvent the rights of employees. Followed by the Supreme Court in affirming the nullification of the forfeiture clause.
• Eternit Employees and Workers Unions vs. De Veyra, 189 SCRA 752 and Nucum vs. Inciong, 204 SCRA 697 — Cited by the Labor Arbiter for the rule that an employee's claim for added benefits such as sales commissions is an affirmative allegation requiring the employee to prove entitlement. The Supreme Court effectively rejected this application, shifting the burden to the employer.
• Hulst vs. PR Builders, Inc., G.R. No. 156364, 3 September 2007, 532 SCRA 74 — Cited for the definition of unjust enrichment under Article 22 of the Civil Code and the role of equity as a complement of legal jurisdiction.
• Chieng vs. Santos, G.R. No. 169647, 31 August 2007, 531 SCRA 730 — Cited in connection with the principle against unjust enrichment and the obligation to return benefits acquired without just or legal ground.
• Pier 8 Arrastre and Stevedoring Services, Inc. vs. Boclot, G.R. No. 173849, 28 September 2007, 534 SCRA 431 — Cited for the judicial policy of leaning backwards to protect labor and the working class against employer machinations.
• Arco Metal Products Co., Inc. vs. Samahan ng mga Manggagawa sa Arco Metal-NAFLU, G.R. No. 170734, 14 May 2008, 554 SCRA 110 — Cited for the rule that the employer bears the burden of proving that employees received their wages and benefits in accordance with law.
• De Guzman vs. National Labor Relations Commission, G.R. No. 167701, 12 December 2007, 540 SCRA 21 — Cited for the rule that one who pleads payment has the burden of proving it, and that the burden rests on the defendant to prove payment rather than on the plaintiff to prove nonpayment.
• National Semiconductor (HK) Distribution, Ltd. vs. National Labor Relations Commission, 353 Phil. 551 (1998) — Cited for the rule that the failure of employers to submit necessary documents in their possession gives rise to the presumption that the presentation thereof is prejudicial to their cause.

• Article 22, Civil Code — Embodies the principle against unjust enrichment, providing that every person who acquires or comes into possession of something at the expense of another without just or legal ground shall return the same. Applied to obligate Grandteq and Gonzales to refund Margallo's car loan payments, as they retained her payments and resold the car without just or legal ground.
• Article 1306, Civil Code — Provides that contracting parties may establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Applied to invalidate the forfeiture clause in the car loan agreement for being contrary to morals, good customs, and public policy.
• Constitutional and Labor Code provisions on protection of labor — Cited as mandating the protection of labor, forming the basis for the Court's policy of disapproving contracts that exploit employees and deprive them of protection. Applied to invalidate a car loan agreement that could be used to hold an employee hostage to the job or punish the employee for resigning.

Consuelo Ynarez-Santiago (Chairperson), Presbitero J. Velasco, Jr., Antonio Eduardo B. Nachura, and Diosdado M. Peralta concurred with the decision. No separate concurring opinions were written.