Kwok vs. Philippine Carpet Manufacturing Corporation

A corporate president's verbal promise to grant monetary benefits to an employee is not binding on the corporation unless such promise was made within the scope of the president's authority or subsequently ratified by the board of directors; absent such authority, no corporate officer can validly bind the corporation.

The case involves a labor dispute concerning the scope of authority of corporate officers, specifically the president and chairman of the board, to bind the corporation through verbal agreements regarding employment benefits. It examines the limitations on presidential authority in corporate governance, the evidentiary standards for proving unwritten employment agreements, and the distinction between personal acts of officers and corporate acts requiring board approval.

• In 1965, petitioner Donald Kwok and his father-in-law Patricio L. Lim, along with other stockholders, established respondent Philippine Carpet Manufacturing Corporation (PCMC).
• Kwok served as general manager, executive vice-president, and chief operations officer, while Lim served as president and chairman of the board of directors.
• On October 31, 1996, after 36 years of service, Kwok retired with a monthly salary of P160,000.00.
• Kwok demanded P7,080,546.00 representing the cash equivalent of accumulated vacation and sick leave credits from November 16, 1965 to October 31, 1996, claiming Lim verbally promised him unlimited sick and vacation leave with cash conversion upon retirement or resignation.
• PCMC refused, asserting that Kwok received all benefits due him amounting to P6,902,387.19 and that no such verbal promise existed.
• PCMC maintained that under its November 6, 1981 Memorandum, only Category I employees (regular employees up to Senior Vice-President level) were entitled to conversion of unused leaves to cash; top officers (President and Executive Vice-President) had unlimited leave discretion but no conversion privilege.
• Lim denied making any verbal promise and stated that even if he did, it was not binding without board resolution.
• Kwok admitted in his testimony that he was not covered by the Category I policy and that the November 6, 1981 Memorandum did not apply to his position as Executive Vice-President.
• PCMC alleged that Kwok's claims for benefits accruing from 1966 were barred by the three-year prescriptive period under Article 291 of the Labor Code.

• Lim, as president and chairman of the board, possessed "awesome powers" to grant benefits to employees and made a binding verbal promise to convert accumulated leave credits to cash upon retirement.
• PCMC clothed Lim with apparent authority to grant benefits, and the board ratified his actions through silence, acquiescence, and long-standing practice of granting benefits without written contracts or board resolutions.
• The granting of benefits without written documentation was a prevalent practice in PCMC, as evidenced by other perquisites granted to him (golf club membership, profit-sharing, company vehicle).
• As Executive Vice-President, he was entitled to the same or better benefits than his subordinates who enjoyed leave conversion under the Category I policy.
• The claim was not time-barred as it was filed on December 5, 1996, and he was entitled to at least three years of credits prior to retirement.
• The April 26, 1997 Memorandum issued to his successor (Raoul Rodrigo) disallowing cash conversion should not apply to him as it was issued after his retirement and constituted discrimination.

• No substantial evidence supported the alleged verbal promise; the claim was based on bare assertions and self-serving testimony.
• Even if Lim made such a promise, it was a personal act not binding on the corporation without board resolution, as the power to enter into contracts that bind the corporation is lodged in the board of directors.
• Kwok admitted in his testimony that he was not covered by the Category I leave policy and enjoyed unlimited leave benefits, which were inherently incompatible with the concept of converting unused credits to cash.
• The claim for periods 1966-1993 was barred by prescription under Article 291 of the Labor Code (three-year prescriptive period).
• No records existed showing Kwok filed applications for vacation or sick leaves, making it impossible to determine the number of credits allegedly earned.
• The April 26, 1997 Memorandum to Rodrigo affirmed the long-standing company practice of excluding the top two positions (President and Executive Vice-President) from leave conversion.

• Procedural:
  • N/A
• Substantive Issues:
  • Whether a verbal promise by a corporate president to grant cash conversion of leave credits binds the corporation absent board approval or ratification.
  • Whether the petitioner proved by substantial evidence his entitlement to the cash conversion of accumulated vacation and sick leave credits.
  • Whether the petitioner was covered by the company policy allowing conversion of leave credits to cash.
  • Whether the claim for benefits accruing from 1966 to 1993 is barred by prescription.

• Procedural:
  • N/A
• Substantive:
  • A corporate president's verbal promise does not bind the corporation without authority from the board of directors or subsequent ratification; the personal act of the company president cannot bind the corporation, and the power to decide whether the corporation should enter into a binding contract is lodged in the board.
  • The petitioner failed to discharge his burden of proving the verbal promise by substantial evidence; bare assertions are insufficient, and the Court is not a trier of facts to reevaluate testimonial evidence.
  • The petitioner was not covered by the Category I policy as he occupied the position of Executive Vice-President, which carried unlimited leave privileges but excluded conversion to cash, as corroborated by his own testimony.
  • The claim for benefits accruing more than three years prior to the filing of the complaint is barred by prescription under Article 291 of the Labor Code.
  • The absence of records showing filed leaves rendered the computation of alleged credits baseless and speculative.

• Authority of Corporate Officers — The general rule is that in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. A corporation is a juridical person separate and distinct from its stockholders and members, and the power to enter into contracts that bind the corporation is vested in the board, subject to the articles of incorporation, by-laws, or relevant provisions of law.
• Habitual Course of Conduct as Basis for Authority — A corporate president may possess authority to bind the corporation when conduct on the part of both the president and the corporation shows that he had been in the habit of acting in similar matters on behalf of the company and that the company had authorized him so to act and had recognized, approved, and ratified his former and similar actions; however, no such showing existed in this case.
• Burden of Proof in Labor Cases — Each party must prove his affirmative allegation; the burden of proof lies with the party who asserts an affirmative allegation, and the plaintiff or complainant has to prove his affirmative allegations in the complaint by substantial evidence.

• "The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation."
• "A corporation is a juridical person, separate and distinct from its stockholders and members, 'having xxx powers, attributes and properties expressly authorized by law or incident to its existence.'"
• "...the power and the responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in the board, subject to the articles of incorporation, by-laws, or relevant provisions of law."
• "Except for his bare assertions, petitioner has not adduced sufficient evidence to support his claim that he was, indeed, promised the cash conversion of his unused vacation and sick leaves upon retirement."

• People's Aircargo and Warehousing Co., Inc. v. Court of Appeals — Cited for the general rule that absent authority from the board of directors, no corporate officer can validly bind a corporation.
• Rural Bank of San Miguel (Bohol), Inc. v. NLRC — Cited for the standard that claims in labor cases must be proved by substantial evidence.

• Article 1356 of the New Civil Code — Provides that contracts need not be in writing unless the law requires a specific form for validity or enforceability; cited to acknowledge that while corporate policies need not be in writing, they must still be proved.
• Article 291 of the Labor Code — Establishes the three-year prescriptive period for money claims arising from employer-employee relations.