Torres vs. Rural Bank of San Juan, Inc.

A dismissal for loss of trust and confidence is valid only if the employee holds a position of trust and the loss is based on willful breach founded on clearly established facts; the employer bears the burden of proof, and failure to present the very document alleged to constitute the breach leaves the dismissal without factual basis.

Rolando DS. Torres was a managerial employee of Rural Bank of San Juan, Inc. (RBSJI), having served as Personnel and Marketing Manager, Vice-President, and Acting Manager of its N. Domingo branch. The individual respondents were officers of RBSJI. Article 282 of the Labor Code authorizes an employer to terminate employment for fraud or willful breach of the trust reposed in the employee, a prerogative tempered by the employee's constitutional security of tenure.

Rolando DS. Torres was initially hired by Rural Bank of San Juan, Inc. (RBSJI) as Personnel and Marketing Manager in 1991. After a six-month probationary period and satisfactory performance, RBSJI renewed his employment for the same post to permanent/regular status. In June 1996, RBSJI offered him the position of Vice-President for its newly created department, Allied Business Ventures. He accepted and relinquished his post; the vacancy was filled by respondent Jobel Go Chua, who temporarily held the position concurrently as Corporate Planning and Human Resources Development Head. On September 24, 1996, Torres was temporarily assigned as manager of RBSJI's N. Domingo branch following the resignation of Jacinto Figueroa.

On September 27, 1996, Jacinto asked Torres to sign a standard employment clearance pertaining to his accountabilities with RBSJI. When Torres declined, Jacinto threw a fit and shouted foul invectives. To pacify him, Torres bargained to issue a clearance but only for Jacinto's paid cash advances and salary loan. About seven months later, on April 17, 1997, respondent Jesus Cano Chua issued a memorandum requiring Torres to explain why no administrative action should be imposed for his unauthorized issuance of a clearance to Jacinto, whose accountabilities were yet to be audited. Jacinto was later found to have unliquidated cash advances and was responsible for a questionable transaction involving ₱11 million for which RBSJI was being sued by Actives Builders Manufacturing Corporation. The memorandum stressed that the clearance Torres issued effectively barred RBSJI from running after Jacinto.

Torres submitted his explanation on the same day, clarifying that the clearance was limited to Jacinto's paid cash advances and salary loan based on receipts presented by Lily Aguilar, the cashier of the N. Domingo branch. He emphasized that he had no foreknowledge of, nor was he forewarned about, Jacinto's unliquidated cash advances and questionable transactions, and that the clearance did not extend to those matters. After an investigation, RBSJI's Human Resources Department recommended Torres's termination on the grounds that the clearance was prejudicial to the bank; that Torres was not authorized to issue it and violated Category B, Grave Offense No. 1 of the Company Code of Conduct and Discipline (falsifying or misrepresenting persons or other company records, documents, or papers), equivalent to termination; and that the nature of his participation could reasonably lead management to believe he was unworthy of the trust and confidence demanded by his position under Article 282 of the Labor Code. On May 19, 1997, RBSJI's Board of Directors adopted the recommendation and issued Resolution No. 97-102 terminating Torres, communicated to him in a memorandum dated May 30, 1997.

Torres filed a complaint for illegal dismissal, illegal deduction, non-payment of service incentive, leave pay, and retirement benefits. He averred that the supposed loss of trust and confidence was a sham and the calculated result of a plot to oust him. He claimed he was deceived into accepting a Vice-President position that turned out to be mere clerical and menial work so that respondents could install Jobel, the son of a major stockholder, as Personnel and Marketing Manager. The plot allegedly began in 1996 when Jobel annexed the Personnel and Marketing Departments to the Business Development and Corporate Planning Department, usurping Torres's functions and displacing him, putting him on floating status and stripping him of managerial privileges and allowances. Torres further alleged that he was cunningly assigned to the N. Domingo branch to implicate him in Jacinto's anomalous transaction. He narrated that on September 27, 1996, officers Jobel, Andres, Jose, and Ofelia were at the N. Domingo branch but suspiciously left him to face Jacinto's predicament. The next day he was assigned back to the Tarlac extension office and thereafter repeatedly harassed and forced to resign. He tolerated the treatment and pleaded to be allowed to reach retirement age. On March 7, 1996, he wrote a letter to George Cano Chua expressing his detestation of how the "new guys" were dominating operations by destroying the image of pioneer employees and requested transfer to the operations or marketing department, but his request was not acted upon. He claimed that on March 19, 1997, respondent Jesus verbally terminated him but later retracted and instead asked him to tender a resignation letter; he refused. A month thereafter, he received the memorandum asking him to explain the clearance and then another memorandum terminating him.

Respondents maintained that Torres was validly dismissed for loss of trust and confidence precipitated by his unauthorized issuance of a financial accountability clearance without audit to a resigned employee. They averred that a copy of the clearance mysteriously disappeared from RBSJI's records, hence Torres's claim that it pertained only to Jacinto's paid cash advances and salary loan could not stand for being uncorroborated. Attempts at amicable settlement proved futile, and the Labor Arbiter proceeded to rule on the complaint. The Labor Arbiter found that Torres's dedication and efforts negated bad faith, that the failure to present the clearance should work against respondents, and that the loss of trust and confidence was a mere afterthought to justify a premeditated plan to ease him out. The Court of Appeals, on the other hand, found that Torres held a highly sensitive and critical position, was unauthorized to issue the clearance, failed to exercise prudence because Jacinto's accountabilities were yet to be audited, and thereby financially prejudiced RBSJI through gross negligence and incompetence sufficient to sow mistrust and loss of confidence.

• Missing Clearance: Petitioner averred that respondents' claim of loss of trust and confidence is not worthy of credence because they failed to present a copy of the clearance purportedly showing that he cleared Jacinto of all financial accountabilities and not merely his paid cash advances and salary loan; RBSJI must be in custody thereof as a vital official record.
• Subterfuge and Afterthought: Petitioner insisted that the alleged loss of trust and confidence was a mere subterfuge to cover respondents' ploy to oust him from RBSJI; the seven-month gap between issuance of the clearance and the memorandum for the act shows the supposed loss of trust was a mere afterthought.

• Managerial Care and Audit: Respondents invoked the CA's ratiocinations that they were justified in losing trust and confidence because petitioner failed to exercise the degree of care expected of his managerial position; they reiterated his admission that no audit had yet been conducted as to Jacinto's accountabilities when he issued the clearance.
• Company Policy Violation: Respondents asserted that as a former Personnel Manager, petitioner was well-aware of RBSJI's policy that before a resigned employee can be cleared of accountabilities, he must first be examined or audited; petitioner violated this policy and yielded to Jacinto's tantrums.

• Validity of Dismissal for Loss of Trust and Confidence: Whether petitioner was validly dismissed from employment on the ground of loss of trust and confidence.
• Back Wages and Separation Pay: Whether petitioner is entitled to back wages and separation pay in lieu of reinstatement.
• Moral and Exemplary Damages: Whether the award of moral and exemplary damages is warranted.
• Solidary Liability of Individual Respondents: Whether the individual respondents may be held solidarily liable with RBSJI for the illegal dismissal.
• 13th Month Pay: Whether petitioner, a managerial employee, is entitled to 13th month pay.
• Attorney's Fees: Whether the award of attorney's fees is proper.

• Validity of Dismissal for Loss of Trust and Confidence: No. Although petitioner held a position of trust, respondents failed to prove willful breach founded on clearly established facts; the missing clearance and absence of proof of prejudice or attempted recovery from Jacinto left the dismissal without just cause under Article 282 of the Labor Code.
• Back Wages and Separation Pay: Yes. Illegal dismissal entitles petitioner to back wages from May 30, 1997 until finality, with 6% interest per annum and 12% thereafter, and to separation pay in lieu of reinstatement due to strained relations, at one month salary per year of service.
• Moral and Exemplary Damages: No. Illegal dismissal alone does not warrant moral damages; bad faith, fraud, oppression, or acts contrary to morals, good customs, or public policy must be pleaded and proven, and no such acts were established. Exemplary damages cannot be awarded absent moral damages.
• Solidary Liability of Individual Respondents: No. Corporate officers are not solidarily liable for illegal dismissal absent malice or bad faith; the lack of a valid cause does not ipso facto establish malice, and no independent proof was presented.
• 13th Month Pay: No. As a managerial employee, petitioner is exempt from the 13th month pay under Memorandum Order No. 28 and the Revised Guidelines on the Implementation of the 13th Month Pay Law.
• Attorney's Fees: Yes. Petitioner was forced to litigate to protect his rights, and Article 111 of the Labor Code supports an award of 10% of the total monetary award.

• Validity of Dismissal for Loss of Trust and Confidence: Article 282 of the Labor Code permits dismissal for willful breach of trust, but the employer bears the burden of proving a just cause; proof beyond reasonable doubt is not required, yet the factual basis must be clearly and convincingly established. Two requisites must concur: the employee must hold a position of trust, and the loss of trust must be based on willful breach founded on clearly established facts. The first requisite was met because petitioner was part of upper management as Acting Manager, Personnel and Marketing Manager, and Vice-President. The second was not met: respondents failed to present the clearance, the single evidence of the alleged breach; they offered no proof that RBSJI attempted to demand payment from Jacinto or filed any civil or criminal suit against him; and they failed to substantiate financial prejudice. Petitioner did not act with malicious motive—he bargained to clear only Jacinto's settled obligations after verification with Lily, and the absence of an audit impelled him to decline a standard clearance and issue a limited one. No falsification or misrepresentation occurred. The claim that petitioner lacked authority was unsubstantiated and, given his stature, the act was within his discretion. The seven-month gap and the intervening verbal termination and resignation demand supported the inference that the clearance incident was an afterthought. Loss of trust and confidence must be genuine, not a subterfuge for illegal or unjustified causes. Thus, petitioner was illegally dismissed.

• Back Wages and Separation Pay: Illegal dismissal entitles petitioner to back wages computed from May 30, 1997 until the finality of the decision. The award shall earn legal interest at 6% per annum from the date of illegal dismissal until finality, and 12% legal interest thereafter until fully paid, in accordance with the guidelines in Eastern Shipping Lines, Inc. vs. Court of Appeals. Separation pay in lieu of reinstatement is also warranted because animosity and antagonism had been brewing between the parties and reinstatement would intensify the hostile working atmosphere. Separation pay is equivalent to one month salary for every year of service, with a fraction of at least six months considered as one whole year, computed from the date of engagement up to the finality of the decision. Such an award is more beneficial to both parties because it liberates the employee from an oppressive work environment and releases the employer from maintaining a worker it could no longer trust.

• Moral and Exemplary Damages: In M+W Zander Philippines, Inc. vs. Enriquez, the Court ruled that illegal dismissal alone does not entitle the dismissed employee to moral damages; additional facts must be pleaded and proven. Moral damages are recoverable only where the dismissal was attended by bad faith or fraud, constituted an act oppressive to labor, or was done contrary to morals, good customs, or public policy, and where social humiliation, wounded feelings, grave anxiety, or similar injury resulted. Bad faith imports a dishonest purpose or moral obliquity, conscious wrongdoing, breach of a known duty through motive or ill will, and partakes of the nature of fraud. Petitioner failed to prove explicit oppressive, humiliating, or demeaning acts. The events—his promotion, replacement by Jobel, designation and recall at N. Domingo, presence of officers at the branch, and George's inaction on his transfer request—merely sketched a struggle for power within upper management and did not convincingly prove a scheme to ease him out. Since no moral damages could be granted, exemplary damages could not also be awarded.

• Solidary Liability of Individual Respondents: A corporation has a legal personality separate and distinct from its stockholders, directors, or officers. Absent evidence that they exceeded their authority, corporate officers are not personally liable for their official acts. Corporate directors and officers may be held solidarily liable with the corporation for termination of employment only if done with malice or bad faith. The acts imputed to the respondents did not support a finding of bad faith. The lack of a valid cause for dismissal does not ipso facto mean that the corporate officers acted with malice or bad faith; there must be independent proof of malice or bad faith, which was absent.

• 13th Month Pay: Being a managerial employee, petitioner is not entitled to 13th month pay. Pursuant to Memorandum Order No. 28, as implemented by the Revised Guidelines on the Implementation of the 13th Month Pay Law dated November 16, 1987, managerial employees are exempt from receiving such benefit, without prejudice to the granting of other bonuses in lieu of the 13th month pay upon the employer's discretion. The award of 13th month pay was therefore incorrect.

• Attorney's Fees: Where an employee was forced to litigate and thus incur expenses to protect his rights and interests, the award of attorney's fees is legally and morally justifiable. Pursuant to Article 111 of the Labor Code, 10% of the total award is the reasonable amount of attorney's fees that can be awarded. The award was proper.

• Loss of Trust and Confidence as a Just Cause — Under Article 282 of the Labor Code, an employer may dismiss an employee for willful breach of the trust reposed in him. Before validity can be accorded to such a dismissal, two requisites must concur: (1) the employee concerned must be holding a position of trust; and (2) the loss of trust must be based on willful breach of trust founded on clearly established facts. The employer bears the burden of proving the just cause. In this case, the first requisite was satisfied because petitioner held managerial positions, but the second was not because respondents failed to present the clearance and offered no proof of prejudice or attempted recovery from Jacinto.

• Willful Breach of Trust — The act that breached the trust must be willful, meaning it was done intentionally, knowingly, and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly, or inadvertently. Petitioner's issuance of a limited clearance after verifying settled obligations with the branch cashier was not shown to be intentional wrongdoing; the circumstances excluded a finding of deliberate or conscious effort to prejudice the employer.

• Loss of Trust Must Be Genuine, Not an Afterthought — Loss of trust and confidence has never been intended to afford an occasion for abuse because of its subjective nature; it should not be used as a subterfuge for causes that are illegal, improper, and unjustified. It must be genuine, not a mere afterthought intended to justify an earlier action taken in bad faith. The seven-month gap between the clearance incident and the memorandum, coupled with the intervening verbal termination and request for resignation, supported the inference that the charge was an afterthought.

• Employer's Burden of Proof in Illegal Dismissal — The law imposes the burden of proof upon the employer to show that the dismissal is for just cause; failure to do so means the dismissal is not justified. Proof beyond reasonable doubt is not necessary, but the factual basis for the dismissal must be clearly and convincingly established. Respondents failed to meet this standard because the clearance itself was not presented and no evidence showed that RBSJI was barred from pursuing Jacinto or was financially prejudiced.

• Scales of Justice Tilted in Favor of Labor — In case of doubt in the evidence presented, the scales of justice should be tilted in favor of labor. Because the clearance was not presented and the parties' claims about its contents could not be resolved by the best evidence, the doubt was resolved against the employer.

• Strained Relations as Basis for Separation Pay in Lieu of Reinstatement — Separation pay may be awarded in lieu of reinstatement when strained relations between the parties make reinstatement impractical or oppressive. It is equivalent to one month salary for every year of service, with a fraction of at least six months considered as one whole year. The Court applied this doctrine because animosity and antagonism had been brewing since petitioner was gradually eased out of key positions.

• Moral Damages in Illegal Dismissal — Illegal dismissal, by itself alone, does not entitle the dismissed employee to moral damages; additional facts must be pleaded and proven. Moral damages are recoverable only where the dismissal was attended by bad faith or fraud, constituted an act oppressive to labor, or was done contrary to morals, good customs, or public policy, and where social humiliation, wounded feelings, grave anxiety, and similar injury resulted. Petitioner failed to prove such acts, so moral damages were denied.

• Corporate Officer Liability for Illegal Dismissal — A corporation has a legal personality separate and distinct from its stockholders, directors, or officers. Corporate officers may be held solidarily liable with the corporation for termination of employment only if done with malice or bad faith. The lack of a valid cause for dismissal does not ipso facto establish malice or bad faith; independent proof is required. No such proof existed, so only the bank was held liable.

• Managerial Employees Exempt from 13th Month Pay — Under Memorandum Order No. 28, as implemented by the Revised Guidelines on the Implementation of the 13th Month Pay Law dated November 16, 1987, managerial employees are exempt from receiving 13th month pay, without prejudice to the granting of other bonuses in lieu thereof upon the employer's discretion. Petitioner, a managerial employee, was not entitled to the award.

• Attorney's Fees in Labor Cases — Where an employee was forced to litigate and incur expenses to protect his rights and interests, the award of attorney's fees is legally and morally justifiable. Under Article 111 of the Labor Code, 10% of the total award is a reasonable amount. The Court affirmed the award.

• "Further, the law mandates that before validity can be accorded to a dismissal premised on loss of trust and confidence, two requisites must concur, viz: (1) the employee concerned must be holding a position of trust; and (2) the loss of trust must be based on willful breach of trust founded on clearly established facts." — This passage states the two requisites for a valid dismissal based on loss of trust and confidence, the central rule applied in the case.
• "The Court has repeatedly emphasized that the act that breached the trust must be willful such that it was done intentionally, knowingly, and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly or inadvertently." — This defines willful breach, the element the employer failed to establish against petitioner.
• "Loss of trust and confidence as a ground for dismissal has never been intended to afford an occasion for abuse because of its subjective nature. It should not be used as a subterfuge for causes which are illegal, improper and unjustified. It must be genuine, not a mere afterthought intended to justify an earlier action taken in bad faith." — This is the ratio for rejecting the employer's charge as an afterthought, given the seven-month delay and intervening resignation demand.
• "Moral damages are recoverable only where the dismissal of the employee was attended by bad faith or fraud, or constituted an act oppressive to labor, or was done in a manner contrary to morals, good customs or public policy. Such an award cannot be justified solely upon the premise that the employer fired his employee without just cause or due process." — This states the rule that illegal dismissal alone does not warrant moral damages, the basis for deleting the award.

• Lynvil Fishing Enterprises, Inc. vs. Ariola, G.R. No. 181974, February 1, 2012, 664 SCRA 679 — Cited for the general rule that findings of fact of the Court of Appeals, when supported by substantial evidence, are conclusive and binding on the parties.
• Lima Land, Inc. vs. Cuevas, G.R. No. 169523, June 16, 2010, 621 SCRA 36 — Cited for the exception allowing the Court to re-evaluate factual findings when they contradict those of the labor tribunals, and for the rule that loss of trust and confidence must be genuine and not a mere afterthought.
• Prudential Guarantee and Assurance Employee Labor Union vs. NLRC, G.R. No. 185335, June 13, 2012, 672 SCRA 375 — Cited for the employer's right to dismiss for willful breach of trust, the two requisites for loss of trust and confidence, and the principle that doubt in evidence should be tilted in favor of labor.
• Jerusalem vs. Keppel Monte Bank, G.R. No. 169564, April 6, 2011, 647 SCRA 313 — Cited for the standard that proof beyond reasonable doubt is not necessary, but the factual basis for dismissal must be clearly and convincingly established.
• Bristol Myers Squibb (Phils.), Inc. vs. Baban, G.R. No. 167449, December 17, 2008, 574 SCRA 198 — Cited for the two requisites of a valid dismissal based on loss of trust and confidence.
• The Coca-Cola Export Corporation vs. Gacayan, G.R. No. 149433, June 22, 2011, 652 SCRA 463 — Cited for the definition of willful breach as intentional, knowing, and purposeful, without justifiable excuse.
• M+W Zander Philippines, Inc. vs. Enriquez, G.R. No. 169173, June 5, 2009, 588 SCRA 590 — Cited for the rule that illegal dismissal alone does not entitle the employee to moral damages absent bad faith, fraud, oppression, or acts contrary to morals, good customs, or public policy.
• Wensha Spa Center, Inc. vs. Yung, G.R. No. 185122, August 16, 2010, 628 SCRA 311 — Cited for the definition of bad faith as importing dishonest purpose, moral obliquity, conscious wrongdoing, breach of a known duty through motive or ill will, and partaking of the nature of fraud.
• Pacquing vs. Coca-Cola Philippines, Inc., G.R. No. 157966, January 31, 2008, 543 SCRA 344 — Cited for the rule that exemplary damages cannot be awarded when no moral damages can be granted.
• Londonio vs. Bio Research, Inc., G.R. No. 191459, January 17, 2011, 639 SCRA 591 — Cited for the rule that corporate officers may be held solidarily liable with the corporation for illegal dismissal only if they acted with malice or bad faith.
• Lambert Pawnbrokers and Jewelry Corporation vs. Binamira, G.R. No. 170464, July 12, 2010, 624 SCRA 705 — Cited for the requirement of independent proof of malice or bad faith for corporate officer liability and for the propriety of attorney's fees where the employee was forced to litigate.
• House of Sara Lee vs. Rey, 532 Phil. 121 (2006) — Cited for the exemption of managerial employees from 13th month pay under Memorandum Order No. 28 and the Revised Guidelines.
• Aliling vs. Feliciano, G.R. No. 185829, April 25, 2012, 671 SCRA 186 — Cited for the award of separation pay in lieu of reinstatement based on strained relations.
• Eastern Shipping Lines, Inc. vs. Court of Appeals, G.R. No. 97412, July 12, 1994, 234 SCRA 78 — Cited for the guidelines on legal interest, including 6% per annum before finality and 12% thereafter.

• Article 282, Labor Code — Lists the causes for termination by the employer, including fraud or willful breach by the employee of the trust reposed in him. The Court used this provision as the basis for loss of trust and confidence but found that respondents failed to prove willful breach founded on clearly established facts.
• Article 111, Labor Code — Governs attorney's fees in labor cases. The Court awarded 10% of the total monetary award as reasonable attorney's fees.
• Memorandum Order No. 28, as implemented by the Revised Guidelines on the Implementation of the 13th Month Pay Law dated November 16, 1987 — Exempts managerial employees from receiving 13th month pay. The Court applied this to delete the award of 13th month pay to petitioner.
• Rule 45, Rules of Court — Governs petitions for review on certiorari. The petition was filed under this Rule to reverse and set aside the Court of Appeals Decision and Resolution.

Maria Lourdes P. A. Sereno (Chief Justice, Chairperson), Teresita J. Leonardo-De Castro, Lucas P. Bersamin, and Martin S. Villarama, Jr.