CASE 2011-0117: PHILIPPINE NATIONAL RAILWAYS VS. KANLAON CONSTRUCTION ENTERPRISES CO., INC. (G.R. NO. 182967, 6 APRIL 2011, CARPIO, J.) SUBJECT: TWO REQUIREMENTS FOR GOVT CONTRACTS: AN APPROPRIATION LAW AND CERTIFICATION OF FUND AVAILABILITY. (BRIEF TITLE: PNR VS. KANLAON CONSTRUCTION).

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DOCTRINE: TWO REQUIREMENTS IN GOVT CONTRACTS: APPROPRIATION AND CERTIFICATION OF FUND AVAILABILITY.

The law expressly declares void a contract that fails to comply with the two requirements, namely, an appropriation law funding the contract and a certification of appropriation and fund availability.²² The clear purpose of these requirements is to insure that government contracts are never signed unless supported by the corresponding appropriation law and fund availability.²³

DOCTRINE: IF FUND IS INTERNALLY GENERATED STILL CERTIFICATION OF FUND AVAILABILITY IS NECESSARY .

The three contracts between PNR and Kanlaon do not comply with the requirement of a certification of appropriation and fund availability. Even if a certification of appropriation is not applicable to PNR if the funds used are internally generated, still a certificate of fund availability is required. Thus, the three contracts between PNR and Kanlaon are void for violation of Sections 46, 47, and 48, Chapter 8, Subtitle B, Title I, Book V of the Administrative Code of 1987, as well as Sections 85, 86, and 87 of the Government Auditing Code of the Philippines.

DOCTRINE: REMEDY  IS TO GO AFTER OFFICERS WHO SIGNED THE CONTRACTS.

However, Kanlaon is not left without recourse. The law itself affords it the remedy. Section 48 of the Administrative Code of 1987 provides that “the officer or officers entering into the contract shall be liable to the Government or other contracting party for any consequent damage to the same extent as if the transaction had been wholly between private parties.”²⁴ Kanlaon could go after the officers who signed the contract and hold them personally liable.

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SECOND DIVISION

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D E C I S I O N

CARPIO, J.:

The Case

This is a petition for review¹ of the 26 February 2008 Decision² and 26 May 2008 Resolution³ of the Court of Appeals in CA-G.R. CV No. 70205. In its 26 February 2008 Decision, the Court of Appeals affirmed the 12 December 2000 Decision,⁴ as amended by the 22 February 2001 Order,⁵ of the Regional Trial Court of Quezon City, Branch 221 (trial court), directing petitioner Philippine National Railways (PNR) to pay respondent Kanlaon Construction Enterprises Co., Inc. (Kanlaon) the remaining balance of the contracts and to release the retention money. In its 26 May 2008 Resolution, the Court of Appeals denied PNR’s motion for reconsideration.

The Facts

In July 1990, PNR and Kanlaon entered into contracts for the repair of three PNR station buildings and passenger shelters, namely: 1) College Station for P2,316,568.41;⁶ 2) Biñan Station for P2,547,978.63;⁷ and 3) Buendia Station for P1,820,534.40.⁸ The total cost of the three projects was P6,685,081.44. By November 1990, Kanlaon alleged that it had already completed the three projects.⁹

On 30 June 1994, Kanlaon sent a demand letter to PNR requesting for the release of the retention money in the amount ofP333,894.07.¹⁰

In a letter dated 12 July 1994,¹¹ PNR denied Kanlaon’s demand because of the 24 January 1994 Notices of Suspension¹² issued by the Commission on Audit (COA).

On 8 November 1994, Kanlaon filed a complaint for collection of sum of money plus damages against PNR.¹³ Kanlaon sought to recover from PNR a total of P865,906.79 consisting of the remaining balance of the three projects in the amount of P531,652.72¹⁴ and the retention money in the amount of P334,254.07. In its amended complaint dated 17 August 1995, Kanlaon impleaded the COA.¹⁵

In its answer, PNR admitted the existence of the three contracts but alleged that Kanlaon did not comply with the conditions of the contract. PNR also alleged that Kanlaon did not complete the projects and that PNR did not have any unpaid balance. PNR added that it had a valid ground to refuse the release of the retention money because of the COA orders suspending the release of payment toKanlaon.

In its 12 December 2000 Decision, the trial court ruled in favor of Kanlaon. The dispositive portion of the 12 December 2000 Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff [Kanlaon] and against the herein defendants [PNR and COA]. Accordingly, defendant PNR is ordered to pay the plaintiff the following amount[s]:

1. P333,894.07 representing the unreleased retention money plus legal interest at 12% per annum computed from the date of the first written demand; [and]

2. P531,652.72 representing the unpaid contract price for the completed projects plus legal interest of 12% per annum computed from the date of the first written demand.

Defendant COA is absolved of any liability for actual damages or moral damages.

However, both defendant PNR and defendant COA are solidarily liable for reasonable attorney’s fees in the amount of P50,000.00 and cost of suit.

SO ORDERED.¹⁶

On 28 December 2000, COA appealed. On 9 January 2001, PNR filed a motion for reconsideration.

In its 22 February 2001 Order, the trial court modified its 12 December 2000 Decision and fixed the interest rate from twelve percent to six percent per annum from the date of the first written demand.

PNR and COA appealed to the Court of Appeals.

In its 26 February 2008 Decision, the Court of Appeals affirmed the trial court’s 12 December 2000 Decision, as amended by its 22 February 2001 Order.

PNR filed a motion for reconsideration.

In its 26 May 2008 Resolution, the Court of Appeals denied PNR’s motion.

The Ruling of the Trial Court

The trial court found that Kanlaon completed the projects and that it was entitled to payment in full of the contract price, as well as the release of the retention money. The trial court declared the PNR ledger, which was the only documentary evidence presented by PNR to show that the projects were not completed, to be self-serving and unverified. The trial court declared that PNR failed to present any credible and substantial evidence that Kanlaon failed to complete the projects. Moreover, the trial court stated that COA suspended payment because PNR failed to comply with certain conditions and not because Kanlaon did not complete the projects. The trial court also took judicial notice of the fact that the PNR stations at College, Biñan and Buendia are fully operational and have been continuously used by PNR and the riding public. The trial court absolved COA from actual and moral damages because there was no contractual relations between COA and Kanlaon and it was not shown that COA acted in bad faith or with malice or gross negligence when it issued the Notices of Suspension.

The Ruling of the Court of Appeals

The Court of Appeals sustained the trial court’s ruling that PNR was liable for the remaining balance of the contract price and the retention money. The Court of Appeals agreed with the trial court that the preponderance of evidence leaned in favor of Kanlaon’s claim against PNR and that there was nothing on record which supports PNR’s allegation that Kanlaon failed to complete the project. The Court of Appeals said the only reason PNR refused to pay Kanlaon was because of COA’s Notices of Suspension and not Kanlaon’snon-completion of the projects. However, the Court of Appeals held that COA is not liable for attorney’s fees and costs of the suit for lack of factual and legal bases.

The Issues

PNR raises the following issues:

I. The Court of Appeals erred in finding that the projects were completed.

II. The Court of Appeals erred in affirming the 12 December 2000 Decision of the trial court, as modified by the Order dated February 22, 2001.

III. The Court of Appeals erred in ruling that interest should be reckoned from the date of respondent’s first written demand.¹⁷

The Ruling of the Court

The petition is meritorious.

The Court notes that one of the reasons the COA issued the Notices of Suspension was because the contracts did not contain a Certificate of Availability of Funds as required under Sections 85 and 86 of Presidential Decree No. 1445.¹⁸ Kanlaon does not dispute the absence of a Certificate of Availability of Funds.

The Administrative Code of 1987, a more recent law, also contains the same provisions. Sections 46, 47, and 48, Chapter 8, Subtitle B, Title I, Book V of the Administrative Code of 1987 provide:

SECTION 46. Appropriation Before Entering into Contract. —

1.      No contract involving the expenditure of public funds shall be entered into unless there is an appropriation therefor, the unexpended balance of which, free of other obligations, is sufficient to cover the proposed expenditure; and

2.      Notwithstanding this provision, contracts for the procurement of supplies and materials to be carried in stock may be entered into under regulations of the Commission provided that when issued, the supplies and materials shall be charged to the proper appropriations account.

SECTION 47. Certificate Showing Appropriation to Meet Contract. — Except in the case of a contract for personal service, for supplies for current consumption or to be carried in stock not exceeding the estimated consumption for three (3) months, or banking transactions of government-owned or controlled banks, no contract involving the expenditure of public funds by any government agency shall be entered into or authorized unless the proper accounting official of the agency concerned shall have certified to the officer entering into the obligation that funds have been duly appropriated for the purpose and that the amount necessary to cover the proposed contract for the current calendar year is available for expenditure on account thereof, subject to verification by the auditor concerned. The certificate signed by the proper accounting official and the auditor who verified it, shall be attached to and become an integral part of the proposed contract, and the sum so certified shall not thereafter be available for expenditure for any other purpose until the obligation of the government agency concerned under the contract is fully extinguished.
SECTION 48. Void Contract and Liability of Officer. — Any contract entered into contrary to the requirements of the two (2) immediately preceding sections shall be void, and the officer or officers entering into the contract shall be liable to the Government or other contracting party for any consequent damage to the same extent as if the transaction had been wholly between private parties. (Emphasis supplied)

Thus, the Administrative Code of 1987 expressly prohibits the entering into contracts involving the expenditure of public funds unless two prior requirements are satisfied. First, there must be an appropriation law authorizing the expenditure required in the contract. Second, there must be attached to the contract a certification by the proper accounting official and auditor that funds have been appropriated by law and such funds are available. Failure to comply with any of these two requirements renders the contract void.

In several cases,¹⁹ the Court had the occasion to apply these provisions of the Administrative Code of 1987 and the Government Auditing Code of the Philippines. In these cases, the Court clearly ruled that the two requirements – the existence of appropriation and the attachment of the certification – are “conditions sine qua non for the execution of government contracts.”

In COMELEC v. Quijano-Padilla,²⁰ we stated:

It is quite evident from the tenor of the language of the law that the existence of appropriations and the availability of funds are indispensable pre-requisites to or conditions sine qua non for the execution of government contracts. The obvious intent is to impose such conditions as a priori requisites to the validity of the proposed contract.²¹

The law expressly declares void a contract that fails to comply with the two requirements, namely, an appropriation law funding the contract and a certification of appropriation and fund availability.²² The clear purpose of these requirements is to insure that government contracts are never signed unless supported by the corresponding appropriation law and fund availability.²³

The three contracts between PNR and Kanlaon do not comply with the requirement of a certification of appropriation and fund availability. Even if a certification of appropriation is not applicable to PNR if the funds used are internally generated, still a certificate of fund availability is required. Thus, the three contracts between PNR and Kanlaon are void for violation of Sections 46, 47, and 48, Chapter 8, Subtitle B, Title I, Book V of the Administrative Code of 1987, as well as Sections 85, 86, and 87 of the Government Auditing Code of the Philippines.

However, Kanlaon is not left without recourse. The law itself affords it the remedy. Section 48 of the Administrative Code of 1987 provides that “the officer or officers entering into the contract shall be liable to the Government or other contracting party for any consequent damage to the same extent as if the transaction had been wholly between private parties.”²⁴ Kanlaon could go after the officers who signed the contract and hold them personally liable.

WHEREFORE, we GRANT the petition. We REVERSE and SET ASIDE the 26 February 2008 Decision and 26 May 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 70205.

SO ORDERED.

ANTONIO T. CARPIO Associate Justice

WE CONCUR:

DIOSDADO M. PERALTA

Associate Justice

ROBERTO A. ABAD JOSE CATRAL MENDOZA

Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO

Associate Justice

Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice

* Designated additional member per Special Order No. 978 dated 30 March 2011.

1 Under Rule 45 of the Rules of Court.

2 Rollo, pp. 58-68. Penned by Associate Justice Sesinando E. Villon, with Associate Justices Martin S. Villarama, Jr. (now a member of this Court) and Mario L. Guariña III, concurring.

3 Id. at 73.

4 Id. at 44-51. Penned by Judge Noel G. Tijam (now an Associate Justice of the Court of Appeals).

5 Id. at 57.

6 Id. at 18-20. The contract was dated 12 July 1990.

7 Id. at 21-23. The contract was dated 19 July 1990.

8 Id. at 24-26. The contract was dated 19 July 1990.

9 Kanlaon alleged that it completed theCollege Station on 23 November 1990, the Biñan Station on 19 November 1990, and the Buendia Station on 12 November 1990.

10 Records, p. 17.

11 Id. at 19.

12 Id. at 32-40. The COA directed PNR to suspend the payment due to Kanlaon for the following reasons:

1.      The contracts were not approved by the PNR Board of Directors pursuant to Executive Order No. 164, as amended by Executive Order No. 380;

2.      The contracts were not submitted to the COA for review in accordance with COA Circular No. 89-299;

3.      The contracts did not contain a Certificate of Availability of Funds as required under Sections 85 and 86 of P.D. 1445; and

4.      No request for inspection of work accomplishment was made.

13 Id. at 1-7.

14 Kanlaon claimed that PNR had the following remaining balance on the three projects: College Station at P131,962.65; Biñan Station at P141,391.89; and Buendia Station at P288,298.18.

15 Rollo, pp. 35-43.

16 Id. at 51.

17 Id. at 12.

18 Entitled “Ordaining and Instituting a Government Auditing Code of thePhilippines.” Also known as the “Government Auditing Code of thePhilippines.” Dated 11 June 1978. Sections 85 and 86 of P.D. 1445 provides:

Section 85. Appropriation before entering into contract.

1. No contract involving the expenditure of public funds shall be entered into unless there is an appropriation therefor, the unexpended balance of which, free of other obligations, is sufficient to cover the proposed expenditure.

2. Notwithstanding this provision, contracts for the procurement of supplies and materials to be carried in stock may be entered into under regulations of the Commission provided that when issued, the supplies and materials shall be charged to the proper appropriation account.

Section 86. Certificate showing appropriation to meet contract. Except in the case of a contract for personal service, for supplies for current consumption or to be carried in stock not exceeding the estimated consumption for three months, or banking transactions of government-owned or controlled banks no contract involving the expenditure of public funds by any government agency shall be entered into or authorized unless the proper accounting official of the agency concerned shall have certified to the officer entering into the obligation that funds have been duly appropriated for the purpose and that the amount necessary to cover the proposed contract for the current fiscal year is available for expenditure on account thereof, subject to verification by the auditor concerned. The certificate signed by the proper accounting official and the auditor who verified it, shall be attached to and become an integral part of the proposed contract, and the sum so certified shall not thereafter be available for expenditure for any other purpose until the obligation of the government agency concerned under the contract is fully extinguished.

19 COMELEC v. Quijano-Padilla, 438 Phil. 72 (2002); Agan, Jr. v. Phil. International Air Terminals Co., Inc., 450 Phil. 744 (2003); and Osmeña v. Commission on Audit, G.R. No. 98355, 2 March 1994, 230 SCRA 585.

20 438 Phil. 72 (2002).

21 Id. at 93-94.

22 Section 48, Chapter 8, Subtitle B, Title I, Book V of the Administrative Code of 1987 and Section 87 of the Government Auditing Code of thePhilippines.

23 Melchor v. Commission on Audit, G.R. No. 95398, 16 August 1991, 200 SCRA 704.

24 See also Section 87 of the Government Auditing Code of thePhilippines.

CASE 2011-0116:  JAMES BEN L. JERUSALEM VS. KEPPEL MONTE BANK, HOE ENG HOCK, SUNNY YAP AND JOSEFINA PICART (G.R. NO. 169564,  6 APRIL 2011, DEL CASTILLO, J.) SUBJECT: DISMISSAL OF AN EMPLOYEE DUE TO LOSS OF TRUST AND CONFIDENCE. (BRIEF TITLE: JERUSALEM VS. KEPPEL MONTE BANK).

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DOCTRINE: TWO REQUISITES FOR DISMISSAL DUE TO LOSS OF TRUST AND CONFIDENCE

            The first requisite for dismissal on the ground of loss of trust and confidence is that the employee concerned must be holding a position of trust and confidence.  In this case, there is no doubt that James held a position of trust and confidence as Assistant Vice-President of the Jewelry Department.

            “The second requisite is that there must be an act that would justify the loss of trust and confidence.  Loss of trust and confidence, to be a valid cause for dismissal, must be based on a willful breach of trust and founded on clearly established facts. The basis for the dismissal must be clearly and convincingly established but proof beyond reasonable doubt is not necessary.”^[27] Keppel’s evidence against James fails to meet this standard.

DOCTRINE:  EMPLOYEE HOLDS POSITION OF RESPONSIBILITY OR TRUST AND CONFIDENCE.

“Loss of confidence as a just cause for termination of employment is premised on the fact that the employee concerned holds a position of responsibility or trust and confidence.  He must be invested with confidence on delicate matters, such as custody handling or care and protection of the property and assets of the employer.  And, in order to constitute a just cause for dismissal, the act complained of must be work-related and shows that the employee concerned is unfit to continue to work for the employer.”^[30]

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Republic of the Philippines

Supreme Court

Baguio City

FIRST DIVISION

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D E C I S I O N

DEL CASTILLO, J.:

            For breach of trust and confidence to become a valid ground for the dismissal of an employee, the cause of loss of trust and confidence must be related to the performance of the employee’s duties.

            This Petition for Review on Certiorari^[1] assails the Decision^[2] dated June 22, 2005 of the Court of Appeals (CA) in CA-G.R. SP No. 86988, which granted the petition for certiorari and reversed and set aside the Decision^[3] dated June 25, 2004 of the National Labor Relations Commission (NLRC) in NLRC NCR CA No. 029793-01 (NCR-00-10-05292-00).  Also assailed is the CA Resolution^[4] dated August 31, 2005 denying the Motion for Reconsideration thereto.

Factual Antecedents

James Ben L. Jerusalem (James) was employed by Keppel Monte Bank (Keppel) on May 25, 1998 as Assistant Vice-President. On June 1, 1998, he was assigned as Head of the newly created VISA Credit Card Department.  The bank subsequently re-organized the VISA Credit Card Department and reduced it to a mere unit.  On April 5, 1999, carrying the same rank, James was reassigned as Head of the Marketing and Operations of the Jewelry Department.  The VISA Credit Card Unit was then headed by Senior Vice President Roberto Borromeo (Roberto) and supported by Marciana C. Gerena (Marciana), Rosario R. Ronquillo (Rosario), and Aileen Alcantara as Unit Head, Processor and Bookkeeper, respectively.

In or about May 1999, James received from Jorge Javier (Jorge) a sealed envelope said to be containing VISA Card application forms.  Jorge is a Keppel Visa Card Holder since December 1998.  James immediately handed over the envelope with accomplished application forms to the VISA Credit Card Unit.  All in all, the VISA credit card applications referred by Jorge which James forwarded to the VISA Credit Card Unit numbered 67, all of which were subsequently approved.  As it turned out, all the accounts under these approved applications became past due.

On July 20, 2000, Marciana sent a letter^[5] to Jorge asking the latter to assist the bank in the collection of his referred VISA accounts which have already an accumulated principal balance of P6,281,443.90 excluding interest and service fees in the amount ofP1,157,490.08.  On the same date, James upon knowing the status of the accounts referred by Jorge, sent a Memorandum^[6] to Roberto recommending the filing of a criminal case for estafa against Jorge.  He further recommended that a coordination with the other banks where Jorge has deposits should be made promptly so that they can ask said banks to freeze Jorge’s accounts.  James even warned Keppel that immediate action should be taken while Jorge is still in the country.

On July 31, 2000, Jorge arranged a meeting with bank officials. The said meeting was attended by James and Marciana.

On August 9, 2000, James sent a Memorandum^[7] to Napoleon Jamer (Napoleon), Vice-President of Audit Department, and to Atty. Rowena Wilwayco, Senior Manager of Legal Department.  He summarized in the said Memorandum the events that transpired during the July 31, 2000 meeting with Jorge and reiterated his suggestion for Keppel to file a case against Jorge.  He further suggested that Keppel look into the inside job angle of the approval of the VISA cards and that all key officers and staff should be probed for possible involvement.

On August 14, 2000, Napoleon issued a Memorandum^[8] in reply to the August 9, 2000 Memorandum of James, advising the latter to coordinate with Roberto and not with him.  Furthermore, James was requested not to interfere with the audit process being undertaken by the Audit Department.

On August 18, 2000, James received a Notice to Explain^[9] from Keppel’s Vice President for Operations, Sunny Yap (Sunny), why no disciplinary action should be taken against him for referring/endorsing fictitious VISA card applicants.  The said referrals resulted in substantial financial losses to Keppel.

On August 23, 2000, James submitted his written explanation^[10] to Sunny.  He pointed out that he had no participation in the processing of the VISA card applications since he was no longer connected with the VISA Credit Card Unit at the time of such transactions.  He explained that he can only endorse the applications referred by Jorge to the VISA Credit Card Unit because he was already transferred to Jewelry Department, as Head.

On September 26, 2000, the Manager for Human Resources Department, Josefina Picart, handed to James a Notice of Termination^[11] informing the latter that he was found guilty of breach of trust and confidence for knowingly and maliciously referring, endorsing and vouching for VISA card applicants who later turned out to be impostors resulting in financial loss to Keppel.  This prompted James to file before the Labor Arbiter a complaint for illegal dismissal, illegal confiscation of car with prayer for the payment of vacation/sick leaves, 13^th month pay, damages, attorney’s fees and full backwages against Keppel on October 9, 2000.

Ruling of the Labor Arbiter

            On August 15, 2001, Labor Arbiter Daisy G. Cauton-Barcelona rendered a Decision^[12] finding Keppel guilty of illegal dismissal.  

The dispositive portion of the Labor Arbiter’s Decision reads:

VIEWED IN THE LIGHT OF THE FOREGOING, the dismissal being illegal, the complainant should be paid his backwages from the time of his illegal termination up to the date of this decision in the amount of P584,204.54; in lieu of reinstatement, the complainant is further ordered paid his separation pay equivalent to one (1) month pay for every year of service, in the amount of P150,000.00; the amounts of P100,000.00 andP50,000.00 pesos as payment for moral and exemplary damages respectively; and ten (10%) percent of the total monetary award as and for attorney’s fees, or the aggregate amount of P957,624.99.

Respondents are further ordered to deliver to complainant his car, Toyota Corona with plate number THE 735 without prejudice to the payment of the remaining balance thereon.

SO ORDERED.^[13]

Ruling of the National Labor Relations Commission

Keppel sought recourse to the NLRC which issued a Decision^[14] dated June 25, 2004 affirming the Decision of the Labor Arbiter with the modification that the award of moral and exemplary damages be deleted and that the attorney’s fees be based on the 13^th month pay and service incentive leave pay.

Keppel filed a Motion for Reconsideration^[15] which was denied by the NLRC in a Resolution^[16] dated July 30, 2004.

            Aggrieved, Keppel filed with the CA a Petition for Certiorari.^[17]  

Ruling of the Court of Appeals

The CA found merit in the petition and granted the same through a Decision^[18] dated June 22, 2005, the dispositve portion of which reads:

                WHEREFORE, the petition is GRANTED.  The assailed decision and resolution of the public respondent are hereby SET ASIDE, and a new judgment is entered DISMISSING the private respondent’s complaint for lack of merit.

SO ORDERED.^[19]

            Petitioner moved for reconsideration^[20] but to no avail.^[21]  Hence, this appeal raising the following issues:

Issues

A.   THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT REVERSED THE CONCURRING FINDINGS OF THE LABOR ARBITER AND THE NATIONAL LABOR RELATIONS COMMISSION THAT RESPONDENTS’ DISMISSAL OF PETITIONER BASED ON ALLEGED LOSS OF TRUST AND CONFIDENCE HAS NO BASIS AT ALL AND THEREBY DECLARING THE DISMISSAL OF PETITIONER AS JUSTIFIED.

B.    THE COURT OF APPEALS GRAVELY ERRED IN DECLARING PETITIONER’S DISMISSAL AS LEGAL AND EFFECTIVELY DELETING THE MONETARY AWARDS BY THE LABOR ARBITER AND NLRC.

C.    THE COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE DECISION OF THE LABOR ARBITER AND X X X [THE] RESOLUTION OF THE NATIONAL LABOR RELATIONS COMMISSION BY USING A SUPREME COURT RULING WHICH IS NOT APPLICABLE TO THE INSTANT CASE.^[22]

            The above issues can be summed up to the sole issue of whether Keppel legally terminated James’s employment on the ground of willful breach of trust and confidence.

Petitioner’s Arguments

Petitioner believes that the Labor Arbiter and the NLRC, who are deemed to have acquired expertise in matters within their respective jurisdictions, correctly held that there was no basis to justify the alleged loss of trust and confidence of respondents on petitioner.

            He avers that a dismissal based on loss of trust and confidence should be proven by substantial evidence and founded on clearly established facts.  As culled from the records and as correctly cited by the lower tribunals, respondents have not been able to show any concrete  proof  that  petitioner  had  participated  in  the

approval of the subject credit cards and that his only participation was his act of forwarding the applications to the VISA Credit Card Unit of which he is no longer the head.

            Furthermore, the loss of trust and confidence in addition to being willful and without justifiable excuse must also be work-related rendering the employee concerned unfit to continue working.  In this case, petitioner points out that he was not anymore connected with the VISA Credit Card Unit when the alleged credit card scam happened and claims that he had nothing to do with the approval of the said card applications.  Hence, he should not be made answerable for the erroneous judgment of the officers of the VISA Credit Card Unit.

Respondents’ Arguments

            Loss of trust and confidence is a valid ground for dismissing an employee, provided that same arises from proven facts. Termination of employment on this ground does not require proof beyond reasonable doubt of the employee’s conduct.  It is sufficient that there is some basis for the loss of trust or that the employer has reasonable ground to believe that the employee is responsible for the misconduct which renders him unworthy of the trust and confidence demanded of his position.

            In this case, respondents believe that the testimonies of Marciana and Rosario who were former subordinates of James in the VISA Credit Card Unit deserve full faith and credence in the absence of any evidence that they were impelled by improper motives. The two corroborated each other in saying that no credit investigation and residence checking were conducted on the applications endorsed by Jorge because there was a specific instruction from James for them not to conduct the said investigations and validation as he was personally vouching for the existence and validity of the said accounts.

            The dismissal of James is therefore valid in view of the overwhelming and unrebutted evidence presented against him. It is the prerogative of management to dismiss petitioner, who is a managerial employee, for loss of trust and confidence.

Our Ruling

            The petition is impressed with merit.

Article 282 of the Labor Code states:

ART. 282. TERMINATION BY EMPLOYER. – An employer may terminate an employment for any of the following causes:

(a)  Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work;

(b)  Gross and habitual neglect by the employee of his duties;

(c)  Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative;

(d)  Commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representative; and

(e)  Other causes analogous to the foregoing.

            Article 282(c) of the Labor Code prescribes two separate and distinct grounds for termination of employment, namely: (1) fraud; or (2) willful breach by the employee of the trust reposed in him by his employer or duly authorized representative.

            “Law and jurisprudence have long recognized the right of employers to dismiss employees by reason of loss of trust and confidence.”^[23]  As provided for in Article 282, an employer may terminate an employee’s employment for fraud or willful breach of trust reposed in him.  “But, in order to constitute a just cause for dismissal, the act complained of must be ‘work-related’ such as would show the employee concerned to be unfit to continue working for the employer.”^[24]

Keppel has the burden of proof to discharge its allegations.

            “Unlike in other cases where the complainant has the burden of proof to discharge its allegations, the burden of establishing facts as bases for an employer’s loss of confidence in an employee – facts which reasonably generate belief by the employer that the employee was connected with some misconduct and the nature of his participation therein is such as to render him unworthy of trust and confidence demanded of his position – is on the employer.”^[25]

            While it is true that loss of trust and confidence is one of the just causes for termination, such loss of trust and confidence must, however, have some basis. Proof beyond reasonable doubt is not required.  It is sufficient that there must only be some basis for such loss of confidence or that there is reasonable ground to believe, if not to entertain, the moral conviction that the concerned employee is responsible for the misconduct and that the nature of his participation therein rendered him absolutely unworthy of trust and confidence demanded by his position.^[26]

Keppel failed in discharging the burden of proof that the dismissal of James is for a just cause.

            The first requisite for dismissal on the ground of loss of trust and confidence is that the employee concerned must be holding a position of trust and confidence.  In this case, there is no doubt that James held a position of trust and confidence as Assistant Vice-President of the Jewelry Department.

            “The second requisite is that there must be an act that would justify the loss of trust and confidence.  Loss of trust and confidence, to be a valid cause for dismissal, must be based on a willful breach of trust and founded on clearly established facts. The basis for the dismissal must be clearly and convincingly established but proof beyond reasonable doubt is not necessary.”^[27] Keppel’s evidence against James fails to meet this standard.

Worthy to note is the pertinent portion of the Decision of Labor Arbiter Daisy G. Cauton-Barcelona, to wit:

                Looking closely at the circumstances obtaining herein, we note that respondent bank has not been able to show any concrete proof that indeed complainant had participated in the approval of the questioned VISA CARD accounts. The records [are] bereft of any concrete showing that complainant directed Ms. Gerena to approve the applications without passing through the process. The alleged marginal notations in the applications were admittedly scribbled by Ms. Gerena. Even assuming that there are such notations on the applications i.e., “c/o James Jerusalem”, still, such notations to us can not be construed as a directive coming from complainant to specifically do away with existing policy on the approval of applications for VISA Card.

                Of course, we concede to the fact that respondent had sustained losses on account of the so-called “credit card scam” in the amount ofP7,961,619.82 all coming from the accounts referred x x x by Mr. Jorge Javier, but no amount of mind boggling can we infer that the mere act of handing the already accomplished forms for VISA CREDIT Card could be interpreted as “Favorable endorsement” with instructions not to conduct the usual credit investigation/verification of applicants. To lay the blame upon the complainant would be at the height of injustice considering that at that time, he no longer has the authority to pass upon such applications. To attribute such huge financial losses to one who is no longer connected with the VISA Card department would be stretching too far, the import of the term “some basis.” We simply could not see our way through how respondent bank could have inferred that complainant made such instruction upon Ms. Gerena to forego the usual process and have the applications approved without any direct evidence showing to be so.^[28]

            Also significant is the findings of the NLRC that petitioner had not committed any acts inimical to the interest of Keppel. The NLRC stated, viz:

                        The lines having been drawn between the VISA Card Unit and the Jewelry Department, the complainant who is assigned with the latter as Vice-President can not be made responsible for the misdeeds of those in the former. Moreover, the act of betrayal of trust if any, must have been committed by the employee in connection with the performance of his function or position. Verily, in this case, complainant who has nothing to do with the approval of VISA Cards, should not be made answerable to the imprudence and indiscretion of Ms. Gerena and Ms. Ronquillo.^[29]

“Loss of confidence as a just cause for termination of employment is premised on the fact that the employee concerned holds a position of responsibility or trust and confidence.  He must be invested with confidence on delicate matters, such as custody handling or care and protection of the property and assets of the employer.  And, in order to constitute a just cause for dismissal, the act complained of must be work-related and shows that the employee concerned is unfit to continue to work for the employer.”^[30]

                From the findings of both the Labor Arbiter and the NLRC it is clear that James did nothing wrong when he handed over to Marciana the envelope containing the applications of persons under the referred accounts of Jorge who were later found to be fictitious.  As the records now stand, James was no longer connected with the VISA Credit Card Unit when the 67 applications for VISA card were approved.  At such time, he was already the Head of the Marketing and Operations of the Jewelry Department.  His act therefore of forwarding the already accomplished applications to the VISA Credit Card Unit is proper as he is not in any position to act on them.  The processing and verification of the identities of the applicants would have been done by the proper department, which is the VISA Credit Card Unit.  Therefore, it is incumbent upon Marciana as Unit Head to have performed her duties.  As correctly observed by the Labor Arbiter, Keppel had gone too far in blaming James for the shortcomings and imprudence of Marciana.  The invocation of Keppel of the loss of trust and confidence as ground for James’s termination has therefore no basis at all.

Having shown that Keppel failed to discharge its burden of proving that James’s dismissal is for a just cause, we have no other recourse but to declare that such dismissal based on the ground of loss of trust and confidence was illegal.  This is in consonance with the constitutional guarantee of security of tenure. 

WHEREFORE, the instant Petition for Review on Certiorari is GRANTED.  The Decision dated June 22, 2005 and the Resolution dated August 31, 2005 of the Court of Appeals in CA-G.R. SP No. 86988 are REVERSED and SET ASIDE and the Decision dated June 25, 2004 and Resolution dated July 30, 2004 of the National Labor Relations Commission are REINSTATED.

            SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

RENATO C. CORONA

Chief Justice

Chairperson

JOSE PORTUGAL PEREZ

Associate Justice

C E R T I F I C A T I O N

            Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice

^[1]       Rollo, pp. 17-47.

^[2]       CA rollo, pp. 444-456; penned by Associate Justice Delilah Vidallon Magtolis and concurred in by Associate Justices Perlita J. Tria Tirona and Jose C. Reyes, Jr.

^[3]       Id. at 27-35. 

^[4]       Id. at 497; penned by Associate Justice Delilah Vidallon-Magtolis and concurred in by Associate Justices Arturo D. Brion (now Member of this Court) and Jose C. Reyes, Jr.

^[5]       Id. at 75.

^[6]       Id. at 76.

^[7]       Id. at 77-78.

^[8]       Id. at 79-80.

^[9]       Id. at 112.

^[10]     Id. at 116-120.

^[11]     Id. at 157-159.

^[12]     Id. at 254-269.

^[13]     Id. at 268-269.

^[14]     Id. at 27-35.

^[15]     Id. at 298-329.

^[16]     Id. at 497.

^[17]     Id. at 2-25.

^[18]     Id. at 444-456.

^[19]     Id. at 13.

^[20]     See petitioner’s Motion for Reconsideration, id. at 461-473.

^[21]     See Resolution dated August 31, 2005, id. at 49.

^[22]     Rollo, p. 30.

^[23]     Etcuban, Jr. v. Sulpicio Lines, Inc., 489 Phil. 483, 496 (2005).

^[24]     Id.

^[25]     Felix v. National Labor Relations Commission, 485 Phil. 140, 153 (2004).

^[26]     Central Pangasinan Electric Cooperative, Inc. v. Macaraeg, 443 Phil. 866, 874-875 (2003).

^[27]     Abel v. Philex Mining Corporation, G.R. No. 178976, July 31, 2009, 594 SCRA 683, 694.

^[28]     CA rollo, pp. 264-265.

^[29]     Id. at 31.

^[30]     Sulpicio Lines, Inc. v. Gulde, 427 Phil. 805, 810 (2002).