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367 Phil. 1


[ G.R. No. 121905, May 20, 1999 ]




VITARICH CORPORATION (VITARICH), together with its co-petitioners Danilo Sarmiento and Onofre Sebastian,[1] through this petition for certiorari, assails as grave abuse of discretion the reversal of its previous decision by public respondent National Labor Relations Commission (NLRC).

Private respondent Isagani E. Recodo was hired by VITARICH, a feeds manufacturing corporation, as an Accounting Clerk in its office in Marilao, Bulacan. In 1979, he was promoted as Accounting Supervisor, then in 1986 as Sales Superintendent while assigned in Davao City. In 1988 he became the Sales Manager for Western Visayas based in Iloilo City with a monthly salary of P18,200.00.[2]

As Sales Manager Recodo was supervised successively by three (3) division heads who were his immediate supervisors, namely, Dave Fernandez (1988-1989), Ben Cruz (1990-1992), and Onofre Sebastian (15 June 1992 up to Recodo's termination).[3] He also underwent several audit examinations in his line of work.

In March 1991 VITARICH conducted an audit in Iloilo in response to a letter of a certain Espinosa pointing to anomalies in the backloading[4]and arrastre transactions of Recodo. The evaluation of the audit team found no concrete evidence that Recodo was receiving direct commission from the backloading of the chartered vessel but faulted him for his inadequate exercise of internal control regarding the matter, and no evidence either that Recodo had been receiving a share in the arrastre since the shipper and the arrastre operators managed by the Espinosa family denied this. However, an unaccounted difference of P14,002.50 in the backloading profits surfaced. Consequently, the audit team recommended that bills of lading should cover all backloading shipments; all collections from backloading shipment should be directly paid to the cashier who is responsible for procedural controls; and, incentive payments to the captain of the vessel and the cash advances for the port expenses should be covered by proper forms.[5]

On 25 June 1992 another audit report was submitted detailing the accommodation of Mr. Elbert Jeanjacquet as a trade client whose account was 74% past due and unsecured yet was allowed as a contract grower for two thousand (2,000) chicken heads. The accounts of twelve (12) other customers granted extensions over and beyond the credit limit were further enumerated in the report. Except for two, all these accounts did not have any collaterals to secure them.[6]

On 6 June 1992 a cash audit generated these findings: (a) cash collections were diverted to defray the area's operational and administrative expenses as the revolving fund was consumed before its replenishment in the form of countersigned checks from Cebu came; (b) personal `vales' (cash advances) were disbursed from the revolving fund in violation of company policies; and, (c) payments to suppliers were taken from the revolving fund instead of being paid in checks.[7] But, unlike in the first two audit examinations where no action was taken by VITARICH after receipt of the corresponding reports, Recodo this time was required to explain why he allowed the reported violations of company policies.[8]

In his letter of 11 August 1992 Recodo clarified that the alleged personal `vales' were actually for business expenses and for wages of employees and that the use of collections to defray operational and administrative expenses was unavoidable particularly when the chartered vessel was on dock unloading feeds while the replenishment of the revolving fund was delayed. He further assured VITARICH that all transactions with stevedores, shipping lines, PAL and piece workers were all on C.O.D. basis.[9]

Admittedly, when petitioner Onofre Sebastian took over in June 1992 as Division head he was faced with a high volume of account receivables (A/R) accumulated during the time of Ben Cruz, his predecessor. To address the problem petitioner Sebastian and respondent Recodo conferred in the middle of July 1992 with the latter being instructed to cut down the accountabilities of Rex Cordova, a company salesman in Iloilo. Thereafter Recodo advised Cordova to reduce his technical credit extensions. In less than a month, the amount of account receivables was reduced from P800,000.00 to P205,000.00.[10] However, on 27 August 1992 Recodo was asked again to explain within forty-eight (48) hours why he should not be terminated for failure to ground Rex Cordova in accordance with the 4 August 1992 memorandum of vice president Onofre Sebastian.

The other grounds cited for terminating Recodo were his failure to reduce Cordova's A/R driver, the allowance of extension of his credit line, as well as the misrepresentation of his outstanding A/R.[11] The memorandum of 4 August 1992 instructed Recodo to confirm all A/R drivers who were already two (2) weeks overdue to preclude any ghost deliveries and to ground all salesmen with A/R drivers who were already thirty (30) days old so that they could only resume deliveries after accounts were collected or payment arrangements were made.[12]

In his 5 September 1992 letter Recodo explained that only the first paragraph of the faxed memorandum was readable so he had it verified. He only learned its full context when he was negotiating for the security of Cordova's past accounts. Thus, he postponed grounding Cordova until 20 August 1992 in order to bring about positive results. The negotiation reduced Cordova's A/R driver from P800,000.00 to P250,000.00 as of 19 August 1992 which amount would be further lowered to P150,000.00 by September. The alleged misrepresentation in the figures given was not deliberate but was merely a mental lapse due to tension at work.[13]

After investigation, E.T. Enriquez, Head of Personnel, submitted his report on Recodo's alleged insubordination. Enriquez found that there was "no defensible ground for terminating (Recodo's) services." He cited as reasons therefor the non-documentation of any warning given to Recodo to justify any loss of trust and confidence in him.[14] Nevertheless, VITARICH terminated Recodo on 15 October 1992 for violation of the 4 August 1992 Memorandum including policies on credit extensions and cash advances.

On 13 October 1992, Recodo filed a complaint for illegal dismissal, non-payment of managerial incentive bonus and for moral and exemplary damages. Initially the complaint was directed against VITARICH and its president Danilo Sarmiento, but on 21 January 1993 vice president Onofre Sebastian was also included as respondent.

On 23 June 1993 the Labor Arbiter adjudged VITARICH and its impleaded officers guilty of illegal dismissal and ordered them to pay Recodo seven (7) months back wages from November 1992 to May 1993 in the total amount of P418,600.00 plus 10% attorney's fees of P41,860.00. A separation pay of P291,200.00 was granted Recodo because reinstatement was no longer feasible in view of the strained relations between the parties. Moral and exemplary damages were not awarded since there was no finding of a valid reason to do so. For one to be entitled to these damages, the manner in which the dismissal was made must be deliberate, malicious and tainted with bad faith. In this case the Labor Arbiter found no proof that petitioners acted in bad faith when they dismissed Recodo from employment. The claim for management incentive bonus was likewise denied as the grant of a bonus is a management prerogative.[15]

The Labor Arbiter pointed out that although VITARICH justified the dismissal of Recodo by the audit reports on backloading, unauthorized credit extensions and cash disbursements and insubordination the company's dismissal letter was only anchored on insubordination without any mention of the past audits as bases thereof. Consequently, for want of prior notice, the Labor Arbiter ruled that lack of due process attended Recodo's termination. Nonetheless, the evidence of VITARICH relative to the charges of backloading and unauthorized transactions was examined.

Thus, the Labor Arbiter reached the following conclusions: Firstly, there was no concrete evidence to support the claim that Recodo was receiving commissions or profited through hidden deals in the backloading transactions; nor did the company suffer any material loss as it even profited substantially therefrom. The Labor Arbiter noted that the transactions were undertaken upon the instructions of Recodo's supervisor, Dave Fernandez, hence, officially authorized by the company. They were properly documented by bills of lading considering that the shipper would suffer legal and other constraints if it were otherwise.[16] Secondly, credit extension limits, unsecured accounts and disbursements of cash collection for operational and administrative expenses were already part of the system when petitioner Onofre Sebastian took the helm as division head and instructed Recodo to solve the problems. Recodo exerted efforts to do so, especially with the reduction of Cordova's account and accomplished the lowering of overdue and unsecured accounts within a month. It was clear that the cash disbursements were utilized for official business.[17] Lastly, the Labor Arbiter significantly found that Recodo's explanation to the charges imputed to him by VITARICH was sincere and reasonable and that any breaches in company policies he might have committed were only ordinary, not willful to warrant his dismissal.[18]

On appeal by VITARICH, the NLRC while finding a lack of due process in Recodo's dismissal reversed the Labor Arbiter's decision on the following rationale: (a) had the backloading transactions been properly handled by Recodo the profits would have been greater, hence, VITARICH suffered losses by such mismanagement; (b) although the backloading transactions were authorized by the division head, the proper handling thereof was the duty of Recodo and his failure to do so was enough basis for the company's loss of confidence in him; (c) violations of company policies were not mere carelessness since they were due to mismanagement by Recodo; (d) the non-grounding of salesman Cordova might have had a sincere and reasonable explanation but the very act of defying management's specific directives constituted a strong ground for its loss of trust and confidence; and, (e) Recodo's failure to require security for accounts and his allowing them to exceed the limit were contrary to accepted business practices and company policies. All told then, the series of infractions committed by Recodo were enough bases for his termination.

Thus, in its 19 September 1994 decision, the NLRC set aside the judgment of the Labor Arbiter but awarded Recodo a P2,000.00 indemnity fee because he was terminated without due process.[19]

Upon motion for reconsideration by Recodo, the NLRC issued its assailed resolution of 18 July 1995 reversing its earlier decision. It acknowledged that its previous decision was flawed by surmises on the backloading transactions, conjectures on the credit line extensions and speculations on the grounding of Cordova. The resolution applied the time-honored doctrine that the Labor Arbiter, as a trier of facts, had the superior opportunity to test the credibility of witnesses and the veracity of the documentary evidence submitted. It further upheld the findings and recommendations of the audit teams that failed to find any concrete evidence to support the accusation that Recodo violated a number of company policies.[20]

On 14 August 1995 the NLRC denied a motion for reconsideration by VITARICH, hence, this petition based on the sole allegation that the reversal was a grave abuse of discretion as it was the main decision which was in accord with the facts.[21]

We are not persuaded by VITARICH. In rectifying its previous appreciation and assessment of Recodo's dismissal, the NLRC did not commit any abuse of discretion, much less grave. A careful scrutiny of the records reveals that the decision of the Labor Arbiter is suffused with the established facts and a correct understanding of them. Consequently, it is but proper for NLRC to abandon its former stance and adopt, and correctly so, the findings of the Labor Arbiter. We can only agree with the preliminary statement by the NLRC in its 18 July 1995 resolution[22]-
One of the inherent powers of the Court to amend and control its processes and orders so as to make them conformable to law and justice includes the right to reverse itself, especially when in its honest opinion it has committed an error or mistake in judgment, and that to adhere to its decision will cause injustice to a party litigant (Astraquillo v. Javier, L-20034, January 26, 1965, 13 SCRA 125).
It is beyond question that the issue on the dismissal of Recodo was not any of the backloading, credit limit and cash disbursement transactions insisted on by VITARICH as sufficient reasons for Recodo's dimissal but, as incisively pointed out by the Labor Arbiter, the alleged insubordination of Recodo.

The very inaction by VITARICH on every audit belies its posture that it had lost its trust and confidence in Recodo as a consequence of the audit results. That it did not even notify Recodo of any charge against him after each audit nor that it asked for any explanation from him therefor, only proves that the imputations of alleged company violations were nothing more than mere garnishings to the more relevant charge of insubordination. The records do not even show that VITARICH deemed it necessary to penalize Recodo, not even only to warn him of any infraction. In fact, except for the alleged insubordination, it did not include any other charge against him in the termination notice.

Quite obviously, since the alleged insubordination could not stand on its own merit, VITARICH had to prop it up with charges that had already been forgotten, set aside and deemed inconsequential. Being a mere afterthought to justify its earlier action of terminating Recodo, the allegations of policy violations do not constitute just causes of dismissal on account of the lack of confidence contemplated in Midas Touch Food Corporation v. NLRC[23] under which the guidelines for the application of the doctrine of loss of confidence are: (a) loss of confidence which should not be simulated; (b) it should not be used as a subterfuge for causes which are improper, illegal or unjustified; (c) it should not be arbitrarily asserted in the face of overwhelming evidence to the contrary; and, (d) it must be genuine, not a mere afterthought to justify earlier action taken in bad faith.

Of the charge of insubordination, there is concrete evidence on record that Recodo was instructed by his superior to ground all salesmen with due accounts; that Recodo delayed implementing the order and eventually grounded Cordova only after being made to explain his previous inaction. Apparently, there was a lawful, reasonable order to Recodo to support his actuations.

While it may be true that there was a delay by Recodo in the implementation of his superior's order as regards Cordova's accounts, the question now to be resolved is whether the delay constitutes disobedience. If so, was it willful on the part of Recodo to risk his tenure in office based on loss of confidence? In AHS/Philippines, Inc. v. CA[24] we explained -
x x x willful disobedience of the employer's lawful orders, as a just cause for dismissal of an employee, envisages the concurrence of at least two (2) requisites: the employees assailed conduct must be willful or intentional, the willfulness being characterized by a wrongful and perverse attitude; and the order violated must have been reasonable, lawful, made known to the employee and must pertain to the duties which he had been engaged to discharge.
In its assailed resolution, the NLRC found[25] -
It would appear from the foregoing facts that the non-compliance by the complainant of the directive of Onofre Sebastian was not an open defiance to said directive but as one of the discretions which he has (sic) to take under the circumstances in his capacity as sales manager which to his mind would better serve the interest of the company. And true enough, his act turned to be more beneficial rather than being prejudicial to the company as it was shown earlier.
While an employer is allowed a wide latitude to dismiss managerial employees on loss of trust and confidence, still the loss thereof must have some basis and must be proved by the employer otherwise the social justice policy of the labor laws and the Constitution will be for naught.[26] This very norm of social justice demands the presumption of good faith credited to the employees in the performance of their duties upon failure of their employer to prove just cause for their dismissal.[27]

It is in obedience to the mandate of social justice and truth that the NLRC reversed its own decision contrary to the pull of pride and hubris, and for this, the NLRC must be commended, instead of censured, for reversing itself.

WHEREFORE, the questioned resolution of the NLRC of 18 July 1995 reinstating the 23 June 1993 decision of the Labor Arbiter is AFFIRMED with the modification that the corresponding back wages of respondent ISAGANI E. RECODO be forthwith updated and released to him.


Puno, Mendoza, and Quisumbing, JJ., concur.
Buena, J., on leave.

[1] Petitioners Danilo Sarmiento and Onofre Sebastian were the President and Vice President for Operations, respectively, of Vitarich Corporation.

[2] Decision of the Labor arbiter, pp. 1-2; Original Records, pp. 117-118.

[3] Id., p. 2; id., p. 118.

[4] "Backloading" is the practice of soliciting cargoes from other shippers for a fee. The cargoes are surreptitiously loaded on a company-chartered vessel without its knowledge; Rollo, p. 5.

[5] Original Records, pp. 42-43.

[6] Id., pp. 45-47.

[7] Id., pp. 48-49.

[8] Id. p. 51.

[9] Id., p. 50.

[10] See Note 2, p. 13; id., p. 129.

[11] Original Record, p. 53.

[12] Id., p. 52.

[13] Id., p. 54.

[14] Id., p. 84.

[15] Decision penned by Labor Arbiter Ray Allan T. Drilon, Original Records, pp. 133-135.

[16] Id., pp. 124-126.

[17] Id., pp. 126-129.

[18] Id., p. 16.

[19] NLRC Decision penned by Commissioner Bernabe S. Batuhan, concurred in by Presiding Commissioner Irenea E. Ceniza and Commissioner Amorito V. Canete, id., pp. 336-349.

[20] NLRC Resolution penned by Commissioner Amorito V. Canete with Presiding Commissioner Irenea E. Ceniza concurring and Commissioner Bernabe S. Batuhan dissenting, id., pp. 406-414.

[21] Original records, pp. 454-455.

[22] See Note 20, p. 406.

[23] G.R. No. 111639, 29 July 1996, 259 SCRA 652, 659-660.

[24] G.R. No. 111807, 14 June 1996, 257 SCRA 319,330.

[25] See Note 20, p. 411.

[26] Samillano v. NLRC, G.R. No. 117582, 23 December 1996, 265 SCRA 788, 797.

[27] Pizza Hut/Progressive Development Corp. v. NLRC, G.R. No. 117059, 29 January 1996, 252 SCRA 531, 539.

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