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Republic of the Philippines

G.R. No. 90856 July 23, 1992
ARTURO DE GUZMAN, petitioner,
and MARIO F. JAYME, respondents.
It is a fundamental principle of law and human conduct that a
person "must, in the exercise of his rights and in the performance
of his duties, act with justice, give every one his due, and observe
honesty and good faith." 1 This is the principle we shall apply in
the case at bar to gauge the petitioner's motives in his dealings
with the private respondents.
Arturo de Guzman was the general manager of the Manila office
of the Affiliated Machineries Agency, Ltd., which was based in
Hongkong. On June 30, 1986, he received a telex message from
Leo A. Fialla, managing director of AMAL in its main office,
advising him of the closure of the company due to financial
reverses. This message triggered the series of events that are the
subject of this litigation.
Immediately upon receipt of the advise, De Guzman notified all
the personnel of the Manila office. The employees then sent a
letter to AMAL accepting its decision to close, subject to the
payment to them of their current salaries, severance pay, and
other statutory benefits. De Guzman joined them in these
These requests were, however, not heeded. Consequently, the
employees, now herein private respondents, lodged a complaint
with the NLRC against AMAL, through Leo A. Fialla and Arturo
de Guzman, for illegal dismissal, unpaid wages or commissions,
separation pay, sick and vacation leave benefits, 13th month pay,
and bonus.
For his part, the petitioner began selling some of AMAL's assets
and applied the proceeds thereof, as well as the remaining assets,
to the payment of his claims against the company. He also
organized Susarco, Inc., with himself as its president and his wife
as one of the incorporators and a member of the board of
directors. This company is engaged in the same line of business
and has the same clients as that of the dissolved AMAL.
With this development, Susarco and its officers were impleaded
in the amended complaint of the private respondents. Later,
William Quasha and/or Cirilo Asperilla were also included in the
suit as the resident agents of AMAL of the Philippines.
On November 7, 1986, the petitioner filed his own complaint
with the NLRC against AMAL for his remaining unsatisfied
On May 29, 1987, Labor Arbiter Eduardo G. Magno, to whom
the petitioner's complaint was assigned, rendered a decision

ordering AMAL to pay the petitioner the amount of P371,469.59

as separation pay, unpaid salary and commissions, after
deducting the value of the assets earlier appropriated by the
petitioner. 2
On September 30, 1987, Labor Arbiter Ma. Lourdes A. Sales,
who tried the private respondents' complaint, rendered a decision

1. Ordering Respondents AMAL and Arturo de

Guzman to pay jointly and severally to each
Complainant separation pay computed at onehalf month pay for every year of service,
backwages for one month, unpaid salaries for
June 16-30, 1986, 13th month pay from
January to June 30, 1986 and incentive leave
pay equivalent to two and-a-half days pay;
2. Dismissing the complaint against
respondents Leo Fialla, William Quasha,
Susarco, Inc. and its directors Susan de
Guzman, Pacita Castaneda, George Estomata
and Cynthia Serrano for lack of basis and/or
3. Dismissing the claims for damages for lack
of basis;
4. Ordering respondents AMAL and Arturo de
Guzman to pay jointly and severally attorney's
fees to Complainants equivalent to 10% of the
monetary awards herein. 3
This decision was on appeal affirmed in toto by the NLRC,
which is now faulted for grave abuse of discretion in this petition
for certiorari.
The petitioner does not dispute the jurisdiction of the Labor
Arbiter and NLRC over the complaint of the private respondents
against AMAL in view of their previous employment
relationship. He argues, however, that the public respondents
acted without or in excess of jurisdiction in holding him jointly
and severally liable with AMAL as he was not an employer of
the private respondents.
The Solicitor General and the private respondents disagree. They
maintain that the petitioner, being AMAL's highest local
representative in the Philippines, may be held personally
answerable for the private respondents' claims because he is
included in the term "employer" under Art. 212 (c),
(now e) of the Labor Code which provides:
Art. 212. Definitions.
xxx xxx xxx
c. "Employer" includes any person acting in the
interest of an employer, directly or indirectly. . .
In the leading case of A.C. Ransom Labor Union-CCLU vs.
NLRC, 4 as affirmed in the subsequent cases of Gudez vs. NLRC,
this Court treated the president of the employer
corporation as an "employer" and held him solidarily liable with
the said corporation for the payment of the employees' money

claims. So was the vice-president of the employer corporation in

the case of Chua vs. NLRC. 7
The aforecited cases will not apply to the instant case, however,
because the persons who were there made personally liable for
the employees' claims were stockholders-officers of the
respondent corporation. In the case at bar, the petitioner, while
admittedly the highest ranking local representative of AMAL in
the Philippines, is nevertheless not a stockholder and much less a
member of the board of directors or an officer thereof. He is at
most only a managerial employee under Art. 212 (m) of the
Labor Code, which reads in relevant part as follows:
Art 212. Definitions.
xxx xxx xxx
m. Managerial employee is one who is vested
with powers and prerogatives to lay down and
execute management policies and/or to
hire, transfer, suspend, lay off, recall, discharge,
assign or discipline employees. . . .
As such, the petitioner cannot be held directly responsible for the
decision to close the business that resulted in his separation and
that of the private respondents. That decision came directly and
exclusively from AMAL. The petitioner's participation was
limited to the enforcement of this decision in line with his duties
as general manager of the company. Even in a normal situation,
in fact, he would not be liable, as a managerial employee of
AMAL, for the monetary claims of its employees. There should
be no question that the private respondents' recourse for such
claims cannot be against the petitioner but against AMAL and
AMAL alone.
The judgment in favor of the private respondents could have
been enforced against the properties of AMAL located in this
country except for one difficulty. The problem is that these
properties have already been appropriated by the petitioner to
satisfy his own claims against the company.
By so doing, has the petitioner incurred liability to the private
The Labor Arbiter believed he had because of his bad faith and
ruled as follows:
Considering that Respondent A. de Guzman is
guilty of bad faith in appropriating for himself
the properties of Respondent AMAL to the
prejudice of Complainants herein whose claims
are known to Respondent at the time he made
the disposition of AMAL's properties, he is
held jointly and severally liable with
Respondent AMAL for the award of unpaid
wages, separation pay, backwages for one
month, 13th month pay and cash value of
unused vacation leave.
In Velayo v. Shell Co. of the Philippines, 8 Commercial Air
Lines, Inc. (CALI), knowing that it did not have enough assets to
pay off its liabilities, called a meeting of its creditors where it
announced that in case of non-agreement on a pro-rata
distribution of its assets, including the C-54 plant in California, it
would file insolvency proceedings. Shell Company of the
Philippines, one of its creditors, took advantage of this
information and immediately made a telegraphic assignment of

its credits in favor of its sister corporation in the United States.

The latter thereupon promptly attached the plane in California
and disposed of the same, thus depriving the other creditors of
their proportionate share in its value. The Court declared that
Shell had acted in bad faith and betrayed the trust of the other
creditors of CALI. The said company was ordered to pay them
compensatory damages in a sum equal to the value of the C-54
plane at the time it assigned its credit and exemplary damages in
the sum of P25,000.00.
We quote with approval the following observations of Labor
Arbiter Sales in her decision:
While the legitimacy of Respondent A. de
Guzman's claims against AMAL is not
questioned, it must be stated that the manner
and the means by which he satisfied such
claims are evidently characterized by bad faith
on his part. For one, Respondent A. de Guzman
took advantage of his position as General
Manager and arrogated to himself the right to
retain possession and ownership of all
properties owned and left by AMAL in the
Philippines, even if he knew that Complainants
herein have similar valid claims for unpaid
wages and other employee benefits from the
Respondent AMAL. . . .
Another strong indication of bad faith on the
part of Respondent A. de Guzman is his filing
of a separate complaint against AMAL before
the NLRC Arbitration Branch about four (4)
months after the filing of the instant case
without informing this Office about the
existence of said case during the proceedings in
the instant case. This case was deemed
submitted for decision on May 18, 1987 but it
was only on June 2, 1987 that Respondent A.
de Guzman formally notified this Office
through his Supplemental Position Paper of his
pending complaint before Arbiter Eduardo
Magno docketed as NLRC Case No. 11-444186. Under Rule V, Section 4 of the revised rules
of the NLRC, it is provided that:
OF CASES where there
are two or more cases
pending before different
Labor Arbiters in the same
Regional Arbitration Branch
involving the same employer
and issues or the same parties
with different issues, the case
which was filed last shall be
consolidated with the first to
avoid unnecessary costs or
delay. Such cases shall be
disposed of by the Labor
Arbiter to whom the first case
was assigned. (Emphasis
Had Respondent A. de Guzman given timely
notice of his complaint, his case could have

been consolidated with this case and the issues

in both cases could have been resolved in a
manner that would give due consideration to
the rights and liabilities of all parties in interest
at the least, in case consolidation is objected to
or no longer possible, the Complainants herein
could have been given a chance to intervene in
the other case so that whatever disposition
might be rendered by Arbiter Magno would
include consideration of Complainants' claims
It is not disputed that the petitioner in the case at bar had his own
claims against AMAL and consequently had some proportionate
right over its assets. However, this right ceased to exist when,
knowing fully well that the private respondents had similarly
valid claims, he took advantage of his position as general
manager and applied AMAL's assets in payment exclusively of
his own claims.
According to Tolentino in his distinguished work on the Civil
The exercise of a right ends when the right
disappears, and it disappears when it is abused,
especially to the prejudice of others. The mask
of a right without the spirit of justice which
gives it life, is repugnant to the modern concept
of social law. It cannot be said that a person
exercises a right when he unnecessarily
prejudices another or offends morals or good
customs. Over and above the specific precepts
of positive law are the supreme norms of
justice which the law develops and which are
expressed in three principles: honeste vivere,
alterum non laedre and just suum quique
tribuere; and he who violates them violates the
law. For this reason, it is not permissible to
abuse our rights to prejudice others. 9
The modern tendency, he continues, is to depart from the
classical and traditional theory, and to grant indemnity for
damages in cases where there is an abuse of rights, even when
the act is not illicit. Law cannot be given an anti-social effect. If
mere fault or negligence in one's acts can make him liable for
damages for injury caused thereby, with more reason should
abuse or bad faith make him liable. A person should be protected
only when he acts in the legitimate exercise of his right, that is,
when he acts with prudence and in good faith; but not when he
acts with negligence or abuse. 10
The above-mentioned principles are contained in Article 19 of
the Civil Code which provides:
Art. 19. Every person must, in the exercise of
his rights and in the performance of his duties,
act with justice, give everyone his due, and
observe honesty and good faith.
This is supplemented by Article 21 of the same Code thus:
Art. 21. Any person who willfully causes loss
or injury to another in a manner that is contrary
to morals, good customs or public policy shall
compensate the latter for the damage.

Applying these provisions, we hold that although the petitioner

cannot be made solidarily liable with AMAL for the monetary
demand of its employees, he is nevertheless directly liable to
them for his questionable conduct in attempting to deprive them
of their just share in the assets of AMAL.
Under Art. 2219, (10) of the Civil Code, moral damages may be
recovered for the acts referred to in Art. 21. In Bert Osmea &
Associates vs. Court of Appeals, 11 we held that "fraud and bad
faith having been established, the award of moral damages is in
order." And in Pan Pacific Company (Phil.) vs. Phil. Advertising
Corp., 12 moral damages were awarded against the defendant for
its wanton and deliberate refusal to pay the just debt due the
It is settled that the court can grant the relief warranted by the
allegation and the proof even if it is not specifically sought by the
injured party. 13 In the case at bar, while the private respondents
did not categorically pray for damages, they did allege that the
petitioner, taking advantage of his position as general manager,
had appropriated the properties of AMAL in payment of his own
claims against the company. That was averment enough of the
injury they suffered as a result of the petitioner's bad faith.
The fact that no actual or compensatory damages was proven
before the trial court does not adversely affect the private
respondents' right to recover moral damages. We have held that
moral damages may be awarded in the cases referred to in the
chapter on Human Relations of the Civil Code (Articles 19-36)
without need of proof that the wrongful act complained of had
caused any physical injury upon the complainant. 14
When moral damages are awarded, exemplary damages may also
be decreed. 15 Exemplary damages are imposed by the way of
example or correction for the public good, in additional to moral,
temperate, liquidated or compensatory damages. 16 According to
the Code Commission, "exemplary damages are required by
public policy, for wanton acts must be suppressed. They are an
antidote so that the poison of wickedness may not run through
the body politic." 17 These damages are legally assessible against
The petitioner asserts that, assuming the private respondents to
have a cause of action against him for his alleged bad faith, the
civil courts and not the Labor Arbiter have jurisdiction over the
In Associated Citizen Bank, et al. vs. Judge Japson, 18 this Court
Primarily, the issue to be resolved is whether or
not the respondent court has jurisdiction to hear
and decide an action for damages based on the
dismissal of the employee.
On all fours to the above issue is the ruling of
this Court in Primero v. Intermediate Appellate
Court (156 SCRA 435 [1987]) which once
again reiterated the doctrine that the
jurisdiction of the Labor Arbiter under Article
217 of the Labor Code is broad and
comprehensive enough to include claims for
moral and exemplary damages sought to be
recovered by an employee whose services has

been illegally terminated by is employer (Ebon

v. De Guzman, 113 SCRA 55 [1982]; Aguda v.
Vallejos, 113 SCRA 69 [1982]; Getz
Corporation v. Court of Appeals, 116 SCRA 86

would not be subserved by the remand of the

case or when public interest demands an early
disposition of the case. (Lianga Bay Logging
Co., Inc. v. CA, 157 SCRA 357)
Sound practice seeks to accommodate the
theory which avoids waste of time, effort and
expense, both to the parties and the
government, not to speak of delay in the
disposal of the case (cf. Fernandez v. Garcia, 92
Phil. 592, 597). A marked characteristics of our
judicial set-up is that where the dictates of
justice so demand . . . the Supreme Court
should act, and act with finality. (Li Siu Liat v.
Republic, 21 SCRA 1039, 1046, citing Samal v.
CA, 99 Phil. 230 and U.S. v. Gimenez, 34 Phil.
74). In this case, the dictates of justice do
demand that this Court act, and act with
finality. (Beautifont, Inc. v. CA, 157 SCRA

For the unlawful termination of employment,

this Court in Primero v. Intermediate Appellate
Court, supra, ruled that the Labor Arbiter had
the exclusive and original jurisdiction over
claims for moral and other forms of damages,
so that the employee in the proceedings before
the Labor Arbiter should prosecute his claims
not only for reliefs specified under the Labor
Code but also for damages under the Civil
. . . Question of damages which arose out of or
connected with the labor dispute should be
determined by the labor tribunal to the
exclusion of the regular courts of justice
(Limquiaco, Jr. v. Ramolete, 156 SCRA 162
[1987]). The regular courts have no jurisdiction
over claims for moral and exemplary damages
arising from illegal dismissal of an employee
(Vargas v. Akai Philippines, Inc., 156 SCRA
531 [1987]).
Although the question of damages arising from the petitioner's
bad faith has not directly sprung from the illegal dismissal, it is
clearly intertwined therewith. The predicament of the private
respondents caused by their dismissal was aggravated by the
petitioner's act in the arrogating to himself all of AMAL's assets
to the exclusion of its other creditors, including its employees.
The issue of bad faith is incidental to the main action for illegal
dismissal and is thus properly cognizable by the Labor Arbiter.
We agree that, strictly speaking, the determination of the amount
thereof would require a remand to the Labor Arbiter. However,
inasmuch as the private respondents were separated in 1986 and
this case has been pending since then, the interests of justice
demand the direct resolution of this motion in this proceeding.
As this Court has consistently declared:
. . . it is a cherished rule of procedure for this
Court to always strive to settle the entire
controversy in a single proceeding leaving no
root or branch to bear the seeds of future
litigation. No useful purpose will be served if
this case is remanded to the trial court only to
have its decision raised again tot the
Indeterminate Appellate Court and from there
to this Court. (Alger Electric, Inc. v. Court of
Appeals, 135 SCRA 37)
Remand of the case to the lower court for
further reception of evidence is not necessary
where the court is in a position to resolve the
dispute based on the records before it. On many
occasions, the Court, in the public interest and
the expeditious administration of justice, has
resolved actions on the merits instead of
remanding them to the trial court for further
proceedings, such as where the ends of justice

It is stressed that the petitioner's liability to the private

respondents is a direct liability in the form of moral and
exemplary damages and not a solidary liability with AMAL for
the claims of its employees against the company. He is being
held liable not because he is the general manager of AMAL but
because he took advantage of his position by applying the
properties of AMAL to the payment exclusively of his own
claims to the detriment of other employees.
WHEREFORE, the questioned decision is AFFIRMED but with
the modification that the petitioner shall not be held jointly and
severally liable with AMAL for the private respondents' money
claims against the latter. However, for his bad faith in arrogating
to himself AMAL's properties to the prejudice of the private
respondents, the petitioner is ordered: 1) to pay the private
respondents moral damages in the sum of P20,00.00 and
exemplary damages in the sum of P20,00.00; and 2) to return the
assets of AMAL that he has appropriated, or the value thereof,
with legal interests thereon from the date of the appropriation
until they are actually restored, these amounts to be
proportionately distributed among the private respondents in
satisfaction of the judgment rendered in their favor against
Grio-Aquino, Medialdea and Bellosillo, JJ., concur.