G.R. No.

114787 June 2, 1995

MAM REALTY DEVELOPMENT CORPORATION and MANUEL CENTENO, petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION and CELSO B. BALBASTRO respondents.

VITUG, J.:

A prime focus in the instant petition is the question of when to hold a director or officer of a
corporation solidarily obligated with the latter for a corporate liability.

The case originated from a complaint filed with the Labor Arbiter by private respondent Celso B.
Balbastro against herein petitioners, MAM Realty Development Corporation ("MAM") and its Vice
President Manuel P. Centeno, for wage differentials, "ECOLA," overtime pay, incentive leave pay,
13th month pay (for the years 1988 and 1989), holiday pay and rest day pay. Balbastro alleged that
he was employed by MAM as a pump operator in 1982 and had since performed such work at its
Rancho Estate, Marikina, Metro Manila. He earned a basic monthly salary of P1,590.00 for seven
days of work a week that started from 6:00 a.m. to up until 6:00 p.m. daily.

MAM countered that Balbastro had previously been employed by Francisco Cacho and Co., Inc., the
developer of Rancho Estates. Sometime in May 1982, his services were contracted by MAM for the
operation of the Rancho Estates' water pump. He was engaged, however, not as an employee, but
as a service contractor, at an agreed fee of P1,590.00 a month. Similar arrangements were likewise
entered into by MAM with one Rodolfo Mercado and with a security guard of Rancho Estates III
Homeowners' Association. Under the agreement, Balbastro was merely made to open and close on
a daily basis the water supply system of the different phases of the subdivision in accordance with its
water rationing scheme. He worked for only a maximum period of three hours a day, and he made
use of his free time by offering plumbing services to the residents of the subdivision. He was not at
all subject to the control or supervision of MAM for, in fact, his work could so also be done either by
Mercado or by the security guard. On 23 May 1990, prior to the filing of the complaint, MAM
executed a Deed of Transfer,1 effective 01 July 1990, in favor of the Rancho Estates Phase III
Homeowners Association, Inc., conveying to the latter all its rights and interests over the water
system in the subdivision.

In a decision, dated 23 December 1991, the Labor Arbiter dismissed the complaint for lack of merit.

On appeal to it, respondent National Labor Relations Commission ("NLRC") rendered judgment (a)
setting aside the questioned decision of the Labor Arbiter and (b) referring the case, pursuant to
Article 218(c) of the Labor Code, to Arbiter Cristeta D. Tamayo for further hearing and submission of
a report within 20 days from receipt of the Order.2On 21 March 1994, respondent Commissioner,
after considering the report of Labor Arbiter Tamayo, ordered:

WHEREFORE, the respondents are hereby directed to pay jointly and severally
complainant the sum of P86,641.05 as above-computed. 3

The instant petition asseverates that respondent NLRC gravely abused its discretion,
amounting to lack or excess of jurisdiction, (1) in finding that an employer-employee
relationship existed between petitioners and private respondent and (2) in holding petitioners
jointly and severally liable for the money claims awarded to private respondent.
Once again, the matter of ascertaining the existence of an employer-employee relationship is raised.
Repeatedly, we have said that this factual issue is determined by:

(a) the selection and engagement of the employee;

(b) the payment of wages;

(c) the power of dismissal; and

(d) the employer's power to control the employee with respect to the result of the
work to be done and to the means and methods by which the work is to be
accomplished.

We see no grave abuse of discretion on the part of NLRC in finding a full satisfaction, in the
case at bench, of the criteria to establish that employer-employee relationship. The power of
control, the most important feature of that relationship and, here, a point of controversy,
refers merely to the existence of the power and not to the actual exercise thereof. It is not
essential for the employer to actually supervise the performance of duties of the employee; it
is enough that the former has a right to wield the power.4 It is hard to accede to the
contention of petitioners that private respondent should be considered totally free from such
control merely because the work could equally and easily be done either by Mercado or by
the subdivision's security guard. Not without any significance is that private respondent's
employment with MAM has been registered by petitioners with the Social Security System.5

It would seem that the money claims awarded to private respondent were computed from 06 March
1988 to 06 March 1991,6 the latter being the date of the filing of the complaint. The NLRC might have
missed the transfer by MAM of the water system to the Homeowners Association on 01 July 1990, a
matter that would appear not to be in dispute. Accordingly, the period for the computation of the
money claims should only be for the period from 06 March 1988 to 01 July 1990 (when petitioner
corporation could be deemed to have ceased from the activity for which private respondent was
employed), and petitioner corporation should, instead, be made liable for the employee's separation
pay equivalent to one-half (1/2) month pay for every year of
service. 7 While the transfer was allegedly due to MAM's financial constraints, unfortunately for
petitioner corporation, however, it failed to sufficiently establish that its business losses or financial
reverses were serious enough that possibly can warrant an exemption under the law.8

We agree with petitioners, however, that the NLRC erred in holding Centeno jointly and severally
liable with MAM. A corporation, being a juridical entity, may act only through its directors, officers
and employees. Obligations incurred by them, acting as such corporate agents, are not theirs but the
direct accountabilities of the corporation they represent. True, solidary liabilities may at times be
incurred but only when exceptional circumstances warrant such as, generally, in the following
cases:9

1. When directors and trustees or, in appropriate cases, the officers of a corporation
—

(a) vote for or assent to patently unlawful acts of the corporation;

(b) act in bad faith or with gross negligence in directing the corporate
affairs;
 (c) are guilty of conflict of interest to the prejudice of the corporation,
its stockholders or members, and other persons. 10

2. When a director or officer has consented to the issuance of watered stocks or

who, having knowledge thereof, did not forthwith file with the corporate secretary his
written objection thereto. 11

3. When a director, trustee or officer has contractually agreed or stipulated to hold

himself personally and solidarily liable with the Corporation. 12

4 When a director, trustee or officer is made, by specific provision of law, personally

liable for his corporate action.13

In labor cases, for instance, the Court has held corporate directors and officers solidarily
liable with the corporation for the termination of employment of employees done with malice
or in bad faith.14

In the case at Bench, there is nothing substantial on record that can justify, prescinding from the
foregoing, petitioner Centeno's solidary liability with the corporation.

An extra note. Private respondent avers that the questioned decision, having already become final
and executory, could no longer be reviewed by this Court. The petition before us has been filed
under Rule 65 of the Rules of Court, there being no appeal, or any other plain, speedy and adequate
remedy in the ordinary course of law from decisions of the National Labor Relations Commission; it
is a relief that is open so long as it is availed of within a reasonable time.

WHEREFORE, the order of 21 March 1994 is MODIFIED. The case is REMANDED to the NLRC for
a re-computation of private respondent's monetary awards, which, conformably with this opinion,
shall be paid solely by petitioner MAM Realty Development Corporation. No special pronouncement
on costs.

SO ORDERED.
G.R. No. 84484 November 15, 1989

INSULAR LIFE ASSURANCE CO., LTD., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and MELECIO BASIAO, respondents.

Tirol & Tirol for petitioner.

Enojas, Defensor & Teodosio Cabado Law Offices for private respondent.

NARVASA, J.:

On July 2, 1968, Insular Life Assurance Co., Ltd. (hereinafter simply called the Company) and
Melecio T. Basiao entered into a contract 1 by which:

1. Basiao was "authorized to solicit within the Philippines applications for insurance
policies and annuities in accordance with the existing rules and regulations" of the
Company;

2. he would receive "compensation, in the form of commissions ... as provided in the

Schedule of Commissions" of the contract to "constitute a part of the consideration of
... (said) agreement;" and

3. the "rules in ... (the Company's) Rate Book and its Agent's Manual, as well as all
its circulars ... and those which may from time to time be promulgated by it, ..." were
made part of said contract.

The contract also contained, among others, provisions governing the relations of the parties, the
duties of the Agent, the acts prohibited to him, and the modes of termination of the agreement, viz.:

RELATION WITH THE COMPANY. The Agent shall be free to exercise his own
judgment as to time, place and means of soliciting insurance. Nothing herein
contained shall therefore be construed to create the relationship of employee and
employer between the Agent and the Company. However, the Agent shall observe
and conform to all rules and regulations which the Company may from time to time
prescribe.

ILLEGAL AND UNETHICAL PRACTICES. The Agent is prohibited from giving,

directly or indirectly, rebates in any form, or from making any misrepresentation or
over-selling, and, in general, from doing or committing acts prohibited in the Agent's
Manual and in circulars of the Office of the Insurance Commissioner.

TERMINATION. The Company may terminate the contract at will, without any
previous notice to the Agent, for or on account of ... (explicitly specified causes). ...

Either party may terminate this contract by giving to the other notice in writing to that
effect. It shall become ipso facto cancelled if the Insurance Commissioner should
revoke a Certificate of Authority previously issued or should the Agent fail to renew
his existing Certificate of Authority upon its expiration. The Agent shall not have any
 right to any commission on renewal of premiums that may be paid after the
termination of this agreement for any cause whatsoever, except when the termination
is due to disability or death in line of service. As to commission corresponding to any
balance of the first year's premiums remaining unpaid at the termination of this
agreement, the Agent shall be entitled to it if the balance of the first year premium is
paid, less actual cost of collection, unless the termination is due to a violation of this
contract, involving criminal liability or breach of trust.

ASSIGNMENT. No Assignment of the Agency herein created or of commissions or

other compensations shall be valid without the prior consent in writing of the
Company. ...

Some four years later, in April 1972, the parties entered into another contract — an Agency
Manager's Contract — and to implement his end of it Basiao organized an agency or office to which
he gave the name M. Basiao and Associates, while concurrently fulfilling his commitments under the
first contract with the Company. 2

In May, 1979, the Company terminated the Agency Manager's Contract. After vainly seeking a
reconsideration, Basiao sued the Company in a civil action and this, he was later to claim, prompted
the latter to terminate also his engagement under the first contract and to stop payment of his
commissions starting April 1, 1980. 3

Basiao thereafter filed with the then Ministry of Labor a complaint 4 against the Company and its
president. Without contesting the termination of the first contract, the complaint sought to recover
commissions allegedly unpaid thereunder, plus attorney's fees. The respondents disputed the
Ministry's jurisdiction over Basiao's claim, asserting that he was not the Company's employee, but an
independent contractor and that the Company had no obligation to him for unpaid commissions
under the terms and conditions of his contract. 5

The Labor Arbiter to whom the case was assigned found for Basiao. He ruled that the underwriting
agreement had established an employer-employee relationship between him and the Company, and
this conferred jurisdiction on the Ministry of Labor to adjudicate his claim. Said official's decision
directed payment of his unpaid commissions "... equivalent to the balance of the first year's premium
remaining unpaid, at the time of his termination, of all the insurance policies solicited by ... (him) in
favor of the respondent company ..." plus 10% attorney's fees. 6

This decision was, on appeal by the Company, affirmed by the National Labor Relations
Commission. 7 Hence, the present petition for certiorari and prohibition.

The chief issue here is one of jurisdiction: whether, as Basiao asserts, he had become the
Company's employee by virtue of the contract invoked by him, thereby placing his claim for unpaid
commissions within the original and exclusive jurisdiction of the Labor Arbiter under the provisions of
Section 217 of the Labor Code, 8 or, contrarily, as the Company would have it, that under said
contract Basiao's status was that of an independent contractor whose claim was thus cognizable, not
by the Labor Arbiter in a labor case, but by the regular courts in an ordinary civil action.

The Company's thesis, that no employer-employee relation in the legal and generally accepted
sense existed between it and Basiao, is drawn from the terms of the contract they had entered into,
which, either expressly or by necessary implication, made Basiao the master of his own time and
selling methods, left to his judgment the time, place and means of soliciting insurance, set no
accomplishment quotas and compensated him on the basis of results obtained. He was not bound to
observe any schedule of working hours or report to any regular station; he could seek and work on
his prospects anywhere and at anytime he chose to, and was free to adopt the selling methods he
deemed most effective.

Without denying that the above were indeed the expressed implicit conditions of Basiao's contract
with the Company, the respondents contend that they do not constitute the decisive determinant of
the nature of his engagement, invoking precedents to the effect that the critical feature distinguishing
the status of an employee from that of an independent contractor is control, that is, whether or not
the party who engages the services of another has the power to control the latter's conduct in
rendering such services. Pursuing the argument, the respondents draw attention to the provisions of
Basiao's contract obliging him to "... observe and conform to all rules and regulations which the
Company may from time to time prescribe ...," as well as to the fact that the Company prescribed the
qualifications of applicants for insurance, processed their applications and determined the amounts
of insurance cover to be issued as indicative of the control, which made Basiao, in legal
contemplation, an employee of the Company. 9

It is true that the "control test" expressed in the following pronouncement of the Court in the 1956
case of Viana vs. Alejo Al-Lagadan10

... In determining the existence of employer-employee relationship, the following

elements are generally considered, namely: (1) the selection and engagement of the
employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to
control the employees' conduct — although the latter is the most important element
(35 Am. Jur. 445). ...

has been followed and applied in later cases, some fairly recent. 11 Indeed, it is without question a
valid test of the character of a contract or agreement to render service. It should, however, be
obvious that not every form of control that the hiring party reserves to himself over the conduct of the
party hired in relation to the services rendered may be accorded the effect of establishing an
employer-employee relationship between them in the legal or technical sense of the term. A line
must be drawn somewhere, if the recognized distinction between an employee and an individual
contractor is not to vanish altogether. Realistically, it would be a rare contract of service that gives
untrammelled freedom to the party hired and eschews any intervention whatsoever in his
performance of the engagement.

Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be employed
in attaining it, and those that control or fix the methodology and bind or restrict the party hired to the
use of such means. The first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means used to achieve it. The
distinction acquires particular relevance in the case of an enterprise affected with public interest, as
is the business of insurance, and is on that account subject to regulation by the State with respect,
not only to the relations between insurer and insured but also to the internal affairs of the insurance
company. 12 Rules and regulations governing the conduct of the business are provided for in the
Insurance Code and enforced by the Insurance Commissioner. It is, therefore, usual and expected
for an insurance company to promulgate a set of rules to guide its commission agents in selling its
policies that they may not run afoul of the law and what it requires or prohibits. Of such a character
are the rules which prescribe the qualifications of persons who may be insured, subject insurance
applications to processing and approval by the Company, and also reserve to the Company the
determination of the premiums to be paid and the schedules of payment. None of these really
invades the agent's contractual prerogative to adopt his own selling methods or to sell insurance at
his own time and convenience, hence cannot justifiably be said to establish an employer-employee
relationship between him and the company.
There is no dearth of authority holding persons similarly placed as respondent Basiao to be
independent contractors, instead of employees of the parties for whom they worked. In Mafinco
Trading Corporation vs. Ople, 13the Court ruled that a person engaged to sell soft drinks for another,
using a truck supplied by the latter, but with the right to employ his own workers, sell according to his
own methods subject only to prearranged routes, observing no working hours fixed by the other
party and obliged to secure his own licenses and defray his own selling expenses, all in
consideration of a peddler's discount given by the other party for at least 250 cases of soft drinks
sold daily, was not an employee but an independent contractor.

In Investment Planning Corporation of the Philippines us. Social Security System 14 a case almost on
all fours with the present one, this Court held that there was no employer-employee relationship
between a commission agent and an investment company, but that the former was an independent
contractor where said agent and others similarly placed were: (a) paid compensation in the form of
commissions based on percentages of their sales, any balance of commissions earned being
payable to their legal representatives in the event of death or registration; (b) required to put up
performance bonds; (c) subject to a set of rules and regulations governing the performance of their
duties under the agreement with the company and termination of their services for certain causes;
(d) not required to report for work at any time, nor to devote their time exclusively to working for the
company nor to submit a record of their activities, and who, finally, shouldered their own selling and
transportation expenses.

More recently, in Sara vs. NLRC, 15 it was held that one who had been engaged by a rice miller to
buy and sell rice and palay without compensation except a certain percentage of what he was able
to buy or sell, did work at his own pleasure without any supervision or control on the part of his
principal and relied on his own resources in the performance of his work, was a plain commission
agent, an independent contractor and not an employee.

The respondents limit themselves to pointing out that Basiao's contract with the Company bound him
to observe and conform to such rules and regulations as the latter might from time to time prescribe.
No showing has been made that any such rules or regulations were in fact promulgated, much less
that any rules existed or were issued which effectively controlled or restricted his choice of methods
— or the methods themselves — of selling insurance. Absent such showing, the Court will not
speculate that any exceptions or qualifications were imposed on the express provision of the
contract leaving Basiao "... free to exercise his own judgment as to the time, place and means of
soliciting insurance."

The Labor Arbiter's decision makes reference to Basiao's claim of having been connected with the
Company for twenty-five years. Whatever this is meant to imply, the obvious reply would be that
what is germane here is Basiao's status under the contract of July 2, 1968, not the length of his
relationship with the Company.

The Court, therefore, rules that under the contract invoked by him, Basiao was not an employee of
the petitioner, but a commission agent, an independent contractor whose claim for unpaid
commissions should have been litigated in an ordinary civil action. The Labor Arbiter erred in taking
cognizance of, and adjudicating, said claim, being without jurisdiction to do so, as did the respondent
NLRC in affirming the Arbiter's decision. This conclusion renders it unnecessary and premature to
consider Basiao's claim for commissions on its merits.WHEREFORE, the appealed Resolution of the
National Labor Relations Commission is set aside, and that complaint of private respondent Melecio
T. Basiao in RAB Case No. VI-0010-83 is dismissed. No pronouncement as to costs.

SO ORDERED.
G.R. No. 84272 November 21, 1991

BACOLOD-MURCIA MILLING COMPANY, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and ELENA CANETE, respondents.

Carlos S. Mesticampo for petitioner.

Ruben B. Garcia for private respondent.

FERNAN, C.J.:

At issue in this petition for certiorari is the manner of computation of the retirement pay of private
respondent Elena Canete who was in the employ of petitioner Bacolod-Murcia Milling Company, Inc.
for thirty-four (34) years.

In her complaint against petitioner Company for underpayment of retirement benefits and moral
damages, Canete alleged that on October 14, 1985, she was paid her retirement benefits in the
amount of P21,457.00, after taking into consideration her twenty-five years of service as a seasonal
worker (cane scaler) from October 6, 1951 to April 30, 1976 and the last nine years as a a
permanent employee (family planning motivator) from May 1, 1976 to August 30, 1985. The
company computed her retirement pay in accordance with the "mixed service credit" computation
under Section 9, Article XVII of the Collective Bargaining Agreement between petitioner Company
and the Allied Workers' Association of the Philippines, Bacolod-Murcia Central Chapter (NACUSIP)
of which Canete was a member. 1

Canete claims that this was erroneous. The computation of her retirement pay should have been based on Section 7 of the same article which provides
that permanent employees who have rendered thirty years of service or more are entitled to 100% of one month base pay for every year of service
beginning with the first year. Hence, she was underpaid in the amount of P17,415.20.

Both the Executive Labor Arbiter of the Regional Arbitration Branch and the National Labor Relations Commission agreed with Canete. In the assailed resolution dated December 29, 1987, respondent Labor Tribunal affirmed the
decision of the Labor Arbiter ordering petitioner Company to pay Canete P17,415.00 representing the differential in her retirement benefit, (Canete's last pay of P38.11 per day multiplied by 30 equals P1,143.38 per month. This amount
multiplied by 34 years equals P38,872.20. Considering that Canete had received P21,457.00, she was underpaid of her retirement pay in the amount of P17,415.20). 2

In the instant petition, petitioner Company contends that the Labor Tribunal committed grave abuse of discretion in granting the retirement pay
differential in favor of Canete, in derogation of the binding effect of the Collective Bargaining Agreement despite public respondent's pretended
adherence to Section 7 of Article XVII thereof. Petitioner maintains that for purposes of computing Canete's retirement benefits, public respondent
should not have relied primarily on Section 7 of Article XVII of the CBA which provides:
Sec 7. — Benefit. — The benefit under this plan is the cash equivalent in accordance with the following schedule for permanent employees:

Years of Service Retirement Pay

20 years 50 % of 1 month's base pay

per year of service
beginning with the first
year

21 " 55% -do-

22 " 60% -do-
23 " 65% -do-
24 " 70% -do-
25 " 75% -do-
26 " 80% -do-
27 " 85% -do-
28 " 90% -do-
29 " 95% -do-
30 " 100% -do-

The pay referred to shall be construed to be the last rate of the employee upon retirement.

In case of death, however, the amount shall not be less than P500.00.

because while Canete served as a permanent employee for nine years, prior to that, she was only a seasonal worker for twenty five years.

Petitioner submits that in determining the correct retirement pay, Canete's twenty-five year service as a seasonal laborer should have been
taken into account and divided by two in accordance with the mixed service credit computation under Section 9 which states:

Sec. 9. Computation of benefit for Seasonal Employees — Except as provided for in Sections 3, 5 and 6 in this Article, seasonal
employees may qualify under voluntary retirement upon having established 20 years of seasonal service.

For purposes, however, of computing the benefit due seasonal employees, the formula is as follows:

Number of years of seasonal service, multiplied by the percentage of a month's base pay per schedule under Section 7, divided
by two (2) equals the amount of retirement benefit.

Provided, finally, that in cases of mixed service credit, only the services corresponding to seasonal employment shall be
divisible by two (2). (Emphasis supplied).

The petition is meritorious.

Canete may be considered as in regular employment even during those

While under prevailing jurisprudence, 3

years when she was merely a seasonal worker, that legal conclusion will hold true only in
cases involving the determination of an employer-employee relationship or security of tenure.
But for retirement purposes, the distinction between a seasonal and a regular worker must
be drawn in view of the materiality of the length of service being rendered by the employee in
a year. To equate the seasonable worker with a regular employee grant him the same
retirement benefits is grossly unfair to the regular employee who has rendered service
throughout the entire year.

Indeed, by the very nature of his work, the seasonal laborer cannot enjoy the same
retirement privileges as the regular worker. The seasonal laborer works only for a fraction of
year. And more often than not, he is allowed by his employer to seek employment elsewhere
during off-season or temporary lay-off for economic necessity. This is the set-up endemic
peculiar to the sugar industry — which is precisely the reason why the CBA in the case at
bar has differentiated among the three types of employees of petitioner Company, namely,
the seasonal worker, the regular worker and the mixed seasonal and regular worker. To
follow the unrealistic interpretation given by respondent Labor Tribunal will negate and
render inutile and superfluous the difference recognized by said Agreement because all
employees would then retire under Section 7 as all of them are considered regular. This
completely ignores the indubitable fact that there are employees like Canete who worked in
the fields as seasonal workers but were later promoted and became members of the regular
work force. It is exactly for Canete and those similarly situated that the stipulation on mixed
service credit has been incorporated in the CBA. And at the risk of being redundant, it must
be stressed that CBA is the law between the parties and when not contrary to law, morals
and public policy, must be given effect.

While it may be a laudable gesture for the Court to "lean over backwards" in favor of labor,
such magnanimity must not go as far as to cause a clear injustice to management which is
entitled under the law to as much protection and concern as labor.

WHEREFORE, the petition is granted. The questioned resolution by respondent National

Labor Relations Commission dated December 29, 1987 is hereby REVERSED and SET
ASIDE. The complaint filed by private respondent Elena Canete for retirement benefits and
payment of moral damages against petitioner Bacolod-Murcia Milling Company, Inc. is
ordered DISMISSED. This decision is immediately executory. No costs.

SO ORDERED.