G.R. No.

89070 May 18, 1992

BENGUET ELECTRlC COOPERATIVE, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, PETER COSALAN and BOARD OF
DIRECTORS OF BENGUET ELECTRIC COOPERATIVE, INC., * respondents.

Raymundo W. Celino for respondent Peter Cosalan.

Reenan Orate for respondent Board of Directors of BENECO.

FELICIANO, J.:

Private respondent Peter Cosalan was the General Manager of Petitioner Benguet Electric
Cooperative, Inc. ("Beneco"), having been elected as such by the Board of Directors of Beneco, with
the approval of the National Electrification Administrator, Mr. Pedro Dumol, effective 16 October
1982.

On 3 November 1982, respondent Cosalan received Audit Memorandum No. 1 issued by the
Commission on Audit ("COA"). This Memorandum noted that cash advances received by officers
and employees of petitioner Beneco in the amount of P129,618.48 had been virtually written off in
the books of Beneco. In the Audit Memorandum, the COA directed petitioner Beneco to secure the
approval of the National Electrification Administration ("NEA") before writing off or condoning those
cash advances, and recommended the adoption of remedial measures.

On 12 November 1982, COA issued another Memorandum — Audit Memorandum No. 2 ––

addressed to respondent Peter Cosalan, inviting attention to the fact that the audit of per diems and
allowances received by officials and members of the Board of Directors of Beneco showed
substantial inconsistencies with the directives of the NEA. The Audit Memorandum once again
directed the taking of immediate action in conformity with existing NEA regulations.

On 19 May 1983, petitioner Beneco received the COA Audit Report on the financial status and
operations of Beneco for the eight (8) month period ended 30 September 1982. This Audit Report
noted and enumerated irregularities in the utilization of funds amounting to P37 Million released by
NEA to Beneco, and recommended that appropriate remedial action be taken.

Having been made aware of the serious financial condition of Beneco and what appeared to be
mismanagement, respondent Cosalan initiated implementation of the remedial measures
recommended by the COA. The respondent members of the Board of Beneco reacted by adopting a
series of resolutions during the period from 23 June to 24 July 1984. These Board Resolutions
abolished the housing allowance of respondent Cosalan; reduced his salary and his representation
and commutable allowances; directed him to hold in abeyance all pending personnel disciplinary
actions; and struck his name out as a principal signatory to transactions of petitioner Beneco.

During the period from 28 July to 25 September 1984, the respondent Beneco Board members
adopted another series of resolutions which resulted in the ouster of respondent Cosalan as General
Manager of Beneco and his exclusion from performance of his regular duties as such, as well as the
withholding of his salary and allowances. These resolutions were as follows:
 1. Resolution No. 91-4 dated 28 July 1984:

. . . that the services of Peter M. Cosalan as General Manager of

BENECO is terminated upon approval of the National Electrification
Administration;

2. Resolution No. 151-84 dated September 15, 1984;

. . . that Peter M. Cosalan is hereby suspended from his position as

General Manager of the Benguet Electric Cooperative, Inc.
(BENECO) effective as of the start of the office hours on September
24, 1984, until a final decision has been reached by the NEA on his
dismissal;

. . . that GM Cosalan's suspension from office shall remain in full

force and effect until such suspension is sooner lifted, revoked or
rescinded by the Board of Directors; that all monies due him are
withheld until cleared;

3. Resolution No. 176-84 dated September 25, 1984;

. . . that Resolution No. 151-84, dated September 15, 1984 stands as

preventive suspension for GM Peter M. Cosalan. 1

Respondent Cosalan nevertheless continued to work as General Manager of Beneco, in the belief
that he could be suspended or removed only by duly authorized officials of NEA, in accordance with
provisions of P.D. No, 269, as amended by P.D. No. 1645 (the statute creating the NEA, providing
for its capitalization, powers and functions and organization), the loan agreement between NEA and
petitioner Beneco 2 and the NEA Memorandum of 2 July 1980. 3 Accordingly, on 5 October and 10
November 1984, respondent Cosalan requested petitioner Beneco to release the compensation due
him. Beneco, acting through respondent Board members, denied the written request of respondent
Cosalan.

Respondent Cosalan then filed a complaint with the National Labor Relations Commission ("NLRC")
on 5 December 1984 against respondent members of the Beneco Board, challenging the legality of
the Board resolutions which ordered his suspension and termination from the service and
demanding payment of his salaries and allowances. On 18 February 1985, Cosalan amended his
complaint to implead petitioner Beneco and respondent Board members, the latter in their respective
dual capacities as Directors and as private individuals.

In the course of the proceedings before the Labor Arbiter, Cosalan filed a motion for reinstatement
which, although opposed by petitioner Beneco, was granted on 23 October 1987 by Labor Arbiter
Amado T. Adquilen. Petitioner Beneco complied with the Labor Arbiter's order on 28 October 1987
through Resolution No. 10-90.

On 5 April 1988, the Labor Arbiter rendered a decision (a) confirming Cosalan's reinstatement; (b)
ordering payment to Cosalan of his backwages and allowances by petitioner Beneco and
respondent Board members, jointly and severally, for a period of three (3) years without deduction or
qualification, amounting to P344,000.00; and (3) ordering the individual Board members to pay,
jointly and severally, to Cosalan moral damages of P50,000.00 plus attorney's fees of ten percent
(10%) of the wages and allowances awarded him.
Respondent Board members appealed to the NLRC, and there filed a Memorandum on Appeal.
Petitioner Beneco did not appeal, but moved to dismiss the appeal filed by respondent Board
members and for execution of judgment. By this time, petitioner Beneco had a new set of directors.

In a decision dated 21 November 1988, public respondent NLRC modified the award rendered by
the Labor Arbiter by declaring that petitioner Beneco alone, and not respondent Board members,
was liable for respondent Cosalan's backwages and allowances, and by ruling that there was no
legal basis for the award of moral damages and attorney's fees made by the Labor Arbiter.

Beneco, through its new set of directors, moved for reconsideration of the NLRC decision, but
without success.

In the present Petition for Certiorari, Beneco's principal contentions are two-fold: first, that the NLRC
had acted with grave abuse of discretion in accepting and giving due course to respondent Board
members' appeal although such appeal had been filed out of time; and second, that the NLRC had
acted with grave abuse of discretion amounting to lack of jurisdiction in holding petitioner alone liable
for payment of the backwages and allowances due to Cosalan and releasing respondent Board
members from liability therefor.

We consider that petitioner's first contention is meritorious. There is no dispute about the fact that
the respondent Beneco Board members received the decision of the labor Arbiter on 21 April 1988.
Accordingly, and because 1 May 1988 was a legal holiday, they had only up to 2 May 1988 within
which to perfect their appeal by filing their memorandum on appeal. It is also not disputed that the
respondent Board members' memorandum on appeal was posted by registered mail on 3 May 1988
and received by the NLRC the following day. 4 Clearly, the memorandum on appeal was filed out of
time.

Respondent Board members, however, insist that their Memorandum on Appeal was filed on time
because it was delivered for mailing on 1 May 1988 to the Garcia Communications Company, a
licensed private letter carrier. The Board members in effect contend that the date of delivery to
Garcia Communications was the date of filing of their appeal memorandum.

Respondent Board member's contention runs counter to the established rule that transmission
through a private carrier or letter-forwarder –– instead of the Philippine Post Office –– is not a
recognized mode of filing pleadings. 5The established rule is that the date of delivery of pleadings to
a private letter-forwarding agency is not to be considered as the date of filing thereof in court, and
that in such cases, the date of actual receipt by the court, and not the date of delivery to the private
carrier, is deemed the date of filing of that pleading. 6

There, was, therefore, no reason grounded upon substantial justice and the prevention of serious
miscarriage of justice that might have justified the NLRC in disregarding the ten-day reglementary
period for perfection of an appeal by the respondent Board members. Accordingly, the applicable
rule was that the ten-day reglementary period to perfect an appeal is mandatory and jurisdictional in
nature, that failure to file an appeal within the reglementary period renders the assailed decision final
and executory and no longer subject to review. 7 The respondent Board members had thus lost their
right to appeal from the decision of the Labor Arbiter and the NLRC should have forthwith dismissed
their appeal memorandum.

There is another and more compelling reason why the respondent Board members' appeal should
have been dismissed forthwith: that appeal was quite bereft of merit. Both the Labor Arbiter and the
NLRC had found that the indefinite suspension and termination of services imposed by the
respondent Board members upon petitioner Cosalan was illegal. That illegality flowed, firstly, from
the fact that the suspension of Cosalan was continued long after expiration of the period of thirty (30)
days, which is the maximum period of preventive suspension that could be lawfully imposed under
Section 4, Rule XIV of the Omnibus Rules Implementing the Labor Code. Secondly, Cosalan had
been deprived of procedural due process by the respondent Board members. He was never
informed of the charges raised against him and was given no opportunity to meet those charges and
present his side of whatever dispute existed; he was kept totally in the dark as to the reason or
reasons why he had been suspended and effectively dismissed from the service of Beneco Thirdly,
respondent Board members failed to adduce any cause which could reasonably be regarded as
lawful cause for the suspension and dismissal of respondent Cosalan from his position as General
Manager of Beneco. Cosalan was, in other words, denied due process both procedural and
substantive. Fourthly, respondent Board members failed to obtain the prior approval of the NEA of
their suspension now dismissal of Cosalan, which prior approval was required, inter alia, under the
subsisting loan agreement between the NEA and Beneco. The requisite NEA approval was
subsequently sought by the respondent Board members; no NEA approval was granted.

In reversing the decision of the Labor Arbiter declaring petitioner Beneco and respondent Board
members solidarily liable for the salary, allowances, damages and attorney's fees awarded to
respondent Cosalan, the NLRC said:

. . . A perusal of the records show that the members of the Board never acted in their
individual capacities. They were acting as a Board passing resolutions affecting their
general manager. If these resolutions and resultant acts transgressed the law, to
then BENECO for which the Board was acting in behalf should bear
responsibility. The records do not disclose that the individual Board members were
motivated by malice or bad faith, rather, it reveals an intramural power play gone
awry and misapprehension of its own rules and regulations. For this reason, the
decision holding the individual board members jointly and severally liable with
BENECO for Cosalan's backwages is untenable. The same goes for the award of
damages which does not have the proverbial leg to stand on.

The Labor Arbiter below should have heeded his own observation in his decision —

Respondent BENECO as an artificial person could not have, by itself,

done anything to prevent it. But because the former have acted while
in office and in the course of their official functions as directors of
BENECO, . . .

Thus, the decision of the Labor Arbiter should be modified conformably with all the
foregoing holding BENECO solely liable for backwages and releasing the appellant
board members from any individual liabilities. 8 (Emphasis supplied)

The applicable general rule is clear enough. The Board members and officers of a corporation who
purport to act for and in behalf of the corporation, keep within the lawful scope of their authority in so
acting, and act in good faith, do not become liable, whether civilly or otherwise, for the
consequences of their acts, Those acts, when they are such a nature and are done under such
circumstances, are properly attributed to the corporation alone and no personal liability is incurred by
such officers and Board members. 9

The major difficulty with the conclusion reached by the NLRC is that the NLRC clearly overlooked or
disregarded the circumstances under which respondent Board members had in fact acted in the
instant case. As noted earlier, the respondent Board members responded to the efforts of Cosalan to
take seriously and implement the Audit Memoranda issued by the COA explicitly addressed to the
petitioner Beneco, first by stripping Cosalan of the privileges and perquisites attached to his position
as General Manager, then by suspending indefinitely and finally dismissing Cosalan from such
position. As also noted earlier, respondent Board members offered no suggestion at all of any just or
lawful cause that could sustain the suspension and dismissal of Cosalan. They obviously wanted to
get rid of Cosalan and so acted, in the words of the NLRC itself, "with indecent haste" in removing
him from his position and denying him substantive and procedural due process. Thus, the record
showed strong indications that respondent Board members had illegally suspended and dismissed
Cosalan precisely because he was trying to remedy the financial irregularities and violations of NEA
regulations which the COA had brought to the attention of Beneco. The conclusion reached by the
NLRC that "the records do not disclose that the individual Board members were motivated by malice
or bad faith" flew in the face of the evidence of record. At the very least, a strong presumption had
arisen, which it was incumbent upon respondent Board members to disprove, that they had acted in
reprisal against respondent Cosalan and in an effort to suppress knowledge about and remedial
measures against the financial irregularities the COA Audits had unearthed. That burden respondent
Board members did not discharge.

The Solicitor General has urged that respondent Board members may be held liable for damages
under the foregoing circumstance under Section 31 of the Corporation Code which reads as follows:

Sec. 31. Liability of directors, trustees or officers. — Directors or trustees who willfully
and knowingly vote for or assent to patently unlawful acts of the corporation or who
are guilty of gross negligence or bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict with their duty as such directors
or trustees shall be jointly liable and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other persons . . .
(Emphasis supplied)

We agree with the Solicitor General, firstly, that Section 31 of the Corporation Code is applicable in
respect of Beneco and other electric cooperatives similarly situated. Section 4 of the Corporation
Code renders the provisions of that Code applicable in a supplementary manner to all corporations,
including those with special or individual charters so long as those provisions are not inconsistent
with such charters. We find no provision in P.D. No. 269, as amended, that would exclude expressly
or by necessary implication the applicability of Section 31 of the Corporation Code in respect of
members of the boards of directors of electric cooperatives. Indeed, P.D. No. 269 expressly
describes these cooperatives as "corporations:"

Sec. 15. Organization and Purpose. — Cooperative non-stock, non-profit

membership corporationsmay be organized, and electric cooperative
corporations heretofore formed or registered under the Philippine non-Agricultural
Co-operative Act may as hereinafter provided be converted, under this Decree for
the purpose of supplying, and of promoting and encouraging-the fullest use of,
service on an area coverage basis at the lowest cost consistent with sound economy
and the prudent management of the business of such corporations. 10 (Emphasis
supplied)

We agree with the Solicitor General, secondly, that respondent Board members were guilty of "gross
negligence or bad faith in directing the affairs of the corporation" in enacting the series of resolutions
noted earlier indefinitely suspending and dismissing respondent Cosalan from the position of
General Manager of Beneco. Respondent Board members, in doing so, acted belong the scope of
their authority as such Board members. The dismissal of an officer or employee in bad faith, without
lawful cause and without procedural due process, is an act that is contra legem. It cannot be
supposed that members of boards of directors derive any authority to violate the express mandates
of law or the clear legal rights of their officers and employees by simply purporting to act for the
corporation they control.

We believe and so hold, further, that not only are Beneco and respondent Board members properly
held solidarily liable for the awards made by the Labor Arbiter, but also that petitioner Beneco which
was controlled by and which could act only through respondent Board members, has a right to be
reimbursed for any amounts that Beneco may be compelled to pay to respondent Cosalan. Such
right of reimbursement is essential if the innocent members of Beneco are not to be penalized for the
acts of respondent Board members which were both done in bad faith and ultra vires. The liability-
generating acts here are the personal and individual acts of respondent Board members, and are not
properly attributed to Beneco itself.

WHEREFORE, the Petition for Certiorari is GIVEN DUE COURSE, the comment filed by respondent
Board members is TREATED as their answer, and the decision of the National Labor Relations
Commission dated 21 November 1988 in NLRC Case No. RAB-1-0313-84 is hereby SET ASIDE
and the decision dated 5 April 1988 of Labor Arbiter Amado T. Adquilen hereby REINSTATED in
toto. In addition, respondent Board members are hereby ORDERED to reimburse petitioner Beneco
any amounts that it may be compelled to pay to respondent Cosalan by virtue of the decision of
Labor Arbiter Amado T. Adquilen. No pronouncement as to costs.

SO ORDERED.