The Supreme Court ruled that verbal promises made by a company president regarding employee benefits, specifically the cash conversion of unused leave credits, are not binding on the corporation without explicit approval from the board of directors. This decision underscores the importance of formal corporate actions in granting and recognizing employee benefits. The ruling has significant implications for employees relying on verbal assurances, as it emphasizes the necessity of securing formal documentation and board approval to ensure the enforceability of promised benefits. This case clarifies the boundaries of corporate authority and the validity of informal agreements within a corporate setting.

Can a Handshake Deal Trump the Boardroom? The Case of Kwok vs. Philippine Carpet

The case of Donald Kwok v. Philippine Carpet Manufacturing Corporation revolves around a dispute over promised employment benefits. Donald Kwok, a long-time executive of Philippine Carpet Manufacturing Corporation (PCMC), claimed that Patricio L. Lim, the company’s president and chairman of the board (also Kwok’s father-in-law), had verbally promised him the cash equivalent of his accumulated vacation and sick leave credits upon retirement. When PCMC denied this claim, Kwok filed a complaint, leading to a legal battle that questioned the enforceability of verbal promises made by corporate officers without formal board approval. This case examines the extent to which a corporation is bound by the verbal assurances of its leading executive.

Kwok argued that he had a verbal agreement with Lim, promising him unlimited sick and vacation leave benefits, including their cash conversion upon retirement. He supported his claim by pointing to other benefits he received during his tenure, such as golf club membership and profit-sharing, which he claimed were also based on verbal agreements with Lim. However, PCMC denied these claims, stating that Kwok had already received all due benefits upon retirement and that Lim’s alleged promise was never formally approved by the board of directors. The corporation also argued that Kwok’s position did not fall under the category of employees entitled to such benefits according to the company’s internal policies.

The Labor Arbiter initially ruled in favor of Kwok, ordering PCMC to pay him P7,080,546.00 plus attorney’s fees. However, the National Labor Relations Commission (NLRC) reversed this decision, dismissing Kwok’s complaint. The NLRC reasoned that the verbal promise was unenforceable and not binding on the corporation without board approval. Kwok then appealed to the Court of Appeals (CA), which affirmed the NLRC’s decision, leading him to elevate the case to the Supreme Court.

The Supreme Court framed the central issue as a factual one: whether Kwok was entitled to the cash value of his vacation and sick leave credits based on the evidence presented. The court emphasized that under Rule 45 of the Rules of Court, only questions of law may be raised in a petition for review on certiorari. It reiterated that factual findings of the CA on appeal from the NLRC are generally conclusive. The Court also noted that it may delve into factual issues only in exceptional circumstances, such as when the findings of fact are capricious or arbitrary, or when substantial justice requires it, circumstances which the Court did not find present in this case.

A key aspect of the Court’s analysis focused on the principle that a corporation is bound by the actions of its officers only if those officers act within the scope of their authority, or if the corporation ratifies actions exceeding that authority. The Court referenced established legal doctrines on corporate representation, noting that:

The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. A corporation is a juridical person, separate and distinct from its stockholders and members, ‘having xxx powers, attributes and properties expressly authorized by law or incident to its existence.’

The Supreme Court found that Kwok failed to provide substantial evidence to prove that Lim’s verbal promise was binding on PCMC. The Court stated that while corporate policies need not always be in writing, it was the petitioner’s burden to prove not only the existence of such benefits but also that he is entitled to the same. It emphasized that those who belong to the upper corporate echelons would have more privileges; however, the Court cannot presume the existence of such privileges or benefits.

The Court also highlighted Kwok’s admission that he was not covered by the company’s policy on commutation of leave credits. According to the Court, Nel Gopez, Chief Accountant of the respondent, testified that the petitioner was not among the regular employees covered by the policy for the simple reason that he had unlimited vacation leave benefits. The CA quoted Kwok himself admitting that the policy on leave conversions did not apply to him as Executive Vice-President and General Manager of PCMC. Because Kwok had unlimited leave, the claim that he could have these credits converted into cash was rendered inconsistent with established company policy.

Furthermore, the Court agreed with PCMC’s argument that Kwok’s claims were time-barred under Article 291 of the Labor Code, which prescribes a three-year period for filing money claims. Even if Kwok were entitled to the cash conversion, his failure to file the claim within the prescribed period would preclude him from recovering the full amount. The Court of Appeals (CA) also noted that there was no proof that the petitioner had filed vacation and sick leaves with PCMC’s personnel department. Without a record of petitioner’s absences, there is no way to determine the actual number of leave credits he is entitled to. The P7,080,546.00 figure arrived at by petitioner supposedly representing the cash equivalent of his earned sick and vacation leaves is thus totally baseless.

In summary, the Supreme Court denied Kwok’s petition, emphasizing the importance of formal corporate actions and documentation in establishing and enforcing employee benefits. The Court reiterated that verbal promises made by corporate officers are not binding on the corporation without board approval. Additionally, the decision highlighted the need for employees to substantiate their claims with sufficient evidence and comply with the prescribed periods for filing money claims under the Labor Code. This case serves as a reminder that undocumented agreements can be difficult to enforce, especially in a corporate context.

FAQs

What was the key issue in this case?	The key issue was whether a verbal promise made by a company president to grant an employee the cash equivalent of accumulated leave credits is enforceable against the corporation without board approval.
What did the Supreme Court decide?	The Supreme Court ruled that the verbal promise was not binding on the corporation because it lacked formal approval from the board of directors.
Why was the verbal promise not enforceable?	The verbal promise was not enforceable because corporate officers must act within their authority, and actions exceeding that authority require ratification by the corporation’s board.
What is the significance of Article 291 of the Labor Code in this case?	Article 291 of the Labor Code sets a three-year prescriptive period for filing money claims, and the Court noted that Kwok’s claims may have been time-barred under this provision.
Did Kwok present any evidence to support his claim?	Kwok primarily relied on his testimony, but the Court found this insufficient to prove a binding corporate obligation.
What was the role of the company’s internal policies in the decision?	The company’s internal policies excluded Kwok’s position from the category of employees entitled to cash conversion of leave credits, which further weakened his claim.
What type of evidence would have strengthened Kwok’s claim?	A formal board resolution or written agreement explicitly approving the cash conversion of Kwok’s leave credits would have significantly strengthened his claim.
What is the main takeaway from this case for employees?	Employees should ensure that any promises of benefits are documented in writing and formally approved by the company’s board to ensure their enforceability.

This case reinforces the importance of formalizing employment agreements and securing corporate approval for employee benefits. It serves as a cautionary tale for both employers and employees, emphasizing the need for clear, written documentation to avoid future disputes. Oral contracts can be tough to defend, and could lead to uncertainty and conflict. Therefore, those seeking clarification or guidance on similar issues should seek professional advice to navigate the complexities of labor law.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: DONALD KWOK VS. PHILIPPINE CARPET MANUFACTURING CORPORATION, G.R. NO. 149252, April 28, 2005