Commercial Law

Benguet Electric Cooperative, Inc. vs National Labor Relations Commission

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G.R. No. 89070 – 209 SCRA 55 – Mercantile Law – Corporation Law – Cooperatives are Treated as Corporations – Ultra Vires Acts of the Board Members

Labor Law – NLRC Procedure – Jurisdiction of the NLRC

In 1982, Peter Cosalan, then general manager of the Benguet Electric Cooperative (BENECO), received an audit report from the National Electrification Administration (NEA). The said audit advised Cosalan of certain irregularities in the management of the funds of BENECO. Cosalan then sought to address the issue by introducing reforms recommended by the NEA as well as by the auditing body, Commission on Audit. However, the Board Members of BENECO reacted to these reforms by issuing a series of resolutions which first reduced Cosalan’s salary and allowances, then he was excluded from his work, and eventually, he was suspended indefinitely.

Cosalan then filed a complaint for illegal dismissal against the BENECO Board Members, he later impleaded BENECO itself.  The Labor Arbiter (LA) ruled in favor of Cosalan. The National Labor Relations Commission (NLRC) affirmed the decision of the LA but modified it so as to absolve the Board Members from liability as it held that the Board Members merely acted in their official capacity. BENECO, being the only party adjudged to be liable, then appealed said decision.

ISSUE: Whether or not the National Labor Relations Commission is correct.

HELD: No. The act of the Board Members is ultra vires. There was no legal basis for them to suspend Cosalan indefinitely  for under the Implementing Rules of the Labor Code the maximum period form preventive suspension should not go beyond 30 days. Further, it was found that Cosalan was never informed of the charges against him nor was he afforded the opportunity to present his case. He was deprived of due process. Nor was Cosalan’s suspension approved by the NEA, which is also required for due process purposes.

These acts by the Board Members are tainted with bad faith. A very strong presumption arises that the Board Members are acting in reprisal against the reforms sought to be introduced by Cosalan in order to address the irregularities within BENECO. The Board Members are therefore liable for damages under Section 31 of the Corporation Code. And even though BENECO is a cooperative, it is still covered by the Corporation Code because under PD 269, cooperatives are considered as corporations.

The Supreme Court ruled that BENECO and the BENECO Board Members are liable for the damages caused against Cosalan. However BENECO can seek reimbursement from the Board Members so as not to unduly penalize the innocent members of BENECO.

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