Special Steel Products, Inc. v.

Villareal
GR No. 143304, 8 July 2004

FACTS:

o Petitioner Special Steels Products, Inc. is a domestic corporation engaged in the business of importation,
sale and marketing of BOHLER steel products. Respondent Villareal and So, worked for petitioner as
assistant sales manager and salesman, respectively.
o Sometime in May 1993, respondent Villareal obtained a car loan from Bank of Commerce, with petitioner
as surety, as shown by a continuing suretyship agreement and promissory note. In 1997, respondent
Villareal resigned and thereafter joined another company.
o Sometime in August 1994, petitioner sponsored respondent So to attend a training course in Austria
conducted by BOHLER. This training was reward for respondent Sos outstanding sales performances.
When respondent returned 9 months thereafter, petitioner directed him to sign a memorandum providing
that BOHLER requires trainees from Austria to continue working with petitioner for a period of 3 years
after the training. Otherwise, each training shall refund to BOHLER the training expenses by way of set-
off or compensation. After 2 years and 4 months, respondent So resigned from petitioner.
o Immediately, petitioner order respondents to render an accounting of its various Christmas giveaways
they received. These were intended for distribution to petitioners customer.
o In protest, respondents demanded from petitioner payment of their separation benefits, commissions,
vacation and sick leave benefits, and proportionate 13th month. But petitioner refused, and instead,
withheld the 13th month pay and other benefits.
o Respondents filed a complaint with the LA for payment of their monetary benefits.
o LA ruled in favor of respondents, ordering petitioner-company and its president jointly and severally liable
to pay the monetary benefits of Villareal and So
o On appeal, NLRC affirmed the LA decision, but exempted the petitioners president from any liability,
which was affirmed by the CA. Hence, this petition.
o Petitioner contends that as a guarantor, it could legally withhold respondent Villareals monetary benefits
as a preliminary remedy pursuant to Art. 2071 of the Civil Code. As to respondent So, petitioner citing
Article 113 of the Labor Code, in relation to Art. 1706 of the Civil Code, maintains that it could withhold
his monetary benefits being authorized by the memorandum he signed.

ISSUE: Whether the petitioner has legal authority to withhold respondents monetary benefits

HELD: NO

RATIO:

o What an employee has worked for, his employer must pay. Thus, an employer cannot simply refuse to
pay the wages or benefits of its employee because he has either defaulted in paying a loan guaranteed
by his employer; or violated their memorandum of agreement; or failed to render an accounting of his
employers property.

o There is no guaranty involved herein, and therefore Art. 2071 does not apply. The contract executed by
petitioner and respondent Villareal (in favor of the Bank of Commerce) is a contract of surety. In fact, it is
denominated as a continuing suretyship agreement. Hence, petitioner could not just unilaterally withhold
respondents wages or benefits as a preliminary remedy under Article 2071. It must file an action against
respondent Villareal. Thus, the Appellate Court aptly ruled that petitioner may only protect its right as
surety by instituting an action to demand a security.

o As to respondent So, petitioner maintains that there can be a set-off or legal compensation between
them. Consequently, it can withhold his 13th month pay and other benefits. In the present case, set-off
or legal compensation cannot take place between petitioner and respondent So because they are not
mutually creditor and debtor of each other.
o A careful reading of the Memorandum reveals that the lump sum compensation of not less than US
$6,000.00 will have to be refunded by each trainee to BOHLER, not to petitioner.
o In fine, we rule that petitioner has no legal right to withhold respondents 13th month pay and other
benefits to recompense for whatever amount it paid as security for respondent Villareals car loan; and
for the expenses incurred by respondent So in his training abroad.