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METROPOLITAN BANK v. BOARD OF TRUSTEES: RIVERSIDE MILLS CORPORATION PROVIDENT CASE

FACTS:

In 1973, Riverside Mills Corporation (RMC) established a Provident and Retirement Plan (Plan) for its employees. The Plan required both RMC and its employees to contribute a percentage of the employee's salary to a provident fund (the Fund) to be held and invested by a bank. The Plan stated that the Fund would not revert to RMC until all liabilities of the Plan were satisfied.

In 1979, the Board of Trustees of the RMC Provident and Retirement Fund (RMCPRF) entered into an Investment Management Agreement with Philippine Banking Corporation (now Metropolitan Bank and Trust Company). The Agreement authorized the bank to hold, manage, and invest the Fund on behalf of the Board. It also stated that the Agreement would automatically renew each year unless terminated by either party.

After RMC ceased operations in 1984, the bank continued to provide investment services to the Board. In 1995, the bank decided to apply the remaining trust assets held in the name of RMCPRF against RMC's outstanding obligations.

The terminated employees of RMC, represented by the RMC Unpaid Employees Association, and individual members of RMCPRF filed a complaint for accounting against the Board, its officers, and the bank. They argued that the reversion and application of the Fund to RMC's obligations were invalid. The trial court ruled in favor of the respondents, declaring the reversion invalid and ordering the bank to reverse the application of the Fund. The trial court also ordered the bank to provide a complete accounting of the Fund and pay attorney's fees.

On appeal, the Court of Appeals affirmed the trial court's decision, stating that the Fund should only be used for the benefit of the members of RMCPRF and not for any other purpose. The appellate court also upheld the award of attorney's fees to the respondents.

The bank filed a petition for review on certiorari, arguing that the Court of Appeals committed errors in its decision.

ISSUES:

  1. Whether the reversion of the Fund to RMC has occurred.

  2. Whether the Fund is liable for the payment of benefits to qualified retirees and separated employees.

  3. Whether or not the "separation for cause" found in Paragraph 7 of the Plan refers to just causes under Article 282 of the Labor Code.

  4. Whether or not the reversion of the Fund to the company before settling all liabilities of the Plan is permitted.

  5. Whether or not the Board of Trustees has the authority to issue a resolution recognizing the exclusive ownership of the Fund by the employees and authorizing its release to the beneficiaries.

  6. Whether the promulgation of the rule prohibiting the reversion of the Fund to RMC before all liabilities are satisfied is valid.

  7. Whether the award of attorney's fees to the respondents is proper.

RULING:

  1. The reversion of the Fund to RMC has not occurred. The Fund cannot revert to RMC until all the liabilities of the Plan have been paid.

  2. The Fund is liable for the payment of benefits to qualified retirees and separated employees. The Retirement Plan provides for the payment of benefits to members who are separated from the service of the Company for reasons other than dismissal for cause.

  3. The "separation for cause" referred to in Paragraph 7 of the Plan pertains to just causes under Article 282 of the Labor Code.

  4. The reversion of the Fund to the company before settling all liabilities of the Plan is not permitted.

  5. The Board of Trustees has the authority to issue a resolution recognizing the exclusive ownership of the Fund by the employees and authorizing its release to the beneficiaries.

  6. The promulgation of the rule prohibiting the reversion of the Fund to RMC before all liabilities are satisfied is valid as it is within the power of the Board of Trustees of the RMC Pension and Retirement Fund (RMCPRF) to promulgate such a rule. It is a necessary measure to ensure the satisfaction of the liabilities of the Plan and does not amount to doing business.

  7. The award of attorney's fees to the respondents is in order. Article 2208(2) of the Civil Code allows the award of attorney's fees in cases where the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. Here, petitioner's unauthorized application of the Fund in satisfaction of the obligation of RMC, without bothering to inquire regarding unpaid claims from the Board of Trustees, compelled the respondents to seek judicial relief and incur expenses to protect their interest.

PRINCIPLES:

  • Employees' trusts or benefit plans are intended to provide economic assistance to employees upon the occurrence of certain contingencies and are established for their exclusive benefit.

  • A dismissal for just cause implies that the employee is guilty of misfeasance towards the employer, while a dismissal for an authorized cause does not entail any wrongdoing on the part of the employee.

  • Separation pay is required in dismissals for an authorized cause but not for dismissals for just cause.

  • The policy of social justice does not condone wrongdoing.

  • The penal nature of a provision in a retirement plan indicates that "separation for cause" refers to just causes under the Labor Code.

  • The cessation of business is an authorized cause for the termination of employees.

  • The liquidation and return of the Fund to the Board is the duty of the investment manager.

  • The reversion of the Fund must be done in good faith and with due regard to the rights of the employee-beneficiaries.

  • The Board of Trustees may not unilaterally terminate the Plan without regard to accrued benefits and rightful claims of members-employees.

  • The Board of Trustees retains limited authority to act on behalf of its members during the winding-up period of the corporation.

  • The Board of Trustees has the authority to issue a resolution recognizing the exclusive ownership of the Fund by the employees and authorizing its release to the beneficiaries.

  • The promulgation of rules by the Board of Trustees of the RMCPRF is valid as long as it is within their power and necessary for the satisfaction of the liabilities of the Plan.

  • Attorney's fees may be awarded when the defendant's act or omission compels the plaintiff to litigate with third persons or incur expenses to protect their interest.