Before the Court is a petition for review ^[1] assailing the 31 January 2003 Decision ^[2] and 21 October 2003 Resolution of the Court of Appeals in CA-G.R. SP No. 59152. The Court of Appeals annulled the decision of the National Labor Relations Commission ("NLRC") and ordered petitioner Mercury Drug Corporation to pay respondent Zenaida G. Serrano separation pay, backwages and damages.


On 5 June 1981, petitioner Mercury Drug Corporation ("Mercury") employed respondent Zenaida G. Serrano ("Serrano") as one of Mercury Recto-Soler Branch's pharmacy assistants. Serrano's primary duty was to attend to customers at the retail counter. Serrano's work involved taking customers' orders, receiving payment for the orders, pulling out the ordered medicines or merchandise from the shelves, computing the amount payable by customers, informing customers of prices of the items ordered, and handing the amount to the cashier who would then issue an official receipt. Serrano would also check that each payment was reflected in the cash registry machine and then personally hand the corresponding receipt with the purchased item to the customer. ^[3]

Mercury alleged that on 5 November 1991, Serrano, while in the retail area, pocketed the P120 payment of one of the customers. Mercury Recto-Soler Branch's General Manager Rolando Mateo ("Mateo") and Supervisor Antonio Concepcion ("Concepcion") confronted Serrano about the incident. As a result, Serrano wrote a resignation letter, ^[4] to wit:

Nov. 5, 1991

Dear Sir Mateo,

I'm sorry to informed [sic] you that one of my customer[s] buy me [sic] 10 caps Squalene S at around 5:00 PM. I did not g[i]ve him the OR tape knowingly that the money he gave was exact on the item he buy [sic].

I was temp [sic] to do this, because he gave me exact amount on the item [sic]. But unknowingly, the customer came [back] after 30 minutes and asked for the invoiced [sic]. I get the money inside my pocket and issued him an official receipt. [sic]

Then Mr. Mateo talked to me about this. So, I voluntarily tender my resignation effective Nov. 6, 1991.

(signed)

Zenaida Serrano

Mercury did not accept Serrano's resignation. Instead, Mercury issued a notice on 11 January 2002 requesting Serrano to appear before the Investigation Committee ^[5] composed of three management and three rank-and-file employees. ^[6]

On November 2, 1991, at about 2:45 P.M. Nympha de los Santos chanced upon Zenaida Serrano at the back of the RX section of the Mercury Drug-Recto Soler Branch while the latter was transferring money which were folded into small squares ("maliliit at tupi-tupi") from her pocket into her wallet. x x x

x x x x

Also two (2) pharmacy assistants told Mr. Rolando A. Mateo, Branch Manager, that they saw Mrs. Serrano placing folded money in her wallet. x x x On November 5, 1991, [Mateo] went out of the branch store and enlisted the assistance of a mason and two (2) students x x x [and] gave them instructions to buy at Mercury Drug-Recto Soler Branch. The student to whom he gave P100.00 went to buy at 4:30 P.M. and he returned with his purchases duly receipted. After about 30 minutes the mason with P120.00 went to buy Squalene x x x and he returned with the goods without a receipt. He reported to Mr. Mateo that he was not given a receipt. Mr. Mateo returned to the branch after he instructed Mr. Alfonso Teresa, the mason, to follow after a while, look for the pharmacy assistant who attended to him and ask for a receipt. Upon his arrival at the branch Mr. Mateo advised Mr. Antonio Concepcion, Retail Supervisor, that a customer was not issued a cash register tape and will return to ask for an official receipt. x x x [Mateo] told Mr. Concep[c]ion that it was Ms. Serrano who served the customer and he should observe Ms. Serrano. x x x [Teresa] arrived at the branch [and] talked with another pharmacy assistant who in turn informed Ms. Serrano that a customer was looking for her. Mr. Concepcion observed that Ms. Serrano grew pale x x x and nervous. x x x [Serrano] went to the customers counter with her hand on her pocket and told the customer "Sandali lang ho". She then tried to distract Mr. Concepcion's attention by requesting the latter to sign a refund slip but Mr. Concepcion told her to attend first to the customer who was asking for an OR. From the customers counter she bowed down near the area from the plastic bags while holding on to her pocket, then went around the shelves to the rear of the store. She returned with the P120.00 folded like cigarette and inserted the money in the edge of the sales sheet, prepared the cash slip, then dictated the amount to be punched by the cashier in the cash register.

At this point, Mr. Concepcion asked Ms. Rosalinda Nicolas if the amount was punched only after the customer came back to claim for a receipt and when the cashier replied "yes", Mr. Concepcion advised Ms. Serrano to follow him to the manager's office.

Ms. Serrano on the other hand claimed that at about 5:00 P.M. she had 5 customers among them the one who bought ten (10) capsules of Squalene worth P120.00. To lessen the number of customers she handed the stock to the customer and placed the money on her "sulatan" (sales sheet). After delivering the 10 Squalene she again took customers' orders and had her sales punched. She, however, forgot about the P120.00. And while she was preparing an order worth P16,000.00 the customer came back asking for a receipt and it was only then that she recalled that she had not yet had her sales of 10 Squalene punched by the cashier.

x x x the cashier, Rosalinda Nicolas testified that the sales sheet was on the cashier's counter and that Ms. Serrano never brought it anywhere. The cashier likewise testified that the P120.00 came from her pocket, folded like a cigarette and was inserted by Ms. Serrano in her sales sheet after she went around before she prepared the cash slips. x x x

x x x x

From the acts of Ms. Serrano the intention to pocket the P120.00 is evident. Firstly, she blatantly disregard[ed] the house rule against salesclerks bringing their personal money with them while in the area. Secondly, the manner in which the money was folded ("like a cigarette") shows that Ms. Serrano took time and effort to make the money easy to hide and to transfer to her wallet as she was observed to have done in several occasions. And having spent time and effort to fold the money it is unlikely that she could have forgotten it. Again the manner the money was folded is incongruous with her claim that at the time she served 4 to 7 customers. Thirdly, Ms. Serrano did not search her sales sheet when the customer came back asking for a receipt. On the other hand she was seen to have taken the money from her pocket, go around the shelves to the rear of the store and insert the money in her sales sheet only after she went back to the cashiers counter. Fourthly, if indeed the money was inserted in the sales sheet she would have seen it while dictating her other sales to the cashier. Fifth, her behavior at the time was that of a cornered guilty offender. She grew pale, "nataranta [at] paikot-ikot". She likewise tried to distract the supervisors' attention, which only shows clearly that she had something to hide. ^[7] (Emphasis supplied)

Mercury sent Serrano a letter dated 18 March 1992 terminating her employment effective 19 March 1992.

On 25 March 1992, Serrano filed with the NLRC Arbitration Branch, National Capital Region a complaint for illegal dismissal, unfair labor practice and non-payment of benefits against Mercury.

In her position paper, Serrano reiterated her allegation during the in-house investigation that she was serving five customers simultaneously at the time of the incident. Then, a male customer bought 10 capsules of Squalene-S paying exactly P120, consisting of one P100 bill and one P20 bill. The male customer asked Serrano to hurry up while she was at the cashier's counter. As there were four other customers to be served who were also in a hurry, she left the P120 with the cashier and gave the capsules to the customer. After Serrano finished serving the other four customers, the male customer, who did not ask for or perhaps forgot to get the receipt, could no longer be found. Since she was busy at the time, Serrano claimed she forgot about the payment. ^[8]

On 31 August 1998, Labor Arbiter Felipe P. Pati ("Labor Arbiter") rendered a Decision finding illegal the dismissal of Serrano. The Labor Arbiter found Mercury's allegations against Serrano fabricated. The Labor Arbiter held that Serrano was framed-up and that Mercury suffered no loss because Serrano did not take any property belonging to Mercury.

The Labor Arbiter stressed that there was no basis to presume that Serrano had no more intention of remitting the P120 paid by the customer, for in fact Serrano did remit the amount to the cashier. The Labor Arbiter also held that Mercury did not observe due process in dismissing Serrano. Mercury did not give Serrano ample opportunity to be heard and defend herself before she was dismissed.

The dispositive portion of the decision of the Labor Arbiter reads:

WHEREFORE, all the foregoing premises being considered, judgment is hereby rendered finding respondent, MERCURY DRUG CORPORATION, guilty of illegally dismissing complainant, ZENAIDA G. SERRANO, without lawful cause and due process and thus ordered to reinstate her to her previous position without loss of seniority rights and other privileges with payment of full backwages.

It appearing that respondent, through its representative, adopted malicious schemes and acted in a wanton, oppressive and malevolent manner in effecting the dismissal of complainant, who was found by this Office to have been framed-up and was forced to resign, respondent therefore is liable for moral damages in the amount of Five Hundred Thousand Pesos (P500,000.00).

Likewise, for causing complainant to secure the services of a lawyer to safeguard her rights and interests, respondent should be assessed attorney's fees in the amount equivalent to ten percent (10%) of the monetary award in favor of complainant. x x x

The charge of unfair labor practice is dismissed for lack of merit.

SO ORDERED. ^[9]

On appeal, the NLRC reversed the Labor Arbiter and dismissed the complaint of Serrano for lack of merit.

The NLRC found Serrano dishonest in the performance of her duties as pharmacy assistant, which involved the custody, handling or care and protection of Mercury's goods. The NLRC based this finding on Serrano's alleged deliberate failure to issue a receipt for the sale of 10 Squalene-S capsules worth P120 and which payment she tried to pocket. The NLRC further held that the fact that Mercury did not lose anything was of no moment. When there is dishonesty, actual damage is immaterial.

The NLRC gave credence to the testimonies of Mercury's witnesses and noted the fact that Serrano had already been charged in court for qualified theft. The NLRC added that in cases of dismissal for breach of trust and confidence, proof beyond reasonable doubt of an employee's misconduct is not required. It is sufficient that the employer had reasonable ground to believe that the employee was responsible for the misconduct rendering him unworthy of the trust demanded by his position.

The NLRC further held that Serrano was not denied of due process before her dismissal. The NLRC noted that that there was an in-house investigation prior to Serrano's termination where all the witnesses against her were presented. The NLRC ruled that it is "not the denial of the right to be heard but the denial of the opportunity to be heard" that constitutes violation of due process.

Serrano went to the Court of Appeals for relief.


The Court of Appeals reversed the decision of the NLRC and upheld the findings of the Labor Arbiter. The Court of Appeals found that the evidence against Serrano were insubstantial and unreliable to find her guilty of pocketing the P120 payment.

The Court of Appeals also ruled that Mercury denied Serrano of due process before terminating her. While Mercury gave Serrano a notice of termination, it did not give any written notice informing Serrano of the specific charge against her.

The Court of Appeals further held that since the relationship between Mercury and Serrano was severely strained, reinstatement was no longer possible. The dispositive portion of the Court of Appeals's Decision of 31 January 2003 reads:

WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the NLRC are ANNULLED. Private respondent Mercury Drug Corporation is hereby ordered to pay petitioner Zenaida G. Serrano the following amounts:

(a) Separation Pay in the amount of P73,700.00;

(b) Full backwages from date of dismissal until the finality of this Decision, including P43,215.00 as 13th month pay; and

(c) Reduced Moral Damages in the amount of P50,000.00 and Attorney's Fees in the fixed amount of P50,000.00.

SO ORDERED. ^[10]

Mercury filed a motion for reconsideration which the Court of Appeals denied in its 21 October 2003 Resolution.

Hence, this petition.


The issues in this case are: (1) whether there was sufficient ground for Mercury to terminate the employment of Serrano, and (2) whether Mercury denied Serrano of due process when Mercury terminated her.


The petition is partly meritorious.


Mercury terminated the employment of Serrano on the ground of loss of trust and confidence due to dishonesty. Mercury relies on Article 282(c) of the Labor Code which states that an employee may be terminated on the ground of fraud or willful breach by the employee of the trust reposed on him by his employer.

Loss of trust and confidence is premised on the fact that the employee holds a position whose functions may only be performed by someone who has the confidence of management. Such employee has a greater duty to management than ordinary workers. The betrayal of this trust is the essence of the offense which is a ground for the employee's termination. ^[11] In this case, there is no question that Mercury had the right to expect full trust and confidence from Serrano because of her position. Serrano's routine duty was to handle Mercury's goods and receive customers' payments for eventual handing to the cashier.

Loss of trust and confidence, which should be genuine, does not require proof beyond reasonable doubt. ^[12] In this case, Mercury alleges that Serrano committed dishonesty by pocketing the P120 payment of one of its customers during an entrapment initiated by Mercury Recto-Soler Branch Manager Mateo.

In her resignation letter, Serrano apologized for not issuing a receipt to one of Mercury's customers for the purchase of 10 Squalene-S capsules. Serrano also admitted getting the payment inside her pocket before handing it to the cashier. However, Serrano explains that she was then serving several customers simultaneously and forgot about the payment. Serrano remembered it only when the customer returned and asked for a receipt.

The cashier Rosalinda Nicolas ("Nicolas") and Concepcion refute Serrano's statements. ^[13] Nicolas and Concepcion assert that Serrano handed to Nicolas well-folded money bills, consisting of one P100 bill and one P20 bill, when the customer returned to the branch. The manner by which the money bills were folded (like a cigarette) belies Serrano's claim that she forgot about the payment. ^[14]

Moreover, Federico Lugui ("Lugui") a.k.a. Alfredo Teresa Lugui, who posed as a customer during the entrapment, testified in the qualified theft case against Serrano that he saw Serrano took his payment out from her pocket. Lugui's affirmative testimony has greater evidentiary weight than the denial of Serrano. ^[15] The relevant portion of Lugui's testimony reads:

Serrano's act of pocketing the payment and handing it to the cashier only after the customer returned to the branch gave Mercury reasonable ground to believe, if not entertain the moral conviction, that Serrano is guilty of dishonesty. This made her unworthy of the trust and confidence reposed on her by Mercury. ^[17]

Further, the evidence for the qualified theft charge, establishing probable cause after the preliminary investigation, constitutes just cause for Serrano's termination based on loss of trust and confidence. While the trial court eventually dismissed the theft case against Serrano for the prosecution's failure to prove her guilt beyond reasonable doubt, the evidence against Serrano substantially proved her culpability warranting her dismissal from employment. ^[18] Serrano's act of dishonesty did not require criminal conviction. ^[19] That Serrano eventually remitted the payment to the cashier did not obliterate or mitigate her wrongdoing. ^[20]

The Court rejects Serrano's claim that Mercury framed her up. Serrano failed to present any evidence to substantiate her defense of frame-up. ^[21] Serrano claims that Mercury's motive for the "frame-up" and her dismissal was to "ultimately bust the union."^[22] However, the charges for unfair labor practice against Mercury were dismissed for lack of merit by the Labor Arbiter. Consequently, Serrano's allegation of unfair labor practice as Mercury's motive to frame her up must fail.


In dismissing an employee, the employer must serve the employee two notices: (1) the first to inform the employee of the particular acts or omissions for which the employer seeks his dismissal, and (2) the second to inform the employee of his employer's decision to terminate him.^[23] The first notice must state that the employer seeks dismissal for the act or omission charged against the employee, otherwise, the notice does not comply with the rules.^[24]

In Maquiling v. Philippine Tuberculosis Society, Inc., ^[25] the Court held that the first notice must inform outright the employee that an investigation will be conducted on the charges specified in such notice which, if proven, will result in the employee's dismissal. The Court explained the reason for this rule as follows:

This notice will afford the employee an opportunity to avail all defenses and exhaust all remedies to refute the allegations hurled against him for what is at stake is his very life and limb his employment. Otherwise, the employee may just disregard the notice as a warning without any disastrous consequence to be anticipated. Absent such statement, the first notice falls short of the requirement of due process. One's work is everything, thus, it is not too exacting to impose this strict requirement on the part of the employer before the dismissal process be validly effected. This is in consonance with the rule that all doubts in the implementation and interpretation of the provisions of the Labor Code, including its implementing rules and regulations, shall be resolved in favor of labor. ^[26]

In this case, Mercury failed to satisfy the two-notice requirement. Mercury admits it did not issue the first notice. However, Mercury argues that if the purpose of the first notice was achieved despite the absence of the first notice, and the employee was given a chance to air his side before his termination, there is due process. ^[27] While Mercury issued a notice on 11 January 1992 requesting Serrano to appear at the investigation, that notice did not inform Serrano of the specific offense charged against her and that the penalty for the offense is dismissal. That Mercury conducted an investigation and gave Serrano a notice of termination prior to Serrano's dismissal did not cure the absence of the first notice required by law. ^[28]

In Agabon v. NLRC, ^[28] the Court held that if the dismissal was for cause, the lack of statutory due process should not nullify the dismissal, or render it illegal or ineffectual. However, Mercury's violation of Serrano's right to statutory due process warrants the payment of indemnity ^[30] in the form of nominal damages. The amount of such damages is addressed to the sound discretion of the Court, taking into account the relevant circumstances. ^[31] Accordingly, the Court deems the amount of P30,000 sufficient as nominal damages, pursuant to prevailing jurisprudence. ^[32]

WHEREFORE, the Court PARTLY GRANTS the petition. The Court SETS ASIDE the 31 January 2003 Decision and the 21 October 2003 Resolution of the Court of Appeals in CA-G.R. SP No. 59152. The Court upholds respondent Zenaida G. Serrano's dismissal from employment by petitioner Mercury Drug Corporation on the ground of loss of trust and confidence. However, the Court ORDERS petitioner Mercury Drug Corporation to pay respondent Zenaida G. Serrano the amount of P30,000 as nominal damages for failure to comply fully with the notice requirement as part of due process. No pronouncement as to costs.

SO ORDERED.

Quisumbing, Carpio-Morales, and Tinga, JJ., concur.

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^[1] Under Rule 45 of the Rules of Court.

^[2] Penned by Associate Justice Ruben T. Reyes, with Associate Justices Remedios Salazar-Fernando and Edgardo F. Sundiam, concurring.

^[3] Rollo, pp. 160-161.

^[4] Id. at 89. Emphasis supplied.

^[5] Id. at 139.

^[6] These employees were Alicia A. Lumanog, Angelito Dizon, Edgardo B. Valbuena, Edmund Gianan, Conrado Paddayuman, and Raul Ruloma.

^[7] Rollo, pp. 90-92.

^[8] Id. at 74.

^[9] Id. at 141-142.

^[10] Id. at 23.

^[11] See Caingat v. National Labor Relations Commission, G.R. No. 154308, 10 March 2005, 453 SCRA 142.

^[12] Central Pangasinan Electric Cooperative, Inc. v. Macaraeg, 443 Phil. 866 (2003).

^[13] Rollo, pp. 101-102.

^[14] Id. at 91.

^[15] See People v. Jamiro, 344 Phil. 700 (1997). See also Jamer v. NLRC, 344 Phil. 181 (1997).

^[16] Exh. "4," rollo, pp. 111-117.

^[17] See Jamer v. NLRC, supra note 15.

^[18] See Vergara v. NLRC, 347 Phil. 161 (1997).

^[19] Id.

^[20] See Santos v. San Miguel Corp., 447 Phil. 264 (2003), where the Court held that misappropriation of company funds, although the shortages had been fully restituted, is a valid ground to terminate the services of an employee of the company for loss of trust and confidence.

^[21] See Office of the Court Administrator v. Barron, 358 Phil. 12 (1998).

^[22] Rollo, p. 77.

^[23] Electro System Industries Corporation v. National Labor Relations Commission, G.R. No. 165282, 5 October 2005.

^[24] Id., citing Tan v. NLRC, 359 Phil. 499 (1998).

^[25] G.R. No. 143384, 4 February 2005, 450 SCRA 465.

^[26] Id. at 477.

^[27] Rollo, p. 50.

^[28] Article 277 of the Labor Code provides:

ART. 277. Miscellaneous provisions. x x x

(b) Subject to the constitutional right of workers to security of tenure and their right to be protected against dismissal except for a just and authorized cause and without prejudice to the requirement of notice under Article 283 of this Code, the employer shall furnish the worker whose employment is sought to be terminated a written notice containing a statement of the causes for termination and shall afford the latter ample opportunity to be heard and to defend himself with the assistance of his representative if he so desires in accordance with company rules and regulations promulgated pursuant to guidelines set by the Department of Labor and Employment. x x x

Section 2, Rule XXIII, Book V of the Omnibus Rules Implementing the Labor Code provides:

Section 2. Standards of due process: requirements of notice. In all cases of termination of employment, the following standards of due process shall be substantially observed:

I. For termination of employment based on just causes as defined in Article 282 of the Code:

(a) A written notice served on the employee specifying the ground or grounds for termination, and giving to said employee reasonable opportunity within which to explain his side;
(b) A hearing or conference during which the employee concerned, with the assistance of counsel if the employee so desires, is given opportunity to respond to the charge, present his evidence or rebut the evidence presented against him; and
(c) A written notice of termination served on the employee indicating that upon due consideration of all the circumstances, grounds have been established to justify his termination.

x x x x