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Republic of the Philippines

Supreme Court
Manila

FIRST DIVISION

MARIALY O. SY, G.R. No. 182915


VIVENCIA PENULLAR,
AURORA AGUINALDO,
GINA ANIANO,
GEMMA DELA PEA,
EFREMIA MATIAS,
ROSARIO BALUNSAY,
ROSALINDA PARUNGAO,
ARACELI RUAZA,
REGINA RELOX,
TEODORA VENTURA,
AMELIA PESCADERO,
LYDIA DE GUZMAN,
HERMINIA HERNANDEZ,
OLIVIA ABUAN,
CARMEN PORTUGUEZ,
LYDIA PENNULAR, EMERENCIAN
A WOOD, PRISCILLA ESPINEDA,
NANCY FERNANDEZ,
EVA* MANDURIAGA,
CONSOLACION SERRANO,
SIONY CASILLAN,
LUZVIMINDA GABUYA,
MYRNA TAMIN,
EVELYN REYES,
EVA AYENG,
EDNA YAP,
RIZA DELA CRUZ
ZUIGA, TRINIDAD RELOX,
MARLON FALLA,
MARICEL OCON, and
ELVIRA MACAPAGAL,
Petitioners,

- versus -

FAIRLAND KNITCRAFT CO., INC.,


Respondent.
x---------------------------
x
SUSAN T. DE LEON, G.R. No. 189658
Petitioner,

- versus -

FAIRLAND KNITCRAFT CO.,


INC., MARIALY O. SY,
VIVENCIA PENULLAR,
AURORA AGUINALDO,
GINA ANIANO,
GEMMA DELA PEA,
EFREMIA MATIAS,
ROSARIO BALUNSAY,
ROSALINDA PARUNGAO,
ARACELI RUAZA,
REGINA RELOX,
TEODORA VENTURA,
AMELIA PESCADERO,
RICHON APARRE,
LYDIA DE GUZMAN, Present:
HERMINIA HERNANDEZ,
OLIVIA ABUAN, CORONA, C.J.,
CARMEN PORTUGUEZ, Chairperson,
LYDIA PENNULAR, LEONARDO-DE CASTRO,
EMERENCIANA WOOD, BRION,
PRISCILLA ESPINEDA, DEL CASTILLO, and
NANCY FERNANDEZ, PERLAS-BERNABE,* JJ.
EVA MANDURIAGA,
CONSOLACION SERRANO,
SIONY CASILLAN,
LUZVIMINDA GABUYA,
MYRNA TAMIN,
EVELYN REYES,
EVA AYENG,
EDNA YAP,
RIZA DELA CRUZ
ZUIGA, TRINIDAD RELOX,
MARLON FALLA,
MARICEL OCON, and
ELVIRA MACAPAGAL,
Promulgated:
Respondents. December 12, 2011
x-------------------------------------------------------------
------x

DECISION
DEL CASTILLO, J.:

The issues of labor-only contracting and the acquisition of a labor tribunal


of jurisdiction over the person of a respondent are the matters up for
consideration in these consolidated Petitions for Review on Certiorari.

Assailed in G.R. No. 182915 is the May 9, 2008 Resolution[1] of the Special
Ninth Division of the Court of Appeals (CA) in CA-G.R. SP No. 93204 which
reversed and set aside the July 25, 2007 Decision[2] of the CAs First Division and
ordered the exclusion of Fairland Knitcraft Co., Inc. (Fairland) from the decisions
of the labor tribunals. Said July 25, 2007 Decision, on the other hand, affirmed
the November 30, 2004 Decision[3] and August 26, 2005 Resolution[4] of the
National Labor Relations Commission (NLRC) which, in turn, reversed and set
aside the November 26, 2003 Decision[5] of the Labor Arbiter finding the
dismissal as valid.

On the other hand, assailed in G.R. No. 189658 is the July 20, 2009
Decision[6] of the CAs Special Former Special Eighth Division in CA-G.R. SP No.
93860, which affirmed the aforesaid November 30, 2004 Decision and August
26, 2005 Resolution of the NLRC. Likewise assailed is the October 1, 2009 CA
Resolution[7] denying the Motion for Reconsideration thereto.

Factual Antecedents

Fairland is a domestic corporation engaged in garments business, while Susan


de Leon (Susan) is the owner/proprietress of Weesan Garments (Weesan).
On the other hand, the complaining workers (the workers) are sewers, trimmers,
helpers, a guard and a secretary who were hired by Weesan as follows:

NAME DATE HIRED SALARIES


Marialy O. Sy 06-23-97 P 1,500.00/week
Lydia Penullar 04-99 1,000.00/week
Lydia De Guzman 08-01-98 1,000.00/week
Olivia Abuan 08-95 1,300.00/week
Evelyn Reyes 11-2000 1,000.00/week
Myrna Tamin 11-2000 1,000.00/week
Elvira Macapagal 04-01-02 1,000.00/week
Edna Yap 10-24-99 700.00/week
Rosario Balunsay 01-21-98 1,400.00/week
Rosalinda P. 03-02-01 1,000.00/week
Parungao 11-24-99 1,000.00/week
Gemma Dela Pea 01-98 1,400.00/week
Emerenciana Wood 11-2000 800.00/week
Carmen Portuguez 09-98 1,500.00/week
Gina G. Anano 01-2000 1,000.00/week
Aurora Aguinaldo 01-96 1,000.00/week
Amelia Pescadero 05-2002 1,000.00/week
Siony Casillan 10-2001 900.00/week
Consolacion 01-2000 1,000.00/week
Serrano 05-97 1,500.00/week
Teodora Ventura 03-2000 1,000.00/week
Regina Relox 08-95 1,000.00/week
Eufemia Matias 07-99 1,200.00/week
Herminia 02-2000 1,000.00/week
Hernandez 11-2000 1,300.00/week
Richon Aparre 03-2000 1,000.00/week
Eve Manduriaga 11-2000 1,400.00/week
Priscila Espineda 11-2000 1,000.00/week
Aracelli Ruaza 11-2000 1,000.00/week
Nancy Fernandez 10-2001 1,200.00/week
Eva Ayeng 01-2000 1,500.00/week
Luzviminda Gabuya 08-96 1,200.00/week
Liza Dela Cuz Zuiga 06-24-00 840.00/week
Vivencia Penullar 01-15-01 1,500.00/week[8]
Trinidad Relox
Marlon Falla
Maricel Ocon
On December 23, 2002, workers Marialy O. Sy, Vivencia Penullar, Aurora
Aguinaldo, Gina Aniano, Gemma dela Pea and Efremia Matias filed with the
Arbitration Branch of the NLRC a Complaint[9]for underpayment and/or non-
payment of wages, overtime pay, premium pay for holidays, 13th month pay and
other monetary benefits against Susan/Weesan. In January 2003, the rest of the
aforementioned workers also filed similar complaints. Eventually all the cases
were consolidated as they involved the same causes of action.

On February 5, 2003, Weesan filed before the Department of Labor and


Employment-National Capital Region (DOLE-NCR) a report on its temporary
closure for a period of not less than six months. As the workers were not
anymore allowed to work on that same day, they filed on February 18, 2003 an
Amended Complaint,[10] and on March 13, 2003, another pleading entitled
Amended Complaints and Position Paper for Complainants,[11] to include the
charge of illegal dismissal and impleaded Fairland and its manager, Debbie
Manduabas (Debbie), as additional respondents.

A Notice of Hearing[12] was thereafter sent to Weesan requesting it to


appear before Labor Arbiter Ramon Valentin C. Reyes (Labor Arbiter Reyes) on
April 3, 2003, at 10:00 a.m. On said date and time, Atty. Antonio A. Geronimo
(Atty. Geronimo) appeared as counsel for Weesan and requested for an
extension of time to file his clients position paper.[13] On the next hearing on April
28, 2003, Atty. Geronimo also entered his appearance for Fairland and again
requested for an extension of time to file position paper.[14]

On May 16, 2003, Atty. Geronimo filed two separate position papers one for
Fairland[15] and another for Susan/Weesan.[16] The Position Paper for Fairland
was verified by Debbie while the one for Susan/Weesan was verified by
Susan. To these pleadings, the workers filed a Reply.[17]

Atty. Geronimo then filed a Consolidated Reply[18] verified[19] both by Susan


and Debbie.

On November 25, 2003, the workers submitted their Rejoinder.[20]

Ruling of the Labor Arbiter

On November 26, 2003, Labor Arbiter Reyes rendered his Decision,[21] the
dispositive portion of which reads:

WHEREFORE, premises all considered, judgment is hereby


rendered, as follows:
Dismissing the complaint for lack of merit; and ordering the
respondents to pay each complainant P5,000.00 by way of financial
assistance.

SO ORDERED.[22]
Ruling of the National Labor Relations Commission

The workers filed their appeal which was granted by the NLRC. The dispositive
portion of the NLRC Decision[23] reads:

WHEREFORE, premises considered, the appealed decision is hereby set


aside and the dismissal of complainants is declared illegal.

Respondents are, therefore, ordered to reinstate complainants to their


original or equivalent position with full backwages with legal interests
thereon from February 5, 2003, until actually reinstated and fully paid,
with retention of seniority rights and are further ordered to pay solidarily
to the complainants the difference of their underpaid/unpaid wages,
unpaid holidays, unpaid 13th month pays and unpaid service incentive
leaves with legal interests thereon, to wit:

xxxx

In the event that reinstatement is not possible, respondents are ordered to


pay solidarily to complainants their respective separation pays
computed as follows:

xxxx

Respondents are likewise ordered to pay ten (10%) percent of the gross
award as and by way of attorneys fees.

SO ORDERED.[24]

Hence, Atty. Geronimo filed a Motion for Reconsideration.[25] However, Fairland


filed another Motion for Reconsideration[26] through Atty. Melina O. Tecson (Atty.
Tecson) assailing the jurisdiction of the Labor Arbiter and the NLRC over it,
claiming that it was never summoned to appear, attend or participate in all the
proceedings conducted therein. It also denied that it engaged the services of
Atty. Geronimo.

The NLRC however, denied both motions for lack of merit.[27]

Fairland and Susan thus filed their separate Petitions for Certiorari before the
CA docketed as CA-G.R. SP No. 93204 and CA-G.R. SP No. 93860,
respectively.

Ruling of the Court of Appeals in CA-G.R. SP No. 93204

On July 25, 2007, the CAs First Division denied Fairlands petition. [28] It affirmed
the NLRCs ruling that the workers were illegally dismissed and that Weesan and
Fairland are solidarily liable to them as labor-only contractor and principal,
respectively.

Fairland filed its Motion for Reconsideration[29] as well as a Motion for Voluntary
Inhibition[30] of Associate Justices Celia C. Librea-Leagogo and Regalado E.
Maambong from handling the case. As the Motion for Voluntary Inhibition was
granted through a Resolution[31] dated November 8, 2007, the case was
transferred to the CAs Special Ninth Division for resolution of Fairlands Motion
for Reconsideration.[32]

On May 9, 2008, the CAs Special Ninth Division reversed[33] the First Divisions
ruling. It held that the labor tribunals did not acquire jurisdiction over the person
of Fairland, and even assuming they did, Fairland is not liable to the workers
since Weesan is not a mere labor-only contractor but a bona fide independent
contractor. The Special Ninth Division thus annulled and set aside the assailed
NLRC Decision and Resolution insofar as Fairland is concerned and excluded
the latter therefrom. The dispositive portion of said Resolution reads:

WHEREFORE, the Motion for Reconsideration filed by the movant is


GRANTED.

The July 25, 2007 Decision of the First Division of this Court finding that the
NLRC did not act with grave abuse of discretion amounting to lack or
excess of jurisdiction and denying the Petition is REVERSED and SET
ASIDE.

Consequently, the Decision and Resolution issued by the public respondent


on November 30, 2004 and August 26, 2005, respectively, are hereby
ANNULLED and SET ASIDE insofar as [it] concerns the petitioner
Fairland Knitcraft Co., Inc. [which] is hereby ordered dropped and
excluded therefrom.

SO ORDERED.[34]

Aggrieved, the workers filed before us their Petition for Review


on Certiorari docketed as G.R. No. 182915.
Ruling of the Court of Appeals in CA-G.R. SP No. 93860

With regard to Susans petition, the CA Special Ninth Division issued on May 11,
2006 a Resolution[35] temporarily restraining the NLRC from enforcing its
assailed November 30, 2004 Decision and thereafter the CA Special Eighth
Division issued a writ of preliminary prohibitory injunction.[36] On July 20, 2009,
the Special Former Special Eighth Division of the CA resolved the case through
a Decision,[37] the dispositive portion of which reads:

WHEREFORE, premises considered, the present petition is


hereby DENIED DUE COURSE and accordingly DISMISSED for lack
of merit. The Decision dated November 30, 2004 and Resolution dated
August 26, 2005 of the National Labor Relations Commission (NLRC)
in CA No. 039375-04 (NLRC NCR 00-12-11294-02, 00-01-00027-03,
00-01-00131-03, 00-01-00820-03 and 00-01-01249-03) are hereby
AFFIRMED and UPHELD.

The writ of preliminary prohibitory injunction issued by this Court


on July 13, 2006 is hereby LIFTED and SET ASIDE.

With cost against petitioner.

SO ORDERED.[38]

Susan moved for reconsideration[39] which was denied by the CA in its October
1, 2009 Resolution.[40]
Hence, she filed before this Court a Petition for Review on Certiorari docketed
as G.R. No. 189658 which was denied in this Courts December 16, 2009
Resolution[41] on technicality and for failure to sufficiently show any reversible
error in the assailed judgment.
Susan and Fairland filed their respective Motions for Reconsideration.[42] But
before said motions could be resolved, the Court ordered the consolidation of
Susans petition with that of the workers.[43]

Susans Motion for Reconsideration of this


Courts December 16, 2009 Resolution in
G.R No. 189658 is granted. Consequently,
her Petition for Review on Certiorari is
reinstated.

With Susan and Fairlands respective Motions for Reconsideration still


unresolved, this Court shall first address them.

One of the grounds for the denial of Susans petition was her failure to indicate
the date of filing her Motion for Reconsideration with the CA as required under
Section 4(b),[44] Rule 45 of the Rules of Court. However, failure to comply with
the rule on a statement of material [date] in the petition may be excused [if] the
[date is] evident from the records.[45] In the case of Susan, records show that she
received the copy of the Decision of the CA on July 24, 2009. She then timely
filed her Motion for Reconsideration via registered mail on August 7, 2009 as
shown by the envelope[46] with stamped receipt of the Batangas City Post Office
bearing the date August 7, 2009. The fact of such filing was also stated in the
Motion for Extension of Time to File Petition for Review[47] that she filed before
this Court which forms part of the records of this case. Hence, it is clear that
Susan seasonably filed her Motion for Reconsideration.
Moreover, while we note that Susans petition was also denied on the ground of
no reversible error committed by the CA, we deem it proper, in the interest of
justice, to take a second look on the merits of Susans petition and reinstate G.R.
No. 189658. This is also to harmonize our ruling in these consolidated petitions
and avoid confusion that may arise in their execution. Hence, we grant Susans
Motion for Reconsideration and consequently, reinstate her Petition for Review
on Certiorari.

As to Fairlands Motion for Reconsideration, we shall treat the same as its


comment to Susans petition, Fairland being one of the respondents therein.

Issues

In G.R. No. 189658, Susan imputes upon the CA the following errors:

I.
THE COURT OF APPEALS ERRED IN FINDING THAT PETITIONER
IS A LABOR-ONLY CONTRACTOR ACTING AS AN AGENT OF
RESPONDENT FAIRLAND.
II.
THE COURT OF APPEALS ERRED IN FINDING THAT THE
INDIVIDUAL PRIVATE RESPONDENTS WERE ILLEGALLY
DISMISSED.

III.
THE COURT OF APPEALS ERRED IN NOT RESOLVING THE
ISSUE RAISED BY PETITIONER IN HER REPLY DATED JULY 8,
2006 REGARDING THE PROPRIETY OF THE APPEAL TAKEN BY
PRIVATE RESPONDENT RICHON CAINOY APARRE WHO WAS
ALREADY DEAD PRIOR TO THE FILING OF THE MEMORANDUM
OF APPEAL BEFORE THE NLRC.[48]

Susans Arguments

Susan insists that the CA erred in ruling that Weesan is a labor-only contractor
based on the finding that its workplace is owned by Fairland. She maintains that
the place is owned by De Luxe Shirt Factory, Inc. (De Luxe) and not by Fairland
as shown by the Contracts of Lease between Weesan and De Luxe.

Susan also avers that the CA erred in ruling that Weesan was guilty of illegal
dismissal. She maintains that the termination of the workers was due to financial
losses suffered by Weesan as shown by various documents submitted by the
latter to the tribunals below. In fact, Weesan submitted its Establishment
Termination Report with the DOLE-NCR and same was duly received by the
latter.

Lastly, Susan argues that the appeal of one of the workers, Richon Cainoy
Aparre (Richon), should not have been given due course because in the Notice
of Appeal with Appeal Memorandum filed with the NLRC, a certain Luzvilla A.
Rayon (Luzvilla), whose identity was never established, signed for and on his
behalf. However, there is no information submitted before the NLRC that Richon
is already dead, and in any event, no proper substitution was ever made.

The Workers Arguments

The workers claim that Weesan is a labor-only contractor because it does


not have substantial capital or investment in the form of tools, equipment,
machineries, and work premises, among others, and that the workers it recruited
are performing activities which are directly related to the garments business of
Fairland. Hence, Weesan should be considered as a mere agent of Fairland,
who shall be responsible to the workers as if they were directly employed by it
(Fairland).[49]

The workers also allege that the temporary suspension of operations of Weesan
was motivated not by a desire to prevent further losses, but to discourage the
workers from ventilating their claims for non-payment/underpayment of wages
and benefits. The fact that Weesan was experiencing serious business losses
was not sufficiently established and therefore the termination of the workers due
to alleged business losses is invalid.[50]

Fairlands Arguments

Fairland maintains that it was never served with summons to appear in the
proceedings before the Labor Arbiter nor furnished copies of the Labor Arbiters
Decision and Resolution on the workers complaints for illegal dismissal; that it
never voluntarily appeared before the labor tribunals through Atty. Geronimo;
[51]
that it is a separate and distinct business entity from Weesan; that Weesan is
a legitimate job contractor, hence, the workers were actually its (Weesans)
employees; and that, consequently, the workers have no cause of action against
Fairland.[52]

At any rate, assuming that the workers have a cause of action against Fairland,
their claims are already barred by prescription. Of the 34 individual complainants
(the workers), only six were employees of Weesan during the period of its
contractual relationship with Fairland in 1996 and 1997. They were Marialy Sy,
Olivia Abuan, Amelia Pescadero, Regina Relox, Hermina Hernandez and
Trinidad Relox. These workers filed their complaints in December 2002 and
January 2003 or more than four years from the expiration of Weesans
contractual arrangement with Fairland in 1997. Article 291 of the Labor Code
provides that all money claims arising from employer-employee relationship shall
be filed within three years from the time the cause of action accrued; otherwise,
they shall be forever barred. Illegal dismissal prescribes in four years and
damages due to separation from employment for alleged unjustifiable causes
injuring a plaintiffs right must likewise be brought within four years under the Civil
Code. Clearly, the claims of said six employees are already barred by
prescription.[53]
In G.R. No. 182915, the workers advance the following issues:

I.
Whether x x x the National Labor Relations Commission acquired
jurisdiction over the [person of the] respondent[;]

II.
Whether x x x the decision of the National Labor Relations
Commission became final and executory[; and]

III.
Whether x x x respondent is solidarily liable with WEESAN
GARMENT/ SUSAN DE LEON[.][54]

The Workers Arguments

The workers contend that the Labor Arbiter and the NLRC properly acquired
jurisdiction over the person of Fairland because the latter voluntarily appeared
and actively participated in the proceedings below when Atty. Geronimo
submitted on its behalf a Position Paper verified by its manager, Debbie. As
manager, Debbie knew of all the material and significant events which transpired
in Fairland since she had constant contact with the people in the day-to-day
operations of the company. Thus, the workers maintain that the Labor Arbiter
and the NLRC acquired jurisdiction over the person of Fairland and the
Decisions rendered by the said tribunals are valid and binding upon it.

Lastly, the workers aver that Fairland is solidarily liable with Susan/ Weesan
because it was shown that the latter was indeed the sewing arm of the former
and is a mere labor-only contractor.

Fairlands Arguments

In gist, Fairland contests the labor tribunals acquisition of jurisdiction over


its person either through service of summons or voluntary appearance. It denies
that it engaged the services of Atty. Geronimo and asserts that it has its own
legal counsel, Atty. Tecson, who would have represented it had it known of the
pendency of the complaints against Fairland.

Fairland likewise emphasizes that when it filed its Motion for Reconsideration
with the NLRC, it made an express reservation that the same was without
prejudice to its right to question the jurisdiction over its person and the binding
effect of the assailed decision. In the absence, therefore, of a valid service of
summons or voluntary appearance, the proceedings conducted and the
judgment rendered by the labor tribunals are null and void as against it. Hence,
Fairland cannot be held solidarily liable with Susan/Weesan.
Our Ruling

We grant the workers petition (G.R. No. 182915) but deny the petition of Susan
(G.R. No. 189658).

G.R. No. 189658

Susan/Weesan is a mere labor-only


contractor.

There is labor-only contracting when the contractor or subcontractor


merely recruits, supplies or places workers to perform a job, work or service for a
principal. In labor-only contracting, the following elements are present:

(a) The person supplying workers to an employer does not


have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others; and

(b) The workers recruited and placed by such person are


performing activities which are directly related to the principal
business of the employer.[55]

Here, there is no question that the workers, majority of whom are sewers,
were recruited by Susan/Weesan and that they performed activities which are
directly related to Fairlands principal business of garments. What must be
determined is whether Susan/Weesan has substantial capital or investment in
the form of tools, equipment, machineries, work premises, among others.

We have examined the records but found nothing therein to show that
Weesan has investment in the form of tools, equipment or machineries. The
records show that Fairland has to furnish Weesan with sewing machines for it to
be able to provide the sewing needs of the former.[56] Also, save for the Balance
Sheets[57] purportedly submitted by Weesan to the Bureau of Internal Revenue
(BIR) indicating its fixed assets (factory equipment) in the amount
of P243,000.00, Weesan was unable to show that apart from the borrowed
sewing machines, it owned and possessed any other tools, equipment, and
machineries necessary to its being a contractor or sub-contractor for
garments. Neither was Weesan able to prove that it has substantial capital for its
business.

Likewise significant is the fact that there is doubt as to who really owns the
work premises occupied by Weesan. As may be recalled, the workers
emphasized in their Appeal Memorandum[58]filed with the NLRC that
Susan/Weesan was a labor-only contractor and that Fairland was its principal.
To buttress this, they alleged that the work premises utilized by Weesan is
owned by Fairland, which significantly, was not in the business of renting
properties. They also advanced that there was no showing that Susan/Weesan
paid any rentals for the use of the
premises. They contended that all that Susan had was a Mayors Permit for
Weesan indicating 715 Ricafort Street, Tondo, Manila as its address.

Susan failed to refute these allegations before the NLRC and attributed
such failure to her former counsel, Atty. Geronimo. But when Susans petition for
certiorari was given due course by the CA, she finally had the chance to answer
the same by denying that Fairland owned the work premises. Susan instead
claimed that Weesan rented the premises from another entity, De Luxe. To
support this, she attached to her petition two Contracts of Lease [59] purportedly
entered into by her and De Luxe for the lease of the premises covering the
periods August 1, 1997 to July 31, 2000 and January 1, 2001 to December 31,
2004.

On the other hand, the workers in their Comment[60] filed in CA-G.R. SP


No. 93204 (Fairlands petition for certiorari before the CA), pointed out that in
Fairlands Amended Articles of Incorporation,[61] five out of the seven
incorporators listed therein appeared to be residents of the same 715 Ricafort
St., Tondo, Manila. To the workers, this is a clear indication that Fairland indeed
owned Weesans work premises. Fairland, for its part, tried to explain this by
saying that its incorporators, just like Weesan, were also mere lessees of a
portion of the multi-storey building owned by De Luxe located at 715 Ricafort St.,
Tondo, Manila. It also claimed that two years prior to Weesans occupation of
said premises in 1996, the five incorporators alluded to already transferred.[62]

We cannot, however, ignore the apt observation on the matter made by


the CAs Special Former Special Eighth Division in its Decision in CA-G.R. SP
No. 93860, viz:

The work premises are likewise owned by Fairland, which


petitioner tried to disprove by presenting a purported Contract of Lease
with another entity, De Luxe Shirt Factory Co., Inc. However, there is
no competent proof it paid the supposed rentals to said
owner. Curiously, under the item Rent Expenses in its audited
financial statement, only equipment rental was listed therein
without any disbursement/expense for rental of factory premises,
which only buttressed the claim of private respondents that the place
where they reported to and performed sewing jobs for petitioner
[Susan] and Fairland at No. 715 Ricafort St., Tondo, Manila, belonged
to Fairland.[63] (Emphasis supplied.)

Susan contests this pronouncement by pointing out that although only


sewing machines were specified under the entry Rent Expenses in its financial
statement, the rent for the factory premises is already deemed included therein
since the contracts of lease she entered into with De Luxe referred to both the
factory premises and machineries.
We, however, find this contention implausible.

We went over the said contracts of lease and noted that same were
principally for the lease of the premises in 715 Ricafort St., Tondo, Manila. Only
incidental thereto is the inclusion therein of the equipment found in said
premises. Hence, we cannot see why the rentals for the work premises, for
which Susan even went to the extent of executing a contract with the purported
lessor, was not included in the entry for rent expenses in Weesans financial
statement. Even if we are to concede to Susans claim that the entry for rent
expenses already includes the rentals for the work premises, we wonder why
the rental expenses for the year 2000 which was P396,000.00 is of the same
amount with the rental expenses for the year 2001. As borne out by the Contract
of Lease covering the period August 1, 1997 to July 31, 2000, the monthly rent
for the work premises was pegged at P25,000.00.[64] However, in January to
December 2001, same was increased to P27,500.00.[65] There being an
increase in the rentals for the work premises, how come that Weesans rental
expenses for the year 2001 is still P396,000.00? This could only mean that said
entry really only refers to the rentals of sewing machines and does not include
the rentals for the work premises. Moreover, we note that Susan could have just
simply submitted receipts for her payments of rentals to De Luxe. However, she
failed to present even a single receipt evidencing such payment.

In an attempt to prove that it is De Luxe and not Fairland which owned the
work premises, Susan attached to her petition the following: (1) a plain copy of
Transfer Certificate of Title (TCT) No. 139790[66] and Declaration of Real
Property[67] both under the name of De Luxe; and, (2) Real Property Tax receipts
issued to De Luxe for the years 2000-2004.[68] However, the Court finds these
documents wanting. Nowhere from the said TCT and Declaration of Real
Property can it be inferred that the property they refer to is the same property as
that located at 715 Ricafort St., Tondo, Manila.Although in said Declaration, 715
Ricafort St., Tondo is the indicated address of the declarant (De Luxe), the
address of the property declared is merely Ricafort, Tondo I-A. The same thing
can also be said with regard to the real property tax receipts. The entry under
the box Location of Property in the receipt for 2001 is I - 718 Ricafort and in the
receipts for 2002, 2003, and 2004, the entries are either I Ricafort St., Tondo or
merely I-Ricafort St.

In sum, the Court finds that Susans effort to negate Fairlands ownership of
the work premises is futile. The logical conclusion now is that Weesan does not
have its own workplace and is only utilizing the workplace of Fairland to whom it
supplied workers for its garment business.

Suffice it to say that [t]he presumption is that a contractor is a labor-only


contractor unless such contractor overcomes the burden of proving that it has
substantial capital, investment, tools and the like.[69] As Susan/Weesan was not
able to adduce evidence that Weesan had any substantial capital, investment or
assets to perform the work contracted for, the presumption that Weesan is a
labor-only contractor stands.[70]
The National Labor Relations Commission
and the Court of Appeals did not err in their
findings of illegal dismissal.

To negate illegal dismissal, Susan relies on the due closure of Weesan


pursuant to the Establishment Termination Report it submitted to the DOLE-
NCR.

Indeed, Article 283[71] of the Labor Code allows as a mode of termination


of employment the closure or termination of business. Closure or cessation of
business is the complete or partial cessation of the operations and/or shut-down
of the establishment of the employer. It is carried out to either stave off the
financial ruin or promote the business interest of the employer.[72] The decision to
close business [or to temporarily suspend operation] is a management
prerogative exclusive to the employer, the exercise of which no court or tribunal
can meddle with, except only when the employer fails to prove compliance with
the requirements of Art. 283, to wit: a) that the closure/cessation of business
is bona fide, i.e., its purpose is to advance the interest of the employer and not to
defeat or circumvent the rights of employees under the law or a valid
agreement; b) that written notice was served on the employees and the DOLE
at least one month before the intended date of closure or cessation of business;
and c) in case of closure/cessation of business not due to financial losses, that
the employees affected have been given separation pay equivalent to month
pay for every year of service or one month pay, whichever is higher.[73]

Here, Weesan filed its Establishment Termination Report[74] allegedly due


to serious business losses and other economic reasons. However, we are
mindful of the doubtful character of Weesans application for closure given the
circumstances surrounding the same.

First, workers Marialy Sy, Vivencia Penullar, Aurora Aguinaldo, Gina


Aniano, Gemma Dela Pea and Efremia Matias filed before the Labor Arbiter their
complaint for underpayment of salary, non-payment of benefits, damages and
attorneys fees against Weesan on December 23, 2002.[75] Summons[76] was
accordingly issued and same was received by Susan on January 15, 2003.
[77]
Meanwhile, other workers followed suit and filed their respective complaints
on January 2, 6, 17 and 28, 2003.[78] Shortly thereafter or merely eight days after
the filing of the last complaint, Weesan filed with the DOLE-NCR its
Establishment Termination Report.

Second, the Income Tax Returns[79] for the years 2000, 2001 and 2002
attached to the Establishment Termination Report, although bearing the
stamped receipt of the Revenue District Office where they were purportedly filed,
contain no signature or initials of the receiving officer. The same holds true with
Weesans audited financial statements.[80] This engenders doubt as to whether
these documents were indeed filed with the proper authorities.
Third, there was no showing that Weesan served upon the workers written
notice at least one month before the intended date of closure of business, as
required under Art. 283 of the Labor Code. In fact, the workers alleged that when
Weesan filed its Establishment Termination Report on February 5, 2003, it
already closed the work premises and did not anymore allow them to report for
work. This is the reason why the workers on February 18, 2003 amended their
complaint to include the charge of illegal dismissal.[81]

It bears stressing that [t]he burden of proving that x x x a temporary


suspension is bona fide falls upon the employer.[82] Clearly here, Susan/Weesan
was not able to discharge this burden. The documents Weesan submitted to
support its claim of severe business losses cannot be considered as proof of
financial crisis to justify the temporary suspension of its operations since they
clearly appear to have not been duly filed with the BIR. Weesan failed to
satisfactorily explain why the Income Tax Returns and financial statements it
submitted do not bear the signature of the receiving officers. Also hard to ignore
is the absence of the mandatory 30-day prior notice to the workers.

Hence, the Court finds that Susan failed to prove that the suspension of
operations of Weesan was bona fide and that it complied with the mandatory
requirement of notice under the law. Susan likewise failed to discharge her
burden of proving that the termination of the workers was for a lawful cause.
Therefore, the NLRC and the CA, in CA-G.R. SP No. 93860, did not err in their
findings that the workers were illegally dismissed by Susan/Weesan.

The formal substitution of the deceased


worker Richon Aparre is not necessary as
his heir voluntarily appeared and
participated in the proceedings before the
National Labor Relations Commission.

In Sarsaba v. Fe Vda. de Te, we held that:[83]

The rule on substitution of parties is governed by Section 16,[84] Rule 3


of the [Rules of Court].

Strictly speaking, the rule on substitution by heirs is not a matter


of jurisdiction, but a requirement of due process. The rule on
substitution was crafted to protect every party's right to due process. It
was designed to ensure that the deceased party would continue to be
properly represented in the suit through his heirs or the duly appointed
legal representative of his estate. Moreover, non-compliance with the
Rules results in the denial of the right to due process for the heirs who,
though not duly notified of the proceedings, would be substantially
affected by the decision rendered therein. Thus, it is only when there is
a denial of due process, as when the deceased is not represented by
any legal representative or heir, that the court nullifies the trial
proceedings and the resulting judgment therein.
Here, the lack of formal substitution of the deceased worker Richon did not result
to denial of due process as to affect the validity of the proceedings before the
NLRC since his heir, Luzvilla, was aware of the proceedings therein. In fact, she
is considered to have voluntarily appeared before the said tribunal when she
signed the workers Memorandum of Appeal filed therewith. This Court has ruled
that formal substitution of parties is not necessary when the heirs themselves
voluntarily appeared, participated, and presented evidence during the
proceedings.[85] Hence, the NLRC did not err in giving due course to the appeal
with respect to Richon.

Fairlands claim of prescription deserves


scant consideration.

Fairland asserts that assuming that the workers have valid claims against it,
same only pertain to six out of the 34 workers-complainants. According to
Fairland, these six workers were the only ones who were in the employ of
Weesan at the time Fairland and Weesan had existing contractual relationship in
1996 to 1997. But then, Fairland contends that the claims of these six workers
have already been barred by prescription as they filed their complaint more than
four years from the expiration of the alleged contractual relationship in
1997. However, the Court notes that the records are bereft of anything that
provides for such alleged contractual relationship and the period covered by
it. Absent anything to support Fairlands claim, same deserves scant
consideration.

Interestingly, we noticed Fairlands letter[86] dated January 31,


2003 informing Weesan that it would temporarily not be availing of the latters
sewing services and at the same time requesting for the return of the sewing
machines it lent to Weesan. Assuming said letter to be true, why was Fairland
terminating Weesans services only on January 31, 2003 when it is now claiming
that its contractual relationship with the latter only lasted until 1997? Thus, we
find the contentions rather abstruse.

G.R. No. 182915

It is basic that the Labor Arbiter cannot acquire jurisdiction over the person
of the respondent without the latter being served with summons.[87] However, if
there is no valid service of summons, the court can still acquire jurisdiction over
the person of the defendant by virtue of the latters voluntary appearance.[88]

Although not served with summons, jurisdiction


over Fairland and Debbie was acquired through
their voluntary appearance.
It can be recalled that the workers original complaints for non-payment/
underpayment of wages and benefits were only against Susan/Weesan. For
these complaints, the Labor Arbiter issued summons[89] to Susan/Weesan which
was received by the latter on January 15, 2003.[90] The workers thereafter
amended their then already consolidated complaints to include illegal dismissal
as an additional cause of action as well as Fairland and Debbie as additional
respondents. We have, however, scanned the records but found nothing to
indicate that summons with respect to the said amended complaints was ever
served upon Weesan, Susan, or Fairland. True to their claim, Fairland and
Debbie were indeed never summoned by the Labor Arbiter.

The crucial question now is: Did Fairland and Debbie voluntarily appear before
the Labor Arbiter as to submit themselves to its jurisdiction?

Fairland argued before the CA that it did not engage Atty. Geronimo as its
counsel. However, the Court held in Santos v. National Labor Relations
Commission,[91] viz:

In the instant petition for certiorari, petitioner Santos reiterates that he


should not have been adjudged personally liable by public
respondents, the latter not having validly acquired jurisdiction over his
person whether by personal service of summons or by substituted
service under Rule 19 of the Rules of Court.

Petitioners contention is unacceptable. The fact that Atty.


Romeo B. Perez has been able to timely ask for a deferment of the
initial hearing on 14 November 1986, coupled with his subsequent
active participation in the proceedings, should disprove the supposed
want of service of legal processes. Although as a rule, modes of
service of summons are strictly followed in order that the court may
acquire jurisdiction over the person of a defendant, such procedural
modes, however, are liberally construed in quasi-judicial proceedings,
substantial compliance with the same being considered
adequate. Moreover, jurisdiction over the person of the defendant in
civil cases is acquired not only by service of summons but also by
voluntary appearance in court and submission to its
authority. Appearance by a legal advocate is such voluntary
submission to a courts jurisdiction. It may be made not only by actual
physical appearance but likewise by the submission of pleadings in
compliance with the order of the court or tribunal.

To say that petitioner did not authorize Atty. Perez to represent him in
the case is to unduly tax credulity. Like the Solicitor General, the Court
likewise considers it unlikely that Atty. Perez would have been so
irresponsible as to represent petitioner if he were not, in fact,
authorized. Atty. Perez is an officer of the court, and he must be
presumed to have acted with due propriety. The employment of a
counsel or the authority to employ an attorney, it might be pointed out,
need not be proved in writing; such fact could [be] inferred from
circumstantial evidence. x x x[92] (Citations omitted.)
From the records, it appears that Atty. Geronimo first entered his appearance on
behalf of Susan/Weesan in the hearing held on April 3, 2003.[93] Being then
newly hired, he requested for an extension of time within which to file a position
paper for said respondents. On the next scheduled hearing on April 28, 2003,
Atty. Geronimo again asked for another extension to file a position paper for all
the respondents considering that he likewise entered his appearance for
Fairland.[94] Thereafter, said counsel filed pleadings such as Respondents
Position Paper[95] and Respondents Consolidated Reply[96]on behalf of all the
respondents namely, Susan/Weesan, Fairland and Debbie. The fact that Atty.
Geronimo entered his appearance for Fairland and Debbie and that he actively
defended them before the Labor Arbiter raised the presumption that he is
authorized to appear for them. As held in Santos, it is unlikely that Atty.
Geronimo would have been so irresponsible as to represent Fairland and
Debbie if he were not in fact authorized. As an officer of the Court, Atty.
Geronimo is presumed to have acted with due propriety. Moreover, [i]t strains
credulity that a counsel who has no personal interest in the case would fight for
and defend a case with persistence and vigor if he has not been authorized or
employed by the party concerned.[97]

We do not agree with the reasons relied upon by the CAs Special Ninth Division
in its May 9, 2008 Resolution in CA-G.R. No. 93204 when it ruled that Fairland,
through Atty. Geronimo, did not voluntarily submit itself to the Labor Arbiters
jurisdiction.

In so ruling, the CA noted that Atty. Geronimo has no prior authorization from the
board of directors of Fairland to handle the case. Also, the alleged verification
signed by Debbie, who is not one of Fairlands duly authorized directors or
officers, is defective as no board resolution or secretarys certificate authorizing
her to sign the same was attached thereto. Because of these, the Special Ninth
Division held that the Labor Arbiter committed grave abuse of discretion in not
requiring Atty. Geronimo to show his proof of authority to represent Fairland
considering that the latter is a corporation.

The presumption of authority of counsel to appear on behalf of a client is found


both in the Rules of Court and in the New Rules of Procedure of the NLRC.[98]

Sec. 21, Rule 138 of the Rules of Court provides:

Sec. 21. Authority of attorney to appear An attorney is


presumed to be properly authorized to represent any cause in which
he appears, and no written power of attorney is required to authorize
him to appear in court for his client, but the presiding judge may, on
motion of either party and reasonable grounds therefor being shown,
require any attorney who assumes the right to appear in a case to
produce or prove the authority under which he appears, and to
disclose whenever pertinent to any issue, the name of the person who
employed him, and may thereupon make such order as justice
requires. An attorney willfully appearing in court for a person without
being employed, unless by leave of the court, may be punished for
contempt as an officer of the court who has misbehaved in his official
transactions.

On the other hand, Sec. 8, Rule III of the New Rules of Procedure of the
NLRC,[99] which is the rules prevailing at that time, states in part:

SECTION 8. APPEARANCES. - An attorney appearing for a


party is presumed to be properly authorized for that purpose. However,
he shall be required to indicate in his pleadings his PTR and IBP
numbers for the current year.

Between the two provisions providing for such authority of counsel to


appear, the Labor Arbiter is primarily bound by the latter one, the NLRC Rules of
Procedure being specifically applicable to labor cases. As Atty. Geronimo
consistently indicated his PTR and IBP numbers in the pleadings he filed, there
is no reason for the Labor Arbiter not to extend to Atty. Geronimo the
presumption that he is authorized to represent Fairland.

Even if we are to apply Sec. 21, Rule 138 of the Rules of Court, the Labor
Arbiter cannot be expected to require Atty. Geronimo to prove his authority under
said provision since there was no motion to that effect from either party showing
reasonable grounds therefor. Moreover, the fact that Debbie signed the
verification attached to the position paper filed by Atty. Geronimo, without a
secretarys certificate or board resolution attached thereto, is not sufficient reason
for the Labor Arbiter to be on his guard and require Atty. Geronimo to prove his
authority. Debbie, as General Manager of Fairland is one of the officials of the
company who can sign the verification without need of a board resolution
because
as such, she is in a position to verify the truthfulness and correctness of the

allegations in the petition.[100]

Although we note that Fairland filed a disbarment case against Atty.


Geronimo due to the formers claim of unauthorized appearance, we hold that
same is not sufficient to overcome the presumption of authority. Such mere filing
is not proof of Atty. Geronimos alleged unauthorized appearance. Suffice it to
say that an attorneys presumption of authority is a strong one.[101] A mere denial
by a party that he authorized an attorney to appear for him, in the absence of a
compelling reason, is insufficient to overcome the presumption, especially when
the denial comes after the rendition of an adverse judgment, [102] such as in the
present case.

Citing PNOC Dockyard and Engineering Corporation v. National Labor


Relations Commission,[103] the CA likewise emphasized that in labor cases, both
the party and his counsel must be duly served their separate copies of the order,
decision or resolution unlike in ordinary proceedings where notice to counsel is
deemed notice to the party. It then quoted Article 224 of the Labor Code as
follows:

ARTICLE 224. Execution of decisions, orders or awards. (a) the


Secretary of Labor and Employment or any Regional Director, the
Commission or any Labor Arbiter, or med-arbiter or voluntary arbitrator
may, motu proprio or on motion of any interested party, issue a writ of
execution on a judgment within five (5) years from the date it becomes
final and executory, requiring a sheriff or a duly deputized officer to
execute or enforce final decisions, orders or awards of the Secretary of
Labor and Employment or [R]egional Director, the Commission, the
Labor Arbiter or Med-Arbiter, or Voluntary Arbitrators. In any case, it
shall be the duty of the responsible officer to separately furnish
immediately the counsels of record and the parties with copies of
said decision, orders or awards. Failure to comply with the duty
prescribed herein shall subject such responsible officer to appropriate
administrative sanctions x x x (Emphasis in the original).[104]

The CA then concluded that since Fairland and its counsel were not
separately furnished with a copy of the August 26, 2005 NLRC Resolution
denying the motions for reconsideration of its November 30, 2004 Decision, said
Decision cannot be enforced against Fairland. The CA likewise concluded that
because of this, said November 30, 2004 Decision which held Susan/Weesan
and Fairland solidarily liable to the workers, has not attained finality.

We cannot agree. In Ginete v. Sunrise Manning Agency[105] we held that:

The case of PNOC Dockyard and Engineering Corporation vs. NLRC


cited by petitioner enunciated that in labor cases, both the party and its
counsel must be duly served their separate copies of the order,
decision or resolution; unlike in ordinary judicial proceedings where
notice to counsel is deemed notice to the party. Reference was made
therein to Article 224 of the Labor Code. But, as correctly pointed out
by private respondent in its Comment to the petition, Article 224 of the
Labor Code does not govern the procedure for filing a petition for
certiorari with the Court of Appeals from the decision of the NLRC but
rather, it refers to the execution of final decisions, orders or awards and
requires the sheriff or a duly deputized officer to furnish both the parties
and their counsel with copies of the decision or award for that purpose.
There is no reference, express or implied, to the period to appeal or to
file a petition for certiorari as indeed the caption is execution of
decisions, orders or awards. Taken in proper context, Article 224
contemplates the furnishing of copies of final decisions, orders or
awards and could not have been intended to refer to the period for
computing the period for appeal to the Court of Appeals from a non-
final judgment or order. The period or manner of appeal from the
NLRC to the Court of Appeals is governed by Rule 65 pursuant to the
ruling of the Court in the case of St. Martin Funeral Homes vs. NLRC.
Section 4 of Rule 65, as amended, states that the petition may be filed
not later than sixty (60) days from notice of the judgment, or resolution
sought to be assailed.
Corollarily, Section 4, Rule III of the New Rules of Procedure of
the NLRC expressly mandates that (F)or the purposes of computing
the period of appeal, the same shall be counted from receipt of such
decisions, awards or orders by the counsel of record. Although this rule
explicitly contemplates an appeal before the Labor Arbiter and the
NLRC, we do not see any cogent reason why the same rule should
not apply to petitions for certiorari filed with the Court of Appeals from
decisions of the NLRC. This procedure is in line with the
established rule that notice to counsel is notice to party and
when a party is represented by counsel, notices should be made
upon the counsel of record at his given address to which notices
of all kinds emanating from the court should be sent. It is to be
noted also that Section 7 of the NLRC Rules of Procedure
provides that (A)ttorneys and other representatives of parties
shall have authority to bind their clients in all matters of
procedure a provision which is similar to Section 23, Rule 138 of
the Rules of Court. More importantly, Section 2, Rule 13 of the
1997 Rules of Civil Procedure analogously provides that if any
party has appeared by counsel, service upon him shall be made
upon his counsel. (Citations omitted; emphasis supplied)

To stress, Article 224 contemplates the furnishing of copies of final


decisions, orders or awards both to the parties and their counsel in connection
with the execution of such final decisions, orders or awards. However, for the
purpose of computing the period for filing an appeal from the NLRC to the CA,
same shall be counted from receipt of the decision, order or award by the
counsel of record pursuant to the established rule that notice to counsel is notice
to party. And since the period for filing of an appeal is reckoned from the
counsels receipt of the decision, order or award, it necessarily follows that the
reckoning period for their finality is likewise the counsels date of receipt thereof, if
a party is represented by counsel. Hence, the date of receipt referred to in Sec.
14, Rule VII of the then in force New Rules of Procedure of the NLRC[106] which
provides that decisions, resolutions or orders of the NLRC shall become
executory after 10 calendar days from receipt of the same, refers to the date of
receipt by counsel. Thus contrary to the CAs conclusion, the said NLRC
Decision became final, as to Fairland, 10 calendar days after Atty. Tecsons
receipt[107] thereof.[108] In sum, we hold that the Labor Arbiter had validly acquired
jurisdiction over Fairland and its manager, Debbie, through the appearance of
Atty. Geronimo as their counsel and likewise, through the latters filing of
pleadings on their behalf.

Fairland is Weesans principal.

In addition to our discussion in G.R. No. 189658 with respect to the finding
that Susan/Weesan is a mere labor-only contractor which we find to be likewise
significant here, a careful examination of the records reveals other telling facts
that Fairland is Susan/Weesans principal, to wit: (1) aside from sewing
machines, Fairland also lent Weesan other equipment such as fire
extinguishers, office tables and chairs, and plastic chairs; [109] (2) no proof
evidencing the contractual arrangement between Weesan and Fairland was
ever submitted by Fairland; (3) while both Weesan and Fairland assert that the
former had other clients aside from the latter, no proof of Weesans contractual
relationship with its other alleged client is extant on the records; and (4) there is
no showing that any of the workers were assigned to other clients aside from
Fairland. Moreover, as found by the NLRC and affirmed by both the Special
Former Special Eighth Division in CA-G.R. SP No. 93860 and the First Division
in CA-G.R. SP No. 93204, the activities, the manner of work and the movement
of the workers were subject to Fairlands control. It bears emphasizing that
factual findings of quasi-judicial agencies like the NLRC, when affirmed by the
Court of Appeals, as in the present case, are conclusive upon the parties and
binding on this Court.[110]

Viewed in its entirety, we thus declare that Fairland is the principal of the
labor-only contractor, Weesan.

Fairland, therefore, as the principal employer, is solidarily liable with


Susan/Weesan, the labor-only contractor, for the rightful claims of the
employees. Under this set-up, Susan/Weesan, as the "labor-only" contractor, is
deemed an agent of the principal, Fairland, and the law makes the principal
responsible to the employees of the "labor-only" contractor as if the principal
itself directly hired or employed the employees.[111]

WHEREFORE, the Court,

1) in G.R. No. 189658, DENIES the Petition for Review on Certiorari. The
assailed Decision dated July 20, 2009 and Resolution dated October 1, 2009 of
the Special Former Special Eighth Division of the Court of Appeals in CA-G.R.
No. 93860 are AFFIRMED.

2) in G.R. No. 182915, GRANTS the Petition for Review


on Certiorari. The assailed Resolution dated May 9, 2008 of the Special Ninth
Division of the Court of Appeals in CA-G.R. No. 93204 is hereby REVERSED
and SET ASIDE and the Decision dated July 25, 2007 of the First Division of the
Court of Appeals is REINSTATED and AFFIRMED.

SO ORDERED.
Republic of the Philippines

Supreme Court

Manila

SECOND DIVISION

G.R. Nos. 174040-41


INSULAR HOTEL EMPLOYEES
UNION-NFL,
Present:
Petitioner,

CARPIO, J., Chairperson,

VELASCO, JR., *

PERALTA,

- versus - BERSAMIN, ** and

ABAD, JJ.

Promulgated:

WATERFRONT INSULAR HOTEL


DAVAO, September 22, 2010

Respondent.
x-----------------------------------------------------------------------------------------x

DECISION

PERALTA, J.:
Before this Court is a petition for review on certiorari,[1] under Rule 45 of the
Rules of Court, seeking to set aside the Decision [2] dated October 11, 2005,
and the Resolution[3] dated July 13, 2006 of the Court of Appeals (CA) in
consolidated labor cases docketed as CA-G.R. SP No. 83831 and CA-G.R.
SP No. 83657. Said Decision reversed the Decision [4] dated the April 5,
2004 of the Accredited Voluntary Arbitrator Rosalina L. Montejo (AVA
Montejo).
The facts of the case, as culled from the records, are as follows:

On November 6, 2000, respondent Waterfront Insular Hotel Davao


(respondent) sent the Department of Labor and Employment (DOLE),
Region XI, Davao City, a Notice of Suspension of Operations [5] notifying the
same that it will suspend its operations for a period of six months due to
severe and serious business losses. In said notice, respondent assured the
DOLE that if the company could not resume its operations within the six-
month period, the company would pay the affected employees all the
benefits legally due to them.

During the period of the suspension, Domy R. Rojas (Rojas), the President
of Davao Insular Hotel Free Employees Union (DIHFEU-NFL), the
recognized labor organization in Waterfront Davao, sent respondent a
number of letters asking management to reconsider its decision.

In a letter[6] dated November 8, 2000, Rojas intimated that the members of


the Union were determined to keep their jobs and that they believed they
too had to help respondent, thus:

xxxx

Sir, we are determined to keep our jobs and push the Hotel up
from sinking. We believe that we have to help in this (sic) critical
times. Initially, we intend to suspend the re-negotiations of our
CBA. We could talk further on possible adjustments on economic
benefits, the details of which we are hoping to discuss with you or
any of your emissaries. x x x[7]

In another letter[8] dated November 10, 2000, Rojas reiterated the Union's
desire to help respondent, to wit:
We would like to thank you for giving us the opportunity to meet
[with] your representatives in order for us to air our sentiments
and extend our helping hands for a possible reconsideration of
the company's decision.

The talks have enabled us to initially come up with a suggestion


of solving the high cost on payroll.

We propose that 25 years and above be paid their due retirement


benefits and put their length of service to zero without loss of
status of employment with a minimum hiring rate.

Thru this scheme, the company would be able to save a


substantial amount and reduce greatly the payroll costs without
affecting the finance of the families of the employees because
they will still have a job from where they could get their income.

Moreover, we are also open to a possible reduction of some


economic benefits as our gesture of sincere desire to help.

We are looking forward to a more fruitful round of talks in order to


save the hotel.[9]

In another letter[10] dated November 20, 2000, Rojas sent respondent more
proposals as a form of the Union's gesture of their intention to help the
company, thus:

1) Suspension of [the] CBA for ten years, No strike no lock-


out shall be enforced.

2) Pay all the employees their benefits due, and put the
length of service to zero with a minimum hiring rate. Payment of
benefits may be on a staggered basis or as available.

3) Night premium and holiday pays shall be according to law.


Overtime hours rendered shall be offsetted as practiced.

4) Reduce the sick leaves and vacation leaves to 15


days/15days.

5) Emergency leave and birthday off are hereby waived.


6) Duty meal allowance is fixed at P30.00 only. No more
midnight snacks and double meal allowance. The cook drinks be
stopped as practiced.

7) We will shoulder 50% of the group health insurance and


family medical allowance be reduced to 1,500.00 instead of
3,000.00.

8) The practice of bringing home our uniforms for laundry be


continued.

9) Fixed manning shall be implemented, the rest of


manpower requirements maybe sourced thru WAP and casual
hiring. Manpower for fixed manning shall be 145 rank-and-file
union members.

10) Union will cooperate fully on strict implementation of house


rules in order to attain desired productivity and discipline. The
union will not tolerate problem members.

11) The union in its desire to be of utmost service would adopt


multi-tasking for the hotel to be more competitive.

It is understood that with the suspension of the CBA


renegotiations, the same existing CBA shall be adopted and that
all provisions therein shall remain enforced except for those
mentioned in this proposal.

These proposals shall automatically supersede the affected


provisions of the CBA.[11]

In a handwritten letter[12] dated November 25, 2000, Rojas once again


appealed to respondent for it to consider their proposals and to re-open the
hotel. In said letter, Rojas stated that manpower for fixed manning shall be
one hundred (100) rank-and-file Union members instead of the one
hundred forty-five (145) originally proposed.

Finally, sometime in January 2001, DIHFEU-NFL, through Rojas, submitted


to respondent a Manifesto[13] concretizing their earlier proposals.
After series of negotiations, respondent and DIHFEU-NFL, represented by
its President, Rojas, and Vice-Presidents, Exequiel J. Varela Jr. and Avelino
C. Bation, Jr., signed a Memorandum of Agreement [14] (MOA) wherein
respondent agreed to re-open the hotel subject to certain concessions
offered by DIHFEU-NFL in its Manifesto.

Accordingly, respondent downsized its manpower structure to 100 rank-


and-file employees as set forth in the terms of the MOA. Moreover, as
agreed upon in the MOA, a new pay scale was also prepared by
respondent.

The retained employees individually signed a Reconfirmation of


Employment[15] which embodied the new terms and conditions of their
continued employment. Each employee was assisted by Rojas who also
signed the document.

On June 15, 2001, respondent resumed its business operations.

On August 22, 2002, Darius Joves (Joves) and Debbie Planas,


claiming to be local officers of the National Federation of Labor (NFL), filed
a Notice of Mediation[16] before the National Conciliation and Mediation
Board (NCMB), Region XI, Davao City. In said Notice, it was stated that the
Union involved was DARIUS JOVES/DEBBIE PLANAS ET. AL, National
Federation of Labor. The issue raised in said Notice was the Diminution of
wages and other benefits through unlawful Memorandum of Agreement.

On August 29, 2002, the NCMB called Joves and respondent to a


conference to explore the possibility of settling the conflict. In the said
conference, respondent and petitioner Insular Hotel Employees Union-NFL
(IHEU-NFL), represented by Joves, signed a Submission
[17]
Agreement wherein they chose AVA Alfredo C. Olvida (AVA Olvida) to act
as voluntary arbitrator. Submitted for the resolution of AVA Olvida was the
determination of whether or not there was a diminution of wages and other
benefits through an unlawful MOA. In support of his authority to file the
complaint, Joves, assisted by Atty. Danilo Cullo (Cullo), presented several
Special Powers of Attorney (SPA) which were, however, undated and
unnotarized.

On September 2, 2002, respondent filed with the NCMB a Manifestation


with Motion for a Second Preliminary Conference, [18] raising the following
grounds:
1) The persons who filed the instant complaint in the name of
the Insular Hotel Employees Union-NFL have no authority to
represent the Union;

2) The individuals who executed the special powers of attorney


in favor of the person who filed the instant complaint have no
standing to cause the filing of the instant complaint; and

3) The existence of an intra-union dispute renders the filing of


the instant case premature.[19]

On September 16, 2002, a second preliminary conference was conducted


in the NCMB, where Cullo denied any existence of an intra-union dispute
among the members of the union. Cullo, however, confirmed that the case
was filed not by the IHEU-NFL but by the NFL. When asked to present his
authority from NFL, Cullo admitted that the case was, in fact, filed by
individual employees named in the SPAs. The hearing officer directed both
parties to elevate the aforementioned issues to AVA Olvida. [20]

The case was docketed as Case No. AC-220-RB-11-09-022-02 and


referred to AVA Olvida. Respondent again raised its objections, specifically
arguing that the persons who signed the complaint were not the authorized
representatives of the Union indicated in the Submission Agreement nor
were they parties to the MOA. AVA Olvida directed respondent to file a
formal motion to withdraw its submission to voluntary arbitration.

On October 16, 2002, respondent filed its Motion to Withdraw. [21] Cullo then
filed an Opposition[22] where the same was captioned:

NATIONAL FEDERATION OF LABOR

And 79 Individual Employees, Union Members,

Complainants,

-versus-

Waterfront Insular Hotel Davao,

Respondent.
In said Opposition, Cullo reiterated that the complainants were not
representing IHEU-NFL, to wit:
xxxx

2. Respondent must have been lost when it said that the individuals who executed
the SPA have no standing to represent the union nor to assail the validity of
Memorandum of Agreement (MOA). What is correct is that the individual
complainants are not representing the union but filing the complaint through
their appointed attorneys-in-fact to assert their individual rights as workers who
are entitled to the benefits granted by law and stipulated in the collective
bargaining agreement.[23]
On November 11, 2002, AVA Olvida issued a Resolution [24] denying
respondent's Motion to Withdraw. On December 16, 2002, respondent filed
a Motion for Reconsideration[25] where it stressed that the Submission
Agreement was void because the Union did not consent
thereto. Respondent pointed out that the Union had not issued any
resolution duly authorizing the individual employees or NFL to file the notice
of mediation with the NCMB.

Cullo filed a Comment/Opposition[26] to respondent's Motion for


Reconsideration. Again, Cullo admitted that the case was not initiated by
the IHEU-NFL, to wit:

The case was initiated by complainants by filling up Revised Form


No. 1 of the NCMB duly furnishing respondent, copy of which is
hereto attached as Annex A for reference and consideration of the
Honorable Voluntary Arbitrator. There is no mention there of
Insular Hotel Employees Union, but only National Federation of
Labor (NFL). The one appearing at the Submission Agreement
was only a matter of filling up the blanks particularly on the
question there of Union; which was filled up with Insular Hotel
Employees Union-NFL. There is nothing there that indicates that it
is a complainant as the case is initiated by the individual workers
and National Federation of Labor, not by the local union. The local
union was not included as party-complainant considering that it
was a party to the assailed MOA.[27]

On March 18, 2003, AVA Olvida issued a Resolution [28] denying


respondent's Motion for Reconsideration. He, however, ruled that
respondent was correct when it raised its objection to NFL as proper party-
complainant, thus:
Anent to the real complainant in this instant voluntary arbitration
case, the respondent is correct when it raised objection to the
National Federation of Labor (NFL) and as proper party-
complainants.

The proper party-complainant is INSULAR HOTEL EMPLOYEES


UNION-NFL, the recognized and incumbent bargaining agent of
the rank-and-file employees of the respondent hotel. In the
submission agreement of the parties dated August 29, 2002, the
party complainant written is INSULAR HOTEL EMPLOYEES
UNION-NFL and not the NATIONAL FEDERATION OF LABOR
and 79 other members.

However, since the NFL is the mother federation of the local


union, and signatory to the existing CBA, it can represent the
union, the officers, the members or union and officers or
members, as the case may be, in all stages of proceedings in
courts or administrative bodies provided that the issue of the case
will involve labor-management relationship like in the case at bar.

The dispositive portion of the March 18, 2003 Resolution of AVA Olvida
reads:

WHEREFORE, premises considered, the motion for


reconsideration filed by respondent is DENIED. The resolution
dated November 11, 2002 is modified in so far as the party-
complainant is concerned; thus, instead of National Federation of
Labor and 79 individual employees, union members, shall be
Insular Hotel Employees Union-NFL et. al., as stated in the joint
submission agreement dated August 29, 2002. Respondent is
directed to comply with the decision of this Arbitrator dated
November 11, 2002,

No further motion of the same nature shall be entertained.[29]

On May 9, 2003, respondent filed its Position Paper Ad Cautelam,[30] where


it declared, among others, that the same was without prejudice to its earlier
objections against the jurisdiction of the NCMB and AVA Olvida and the
standing of the persons who filed the notice of mediation.

Cullo, now using the caption Insular Hotel Employees Union-


NFL, Complainant, filed a Comment[31] dated June 5, 2003. On June 23,
2003, respondent filed its Reply.[32]

Later, respondent filed a Motion for Inhibition [33] alleging AVA Olvida's bias
and prejudice towards the cause of the employees. In an Order [34] dated
July 25, 2003, AVA Olvida voluntarily inhibited himself out of delicadeza and
ordered the remand of the case to the NCMB.

On August 12, 2003, the NCMB issued a Notice requiring the parties to
appear before the conciliator for the selection of a new voluntary arbitrator.

In a letter[35] dated August 19, 2003 addressed to the NCMB, respondent


reiterated its position that the individual union members have no standing
to file the notice of mediation before the NCMB. Respondent stressed that
the complaint should have been filed by the Union.

On September 12, 2003, the NCMB sent both parties a Notice [36] asking
them to appear before it for the selection of the new voluntary arbitrator.
Respondent, however, maintained its stand that the NCMB had no
jurisdiction over the case. Consequently, at the instance of Cullo, the
NCMB approved ex parte the selection of AVA Montejo as the new
voluntary arbitrator.

On April 5, 2004, AVA Montejo rendered a Decision[37] ruling in favor of


Cullo, the dispositive portion of which reads:
WHEREOF, in view of the all the foregoing, judgment is hereby
rendered:

1. Declaring the Memorandum of Agreement in question as


invalid as it is contrary to law and public policy;

2. Declaring that there is a diminution of the wages and other


benefits of the Union members and officers under the said invalid
MOA.

3. Ordering respondent management to immediately reinstate


the workers wage rates and other benefits that they were
receiving and enjoying before the signing of the invalid MOA;
4. Ordering the management respondent to pay attorneys fees
in an amount equivalent to ten percent (10%) of whatever total
amount that the workers union may receive representing
individual wage differentials.

As to the other claims of the Union regarding diminution of other


benefits, this accredited voluntary arbitrator is of the opinion that
she has no authority to entertain, particularly as to the
computation thereof.

SO ORDERED.[38]

Both parties appealed the Decision of AVA Montejo to the CA. Cullo only
assailed the Decision in so far as it did not categorically order respondent
to pay the covered workers their differentials in wages reckoned from the
effectivity of the MOA up to the actual reinstatement of the reduced wages
and benefits. Cullos' petition was docketed as CA-G.R. SP No. 83831.
Respondent, for its part, questioned among others the jurisdiction of the
NCMB. Respondent maintained that the MOA it had entered into with the
officers of the Union was valid. Respondent's petition was docketed as CA-
G.R. SP No. 83657. Both cases were consolidated by the CA.

On October 11, 2005, the CA rendered a Decision [39] ruling in favor of


respondent, the dispositive portion of which reads:

WHEREFORE, premises considered, the petition for review in CA-


G.R. SP No. 83657 is hereby GRANTED, while the petition in CA-
G.R. SP No. 83831 is DENIED. Consequently, the assailed
Decision dated April 5, 2004 rendered by AVA Rosalina L. Montejo
is hereby REVERSED and a new one entered declaring the
Memorandum of Agreement dated May 8, 2001 VALID and
ENFORCEABLE. Parties are DIRECTED to comply with the terms
and conditions thereof.

SO ORDERED.[40]
Aggrieved, Cullo filed a Motion for Reconsideration, which was, however,
denied by the CA in a Resolution[41] dated July 13, 2006.

Hence, herein petition, with Cullo raising the following issues for this
Court's resolution, to wit:

I.

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS


COMMITTED SERIOUS ERRORS IN FINDING THAT THE
ACCREDITED VOLUNTARY ARBITRATOR HAS NO
JURISDICTION OVER THE CASE SIMPLY BECAUSE THE
NOTICE OF MEDIATION DOES NOT MENTION THE NAME OF
THE LOCAL UNION BUT ONLY THE AFFILIATE FEDERATION
THEREBY DISREGARDING THE SUBMISSION AGREEMENT
DULY SIGNED BY THE PARTIES AND THEIR LEGAL
COUNSELS THAT MENTIONS THE NAME OF THE LOCAL
UNION.

II.

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS


COMMITTED SERIOUS ERROR BY DISREGARDING THE
PROVISIONS OF THE CBA SIMPLY BECAUSE IT BELIEVED
THE UNPROVEN ALLEGATIONS OF RESPONDENT HOTEL
THAT IT WAS SUFFERING FROM FINANCIAL CRISIS.

III.

THE HONORABLE COURT OF APPEALS MUST HAVE


SERIOUSLY ERRED IN CONCLUDING THAT ARTICLE 100 OF
THE LABOR CODE APPLIES ONLY TO BENEFITS ENJOYED
PRIOR TO THE ADOPTION OF THE LABOR CODE WHICH, IN
EFFECT, ALLOWS THE DIMINUTION OF THE BENEFITS
ENJOYED BY EMPLOYEES FROM ITS ADOPTION
HENCEFORTH.[42]

The petition is not meritorious.


Anent the first error raised, Cullo argues that the CA erred when it
overlooked the fact that before the case was submitted to voluntary
arbitration, the parties signed a Submission Agreement which mentioned
the name of the local union and not only NFL. Cullo, thus, contends that the
CA committed error when it ruled that the voluntary arbitrator had no
jurisdiction over the case simply because the Notice of Mediation did not
state the name of the local union thereby disregarding the Submission
Agreement which states the names of local union as Insular Hotel
Employees Union-NFL.[43]

In its Memorandum,[44] respondent maintains its position that the NCMB and
Voluntary Arbitrators had no jurisdiction over the complaint. Respondent,
however, now also contends thatIHEU-NFL is a non-entity since it
is DIHFEU-NFL which is considered by the DOLE as the only registered
union in Waterfront Davao.[45] Respondent argues that the Submission
Agreement does not name the local union DIHFEU-NFL and that it had
timely withdrawn its consent to arbitrate by filing a motion to withdraw.

A review of the development of the case shows that there has been much
confusion as to the identity of the party which filed the case against
respondent. In the Notice of Mediation [46] filed before the NCMB, it stated
that the union involved was DARIUS JOVES/DEBBIE PLANAS ET. AL.,
National Federation of Labor. In the Submission Agreement, [47] however, it
stated that the union involved was INSULAR HOTEL EMPLOYEES
UNION-NFL.

Furthermore, a perusal of the records would reveal that after signing the
Submission Agreement, respondent persistently questioned the authority
and standing of the individual employees to file the complaint. Cullo then
clarified in subsequent documents captioned as National Federation of
Labor and 79 Individual Employees, Union Members, Complainants that
the individual complainants are not representing the union, but filing the
complaint through their appointed attorneys-in-fact. [48] AVA Olvida, however,
in a Resolution dated March 18, 2003, agreed with respondent that the
proper party-complainant should be INSULAR HOTEL EMPLOYEES
UNION-NFL, to wit:

x x x In the submission agreement of the parties dated August 29,


2002, the party complainant written is INSULAR HOTEL
EMPLOYEES UNION-NFL and not the NATIONAL FEDERATION
OF LABOR and 79 other members.[49]
The dispositive portion of the Resolution dated March 18, 2003 of AVA
Olvida reads:

WHEREFORE, premises considered, the motion for


reconsideration filed by respondent is DENIED. The resolution
dated November 11, 2002, is modified in so far as the party
complainant is concerned, thus, instead of National Federation
of Labor and 79 individual employees, union members, shall be
Insular Hotel Employees Union-NFL et. al., as stated in the joint
submission agreement dated August 29, 2002. Respondent is
directed to comply with the decision of this Arbitrator dated
November 11, 2002.[50]

After the March 18, 2003 Resolution of AVA Olvida, Cullo adopted Insular
Hotel Employees Union-NFL et. al., Complainant as the caption in all his
subsequent pleadings. Respondent, however, was still adamant that
neither Cullo nor the individual employees had authority to file the case in
behalf of the Union.

While it is undisputed that a submission agreement was signed by


respondent and IHEU-NFL, then represented by Joves and Cullo, this
Court finds that there are two circumstances which affect its validity: first,
the Notice of Mediation was filed by a party who had no authority to do
so; second, that respondent had persistently voiced out its objection
questioning the authority of Joves, Cullo and the individual members of the
Union to file the complaint before the NCMB.

Procedurally, the first step to submit a case for mediation is to file a notice
of preventive mediation with the NCMB. It is only after this step that a
submission agreement may be entered into by the parties concerned.

Section 3, Rule IV of the NCMB Manual of Procedure provides who may


file a notice of preventive mediation, to wit:

Who may file a notice or declare a strike or lockout or request


preventive mediation. -

Any certified or duly recognized bargaining


representative may file a notice or declare a strike or request
for preventive mediation in cases of bargaining deadlocks and
unfair labor practices. The employer may file a notice or declare
a lockout or request for preventive mediation in the same cases. In
the absence of a certified or duly recognized bargaining
representative, any legitimate labor organization in the
establishment may file a notice, request preventive mediation or
declare a strike, but only on grounds of unfair labor practice.

From the foregoing, it is clear that only a certified or duly recognized


bargaining agent may file a notice or request for preventive mediation. It is
curious that even Cullo himself admitted, in a number of pleadings, that the
case was filed not by the Union but by individual members thereof. Clearly,
therefore, the NCMB had no jurisdiction to entertain the notice filed before
it.

Even though respondent signed a Submission Agreement, it had, however,


immediately manifested its desire to withdraw from the proceedings after it
became apparent that the Union had no part in the complaint. As a matter
of fact, only four days had lapsed after the signing of the Submission
Agreement when respondent called the attention of AVA Olvida in a
Manifestation with Motion for a Second Preliminary Conference [51] that the
persons who filed the instant complaint in the name of Insular Hotel
Employees Union-NFL had no authority to represent the Union.
Respondent cannot be estopped in raising the jurisdictional issue, because
it is basic that the issue of jurisdiction may be raised at any stage of the
proceedings, even on appeal, and is not lost by waiver or by estoppel.

In Figueroa v. People,[52] this Court explained that estoppel is the exception


rather than the rule, to wit:

Applying the said doctrine to the instant case, the petitioner is in no


way estopped by laches in assailing the jurisdiction of the RTC,
considering that he raised the lack thereof in his appeal before the
appellate court. At that time, no considerable period had yet
elapsed for laches to attach. True, delay alone, though
unreasonable, will not sustain the defense of estoppel by
laches unless it further appears that the party, knowing his rights,
has not sought to enforce them until the condition of the party
pleading laches has in good faith become so changed that he
cannot be restored to his former state, if the rights be then
enforced, due to loss of evidence, change of title, intervention of
equities, and other causes. In applying the principle of estoppel by
laches in the exceptional case of Sibonghanoy, the Court therein
considered the patent and revolting inequity and unfairness of
having the judgment creditors go up their Calvary once more after
more or less 15 years.The same, however, does not obtain in the
instant case.

We note at this point that estoppel, being in the nature of a


forfeiture, is not favored by law. It is to be applied rarelyonly from
necessity, and only in extraordinary circumstances. The doctrine
must be applied with great care and the equity must be strong
in its favor.When misapplied, the doctrine of estoppel may be a
most effective weapon for the accomplishment of injustice. x x x
(Italics supplied.)[53]

The question to be resolved then is, do the individual members of the


Union have the requisite standing to question the MOA before the NCMB?
On this note, Tabigue v. International Copra Export Corporation
(INTERCO)[54] is instructive:

Respecting petitioners thesis that unsettled grievances should be


referred to voluntary arbitration as called for in the CBA, the same
does not lie.The pertinent portion of the CBA reads:

In case of any dispute arising from the interpretation


or implementation of this Agreement or any matter
affecting the relations of Labor and Management,
the UNION and the COMPANY agree to exhaust all
possibilities of conciliation through the grievance
machinery. The committee shall resolve all problems
submitted to it within fifteen (15) days after the
problems ha[ve] been discussed by the members. If
the dispute or grievance cannot be settled by the
Committee, or if the committee failed to act on the
matter within the period of fifteen (15) days herein
stipulated, the UNION and the COMPANY agree to
submit the issue to Voluntary Arbitration. Selection of
the arbitrator shall be made within seven (7) days
from the date of notification by the aggrieved party.
The Arbitrator shall be selected by lottery from four (4)
qualified individuals nominated by in equal numbers
by both parties taken from the list of Arbitrators
prepared by the National Conciliation and Mediation
Board (NCMB). If the Company and the Union
representatives within ten (10) days fail to agree on
the Arbitrator, the NCMB shall name the Arbitrator.
The decision of the Arbitrator shall be final and
binding upon the parties. However, the Arbitrator shall
not have the authority to change any provisions of the
Agreement.The cost of arbitration shall be borne
equally by the parties.

Petitioners have not, however, been duly authorized to represent


the union. Apropos is this Courts pronouncement in Atlas Farms,
Inc. v. National Labor Relations Commission, viz:

x x x Pursuant to Article 260 of the Labor Code, the


parties to a CBA shall name or designate their
respective representatives to the grievance machinery
and if the grievance is unsettled in that level, it shall
automatically be referred to the voluntary arbitrators
designated in advance by parties to a CBA.
Consequently, only disputes involving the
union and the company shall be referred to the
grievance machinery or voluntary arbitrators.
(Emphasis and underscoring supplied.)[55]

If the individual members of the Union have no authority to file the case,
does the federation to which the local union is affiliated have the standing
to do so? On this note, Coastal Subic Bay Terminal, Inc. v. Department of
Labor and Employment[56] is enlightening, thus:

x x x A local union does not owe its existence to the federation


with which it is affiliated. It is a separate and distinct voluntary
association owing its creation to the will of its members. Mere
affiliation does not divest the local union of its own
personality, neither does it give the mother federation the
license to act independently of the local union. It only gives
rise to a contract of agency, where the former acts in
representation of the latter. Hence, local unions are considered
principals while the federation is deemed to be merely their agent.
x x x[57]

Based on the foregoing, this Court agrees with approval with the
disquisition of the CA when it ruled that NFL had no authority to file the
complaint in behalf of the individual employees, to wit:

Anent the first issue, We hold that the voluntary arbitrator had no
jurisdiction over the case. Waterfront contents that the Notice of
Mediation does not mention the name of the Union but merely
referred to the National Federation of Labor (NFL) with which the
Union is affiliated. In the subsequent pleadings, NFL's legal
counsel even confirmed that the case was not filed by the union
but by NFL and the individual employees named in the SPAs which
were not even dated nor notarized.

Even granting that petitioner Union was affiliated with NFL, still the
relationship between that of the local union and the labor
federation or national union with which the former was affiliated is
generally understood to be that of agency, where the local is the
principal and the federation the agency. Being merely an agent of
the local union, NFL should have presented its authority to file the
Notice of Mediation. While We commend NFL's zealousness in
protecting the rights of lowly workers, We cannot, however, allow it
to go beyond what it is empowered to do.

As provided under the NCMB Manual of Procedures, only a


certified or duly recognized bargaining representative and an
employer may file a notice of mediation, declare a strike or lockout
or request preventive mediation. The Collective Bargaining
Agreement (CBA), on the other, recognizes that DIHFEU-NFL is
the exclusive bargaining representative of all permanent
employees. The inclusion of the word NFL after the name of the
local union merely stresses that the local union is NFL's affiliate. It
does not, however, mean that the local union cannot stand on its
own. The local union owes its creation and continued existence to
the will of its members and not to the federation to which it belongs.
The spring cannot rise higher than its source, so to speak.[58]

In its Memorandum, respondent contends that IHEU-NFL is a non-entity


and that DIHFEU-NFL is the only recognized bargaining unit in their
establishment. While the resolution of the said argument is already moot
and academic given the discussion above, this Court shall address the
same nevertheless.

While the November 16, 2006 Certification [59] of the DOLE clearly states
that IHEU-NFL is not a registered labor organization, this Court finds that
respondent is estopped from questioning the same as it did not raise the
said issue in the proceedings before the NCMB and the Voluntary
Arbitrators. A perusal of the records reveals that the main theory posed by
respondent was whether or not the individual employees had the authority
to file the complaint notwithstanding the apparent non-participation of the
union. Respondent never put in issue the fact that DIHFEU-NFL was not
the same as IHEU-NFL. Consequently, it is already too late in the day to
assert the same.
Anent the second issue raised by Cullo, the same is again without merit.

Cullo contends that respondent was not really suffering from serious losses
as found by the CA. Cullo anchors his position on the denial by the Wage
Board of respondent's petition for exemption from Wage Order No.
RTWPB-X1-08 on the ground that it is a distressed establishment. [60] In said
denial, the Board ruled:
A careful analysis of applicant's audited financial statements
showed that during the period ending December 31, 1999, it
registered retained earnings amounting
to P8,661,260.00. Applicant's interim financial statements for
the quarter ending June 30, 2000 cannot be considered, as the
same was not audited. Accordingly, this Board finds that applicant
is not qualified for exemption as a distressed establishment
pursuant to the aforecited criteria.[61]

In its Decision, the CA held that upholding the validity of the MOA would
mean the continuance of the hotel's operation and financial viability, to wit:

x x x We cannot close Our eyes to the impending financial distress


that an employer may suffer should the terms of employment
under the said CBA continue.

If indeed We are to tilt the balance of justice to labor, then We


would be inclined to favor for the nonce petitioner Waterfront. To
uphold the validity of the MOA would mean the continuance of the
hotel's operation and financial viability. Otherwise, the eventual
permanent closure of the hotel would only result to prejudice of the
employees, as a consequence thereof, will necessarily lose their
jobs.[62]

In its petition before the CA, respondent submitted its audited financial
statements[63] which show that for the years 1998, 1999, until September
30, 2000, its total operating losses amounted to P48,409,385.00. Based on
the foregoing, the CA was not without basis when it declared that
respondent was suffering from impending financial distress. While the
Wage Board denied respondent's petition for exemption, this Court notes
that the denial was partly due to the fact that the June 2000 financial
statements then submitted by respondent were not audited. Cullo did not
question nor discredit the accuracy and authenticity of respondent's audited
financial statements. This Court, therefore, has no reason to question the
veracity of the contents thereof. Moreover, it bears to point out that
respondent's audited financial statements covering the years 2001 to 2005
show that it still continues to suffer losses.[64]

Finally, anent the last issue raised by Cullo, the same is without merit.

Cullo argues that the CA must have erred in concluding that Article 100 of
the Labor Code applies only to benefits already enjoyed at the time of the
promulgation of the Labor Code.

Article 100 of the Labor Code provides:

PROHIBITION AGAINST ELIMINATION OR DIMINUTION OF


BENEFITS- Nothing in this Book shall be construed to eliminate or
in any way diminish supplements, or other employee benefits being
enjoyed at the time of the promulgation of this Code.

On this note, Apex Mining Company, Inc. v. NLRC[65] is instructive, to wit:

Clearly, the prohibition against elimination or diminution of benefits


set out in Article 100 of the Labor Code is specifically concerned
with benefits already enjoyed at the time of the promulgation of the
Labor Code. Article 100 does not, in other words, purport to apply
to situations arising after the promulgation date of the Labor Code
x x x.[66]

Even assuming arguendo that Article 100 applies to the case at bar, this
Court agrees with respondent that the same does not prohibit a union from
offering and agreeing to reduce wages and benefits of the employees.
In Rivera v. Espiritu,[67] this Court ruled that the right to free collective
bargaining, after all, includes the right to suspend it, thus:

A CBA is a contract executed upon request of either the employer


or the exclusive bargaining representative incorporating the
agreement reached after negotiations with respect to wages,
hours of work and all other terms and conditions of employment,
including proposals for adjusting any grievances or questions
arising under such agreement. The primary purpose of a CBA is
the stabilization of labor-management relations in order to create
a climate of a sound and stable industrial peace. In construing a
CBA, the courts must be practical and realistic and give due
consideration to the context in which it is negotiated and the
purpose which it is intended to serve.

The assailed PAL-PALEA agreement was the result of


voluntary collective bargaining negotiations undertaken in
the light of the severe financial situation faced by the
employer, with the peculiar and unique intention of not
merely promoting industrial peace at PAL, but preventing the
latters closure. We find no conflict between said agreement and
Article 253-A of the Labor Code. Article 253-A has a two-fold
purpose. One is to promote industrial stability and predictability.
Inasmuch as the agreement sought to promote industrial peace at
PAL during its rehabilitation, said agreement satisfies the first
purpose of Article 253-A. The other is to assign specific timetables
wherein negotiations become a matter of right and requirement.
Nothing in Article 253-A, prohibits the parties from waiving or
suspending the mandatory timetables and agreeing on the
remedies to enforce the same.

In the instant case, it was PALEA, as the exclusive bargaining


agent of PALs ground employees, that voluntarily entered into the
CBA with PAL. It was also PALEA that voluntarily opted for the 10-
year suspension of the CBA. Either case was the unions exercise
of its right to collective bargaining. The right to free collective
bargaining, after all, includes the right to suspend it.[68]

Lastly, this Court is not unmindful of the fact that DIHFEU-NFL's


Constitution and By-Laws specifically provides that the results of the
collective bargaining negotiations shall be subject to ratification and
approval by majority vote of the Union members at a meeting convened, or
by plebiscite held for such special purpose. [69] Accordingly, it is undisputed
that the MOA was not subject to ratification by the general membership of
the Union. The question to be resolved then is, does the non-ratification of
the MOA in accordance with the Union's constitution prove fatal to the
validity thereof?

It must be remembered that after the MOA was signed, the members of the
Union individually signed contracts denominated as Reconfirmation of
Employment.[70] Cullo did not dispute the fact that of the 87 members of the
Union, who signed and accepted the Reconfirmation of Employment, 71
are the respondent employees in the case at bar. Moreover, it bears to
stress that all the employees were assisted by Rojas, DIHFEU-NFL's
president, who even co-signed each contract.

Stipulated in each Reconfirmation of Employment were the new


salary and benefits scheme. In addition, it bears to stress that specific
provisions of the new contract also made reference to the MOA. Thus, the
individual members of the union cannot feign knowledge of the execution of
the MOA. Each contract was freely entered into and there is no indication
that the same was attended by fraud, misrepresentation or duress. To this
Court's mind, the signing of the individual Reconfirmation of Employment
should, therefore, be deemed an implied ratification by the Union members
of the MOA.

In Planters Products, Inc. v. NLRC,[71] this Court refrained from declaring a


CBA invalid notwithstanding that the same was not ratified in view of the
fact that the employees had enjoyed benefits under it, thus:

Under Article 231 of the Labor Code and Sec. 1, Rule IX, Book V
of the Implementing Rules, the parties to a collective [bargaining]
agreement are required to furnish copies of the appropriate
Regional Office with accompanying proof of ratification by the
majority of all the workers in a bargaining unit. This was not done
in the case at bar. But we do not declare the 1984-1987 CBA
invalid or void considering that the employees have enjoyed
benefits from it. They cannot receive benefits under provisions
favorable to them and later insist that the CBA is void simply
because other provisions turn out not to the liking of certain
employees. x x x. Moreover, the two CBAs prior to the 1984-1987
CBA were not also formally ratified, yet the employees are basing
their present claims on these CBAs. It is iniquitous to receive
benefits from a CBA and later on disclaim its validity.[72]

Applied to the case at bar, while the terms of the MOA undoubtedly
reduced the salaries and certain benefits previously enjoyed by the
members of the Union, it cannot escape this Court's attention that it was
the execution of the MOA which paved the way for the re-opening of the
hotel, notwithstanding its financial distress. More importantly, the execution
of the MOA allowed respondents to keep their jobs. It would certainly be
iniquitous for the members of the Union to sign new contracts prompting
the re-opening of the hotel only to later on renege on their agreement on
the fact of the non-ratification of the MOA.

In addition, it bears to point out that Rojas did not act unilaterally when he
negotiated with respondent's management. The Constitution and By-Laws
of DIHFEU-NFL clearly provide that the president is authorized to represent
the union on all occasions and in all matters in which representation of the
union may be agreed or required. [73] Furthermore, Rojas was properly
authorized under a Board of Directors Resolution [74] to negotiate with
respondent, the pertinent portions of which read:

SECRETARY's CERTIFICATE

I, MA. SOCORRO LISETTE B. IBARRA, x x x, do hereby certify


that, at a meeting of the Board of Directors of the DIHFEU-NFL,
on 28 Feb. 2001 with a quorum duly constituted, the following
resolutions were unanimously approved:

RESOLVED, as it is hereby resolved that the


Manifesto dated 25 Feb. 2001 be approved ratified
and adopted;

RESOLVED, FURTHER, that Mr. Domy R. Rojas,


the president of the DIHFEU-NFL, be hereby
authorized to negotiate with Waterfront Insular
Hotel Davao and to work for the latter's
acceptance of the proposals contained in
DIHFEU-NFL Manifesto; and

RESOLVED, FINALLY, that Mr. Domy R. Rojas is


hereby authorized to sign any and all documents
to implement, and carry into effect, his foregoing
authority.[75]

Withal, while the scales of justice usually tilt in favor of labor, the peculiar
circumstances herein prevent this Court from applying the same in the
instant petition. Even if our laws endeavor to give life to the constitutional
policy on social justice and on the protection of labor, it does not mean that
every labor dispute will be decided in favor of the workers. The law also
recognizes that management has rights which are also entitled to respect
and enforcement in the interest of fair play.[76]

WHEREFORE, premises considered, the petition is DENIED. The Decision


dated October 11, 2005, and the Resolution dated July 13, 2006 of the
Court of Appeals in consolidated labor cases docketed as CA-G.R. SP No.
83831 and CA-G.R. SP No. 83657, are AFFIRMED.

SO ORDERED.
INSULAR HOTEL EMPLOYEES UNION-NF vs. WATERFRONT INSULAR
HOTEL DAVAO

G.R. No. 174040-41 September 22, 2010

PERALTA, J p:

FACTS: Respondent Waterfront Insular Hotel Davao (respondent) sent the


Department of Labor and Employment (DOLE), Region XI, Davao City, a
Notice of Suspension of Operations notifying the same that it will suspend its
operations for a period of six months due to severe and serious business
losses. In said notice, respondent assured the DOLE that if the company
could not resume its operations within the six-month period, the company
would pay the affected employees all the benefits legally due to them.

During the period of the suspension, Domy R. Rojas (Rojas), the President of
Davao Insular Hotel Free Employees Union (DIHFEU-NFL), the recognized
labor organization in Waterfront Davao, sent respondent a number of letters
asking management to reconsider its decision.

In a letter dated November 8, 2000, Rojas intimated that the members of the
Union were determined to keep their jobs and that they believed they too
had to help respondent.

In another letter dated November 20, 2000, Rojas sent respondent more
proposals as a form of the Union's gesture of their intention to help the
company.

It is understood that with the suspension of the CBA renegotiations, the same
existing CBA shall be adopted and that all provisions therein shall remain
enforced except for those mentioned in this proposal.

These proposals shall automatically supersede the affected provisions of the


CBA.

In a handwritten letter dated November 25, 2000, Rojas once again appealed
to respondent for it to consider their proposals and to re-open the hotel. In
said letter, Rojas stated that manpower for fixed manning shall be one
hundred (100) rank-and-file Union members instead of the one hundred
forty-five (145) originally proposed.

Finally, sometime in January 2001, DIHFEU-NFL, through Rojas, submitted to


respondent a Manifesto concretizing their earlier proposals.

After series of negotiations, respondent and DIHFEU-NFL, represented by its


President, Rojas, and Vice-Presidents, Exequiel J. Varela Jr. and Avelino C.
Bation, Jr., signed a Memorandum of Agreement (MOA) wherein respondent
agreed to re-open the hotel subject to certain concessions offered by
DIHFEU-NFL in its Manifesto.

Accordingly, respondent downsized its manpower structure to 100 rank-and-


file employees as set forth in the terms of the MOA. Moreover, as agreed
upon in the MOA, a new pay scale was also prepared by respondent.
The retained employees individually signed a "Reconfirmation of
Employment" which embodied the new terms and conditions of their
continued employment. Each employee was assisted by Rojas who also
signed the document.

On June 15, 2001, respondent resumed its business operations.

On August 22, 2002, Darius Joves (Joves) and Debbie Planas, claiming to be
local officers of the National Federation of Labor (NFL), filed a Notice of
Mediation before the National Conciliation and Mediation Board (NCMB),
Region XI, Davao City. In said Notice, it was stated that the Union involved
was "DARIUS JOVES/DEBBIE PLANAS ET AL., National Federation of Labor."
The issue raised in said Notice was the "Diminution of wages and other
benefits through unlawful Memorandum of Agreement."

On August 29, 2002, the NCMB called Joves and respondent to a conference
to explore the possibility of settling the conflict. In the said conference,
respondent and petitioner Insular Hotel Employees Union-NFL (IHEU-NFL),
represented by Joves, signed a Submission Agreement wherein they chose
AVA Alfredo C. Olvida (AVA Olvida) to act as voluntary arbitrator. Submitted
for the resolution of AVA Olvida was the determination of whether or not
there was a diminution of wages and other benefits through an unlawful
MOA. In support of his authority to file the complaint, Joves, assisted by Atty.
Danilo Cullo (Cullo), presented several Special Powers of Attorney (SPA)
which were, however, undated and unnotarized.

On September 16, 2002, a second preliminary conference was conducted in


the NCMB, where Cullo denied any existence of an intra-union dispute among
the members of the union. Cullo, however, confirmed that the case was filed
not by the IHEU-NFL but by the NFL. When asked to present his authority
from NFL, Cullo admitted that the case was, in fact, filed by individual
employees named in the SPAs. The hearing officer directed both parties to
elevate the aforementioned issues to AVA Olvida.

The case was docketed as Case No. AC-220-RB-11-09-022-02 and referred to


AVA Olvida. Respondent again raised its objections, specifically arguing that
the persons who signed the complaint were not the authorized
representatives of the Union indicated in the Submission Agreement nor
were they parties to the MOA. AVA Olvida directed respondent to file a formal
motion to withdraw its submission to voluntary arbitration.

Issues and Ruling:

1 Who may file a notice or declare a strike or lockout or request


preventive mediation?

Section 3, Rule IV of the NCMB Manual of Procedure provides who may file a
notice of preventive mediation, to wit:

Who may file a notice or declare a strike or lockout or request


preventive mediation.
Any certified or duly recognized bargaining representative may file a
notice or declare a strike or request for preventive mediation in cases
of bargaining deadlocks and unfair labor practices. The employer may
file a notice or declare a lockout or request for preventive mediation
in the same cases. In the absence of a certified or duly recognized
bargaining representative, any legitimate labor organization in the
establishment may file a notice, request preventive mediation or
declare a strike, but only on grounds of unfair labor practice.

From the foregoing, it is clear that only a certified or duly recognized


bargaining agent may file a notice or request for preventive mediation. It is
curious that even Cullo himself admitted, in a number of pleadings, that the
case was filed not by the Union but by individual members thereof. Clearly,
therefore, the NCMB had no jurisdiction to entertain the notice filed before it.

2 WON the NCMB and Voluntary Arbitrators had no jurisdiction


over the complaint.

Even though respondent signed a Submission Agreement, it had, however,


immediately manifested its desire to withdraw from the proceedings after it
became apparent that the Union had no part in the complaint. As a matter of
fact, only four days had lapsed after the signing of the Submission
Agreement when respondent called the attention of AVA Olvida in a
"Manifestation with Motion for a Second Preliminary Conference" that the
persons who filed the instant complaint in the name of Insular Hotel
Employees Union-NFL had no authority to represent the Union.

Respecting petitioners' thesis that unsettled grievances should be referred to


voluntary arbitration as called for in the CBA, the same does not lie. The
pertinent portion of the CBA reads:
In case of any dispute arising from the interpretation or
implementation of this Agreement or any matter affecting the
relations of Labor and Management, the UNION and the COMPANY
agree to exhaust all possibilities of conciliation through the grievance
machinery. The committee shall resolve all problems submitted to it
within fifteen (15) days after the problems ha[ve] been discussed by
the members. If the dispute or grievance cannot be settled by the
Committee, or if the committee failed to act on the matter within the
period of fifteen (15) days herein stipulated, the UNIONand the
COMPANY agree to submit the issue to Voluntary Arbitration.
Selection of the arbitrator shall be made within seven (7) days from
the date of notification by the aggrieved party. The Arbitrator shall be
selected by lottery from four (4) qualified individuals nominated by in
equal numbers by both parties taken from the list of Arbitrators
prepared by the National Conciliation and Mediation Board (NCMB). If
the Company and the Union representatives within ten (10) days fail
to agree on the Arbitrator, the NCMB shall name the Arbitrator. The
decision of the Arbitrator shall be final and binding upon the parties.
However, the Arbitrator shall not have the authority to change any
provisions of the Agreement. The cost of arbitration shall be borne
equally by the parties.

3 WON the individual members of the Union have the requisite


standing to question the MOA before the NCMB?

Petitioners have not, however, been duly authorized to represent the union.

Pursuant to Article 260 of the Labor Code, the parties to a CBA shall name
or designate their respective representatives to the grievance machinery and
if the grievance is unsettled in that level, it shall automatically be referred to
the voluntary arbitrators designated in advance by parties to a CBA.
Consequently, only disputes involving the union and the company shall be
referred to the grievance machinery or voluntary arbitrators.

4 If the individual members of the Union have no authority to


file the case, does the federation to which the local union is
affiliated have the standing to do so?

A local union does not owe its existence to the federation with which it is
affiliated. It is a separate and distinct voluntary association owing its creation
to the will of its members. Mere affiliation does not divest the local union of
its own personality, neither does it give the mother federation the license to
act independently of the local union. It only gives rise to a contract of
agency, where the former acts in representation of the latter. Hence, local
unions are considered principals while the federation is deemed to be merely
their agent.

Based on the foregoing, this Court agrees with approval with the disquisition
of the CA when it ruled that NFL had no authority to file the complaint in
behalf of the individual employees

the voluntary arbitrator had no jurisdiction over the case. Waterfront


contents that the Notice of Mediation does not mention the name of the
Union but merely referred to the National Federation of Labor (NFL) with
which the Union is affiliated. In the subsequent pleadings, NFL's legal counsel
even confirmed that the case was not filed by the union but by NFL and the
individual employees named in the SPAs which were not even dated nor
notarized.

Even granting that petitioner Union was affiliated with NFL, still the
relationship between that of the local union and the labor federation or
national union with which the former was affiliated is generally understood to
be that of agency, where the local is the principal and the federation the
agency. Being merely an agent of the local union, NFL should have presented
its authority to file the Notice of Mediation. While We commend NFL's
zealousness in protecting the rights of lowly workers, We cannot, however,
allow it to go beyond what it is empowered to do.

As provided under the NCMB Manual of Procedures, only a certified or duly


recognized bargaining representative and an employer may file a
notice of mediation, declare a strike or lockout or request
preventive mediation. The Collective Bargaining Agreement (CBA), on the
other, recognizes that DIHFEU-NFL is the exclusive bargaining representative
of all permanent employees. The inclusion of the word "NFL" after the name
of the local union merely stresses that the local union is NFL's affiliate. It
does not, however, mean that the local union cannot stand on its own. The
local union owes its creation and continued existence to the will of its
members and not to the federation to which it belongs. The spring cannot
rise higher than its source, so to speak.

5 WON respondent was not really suffering from serious losses


as found by the CA.

No. In its petition before the CA, respondent submitted its audited financial
statements which show that for the years 1998, 1999, until September 30,
2000, its total operating losses amounted to P48,409,385.00. Based on the
foregoing, the CA was not without basis when it declared that respondent
was suffering from impending financial distress. While the Wage Board
denied respondent's petition for exemption, this Court notes that the denial
was partly due to the fact that the June 2000 financial statements then
submitted by respondent were not audited. Cullo did not question nor
discredit the accuracy and authenticity of respondent's audited financial
statements. This Court, therefore, has no reason to question the veracity of
the contents thereof. Moreover, it bears to point out that respondent's
audited financial statements covering the years 2001 to 2005 show that it
still continues to suffer losses.

6 WON Article 100 of the Labor Code applies only to benefits


already enjoyed at the time of the promulgation of the Labor
Code.

No. Article 100 of the Labor Code provides:

PROHIBITION AGAINST ELIMINATION OR DIMINUTION OF BENEFITS Nothing


in this Book shall be construed to eliminate or in any way diminish
supplements, or other employee benefits being enjoyed at the time of the
promulgation of this Code.

Clearly, the prohibition against elimination or diminution of benefits set out


in Article 100 of the Labor Code is specifically concerned with benefits
already enjoyed at the time of the promulgation of the Labor Code. Article
100 does not, in other words, purport to apply to situations arising after the
promulgation date of the Labor Code

7 Does the non-ratification of the MOA in accordance with the


Union's constitution prove fatal to the validity thereof?

No. It must be remembered that after the MOA was signed, the members of
the Union individually signed contracts denominated as "Reconfirmation of
Employment." Cullo did not dispute the fact that of the 87 members of the
Union, who signed and accepted the "Reconfirmation of Employment," 71 are
the respondent employees in the case at bar. Moreover, it bears to stress
that all the employees were assisted by Rojas, DIHFEU-NFL's president, who
even co-signed each contract.
Republic of the Philippines

Supreme Court

Manila

SECOND DIVISION

FEDERICO S. ROBOSA,
ROLANDO E. PANDY, NOEL D. G.R. No. 176085
ROXAS, ALEXANDER ANGELES,
VERONICA GUTIERREZ,
FERNANDO EMBAT, and
NANETTE H. PINTO, Present:
Petitioners,
CARPIO, J., Chairperson,
BRION,
PEREZ,
- versus - SERENO, and
REYES, JJ.

NATIONAL LABOR RELATIONS


COMMISSION (First Division),
CHEMO-TECHNISCHE Promulgated:
MANUFACTURING, INC. and its
responsible officials led by February 8, 2012
FRANKLIN R. DE LUZURIAGA,
and PROCTER & GAMBLE
PHILIPPINES, INC.,
Respondents.
x-------------------------------------------------------------------------------
-----------x

DECISION

BRION, J.:

We resolve the petition for review on certiorari[1] seeking the


reversal of the resolutions of the Court of Appeals (CA) rendered
on February 24, 2006[2] and December 14, 2006[3] in CA-G.R. SP
No. 80436.

Factual Background
Federico S. Robosa, Rolando E. Pandy, Noel D. Roxas, Alexander
Angeles, Veronica Gutierrez, Fernando Embat and Nanette H. Pinto
(petitioners) were rank-and-file employees of respondent Chemo-
Technische Manufacturing, Inc. (CTMI), the manufacturer and
distributor of Wella products. They were officers and members of
the CTMI Employees Union-DFA (union). Respondent Procter and
Gamble Philippines, Inc. (P & GPI) acquired all the interests,
franchises and goodwill of CTMI during the pendency of the
dispute.

Sometime in the first semester of 1991, the union filed a petition


for certification election at CTMI. On June 10, 1991, Med-Arbiter
Rasidali Abdullah of the Office of the Department of Labor and
Employment in the National Capital Region (DOLE-NCR) granted
the petition. The DOLE-NCR conducted a consent election on July
5, 1991, but the union failed to garner the votes required to be
certified as the exclusive bargaining agent of the company.

On July 15, 1991, CTMI, through its President and General


Manager Franklin R. de Luzuriaga, issued a
memorandum announcing that effective that day: (1) all sales
[4]

territories were demobilized; (2) all vehicles assigned to sales


representatives should be returned to the company and would be
sold; (3) sales representatives would continue to service their
customers through public transportation and would be given
transportation allowance; (4) deliveries of customers orders would
be undertaken by the warehouses; and (5) revolving funds for ex-
truck selling held by sales representatives should be surrendered
to the cashier (for Metro Manila) or to the supervisor (for Visayas
and Mindanao), and truck stocks should immediately be
surrendered to the warehouse.

On the same day, CTMI issued another memorandum [5] informing


the companys sales representatives and sales drivers of the new
system in the Salon Business Groups selling operations.

The union asked for the withdrawal and deferment of CTMIs


directives, branding them as union busting acts constituting unfair
labor practice. CTMI ignored the request. Instead, it issued on July
23, 1991 a notice of termination of employment to the sales
drivers, due to the abolition of the sales driver positions. [6]

On August 1, 1991, the union and its affected members filed a


complaint for illegal dismissal and unfair labor practice, with a
claim for damages, against CTMI, De Luzuriaga and other CTMI
officers. The union also moved for the issuance of a writ of
preliminary injunction and/or temporary restraining order (TRO).

The Compulsory Arbitration Proceedings

The labor arbiter handling the case denied the unions motion for a
stay order on the ground that the issues raised by the petitioners
can best be ventilated during the trial on the merits of the case.
This prompted the union to file on August 16, 1991 with the
National Labor Relations Commission (NLRC), a petition for the
issuance of a preliminary mandatory injunction and/or TRO. [7]
On August 23, 1991, the NLRC issued a TRO. [8] It directed CTMI,
De Luzuriaga and other company executives to (1) cease and
desist from dismissing any member of the union and from
implementing the July 23, 1991 memorandum terminating the
services of the sales drivers, and to immediately reinstate them if
the dismissals have been effected; (2) cease and desist from
implementing the July 15, 1991 memorandum grounding the sales
personnel; and (3) restore the status quo ante prior to the
formation of the union and the conduct of the consent election.

Allegedly, the respondents did not comply with the NLRCs August
23, 1991 resolution. They instead moved to dissolve the TRO and
opposed the unions petition for preliminary injunction.

On September 12, 1991, the NLRC upgraded the TRO to a writ of


preliminary injunction.[9] The respondents moved for
reconsideration. The union opposed the motion and urgently
moved to cite the responsible CTMI officers in contempt of court.

On August 25, 1993, the NLRC denied the respondents motion for
reconsideration and directed Labor Arbiter Cristeta Tamayo to
hear the motion for contempt. In reaction, the respondents
questioned the NLRC orders before this Court through a petition
for certiorari and prohibition with preliminary injunction. The Court
dismissed the petition for being premature. It also denied the
respondents motion for reconsideration, as well as a second
motion for reconsideration, with finality. This notwithstanding, the
respondents allegedly refused to obey the NLRC directives. The
respondents defiance, according to the petitioners, resulted in the
loss of their employment.

Meanwhile, the NLRC heard the contempt charge. On October 31,


2000, it issued a resolution[10] dismissing the charge. It ordered
the labor arbiter to proceed hearing the main case on the
merits.

The petitioners moved for, but failed to secure, a


reconsideration from the NLRC on the dismissal of the contempt
charge. They then sought relief from the CA by way of a petition
for certiorari under Rule 65.

The CA Decision

The CA saw no need to dwell on the issues raised by the


petitioners as the question it deemed appropriate for resolution is
whether the NLRCs dismissal of the contempt charge against the
respondents may be the proper subject of an appeal. It opined
that the dismissal is not subject to review by an appellate court.
Accordingly, the CA Special Sixth Division dismissed the petition
in its resolution of February 24, 2006.[11]

The CA considered the prayer of P & GPI to be dropped as


party-respondent moot and academic.

The petitioners sought a reconsideration, but the CA denied


the motion in its resolution of December 14, 2006.[12] Hence, the
present Rule 45 petition.

The Petition

The petitioners charge the CA with grave abuse of discretion in


upholding the NLRC resolutions, despite the reversible errors the
labor tribunal committed in dismissing the contempt charge
against the respondents. They contend that the respondents were
guilty of contempt for their failure (1) to observe strictly the
NLRC status quo order; and (2) to reinstate the dismissed
petitioners and to pay them their lost wages, sales commissions,
per diems, allowances and other employee benefits. They also
claim that the NLRC, in effect, overturned this Courts affirmation
of the TRO and of the preliminary injunction.

The petitioners assail the CAs reliance on the Courts ruling that a
contempt charge partakes of a criminal proceeding where an
acquittal is not subject to appeal. They argue that the facts
obtaining in the present case are different from the facts of the
cases where the Courts ruling was made. They further argue that
by the nature of this case, the Labor Code and its implementing
rules and regulations should apply, but in any event, the appellate
court is not prevented from reviewing the factual basis of the
acquittal of the respondents from the contempt charges.

The petitioners lament that the NLRC, in issuing the challenged


resolutions, had unconstitutionally applied the law. They maintain
that not only did the NLRC unconscionably delay the disposition of
the case for more than twelve (12) years; it also rendered an
unjust, unkind and dubious judgment. They bewail that [f]or some
strange reason, the respondent NLRC made a queer [somersault]
from its earlier rulings which favor the petitioners. [13]

The Case for the Respondents

Franklin K. De Luzuriaga

De Luzuriaga filed a Comment[14] on May 17, 2007 and a


Memorandum on December 4, 2008,[15] praying for a dismissal of
the petition.

De Luzuriaga argues that the CA committed no error when it


dismissed the petition for certiorari since the dismissal of the
contempt charge against the respondents amounted to an
acquittal where review by an appellate court will not lie. In any
event, he submits, the respondents were charged with indirect
contempt which may be initiated only in the appropriate regional
trial court, pursuant to Section 12, Rule 71 of the Rules of Court.
He posits that the NLRC has no jurisdiction over an indirect
contempt charge. He thus argues that the petitioners improperly
brought the contempt charge before the NLRC.

Additionally, De Luzuriaga points out that the petition raises only


questions of facts which, procedurally, is not allowed in a petition
for review on certiorari. Be this as it may, he submits that
pursuant to Philippine Long Distance Telephone Company, Inc. v.
Tiamson,[16] factual findings of labor officials, who are deemed to
have acquired expertise in matters within their respective
jurisdictions, are generally accorded not only respect but even
finality. He stresses that the CA committed no reversible error in
not reviewing the NLRCs factual findings.

Further, De Luzuriaga contends that the petitioners verification


and certification against forum shopping is defective because it
was only Robosa and Pandy who executed the document. There
was no indication that they were authorized by Roxas, Angeles,
Gutierrez, Embat and Pinto to execute the required verification
and certification.

Lastly, De Luzuriaga maintains that the petitioners are guilty of


forum shopping as the reliefs prayed for in the petition before the
CA, as well as in the present petition, are the same reliefs that the
petitioners may be entitled to in the complaint before the labor
arbiter.[17]

P & GPI
As it did with the CA when it was asked to comment on the
petitioners motion for reconsideration, [18] P & GPI prays in its
Comment[19] and Memorandum[20] that it be dropped as a party-
respondent, and that it be excused from further participating in
the proceedings. It argues that inasmuch as the NLRC resolved
the contempt charge on the merits, an appeal from its dismissal
through a petition for certiorari is barred. Especially in its case,
the dismissal of the petition for certiorari is correct because it was
never made a party to the contempt proceedings and, thus, it was
never afforded the opportunity to be heard. It adds that it is an
entity separate from CTMI. It submits that it cannot be made to
assume any or all of CTMIs liabilities, absent an agreement to that
effect but even if it may be liable, the present proceedings are not
the proper venue to determine its liability, if any.

On December 16, 2008, the petitioners filed a


Memorandum [21]
raising essentially the same issues and
arguments laid down in the petition.
The Courts Ruling
Issues

The parties submissions raise the following issues:

(1) whether the NLRC has contempt powers;


(2) whether the dismissal of a contempt charge is
appealable; and
(3) whether the NLRC committed grave abuse of discretion in
dismissing the contempt charge against the respondents.

On the first issue, we stress that under Article 218 [22] of the
Labor Code, the NLRC (and the labor arbiters) may hold any
offending party in contempt, directly or indirectly, and impose
appropriate penalties in accordance with law. The penalty for
direct contempt consists of either imprisonment or fine, the
degree or amount depends on whether the contempt is against
the Commission or the labor arbiter. The Labor Code, however,
requires the labor arbiter or the Commission to deal with indirect
contempt in the manner prescribed under Rule 71 of the Rules of
Court.[23]

Rule 71 of the Rules of Court does not require the labor


arbiter or the NLRC to initiate indirect contempt proceedings
before the trial court. This mode is to be observed only when
there is no law granting them contempt powers. [24] As is clear
under Article 218(d) of the Labor Code, the labor arbiter or the
Commission is empowered or has jurisdiction to hold the
offending party or parties in direct or indirect contempt. The
petitioners, therefore, have not improperly brought the indirect
contempt charges against the respondents before the NLRC.

The second issue pertains to the nature of contempt


proceedings, especially with respect to the remedy available to
the party adjudged to have committed indirect contempt or has
been absolved of indirect contempt charges. In this regard,
Section 11, Rule 71 of the Rules of Court states that the judgment
or final order of a court in a case of indirect contempt may be
appealed to the proper court as in a criminal case. This is not the
point at issue, however, in this petition. It is rather the question of
whether the dismissal of a contempt charge, as in the present
case, is appealable. The CA held that the NLRCs dismissal of the
contempt charges against the respondents amounts to an
acquittal in a criminal case and is not subject to appeal.

The CA ruling is grounded on prevailing jurisprudence.

In Yasay, Jr. v. Recto,[25] the Court declared:

A distinction is made between a civil and [a] criminal


contempt. Civil contempt is the failure to do something
ordered by a court to be done for the benefit of a party. A
criminal contempt is any conduct directed against the
authority or dignity of the court.[26]

The Court further explained in Remman Enterprises, Inc. v.


Court of Appeals[27] and People v. Godoy[28] the character of
contempt proceedings, thus

The real character of the proceedings in contempt


cases is to be determined by the relief sought or by the
dominant purpose. The proceedings are to be regarded as
criminal when the purpose is primarily punishment and
civil when the purpose is primarily compensatory or
remedial.
Still further, the Court held in Santiago v. Anunciacion, Jr.
[29]
that:

But whether the first or the second, contempt is still a


criminal proceeding in which acquittal, for instance, is a
bar to a second prosecution. The distinction is for the
purpose only of determining the character of punishment
to be administered.

In the earlier case of The Insurance Commissioner v. Globe


Assurance Co., Inc.,[30] the Court dismissed the appeal from the
ruling of the lower court denying a petition to punish the
respondent therein from contempt for lack of evidence. The Court
said in that case:

It is not the sole reason for dismissing this appeal. In


the leading case of In re Mison, Jr. v. Subido, it was
stressed by Justice J.B.L. Reyes as ponente, that the
contempt proceeding far from being a civil action is of a
criminal nature and of summary character in which the
court exercises but limited jurisdiction. It was then
explicitly held: Hence, as in criminal proceedings, an
appeal would not lie from the order of dismissal of, or an
exoneration from, a charge of contempt of court. [footnote
omitted]

Is the NLRCs dismissal of the contempt charges


against the respondents beyond review by this Court? On
this important question, we note that the petitioners, in assailing
the CA main decision, claim that the appellate court committed
grave abuse of discretion in not ruling on the dismissal by the
NLRC of the contempt charges.[31] They also charge the NLRC of
having gravely abused its discretion and having committed
reversible errors in:
(1) setting aside its earlier resolutions and orders, including
the writ of preliminary injunction it issued, with its dismissal of the
petition to cite the respondents in contempt of court;
(2) overturning this Courts resolutions upholding the TRO and
the writ of preliminary injunction;
(3) failing to impose administrative fines upon the
respondents for violation of the TRO and the writ of preliminary
injunction; and
(4) failing to order the reinstatement of the dismissed
petitioners and the payment of their accrued wages and other
benefits.

In view of the grave abuse of discretion allegation in this


case, we deem it necessary to look into the NLRCs dismissal of
the contempt charges against the respondents. As the charges
were rooted into the respondents alleged non-compliance with the
NLRC directives contained in the TRO [32] and the writ of
preliminary injunction,[33] we first inquire into what really
happened to these directives.

The assailed NLRC resolution of October 31, 2000[34] gave us the


following account on the matter -

On the first directive, x x x We find that there was no


violation of the said order. A perusal of the records would
show that in compliance with the temporary restraining
order (TRO), respondents reinstated back to work the
sales drivers who complained of illegal dismissal
(Memorandum of Respondents, page 4).

Petitioners allegation that there was only payroll


reinstatement does not make the respondents guilty of
contempt of court. Even if the drivers were just in the
garage doing nothing, the same does not make
respondents guilty of contempt nor does it make them
violators of the injunction order. What is important is that
they were reinstated and receiving their salaries.

As for petitioners Danilo Real, Roberto Sedano and


Rolando Manalo, they have resigned from their jobs and
were paid their separation pay xxx (Exhibits 6, 6-A, 7, 7-A,
8, 8-A, Respondents Memorandum dated August 12,
1996). The issue of whether they were illegally dismissed
should be threshed out before the Labor Arbiter in whose
sala the case of unfair labor practice and illegal dismissal
were (sic) filed. Records also show that petitioner Antonio
Desquitado during the pendency of the case executed an
affidavit of desistance asking that he be dropped as party
complainant in as much as he has already accepted
separation benefits totaling to P63,087.33.

With respect to the second directive ordering respondents


to cease and desist from implementing the memoranda
dated July 15, 1991 designed to ground sales personnel
who are members of the union, respondents alleged that
they can no longer be restrained or enjoined and that the
status quo can no longer be restored, for implementation
of the memorandum was already consummated or was a
fait accompli. x x x

All sales vehicles were ordered to be turned over to


management and the same were already sold[.] xxx [I]t
would be hard to undo the sales transactions, the same
being valid and binding. The memorandum of July 15,
1991 authorized still all sales representatives to continue
servicing their customers using public transportation and
a transportation allowance would be issued.

xxxx

The third directive of the Commission is to preserve the


status quo ante between the parties.

Records reveal that WELLA AG of Germany terminated its


Licensing Agreement with respondent company
effective December 31, 1991 (Exhibit 11, Respondents
Memorandum).

On January 31, 1992, individual petitioners together with


the other employees were terminated xxx. In fact, this
event resulted to the closure of the respondent
company. The manufacturing and marketing operations
ceased. This is evidenced by the testimony of Rosalito del
Rosario and her affidavit (Exh. 9, memorandum of
Respondents) as well as Employers Monthly Report on
Employees Termination/dismissals/suspension xxx
(Exhibits 12-A to 12-F, ibid) as well as the report that
there is a permanent shutdown/total closure of all units of
operations in the establishment (Ibid). A letter was
likewise sent to the Department of Labor and
Employment (Exh. 12, Ibid) in compliance with Article 283
of the Labor Code, serving notice that it will cease
business operations effective January 31, 1992.

The petitioners strongly dispute the above account. They


maintain that the NLRC failed to consider the following:

1. CTMI violated the status quo ante order when it did not
restore to their former work assignments the dismissed sales
drivers. They lament that their being garaged deprived them of
benefits, and they were subjected to ridicule and psychological
abuse. They assail the NLRC for considering the payroll
reinstatement of the drivers as compliance with its stay order.
They also bewail the NLRCs recognition of the resignation of
Danilo Real, Roberto Sedano, Rolando Manalo and Antonio
Desquitado as they were just compelled by economic necessity to
resign from their employment. The quitclaims they executed were
contrary to public policy and should not bar them from claiming
the full measure of their rights, including their counsel who was
unduly deprived of his right to collect attorneys fees.

2. It was error for the NLRC to rule that the memorandum,


grounding the sales drivers, could no longer be restrained or
enjoined because all sales vehicles were already sold. No
substantial evidence was presented by the respondents to prove
their allegation, but even if there was a valid sale of the vehicles,
it did not relieve the respondents of responsibility under the stay
order.

3. The alleged termination of the licensing agreement


between CTMI and WELLA AG of Germany, which allegedly
resulted in the closure of CTMIs manufacturing and marketing
operations, occurred after the NLRCs issuance of the injunctive
reliefs. CTMI failed to present substantial evidence to support its
contention that it folded up its operations when the licensing
agreement was terminated. Even assuming that there was a valid
closure of CTMIs business operations, they should have been paid
their lost wages, allowances, incentives, sales commissions, per
diems and other employee benefits from August 23, 1991 up to
the date of the alleged termination of CTMIs marketing
operations.
Did the NLRC commit grave abuse of discretion in
dismissing the contempt charges against the
respondents? An act of a court or tribunal may only be
considered as committed in grave abuse of discretion when it was
performed in a capricious or whimsical exercise of judgment
which is equivalent to lack of jurisdiction. The abuse of discretion
must be so patent and gross as to amount to an evasion of a
positive duty enjoined by law, or to act at all in contemplation of
law, as where the power is exercised in an arbitrary and despotic
manner by reason of passion or personal hostility. [35]
The petitioners insist that the respondents violated the NLRC
directives, especially the status quo ante order, for their failure to
reinstate the dismissed petitioners and to pay them their benefits.
In light of the facts of the case as drawn above, we cannot see
how the status quo ante or the employer-employee situation
before the formation of the union and the conduct of the consent
election can be maintained. As the NLRC explained, CTMI closed
its manufacturing and marketing operations after the termination
of its licensing agreement with WELLA AG of Germany. In fact, the
closure resulted in the termination of CTMIs remaining employees
on January 31, 1992, aside from the sales drivers who were earlier
dismissed but reinstated in the payroll, in compliance with the
NLRC injunction. The petitioners termination of employment, as
well as all of their money claims, was the subject of the illegal
dismissal and unfair labor practice complaint before the labor
arbiter. The latter was ordered by the NLRC on October 31,
2000 to proceed hearing the case. [36] The NLRC thus subsumed all
other issues into the main illegal dismissal and unfair labor
practice case pending with the labor arbiter. On this point, the
NLRC declared:

Note that when the injunction order was issued,


WELLA AG of Germany was still under licensing
agreement with respondent company. However, the
situation has changed when WELLA AG
of Germany terminated its licensing agreement with the
respondent, causing the latter to close its business.

Respondents could no longer be ordered to restore


the status quo as far as the individual petitioners are
concerned as these matters regarding the termination of
the employees are now pending litigation with the
Arbitration Branch of the Commission. To resolve the
incident now regarding the closure of the respondent
company and the matters alleged by petitioners such as
the creations of three (3) new corporations xxx as
successor-corporations are matters best left to the Labor
Arbiter hearing the merits of the unfair labor practice and
illegal dismissal cases.[37]

We find no grave abuse of discretion in the assailed


NLRC ruling. It rightly avoided delving into issues which would
clearly be in excess of its jurisdiction for they are issues involving
the merits of the case which are by law within the original and
exclusive jurisdiction of the labor arbiter. [38] To be sure, whether
payroll reinstatement of some of the petitioners is proper;
whether the resignation of some of them was compelled by dire
economic necessity; whether the petitioners are entitled to their
money claims; and whether quitclaims are contrary to law or
public policy are issues that should be heard by the labor arbiter
in the first instance. The NLRC can inquire into them only on
appeal after the merits of the case shall have been adjudicated by
the labor arbiter.

The NLRC correctly dismissed the contempt charges against


the respondents. The CA likewise committed no grave abuse of
discretion in not disturbing the NLRC resolution.

In light of the above discussion, we find no need to dwell into


the other issues the parties raised.

WHEREFORE, premises considered, we hereby DENY the


petition for lack of merit and AFFIRM the assailed resolutions of
the Court of Appeals.

SO ORDERED.
CASE TITLE: ROBOSA v NLRC
GR NO.: G.R. No. 176085
DATE: February 8, 2012

PETITIONER: FREDERICO ROBOSA et al.- rank and file employees of respondent,


officers of the union
RESPONDENT: Chemo-Technische Manufacturing, Inc. (CTMI) acquired by Proctor
and Gamble

FACTS:
CTMI Employees Union-DFA, led by the petitioners filed a petition for certification
election at CTMI to be certified as the exclusive bargaining agent of the company. It
failed to garner the votes required. Later on, respondent issued a memorandum
demobilizing its sales territories and abolishing its system of truck-sales
representatives while simultaneously informing the sales group of a new
system(Salon Business Groups). Petitioner union asked for the withdrawal of
respondents directives but the latter ignored it. Instead it issued a notice of
termination of employment of sales drivers due to the abolition of their position.
Petitioners filed a complaint for illegal dismissal and unfair labor practices against
CTMI, it also moved for the issuance of a writ of preliminary injunction and/or TRO.
During the compulsory arbitration proceedings, the union was prompted to file it to
the NLRC which then issued a TRO. It was upgraded to a writ of preliminary
injunction when the respondent refused to comply. Respondent moved for
consideration but was denied by the NLRC who then directed Labor Arbiter Cristeta
Tamayo to hear the motion for contempt as urged by the union.
The NLRC heard the contempt charge but issued its dismissal. Petitioner moved for
reconsideration and subsequently sought relief from the CA. However, the CA
opined that the dismissal is not subject to review by an appellate court. Hence this
petition raising the issues.

ISSUE:
(1) whether the NLRC has contempt powers;
(2) whether the dismissal of a contempt charge is appealable; and
(3) whether the NLRC committed grave abuse of discretion in dismissing the
contempt charge against the respondents

HELD:
1.) Under Article 218 of the Labor Code, the NLRC (and the labor arbiters) may hold
any offending party in contempt, directly or indirectly, and impose appropriate
penalties in accordance with law. The Labor Code, however, requires the labor
arbiter or the Commission to deal with indirect contempt in the manner prescribed
under Rule 71 of the Rules of Court.
Rule 71 of the Rules of Court does not require the labor arbiter or the NLRC to
initiate indirect contempt proceedings before the trial court. This mode is to be
observed only when there is no law granting them contempt powers. Article 218(d)
of the Labor Code, the labor arbiter or the Commission is empowered or has
jurisdiction to hold the offending party or parties in direct or indirect contempt. The
petitioners, therefore, have not improperly brought the indirect contempt charges
against the respondents before the NLRC.
2.) The CA held that the NLRCs dismissal of the contempt charges against the
respondents amounts to an acquittal in a criminal case and is not subject to appeal.
This ruling is grounded on prevailing jurisprudence.
The case cited Mison jr. v. Subido where Justice Reyes stressed the contempt
proceeding far from being a civil action is of a criminal nature and of summary
character in which the court exercises but limited jurisdiction. It was then explicitly
held: Hence, as in criminal proceedings, an appeal would not lie from the order of
dismissal of, or an exoneration from, a charge of contempt of court.
3.) No. The assailed NLRC ruling did not commit grave abuse of discretion. It rightly
avoided probing into issues which would clearly be in excess of its jurisdiction for
they are issues involving the merits of the case which are by law within the original
and exclusive jurisdiction of the labor arbiter. The NLRC can inquire into them only
on appeal after the merits of the case shall have been adjudicated by the labor
arbiter. An act of a court or tribunal may only be considered as committed in grave
abuse of discretion when it was performed in a capricious or whimsical exercise of
judgment which is equivalent to lack of jurisdiction.
Stipulated in each Reconfirmation of Employment were the new salary and
benefits scheme. In addition, it bears to stress that specific provisions of the
new contract also made reference to the MOA. Thus, the individual members
of the union cannot feign knowledge of the execution of the MOA. Each
contract was freely entered into and there is no indication that the same was
attended by fraud, misrepresentation or duress. To this Court's mind, the
signing of the individual "Reconfirmation of Employment" should, therefore,
be deemed an implied ratification by the Union members of the MOA.

While the terms of the MOA undoubtedly reduced the salaries and certain
benefits previously enjoyed by the members of the Union, it cannot escape
this Court's attention that it was the execution of the MOA which paved the
way for the re-opening of the hotel, notwithstanding its financial distress.
More importantly, the execution of the MOA allowed respondents to keep
their jobs. It would certainly be iniquitous for the members of the Union to
sign new contracts prompting the re-opening of the hotel only to later on
renege on their agreement on the fact of the non-ratification of the MOA.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 186289 June 29, 2010

ORIENTAL SHIPMANAGEMENT CO., INC., Petitioner,


vs.
ROMY B. BASTOL, Respondent.

DECISION

VELASCO, JR., J.:

The Case

In a Petition for Review 1 on Certiorari under Rule 45 of the Rules of Court, petitioner Oriental
Shipmanagement Co., Inc. (OSCI) assails the Decision 2 dated August 12, 2008 and the Resolutions
dated January 7, 20093 and February 6, 20094 of the Court of Appeals (CA) in CA-G.R. SP No.
100090, which annulled and set aside the July 31, 2006 Decision 5 and May 30, 2007 Resolution of
the National Labor Relations Commission (NLRC), and reinstated the January 28, 1999 Decision 6 of
the Labor Arbiter.

The Facts

OSCI is a domestic manning agency engaged in the recruitment and placement of Filipino seafarers
abroad. Paterco Shipping Ltd. (PSL) is a foreign shipping company which owned and operated the
vessel MV Felicita and a client of OSCI. Protection & Indemnity Club (PIC) was the insurer of PSL
covering contingencies like illness claims and benefits of seamen. Pandiman Philippines, Inc. (PPI)
is the local representative of PIC.

As agent of PSL, OSCI hired Romy B. Bastol (Bastol) as bosun on November 29, 1995 evidenced
by a Contract of Employment. 7 On December 5, 1995, Bastol was deployed on board the vessel MV
Felicita.

The genesis of the instant case emerged when, on February 17, 1997, while on board the vessel,
Bastol suffered chest pains and cold clammy perspiration. He was hospitalized in Algiers and found
to be suffering from anterior myocardial infarction. 8 In short, he had a heart attack. He was
subsequently repatriated due to his illness on March 7, 1997.

Upon arrival here in the Philippines, on March 8, 1997, he was referred to the Jose L. Gutierrez
Clinic in Malate, Manila for a follow-up examination where Dr. Achilles J. Peralta examined and
found him to be suffering from "T/C Ischemic Heart Disease. Ant. Myocardial Infection." Dr. Peralta
issued a Medical Report 9 certifying that he was "Unfit for Sea Duty." In a follow-up medical
examination on April 1, 1997, Dr. Peralta still found Bastol "Unfit for Sea Duty." 10

Thus, PPI referred Bastol for medical treatment to the Metropolitan Hospital under the care of
company-designated physician Dr. Robert D. Lim, a Diplomate in Rehabilitation Medicine. On April
10, 1997, Bastol was confined and treated at said hospital until May 7, 1997. Dr. Lim certified that
Bastol had "Coronary artery dse; S/P Ant. wall MP; Hypercholesterolemia;
Hyperglycemia."11 Thereafter, Bastol had regular laboratory and medical examinations with the
company-designated physician.

Unsatisfied with the treatment by Dr. Lim and seeking a second opinion, he went to Dr. Efren R.
Vicaldo, a Cardiologist and Congenital Heart Disease Specialist of the Philippine Heart Center, who
diagnosed him to be suffering from "Coronary Artery Disease and Extensive Anteriorseptalmia" with
the corresponding remarks: "For Disability, Impediment Grade 1 (120%)." 12

Feeling abandoned and aggrieved with OSCI and PSL, Bastol, through counsel, sent a November
27, 1997 letter on December 2, 1997 to Capt. Rosendo C. Herrera, the President of OSCI, for a
possible settlement of his claim for disability benefits. 13 He attached the Medical Certificate issued by
Dr. Vicaldo. His letter did not merit a response from OSCI.

Thus, Bastol was compelled to file a Complaint 14 before the Labor Arbiter on May 8, 1988 for: (a)
medical disability benefit (Grade 1) of USD 60,000; (b) illness allowance until he is deemed fit to
work again; (c) medical benefits for the treatment of his ailment; (d) moral damages of PhP 100,000;
and (e) attorneys fee of 10% of the total monetary award.

OSCI countered that Bastol is not entitled to his indemnity claims, among others, for disability
benefits on account of non-compliance with the requirements of the 1994 revised Standard
Employment Contract (SEC) by failing to properly submit himself for treatment and examination by
the company-designated physician who is the only one authorized to set the degree of disability, i.e.,
disability grade. Submitting documentary evidence, OSCI maintained that Bastol submitted to the
examination and treatment by the company-designated physician only on April 25, 1997, 15 May 23,
1997,16 September 16, 1997,17 and October 28, 1997,18 but he voluntarily discontinued said treatment
and did not show up for the follow-up examination on December 2, 1997. Thus, the company-
designated physician was not given ample opportunity to properly treat Bastols ailment and did not
have sufficient chance to assess and determine his disability grade, if any.

On January 28, 1999, Labor Arbiter Mayor, Jr. rendered a Decision based on the parties respective
position papers19 and the documentary evidence presented in NLRC NCR OFW Case No. 98-05-
0801, the decretal portion reading:

WHEREFORE, in view of all the foregoing, respondents Oriental Shipmanagement Co., Inc. and
Paterco Shipping Ltd. are hereby ordered to jointly and severally pay complainant the sum of
US$60,000.00 or its peso equivalent at the time of payment plus the sum equivalent to ten (10%)
percent of the award or in the amount of US$6,000.00 as and by way of attorneys fee.

SO ORDERED.20

The Labor Arbiter saw no need to conduct formal hearings. He found that Bastol was healthy when
deployed in December 1995 but subsequently contracted or suffered heart ailment during his period
of employment with OSCI and PSL. He also found that Bastol did not show any appreciable
improvement despite treatment by the company-designated physician, thus ruling that the fact that
Dr. Lim had not issued a certification as to Bastols condition did not negate his claim for disability
indemnity, as the determination of the degree thereof by Dr. Vicaldo of the Philippine Heart Center
sufficed.

OSCI immediately assailed the above Labor Arbiter decision before the NLRC. 21 Subsequently, on
July 30, 1999, the NLRC issued a Resolution 22 in NLRC NCR CA No. 019238-99, vacating and
setting aside the January 28, 1999 Decision of the Labor Arbiter and remanding the case back to the
Labor Arbiter for further proceedings, the dispositive portion ordering, thus:

WHEREFORE, for the reasons [above discussed], the decision appealed from is hereby vacated
and set aside and the records of this case Remanded to the Labor Arbiter of origin for conduct of
further approximate proceedings and to terminate the same with dispatch.

SO ORDERED.23

In remanding the case back to the Labor Arbiter, the NLRC ruled that Bastol should have presented
himself before the Labor Arbiter for the latter to properly assess his condition, and that Dr. Lim and
Dr. Vicaldo should be presented to determine with certainty the status of Bastols heart ailment.

This prompted both parties to file their respective motions for reconsideration which were rejected by
the NLRC through its Resolution24 of October 29, 1999. With the remand, Labor Arbiter Mayor, Jr.
proceeded to hear the case. However, upon OSCIs motion for inhibition, Labor Arbiter Mayor, Jr.
inhibited himself, and the case was re-raffled to Labor Arbiter Joel S. Lustria.

Subsequently, on May 10, 2001, the case was deemed submitted for decision. Thereafter, on July
25, 2001, OSCI filed before the Labor Arbiter a Motion to Dismiss for failure to prosecute for an
unreasonable length of time and insufficiency of evidence. OSCI argued that through the July 30,
1999 Resolution, the NLRC found that Bastol failed to prove his causes of action, and despite
numerous hearings conducted before the Labor Arbiter after the remand of the case, Bastol still
failed to present further evidence.

On October 26, 2001, however, Bastol filed a Manifestation/ Compliance 25 submitting the following
documents: (1) Affidavit26 of Dr. Vicaldo executed on May 10, 2001; (2) Conforme 27 for disability
benefit settlement in the amount of USD 25,000; (3) Special Power of Attorney (SPA) 28 executed by
Bastol in favor of Martin Jarmin, Jr. of OSCI; (4) Medical Disability Grading 29 of Bastol issued by Dr.
Lim, the company-designated physician, on June 26, 1997; and (5) Assessment and disability
grading determined by Dr. H.R. Varwig,30 company-designated physician of PPI.

Bastols manifestation and the documents he presented showed that prior to filing the instant case
on May 8, 1998, Bastol, assisted by counsel, entered into a settlement with PPI through Mrs.
Corazon C. Tabuena in the amount of USD 25,000 as disability indemnity. Said settlement was
based on the suggested disability grading of Grade 5060% issued by the company-designated
physician Dr. Lim on June 26, 1997 and that of Dr. H. R. Varwig, company-designated physician of
PPI, embodied in a letter dated August 7, 1997 sent to PPI with the assessment of Bastols disability
at Grade 6 according to the Department of Labor and Employment (DOLE) and the Philippine
Overseas Employment Administration (POEA) Schedule of Disability or Impediment. Bastol, assisted
by counsel, signed the settlement conforme with PPI on January 22, 1998. The settlement, however,
did not materialize due to the cancellation of the coverage by PIC of PSLs vessel M/V Felicita.

Even after Bastol already filed the instant case on May 8, 1998, Jarmin, Jr. of OSCI instructed him to
execute a SPA to authorize them to represent him (Bastol) in the auction sale of SPLs vessel M/V
Felicita. Forthwith, Bastol executed an SPA in favor of Jarmin, Jr. on August 12, 1998. Unfortunately,
Bastol was later informed by Jarmin, Jr. that the amount they recovered from the auction sale of
PSLs vessel was not enough to cover his disability claim. Thus, with the collapse of the settlement
agreement, Bastol was left with no option than to pursue the instant action. And in support of his
medical finding of Grade 1 (120%) disability, Dr. Vicaldo executed an Affidavit on May 10, 2001.

OSCI vehemently objected31 to Bastols Manifestation/Compliance and the documentary evidence


appended thereto.

The Ruling of Labor Arbiter Lustria in


Case No. NLRC NRC OFW Case No. 95-05-0501

On January 31, 2003, Labor Arbiter Lustria rendered a Decision 32 similar to that of Labor Arbiter
Mayor, Jr. The dispositive portion reads:

WHEREFORE, in view of all the foregoing, let a judgment be, as it is hereby rendered, ordering
respondents Oriental Shipmanagement Co., Inc. and Paterco Shipping, Ltd., to jointly and severally
pay complainant Romy Bastol, the sum of US$60,000.00 or its peso equivalent prevailing at the time
of payment plus the sum equivalent to ten (10%) percent of the award, or in the amount of
US$6,000.00 or its peso equivalent prevailing at the time of payment, as and by way of attorneys
fee.

SO ORDERED.33

Labor Arbiter Lustria found that Bastol indeed suffered from a heart ailment for which he is pursuing
disability indemnity which was duly proved by the concurring diagnosis of Dr. Peralta, Dr. Lim, Dr.
Varwig and Dr. Vicaldo. He found that the settlement agreement with PPI was pursuant to the
medical findings and assessments of both company-designated physicians, Dr. Lim and Dr. Varwig.
Thus, the reiteration of the award of Labor Arbiter Mayor, Jr.

Aggrieved, OSCI promptly filed its Memorandum of Appeal 34 before the NLRC.

The Ruling of the NLRC in NLR NCR CA No. 019238-99


(NLRC NCR OCW No. 98-05-0501)

On July 31, 2006, the NLRC First Division rendered its Decision reversing and setting aside Labor
Arbiter Lustrias January 31, 2003 Decision and dismissed the instant case, the fallo reading:

WHEREFORE, the appeal is GRANTED. The Decision of Labor Arbiter Joel S. Lustria dated
January 31, 2003 is hereby REVERSED AND SET ASIDE and a new one entered dismissing the
complaint.

SO ORDERED.35

In dismissing the case, the NLRC held that the sworn affidavit of Dr. Vicaldo and the manifestations
of Bastol could not substitute for their presence and testimony, and that of Dr. Lim. It ruled that since
not one clarificatory hearing was conducted, the sworn affidavit of Dr. Vicaldo is reduced to mere
hearsay sans a cross-examination by OSCI. Moreover, it noted that the reliance by the LA on the
certificates of Dr. Lim and Dr. Varwig is misplaced, for the disability ratings indicated therein do not
appear to be final for they were merely suggested ones. Besides, it pointed out that the records
show that Bastol was still under treatment and being re-evaluated by Dr. Lim when the purported
certificate was issued by Dr. Lim on June 26, 1997. It concluded that the purpose for which the case
was remanded had not been served and the true state of Bastols health not adequately established.
In fine, it ruled that even if Bastols disability has been determined with certainty, still it will not serve
to indemnify Bastol for his violation of the SEC when he prematurely sought the medical help of Dr.
Vicaldo, emphasizing that the 1994 revised SEC is clear in that it is only the company-designated
physician who could declare the fitness of the seafarer to work; or establish the degree of his
disability.
Undaunted, Bastol went to the CA questioning the reversal of Labor Arbiter Lustrias Decision via a
Petition36 for Certiorari under Rule 65 of the Rules of Court, which was docketed as CA-G.R. SP No.
100090.

The Ruling of the Court of Appeals

On August 12, 2008, the appellate court rendered the assailed Decision reversing the July 31, 2006
Decision and May 30, 2007 Resolution of the NLRC, and reinstated the January 28, 1999 Decision
of Labor Arbiter Mayor, Jr. The decretal portion reads:

WHEREFORE, the premises considered, the petition is GRANTED. The Assailed Decision and
Resolution of the NLRC, First Division dated July 31, 2006 and May 30, 2007, respectively are
hereby ANNULLED and SET ASIDE for having been issued with grave abuse of discretion and the
January 28, 1999 Decision of the Labor Arbiter, REINSTATED.

SO ORDERED.37

In reinstating the Labor Arbiters January 28, 1999 Decision, the appellate court ruled, first, that the
NLRC gravely abused its discretion in remanding the case back to the Labor Arbiter on the mistaken
notion that the determination of Bastols health ailment and entitlement to disability benefits under
the 1994 revised SEC cannot be ascertained without conducting a formal trial. It ratiocinated that Art.
221 of the Labor Code as amended by Sec. 11 of Republic Act No. (RA) 6715 in relation to Sec. 4,
Rule V of the NLRC Rules of Procedure then prevailing granted the Labor Arbiter discretion to
determine the necessity for a formal hearing or investigation. In the instant case, the CA found that
the Labor Arbiter acted properly and ruled appropriately on the evidence on record without need for
formal hearings. Thus, the NLRC gravely abused its discretion when it dismissed the instant case.

Second, relying on and applying the principles enunciated in Remigio v. National Labor Relations
Commission38together with the application of Sec. 20 in relation to Secs. 30 and 30-A of the SEC, the
appellate court appreciated and found total and permanent disability of Bastol, considering the
undisputed fact that he could not pursue his usual work as a seaman for a period of more than 120
days. Moreover, it noted that no less than four doctorsDr. Peralta, Dr. Lim, Dr. Varwig and Dr.
Vicaldofound Bastol to be suffering from a heart ailment which prevented him from being
employed at his usual job as a seafarer or seaman.

Third, the CA viewed no violation of Sec. 20, B, 3 of the SEC, for said proviso in its third paragraph
does not prohibit a second medical opinion, but, in fact, provides for the seafarer the right to seek a
second opinion and even a third opinion in cases where the seafarers doctor disagrees with the
assessment of the company-designated doctor. Thus, the CA ruled that the NLRC gravely erred in
construing the proviso that it is only the company-designated physician who could declare the fitness
of the seafarer to work or establish the degree of his disability. In fine, the CA pointed out that the
SEC does not serve to be a limitation but is a guarantee of protection to overseas contract workers
and must, therefore, be construed and applied fairly, reasonably and liberally in favor of and for the
benefit of seamen and their dependents.

OSCI moved for reconsideration39 of the above assailed CA Decision but the appellate court denied
the same through the first assailed January 7, 2009 Resolution. While affirming its Decision, the CA
held in its Resolution:

Finding no cogent or justifiable reason to set aside the Decision of this Court dated August 12,
2008 dismissing the instant petition, the motion for reconsideration filed by the petitioners is
hereby not given due course.

WHEREFORE, the aforementioned decision is hereby AFFIRMED and REITERATED.

SO ORDERED.40

OSCI then filed a Motion for Clarification 41 considering that Bastol, the petitioner in CA-G.R. SP No.
100090, did not file a motion for reconsideration of the assailed Decision which did not dismiss
Bastols petition, but instead annulled the NLRC dismissal of the instant case and reinstated the
January 28, 1999 Labor Arbiter Decision.

On February 6, 2009, the CA issued the second assailed Resolution rectifying the first assailed
Resolution of January 7, 2009.

Thus, the instant appeal before us.

The Issues
OSCI raises the following issues for our consideration:

a. Whether or not it is contrary to the principles of res judicata for the Court of Appeals to
have ordered the reinstatement of Labor Arbiter Mayors Decision dated 28 January 1999
which was already vacated and set aside by the NLRCs Resolution dated 30 July 1999
which in turn has become final and executory without respondent questioning the same.

b. Whether or not it is contrary to the legal principles of the "law of the case" for the Court of
Appeals to have disregarded the findings of the NLRC in the latters Resolution dated 30 July
1999 which by law is already final and executory.

c. Whether or not it was grave and reversible error on the part of the Court of Appeals to
have sanctioned Labor Arbiter Lustrias departure from accepted procedure in admitting into
evidence the gravely belated submissions of respondent without any justifiable reason being
advanced for said belated filing.

d. Whether or not the Court of Appeals erred in recognizing in favor of respondent a


declaration of disability grade 1 by an alleged doctor who is not the company-designated
physician and whose competence was not established.

e. Whether or not the lack of a proper verification of the Position Paper and/or
Manifestation/Compliance filed by respondent before Labor Arbiter Lustria rendered said
pleadings without legal effect as an unsigned pleading provided by Sec. 4 in relation to Sec.
3, both of Rule 7.

f. Whether or not respondents complaint for disability filed with the Labor Arbiter should have
been dismissed for failure to be supported by a certification of non-forum shopping as
required under Sec. 5, Rule 7 of the Rules of Court in relation to Sec. 3, rule 1 of the NLRC
Rules of Procedure.42

The foregoing issues can be summarized into three: first, on procedural grounds, whether the
Complaint filed before the Labor Arbiter ought to be dismissed for lack of certification against forum
shopping as required by the Rules and whether the verification by counsel is sufficient for Bastols
Position Paper and Manifestation/Compliance; second, whether the July 30, 1999 NLRC Decision
constitutes res judicata and serves as the "law of the case"; and third, whether the belated
submissions are allowed by the Rules, and the Affidavit of Dr. Vicaldo sufficient.

In the meantime, pending resolution of the instant case, Romy B. Bastol died on December 13, 2009
from his undisputed ailment of acute myocardial infarction.43

The Courts Ruling

We deny the appeal for lack of merit.

Procedural Issues

In its bid to overturn the assailed Decision and Resolutions, OSCI foisted several procedural issues
all based on the Rules of Court, the application of which it anchors on Sec. 3, Rule I of the NLRC
Rules of Procedure then prevailing, which pertinently provided:

Section 3. Suppletory application of Rules of Court and jurisprudence. In the absence of any
applicable provision in these Rules, and in order to effectuate the objectives of the Labor Code, the
pertinent provisions of the Revised Rules of Court of the Philippines and prevailing jurisprudence
may, in the interest of expeditious dispensation of labor justice and whenever practicable and
convenient, be applied by analogy or in a suppletory character and effect. 44

OSCI argues that the Complaint of Bastol ought to have been dismissed at the outset, i.e., before
the labor arbiter level, since it is an initiatory pleading which lacked the mandatorily required
certification of non-forum shopping under Sec. 5,45 Rule 7 of the Rules of Court.

In the same vein, OSCI contends that Bastols Position Paper and Manifestation/Compliance ought
to have been considered as unsigned pleadings which produce no legal effect under Sec. 3, 46 Rule 7
of the Rules of Court for violation of Sec. 4, 47 Rule 7, requiring verification to be made upon personal
knowledge or based on authentic records, because said pleadings were verified only by counsel,
which verification is clearly not based on personal knowledge or based on authentic records.

Pro-forma Complaint Forms Used in the RAB


The foregoing arguments are untenable. For the expeditious and inexpensive filing of complaints by
employees, the Regional Arbitration Branch (RAB) of the NLRC provides pro-forma complaint forms.
This is to facilitate the exercise and protection of employees rights by the convenient assertion of
their claims against employers untrammeled by procedural rules and complexities. To comply with
the certification against forum shopping requirement, a simple question embodied in the Complaint
form answerable by "yes" or "no" suffices. Employee-complainants are not even required to have a
counsel before they can file their complaint. An officer of the RAB, duly authorized to administer
oaths, is readily available to facilitate the execution of the required subscription or jurat of the
complaint.

This can be seen in the case at bar. Bastol, assisted by counsel, filled out the Complaint form, line
No. 11 of which is a question on anti-forum shopping which he answered by underlining the word
"No."48 It is thus clear that the strict application of Sec. 4, Rule 7 of the Rules of Court does not apply
to labor complaints filed before the NLRC RAB.

Verification by Counsel Sufficient

Anent the issue of verification, we have scrutinized both the Position Paper and the
Manifestation/Compliance filed by Bastol and we fail to see any violation thereof. First, there is no
law or rule requiring verification for the Manifestation/Compliance. Second, the counsels verification
in Bastols Position Paper substantially complies with the rule on verification. The second paragraph
of Sec. 4, Rule 7 of the Rules of Court provides: "A pleading is verified by an affidavit that the affiant
has read the pleading and that the allegations therein are true and correct of his personal knowledge
or based on authentic records."

On the other hand, the actual verification of counsel in Bastols Position Paper states: "That I am the
counsel of record for the complainant in the above-entitled case; that I caused the preparation of the
foregoing Position Paper; that I have read and understood the contents thereof; and that I confirm
that all the allegations therein contained are true and correct based on recorded
evidence."49 Appended to the position paper were Bastols contract of employment, counsels letter
to OSCI, and various medical certifications issued by several doctors with similar findings and
diagnosis of Bastols heart ailment. Evidently, the verification is proper as based on, and evidenced,
by the appended documents, which were not disputed save the contents of the medical certificate
issued by Dr. Vicaldo.

First Substantive Issue: Res Judicata and "Law of the Case"

OSCI strongly argues that the July 30, 1999 NLRC Decision remanding the case has become final
and executory, thus the applicability of the doctrine of res judicata and the principle of the "law of the
case" thereto. There being res judicata between the parties, the NLRCs setting aside of the January
28, 1999 Decision of Labor Arbiter Mayor, Jr. has become final. Thus, OSCI maintains that the CA
gravely erred in reinstating the January 28, 1999 Decision of Labor Arbiter Mayor, Jr.

And relying on the Courts pronouncement in Cucueco v. Court of Appeals 50 on the principle of the
"law of the case," OSCI asserts that the ruling of the July 30, 1999 NLRC Decision, remanding the
case to the Labor Arbiter for clarificatory hearings requiring the personal appearance of Bastol and
the testimonies of Dr. Lim and Dr. Vicaldo, may no longer be disturbed and must be complied with.
Thus, it argues that the non-compliance thereof and the belated submission of an alleged affidavit by
Dr. Vicaldo are clear contraventions of the prevailing "law of the case" as embodied in the final and
executory July 30, 1999 NLRC Decision.

The foregoing arguments of OSCI are tenuous at best.

Doctrine of res judicata inapplicable

We agree with OSCI that the CA committed double faux pas by (1) ruling on the remand of the case
by the NLRC to the Labor Arbiter which was not the subject of Bastols appeal before it; and (2)
reinstating the January 28, 1999 Decision of Labor Arbiter Mayor, Jr. which had earlier been set
aside and was not the object of OSCIs appeal to the NLRC. But these lapses do not adversely affect
the CAs determination of the propriety of the disability indemnity awarded to Bastol, as will be
discussed here.

Suffice it to say that the July 30, 1999 NLRC Decision cannot and does not constitute res judicata to
the instant case. In Estate of the Late Encarnacion Vda. de Panlilio v. Dizon,51 extensively quoting
from the earlier case of Vda. de Cruzo v. Carriaga, Jr.,52 we explained the nature of res judicata, as
now embodied in Sec. 47, Rule 39 of the Rules of Court, in its two concepts of "bar by former
judgment" and "conclusiveness of judgment." These concepts of the doctrine of res judicata are
applicable to second actions involving substantially the same parties, the same subject matter, and
cause or causes of action.53 In the instant case, there is no second action to speak of, involving as it
is the very same action albeit the NLRC remanded it to the Labor Arbiter for further proceedings.

Principle of "Law of the Case" inapplicable

"Law of the case" has been defined as the opinion delivered on a former appealit is a term applied
to an established rule that when an appellate court passes on a question and remands the case to
the lower court for further proceedings, the question there settled becomes the law of the case upon
subsequent appeal.54

OSCIs application of the law of the case principle to the instant case, as regards the remand of the
case to the Labor Arbiter for clarificatory hearings, is misplaced. The only matter settled in the July
30, 1999 NLRC Decision, which can be regarded as law of the case, was the undisputed fact that
Bastol was suffering from a heart ailment. As it is, the issue on the degree of disability of Bastols
heart ailment and his entitlement to disability indemnity, as viewed by the NLRC through said
decision, has yet to be resolved. Precisely, the NLRC remanded the case to Labor Arbiter Mayor, Jr.
"for conduct of further approximate proceedings and to terminate the same with dispatch." 55

Second Substantive Issue: Sufficiency of Sworn Affidavit

And the primordial reason why the argument of OSCI for the mandatory conduct of clarificatory
hearings requiring the personal appearance of Bastol and the testimonies of Dr. Lim and Dr. Vicaldo
is erroneous is that the law and the rules do not require such mandatory clarificatory hearings.

Labor Arbiter Has Discretion on the Propriety of Conducting Clarificatory Hearings

While it can be argued that the NLRC through its July 30, 1999 Decision skewed to have clarificatory
hearings for the presentation of evidence, it cannot be gainsaid that with the remand of the case, the
Labor Arbiter must proceed in accordance to the Rules governing proceedings before him provided
under the prevailing Rules of Procedure of the NLRC.56

We fully agree with Bastols arguments that the NLRC, while having appellate jurisdiction over
decisions and resolutions of the Labor Arbiter, may not dictate to the latter how to conduct the labor
case before him. Sec. 9 of Rule V of the then prevailing NLRC Rules of Procedure, issued on
December 10, 1999, provided for the nature of proceedings before the Labor Arbiter, thus:

Section 9. Nature of Proceedings. The proceedings before a Labor Arbiter shall be non-litigious
in nature. Subject to the requirements of due process, the technicalities of law and procedure
and the rules obtaining in the courts of law shall not strictly apply thereto. The Labor Arbiter
may avail himself of all reasonable means to ascertain the facts of the controversy speedily,
including ocular inspection and examination of well-informed persons. (Emphasis supplied.)

And the Labor Arbiter is given full discretion to determine, motu proprio, on whether to conduct
hearings or not. Secs. 3 and 4 of Rule V of the then prevailing NLRC Rules of Procedure also
pertinently provided:

Section 3. Submission of Position Papers/Memorandum. x x x

These verified position papers shall cover those claims and causes of action raised in the complaint
excluding those that may have been amicably settled, and shall be accompanied by all supporting
documents including the affidavits of their respective witnesses which shall take the place of
the latters direct testimony. x x x

Section 4. Determination of Necessity of Hearing. Immediately after the submission by the parties
of their position papers/memorandum, the Labor Arbiter shall motu proprio determine whether
there is a need for a formal trial or hearing. At this stage, he may, at his discretion and for the
purpose of making such determination, ask clarificatory questions to further elicit facts or
information, including but not limited to the subpoena of relevant documentary evidence, if any from
any party or witness. (Emphasis supplied.)

The foregoing provisos manifestly show the non-litigious and the summary nature of the proceedings
before the Labor Arbiter, who is given full discretion whether to conduct a hearing or not and to
decide the case before him through position papers. In Iriga Telephone Co, Inc. v. National Labor
Relations Commission,57 the Court discussed the reason why it is discretionary on the part of the
Labor Arbiter, who, motu proprio, determines whether to hold a hearing or not. Consequently, a
hearing cannot be demanded by either party as a matter of right. The parties are required to file their
corresponding position papers and all the documentary evidence and affidavits to prove their cause
of action and defenses. The rationale behind this is to avoid delay and curtail the pernicious practice
of withholding of evidence. In Pepsi Cola Products Philippines, Inc. v. Santos,58 the Court reiterated
the Labor Arbiters discretion not to conduct formal or clarificatory hearings which is not violative of
due process, thus:

The holding of a formal hearing or trial is discretionary with the Labor Arbiter and is something that
the parties cannot demand as a matter of right. The requirements of due process are satisfied when
the parties are given the opportunity to submit position papers wherein they are supposed to attach
all the documents that would prove their claim in case it be decided that no hearing should be
conducted or was necessary.59

In sum, it can be properly said that the proceedings before the Labor Arbiter are non-litigious in
nature and the technicalities of law and procedure, and the rules obtaining in the courts of law are
not applicable. Thus, the rules allow the admission of affidavits by the Labor Arbiter as evidence
despite the fact that the affiants were not presented for cross-examination by the counsel for the
adverse party. To require otherwise would be to negate the rationale and purpose of the summary
nature of the administrative proceedings and to make mandatory the application of the technical
rules of evidence. What the other party should do is to present counter-affidavits instead of merely
objecting on the ground that the affidavits are hearsay.

The Court, however, has recognized specific instances of the impracticality for the Labor Arbiter to
follow the position paper method of disposing cases; thus, formal or clarificatory hearings must be
had in cases of termination of employment: such as, when claims are not properly ventilated for lack
of proper determination whether complainant employee was a rank-and-file or a managerial
employee,60 that the Labor Arbiter cannot rely solely on the parties bare allegations when the
affidavits submitted presented conflicting factual issues, 61 and considering the dearth of evidence
presented by complainants the Labor Arbiter should have set the case for hearing. 62

In the instant case, we find substantial evidence to support the decision of Labor Arbiter Lustria.
Substantial evidence is such amount of evidence which a reasonable mind might accept as
adequate to support a conclusion, even if other equally reasonable minds might conceivably opine
otherwise.63

Late submission of documentary evidence admissible

OSCI asserts that Labor Arbiter Lustria gravely abused his discretion in admitting as evidence the
belated submissions of Bastol through his Manifestation/Compliance filed on October 26, 2001 or
five months after the instant case was deemed submitted for decision on May 10, 2001. It considers
suspicious the submission of the Affidavit of Dr. Vicaldo, as Bastol never provided any explanation
for such late submission and much less did the Labor Arbiter require Bastol for such explanation.
OSCI also rues said admission when Labor Arbiter Lustria did not act on its Motion to Dismiss filed
on July 25, 2001 on the ground of Bastols failure to present additional evidence. Neither did Labor
Arbiter Lustria give it an opportunity to submit contrary evidence by setting, at the very least, another
hearing. Thus, OSCI concludes that Labor Arbiter Lustria acted wantonly, whimsically and
capriciously to its grave prejudice by admitting and using the late submission of Bastol as basis for
his decision, and the CA, in turn, gravely erred in sanctioning the Labor Arbiter by granting Bastols
petition for certiorari.

We cannot agree.

The nature of the proceedings before the Labor Arbiter is not only non-litigious and summary, but the
Labor Arbiter is also given great leeway to resolve the case; thus, he may "avail himself of all
reasonable means to ascertain the facts of the controversy." 64 The belated submission of additional
documentary evidence by Bastol after the case was already submitted for decision did not make the
proceedings before the Labor Arbiter improper. The basic reason is that technical rules of procedure
are not binding in labor cases.

In Dacut v. Court of Appeals, we held that the fact that the Labor Arbiter admitted the companys
reply after the case had been submitted for decision did not make the proceedings before him
irregular.65 In Sasan, Sr. v. National Labor Relations Commission, we also held that the submission
of additional evidence on appeal before the NLRC is not prohibited by its New Rules of Procedure;
after all, rules of evidence prevailing in courts of law or equity are not controlling in labor
cases.66 Indeed, technical rules of evidence do not apply if the decision to grant the petition proceeds
from an examination of its sufficiency as well as a careful look into the arguments contained in
position papers and other documents.67

And neither can OSCI rely on lack of due process. The essence of due process lies simply in an
opportunity to be heard, and not that an actual hearing should always and indispensably he
held.68 Considering that OSCI indeed contested the late submission of Bastol by filing its most
vehement objection thereto on November 27, 2001, it cannot complain of not being accorded the
opportunity to be heard and much less can it demand for the setting of an actual hearing. What
OSCI could have and ought to have done was to present its own counter-affidavits. But it did not.

Documentary evidence submitted substantially proves Bastols claim for disability indemnity

On the related issue of the certification of a medical doctor other than the company-designated
physician, OSCI adamantly maintains that pursuant to Sec. 20 (B) of the 1996 SEC it is only the
company-designated physician who is allowed to fix or determine the degree of disability. Thus,
according to OSCI, the Labor Arbiter and the CA gravely erred in sanctioning the Grade 1 disability
impediment based on a certification issued by a medical doctor who is not the company-designated
physician.

We do not agree.

The Contract of Employment of Bastol and PSL, through its agent OSCI, stipulated thus:

1. That the Employee shall be employed on board under the following terms and conditions:

1.1 Duration of Contract: 9+3 months upon mutual consent of the crew &
owners/agent

1.2 Position Bosun

1.3 Basic Monthly Salary US$500.00

1.4 Hours of Work 48 hours a week

1.5 Overtime F.O.T. 30% of basic wage

1.6 Vacation Leave with Pay One month basic wage per one year service or pro-rata

2. The terms and conditions of the revised Employment Contract for seafarers
governing the employment of all Filipino seafarers approved by the POEA/Dole on
July 14, 1989 under Memorandum Circular No. 41 series of 1989 amending circulars
relative thereto shall be strictly and faithfully observed.69 (Emphasis supplied.)

The parties having mutually agreed to the application of the 1994 revised SEC under Memorandum
Circular No. 41, Series of 1989,70 approved by the DOLE and the POEA on July 14, 1989, it is the
law between them.

The pertinent provisos of the 1994 revised SEC provided:

PART II
TERMS OF SERVICE

SECTION A. HOURS OF WORK

xxxx

SECTION C. COMPENSATION AND BENEFITS

xxxx

4. The liabilities of the employer when the seaman suffers injury or illness during the term of his
contract are as follows:

a. The employer shall continue to pay the seaman his basic wages during the time
he is on board the vessel;

b. If the injury or illness requires medical and/or dental treatment in a foreign port, the
employer shall be liable for the full cost of such medical, dental, surgical and hospital
treatment as well as board and lodging until the seaman is declared fit to work or to
be repatriated.

However, if after repatriation, the seaman still required medical attention arising from
said injury or illness, he shall be so provided at cost to the employer until such time
he is declared fit or the degree of his disability has been established by the company-
designated physician.

c. The employer shall pay the seaman his basic wages from the time he leaves the
vessel for medical treatment. After discharge from the vessel, the seaman is entitled
to one hundred percent (100%) of his basic wages until he is declared fit to work or
the degree of permanent disability has been assessed by the company-
designated physician, but in no case shall this period exceed one hundred
twenty days. For the purpose, the seaman shall submit himself to a post
employment medical examination by the company-designated physician within three
working days upon his return except when he is physically incapacitated to do so, in
which case a written notice to the agency within the same period is deemed as
compliance. Failure of the seaman to comply with the mandatory reporting
requirement shall result in his forfeiture of the right to claim the above
benefits. (Emphasis supplied.)

The foregoing provisos were substantially retained in the 1996 SEC with slight changes in Sec. C, 4,
c. which was placed under Sec. 20, B, 3, expressed as follows:

3. Upon sign-off from the vessel for medical treatment, the seafarer is entitled to sickness allowance
equivalent to his basic wage until he is declared fit to work or the degree of permanent disability
has been assessed by the company-designated physician, but in no case shall this period
exceed one hundred twenty (120) days.

For this purpose, the seafarer shall submit himself to a post-employment medical examination by a
company-designated physician within three working days upon his return except when he is
physically incapacitated to do so, in which case, a written notice to the agency within the same
period is deemed as compliance. Failure of the seafarer to comply with the mandatory reporting
requirement shall result in his forfeiture of the right to claim the above benefits. (Emphasis
supplied.)

Applying the foregoing provisos in the instant case, it is thus clearin either the revised 1994 and
the 1996 SECthat Bastol, suffering from a heart ailment and repatriated on March 7, 1997, must
comply with two requirements: first, to submit himself to a post-employment medical examination by
a company-designated physician within three working days from his repatriation; second, he must
allow himself to be treated until he is either declared fit to work or be assessed the degree of
permanent disability by the company-designated physician. Most importantly, the mandatory
compliance of the second requirement is qualified by the limitation or condition that in no case shall
this period exceed one hundred twenty (120) days. The 120-day limitation refers to the period of
medical attention or treatment by the company-designated physician, who must either declare the
seafarer fit to work or assess the degree of permanent disability.

The undisputed facts clearly show Bastol complying with the two mandatory requirements. In fact,
OSCI did not dispute that Bastol was referred to the Jose L. Gutierrez Clinic for follow-up
examination and treatment with attending company-designated physician Dr. Peralta, who found him
unfit for sea duty on March 8 and April 1, 1997. That Bastol submitted himself to the treatment and
medical evaluation of company-designated physicians Dr. Peralta and Dr. Lim is undisputed. The
facts further show that after Dr. Peralta found Bastol unfit for sea duty, PPIthe local representative
of PIC, the insurer of PSLreferred him (Bastol) to further medical treatment at the Metropolitan
Hospital under company-designated physician Dr. Lim. Bastol was confined therein for almost a
month, i.e., from April 10, 1997 until May 7, 1997.

Dr. Lim found Bastol to be suffering from a heart ailment certifying that he had "Coronary artery dse;
S/P Ant. wall MP; Hypercholesterolemia; Hyperglycemia." Dr. Lim regularly updated PPI on the
medical status of Bastol as shown by his letters to PPI addressed to Ms. Charry Domaycos, Claims
Executive, Crew Claims Division, on April 23, May 24, September 16 and October 28, 1997.

That Bastol suffered from a heart ailment is not disputed. In fact, as noted by the CA, no less that
four medical doctors had similar diagnosis of Bastols heart ailment, viz: Dr. Peralta of the Jose L.
Gutierrez Clinic, Dr. Lim of the Metropolitan Hospital, PPI company-designated physician Dr. Varwig,
and Dr. Vicaldo of the Philippine Heart Center. And that is not to count the medical findings of
Docteur Bentadj from the Centre Hospitalo-Universitaire DOran in Algiers as embodied in his
Rapport Medical71 issued on February 26, 1997.

In all, after his repatriation on March 7, 1997, Bastol went to see Dr. Peralta on March 8, 1997, and
until the last examination by Dr. Lim on October 28, 1997, he had been treated by these company-
designated doctors for a period spanning around seven months and 20 days or for
approximately 230 days. Clearly then, the maximum period of 120 days stipulated in the SEC for
medical treatment and the declaration or assessment by the company-designated physician of either
being fit to work or the degree of permanent disability had already lapsed. Thus, by law, if Bastols
condition was with the lapse of the 120 days of post-employment medical examination and
treatment, which actually lasted as the records show for at least over eight months and for over a
year by the time the complaint was filed, without his being employed at his usual job, then it was
certainly total permanent disability.

It has been held that disability is intimately related to ones earning capacity. 72 It should be
understood less on its medical significance but more on the loss of earning capacity.73 Total disability
does not mean absolute helplessness. 74 In disability compensation, it is not the injury which is
compensated, but rather the incapacity to work resulting in the impairment of ones earning
capacity.75 Thus, permanent disability is the inability of a worker to perform his job for more than
120 days, regardless of whether or not he loses the use of any part of his body. 76 This is the case of
Bastol, aptly held by the CA.

In Wallem Maritime Services, Inc. v. National Labor Relations Commission,77 we cited the consistent
application of the definition of permanent disability under Sec. 2 (b), Rule VII of the Implementing
Rules of Book V of the Labor Code as amended by PD 626, which provides:

(b) A disability is total and permanent if as a result of the injury or sickness the employee is unable
to perform any gainful occupation for a continuous period exceeding 120 days, except as otherwise
provided for in Rule X of these Rules.78

We likewise noted in Wallem Maritime Services, Inc.79 that:

The foregoing concept of permanent disability has been consistently employed by the Court in
subsequent cases involving seafarers, such as in Crystal Shipping, Inc. v. Natividad,80 in which it was
reiterated that permanent disability means the inability of a worker to perform his job for more
than 120 days. Also in Philimare, Inc. v. Suganob,81 notwithstanding the opinion of the company-
designated physician that the seafarer therein was fit to work provided he regularly took his
medication, the Court held that the latter suffered permanent disability in view of evidence that
he had been unable to work as chief cook for more than 7 months. Similarly, in Micronesia
Resources v. Cantomayor82 and United Philippine Lines, Inc. and/or Holland America Line, Inc. v.
Beseril,83 the Court declared the seafarers therein to have suffered from a permanent disability
after taking evidence into account that they had remained under treatment for more than 120
days, and were unable to work for the same period.

Moreover, we explained in Wallem Maritime Services, Inc. that the lapse of the 120-day threshold
period is not the benchmark for considering a permanent disability due to injury or illness, "rather, the
true test of whether respondent suffered form a permanent disability is whether there is evidence
that he was unable to perform his customary work as messman for more than 120 days." 84 1avvph!1

Applying the foregoing considerations, it is clear that Bastol was not only under the treatment of
company-designated physicians for over seven months, but it is likewise undisputed that he had not
been employed as bosun for said time. Note again upon his repatriation on March 7, 1997, Bastol
was treated by company-designated physician Dr. Peralta who found him unfit for sea duty on March
8 and April 1, 1997. Thereafter, he was confined at the Metropolitan Hospital under company-
designated physician Dr. Lim for almost a month, i.e., from April 10, 1997 until May 7, 1997. After
confinement, Dr. Lim treated him until October 28, 1997. In all these seven months and 20 days of
treatment, Bastol was not employed at his usual job as bosun. In fact, the Court notes that Bastol
was never able to work as bosun thereafter on account of his poor health.

Thus, the declaration by Dr. Vicaldo of Bastols disability as Disabiltiy Impediment Grade 1 Degree
(120%) constituting total permanent disability on November 28, 1997 or eight months and 20 days
(approximately 260 days) from March 8, 1997 when he submitted himself to company-designated
physician Dr. Peralta merely echoed what the law provides.

Thus, we can say that Bastol had the right to seek medical treatment other than the company-
designated physician after the lapse of the 120-day considering that said physician, within the
maximum 120-day period stipulated in the SEC neither declared him fit to work or gave the
assessment of the degree of his permanent disability which he is incumbent to do. Moreover, as the
CA aptly noted, Dr. Vicaldos diagnosis and assessment should be accorded greater weight
considering that he is a Cardiologist and Congenital Heart Disease Specialist of the Philippine Heart
Center. It is undisputed that Dr. Lim, the company-designated physician, is not a cardiology expert
being a Diplomate in Rehabilitation Medicine and who seemed to be not the attending physician of
Bastol in the Metropolitan Hospital as shown in his September 16, 1997 letter to PPI stating "his
cardiologist opines that he has to continue taking his maintenance medications." 85

OSCI also erroneously contends that the illness of Bastol is not compensable under the SEC. It has
already been settled in Heirs of the Late R/O Reynaldo Aniban v. National Labor Relations
Commission86 that myocardial infarction as a disease or cause of death is compensable, such being
occupational. As the CA aptly noted, Bastols work as bosun caused, if not greatly contributed, to his
heart ailment, thus:

A job of a bosun, as the position of petitioner, is not exactly a walk in the park. A bosun manages
actual deck work schedules and assignments directed by the Chief Officer and emergency duties as
indicated in the Station Bill. He attends to maintenance and upkeep of all deck equipment, cargo,
riggings, safety equipment and helps in maintaining discipline of the deck hands. He assists in ships
emergency drills and in any event of emergency and performs other duties and responsibilities as
instructed or as necessary. He reports directly to the Chief Officer. What makes the job more difficult,
aside from exposure to fluctuating temperatures caused by variant weather changes, the job
obviously entails laborious manual tasks conducted in a moving ship, which makes for increased
work-related stress. All these factors may have exacerbated petitioners heart condition. Prolonged
and continued exposure to the same could probably risk petitioner [Bastol] to another attack. 87

We are not blind to the needs of our seafarers who, when getting sick in the line of duty, are given
the run around by unscrupulous employers and manning agencies. The instant case has spanned a
dozen years with the disability indemnity benefit not granted. Alas, the sad reality is that Romy B.
Bastol succumbed to his illness and died on December 13, 2009 of acute myocardial infarction and
cannot now enjoy the fruits of his long protracted struggle for what is right and what has accrued to
him.

WHEREFORE, premises considered, we DENY the instant petition for lack of merit. The Decision
dated August 12, 2008 and the Resolutions dated January 7, 2007 and February 6, 2009 of the
Court of Appeals in CA-G.R. SP No. 100090 are hereby AFFIRMED with MODIFICATION in that
what is REINSTATED therein is the January 31, 2003 Decision of Labor Arbiter.

Costs against petitioner.

SO ORDERED.
THIRD DIVISION

RONILO SORREDA, G.R. No. 172927


Petitioner,
Present:

CORONA, J., Chairperson,


VELASCO, JR.,
- v e r s u s - NACHURA,
PERALTA and
MENDOZA, JJ.

CAMBRIDGE ELECTRONICS
CORPORATION,[1]
Respondent. Promulgated:
February 11, 2010
x--------------------------------------------
------x

DECISION
CORONA, J.:

This petition[2] seeks to reverse and set aside the May 26,
2005 decision[3] of the Court of Appeals (CA) in CA-G.R. SP No.
77303 and its resolution denying reconsideration. [4] The CA
affirmed the resolution[5] of the National Labor Relations
Commission (NLRC) in NLRC NCR CA No. 028156-01 declaring that
petitioner Ronilo Sorreda was not a regular employee of
respondent Cambridge Electronics Corporation.

On May 8, 1999, petitioner was hired by respondent as a


technician for a period of 5 months at minimum wage. [6] Five
weeks into the job (on June 15, 1999), petitioner met an accident
in which his left arm was crushed by a machine and had to be
amputated.[7]

Petitioner claimed that, shortly after his release from the hospital,
officers of respondent company called him to a meeting with his
common-law wife, father and cousin. There he was assured a
place in the company as a regular employee for as long as the
company existed and as soon as he fully recovered from his injury.
In September 1999, after he recovered from his injury, petitioner
reported for work. Instead of giving him employment, they made
him sign a memorandum of resignation to formalize his
separation from the company in the light of the expiration of his
five-month contract.
On November 16, 1999, petitioner filed in the Regional Arbitration
Branch of the NLRC of Dasmarias, Cavite a complaint [8] for illegal
dismissal (later changed to breach of contract). In his position
paper, he raised the following issues:
1. whether there was a valid agreement or contract of
perpetual employment perfected between the parties
concerned;

2. whether respondent corporation was bound thereby


and

3. whether [petitioner] has a cause of action for damages


against respondent based on the contract. [9]

He claimed that respondent failed to comply with the terms


of the contract of perpetual employment which was perfected in
June 1999 when he was called to a meeting by management.
[10]
He prayed that respondent be made to pay compensatory,
[11]
moral[12] and exemplary damages and attorneys fees for
default or breach of contract.
Respondent denied that it extended regular employment to
petitioner. Only words of encouragement were offered but not
perpetual employment. Moreover, it assailed the labor arbiters
jurisdiction over the case, claiming a lack of causal connection
between the alleged breach of contract and their employer-
employee relationship.

The labor arbiter held that he had jurisdiction to hear and decide
the case as it involved the employer-employee relationship of the
contending parties. He ruled that petitioner who had been
employed on a per-project basis became a regular employee by
virtue of the contract of perpetual employment. He stated that
the positive declaration of the witnesses (common-law wife,
father and cousin) present at the meeting and the parole
evidence rule was enough to support the petitioners claim. Thus,
in a decision dated March 9, 2001, the labor arbiter ruled that
petitioner was employed by respondent for an indefinite period of
employment (that is, on regular status.) He ordered petitioners
reinstatement and the payment of backwages, moral damages
and exemplary damages as well as attorneys fees. [13]
Both petitioner and respondent appealed to the NLRC. Petitioner
claimed that the labor arbiter erred in finding that he was a
regular employee, that the case was based on illegal dismissal
and that reinstatement and payment of backwages were the
proper reliefs. Respondent, on the other hand, asked for the
reversal of the labor arbiters decision based on grave abuse of
discretion for assuming jurisdiction over the case.

The NLRC agreed with respondent. [14] It found that petitioner was
not a regular employee; thus, he was neither illegally dismissed
nor entitled to reinstatement and backwages. Petitioner sued for
compensatory damages because of the accident that befell him.
As the contract for per-project employment had already expired,
the issue no longer fell under the jurisdiction of the labor arbiter
and NLRC. Moreover, the testimonies of petitioners witnesses were
declared self-serving and thus insufficient to prove the contract of
perpetual employment. The motion for reconsideration of
petitioner was denied.[15]
Aggrieved, petitioner filed a petition for certiorari [16] in the CA
questioning the NLRCs finding of non-existence of the contract of
perpetual employment.
The CA dismissed the petition for lack of merit, stating that the
labor arbiter decided the case on an issue that was never raised
(i.e., the employment status of petitioner). Moreover, petitioners
principal cause of action, breach of contract, was not cognizable
by the labor courts but by the regular courts. [17] The CA concluded
that the NLRC did not commit any reversible error in finding that
the labor arbiter had no jurisdiction over the case. Furthermore,
petitioner failed to prove grave abuse of discretion in the NLRCs
exercise of its quasi-judicial function.
Petitioner moved for reconsideration but the motion was denied.
[18]
Thus, this petition.
We affirm the Court of Appeals.

This case rests on the issue of whether the labor arbiter had the
jurisdiction to take cognizance thereof.

Jurisdiction over the subject matter of a complaint is determined


by the allegations of the complaint.[19] In Pioneer Concrete
Philippines, Inc. v. Todaro,[20] the Court reiterated that where no
employer-employee relationship exists between the parties, and
the Labor Code or any labor statute or collective bargaining
agreement is not needed to resolve any issue raised by them, it is
the Regional Trial Court which has jurisdiction. Thus it has been
consistently held that the determination of the existence of a
contract as well as the payment of damages is inherently civil in
nature.[21] A labor arbiter may only take cognizance of a case and
award damages where the claim for such damages arises out of
an employer-employee relationship.[22]
In this instance, petitioner, from the period May 8, 1999 to
October 8, 1999, was clearly a per-project employee of private
respondent, resulting in an employer-employee relationship.
Consequently, questions or disputes arising out of this relationship
fell under the jurisdiction of the labor arbiter.

However, based on petitioners allegations in his position paper,


his cause of action was based on an alleged second contract of
employment separate and distinct from the per-project
employment contract. Thus, petitioner insisted that there was a
perfected contract of perpetual employment and that respondent
was liable to pay him damages.

We note, however, that petitioner filed the case only when


respondent refused to rehire him.[23]
While there was an employer-employee relationship between the
parties under their five-month per-project contract of employment,
the present dispute is neither rooted in the aforestated contract
nor is it one inherently linked to it. Petitioner insists on a right to
be employed again in respondent company and seeks a
determination of the existence of a new and separate contract
that established that right. As such, his case is within the
jurisdiction not of the labor arbiter but of the regular courts. The
NLRC and the CA were therefore correct in ruling that the labor
arbiter erroneously took cognizance of the case.
Even assuming arguendo that the labor arbiter had the jurisdiction
to decide the case, the Court cannot countenance petitioners
claim that a contract of perpetual employment was ever
constituted. While the Constitution recognizes the primacy of
labor, it also recognizes the critical role of private enterprise in
nation-building and the prerogatives of management. A contract
of perpetual employment deprives management of its prerogative
to decide whom to hire, fire and promote, and renders inutile the
basic precepts of labor relations. While management may validly
waive it prerogatives, such waiver should not be contrary to law,
public order, public policy, morals or good customs. [24] An absolute
and unqualified employment for life in the mold of petitioners
concept of perpetual employment is contrary to public policy and
good customs, as it unjustly forbids the employer from
terminating the services of an employee despite the existence of
a just or valid cause. It likewise compels the employer to retain an
employee despite the attainment of the statutory retirement age,
even if the employee has became a non-performing asset or,
worse, a liability to the employer.

Moreover, aside from the self-serving claim of petitioner, there


was no concrete proof to establish the existence of such
agreement. Petitioner cannot validly force respondent to enter
into a permanent employment contract with him. Such stance is
contrary to the consensuality principle of contracts as well as to
the management prerogative of respondent company to choose
its employees.

WHEREFORE, the petition is hereby DENIED.


RONILO SORREDA vs. CAMBRIDGE ELECTRONICS CORPORATION
G.R. No. 172927 (February 11, 2010)
Facts: On May 8, 1999, petitioner was hired by respondent as a technician for a
period of 5 months at minimum wage. Five weeks into the job (on June
15, 1999), petitioner met an accident in which his left arm was crushed
by a machine and had to be amputated. In September 1999, after he
recovered from his injury, petitioner reported for work. Instead of giving
him employment, they made him sign a memorandum of resignation to
formalize his separation from the company in the light of the expiration
of his five-month contract.

[Petitioner filed a case for illegal dismissal. Defendant averred that there
was no employer-employee relationship. CA ruled that the] petitioner
Ronilo Sorreda was not a regular employee of respondent Cambridge
Electronics Corporation.
Issue: Whether or not there is an employer-employee relationship.
Held: NO. In this instance, petitioner, from the period May 8, 1999 to October
8, 1999, was clearly a per-project employee of private respondent,
resulting in an employer-employee relationship. Consequently, questions
or disputes arising out of this relationship fell under the jurisdiction of the
labor arbiter.

However, based on petitioners allegations in his position paper,


his cause of action was based on an alleged second contract of
employment separate and distinct from the per-project employment
contract. Thus, petitioner insisted that there was a perfected contract of
perpetual employment and that respondent was liable to pay him
damages.

We note, however, that petitioner filed the case only when


respondent refused to rehire him. While there was an employer-employee
relationship between the parties under their five-month per-project
contract of employment, the present dispute is neither rooted in the
aforestated contract nor is it one inherently linked to it.

While the Constitution recognizes the primacy of labor, it also recognizes


the critical role of private enterprise in nation-building and the
prerogatives of management. A contract of perpetual employment
deprives management of its prerogative to decide whom to hire, fire and
promote, and renders inutile the basic precepts of labor relations. While
management may validly waive it prerogatives, such waiver should not
be contrary to law, public order, public policy, morals or good customs.
[24] An absolute and unqualified employment for life in the mold of
petitioners concept of perpetual employment is contrary to public policy
and good customs, as it unjustly forbids the employer from terminating
the services of an employee despite the existence of a just or valid
cause. It likewise compels the employer to retain an employee despite
the attainment of the statutory retirement age, even if the employee has
became a non-performing asset or, worse, a liability to the employer.

Moreover, aside from the self-serving claim of petitioner, there was


no concrete proof to establish the existence of such agreement.
Petitioner cannot validly force respondent to enter into a permanent
employment contract with him. Such stance is contrary to the
consensuality principle of contracts as well as to the management
prerogative of respondent company to choose its employees.

WHEREFORE, the petition is hereby DENIED.


Federico Robosa vs. NLRC G.R. No. 176085 February 8, 2012 Facts: Federico
Robosa, along with other rank-and-file employees of respondent Chemo-Technische
Manufacturing, Inc., were officers and members of CTMI Employees Union-DFA. They
filed a petition for certification election at CTMI and was granted by the Med-Arbiter.
A consent election was conducted but the union failed to garner the votes required
to be certified as the exclusive bargaining agent of the company. Later, CTMI made
directives that the union asked for the withdrawal and determent of it, branding
them as union busting acts constituting unfair labor practice. CTMI ignored the
request and issued a notice of termination of employment to the sales drivers, due
to the abolition of the sales driver positions. Thus, a complaint was filed by the
union and its affected members for illegal dismissal and unfair labor practice, with a
claim for damages. The labor arbiter handling the case denied the unions motion
for a stay order on the ground that the issues raised by the petitioners can best be
ventilated during the trial on the merits of the case. This prompted the union to file
with the NLRC a petition for the issuance of a preliminary mandatory injunction
and/or TRO. When NLRC issued the TRO, respondent did not comply and instead
moved to dissolve the TRO and opposed the unions petition for preliminary
injunction. The NLRC upgraded the TRO to a writ of preliminary injunction.
Respondents moved for reconsideration. The union opposed the motion and
urgently moved to cite the responsible CTMI officers in contempt of court. Contempt
charge was dismissed. Issues: 1. Whether or not the NLRC has contempt powers. 2.
Whether or not the dismissal of a contempt charge is appealable. Ruling: 1. Under
Article 218 of the Labor Code, the NLRC (and the labor arbiters) may hold any
offending party in contempt, directly or indirectly, and impose appropriate penalties
in accordance with law. The penalty for direct contempt consists of either
imprisonment or fine, the degree or amount depends on whether the contempt is
against the Commission or the labor arbiter. The Labor Code, however, requires the
labor arbiter or the Commission to deal with indirect contempt in the manner
prescribed under Rule 71 of the Rules of Court. 2. Section 11, Rule 71 of the Rules of
Court states that the judgment or final order of a court in a case of indirect
contempt may be appealed to the proper court as in a criminal case. This is not the
point at issue, however, in this petition. It is rather the question of whether the
dismissal of a contempt charge, as in the present case, is appealable. The CA held
that the NLRCs dismissal of the contempt charges against the respondents
amounts to an acquittal in a criminal case and is not subject to appeal. In Yasay, Jr.
v. Recto, the Court declared that a distinction is made between a civil and a criminal
contempt. Civil contempt is the failure to do something ordered by a court to be
done for the benefit of a party. A criminal contempt is any conduct directed against
the authority or dignity of the court. The Court further explained that the real
character of the proceedings in contempt cases is to be determined by the relief
sought or by the dominant purpose. The proceedings are to be regarded as criminal
when the purpose is primarily punishment and civil when the purpose is primarily
compensatory or remedial. But whether the first or the second, contempt is still a
criminal proceeding in which acquittal, for instance, is a bar to a second
prosecution. The distinction is for the purpose only of determining the character of
punishment to be administered.
INSULAR HOTEL EMPLOYEES UNION V. WATERFRONT HOTEL DAVAO

(2010)

FACTS:

On Nov. 2000, the Hotel sent DOLE a Notice of Suspension of Operations for 6 months due
to severe andserious business losses.- During the suspension, Rojas, Pres. of Davao insular Hotel
Free Employees Union (DIHFEU-NFL) the recognized labor organization in the Hotel, sent the
Hotel several letters asking it to reconsider its decision. TheUnion members wanted to keep
their jobs and to help the Hotel, so it suggested several ideas in its Manifesto to solve the high
cost on payroll, such as: downsize manpower structure to 100 rank-and-fileEEs, a new pay scale,
etc.

DIHFEU-NFL signed a memorandum of agreement where the Hotel agreed to re-open the hotel.
The retained employees individually signed a reconfirmation of Employment.

In June 2001, the Hotel resumed its business operations.

On Aug. 2002, Darius Joves and Debbie Planas, local officers of the National Federation of
Labor (NFL), fileda Notice of Mediation before the NCMB, stating that the Union involved was
"DARIUS JOVES/DEBBIEPLANAS ET. AL, National Federation of Labor." The issue was
the diminution of wages and benefitsthrough unlawful MOA. In support of his authority to file
the complaint, Joves, assisted by Atty. Cullo, presented several SPAs which were, undated and
unnotarized.

Petitioner and respondent signed a Submission Agreement, where the union stated was
"INSULARHOTEL EMPLOYEES UNION-NFL."- The Hotel filed with the NCMB a
Manifestation with Motion for a Second Preliminary Conference, alleging that the persons who
filed the complaint in the name of the Insular Hotel Employees Union-NFL have no authority to
represent the Union.

Cullo confirmed that the case was filed not by the IHEU-NFL but by the NFL. When asked to
present his authority from NFL, Cullo admitted that the case was filed by individual employees
named in the SPAs.- The Hotel argued that the persons who signed the complaint were not the
authorized representativesof the Union indicated in the Submission Agreement nor were they
parties to the MOA. It filed a Motion to Withdraw, which Cullo then filed an Opposition to
where the same was captioned: NATIONAL FEDERATION OF LABOR and 79 Individual
Employees, Union Members, Complainants,-versus-Waterfront Insular Hotel Davao,
Respondent. Cullo reiterated that the complainants were not representing IHEU-NFL.

The Accredited Voluntary Arbitrator (AVA) denied the Motion to Withdraw.- The Hotel
submitted its Motion for reconsideration and stressed that the Submission Agreement was void
because the Union did not consent thereto.- Cullo filed a Comment/Opposition to the Hotel's
motion for recomendation. Again, Cullo admitted that the case was not initiated by the IHEU-
NFL, saying that the individual complainants are not representing the union but filing the
complaint through their appointed attorneys-in-fact to assert their individual rights as workers
who are entitled to the benefits granted by law and stipulated in the collective bargaining
agreement. There is no mention there of Insular Hotel Employees Union, but only National
Federation of Labor (NFL). The local union was not included as party-complainant considering
that it was a party to theassailed MOA.

The AVA denied the Motion. He, however, ruled that the Hotel was correct when it objected to
NFL as proper party-complainant, as the proper one is INSULAR HOTEL EMPLOYEES
UNION-NFL. In the submission agreement, the party complainant written is INSULAR HOTEL
EMPLOYEES UNION-NFL and not the NATIONAL FEDERATION OF LABOR and 79 other
members. However, since the NFL is the mother federation of the local union, and signatory to
the existing CBA, it can represent the union.

Cullo, in subsequent documents, started using the caption "Insular Hotel Employees Union-NFL,
Complainant.

The case was remanded to the NCMB. The Hotel reiterated to the NCMB that the individual
union members have no standing. The Hotel did not appear before the NCMB to select a new
AVA. The new AVA decided in favor of cullo, declaring the Memorandum of agreement invalid.

The Hotel appealed to CA, questioning among others the jurisdiction of the NCMB. The CA
ruled in favor of the hotel, declaring the memorandum of agreement valid and enforceable.

ISSUES:

1 Did CA err in finding that the AVA has no jurisdiction over the case because the notice of
mediation does not mention the name of the local union but only the affiliate federation?

2 Do the individual members of the union have the requisite standing to question the
Memorandum of agreement before the BCMB?

3 If the individual members of the union have no authority to file the case, does the
federation to which the local union is affiliated has the standing to do so?

LAW:

Art. 260, the parties to a CBA shall name or designate their respective representatives to the
grievance machinery and if the grievance is unsettled in that level, it shall automatically be
referred to the voluntary arbitrators designated in advance by parties to a CBA.

RULING:
In the notice of mediation filed in the NCMB, it stated that the union involved was darius
joves/Debbie Planes et al., National federation of labor. In the submission agreement, however, it
stated that the union involved was Insular Hotel Employees Union-NFL. Cullo clarified in
subsequent documents captioned as National Federation of Labor and 79 individual employees,
members, complainants that the complainants are not representing the union but filing the
complaint through their appointed attorneys in fact.

While it is undisputed that the submission agreement was signed by respondent IHEU-NFL, then
represented by Joven and Cullo, this court finds that there are 2 circumstances which affect its
validity: first, the Notice of Mediation was filed by a party who had no authority to do so;
second, that respondent had persistently voiced out its objection questioning the authority of
Joves, Cullo and the individual members of the Union to file the complaint before the NCMB.

Procedurally, the first step to submit a case for mediation is to file a notice of preventive
mediation with the NCMB. It is only after this step that a submission agreement may be entered
into by the parties concerned.

Section 3, Rule IV of the NCMB Manual of Procedure provides who may file a notice of
preventive mediation, to wit:

Who may file a notice or declare a strike or lockout or request preventive mediation. -

Any certified or duly recognized bargaining representative may file a notice or declare a strike or
request for preventive mediation in cases of bargaining deadlocks and unfair labor practices. The
employer may file a notice or declare a lockout or request for preventive mediation in the same
cases. In the absence of a certified or duly recognized bargaining representative, any legitimate
labor organization in the establishment may file a notice, request preventive mediation or declare
a strike, but only on grounds of unfair labor practice.

it is clear that only a certified or duly recognized bargaining agent may file a notice or request for
preventive mediation. It is cur ious that even Cullo himself admitted, in a number of pleadings,
that the case was filed not by the Union but by individual members thereof. Clearly, therefore,
the NCMB had no jurisdiction to entertain the notice filed before it.

Even though respondent signed a Submission Agreement, it had, however, immediately


manifested its desire to withdraw from the proceedings after it became apparent that the Union
had no part in the complaint. As a matter of fact, only four days had lapsed after the signing of
the Submission Agreement when respondent called the attention of AVA Olvida in a
"Manifestation with Motion for a Second Preliminary Conference"51 that the persons who filed
the instant complaint in the name of Insular Hotel Employees Union-NFL had no authority to
represent the Union. Respondent cannot be estopped in raising the jurisdictional issue, because it
is basic that the issue of jurisdiction may be raised at any stage of the proceedings, even on
appeal, and is not lost by waiver or by estoppel.

Petitioners have not been duly authorized to represent the union.

Art. 260, the parties to a CBA shall name or designate their respective representatives to the
grievance machinery and if the grievance is unsettled in that level, it shall automatically be
referred to the voluntary arbitrators designated in advance by parties to a CBA.

The CBA recognizes that DIHFEU-NFL is the exclusive bargaining representative of all
permanent employees. The inclusion of the word NFL after the name of the local union merely
stresses that the local union is NFLs affiliate. It does not, however, mean that the local union
cannot stand on its own. The local union owes its creation and continued existence to the will of
its members and not to the federation of which it belongs.

A local union does not owe its existence to the federation with which it is affiliated. It is a
separate and distinct voluntary association owing its creation to the will of its members. Merely
affiliation does not divest the local union of its own personality; neither does it give the mother
federation the license to act independently of the local union. It only gives rise to a contract of
agency, where the former acts in representation of the latter. Hence local unions are considered
principals while the federation is deemed to be merely their agent.

The petition is hereby denied and affirmed the decision of CA.


G.R. No. 168501. January 31, 2011.* ISLRIZ TRADING/VICTOR HUGO LU, petitioner,
vs.EFREN CAPADA, LAURO LICUP, NORBERTO NIGOS, RONNIE ABEL, GODOFREDO
MAGNAYE, ARNEL SIBERRE, EDMUNDO CAPADA, NOMERLITO MAGNAYE and
ALBERTO DELA VEGA, respondents.

Labor Law; Illegal Dismissals; Reinstatement; Wages; Even if the order of


reinstatement of the Labor Arbiter is reversed on appeal, it is obligatory on the part
of the employer to reinstate and pay the wages of the dismissed employee during
the period of appeal until reversal by the higher court or tribunal.In view of this,
the Court held this stance in Genuino as a stray posture and realigned the proper
course of the prevailing doctrine on reinstatement pending appeal vis--vis the
effect of a reversal on appeal, that is, even if the order of reinstatement of the Labor
Arbiter is reversed on appeal, it is obligatory on the part of the employer to
reinstate and pay the wages of the dismissed employee during the period of appeal
until reversal by the higher court or tribunal. It likewise settled the view that the
Labor Arbiters _______________ * FIRST DIVISION. 10 10 SUPREME COURT REPORTS
ANNOTATED Islriz Trading vs. Capada order of reinstatement is immediately
executory and the employer has to either re-admit them to work under the same
terms and conditions prevailing prior to their dismissal, or to reinstate them in the
payroll, and that failing to exercise the options in the alternative, employer must
pay the employees salaries. Same; Same; Same; Same; After the Labor Arbiters
decision is reversed by a higher tribunal, the employee may be barred from
collecting the accrued wages, if it is shown that the delay in enforcing the
reinstatement pending appeal was without fault on the part of the employer.The
court went on to declare that after the Labor Arbiters decision is reversed by a
higher tribunal, the employee may be barred from collecting the accrued wages, if it
is shown that the delay in enforcing the reinstatement pending appeal was without
fault on the part of the employer. It then provided for the two-fold test in
determining whether an employee is barred from recovering his accrued wages, to
wit: (1) there must be actual delay or that the order of reinstatement pending
appeal was not executed prior to its reversal; and (2) the delay must not be due to
the employers unjustified act or omission. If the delay is due to the employers
unjustified refusal, the employer may still be required to pay the salaries
notwithstanding the reversal of the Labor Arbiters Decision. PETITION for review on
certiorari of the decision and resolution of the Court of Appeals. The facts are stated
in the opinion of the Court. Cecilio V. Suarez, Jr. for petitioner. Jaime Miralles for
respondents. DEL CASTILLO, J.: We reiterate in this petition the settled view that
employees are entitled to their accrued salaries during the period between the
Labor Arbiters order of reinstatement pending appeal and the resolution of the
National Labor Relations Commission (NLRC) overturning that of the Labor Arbiter.
11 VOL. 641, JANUARY 31, 2011 11 Islriz Trading vs. Capada Otherwise stated, even
if the order of reinstatement of the Labor Arbiter is reversed on appeal, the
employer is still obliged to reinstate and pay the wages of the employee during the
period of appeal until reversal by a higher court or tribunal. In this case,
respondents are entitled to their accrued salaries from the time petitioner received
a copy of the Decision of the Labor Arbiter declaring respondents termination illegal
and ordering their reinstatement up to the date of the NLRC resolution overturning
that of the Labor Arbiter. This Petition for Review on Certiorari assails the Decision1
dated March 18, 2005 of the Court of Appeals (CA) in CA-G.R. SP No. 84744 which
dismissed the petition for certiorari before it, as well as the Resolution2dated June
16, 2005 which denied the motion for reconsideration thereto. Factual Antecedents
Respondents Efren Capada, Lauro Licup, Norberto Nigos and Godofredo Magnaye
were drivers while respondents Ronnie Abel, Arnel Siberre, Edmundo Capada,
Nomerlito Magnaye and Alberto Dela Vega were helpers of Islriz Trading, a gravel
and sand business owned and operated by petitioner Victor Hugo Lu. Claiming that
they were illegally dismissed, respondents filed a Complaint3 for illegal dismissal
and non-payment of overtime pay, holiday pay, rest day pay, allowances and
separation pay against petitioner on August 9, 2000 before the Labor Arbiter. On his
part, petitioner imputed abandonment of work against respondents. _______________
1 CA Rollo, pp. 165-181; penned by Associate Justice Vicente S. E. Veloso and
concurred in by Associate Justices Roberto A. Barrios and Amelita G. Tolentino. 2 Id.,
at pp. 198-199. 3 Rollo, pp. 57-58. 12 12 SUPREME COURT REPORTS ANNOTATED
Islriz Trading vs. Capada Proceedings before the Labor Arbiter and the NLRC On
December 21, 2001, Labor Arbiter Waldo Emerson R. Gan (Gan) rendered a
Decision4 in this wise: WHEREFORE, premises considered, judgment is hereby
rendered as follows: 1. Declaring respondent ISLRIZ TRADING guilty of illegal
dismissal. 2. Ordering respondent to reinstate complainants to their former positions
without loss of seniority rights and the payment of full backwages from date of
dismissal to actual reinstatement which are computed as follows: (As of date of
decision); 1. EFREN CAPADA P 102,400.00 (6,400.00 x 16) 2. LAURO LICUP
87,040.00 (5,440.00 x 16) 3. NORBERTO NIGOS 87,040.00 (5,440.00 x 16) 4.
RONNIE ABEL 76,800.00 (4,800.00 x 16) 5. GODOFREDO MAGNAYE 102,400.00
(6,400.00 x 16) 6. ARNEL SIBERRE 51,200.00 (3,200.00 x 16) 7. EDMUNDO CAPADA
76,800.00 (4,800.00 x 16) 8. NOMERLITO MAGNAYE 76,800.00 (4,800.00 x 16) 9.
ALBERTO DELA VEGA 51,200.00 (3,200.00 x 16) 3. Ordering respondent to pay
complainants 10% of the total monetary award as attorneys fees. All other claims
are dismissed for lack of merit. SO ORDERED.5 _______________ 4 Id., at pp. 59-65. 5
Id., at pp. 64-65. 13 VOL. 641, JANUARY 31, 2011 13 Islriz Trading vs. Capada
Aggrieved, petitioner appealed6 to the NLRC which granted the appeal. The NLRC
set aside the Decision of Labor Arbiter Gan in a Resolution7 dated September 5,
2002. Finding that respondents failure to continue working for petitioner was
neither caused by termination nor abandonment of work, the NLRC ordered
respondents reinstatement but without backwages. The dispositive portion of said
Resolution reads as follows: WHEREFORE, premises considered, the appeal is
GRANTED and the Decision dated 21 December 2001 is hereby ordered SET ASIDE.
A New Decision is hereby rendered finding that the failure to work of
complainantsappellees is neither occasioned by termination (n)or abandonment of
work, hence, respondents-appellants shall reinstate complainants-appellees to their
former positions without backwages within ten (10) days from receipt of this
Resolution. SO ORDERED.8 Respondents filed a Motion for Reconsideration9thereto
but same was likewise denied in a Resolution10 dated November 18, 2002. This
became final and executory on December 7, 2002.11 On December 9, 2003,
however, respondents filed with the Labor Arbiter anExParte Motion to Set Case for
Conference with Motion. 12 They averred therein that since the Decision of Labor
Arbiter Gan ordered their reinstatement, a Writ of Execution13 dated April 22, 2002
was already issued for the _______________ 6 See petitioners Notice of Appeal,
Memorandum of Appeal and Joint Affidavit, id., at pp. 66-71. 7 Id., at pp. 83-92. 8
Id., at pp. 91-92. 9 Id., at pp. 93-95. 10 Id., at pp. 96-98. 11 Id., at p. 99. 12 CA Rollo,
pp. 69-71. 13 Rollo, pp. 80-82. 14 14 SUPREME COURT REPORTS ANNOTATED Islriz
Trading vs. Capada enforcement of its reinstatement aspect as same is immediately
executory even pending appeal. But this notwithstanding and despite the issuance
and subsequent finality of the NLRC Resolution which likewise ordered respondents
reinstatement, petitioner still refused to reinstate them. Thus, respondents prayed
that in view of the orders of reinstatement, a computation of the award of
backwages be made and that an Alias Writ of Execution for its enforcement be
issued. The case was then set for pre-execution conference on January 29, February
24 and March 5, 2004. Both parties appeared thereat but failed to come to terms on
the issue of the monetary award. Hence, the office of the Labor Arbiter through
Fiscal Examiner II Ma. Irene T. Trinchera (Fiscal Examiner Trinchera) issued an
undated Computation14 of respondents accrued salaries from January 1, 2002 to
January 30, 2004 or for a total of 24.97 months in the amount of P1,110,665.60
computed as follows: Accrued Salary from January 1, 2002 to January 30, 2004 =
24.97 months 1. Efren Capada P6,400.00x 24.97 months P 159,808.00 2. Lauro
Licup P5,440.00x 24.97 months P 135,836.80 3. Norberto Nigos P5,440.00x 24.97
months P 135,836.80 4. Ronnie Abel P4,800.00x 24.97 months P 119,856.00
5.Godofredo Magnaye P6,400.00x 24.97 months P 159,808.00 6. Arnel Siberre
P3,200.00x 24.97 months P 79, 904.00 7. Edmundo Capada P4,800.00x 24.97
months P 119, 856.00 8.Nomerlito Magnaye P4,800.00x 24.97 months P 119,
856.00 9. Alberto de la Vega P3,200.00x 24.97 months P 79, 904.00 Total P
1,110,665.60 _______________ 14 Id., at p. 103. 15 VOL. 641, JANUARY 31, 2011 15
Islriz Trading vs. Capada Petitioner questioned this computation in his
Motion/Manifestation15claiming that said computation was without any factual or
legal basis considering that Labor Arbiter Gans Decision had already been reversed
and set aside by the NLRC and that therefore there should be no monetary award.
Nevertheless, Labor Arbiter Danna M. Castillon (Castillon) still issued a Writ of
Execution16 dated March 9, 2004 to enforce the monetary award in accordance
with the abovementioned computation. Accordingly, the Sheriff issued a Notice of
Sale/Levy on Execution of Personal Property17 by virtue of which petitioners
properties were levied and set for auction sale on March 29, 2004. In an effort to
forestall this impending execution, petitioner then filed a Motion to Quash Writ of
Execution with Prayer to Hold in Abeyance of Auction Sale18 and a Supplemental
Motion to Quash/Stop Auction Sale.19 He also served upon the Sheriff a letter of
protest.20 All of these protest actions proved futile as the Sheriff later submitted his
Report dated March 30, 2004 informing the Labor Arbiter that he had levied some of
petitioners personal properties and sold them in an auction sale where respondents
were the only bidders. After each of the respondents entered a bid equal to their
individual shares in the judgment award, the levied properties were awarded to
them. Later, respondents claimed that although petitioners levied properties were
already awarded to them, they could not take full control, ownership and possession
of said properties because petitioner had allegedly padlocked the premises where
the properties were situated. Hence, they asked Labor _______________ 15 Id., at pp.
100-102. 16 Id., at pp. 104-106. 17 Id., at p. 107. 18 Id., at pp. 108-110. 19 Id., at
pp. 111-112. 20 Id., at p. 114. 16 16 SUPREME COURT REPORTS ANNOTATED Islriz
Trading vs. Capada Arbiter Castillon to issue a break-open order.21 For his part and
in a last ditch effort to nullify the writ of execution, petitioner filed a Motion to
Quash Writ of Execution, Notice of Sale/Levy on Execution of Personal Property and
Auction Sale on Additional Grounds.22 He reiterated that since the NLRC Resolution
which reversed the Decision of the Labor Arbiter ordered respondents
reinstatement without payment of backwages or other monetary award, only the
execution of reinstatement sans any backwages or monetary award should be
enforced. It is his position that the Writ of Execution dated March 9, 2004 ordering
the Sheriff to collect respondents accrued salaries of P1,110,665.60 plus P1,096.00
execution fees or the total amount of P1,111,761.60, in effect illegally amended the
said NLRC Resolution; hence, said writ of execution is null and void. And, as the writ
is null and void, it follows that the Labor Arbiter cannot issue a break-open order. In
sum, petitioner prayed that the Writ of Execution be quashed and all proceedings
subsequent to it be declared null and void and that respondents Urgent Motion for
Issuance of Break Open Order be denied for lack of merit. Both motions were
resolved in an Order23 dated June 3, 2004. Labor Arbiter Castillon explained therein
that the monetary award subject of the questioned Writ of Execution refers to
respondents accrued salaries by reason of the reinstatement order of Labor Arbiter
Gan which is self-executory pursuant to Article 22324 of the Labor Code. The Order
cited _______________ 21 Urgent Motion for Issuance of Break Open Order, id., at pp.
116-119. 22 Id., at pp. 120-124. 23 Id., at pp. 126-132. 24 Labor Code, Article 223,
par. 3 provides: In any event, the decision of the Labor Arbiter reinstating a
dismissed or separated employee, insofar as the reinstatement aspect is concerned,
shall immediately be executory, even pending appeal. The employee shall either be
admitted back to work under the same terms and conditions prevailing prior to his
dismissal or 17 VOL. 641, JANUARY 31, 2011 ## Islriz Trading vs. Capada Roquero v.
Philippine Airlines Inc.25 where this Court ruled that employees are still entitled to
their accrued salaries even if the order of reinstatement has been reversed on
appeal. As to the application for break open order, Labor Arbiter Castillon relied on
the Sheriffs report that there is imminent danger that petitioners properties sold at
the public auction might be transferred or removed, as in fact four of said properties
were already transferred. Thus, she deemed it necessary to grant respondents
request for a break open order to gain access to petitioners premises. The
dispositive portion of said Order reads: WHEREFORE, premises considered, the
Motion to Quash Writ of Execution [and] Notice of Sale/Levy on Execution Sale filed
by the respondent(s) [are] hereby DENIED. In view of the refusal of the respondents
entry to its premises, Deputy Sheriff S. Diega of this Office is hereby ordered to
break-open the entrance of the premises of respondent wherein the properties are
located. For this purpose, he may secure the assistance of the local police officer
having jurisdiction over the locality where the said properties are located. SO
ORDERED.26 Undeterred, petitioner brought the matter to the CA through a
Petition forCertiorari. Proceedings before the Court of Appeals Before the CA,
petitioner imputed grave abuse of discretion amounting to lack or excess of
jurisdiction upon Labor Arbiter Castillon for issuing the questioned Writ of Execution
and the Order dated June 3, 2004. He maintained that since the De- _______________
separation or, at the option of the employer, merely reinstated in the payroll. The
posting of a bond by the employer shall not stay the execution for reinstatement
provided herein. 25 449 Phil. 437, 446; 401 SCRA 424, 430-431 (2003). 26 Rollo, p.
132. 18 18 SUPREME COURT REPORTS ANNOTATED Islriz Trading vs. Capada cember
21, 2001 Decision of Labor Arbiter Gan has already been reversed and set aside by
the September 5, 2002 Resolution of the NLRC, the Writ of Execution issued by
Labor Arbiter Castillon should have confined itself to the said NLRC Resolution which
ordered respondents reinstatement without backwages. Hence, when Labor Arbiter
Castillon issued the writ commanding the Sheriff to satisfy the monetary award in
the amount of P1,111,761.60, she acted with grave abuse of discretion amounting
to lack or excess of jurisdiction. For the same reason, her issuance of the Order
dated June 3, 2004 denying petitioners Motion to Quash Writ of Execution with
Prayer to Hold in Abeyance Auction Sale and granting respondents Urgent Motion
for Issuance of Break Open Order is likewise tainted with grave abuse of discretion.
Aside from these, petitioner also questioned the conduct of the auction sale. He
likewise claimed that he was denied due process because he was not given the
opportunity to file a motion for reconsideration of the Order denying his Motion to
Quash Writ of Execution considering that a breakopen order was also made in the
same Order. For their part, respondents posited that since they have already
disposed of petitioners levied properties, the petition has already become moot. In
a Decision27 dated March 18, 2005, the CA quoted the June 3, 2004 Order of Labor
Arbiter Castillon and agreed with her ratiocination that pursuant to Article 223 of
the Labor Code, what is sought to be enforced by the subject Writ of Execution is
the accrued salaries owing to respondents by reason of the reinstatement order of
Labor Arbiter Gan. The CA also found as unmeritorious the issues raised by
petitioner with regard to the conduct of the auction sale. Moreover, it did not give
weight to petitioners claim of lack of due process considering that a motion for
reconsideration of a Writ of Execution is not an available remedy. Thus, the CA
dismissed the petition. Petitioners Motion for Reconsidera- _______________ 27 CA
Rollo, pp. 165-181. 19 VOL. 641, JANUARY 31, 2011 19 Islriz Trading vs. Capada
tion28 suffered the same fate as it was also denied in a Resolution29 dated June 16,
2005. Hence, petitioner is now before this Court through this Petition for Review
onCertiorari where he presents the following issues: 1. Whether the provision of
Article 223 of the Labor Code is applicable to this case x x x. 2. Whether x x x the
Decision dated March 18, 2005 and the Resolution dated June 16, 2005 of the Court
of Appeals are contrary to law and jurisprudence[.] 3. Whether x x x the award of
accrued salaries has legal and factual bases[.]30 The Parties Arguments Petitioner
contends that the assailed Decision and Resolution of the CA are contrary to law
and jurisprudence. This is because in upholding the issuance of the questioned Writ
of Execution for the enforcement of respondents accrued salaries, said Decision
and Resolution, in effect, altered the NLRC Resolution which only decreed
respondents reinstatement without backwages. Moreover, he posits that Article 223
of the Labor Code only applies when an employee has been illegally dismissed from
work. And since in this case the NLRC ruled that respondents failure to continue
working for petitioner was not occasioned by termination, there is no illegal
dismissal to speak of, hence, said provision of the Labor Code does not apply. Lastly,
petitioner claims that the computation of respondents accrued salaries in the total
amount of P1,110,665.60 has no legal and factual bases since as repeatedly pointed
out by him, the NLRC Resolution reversing the Labor Arbiters Decision has already
ordered respondents _______________ 28 Id., at pp. 184-191. 29 Id., at pp. 198-199.
30 Rollo, p. 13. 20 20 SUPREME COURT REPORTS ANNOTATED Islriz Trading vs.
Capada reinstatement without backwages after it found that there was no illegal
termination. Respondents, on the other hand, maintain that the CA did not err in
applying Article 223 of the Labor Code to the instant case. They thus contend that
the computation of their accrued salaries covering the period during which they
were supposed to have been reinstated or from January 1, 2002 to January 30,
2004, should be upheld since same merely applied Article 223. In sum, respondents
believe that the assailed Decision and Resolution of the CA are in accord with law
and jurisprudence. Our Ruling The petition is not meritorious. The core issue to be
resolved in this case is similar to the one determined in Garcia v. Philippine Airlines
Inc., 31that is, whether respondents may collect their wages during the period
between the Labor Arbiters order of reinstatement pending appeal and the NLRC
Resolution overturning that of the Labor Arbiter. In order to provide a thorough
discussion of the present case, an overview ofGarcia is proper. In Garcia, petitioners
therein were dismissed by Philippine Airlines Inc. (PAL) after they were allegedly
caught in the act of sniffing shabu during a raid at the PAL Technical Centers
Toolroom Section. They thus filed a complaint for illegal dismissal. In the meantime,
PAL was placed under an interim rehabilitation receivership because it was then
suffering from severe financial losses. Thereafter, the Labor Arbiter ruled in
petitioners favor and ordered PAL to immediately comply with the reinstatement
aspect of the decision. PAL appealed to the NLRC. The NLRC reversed the Labor
Arbiters Decision and dismissed petitioners complaint for lack of merit. As
_______________ 31 G.R. No. 164856, January 20, 2009, 576 SCRA 479. 21 VOL. 641,
JANUARY 31, 2011 21 Islriz Trading vs. Capada petitioners Motion for
Reconsideration thereto was likewise denied, the NLRC issued an Entry of Judgment.
Notably, PALs Interim Rehabilitation Receiver was replaced by a Permanent
Rehabilitation Receiver during the pendency of its appeal with the NLRC. A writ of
execution with respect to the reinstatement aspect of the Labor Arbiters Decision
was then issued and pursuant thereto, a Notice of Garnishment was likewise issued.
To stop this, PAL filed an Urgent Petition for Injunction with the NLRC. While the
NLRC suspended and referred the action to the rehabilitation receiver, it however,
likewise affirmed the validity of the writ so that PAL appealed to the CA. Fortunately
for PAL, the CA nullified the assailed NLRC Resolutions on the grounds that (1) a
subsequent finding of a valid dismissal removes the basis for the reinstatement
aspect of a labor arbiters decision and, (2) the impossibility to comply with the
reinstatement order due to corporate rehabilitation justifies PALs failure to exercise
the options under Article 223 of the Labor Code. When the case reached this Court,
we partially granted the petition in a Decision dated August 29, 2007 and effectively
reinstated the NLRC Resolutions insofar as it suspended the proceedings. But as PAL
later manifested that the rehabilitation proceedings have already been terminated,
the court proceeded to determine the remaining issue, which is, as earlier stated,
whether petitioners therein may collect their wages during the period between the
Labor Arbiters order of reinstatement pending appeal and the NLRC Resolution
overturning that of the Labor Arbiter. In resolving the case, the Court examined its
conflicting rulings with respect to the application of paragraph 3 of Article 223 of the
Labor Code, viz.: At the core of the seeming divergence is the application of
paragraph 3 of Article 223 of the Labor Code which reads: In any event, the
decision of the Labor Arbiter reinstating a dismissed or separated employee, insofar
as thereinstatement aspect is concerned, shallimmediately be 22 22 SUPREME
COURT REPORTS ANNOTATED Islriz Trading vs. Capada executory, pending appeal.
The employee shall either be admitted back to work under the same terms and
conditions prevailing prior to his dismissal or separation or, at the option of the
employer, merely reinstated in the payroll. The posting of a bond by the employer
shall not stay the execution for reinstatement provided herein. The view as
maintained in a number of cases is that: x x x [E]ven if the order of reinstatement
of the Labor Arbiter is reversed on appeal, it is obligatory on the part of the
employer to reinstate and pay the wages of the dismissed employee during the
period of appeal until reversal by the higher court. On the other hand, if the
employee has been reinstated during the appeal period and such reinstatement
order is reversed with finality, the employee is not required to reimburse whatever
salary he received for he is entitled to such, more so if he actually rendered services
during the period. In other words, a dismissed employee whose case was favorably
decided by the Labor Arbiter is entitled to receive wages pending appeal upon
reinstatement, which is immediately executory. Unless there is a restraining order, it
is ministerial upon the Labor Arbiter to implement the order of reinstatement and it
is mandatory on the employer to comply therewith. The opposite view is articulated
in Genuino which states: If the decision of the labor arbiter is later reversed on
appeal upon the finding that the ground for dismissal is valid, then the employer
has the right to require the dismissed employee on payroll reinstatement to refund
the salaries s/he received while the case was pending appeal, or it can be deducted
from the accrued benefits that the dismissed employee was entitled to receive from
his/her employer under existing laws, collective bargaining agreement provisions,
and company practices. However, if the employee was reinstated to work during the
pendency of the appeal, then the employee is entitled to the compensation received
for actual services rendered without need of refund. x x x x23 VOL. 641, JANUARY
31, 2011 23 Islriz Trading vs. Capada It has thus been advanced that there is no
point in releasing the wages to petitioners since their dismissal was found to be
valid, and to do so would constitute unjust enrichment. (Emphasis, italics and
underscoring in the original; citations omitted.)32 The Court then stressed that as
opposed to the abovementioned Genuino v. National Labor Relations Commission,
33 the social justice principles of labor law outweigh or render inapplicable the civil
law doctrine of unjust enrichment. It then went on to examine the precarious
implication of the refund doctrine as enunciated inGenuino, thus: [T]he refund
doctrine easily demonstrates how a favorable decision by the Labor Arbiter could
harm, more than help, a dismissed employee. The employee, to make both ends
meet, would necessarily have to use up the salaries received during the pendency
of the appeal, only to end up having to refund the sum in case of a final unfavorable
decision. It is mirage of a stop-gap leading the employee to a risky cliff of
insolvency. Advisably, the sum is better left unspent. It becomes more logical and
practical for the employee to refuse payroll reinstament and simply find work
elsewhere in the interim, if any is available. Notably, the option of payroll
reinstatement belongs to the employer, even if the employee is able and raring to
return to work. Prior toGenuino, it is unthinkable for one to refuse payroll
reinstatement. In the face of the grim possibilities, the rise of concerned employees
declining payroll reinstatement is on the horizon. Further, the Genuino ruling not
only disregards the social justice principles behind the rule, but also institutes a
scheme unduly favorable to management. Under such scheme, the salaries
dispensedpendente lite merely serve as a bond posted in installment by the
employer. For in the event of a reversal of the Labor Arbiters decision ordering
reinstatement, the employer gets back the same amountwithout having to spend
ordinarily for bond premiums. This circumvents, if not directly contradicts, the
proscription that the _______________ 32 Id., at pp. 488-490. 33 G.R. Nos. 142732-33
& 142753-54, December 4, 2007, 539 SCRA 342. 24 24 SUPREME COURT REPORTS
ANNOTATED Islriz Trading vs. Capada posting of a bond [even a cash bond] by the
employer shall not stay the execution for reinstatement. [Underscoring in the
original]34 In view of this, the Court held this stance in Genuinoas a stray posture
and realigned the proper course of the prevailing doctrine on reinstatement pending
appeal vis--vis the effect of a reversal on appeal, that is,even if the order of
reinstatement of the Labor Arbiter is reversed on appeal, it is obligatory on the part
of the employer to reinstate and pay the wages of the dismissed employee during
the period of appeal until reversal by the higher court or tribunal. It likewise settled
the view that the Labor Arbiters order of reinstatement is immediately executory
and the employer has to either re-admit them to work under the same terms and
conditions prevailing prior to their dismissal, or to reinstate them in the payroll, and
that failing to exercise the options in the alternative, employer must pay the
employees salaries. The discussion, however, did not stop there. The court went on
to declare that after the Labor Arbiters decision is reversed by a higher tribunal, the
employee may be barred from collecting the accrued wages, if it is shown that the
delay in enforcing the reinstatement pending appeal was without fault on the part of
the employer. It then provided for the two-fold test in determining whether an
employee is barred from recovering his accrued wages, to wit: (1) there must be
actual delay or that the order of reinstatement pending appeal was not executed
prior to its reversal; and (2) the delay must not be due to the employers unjustified
act or omission. If the delay is due to the employers unjustified refusal, the
employer may still be required to pay the salaries notwithstanding the reversal of
the Labor Arbiters Decision. InGarcia, after it had been estab- _______________ 34
Garcia v. Philippine Airlines Inc., supra note 31 at pp. 491-492. 25 VOL. 641,
JANUARY 31, 2011 25 Islriz Trading vs. Capada lished that there was clearly a delay
in the execution of the reinstatement order, the court proceeded to ascertain
whether same was due to PALs unjustified act or omission. In so doing, it upheld
the CAs finding that the peculiar predicament of a corporate rehabilitation rendered
it impossible for PAL, under the circumstances, to exercise its option under Article
223 of the Labor Code. The suspension of claims dictated by rehabilitation
procedure therefore constitutes a justification for PALs failure to exercise the
alternative options of actual reinstatement or payroll reinstatement. Because of this,
the Court held that PALs obligation to pay the salaries pending appeal, as the
normal effect of the nonexercise of the options, did not attach. Simply put,
petitioners cannot anymore collect their accrued salaries during the period between
the Labor Arbiters order of reinstatement pending appeal and the NLRC Resolution
overturning that of the Labor Arbiter because PALs failure to actually reinstate them
or effect payroll reinstatement was justified by the latters situation of being under
corporate rehabilitation. Application of the Two-Fold Test to the present case As
previously mentioned, the vital question that needs to be answered in the case at
bar is: Can respondents collect their accrued salaries for the period between the
Labor Arbiters order of reinstatement pending appeal and the NLRC Resolution
overturning that of the Labor Arbiter? If in the affirmative, the assailed CA Decision
and Resolution which affirmed the June 3, 2004 Order of Labor Arbiter Castillon
denying the Motion to Quash Writ of Execution and ordering the break-open of
petitioners premises as well as the issuance of the subject Writ of Execution itself,
have to be upheld. Otherwise, they need to be set aside as what petitioner would
want us to do. To come up with the answer to said question, we shall apply the two-
fold test used in Garcia.26 26 SUPREME COURT REPORTS ANNOTATED Islriz Trading
vs. Capada Was there an actual delay or was the order of reinstatement pending
appeal executed prior to its reversal? As can be recalled, Labor Arbiter Gan issued
his Decision ordering respondents reinstatement on December 21, 2001, copy of
which was allegedly received by petitioner on February 21, 2002.35 On March 4,
2002, petitioner appealed said decision to the NLRC. A few days later or on March
11, 2002, respondents filed an Ex-Parte Motion for Issuance of Writ of Execution
relative to the implementation of the reinstatement aspect of the decision.36 On
April 22, 2002, a Writ of Execution was issued by Labor Arbiter Gan. However, until
the issuance of the September 5, 2002 NLRC Resolution overturning Labor Arbiter
Gans Decision, petitioner still failed to reinstate respondents or effect payroll
reinstatement in accordance with Article 223 of the Labor Code. This was what
actually prompted respondents to file an Ex-Parte Motion to Set Case for Conference
with Motion wherein they also prayed for the issuance of a computation of the
award of backwages and Alias Writ of Execution for its enforcement. It cannot
therefore be denied that there was an actual delay in the execution of the
reinstatement aspect of the Decision of Labor Arbiter Gan prior to the issuance of
the NLRC Resolution overturning the same. Now, the next question is:Was the delay
not due to the employers unjustified act or omission? Unlike in Garciawhere PAL, as
the employer, was then under corporate rehabilitation, Islriz Trading here did not
undergo rehabilitation or was under any analogous situation which would justify
petitioners non-exercise of the options provided under Article 223 of the Labor
Code. Notably, what petitioner gave as reason in not immediately effecting
reinstatement after he was served with the Writ of Execution dated April 22, 2002
was that he _______________ 35 As alleged by petitioners in their Notice of Appeal,
Memorandum of Appeal and Joint Affidavit, Rollo, pp. 66-71. 36 Please see page 2 of
the Writ of Execution dated April 22, 2002,id., at pp. 80-82. 27 VOL. 641, JANUARY
31, 2011 27 Islriz Trading vs. Capada would first refer the matter to his counsel as
he could not effectively act on the order of execution without the latters advice.37
He gave his word that upon conferment with his lawyer, he will inform the Office of
the Labor Arbiter of his action on the writ. Petitioner, however, without any
satisfactory reason, failed to fulfill this promise and respondents remained to be not
reinstated until the NLRC resolved petitioners appeal. Evidently, the delay in the
execution of respondents reinstatement was due to petitioners unjustified refusal
to effect the same. Hence, the conclusion is that respondents have the right to
collect their accrued salaries during the period between the Labor Arbiters Decision
ordering their reinstatement pending appeal and the NLRC Resolution overturning
the same because petitioners failure to reinstate them either actually or through
payroll was due to petitioners unjustified refusal to effect reinstatement. In order to
enforce this, Labor Arbiter Castillon thus correctly issued the Writ of Execution dated
March 9, 2004 as well as the Order dated June 3, 2004 denying petitioners Motion
to Quash Writ of Execution and granting respondents Urgent Motion for Issuance of
Break-Open Order. Consequently, we find no error on the part of the CA in upholding
these issuances and in dismissing the petition for certioraribefore it. Having settled
this, we find it unnecessary to discuss further the issues raised by petitioner except
the one with respect to the computation of respondents accrued salaries.
Correctness of the Computation of Respondents Accrued Salaries Petitioner
contends that respondents accrued salaries in the total amount of P1,110,665.60
have no factual and legal bases. This is because of his obstinate belief that the
NLRCs _______________ 37 See Sheriffs Return, id., at p. 223. 28 28 SUPREME COURT
REPORTS ANNOTATED Islriz Trading vs. Capada reversal of Labor Arbiter Gans
Decision has effectively removed the basis for such award. Although we do not
agree with petitioners line of reasoning, we, however, find incorrect the
computation made by Fiscal Examiner Trinchera. In Kimberly Clark (Phils.), Inc., v.
Facundo, 38we held that: [T]he Labor Arbiters order of reinstatement was
immediately executory. After receipt of the Labor Arbiters decision ordering private
respondents reinstatement, petitioner has to either re-admit them to work under
the same terms and conditions prevailing prior to their dismissal, or to reinstate
them in the payroll. Failing to exercise the options in the alternative, petitioner must
pay private respondents salaries which automatically accrued from notice of the
Labor Arbiters order of reinstatement until its ultimate reversal of the NLRC. x x x x
x x x [S]ince private respondents reinstatement pending appeal was effective only
until its reversal by the NLRC on April 28, 1999, they are no longer entitled to
salaries from May 1, 1999 to March 15, 2001, as ordered by the Labor Arbiter.
(Emphasis supplied) To clarify, respondents are entitled to their accrued salaries
only from the time petitioner received a copy of Labor Arbiter Gans Decision
declaring respondents termination illegal and ordering their reinstatement up to
the date of the NLRC Resolution overturning that of the Labor Arbiter. This is
because it is only during said period that respondents are deemed to have been
illegally dismissed and are entitled to reinstatement pursuant to Labor Arbiter Gans
Decision which was the one in effect at that time. Beyond that period, the NLRC
Resolution declaring that there was no illegal dismissal is already the one prevailing.
From such point, respondents salaries did not accrue not only because there is no
_______________ 38 G.R. No. 144885 (Unsigned Resolution), July 12, 2006. 29 VOL.
641, JANUARY 31, 2011 29 Islriz Trading vs. Capada more illegal dismissal to speak
of but also because respondents have not yet been actually reinstated and have not
rendered services to petitioner. Fiscal Examiner Trincheras computation of
respondents accrued salaries covered the period January 1, 2002 to January 30,
2004. As there was no showing when petitioner actually received a copy of Labor
Arbiter Gans decision except for petitioners self-serving claim that he received the
same on February 21, 2002,39 we are at a loss as to how Fiscal Examiner Trinchera
came up with January 1, 2002 as the reckoning point for computing respondents
accrued wages. We likewise wonder why it covered the period up to January 30,
2004 when on September 5, 2002, the NLRC already promulgated its Resolution
reversing that of the Labor Arbiter. Hence, we deem it proper to remand the records
of this case to the Labor Arbiter for the correct computation of respondents accrued
wages which shall commence from petitioners date of receipt of the Labor Arbiters
Decision ordering reinstatement up to the date of the NLRC Resolution reversing the
same. Considering, however, that petitioners levied properties have already been
awarded to respondents and as alleged by the latter, have also already been sold to
third persons, respondents are ordered to make the proper restitution to petitioner
for whatever excess amount received by them based on the correct computation. As
a final note, since it appears that petitioner still failed to reinstate respondents
pursuant to the final and executory Resolution of the NLRC, respondents proper
recourse now is to move for the execution of the same. It is worthy to note that
Labor Arbiter Castillon stated in her questioned Order of June 3, 2004 that the Writ
of Execution she issued is for the sole purpose of enforcing the wages accruing to
respondents by reason of Labor Arbiter Gans order of reinstatement. Indeed, the
last paragraph of said writ provides only for the _______________ 39 Supra note 30.
30 30 SUPREME COURT REPORTS ANNOTATED Islriz Trading vs. Capada enforcement
of said monetary award and nothing on reinstatement, viz.: NOW THEREFORE, you
are commanded to proceed to the premises of respondents Islriz Trading/Victor
Hugo C. Lu located at Brgy. Luciano Trece Martires[,] Cavite City or wherever it may
be found to collect the amount of One Million One Hundred Eleven Thousand Seven
Hundred Sixty One pesos & 60/100 (P1,111,761.60) inclusive [of] P1,096.00 as
execution fees and turn over the said amount to the NLRC Cashier for further
disposition. In case you fail to collect the said amount in cash, you are directed to
cause the satisfaction of the same out of respondents chattels, movable/immovable
properties not exempt from execution. You are directed to return these Writ One
Hundred Eighty (180) days from receipt hereof, together with the report of
compliance. SO ORDERED.40 WHEREFORE, the Petition for Review onCertiorari is
DENIED. The assailed March 18, 2005 Decision and June 16, 2005 Resolution of the
Court of Appeals in CA-G.R. SP No. 84744 are AFFIRMED. The records of this case
are ordered REMANDED to the Office of the Labor Arbiter for the correct
computation of respondents accrued salaries covering the date of petitioners
receipt of the December 21, 2001 Decision of the Labor Arbiter up to the issuance of
the NLRC Resolution on September 5, 2002. Respondents are ordered to make the
proper restitution to petitioner for whatever excess amount which may be
determined to have been received by them based on the correct computation. SO
ORDERED. Corona (C.J., Chairperson), Velasco, Jr., Leonardo-De Castro andPerez, JJ.,
concur. Petition denied, judgment and resolution affirmed. _______________ 40 Rollo,
p. 106. 31 VOL. 641, JANUARY 31, 2011 ## Cargill Philippines, Inc. vs. San Fernando
Regala Trading, Inc. Note.Reinstatement is the restoration to a state or condition
from which one had been removed or separated. In providing foremost for the
reinstatement of an illegally dismissed employee, the Labor Code not only
recognizes the security of tenure granted by law to regular employees, but also
gives substance and meaning to the protection accorded by the Constitution to
labor. (Pheschem Industrial Corporation vs. Moldez, 458 SCRA 339 [2005]) o0o

THIRD DIVISION

G HOLDINGS, INC.,
Petitioner, G.R. No. 160236

- versus - Present:

CARPIO MORALES, J.,*


NATIONAL MINES AND CHICO-NAZARIO,**
ALLIED WORKERS UNION Acting Chairperson,
Local 103 (NAMAWU); NACHURA,
SHERIFFS PERALTA, and
RICHARD H. APROSTA and ABAD,***JJ
ALBERTO MUNOZ, all acting
Sheriffs; DEPARTMENT OF
LABOR AND EMPLOYMENT,
Region VI, Bacolod District
Office, Bacolod City, Promulgated:
Respondents.
October 16, 2009

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

Before this Court is a petition for review on certiorari under Rule


45 of the Rules of Court assailing the October 14, 2003
Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No. 75322.

The Facts

The petitioner, G Holdings, Inc. (GHI), is a domestic corporation


primarily engaged in the business of owning and holding shares of
stock of different companies. [2] It was registered with the
Securities and Exchange Commission on August 3, 1992. Private
respondent, National Mines and Allied Workers Union Local 103
(NAMAWU), was the exclusive bargaining agent of the rank and
file employees of Maricalum Mining Corporation (MMC), [3] an entity
operating a copper mine and mill complex at Sipalay, Negros
Occidental.[4]

MMC was incorporated by the Development Bank of the


Philippines (DBP) and the Philippine National Bank (PNB) on
October 19, 1984, on account of their foreclosure of Marinduque
Mining and Industrial Corporations assets. MMC started its
commercial operations in August 1985. Later, DBP and PNB
transferred it to the National Government for disposition or
privatization because it had become a non-performing asset. [5]
On October 2, 1992, pursuant to a Purchase and Sale
Agreement[6] executed between GHI and Asset Privatization Trust
(APT), the former bought ninety percent (90%) of MMCs shares
and financial claims.[7] These financial claims were converted into
three Promissory Notes[8] issued by MMC in favor of GHI
totaling P500M and secured by mortgages over MMCs
properties. The notes, which were similarly worded except for
their amounts, read as follows:

PROMISSORY NOTE

AMOUNT - Php114,715,360.00 [Php186,550,560.00 in the


second
note, and Php248,734,080.00 in the
third note.]

MAKATI, METRO MANILA, PHILIPPINES, October 2, 1992

For Value Received, MARICALUM MINING CORPORATION


(MMC) with postal address at 4 th Floor, Manila Memorial
Park Bldg., 2283 Pasong Tamo Extension, Makati, Metro
Manila, Philippines, hereby promises to pay G HOLDINGS,
INC., at its office at Phimco Compound, F. Manalo Street,
Punta, Sta. Ana, Manila, the amount of PESOS ONE
HUNDRED FOURTEEN MILLION, SEVEN HUNDRED FIFTEEN
THOUSAND AND THREE HUNDRED SIXTY
(Php114,715,360.00) [PESOS ONE HUNDRED EIGHTY SIX
MILLION FIVE HUNDRED FIFTY THOUSAND FIFE HUNDRED
AND SIXTY (Php186,550,560.00) in the second note, and
PESOS TWO HUNDRED FORTY EIGHT MILLION, SEVEN
HUNDRED THIRTY FOUR THOUSAND AND EIGHTY
(Php248,734,080.00) in the third note], PHILIPPINE
CURRENCY, on or before October 2, 2002. Interest shall
accrue on the amount of this Note at a rate per annum
equal to the interest of 90-day Treasury Bills prevailing on
the Friday preceding the maturity date of every calendar
quarter.

As collateral security, MMC hereby establishes and constitutes


in favor of G HOLDINGS, INC., its successors and/or
assigns:

1. A mortgage over certain parcels of land, more


particularly listed and described in the Sheriffs
Certificate of Sale dated September 7, 1984 issued
by the Ex-Officio Provincial Sheriff of Negros
Occidental, Rolando V. Ramirez, with office at
Bacolod City following the auction sale conducted
pursuant to the provisions of Act 3135, a copy of
which certificate of sale is hereto attached as Annex
A and made an integral part hereof;

2. A chattel mortgage over assets and personal


properties more particularly listed and described in
the Sheriffs Certificate of Sale dated September 7,
1984 issued by the Ex-Officio Provincial Sheriff of
Negros Occidental, Rolando V. Ramirez, with office at
Bacolod City following the auction conducted
pursuant to the provisions of Act 1508, a copy of
which Certificate of Sale is hereto attached as Annex
B and made an integral part hereof.

3. Mortgages over assets listed in APT Specific


Catalogue GC-031 for MMC, a copy of which
Catalogue is hereby made an integral part hereof by
way of reference, as well as assets presently in use
by MMC but which are not listed or included in
paragraphs 1 and 2 above and shall include all
assets that may hereinafter be acquired by MMC.

MARICALUM MINING CORPORATION


(Maker)

x x x x[9]

Upon the signing of the Purchase and Sale Agreement and


upon the full satisfaction of the stipulated down payment, GHI
immediately took physical possession of the mine site and its
facilities, and took full control of the management and operation
of MMC.[10]

Almost four years thereafter, or on August 23, 1996, a labor


dispute (refusal to bargain collectively and unfair labor practice)
arose between MMC and NAMAWU, with the latter eventually filing
with the National Conciliation and Mediation Board of Bacolod City
a notice of strike.[11] Then Labor Secretary, now Associate Justice
of this Court, Leonardo A. Quisumbing, later assumed jurisdiction
over the dispute and ruled in favor of NAMAWU. In his July 30,
1997 Order in OS-AJ-10-96-014 (Quisumbing Order), Secretary
Quisumbing declared that the lay-off (of workers) implemented on
May 7, 1996 and October 7, 1996 was illegal and that MMC
committed unfair labor practice. He then ordered the
reinstatement of the laid-off workers, with payment of full
backwages and benefits, and directed the execution of a new
collective bargaining agreement (CBA) incorporating the terms
and conditions of the previous CBA providing for an annual
increase in the workers daily wage. [12] In two separate casesG.R.
Nos. 133519 and 138996filed with this Court, we sustained the
validity of the Quisumbing Order, which became final and
executory on January 26, 2000.[13]

On May 11, 2001, then Acting Department of Labor and


Employment (DOLE) Secretary, now also an Associate Justice of
this Court, Arturo D. Brion, on motion of NAMAWU, directed the
issuance of a partial writ of execution (Brion Writ), and ordered
the DOLE sheriffs to proceed to the MMC premises for the
execution of the same.[14] Much later, in 2006, this Court, in G.R.
Nos. 157696-97, entitled Maricalum Mining Corporation v. Brion
and NAMAWU,[15] affirmed the propriety of the issuance of the
Brion Writ.

The Brion Writ was not fully satisfied because MMCs resident
manager resisted its enforcement. [16] On motion of NAMAWU, then
DOLE Secretary Patricia A. Sto. Tomas ordered the issuance of the
July 18, 2002 Alias Writ of Execution and Break-Open Order (Sto.
Tomas Writ).[17] On October 11, 2002, the respondent acting
sheriffs, the members of the union, and several armed men
implemented the Sto. Tomas Writ, and levied on the properties of
MMC located at its compound in Sipalay, Negros Occidental. [18]

On October 14, 2002, GHI filed with the Regional Trial Court
(RTC) of Kabankalan City, Negros Occidental, Special Civil Action
(SCA) No. 1127 for Contempt with Prayer for the Issuance of a
Temporary Restraining Order (TRO) and Writ of Preliminary
Injunction and to Nullify the Sheriffs Levy on Properties. [19] GHI
contended that the levied properties were the subject of a Deed
of Real Estate and Chattel Mortgage, dated September 5,
1996[20] executed by MMC in favor of GHI to secure the
aforesaid P550M promissory notes; that this deed was registered
on February 24, 2000;[21] and that the mortgaged properties were
already extrajudicially foreclosed in July 2001 and sold to GHI as
the highest bidder on December 3, 2001, as evidenced by the
Certificate of Sale dated December 4, 2001. [22]

The trial court issued ex parte a TRO effective for 72 hours,


and set the hearing on the application for a writ of injunction.
[23]
On October 17, 2002, the trial court ordered the issuance of a
Writ of Injunction (issued on October 18, 2002) [24] enjoining the
DOLE sheriffs from further enforcing the Sto. Tomas Writ and from
conducting any public sale of the levied-on properties, subject to
GHIs posting of a P5M bond.[25]

Resolving, among others, NAMAWUs separate motions for


the reconsideration of the injunction order and for the dismissal of
the case, the RTC issued its December 4, 2002 Omnibus Order,
[26]
the dispositive portion of which reads:

WHEREFORE, premises considered, respondent


NAMAWU Local 103s Motion for Reconsideration dated
October 23, 2002 for the reconsideration of the Order of
this Court directing the issuance of Writ of Injunction
prayed for by petitioner and the Order dated October 18,
2002 approving petitioners Injunction Bond in the amount
of P5,000,000.00 is hereby DENIED.

Respondents Motion to Dismiss as embodied in its


Opposition to Extension of Temporary Restraining Order
and Issuance of Writ of Preliminary Injunction with Motion
to Dismiss and Suspend Period to File Answer dated
October 15, 2002 is likewise DENIED.

Petitioners Urgent Motion for the return of the levied


firearms is GRANTED. Pursuant thereto, respondent
sheriffs are ordered to return the levied firearms and
handguns to the petitioner provided the latter puts [up] a
bond in the amount of P332,200.00.

Respondents lawyer, Atty. Jose Lapak, is strictly warned


not to resort again to disrespectful and contemptuous
language in his pleadings, otherwise, the same shall be
dealt with accordingly.

SO ORDERED.[27]

Aggrieved, NAMAWU filed with the CA a petition


for certiorari under Rule 65, assailing the October 17, 18 and
December 4, 2002 orders of the RTC.[28]

After due proceedings, on October 14, 2003, the appellate


court rendered a Decision setting aside the RTC issuances and
directing the immediate execution of the Sto. Tomas Writ.The CA
ruled, among others, that the circumstances surrounding the
execution of the September 5, 1996 Deed of Real Estate and
Chattel Mortgage yielded the conclusion that the deed was sham,
fictitious and fraudulent; that it was executed two weeks after the
labor dispute arose in 1996, but surprisingly, it was registered
only on February 24, 2000, immediately after the Court affirmed
with finality the Quisumbing Order. The CA also found that the
certificates of title to MMCs real properties did not contain any
annotation of a mortgage lien, and, suspiciously, GHI did not
intervene in the long drawn-out labor proceedings to protect its
right as a mortgagee of virtually all the properties of MMC. [29]

The CA further ruled that the subsequent foreclosure of the


mortgage was irregular, effected precisely to prevent the
satisfaction of the judgment against MMC. It noted that the
foreclosure proceedings were initiated in July 2001, shortly after
the issuance of the Brion Writ; and, more importantly, the basis
for the extrajudicial foreclosure was not the failure of MMC to pay
the mortgage debt, but its failure to satisfy any money judgment
against it rendered by a court or tribunal of competent
jurisdiction, in favor of any person, firm or entity, without any
legal ground or reason.[30] Further, the CA pierced the veil of
corporate fiction of the two corporations. [31] The dispositive
portion of the appellate courts decision reads:

WHEREFORE, in view of the foregoing


considerations, the petition is GRANTED. The October 17,
2002 and the December 4, 2002 Order of the RTC, Branch
61 of Kabankalan City, Negros Occidental are hereby
ANNULLED and SET ASIDE for having been issued in
excess or without authority. The Writ of Preliminary
Injunction issued by the said court is lifted, and the DOLE
Sheriff is directed to immediately enforce the Writ of
Execution issued by the Department of Labor and
Employment in the case In re: Labor Dispute in Maricalum
Mining Corporation docketed as OS-AJ-10-96-01 (NCMB-
RB6-08-96).[32]

The Issues

Dissatisfied, GHI elevated the case to this Court via the


instant petition for review on certiorari, raising the following
issues:

WHETHER OR NOT GHI IS A PARTY TO THE LABOR


DISPUTE BETWEEN NAMAWU AND MMC.

II

WHETHER OR NOT, ASSUMING ARGUENDO THAT THE


PERTINENT DECISION OR ORDER IN THE SAID LABOR
DISPUTE BETWEEN MMC AND NAMAWU MAY BE
ENFORCED AGAINST GHI, THERE IS ALREADY A FINAL
DEETERMINATION BY THE SUPREME COURT OF THE
RIGHTS OF THE PARTIES IN SAID LABOR DISPUTE
CONSIDERING THE PENDENCY OF G.R. NOS. 157696-97.

III

WHETHER OR NOT GHI IS THE ABSOLUTE OWNER OF THE


PROPERTIES UNLAWFULLY GARNISHED BY RESPONDENTS
SHERIFFS.

IV

WHETHER OR NOT THE HONORABLE HENRY D. ARLES


CORRECTLY ISSUED A WRIT OF INJUNCTION AGAINST THE
UNLAWFUL EXECUTIOIN ON GHIS PROPERTIES.

WHETHER OR NOT THE VALIDITY OF THE DEED OF REAL


AND CHATTEL MORTGAGE OVER THE SUBJECT
PROPERTIES BETWEEN MMC AND GHI MAY BE
COLLATERALLY ATTACKED.
VI

WHETHER OR NOT, ASSUMING ARGUENDO THAT THE


VALIDITY OF THE SAID REAL AND CHATTEL MORTGAGE
MAY BE COLLATERALLY ATTACKED, THE SAID MORTGAGE
IS SHAM, FICTITIOUS AND FRAUDULENT.

VII

WHETHER OR NOT GHI IS A DISTINCT AND SEPARATE


CORPORATE ENTITY FROM MMC.

VIII

WHETHER OR NOT GHI CAN BE PREVENTED THROUGH


THE ISSUANCE OF A RESTRAINING ORDER OR INJUNCTION
FROM TAKING POSSESSION OR BE DISPOSSESSED OF
ASSETS PURCHASED BY IT FROM APT.[33]

Stripped of non-essentials, the core issue is whether, given the


factual circumstances obtaining, the RTC properly issued the writ
of injunction to prevent the enforcement of the Sto. Tomas
Writ. The resolution of this principal issue, however, will
necessitate a ruling on the following key and interrelated
questions:

1. Whether the mortgage of the MMCs properties to GHI


was a sham;

2. Whether there was an effective levy by the DOLE upon


the MMCs real and personal properties; and

3. Whether it was proper for the CA to pierce the veil of


corporate fiction between MMC and GHI.

Our Ruling

Before we delve into an extended discussion of the foregoing


issues, it is essential to take judicial cognizance of cases
intimately linked to the present controversy which had earlier
been elevated to and decided by this Court.

Judicial Notice.

Judicial notice must be taken by this Court of its Decision


in Maricalum Mining Corporation v. Hon. Arturo D. Brion and
NAMAWU,[34] in which we upheld the right of herein private
respondent, NAMAWU, to its labor claims. Upon the same principle
of judicial notice, we acknowledge our Decision in Republic of
the Philippines, through its trustee, the Asset Privatization Trust v.
G Holdings, Inc.,[35] in which GHI was recognized as the rightful
purchaser of the shares of stocks of MMC, and thus, entitled to the
delivery of the company notes accompanying the said
purchase. These company notes, consisting of three (3)
Promissory Notes, were part of the documents executed in 1992
in the privatization sale of MMC by the Asset Privatization Trust
(APT) to GHI. Each of these notes uniformly contains
stipulations establishing and constituting in favor of
GHI mortgages over MMCs real and personal properties. The
stipulations were subsequently formalized in a separate document
denominated Deed of Real Estate and Chattel Mortgage
on September 5, 1996. Thereafter, the Deed was registered on
February 4, 2000.[36]
We find both decisions critically relevant to the instant dispute. In
fact, they should have guided the courts below in the disposition
of the controversy at their respective levels. To repeat, these
decisions respectively confirm the right of NAMAWU to its labor
claims[37] and affirm the right of GHI to its financial and mortgage
claims over the real and personal properties of MMC, as will be
explained below. The assailed CA decision apparently failed to
consider the impact of these two decisions on the case at
bar. Thus, we find it timely to reiterate that: courts have also
taken judicial notice of previous cases to determine whether or
not the case pending is a moot one or whether or not a previous
ruling is applicable to the case under consideration. [38]

However, the CA correctly assessed that the authority of the


lower court to issue the challenged writ of injunction depends on
the validity of the third partys (GHIs) claim of ownership over the
property subject of the writ of execution issued by the labor
department. Accordingly, the main inquiry addressed by the CA
decision was whether GHI could be treated as a third party or a
stranger to the labor dispute, whose properties were beyond the
reach of the Writ of Execution dated December 18, 2001. [39]

In this light, all the more does it become imperative to take


judicial notice of the two cases aforesaid, as they provide the
necessary perspective to determine whether GHI is such a party
with a valid ownership claim over the properties subject of the
writ of execution. In Juaban v. Espina,[40] we held that in some
instances, courts have also taken judicial notice of proceedings in
other cases that are closely connected to the matter in
controversy. These cases may be so closely interwoven, or so
clearly interdependent, as to invoke a rule of judicial notice. The
two cases that we have taken judicial notice of are of such
character, and our review of the instant case cannot stray from
the findings and conclusions therein.
Having recognized these crucial Court rulings, situating the facts
in proper perspective, we now proceed to resolve the questions
identified above.

The mortgage
was not a sham.

Republic etc., v. G Holdings, Inc. acknowledged the existence


of the Purchase and Sale Agreement between the APT and the
GHI, and recounts the facts attendant to that transaction, as
follows:

The series of negotiations between


the petitioner Republic of the Philippines, through the APT
as its trustee, and G Holdings culminated in the execution
of a purchase and sale agreement on October 2, 1992.
Under the agreement, the Republic undertook to sell and
deliver 90% of the entire issued and
outstanding shares of MMC, as well as its company
notes, to G Holdings in consideration of the purchase
price of P673,161,280. It also provided for a down
payment of P98,704,000 with the balance divided into
four tranches payable in installment over a period of ten
years.[41]

The company notes mentioned therein were actually the very


same three (3) Promissory Notes amounting to P550M, issued by
MMC in favor of GHI. As already adverted to above, these notes
uniformly contained stipulations establishing and constituting
mortgages over MMCs real and personal properties.

It may be remembered that APT acquired the MMC from the


PNB and the DBP. Then, in compliance with its mandate to
privatize government assets, APT sold the aforesaid MMC shares
and notes to GHI. To repeat, this Court has recognized this
Purchase and Sale Agreement in Republic, etc., v. G Holdings, Inc.

The participation of the Government, through APT, in this


transaction is significant. Because the Government had actively
negotiated and, eventually, executed the agreement, then the
transaction is imbued with an aura of official authority, giving rise
to the presumption of regularity in its execution. This presumption
would cover all related transactional acts and documents needed
to consummate the privatization sale, inclusive of the Promissory
Notes. It is obvious, then, that the Government, through APT,
consented to the establishment and constitution of the mortgages
on the assets of MMC in favor of GHI, as provided in the
notes. Accordingly, the notes (and the stipulations therein) enjoy
the benefit of the same presumption of regularity accorded to
government actions. Given the Government consent thereto, and
clothed with the presumption of regularity, the mortgages cannot
be characterized as sham, fictitious or fraudulent.

Indeed, as mentioned above, the three (3) Promissory Notes,


executed on October 2, 1992, established and constituted in favor
of GHI the following mortgages:

1. A mortgage over certain parcels of land, more


particularly listed and described in the Sheriffs
Certificate of Sale dated September 7, 1984 issued
by the Ex-Officio Provincial Sheriff of Negros
Occidental, Rolando V. Ramirez, with office at
Bacolod City following the auction sale conducted
pursuant to the provisions of Act 3135, a copy of
which certificate of sale is hereto attached as Annex
A and made an integral part hereof;

2. A chattel mortgage over assets and personal


properties more particularly listed and described in
the Sheriffs Certificate of Sale dated September 7,
1984 issued by the Ex-Officio Provincial Sheriff of
Negros Occidental, Rolando V. Ramirez, with office at
Bacolod City following the auction conducted
pursuant to the provision of Act 1508, a copy of
which Certificate of Sale is hereto attached as Annex
B and made an integral part hereof.

3. Mortgages over assets listed in APT Specific catalogue


GC-031 for MMC, a copy of which Catalogue is
hereby made an integral part hereof by way of
reference, as well as assets presently in use by MMC
but which are not listed or included in paragraphs 1
and 2 above and shall include all assets that may
hereinafter be acquired by MMC.[42]

It is difficult to conceive that these mortgages, already existing in


1992, almost four (4) years before NAMAWU filed its notice of
strike, were a fictitious arrangement intended to defraud
NAMAWU. After all, they were agreed upon long before the seeds
of the labor dispute germinated.

While it is true that the Deed of Real Estate and Chattel


Mortgage was executed only on September 5, 1996, it is beyond
cavil that this formal document of mortgage was merely a
derivative of the original mortgage stipulations contained in the
Promissory Notes of October 2, 1992. The execution of this Deed
in 1996 does not detract from, but instead reinforces, the
manifest intention of the parties to establish and constitute the
mortgages on MMCs real and personal properties.

Apparently, the move to execute a formal document


denominated as the Deed of Real Estate and Chattel Mortgage
came about after the decision of the RTC of Manila in Civil Case
No. 95-76132 became final in mid-1996. This conclusion surfaces
when we consider the genesis of Civil Case No. 95-76132 and
subsequent incidents thereto, as narrated in Republic, etc. v. G
Holdings, Inc., viz:

Subsequently, a disagreement on the matter of when


installment payments should commence arose between
the parties. The Republic claimed that it should be on the
seventh month from the signing of the agreement while G
Holdings insisted that it should begin seven months after
the fulfillment of the closing conditions.

Unable to settle the issue, G Holdings filed a


complaint for specific performance and damages with the
Regional Trial Court of Manila, Branch 49, against the
Republic to compel it to close the sale in accordance with
the purchase and sale agreement. The complaint was
docketed as Civil Case No. 95-76132.

During the pre-trial, the respective counsels of the parties


manifested that the issue involved in the case was one of
law and submitted the case for decision. On June 11,
1996, the trial court rendered its decision. It ruled in favor
of G Holdings and held:

In line with the foregoing, this Court


having been convinced that the Purchase and
Sale Agreement is indeed subject to the final
closing conditions prescribed by Stipulation No.
5.02 and conformably to Rule 39, Section 10 of
the Rules of Court, accordingly orders that
the Asset Privatization Trust execute the
corresponding Document of Transfer of
the subject shares and financial notes and
cause the actual delivery of subject
shares and notes to G Holdings, Inc.,
within a period of thirty (30) days from
receipt of this Decision, and after G
Holdings Inc., shall have paid in full the entire
balance, at its present value
of P241,702,122.86, computed pursuant to the
prepayment provisions of the
Agreement.Plaintiff shall pay the balance
simultaneously with the delivery of the Deed of
Transfer and actual delivery of the shares and
notes.

SO ORDERED.

The Solicitor General filed a notice of appeal on behalf of the


Republic on June 28, 1996. Contrary to the rules of
procedure, however, the notice of appeal was filed with
the Court of Appeals (CA), not with the trial court which
rendered the judgment appealed from.

No other judicial remedy was resorted to until July 2, 1999


when the Republic, through the APT, filed a petition for
annulment of judgment with the CA. It claimed that the
decision should be annulled on the ground of abuse of
discretion amounting to lack of jurisdiction on the part of
the trial court. x x x

Finding that the grounds necessary for the annulment of


judgment were inexistent, the appellate court dismissed
the petition. x x x x[43]

With the RTC decision having become final owing to the failure of
the Republic to perfect an appeal, it may have become necessary
to execute the Deed of Real Estate and Chattel Mortgage on
September 5, 1996, in order to enforce the trial courts decision of
June 11, 1996. This appears to be the most plausible explanation
for the execution of the Deed of Real Estate and Chattel Mortgage
only in September 1996. Even as the parties had already validly
constituted the mortgages in 1992, as explicitly provided in the
Promissory Notes, a specific deed of mortgage in a separate
document may have been deemed necessary for registration
purposes. Obviously, this explanation is more logical and more
sensible than the strained conjecture that the mortgage was
executed on September 5, 1996 only for the purpose of
defrauding NAMAWU.

It is undeniable that the Deed of Real Estate and Chattel Mortgage


was formally documented two weeks after NAMAWU filed its
notice of strike against MMC on August 23, 1996.However, this
fact alone cannot give rise to an adverse inference for two
reasons. First, as discussed above, the mortgages had already
been established and constituted as early as October 2, 1992 in
the Promissory Notes, showing the clear intent of the parties to
impose a lien upon MMCs properties. Second, the mere filing of a
notice of strike by NAMAWU did not, as yet, vest in NAMAWU any
definitive right that could be prejudiced by the execution of the
mortgage deed.

The fact that MMCs obligation to GHI is not reflected in the


formers financial statementsa circumstance made capital of by
NAMAWU in order to cast doubt on the validity of the mortgage
deedis of no moment. By itself, it does not provide a sufficient
basis to invalidate this public document. To say otherwise, and to
invalidate the mortgage deed on this pretext, would furnish MMC
a convenient excuse to absolve itself of its mortgage obligations
by adopting the simple strategy of not including the obligations in
its financial statements. It would ignore our ruling in Republic,
etc. v. G Holdings, Inc., which obliged APT to deliver the MMC
shares and financial notes to GHI. Besides, the failure of the
mortgagor to record in its financial statements its loan obligations
is surely not an essential element for the validity of mortgage
agreements, nor will it independently affect the right of the
mortgagee to foreclose.

Contrary to the CA decision, Tanongon v. Samson[44] is not on all


fours with the instant case. There are material differences
between the two cases. At issue in Tanongon was a third-party
claim arising from a Deed of Absolute Sale executed between
Olizon and Tanongon on July 29, 1997, after the NLRC decision
became final and executory on April 29, 1997. In the case at bar,
what is involved is a loan with mortgage agreement executed on
October 2, 1992, well ahead of the unions notice of strike on
August 23, 1996. No presumption of regularity inheres in the deed
of sale in Tanongon, while the participation of APT in this case
clothes the transaction in 1992 with such a presumption that has
not been successfully rebutted. In Tanongon, the conduct of a full-
blown trial led to the findingduly supported by evidencethat the
voluntary sale of the assets of the judgment debtor was made in
bad faith. Here, no trial was held, owing to the motion to dismiss
filed by NAMAWU, and the CA failed to consider the factual
findings made by this Court in Republic, etc. v. G Holdings,
Inc. Furthermore, in Tanongon, the claimant did not exercise his
option to file a separate action in court, thus allowing the NLRC
Sheriff to levy on execution and to determine the rights of third-
party claimants.[45] In this case, a separate action was filed in the
regular courts by GHI, the third-party claimant. Finally, the
questioned transaction in Tanongon was a plain, voluntary
transfer in the form of a sale executed by the judgment debtor in
favor of a dubious third-party, resulting in the inability of the
judgment creditor to satisfy the judgment. On the other hand, this
case involves an involuntary transfer (foreclosure of mortgage)
arising from a loan obligation that well-existed long before the
commencement of the labor claims of the private respondent.

Three other circumstances have been put forward by the CA to


support its conclusion that the mortgage contract is a sham. First,
the CA considered it highly suspect that the Deed of Real Estate
and Chattel Mortgage was registered only on February 4, 2000,
three years after its execution, and almost one month after the
Supreme Court rendered its decision in the labor dispute.
[46]
Equally suspicious, as far as the CA is concerned, is the fact
that the mortgages were foreclosed on July 31, 2001, after the
DOLE had already issued a Partial Writ of Execution on May 9,
2001.[47] To the appellate court, the timing of the registration of
the mortgage deed was too coincidental, while the date of the
foreclosure signified that it was effected precisely to prevent the
satisfaction of the judgment awards. [48] Furthermore, the CA found
that the mortgage deed itself was executed without any
consideration, because at the time of its execution, all the assets
of MMC had already been transferred to GHI. [49]
These circumstances provided the CA with sufficient justification
to apply Article 1387 of the Civil Code on presumed fraudulent
transactions, and to declare that the mortgage deed was void for
being simulated and fictitious.[50]

We do not agree. We find this Courts ruling in MR Holdings, Ltd. v.


Sheriff Bajar[51] pertinent and instructive:

Article 1387 of the Civil Code of the Philippines provides:

Art. 1387. All contracts by virtue of which


the debtor alienates property by gratuitous title
are presumed to have been entered into in
fraud of creditors, when the donor did not
reserve sufficient property to pay all debts
contracted before the donation.
Alienations by onerous title are also
presumed fraudulent when made by persons
against whom some judgment has been
rendered in any instance or some writ of
attachment has been issued. The decision or
attachment need not refer to the property
alienated, and need not have been obtained by
the party seeking rescission.
In addition to these presumptions, the
design to defraud creditors may be proved in
any other manner recognized by law and of
evidence.

This article presumes the existence of


fraud made by a debtor. Thus, in the absence
of satisfactory evidence to the contrary, an
alienation of a property will be held fraudulent
if it is made after a judgment has been
rendered against the debtor making the
alienation. This presumption of fraud is not
conclusive and may be rebutted by
satisfactory and convincing evidence. All
that is necessary is to establish
affirmatively that the conveyance is made
in good faith and for a sufficient and
valuable consideration.

The Assignment Agreement and the Deed of Assignment


were executed for valuable considerations. Patent from
the Assignment Agreement is the fact that petitioner
assumed the payment of US$18,453,450.12 to ADB in
satisfaction of Marcoppers remaining debt as of March 20,
1997. Solidbank cannot deny this fact considering that a
substantial portion of the said payment, in the sum of
US$13,886,791.06, was remitted in favor of the Bank of
Nova Scotia, its major stockholder.
The facts of the case so far show that the
assignment contracts were executed in good
faith. The execution of the Assignment Agreement on
March 20, 1997 and the Deed of Assignment on
December 8,1997 is not the alpha of this case. While
the execution of these assignment contracts
almost coincided with the rendition on May 7, 1997
of the Partial Judgment in Civil Case No. 96-80083
by the Manila RTC, however, there was no intention on
the part of petitioner to defeat Solidbanks claim. It bears
reiterating that as early as November 4, 1992, Placer
Dome had already bound itself under a Support and
Standby Credit Agreement to provide Marcopper with
cash flow support for the payment to ADB of its
obligations. When Marcopper ceased operations on
account of disastrous mine tailings spill into the Boac
River and ADB pressed for payment of the loan, Placer
Dome agreed to have its subsidiary, herein petitioner, pay
ADB the amount of US$18,453,450.12.
Thereupon, ADB and Marcopper executed,
respectively, in favor of petitioner an Assignment
Agreement and a Deed of Assignment. Obviously, the
assignment contracts were connected with
transactions that happened long before the
rendition in 1997 of the Partial Judgment in Civil
Case No. 96-80083 by the Manila RTC. Those
contracts cannot be viewed in isolation. If we may
add, it is highly inconceivable that ADB, a reputable
international financial organization, will connive with
Marcopper to feign or simulate a contract in 1992 just to
defraud Solidbank for its claim four years thereafter. And
it is equally incredible for petitioner to be paying the huge
sum of US$18,453,450.12 to ADB only for the purpose of
defrauding Solidbank of the sum of P52,970,756.89.
It is said that the test as to whether or not a conveyance
is fraudulent is does it prejudice the rights of
creditors? We cannot see how Solidbanks right was
prejudiced by the assignment contracts
considering that substantially all of Marcoppers
properties were already covered by the registered
Deed of Real Estate and Chattel Mortgage executed
by Marcopper in favor of ADB as early as November
11, 1992. As such, Solidbank cannot assert a better
right than ADB, the latter being a preferred
creditor. It is basic that mortgaged properties
answer primarily for the mortgaged credit, not for
the judgment credit of the mortgagors unsecured
creditor. Considering that petitioner assumed
Marcoppers debt to ADB, it follows that Solidbanks right
as judgment creditor over the subject properties must
give way to that of the former.[52]

From this ruling in MR Holdings, we can draw parallel


conclusions. The execution of the subsequent Deed of Real Estate
and Chattel Mortgage on September 5, 1996 was simply the
formal documentation of what had already been agreed in the
seminal transaction (the Purchase and Sale Agreement) between
APT and GHI. It should not be viewed in isolation, apart from the
original agreement of October 2, 1992. And it cannot be denied
that this original agreement was supported by an adequate
consideration. The APT was even ordered by the court to deliver
the shares and financial notes of MMC in exchange for the
payments that GHI had made.

It was also about this time, in 1996, that NAMAWU filed a notice of
strike to protest non-payment of its rightful labor claims. [53] But, as
already mentioned, the outcome of that labor dispute was yet
unascertainable at that time, and NAMAWU could only have
hoped for, or speculated about, a favorable ruling. To
paraphrase MR Holdings, we cannot see how NAMAWUs right was
prejudiced by the Deed of Real Estate and Chattel Mortgage, or by
its delayed registration, when substantially all of the properties of
MMC were already mortgaged to GHI as early as October 2,
1992. Given this reality, the Court of Appeals had no basis to
conclude that this Deed of Real Estate and Chattel Mortgage, by
reason of its late registration, was a simulated or fictitious
contract.

The importance of registration and its binding effect is stated


in Section 51 of the Property Registration Decree or Presidential
Decree (P.D.) No. 1529,[54] which reads:
SECTION 51. Conveyance and other dealings by
registered owner.An owner of registered land may
convey, mortgage, lease, charge or otherwise deal with
the same in accordance with existing laws. He may use
such forms, deeds, mortgages, leases or other voluntary
instrument as are sufficient in law. But no deed,
mortgage, lease or other voluntary instrument, except a
will purporting to convey or effect registered land, shall
take effect as a conveyance or bind the land, but shall
operate only as a contract between the parties and as
evidence of authority to the Registry of Deeds to make
registration.

The act of registration shall be the operative act to


convey or affect the land insofar as third persons are
concerned, and in all cases under this Decree, the
registration shall be made in the Office of the Register of
Deeds for the province or the city where the land lies.[55]

Under the Torrens system, registration is the operative act which


gives validity to the transfer or creates a lien upon the
land. Further, entrenched in our jurisdiction is the doctrine that
registration in a public registry creates constructive notice to the
whole world.[56] Thus, Section 51 of Act No. 496, as amended by
Section 52 of P.D. No. 1529, provides:
SECTION 52. Constructive notice upon registration.Every
conveyance, mortgage, lease, lien, attachment, order,
judgment, instrument or entry affecting registered land
shall, if registered, filed or entered in the Office of the
Register of Deeds for the province or city where the land
to which it relates lies, be constructive notice to all
persons from the time of such registering, filing or
entering.

But, there is nothing in Act No. 496, as amended by P.D. No.


1529, that imposes a period within which to register annotations
of conveyance, mortgage, lease, lien, attachment, order,
judgment, instrument or entry affecting registered land. If liens
were not so registered, then it shall operate only as a contract
between the parties and as evidence of authority to the Registry
of Deeds to make registration. If registered, it shall be the
operative act to convey or affect the land insofar as third persons
are concerned. The mere lapse of time from the execution of the
mortgage document to the moment of its registration does not
affect the rights of a mortgagee.

Neither will the circumstance of GHIs foreclosure of MMCs


properties on July 31, 2001, or after the DOLE had already issued
a Partial Writ of Execution on May 9, 2001 against MMC, support
the conclusion of the CA that GHIs act of foreclosing on MMCs
properties was effected to prevent satisfaction of the judgment
award. GHIs mortgage rights, constituted in 1992, antedated the
Partial Writ of Execution by nearly ten (10) years. GHIs resort to
foreclosure was a legitimate enforcement of a right to liquidate
a bona fide debt. It was a reasonable option open to a mortgagee
which, not being a party to the labor dispute between NAMAWU
and MMC, stood to suffer a loss if it did not avail itself of the
remedy of foreclosure.

The well-settled rule is that a mortgage lien is inseparable


from the property mortgaged.[57] While it is true that GHIs
foreclosure of MMCs mortgaged properties may have had the
effect to prevent satisfaction of the judgment award against the
specific mortgaged property that first answers for a mortgage
obligation ahead of any subsequent creditors, that same
foreclosure does not necessarily translate to having been effected
to prevent satisfaction of the judgment award against MMC.

Likewise, we note the narration of subsequent facts


contained in the Comment of the Office of the Solicitor
General. Therein, it is alleged that after the Partial Writ of
Execution was issued on May 9, 2001, a motion for
reconsideration was filed by MMC; that the denial of the motion
was appealed to the CA; that when the appeal was dismissed by
the CA on January 24, 2002, it eventually became the subject of a
review petition before this Court, docketed as G.R. No. 157696;
and that G.R. No. 157696 was decided by this Court only on
February 9, 2006.

This chronology of subsequent events shows that February 9,


2006 would have been the earliest date for the unimpeded
enforcement of the Partial Writ of Execution, as it was only then
that this Court resolved the issue. This happened four and a half
years after July 31, 2001, the date when GHI foreclosed on the
mortgaged properties. Thus, it is not accurate to say that the
foreclosure made on July 31, 2001 was effected [only] to prevent
satisfaction of the judgment award.

We also observe the error in the CAs finding that the 1996 Deed
of Real Estate and Chattel Mortgage was not supported by any
consideration since at the time the deed was executed, all the
real and personal property of MMC had already been transferred
in the hands of G Holdings.[58] It should be remembered that the
Purchase and Sale Agreement between GHI and APT involved
large amounts (P550M) and even spawned a subsequent court
action (Civil Case No. 95-76132, RTC of Manila). Yet, nowhere in
the Agreement or in the RTC decision is there any mention of real
and personal properties of MMC being included in the sale to GHI
in 1992. These properties simply served as mortgaged collateral
for the 1992 Promissory Notes. [59] The Purchase and Sale
Agreement and the Promissory Notes themselves are the best
evidence that there was ample consideration for the mortgage.

Thus, we must reject the conclusion of the CA that the Deed of


Real Estate and Chattel Mortgage executed in 1996 was a
simulated transaction.

On the issue of whether there


had been an effective levy upon
the properties of GHI.

The well-settled principle is that the rights of a mortgage


creditor over the mortgaged properties are superior to those of a
subsequent attaching creditor. In Cabral v. Evangelista,[60]this
Court declared that:

Defendants-appellants purchase of the mortgaged


chattels at the public sheriff's sale and the delivery of the
chattels to them with a certificate of sale did not give
them a superior right to the chattels as against plaintiffs-
mortgagees. Rule 39, Section 22 of the old Rules of Court
(now Rule 39, Section 25 of the Revised Rules), cited by
appellants precisely provides that the sale conveys to the
purchaser all the right which the debtor had in such
property on the day the execution or attachment was
levied. It has long been settled by this Court that The
right of those who so acquire said properties should not
and can not be superior to that of the creditor who has in
his favor an instrument of mortgage executed with the
formalities of the law, in good faith, and without the least
indication of fraud. This is all the more true in the present
case, because, when the plaintiff purchased the
automobile in question on August 22, 1933, he knew, or
at least, it is presumed that he knew, by the mere fact
that the instrument of mortgage, Exhibit 2, was registered
in the office of the register of deeds of Manila, that said
automobile was subject to a mortgage lien. In purchasing
it, with full knowledge that such circumstances existed, it
should be presumed that he did so, very much willing to
respect the lien existing thereon, since he should not
have expected that with the purchase, he would acquire a
better right than that which the vendor then had. In
another case between two mortgagees, we held that As
between the first and second mortgagees, therefore, the
second mortgagee has at most only the right to redeem,
and even when the second mortgagee goes through the
formality of an extrajudicial foreclosure, the purchaser
acquires no more than the right of redemption from the
first mortgagee. The superiority of the mortgagee's lien
over that of a subsequent judgment creditor is now
expressly provided in Rule 39, Section 16 of the Revised
Rules of Court, which states with regard to the effect of
levy on execution as to third persons that The levy on
execution shall create a lien in favor of the judgment
creditor over the right, title and interest of the judgment
debtor in such property at the time of the levy, subject to
liens or encumbrances then existing.

Even in the matter of possession, mortgagees over chattel have


superior, preferential and paramount rights thereto, and the
mortgagor has mere rights of redemption. [61]
Similar rules apply to cases of mortgaged real properties that are
registered. Since the properties were already mortgaged to GHI,
the only interest remaining in the mortgagor was its right to
redeem said properties from the mortgage. The right of
redemption was the only leviable or attachable property right of
the mortgagor in the mortgaged real properties. We have held
that

The main issue in this case is the nature of the lien


of a judgment creditor, like the petitioner, who has levied
an attachment on the judgment debtor's (CMI) real
properties which had been mortgaged to a consortium of
banks and were subsequently sold to a third party, Top
Rate.

xxxx
The sheriff's levy on CMI's properties, under the writ
of attachment obtained by the petitioner, was actually a
levy on the interest only of the judgment debtor CMI on
those properties. Since the properties were already
mortgaged to the consortium of banks, the only interest
remaining in the mortgagor CMI was its right to redeem
said properties from the mortgage. The right of
redemption was the only leviable or attachable property
right of CMI in the mortgaged real properties. The sheriff
could not have attached the properties themselves, for
they had already been conveyed to the consortium of
banks by mortgage (defined as a conditional sale), so his
levy must be understood to have attached only the
mortgagor's remaining interest in the mortgaged property
the right to redeem it from the mortgage.[62]

xxxx

There appears in the record a factual contradiction relating


to whether the foreclosure by GHI on July 13, 2001 [63] over some
of the contested properties came ahead of the levy thereon, or
the reverse. NAMAWU claims that the levy on two trucks was
effected on June 22, 2001,[64] which GHI disputes as a
misstatement because the levy was attempted on July 18, 2002,
and not 2001[65] What is undisputed though is that the mortgage
of GHI was registered on February 4, 2000, [66] well ahead of any
levy by NAMAWU. Prior registration of a lien creates a preference,
as the act of registration is the operative act that conveys and
affects the land,[67] even against subsequent judgment creditors,
such as respondent herein. Its registration of the mortgage was
not intended to defraud NAMAWU of its judgment claims, since
even the courts were already judicially aware of its existence
since 1992. Thus, at that moment in time, with the registration of
the mortgage, either NAMAWU had no properties of MMC to
attach because the same had been previously foreclosed by GHI
as mortgagee thereof; or by virtue of the DOLEs levy to enforce
NAMAWUs claims, the latters rights are subject to the notice of
the foreclosure on the subject properties by a prior mortgagees
right. GHIs mortgage right had already been registered by then,
and it is basic that mortgaged properties answer primarily for the
mortgaged credit, not for the judgment credit of the mortgagors
unsecured creditor.[68]
On the issue of piercing the
veil of corporate fiction.

The CA found that:

Ordinarily, the interlocking of directors and officers


in two different corporations is not a conclusive indication
that the corporations are one and the same for purposes
of applying the doctrine of piercing the veil of corporate
fiction. However, when the legal fiction of the separate
corporate personality is abused, such as when the same
is used for fraudulent or wrongful ends, the courts have
not hesitated to pierce the corporate veil (Francisco vs.
Mejia, 362 SCRA 738). In the case at bar, the Deed of Real
Estate and Chattel Mortgage was entered into between
MMC and G Holdings for the purpose of evading the
satisfaction of the legitimate claims of the petitioner
against MMC. The notion of separate personality is clearly
being utilized by the two corporations to perpetuate the
violation of a positive legal duty arising from a final
judgment to the prejudice of the petitioners right.[69]

Settled jurisprudence[70] has it that

(A) corporation, upon coming into existence, is


invested by law with a personality separate and distinct
from those persons composing it as well as from any
other legal entity to which it may be related. By this
attribute, a stockholder may not, generally, be made to
answer for acts or liabilities of the said corporation, and
vice versa. This separate and distinct personality is,
however, merely a fiction created by law for convenience
and to promote the ends of justice. For this reason, it may
not be used or invoked for ends subversive to the policy
and purpose behind its creation or which could not have
been intended by law to which it owes its being. This is
particularly true when the fiction is used to defeat
public convenience, justify wrong, protect fraud,
defend crime, confuse legitimate legal or judicial
issues, perpetrate deception or otherwise
circumvent the law. This is likewise true where the
corporate entity is being used as an alter ego,
adjunct, or business conduit for the sole benefit of
the stockholders or of another corporate entity. In
all these cases, the notion of corporate entity will be
pierced or disregarded with reference to the particular
transaction involved.

Given this jurisprudential principle and the factual circumstances


obtaining in this case, we now ask: Was the CA correct in piercing
the veil of corporate identity of GHI and MMC?

In our disquisition above, we have shown that the CAs finding that
there was a simulated mortgage between GHI and MMC to justify
a wrong or protect a fraud has struggled vainly to find a foothold
when confronted with the ruling of this Court in Republic v. G
Holdings, Inc.
The negotiations between the GHI and the Government--through
APT, dating back to 1992--culminating in the Purchase and Sale
Agreement, cannot be depicted as a contrived transaction.In fact,
in the said Republic, etc., v. G Holdings, Inc., this Court adjudged
that GHI was entitled to its rightful claims not just to the shares
of MMC itself, or just to the financial notes that already contained
the mortgage clauses over MMCs disputed assets, but also to the
delivery of those instruments. Certainly, we cannot impute to this
Courts findings on the case any badge of fraud. Thus, we reject
the CAs conclusion that it was right to pierce the veil of corporate
fiction, because the foregoing circumstances belie such an
inference. Furthermore, we cannot ascribe to the Government, or
the APT in particular, any undue motive to participate in a
transaction designed to perpetrate fraud. Accordingly, we
consider the CA interpretation unwarranted.

We also cannot agree that the presumption of fraud in Article


1387 of the Civil Code relative to property conveyances, when
there was already a judgment rendered or a writ of attachment
issued, authorizes piercing the veil of corporate identity in this
case. We find that Article 1387 finds less application to an
involuntary alienation such as the foreclosure of mortgage made
before any final judgment of a court. We thus hold that when the
alienation is involuntary, and the foreclosure is not fraudulent
because the mortgage deed has been previously executed in
accordance with formalities of law, and the foreclosure is resorted
to in order to liquidate a bona fide debt, it is not the alienation by
onerous title contemplated in Article 1387 of the Civil Code
wherein fraud is presumed.

Since the factual antecedents of this case do not warrant a


finding that the mortgage and loan agreements between MMC
and GHI were simulated, then their separate personalities must
be recognized. To pierce the veil of corporate fiction would require
that their personalities as creditor and debtor be conjoined,
resulting in a merger of the personalities of the creditor (GHI) and
the debtor (MMC) in one person, such that the debt of one to the
other is thereby extinguished. But the debt embodied in the 1992
Financial Notes has been established, and even made subject of
court litigation (Civil Case No. 95-76132, RTC Manila). This can
only mean that GHI and MMC have separate corporate
personalities.

Neither was MMC used merely as an alter ego, adjunct, or


business conduit for the sole benefit of GHI, to justify piercing the
formers veil of corporate fiction so that the latter could be held
liable to claims of third-party judgment creditors, like NAMAWU. In
this regard, we find American jurisprudence persuasive. In a
decision by the Supreme Court of New York [71]bearing upon similar
facts, the Court denied piercing the veil of corporate fiction to
favor a judgment creditor who sued the parent corporation of the
debtor, alleging fraudulent corporate asset-shifting effected after
a prior final judgment. Under a factual background largely
resembling this case at bar, viz:
In this action, plaintiffs seek to recover the balance
due under judgments they obtained against Lake George
Ventures Inc. (hereinafter LGV), a subsidiary of
defendant that was formed to develop the Top O the
World resort community overlooking Lake George,
by piercing the corporate veil or upon the theory that
LGV's transfer of certain assets constituted fraudulent
transfers under the Debtor and Creditor Law. We
previously upheld Supreme Court's denial of defendant's
motion for summary judgment dismissing the
complaint (252 A.D.2d 609, 675 N.Y.S.2d 234) and the
matter proceeded to a nonjury trial. Supreme Court
thereafter rendered judgment in favor of defendant upon
its findings that, although defendant dominated LGV, it
did not use that domination to commit a fraud or wrong
on plaintiffs. Plaintiffs appealed.

The trial evidence showed that LGV was incorporated in


November 1985. Defendant's principal, Francesco Galesi,
initially held 90% of the stock and all of the stock was
ultimately transferred to defendant. Initial project funding
was provided through a $2.5 million loan from Chemical
Bank, secured by defendant's guarantee of repayment of
the loan and completion of the project. The loan proceeds
were utilized to purchase the real property upon which
the project was to be established. Chemical Bank
thereafter loaned an additional $3.5 million to LGV, again
guaranteed by defendant, and the two loans were
consolidated into a first mortgage loan of $6 million. In
1989, the loan was modified by splitting the loan into a
$1.9 term note on which defendant was primary obligor
and a $4.1 million project note on which LGV was the
obligor and defendant was a guarantor.

Due to LGV's lack of success in marketing the


project's townhouses and in order to protect itself
from the exercise of Chemical Bank's enforcement
remedies, defendant was forced to make monthly
installments of principal and interest on LGV's behalf.
Ultimately, defendant purchased the project note from
Chemical Bank for $3.1 million, paid the $1.5 million
balance on the term note and took an assignment of the
first mortgage on the project's realty. After LGV failed to
make payments on the indebtedness over the course of
the succeeding two years, defendant brought an action
to foreclose its mortgage. Ultimately, defendant obtained
a judgment of foreclosure and sale in the amount of
$6,070,246.50. Defendant bid in the property at the
foreclosure sale and thereafter obtained a deficiency
judgment in the amount of $3,070,246.50.
Following the foreclosure sale, LGV transferred to
defendant all of the shares of Top of the World Water
Company, a separate entity that had been organized to
construct and operate the water supply and delivery
system for the project, in exchange for a $950,000
reduction in the deficiency judgment.

the U.S. Supreme Court of New York held

Based on the foregoing, and accepting that


defendant exercised complete domination and control
over LGV, we are at a loss as to how plaintiffs perceive
themselves to have been inequitably affected by
defendant's foreclosure action against LGV, by LGV's
divestiture of the water company stock or the sports
complex property, or by defendant's transfer to LGV of a
third party's uncollectible note, accomplished solely for
tax purposes. It is undisputed that LGV was, and for
some period of time had been, unable to meet its
obligations and, at the time of the foreclosure sale,
liens against its property exceeded the value of its
assets by several million dollars, even including
the water company and sports complex at the
values plaintiffs would assign to them. In fact, even
if plaintiffs' analysis were utilized to eliminate the entire
$3 million deficiency judgment, the fact remains that
subordinate mortgages totaling nearly an
additional $2 million have priority over plaintiffs'
judgments.

As properly concluded by Supreme Court, absent a


finding of any inequitable consequence to
plaintiffs, both causes of action pleaded in the
amended complaint must fail. Fundamentally, a
party seeking to pierce the corporate veil must
show complete domination and control of the
subsidiary by the parent and also that such
domination was used to commit a fraud or wrong
against the plaintiff that resulted in the plaintiff's
injury ( 252 A.D.2d 609, 610, 675 N.Y.S.2d 234, supra;
see, Matter of Morris v. New York State Dept. of Taxation &
Fin., 82 N.Y.2d 135, 141, 603 N.Y.S.2d 807, 623 N.E.2d
1157). Notably, [e]vidence of domination alone does
not suffice without an additional showing that it
led to inequity, fraud or malfeasance (TNS Holdings
v. MKI Sec. Corp., 92 N.Y.2d 335, 339, 680 N.Y.S.2d 891,
703 N.E.2d 749).

xxxx
In reaching that conclusion, we specifically reject a
number of plaintiffs' assertions, including the entirely
erroneous claims that our determination on the prior
appeal (252 A.D.2d 609, 675 N.Y.S.2d 234, supra) set
forth a roadmap for the proof required at trial and
mandated a verdict in favor of plaintiffs upon their
production of evidence that supported the decision's
listed facts. To the contrary, our decision was predicated
upon the existence of such evidence, absent which we
would have granted summary judgment in favor of
defendant. We are equally unpersuaded by plaintiffs'
continued reliance upon defendant's December 1991
unilateral conversion of its intercompany loans with LGV
from debt to equity, which constituted nothing more than
a bookkeeping transaction and had no apparent effect on
LGV's obligations to defendant or defendant's right
to foreclose on its mortgage.[72]

This doctrine is good law under Philippine jurisdiction.


In Concept Builders, Inc. v. National Labor Relations
Commission,[73] we laid down the test in determining the
applicability of the doctrine of piercing the veil of corporate
fiction, to wit:

1. Control, not mere majority or complete control, but


complete domination, not only of finances but of
policy and business practice in respect to the
transaction attacked so that the corporate entity as
to this transaction had at the time no separate mind,
will or existence of its own.

2. Such control must have been used by the defendant to


commit fraud or wrong, to perpetuate the violation
of a statutory or other positive legal duty, or
dishonest and, unjust act in contravention of
plaintiffs legal rights; and,

3. The aforesaid control and breach of duty must


proximately cause the injury or unjust loss
complained of.

xxxx

Time and again, we have reiterated that mere ownership by


a single stockholder or by another corporation of all or nearly all
of the capital stock of a corporation is not, by itself, a sufficient
ground for disregarding a separate corporate personality.[74] It is
basic that a corporation has a personality separate and distinct
from that composing it as well as from that of any other legal
entity to which it may be related. Clear and convincing evidence
is needed to pierce the veil of corporate fiction. [75]
In this case, the mere interlocking of directors and officers
does not warrant piercing the separate corporate personalities of
MMC and GHI. Not only must there be a showing that there was
majority or complete control, but complete domination, not only
of finances but of policy and business practice in respect to the
transaction attacked, so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of
its own. The mortgage deed transaction attacked as a basis for
piercing the corporate veil was a transaction that was an offshoot,
a derivative, of the mortgages earlier constituted in the
Promissory Notes dated October 2, 1992. But these Promissory
Notes with mortgage were executed by GHI with APT in the name
of MMC, in a full privatization process. It appears that if there was
any control or domination exercised over MMC, it was APT, not
GHI, that wielded it. Neither can we conclude that the constitution
of the loan nearly four (4) years prior to NAMAWUs notice of strike
could have been the proximate cause of the injury of NAMAWU for
having been deprived of MMCs corporate assets.

On the propriety of injunction


to prevent execution by the
NLRC on the properties
of third-party claimants

It is settled that a Regional Trial Court can validly issue a


Temporary Restraining Order (TRO) and, later, a writ of
preliminary injunction to prevent enforcement of a writ of
execution issued by a labor tribunal on the basis of a third-partys
claim of ownership over the properties levied upon. [76] While, as a
rule, no temporary or permanent injunction or restraining order in
any case involving or growing out of a labor dispute shall be
issued by any court--where the writ of execution issued by a labor
tribunal is sought to be enforced upon the property of a stranger
to the labor dispute, even upon a mere prima facie showing of
ownership of such claimant--a separate action for injunctive relief
against such levy may be maintained in court, since said action
neither involves nor grows out of a labor dispute insofar as the
third party is concerned.[77] Instructively, National Mines and Allied
Workers Union v. Vera[78]

Petitioners' reliance on the provision of Art. 254 of


the New Labor Code (herein earlier quoted) which
prohibits injunctions or restraining orders in any case
involving or growing out of a 'labor dispute' is not well-
taken. This has no application to the case at bar. Civil
Case No. 2749 is one which neither "involves" nor "grows
out" of a labor dispute. What 'involves' or 'grows out' of a
labor dispute is the NLRC case between petitioners and
the judgment debtor, Philippine Iron Mines. The private
respondents are not parties to the said NLRC case. Civil
Case No. 2749 does not put in issue either the fact or
validity of the proceeding in theNLRC case nor the
decision therein rendered, much less the writ of execution
issued thereunder. It does not seek to enjoin the
execution of the decision against the properties of the
judgment debtor. What is sought to be tried in Civil Case
No. 2749 is whether the NLRC's decision and writ of
execution, above mentioned, shall be permitted to be
satisfied against properties of private respondents, and
not of the judgment debtor named in the NLRC decision
and writ of execution. Such a recourse is allowed under
the provisions of Section 17, Rule 39 of the Rules of Court.

To sustain petitioners' theory will inevitably lead to


disastrous consequences and lend judicial imprimatur to
deprivation of property without due process of law. Simply
because a writ of execution was issued by the NLRC does
not authorize the sheriff implementing the same to levy
on anybody's property. To deny the victim of the wrongful
levy, the recourse such as that availed of by the herein
private respondents, under the pretext that no court of
general jurisdiction can interfere with the writ of
execution issued in a labor dispute, will be sanctioning a
greater evil than that sought to be avoided by the Labor
Code provision in question. Certainly, that could not have
been the intendment of the law creating the NLRC. For
well-settled is the rule that the power of a court to
execute its judgment extends only over properties
unquestionably belonging to the judgment debtor.

Likewise, since the third-party claimant is not one of the parties to


the action, he cannot, strictly speaking, appeal from the order
denying his claim, but he should file a separate reivindicatory
action against the execution creditor or the purchaser of the
property after the sale at public auction, or a complaint for
damages against the bond filed by the judgment creditor in favor
of the sheriff.[79]

A separate civil action for recovery of ownership of the


property would not constitute interference with the powers or
processes of the labor tribunal which rendered the judgment to
execute upon the levied properties. The property levied upon
being that of a stranger is not subject to levy. Thus, a separate
action for recovery, upon a claim and prima facie showing of
ownership by the petitioner, cannot be considered as
interference.[80]
Upon the findings and conclusions we have reached above,
petitioner is situated squarely as such third-party claimant. The
questioned restraining order of the lower court, as well as the
order granting preliminary injunction, does not constitute
interference with the powers or processes of the labor
department. The registration of the mortgage document operated
as notice to all on the matter of the mortgagees prior
claims. Official proceedings relative to the foreclosure of the
subject properties constituted a prima facie showing of ownership
of such claimant to support the issuance of injunctive reliefs.

As correctly held by the lower court:

The subject incidents for TRO and/or Writ of Injunction were


summarily heard and in resolving the same, the Court
believes, that the petitioner has a clear and unmistakable
right over the levied properties.The existence of the
subject Deed of Real Estate and Chattel Mortgage, the
fact that petitioner initiated a foreclosure of said
properties before the Clerk of Court and Ex-Officio Sheriff,
RTC Branch 61, Kabankalan City on July 13, 2001, the fact
that said Ex-Officio Sheriff and the Clerk of Court issue a
Notice of Foreclosure, Possession and Control over said
mortgaged properties on July 19, 2001 and the fact that a
Sheriffs Certificate of Sale was issued on December 3,
2001 are the basis of its conclusion. Unless said mortgage
contract is annulled or declared null and void, the
presumption of regularity of transaction must be
considered and said document must be looked [upon] as
valid.

Notably, the Office of the Solicitor General also aptly observed


that when the respondent maintained that the Deed of Real
Estate and Chattel mortgage was entered into in fraud of
creditors, it thereby admitted that the mortgage was not void, but
merely rescissible under Article 1381(3) of the Civil Code; and,
therefore, an independent action is needed to rescind the contract
of mortgage.[81] We, however, hold that such an independent
action cannot now be maintained, because the mortgage has
been previously recognized to exist, with a valid consideration,
in Republic, etc., v. G Holdings, Inc.

A final word

The Court notes that the case filed with the lower court involves a
principal action for injunction to prohibit execution over properties
belonging to a third party not impleaded in the legal dispute
between NAMAWU and MMC. We have observed, however, that
the lower court and the CA failed to take judicial notice of, or to
consider, our Decisions in Republic, etc., v. G Holdings,
Inc., and Maricalum Mining Corporation v. Brion and NAMAWU, in
which we respectively recognized the entitlement of GHI to the
shares and the company notes of MMC (under the Purchase and
Sale Agreement), and the rights of NAMAWU to its labor claims. At
this stage, therefore, neither the lower court nor the CA, nor even
this Court, can depart from our findings in those two cases
because of the doctrine of stare decisis.
From our discussion above, we now rule that the trial court, in
issuing the questioned orders, did not commit grave abuse of
discretion, because its issuance was amply supported by factual
and legal bases.

We are not unmindful, however, of the fact that the labor claims
of NAMAWU, acknowledged by this Court in Maricalum, still awaits
final execution. As success fades from NAMAWUs efforts to
execute on the properties of MMC, which were validly foreclosed
by GHI, we see that NAMAWU always had, and may still have,
ample supplemental remedies found in Rule 39 of the Rules of
Court in order to protect its rights against MMC. These include the
examination of the judgment obligor when judgment is
unsatisfied,[82] the examination of the obligors of judgment
obligors,[83] or even the resort to receivership.[84]

While, theoretically, this case is not ended by this decision,


since the lower court is still to try the case filed with it and decide
it on the merits, the matter of whether the mortgage and
foreclosure of the assets that are the subject of said foreclosure is
ended herein, for the third and final time. So also is the
consequential issue of the separate and distinct personalities of
GHI and MMC. Having resolved these principal issues with
certainty, we
find no more need to remand the case to the lower court, only for
the

purpose of resolving again the matter of whether GHI owns the


properties that were the subject of the latters foreclosure.

WHEREFORE, the Petition is GRANTED. The Decision of the


Court of Appeals dated October 14, 2003 is SET ASIDE. The
Omnibus Order dated December 4, 2002 of the Regional Trial
Court, Branch 61 of Kabankalan City, Negros Occidental
is AFFIRMED. No costs.
SO ORDERED.
THIRD DIVISION

PATRICIA HALAGUEA, MA. G.R. No. 172013


ANGELITA L. PULIDO, MA.
TERESITA P. SANTIAGO,
MARIANNE V. KATINDIG,
BERNADETTE A. Present:
CABALQUINTO,
LORNA B. TUGAS, MARY
CHRISTINE A. VILLARETE, YNARES-SANTIAGO, J.,
CYNTHIA A. STEHMEIER, Chairperson,
ROSE ANNA G. VICTA, CHICO-NAZARIO,
NOEMI R. CRESENCIO, and VELASCO, JR.,
other flight attendants of NACHURA, and
PHILIPPINE AIRLINES, PERALTA, JJ.
Petitioners,

- versus -

PHILIPPINE AIRLINES
INCORPORATED,
Respondent. Promulgated:
October 2, 2009
x------------------------------------------------
--x

DECISION

PERALTA, J.:

Before this Court is a petition for review on certiorari under Rule


45 of the Rules of Court seeking to annul and set aside the
Decision[1] and the Resolution[2] of the Court of Appeals (CA) in CA-
G.R. SP. No. 86813.
Petitioners were employed as female flight attendants of
respondent Philippine Airlines (PAL) on different dates prior to
November 22, 1996. They are members of the Flight Attendants
and Stewards Association of the Philippines (FASAP), a labor
organization certified as the sole and exclusive certified as the
sole and exclusive bargaining representative of the flight
attendants, flight stewards and pursers of respondent.

On July 11, 2001, respondent and FASAP entered into a Collective


Bargaining Agreement[3] incorporating the terms and conditions of
their agreement for the years 2000 to 2005, hereinafter referred
to as PAL-FASAP CBA.

Section 144, Part A of the PAL-FASAP CBA, provides that:

A. For the Cabin Attendants hired before 22 November 1996:


xxxx
3. Compulsory Retirement

Subject to the grooming standards provisions of this


Agreement, compulsory retirement shall be fifty-five (55) for females
and sixty (60) for males. x x x.

In a letter dated July 22, 2003,[4] petitioners and several female


cabin crews manifested that the aforementioned CBA provision on
compulsory retirement is discriminatory, and demanded for an
equal treatment with their male counterparts. This demand was
reiterated in a letter[5] by petitioners' counsel addressed to
respondent demanding the removal of gender discrimination
provisions in the coming re-negotiations of the PAL-FASAP CBA.

On July 12, 2004, Robert D. Anduiza, President of FASAP submitted


their 2004-2005 CBA proposals[6] and manifested their willingness
to commence the collective bargaining negotiations between the
management and the association, at the soonest possible time.

On July 29, 2004, petitioners filed a Special Civil Action for


Declaratory Relief with Prayer for the Issuance of Temporary
Restraining Order and Writ of Preliminary Injunction [7] with the
Regional Trial Court (RTC) of Makati City, Branch 147, docketed as
Civil Case No. 04-886, against respondent for the invalidity of
Section 144, Part A of the PAL-FASAP CBA. The RTC set a hearing
on petitioners' application for a TRO and, thereafter, required the
parties to submit their respective memoranda.

On August 9, 2004, the RTC issued an Order[8] upholding its


jurisdiction over the present case. The RTC reasoned that:
In the instant case, the thrust of the Petition is Sec. 144 of the subject
CBA which is allegedly discriminatory as it discriminates against
female flight attendants, in violation of the Constitution, the Labor
Code, and the CEDAW. The allegations in the Petition do not make out
a labor dispute arising from employer-employee relationship as none is
shown to exist. This case is not directed specifically against
respondent arising from any act of the latter, nor does it involve a
claim against the respondent. Rather, this case seeks a declaration of
the nullity of the questioned provision of the CBA, which is within the
Court's competence, with the allegations in the Petition constituting
the bases for such relief sought.

The RTC issued a TRO on August 10, 2004, [9] enjoining the
respondent for implementing Section 144, Part A of the PAL-FASAP
CBA.

The respondent filed an omnibus motion [10] seeking


reconsideration of the order overruling its objection to the
jurisdiction of the RTC the lifting of the TRO. It further prayed that
the (1) petitioners' application for the issuance of a writ of
preliminary injunction be denied; and (2) the petition be
dismissed or the proceedings in this case be suspended.
On September 27, 2004, the RTC issued an Order [11] directing the
issuance of a writ of preliminary injunction enjoining the
respondent or any of its agents and representatives from further
implementing Sec. 144, Part A of the PAL-FASAP CBA pending the
resolution of the case.

Aggrieved, respondent, on October 8, 2004, filed a Petition for


Certiorari and Prohibition with Prayer for a Temporary Restraining
Order and Writ of Preliminary Injunction[12] with the Court of
Appeals (CA) praying that the order of the RTC, which denied its
objection to its jurisdiction, be annuled and set aside for having
been issued without and/or with grave abuse of discretion
amounting to lack of jurisdiction.

The CA rendered a Decision, dated August 31, 2005, granting the


respondent's petition, and ruled that:

WHEREFORE, the respondent court is by us declared to have NO


JURISDICTION OVER THE CASE BELOW and, consequently, all the
proceedings, orders and processes it has so far issued therein are
ANNULED and SET ASIDE. Respondent court is ordered to DISMISS its
Civil Case No. 04-886.

SO ORDERED.

Petitioner filed a motion for reconsideration, [13] which was denied


by the CA in its Resolution dated March 7, 2006.

Hence, the instant petition assigning the following error:

THE COURT OF APPEALS' CONCLUSION THAT THE SUBJECT MATTER IS A


LABOR DISPUTE OR GRIEVANCE IS CONTRARY TO LAW AND
JURISPRUDENCE.
The main issue in this case is whether the RTC has jurisdiction
over the petitioners' action challenging the legality or
constitutionality of the provisions on the compulsory retirement
age contained in the CBA between respondent PAL and FASAP.
Petitioners submit that the RTC has jurisdiction in all civil actions
in which the subject of the litigation is incapable of pecuniary
estimation and in all cases not within the exclusive jurisdiction of
any court, tribunal, person or body exercising judicial or quasi-
judicial functions. The RTC has the power to adjudicate all
controversies except those expressly witheld from the plenary
powers of the court. Accordingly, it has the power to decide issues
of constitutionality or legality of the provisions of Section 144,
Part A of the PAL-FASAP CBA. As the issue involved is
constitutional in character, the labor arbiter or the National Labor
Relations Commission (NLRC) has no jurisdiction over the case
and, thus, the petitioners pray that judgment be rendered on the
merits declaring Section 144, Part A of the PAL-FASAP CBA null
and void.

Respondent, on the other hand, alleges that the labor tribunals


have jurisdiction over the present case, as the controversy
partakes of a labor dispute. The dispute concerns the terms and
conditions of petitioners' employment in PAL, specifically their
retirement age. The RTC has no jurisdiction over the subject
matter of petitioners' petition for declaratory relief because the
Voluntary Arbitrator or panel of Voluntary Arbitrators have original
and exclusive jurisdiction to hear and decide all unresolved
grievances arising from the interpretation or implementation of
the CBA. Regular courts have no power to set and fix the terms
and conditions of employment. Finally, respondent alleged that
petitioners' prayer before this Court to resolve their petition for
declaratory relief on the merits is procedurally improper and
baseless.

The petition is meritorious.


Jurisdiction of the court is determined on the basis of the material
allegations of the complaint and the character of the relief prayed
for irrespective of whether plaintiff is entitled to such relief. [14]

In the case at bar, the allegations in the petition for declaratory


relief plainly show that petitioners' cause of action is the
annulment of Section 144, Part A of the PAL-FASAP CBA. The
pertinent portion of the petition recites:

CAUSE OF ACTION

24. Petitioners have the constitutional right to fundamental equality


with men under Section 14, Article II, 1987 of the Constitution and,
within the specific context of this case, with the male cabin attendants
of Philippine Airlines.

26. Petitioners have the statutory right to equal work and employment
opportunities with men under Article 3, Presidential Decree No. 442,
The Labor Code and, within the specific context of this case, with the
male cabin attendants of Philippine Airlines.

27. It is unlawful, even criminal, for an employer to discriminate


against women employees with respect to terms and conditions of
employment solely on account of their sex under Article 135 of the
Labor Code as amended by Republic Act No. 6725 or the Act
Strengthening Prohibition on Discrimination Against Women.

28. This discrimination against Petitioners is likewise against the


Convention on the Elimination of All Forms of Discrimination Against
Women (hereafter, CEDAW), a multilateral convention that the
Philippines ratified in 1981. The Government and its agents, including
our courts, not only must condemn all forms of discrimination against
women, but must also implement measures towards its elimination.

29. This case is a matter of public interest not only because of


Philippine Airlines' violation of the Constitution and existing laws, but
also because it highlights the fact that twenty-three years after the
Philippine Senate ratified the CEDAW, discrimination against women
continues.
31. Section 114, Part A of the PAL-FASAP 2000-20005 CBA on
compulsory retirement from service is invidiously discriminatory
against and manifestly prejudicial to Petitioners because, they are
compelled to retire at a lower age (fifty-five (55) relative to their male
counterparts (sixty (60).

33. There is no reasonable, much less lawful, basis for Philippine


Airlines to distinguish, differentiate or classify cabin attendants on the
basis of sex and thereby arbitrarily set a lower compulsory retirement
age of 55 for Petitioners for the sole reason that they are women.

37. For being patently unconstitutional and unlawful, Section 114, Part
A of the PAL-FASAP 2000-2005 CBA must be declared invalid and
stricken down to the extent that it discriminates against petitioner.

38. Accordingly, consistent with the constitutional and statutory


guarantee of equality between men and women, Petitioners should be
adjudged and declared entitled, like their male counterparts, to work
until they are sixty (60) years old.

PRAYER

WHEREFORE, it is most respectfully prayed that the Honorable Court:

c. after trial on the merits:

(I) declare Section 114, Part A of the PAL-FASAP 2000-2005


CBA INVALID, NULL and VOID to the extent that it
discriminates against Petitioners; x x x x

From the petitioners' allegations and relief prayed for in its


petition, it is clear that the issue raised is whether Section 144,
Part A of the PAL-FASAP CBA is unlawful and unconstitutional.
Here, the petitioners' primary relief in Civil Case No. 04-886 is the
annulment of Section 144, Part A of the PAL-FASAP CBA, which
allegedly discriminates against them for being female flight
attendants. The subject of litigation is incapable of pecuniary
estimation, exclusively cognizable by the RTC, pursuant to Section
19 (1) of Batas Pambansa Blg. 129, as amended. [15]Being an
ordinary civil action, the same is beyond the jurisdiction of labor
tribunals.

The said issue cannot be resolved solely by applying the Labor


Code. Rather, it requires the application of the Constitution, labor
statutes, law on contracts and the Convention on the Elimination
of All Forms of Discrimination Against Women, [16] and the power to
apply and interpret the constitution and CEDAW is within the
jurisdiction of trial courts, a court of general jurisdiction. In Georg
Grotjahn GMBH & Co. v. Isnani,[17] this Court held that not every
dispute between an employer and employee involves matters
that only labor arbiters and the NLRC can resolve in the exercise
of their adjudicatory or quasi-judicial powers. The jurisdiction of
labor arbiters and the NLRC under Article 217 of the Labor Code is
limited to disputes arising from an employer-employee
relationship which can only be resolved by reference to the Labor
Code, other labor statutes, or their collective bargaining
agreement.

Not every controversy or money claim by an employee against


the employer or vice-versa is within the exclusive jurisdiction of
the labor arbiter. Actions between employees and employer
where the employer-employee relationship is merely incidental
and the cause of action precedes from a different source of
obligation is within the exclusive jurisdiction of the regular court.
[18]
Here, the employer-employee relationship between the parties
is merely incidental and the cause of action ultimately arose from
different sources of obligation, i.e., the Constitution and CEDAW.

Thus, where the principal relief sought is to be resolved not by


reference to the Labor Code or other labor relations statute or a
collective bargaining agreement but by the general civil law, the
jurisdiction over the dispute belongs to the regular courts of
justice and not to the labor arbiter and the NLRC. In such
situations, resolution of the dispute requires expertise, not in
labor management relations nor in wage structures and other
terms and conditions of employment, but rather in the application
of the general civil law. Clearly, such claims fall outside the area
of competence or expertise ordinarily ascribed to labor arbiters
and the NLRC and the rationale for granting jurisdiction over such
claims to these agencies disappears. [19]

If We divest the regular courts of jurisdiction over the case, then


which tribunal or forum shall determine the constitutionality or
legality of the assailed CBA provision?

This Court holds that the grievance machinery and voluntary


arbitrators do not have the power to determine and settle the
issues at hand. They have no jurisdiction and competence to
decide constitutional issues relative to the questioned compulsory
retirement age. Their exercise of jurisdiction is futile, as it is like
vesting power to someone who cannot wield it.

In Gonzales v. Climax Mining Ltd.,[20] this Court affirmed the


jurisdiction of courts over questions on constitutionality of
contracts, as the same involves the exercise of judicial power. The
Court said:

Whether the case involves void or voidable contracts is still a judicial


question. It may, in some instances, involve questions of fact
especially with regard to the determination of the circumstances of the
execution of the contracts. But the resolution of the validity or
voidness of the contracts remains a legal or judicial question as it
requires the exercise of judicial function. It requires the ascertainment
of what laws are applicable to the dispute, the interpretation and
application of those laws, and the rendering of a judgment based
thereon. Clearly, the dispute is not a mining conflict. It is essentially
judicial. The complaint was not merely for the determination of rights
under the mining contracts since the very validity of those contracts is
put in issue.

In Saura v. Saura, Jr.,[21] this Court emphasized the primacy of the


regular court's judicial power enshrined in the Constitution that is
true that the trend is towards vesting administrative bodies like
the SEC with the power to adjudicate matters coming under their
particular specialization, to insure a more knowledgeable solution
of the problems submitted to them. This would also relieve the
regular courts of a substantial number of cases that would
otherwise swell their already clogged dockets. But as
expedient as this policy may be, it should not deprive
the courts of justice of their power to decide ordinary
cases in accordance with the general laws that do not
require any particular expertise or training to interpret
and apply. Otherwise, the creeping take-over by the
administrative agencies of the judicial power vested in
the courts would render the judiciary virtually impotent in
the discharge of the duties assigned to it by the
Constitution.

To be sure, in Rivera v. Espiritu,[22] after Philippine Airlines (PAL)


and PAL Employees Association (PALEA) entered into an
agreement, which includes the provision to suspend the PAL-
PALEA CBA for 10 years, several employees questioned its validity
via a petition for certiorari directly to the Supreme Court. They
said that the suspension was unconstitutional and contrary to
public policy. Petitioners submit that the suspension was
inordinately long, way beyond the maximum statutory life of 5
years for a CBA provided for in Article 253-A of the Labor Code. By
agreeing to a 10-year suspension, PALEA, in effect, abdicated the
workers' constitutional right to bargain for another CBA at the
mandated time.
In that case, this Court denied the petition for certiorari, ruling
that there is available to petitioners a plain, speedy, and
adequate remedy in the ordinary course of law. The Court said
that while the petition was denominated as one for certiorari and
prohibition, its object was actually the nullification of the PAL-
PALEA agreement. As such, petitioners' proper remedy is an
ordinary civil action for annulment of contract, an action which
properly falls under the jurisdiction of the regional trial courts.

The change in the terms and conditions of employment, should


Section 144 of the CBA be held invalid, is but a necessary and
unavoidable consequence of the principal relief sought, i.e.,
nullification of the alleged discriminatory provision in the CBA.
Thus, it does not necessarily follow that a resolution of
controversy that would bring about a change in the terms and
conditions of employment is a labor dispute, cognizable by labor
tribunals. It is unfair to preclude petitioners from invoking the trial
court's jurisdiction merely because it may eventually result into a
change of the terms and conditions of employment. Along that
line, the trial court is not asked to set and fix the terms and
conditions of employment, but is called upon to determine
whether CBA is consistent with the laws.

Although the CBA provides for a procedure for the adjustment of


grievances, such referral to the grievance machinery and
thereafter to voluntary arbitration would be inappropriate to the
petitioners, because the union and the management have
unanimously agreed to the terms of the CBA and their interest is
unified.

In Pantranco North Express, Inc., v. NLRC, [23] this Court held that:
x x x Hence, only disputes involving the union and the company shall
be referred to the grievance machinery or voluntary arbitrators.
In the instant case, both the union and the company are united or
have come to an agreement regarding the dismissal of private
respondents. No grievance between them exists which could be
brought to a grievance machinery. The problem or dispute in the
present case is between the union and the company on the one hand
and some union and non-union members who were dismissed, on the
other hand. The dispute has to be settled before an impartial body.
The grievance machinery with members designated by the union and
the company cannot be expected to be impartial against the
dismissed employees. Due process demands that the dismissed
workers grievances be ventilated before an impartial body. x x x .
Applying the same rationale to the case at bar, it cannot be said that
the "dispute" is between the union and petitioner company because
both have previously agreed upon the provision on "compulsory
retirement" as embodied in the CBA. Also, it was only private
respondent on his own who questioned the compulsory retirement. x x
x.
In the same vein, the dispute in the case at bar is not between
FASAP and respondent PAL, who have both previously agreed
upon the provision on the compulsory retirement of female flight
attendants as embodied in the CBA. The dispute is between
respondent PAL and several female flight attendants who
questioned the provision on compulsory retirement of female
flight attendants. Thus, applying the principle in the
aforementioned case cited, referral to the grievance machinery
and voluntary arbitration would not serve the interest of the
petitioners.

Besides, a referral of the case to the grievance machinery and to


the voluntary arbitrator under the CBA would be futile because
respondent already implemented Section 114, Part A of PAL-FASAP
CBA when several of its female flight attendants reached the
compulsory retirement age of 55.

Further, FASAP, in a letter dated July 12, 2004, addressed to PAL,


submitted its association's bargaining proposal for the remaining
period of 2004-2005 of the PAL-FASAP CBA, which includes the
renegotiation of the subject Section 144. However, FASAP's
attempt to change the questioned provision was shallow and
superficial, to say the least, because it exerted no further efforts
to pursue its proposal. When petitioners in their individual
capacities questioned the legality of the compulsory retirement in
the CBA before the trial court, there was no showing that FASAP,
as their representative, endeavored to adjust, settle or negotiate
with PAL for the removal of the difference in compulsory age
retirement between its female and male flight attendants,
particularly those employed before November 22, 1996. Without
FASAP's active participation on behalf of its female flight
attendants, the utilization of the grievance machinery or
voluntary arbitration would be pointless.

The trial court in this case is not asked to interpret Section 144,
Part A of the PAL-FASAP CBA. Interpretation, as defined in Black's
Law Dictionary, is the art of or process of discovering and
ascertaining the meaning of a statute, will, contract, or other
written document.[24] The provision regarding the compulsory
retirement of flight attendants is not ambiguous and does not
require interpretation. Neither is there any question regarding the
implementation of the subject CBA provision, because the manner
of implementing the same is clear in itself. The only controversy
lies in its intrinsic validity.

Although it is a rule that a contract freely entered between the


parties should be respected, since a contract is the law between
the parties, said rule is not absolute.

In Pakistan International Airlines Corporation v. Ople, [25] this Court


held that:

The principle of party autonomy in contracts is not, however, an


absolute principle. The rule in Article 1306, of our Civil Code is that the
contracting parties may establish such stipulations as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order or public policy. Thus, counter-balancing the
principle of autonomy of contracting parties is the equally general rule
that provisions of applicable law, especially provisions relating to
matters affected with public policy, are deemed written into the
contract. Put a little differently, the governing principle is that parties
may not contract away applicable provisions of law especially
peremptory provisions dealing with matters heavily impressed with
public interest. The law relating to labor and employment is clearly
such an area and parties are not at liberty to insulate themselves and
their relationships from the impact of labor laws and regulations by
simply contracting with each other.

Moreover, the relations between capital and labor are not merely
contractual. They are so impressed with public interest that
labor contracts must yield to the common good.x x x [26] The
supremacy of the law over contracts is explained by the fact that
labor contracts are not ordinary contracts; these are imbued with
public interest and therefore are subject to the police power of the
state.[27] It should not be taken to mean that retirement provisions
agreed upon in the CBA are absolutely beyond the ambit of
judicial review and nullification. A CBA, as a labor contract, is not
merely contractual in nature but impressed with public interest. If
the retirement provisions in the CBA run contrary to law, public
morals, or public policy, such provisions may very well be voided.
[28]

Finally, the issue in the petition for certiorari brought before the
CA by the respondent was the alleged exercise of grave abuse of
discretion of the RTC in taking cognizance of the case for
declaratory relief. When the CA annuled and set aside the RTC's
order, petitioners sought relief before this Court through the
instant petition for review under Rule 45. A perusal of the petition
before Us, petitioners pray for the declaration of the alleged
discriminatory provision in the CBA against its female flight
attendants.

This Court is not persuaded. The rule is settled that pure


questions of fact may not be the proper subject of an appeal by
certiorari under Rule 45 of the Revised Rules of Court. This mode
of appeal is generally limited only to questions of law which must
be distinctly set forth in the petition. The Supreme Court is not
a trier of facts.[29]

The question as to whether said Section 114, Part A of the PAL-


FASAP CBA is discriminatory or not is a question of fact. This
would require the presentation and reception of evidence by the
parties in order for the trial court to ascertain the facts of the case
and whether said provision violates the Constitution, statutes and
treaties. A full-blown trial is necessary, which jurisdiction to hear
the same is properly lodged with the the RTC. Therefore,
a remand of this case to the RTC for the proper determination of
the merits of the petition for declaratory relief is just and proper.

WHEREFORE, the petition is PARTLY GRANTED. The Decision


and Resolution of the Court of Appeals, dated August 31, 2005
and March 7, 2006, respectively, in CA-G.R. SP. No. 86813
are REVERSED and SET ASIDE. The Regional Trial Court of
Makati City, Branch 147 is DIRECTED to continue the proceedings
in Civil Case No. 04-886 with deliberate dispatch.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 171993 December 12, 2011

MARC II MARKETING, INC. and LUCILA V. JOSON, Petitioners,


vs.
ALFREDO M. JOSON, Respondent.

DECISION

PEREZ, J.:

In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, herein petitioners Marc
II Marketing, Inc. and Lucila V. Joson assailed the Decision1 dated 20 June 2005 of the Court of
Appeals in CA-G.R. SP No. 76624 for reversing and setting aside the Resolution 2 of the National
Labor Relations Commission (NLRC) dated 15 October 2002, thereby affirming the Labor Arbiters
Decision3 dated 1 October 2001 finding herein respondent Alfredo M. Josons dismissal from
employment as illegal. In the questioned Decision, the Court of Appeals upheld the Labor Arbiters
jurisdiction over the case on the basis that respondent was not an officer but a mere employee of
petitioner Marc II Marketing, Inc., thus, totally disregarding the latters allegation of intra-corporate
controversy. Nonetheless, the Court of Appeals remanded the case to the NLRC for further
proceedings to determine the proper amount of monetary awards that should be given to
respondent.

Assailed as well is the Court of Appeals Resolution4 dated 7 March 2006 denying their Motion for
Reconsideration.

Petitioner Marc II Marketing, Inc. (petitioner corporation) is a corporation duly organized and existing
under and by virtue of the laws of the Philippines. It is primarily engaged in buying, marketing, selling
and distributing in retail or wholesale for export or import household appliances and products and
other items.5 It took over the business operations of Marc Marketing, Inc. which was made non-
operational following its incorporation and registration with the Securities and Exchange Commission
(SEC). Petitioner Lucila V. Joson (Lucila) is the President and majority stockholder of petitioner
corporation. She was also the former President and majority stockholder of the defunct Marc
Marketing, Inc.

Respondent Alfredo M. Joson (Alfredo), on the other hand, was the General Manager, incorporator,
director and stockholder of petitioner corporation.

The controversy of this case arose from the following factual milieu:

Before petitioner corporation was officially incorporated, 6 respondent has already been engaged by
petitioner Lucila, in her capacity as President of Marc Marketing, Inc., to work as the General
Manager of petitioner corporation. It was formalized through the execution of a Management
Contract7 dated 16 January 1994 under the letterhead of Marc Marketing, Inc.8 as petitioner
corporation is yet to be incorporated at the time of its execution. It was explicitly provided therein that
respondent shall be entitled to 30% of its net income for his work as General Manager. Respondent
will also be granted 30% of its net profit to compensate for the possible loss of opportunity to work
overseas.9

Pending incorporation of petitioner corporation, respondent was designated as the General Manager
of Marc Marketing, Inc., which was then in the process of winding up its business. For occupying the
said position, respondent was among its corporate officers by the express provision of Section 1,
Article IV10 of its by-laws.11

On 15 August 1994, petitioner corporation was officially incorporated and registered with the SEC.
Accordingly, Marc Marketing, Inc. was made non-operational. Respondent continued to discharge
his duties as General Manager but this time under petitioner corporation.

Pursuant to Section 1, Article IV12 of petitioner corporations by-laws,13 its corporate officers are as
follows: Chairman, President, one or more Vice-President(s), Treasurer and Secretary. Its Board of
Directors, however, may, from time to time, appoint such other officers as it may determine to be
necessary or proper.
Per an undated Secretarys Certificate,14 petitioner corporations Board of Directors conducted a
meeting on 29 August 1994 where respondent was appointed as one of its corporate officers with
the designation or title of General Manager to function as a managing director with other duties and
responsibilities that the Board of Directors may provide and authorized. 15

Nevertheless, on 30 June 1997, petitioner corporation decided to stop and cease its operations, as
evidenced by an Affidavit of Non-Operation16 dated 31 August 1998, due to poor sales collection
aggravated by the inefficient management of its affairs. On the same date, it formally informed
respondent of the cessation of its business operation. Concomitantly, respondent was apprised of
the termination of his services as General Manager since his services as such would no longer be
necessary for the winding up of its affairs.17

Feeling aggrieved, respondent filed a Complaint for Reinstatement and Money Claim against
petitioners before the Labor Arbiter which was docketed as NLRC NCR Case No. 00-03-04102-99.

In his complaint, respondent averred that petitioner Lucila dismissed him from his employment with
petitioner corporation due to the feeling of hatred she harbored towards his family. The same was
rooted in the filing by petitioner Lucilas estranged husband, who happened to be respondents
brother, of a Petition for Declaration of Nullity of their Marriage.18

For the parties failure to settle the case amicably, the Labor Arbiter required them to submit their
respective position papers. Respondent complied but petitioners opted to file a Motion to Dismiss
grounded on the Labor Arbiters lack of jurisdiction as the case involved an intra-corporate
controversy, which jurisdiction belongs to the SEC [now with the Regional Trial Court
(RTC)].19 Petitioners similarly raised therein the ground of prescription of respondents monetary
claim.

On 5 September 2000, the Labor Arbiter issued an Order20 deferring the resolution of petitioners
Motion to Dismiss until the final determination of the case. The Labor Arbiter also reiterated his
directive for petitioners to submit position paper. Still, petitioners did not comply. Insisting that the
Labor Arbiter has no jurisdiction over the case, they instead filed an Urgent Motion to Resolve the
Motion to Dismiss and the Motion to Suspend Filing of Position Paper.

In an Order21 dated 15 February 2001, the Labor Arbiter denied both motions and declared final the
Order dated 5 September 2000. The Labor Arbiter then gave petitioners a period of five days from
receipt thereof within which to file position paper, otherwise, their Motion to Dismiss will be treated as
their position paper and the case will be considered submitted for decision.

Petitioners, through counsel, moved for extension of time to submit position paper. Despite the
requested extension, petitioners still failed to submit the same. Accordingly, the case was submitted
for resolution.

On 1 October 2001, the Labor Arbiter rendered his Decision in favor of respondent. Its decretal
portion reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered declaring [respondents]


dismissal from employment illegal. Accordingly, [petitioners] are hereby ordered:

1. To reinstate [respondent] to his former or equivalent position without loss of seniority


rights, benefits, and privileges;

2. Jointly and severally liable to pay [respondents] unpaid wages in the amount
of P450,000.00 per month from [26 March 1996] up to time of dismissal in the total amount
of P6,300,000.00;

3. Jointly and severally liable to pay [respondents] full backwages in the amount
of P450,000.00 per month from date of dismissal until actual reinstatement which at the time
of promulgation amounted to P21,600,000.00;

4. Jointly and severally liable to pay moral damages in the amount of P100,000.00 and
attorneys fees in the amount of 5% of the total monetary award. 22 [Emphasis supplied.]

In the aforesaid Decision, the Labor Arbiter initially resolved petitioners Motion to Dismiss by finding
the ground of lack of jurisdiction to be without merit. The Labor Arbiter elucidated that petitioners
failed to adduce evidence to prove that the present case involved an intra-corporate controversy.
Also, respondents money claim did not arise from his being a director or stockholder of petitioner
corporation but from his position as being its General Manager. The Labor Arbiter likewise held that
respondent was not a corporate officer under petitioner corporations by-laws. As such, respondents
complaint clearly arose from an employer-employee relationship, thus, subject to the Labor Arbiters
jurisdiction.

The Labor Arbiter then declared respondents dismissal from employment as illegal. Respondent,
being a regular employee of petitioner corporation, may only be dismissed for a valid cause and
upon proper compliance with the requirements of due process. The records, though, revealed that
petitioners failed to present any evidence to justify respondents dismissal.

Aggrieved, petitioners appealed the aforesaid Labor Arbiters Decision to the NLRC.

In its Resolution dated 15 October 2002, the NLRC ruled in favor of petitioners by giving credence to
the Secretarys Certificate, which evidenced petitioner corporations Board of Directors meeting in
which a resolution was approved appointing respondent as its corporate officer with designation as
General Manager. Therefrom, the NLRC reversed and set aside the Labor Arbiters Decision dated 1
October 2001 and dismissed respondents Complaint for want of jurisdiction. 23

The NLRC enunciated that the validity of respondents appointment and termination from the
position of General Manager was made subject to the approval of petitioner corporations Board of
Directors. Had respondent been an ordinary employee, such board action would not have been
required. As such, it is clear that respondent was a corporate officer whose dismissal involved a
purely intra-corporate controversy. The NLRC went further by stating that respondents claim for 30%
of the net profit of the corporation can only emanate from his right of ownership therein as
stockholder, director and/or corporate officer. Dividends or profits are paid only to stockholders or
directors of a corporation and not to any ordinary employee in the absence of any profit sharing
scheme. In addition, the question of remuneration of a person who is not a mere employee but a
stockholder and officer of a corporation is not a simple labor problem. Such matter comes within the
ambit of corporate affairs and management and is an intra-corporate controversy in contemplation of
the Corporation Code.24

When respondents Motion for Reconsideration was denied in another Resolution 25 dated 23 January
2003, he filed a Petition for Certiorari with the Court of Appeals ascribing grave abuse of discretion
on the part of the NLRC.

On 20 June 2005, the Court of Appeals rendered its now assailed Decision declaring that the Labor
Arbiter has jurisdiction over the present controversy. It upheld the finding of the Labor Arbiter that
respondent was a mere employee of petitioner corporation, who has been illegally dismissed from
employment without valid cause and without due process. Nevertheless, it ordered the records of the
case remanded to the NLRC for the determination of the appropriate amount of monetary awards to
be given to respondent. The Court of Appeals, thus, decreed:

WHEREFORE, the petition is by us PARTIALLY GRANTED. The Labor Arbiter is DECLARED to


have jurisdiction over the controversy. The records are REMANDED to the NLRC for further
proceedings to determine the appropriate amount of monetary awards to be adjudged in favor of
[respondent]. Costs against the [petitioners] in solidum.26

Petitioners moved for its reconsideration but to no avail. 27

Petitioners are now before this Court with the following assignment of errors:

THE COURT OF APPEALS ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION


IN DECIDING THAT THE NLRC HAS THE JURISDICTION IN RESOLVING A PURELY
INTRA-CORPORATE MATTER WHICH IS COGNIZABLE BY THE SECURITIES AND
EXCHANGE COMMISSION/REGIONAL TRIAL COURT.

ASSUMING, GRATIS ARGUENDO, THAT THE NLRC HAS JURISDICTION OVER THE
CASE, STILL THE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT
THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN [RESPONDENT]
ALFREDO M. JOSON AND MARC II MARKETING, INC. [PETITIONER CORPORATION].

ASSUMING GRATIS ARGUENDO THAT THE NLRC HAS JURISDICTION OVER THE
CASE, THE COURT OF APPEALS ERRED IN NOT RULING THAT THE LABOR ARBITER
COMMITTED GRAVE ABUSE OF DISCRETION IN AWARDING MULTI-MILLION PESOS IN
COMPENSATION AND BACKWAGES BASED ON THE PURPORTED GROSS INCOME OF
[PETITIONER CORPORATION].

THE COURT OF APPEALS SERIOUSLY ERRED AND COMMITTED GRAVE ABUSE OF


DISCRETION IN NOT MAKING ANY FINDINGS AND RULING THAT [PETITIONER LUCILA]
SHOULD NOT BE HELD SOLIDARILY LIABLE IN THE ABSENCE OF EVIDENCE OF
MALICE AND BAD FAITH ON HER PART.28
Petitioners fault the Court of Appeals for having sustained the Labor Arbiters finding that respondent
was not a corporate officer under petitioner corporations by-laws. They insist that there is no need to
amend the corporate by-laws to specify who its corporate officers are. The resolution issued by
petitioner corporations Board of Directors appointing respondent as General Manager, coupled with
his assumption of the said position, positively made him its corporate officer. More so, respondents
position, being a creation of petitioner corporations Board of Directors pursuant to its by-laws, is a
corporate office sanctioned by the Corporation Code and the doctrines previously laid down by this
Court. Thus, respondents removal as petitioner corporations General Manager involved a purely
intra-corporate controversy over which the RTC has jurisdiction.

Petitioners further contend that respondents claim for 30% of the net profit of petitioner corporation
was anchored on the purported Management Contract dated 16 January 1994. It should be noted,
however, that said Management Contract was executed at the time petitioner corporation was still
nonexistent and had no juridical personality yet. Such being the case, respondent cannot invoke any
legal right therefrom as it has no legal and binding effect on petitioner corporation. Moreover, it is
clear from the Articles of Incorporation of petitioner corporation that respondent was its director and
stockholder. Indubitably, respondents claim for his share in the profit of petitioner corporation was
based on his capacity as such and not by virtue of any employer-employee relationship.

Petitioners further avow that even if the present case does not pose an intra-corporate controversy,
still, the Labor Arbiters multi-million peso awards in favor of respondent were erroneous. The same
was merely based on the latters self-serving computations without any supporting documents.

Finally, petitioners maintain that petitioner Lucila cannot be held solidarily liable with petitioner
corporation. There was neither allegation nor iota of evidence presented to show that she acted with
malice and bad faith in her dealings with respondent. Moreover, the Labor Arbiter, in his Decision,
simply concluded that petitioner Lucila was jointly and severally liable with petitioner corporation
without making any findings thereon. It was, therefore, an error for the Court of Appeals to hold
petitioner Lucila solidarily liable with petitioner corporation.

From the foregoing arguments, the initial question is which between the Labor Arbiter or the RTC,
has jurisdiction over respondents dismissal as General Manager of petitioner corporation. Its
resolution necessarily entails the determination of whether respondent as General Manager of
petitioner corporation is a corporate officer or a mere employee of the latter.

While Article 217(a)229 of the Labor Code, as amended, provides that it is the Labor Arbiter who has
the original and exclusive jurisdiction over cases involving termination or dismissal of workers when
the person dismissed or terminated is a corporate officer, the case automatically falls within the
province of the RTC. The dismissal of a corporate officer is always regarded as a corporate act
and/or an intra-corporate controversy.30

Under Section 531 of Presidential Decree No. 902-A, intra-corporate controversies are those
controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members or associates; between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates, respectively; and between such
corporation, partnership or association and the State insofar as it concerns their individual franchise
or right to exist as such entity. It also includes controversies in the election or appointments
of directors, trustees, officers or managers of such corporations, partnerships or associations.32

Accordingly, in determining whether the SEC (now the RTC) has jurisdiction over the controversy,
the status or relationship of the parties and the nature of the question that is the subject of their
controversy must be taken into consideration.33

In Easycall Communications Phils., Inc. v. King, this Court held that in the context of Presidential
Decree No. 902-A, corporate officers are those officers of a corporation who are given that character
either by the Corporation Code or by the corporations by-laws. Section 25 34 of the Corporation Code
specifically enumerated who are these corporate officers, to wit: (1) president; (2) secretary; (3)
treasurer; and (4) such other officers as may be provided for in the by-laws. 35

The aforesaid Section 25 of the Corporation Code, particularly the phrase "such other officers as
may be provided for in the by-laws," has been clarified and elaborated in this Courts recent
pronouncement in Matling Industrial and Commercial Corporation v. Coros, where it held, thus:

Conformably with Section 25, a position must be expressly mentioned in the [b]y-[l]aws in order to be
considered as a corporate office. Thus, the creation of an office pursuant to or under a [b]y-[l]aw
enabling provision is not enough to make a position a corporate office. [In] Guerrea v. Lezama
[citation omitted] the first ruling on the matter, held that the only officers of a corporation were those
given that character either by the Corporation Code or by the [b]y-[l]aws; the rest of the corporate
officers could be considered only as employees or subordinate officials. Thus, it was held in Easycall
Communications Phils., Inc. v. King [citation omitted]:

An "office" is created by the charter of the corporation and the officer is elected by the directors or
stockholders. On the other hand, an employee occupies no office and generally is employed not by
the action of the directors or stockholders but by the managing officer of the corporation who also
determines the compensation to be paid to such employee.

xxxx

This interpretation is the correct application of Section 25 of the Corporation Code, which plainly
states that the corporate officers are the President, Secretary, Treasurer and such other officers as
may be provided for in the [b]y-[l]aws. Accordingly, the corporate officers in the context of PD No.
902-A are exclusively those who are given that character either by the Corporation Code or by the
corporations [b]y[l]aws.

A different interpretation can easily leave the way open for the Board of Directors to circumvent the
constitutionally guaranteed security of tenure of the employee by the expedient inclusion in the [b]y-
[l]aws of an enabling clause on the creation of just any corporate officer position.

It is relevant to state in this connection that the SEC, the primary agency administering the
Corporation Code, adopted a similar interpretation of Section 25 of the Corporation Code in its
Opinion dated November 25, 1993 [citation omitted], to wit:

Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the
corporate officers enumerated in the by-laws are the exclusive Officers of the corporation and the
Board has no power to create other Offices without amending first the corporate [b]y-laws. However,
the Board may create appointive positions other than the positions of corporate Officers, but
the persons occupying such positions are not considered as corporate officers within the
meaning of Section 25 of the Corporation Code and are not empowered to exercise the functions
of the corporate Officers, except those functions lawfully delegated to them. Their functions and
duties are to be determined by the Board of Directors/Trustees.36 [Emphasis supplied.]

A careful perusal of petitioner corporations by-laws, particularly paragraph 1, Section 1, Article


IV,37 would explicitly reveal that its corporate officers are composed only of: (1) Chairman; (2)
President; (3) one or more Vice-President; (4) Treasurer; and (5) Secretary.38 The position of General
Manager was not among those enumerated.

Paragraph 2, Section 1, Article IV of petitioner corporations by-laws, empowered its Board of


Directors to appoint such other officers as it may determine necessary or proper.39 It is by virtue of
this enabling provision that petitioner corporations Board of Directors allegedly approved a
resolution to make the position of General Manager a corporate office, and, thereafter, appointed
respondent thereto making him one of its corporate officers. All of these acts were done without first
amending its by-laws so as to include the General Manager in its roster of corporate officers.

With the given circumstances and in conformity with Matling Industrial and Commercial Corporation
v. Coros, this Court rules that respondent was not a corporate officer of petitioner corporation
because his position as General Manager was not specifically mentioned in the roster of corporate
officers in its corporate by-laws. The enabling clause in petitioner corporations by-laws empowering
its Board of Directors to create additional officers, i.e., General Manager, and the alleged subsequent
passage of a board resolution to that effect cannot make such position a corporate office. Matling
clearly enunciated that the board of directors has no power to create other corporate offices without
first amending the corporate by-laws so as to include therein the newly created corporate office.
Though the board of directors may create appointive positions other than the positions of corporate
officers, the persons occupying such positions cannot be viewed as corporate officers under Section
25 of the Corporation Code.40 In view thereof, this Court holds that unless and until petitioner
corporations by-laws is amended for the inclusion of General Manager in the list of its corporate
officers, such position cannot be considered as a corporate office within the realm of Section 25 of
the Corporation Code.

This Court considers that the interpretation of Section 25 of the Corporation Code laid down in
Matling safeguards the constitutionally enshrined right of every employee to security of tenure. To
allow the creation of a corporate officer position by a simple inclusion in the corporate by-laws of an
enabling clause empowering the board of directors to do so can result in the circumvention of that
constitutionally well-protected right.41

It is also of no moment that respondent, being petitioner corporations General Manager, was given
the functions of a managing director by its Board of Directors. As held in Matling, the only officers of
a corporation are those given that character either by the Corporation Code or by the corporate by-
laws. It follows then that the corporate officers enumerated in the by-laws are the exclusive officers
of the corporation while the rest could only be regarded as mere employees or subordinate
officials.42 Respondent, in this case, though occupying a high ranking and vital position in petitioner
corporation but which position was not specifically enumerated or mentioned in the latters by-laws,
can only be regarded as its employee or subordinate official. Noticeably, respondents compensation
as petitioner corporations General Manager was set, fixed and determined not by the latters Board
of Directors but simply by its President, petitioner Lucila. The same was not subject to the approval
of petitioner corporations Board of Directors. This is an indication that respondent was an employee
and not a corporate officer.

To prove that respondent was petitioner corporations corporate officer, petitioners presented before
the NLRC an undated Secretarys Certificate showing that corporations Board of Directors approved
a resolution making respondents position of General Manager a corporate office. The submission,
however, of the said undated Secretarys Certificate will not change the fact that respondent was an
employee. The certification does not amount to an amendment of the by-laws which is needed to
make the position of General Manager a corporate office.

Moreover, as has been aptly observed by the Court of Appeals, the board resolution mentioned in
that undated Secretarys Certificate and the latter itself were obvious fabrications, a mere
afterthought. Here we quote with conformity the Court of Appeals findings on this matter stated in
this wise:

The board resolution is an obvious fabrication. Firstly, if it had been in existence since [29 August
1994], why did not [herein petitioners] attach it to their [M]otion to [D]ismiss filed on [26 August
1999], when it could have been the best evidence that [herein respondent] was a corporate officer?
Secondly, why did they report the [respondent] instead as [herein petitioner corporations] employee
to the Social Security System [(SSS)] on [11 October 1994] or a later date than their [29 August
1994] board resolution? Thirdly, why is there no indication that the [respondent], the person
concerned himself, and the [SEC] were furnished with copies of said board resolution? And, lastly,
why is the corporate [S]ecretarys [C]ertificate not notarized in keeping with the customary
procedure? That is why we called it manipulative evidence as it was a shameless sham meant to be
thrown in as a wild card to muddle up the [D]ecision of the Labor Arbiter to the end that it be
overturned as the latter had firmly pointed out that [respondent] is not a corporate officer under
[petitioner corporations by-laws]. Regrettably, the [NLRC] swallowed the bait hook-line-and sinker. It
failed to see through its nature as a belatedly manufactured evidence. And even on the assumption
that it were an authentic board resolution, it did not make [respondent] a corporate officer as the
board did not first and properly create the position of a [G]eneral [M]anager by amending its by-laws.

(2) The scope of the term "officer" in the phrase "and such other officers as may be provided
for in the by-laws["] (Sec. 25, par. 1), would naturally depend much on the provisions of the
by-laws of the corporation. (SEC Opinion, [4 December 1991.]) If the by-laws enumerate the
officers to be elected by the board, the provision is conclusive, and the board is without
power to create new offices without amending the by-laws. (SEC Opinion, [19 October
1971.])

(3) If, for example, the general manager of a corporation is not listed as an officer, he is to be
classified as an employee although he has always been considered as one of the principal
officers of a corporation [citing De Leon, H. S., The Corporation Code of the Philippines
Annotated, 1993 Ed., p. 215.]43 [Emphasis supplied.]

That respondent was also a director and a stockholder of petitioner corporation will not automatically
make the case fall within the ambit of intra-corporate controversy and be subjected to RTCs
jurisdiction. To reiterate, not all conflicts between the stockholders and the corporation are classified
as intra-corporate. Other factors such as the status or relationship of the parties and the nature of
the question that is the subject of the controversy44 must be considered in determining whether the
dispute involves corporate matters so as to regard them as intra-corporate controversies. 45 As
previously discussed, respondent was not a corporate officer of petitioner corporation but a mere
employee thereof so there was no intra-corporate relationship between them. With regard to the
subject of the controversy or issue involved herein, i.e., respondents dismissal as petitioner
corporations General Manager, the same did not present or relate to an intra-corporate dispute. To
note, there was no evidence submitted to show that respondents removal as petitioner corporations
General Manager carried with it his removal as its director and stockholder. Also, petitioners
allegation that respondents claim of 30% share of petitioner corporations net profit was by reason of
his being its director and stockholder was without basis, thus, self-serving. Such an allegation was
tantamount to a mere speculation for petitioners failure to substantiate the same.

In addition, it was not shown by petitioners that the position of General Manager was offered to
respondent on account of his being petitioner corporations director and stockholder. Also, in contrast
to NLRCs findings, neither petitioner corporations by-laws nor the Management Contract stated that
respondents appointment and termination from the position of General Manager was subject to the
approval of petitioner corporations Board of Directors. If, indeed, respondent was a corporate officer
whose termination was subject to the approval of its Board of Directors, why is it that his termination
was effected only by petitioner Lucila, President of petitioner corporation? The records are bereft of
any evidence to show that respondents dismissal was done with the conformity of petitioner
corporations Board of Directors or that the latter had a hand on respondents dismissal. No board
resolution whatsoever was ever presented to that effect.

With all the foregoing, this Court is fully convinced that, indeed, respondent, though occupying the
General Manager position, was not a corporate officer of petitioner corporation rather he was merely
its employee occupying a high-ranking position.

Accordingly, respondents dismissal as petitioner corporations General Manager did not amount to
an intra-corporate controversy. Jurisdiction therefor properly belongs with the Labor Arbiter and not
with the RTC.

Having established that respondent was not petitioner corporations corporate officer but merely its
employee, and that, consequently, jurisdiction belongs to the Labor Arbiter, this Court will now
determine if respondents dismissal from employment is illegal.

It was not disputed that respondent worked as petitioner corporations General Manager from its
incorporation on 15 August 1994 until he was dismissed on 30 June 1997. The cause of his
dismissal was petitioner corporations cessation of business operations due to poor sales collection
aggravated by the inefficient management of its affairs.

In termination cases, the burden of proving just and valid cause for dismissing an employee from his
employment rests upon the employer. The latter's failure to discharge that burden would necessarily
result in a finding that the dismissal is unjustified.46

Under Article 283 of the Labor Code, as amended, one of the authorized causes in terminating the
employment of an employee is the closing or cessation of operation of the establishment or
undertaking. Article 283 of the Labor Code, as amended, reads, thus:

ART. 283. Closure of establishment and reduction of personnel. The employer may also terminate
the employment of any employee due to the installation of labor saving-devices, redundancy,
retrenchment to prevent losses or the closing or cessation of operation of the establishment or
undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by
serving a written notice on the workers and the Department of Labor and Employment at least one
(1) month before the intended date thereof. x x x In case of retrenchment to prevent losses and in
cases of closures or cessation of operations of establishment or undertaking not due to serious
business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or
to at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at
least six (6) months shall be considered one (1) whole year. [Emphasis supplied.]

From the afore-quoted provision, the closure or cessation of operations of establishment or


undertaking may either be due to serious business losses or financial reverses or otherwise. If the
closure or cessation was due to serious business losses or financial reverses, it is incumbent upon
the employer to sufficiently and convincingly prove the same. If it is otherwise, the employer can
lawfully close shop anytime as long as it was bona fide in character and not impelled by a motive to
defeat or circumvent the tenurial rights of employees and as long as the terminated employees were
paid in the amount corresponding to their length of service. 47

Accordingly, under Article 283 of the Labor Code, as amended, there are three requisites for a valid
cessation of business operations: (a) service of a written notice to the employees and to the
Department of Labor and Employment (DOLE) at least one month before the intended date thereof;
(b) the cessation of business must be bona fide in character; and (c) payment to the employees of
termination pay amounting to one month pay or at least one-half month pay for every year of service,
whichever is higher.

In this case, it is obvious that petitioner corporations cessation of business operations was not due
to serious business losses. Mere poor sales collection, coupled with mismanagement of its affairs
does not amount to serious business losses. Nonetheless, petitioner corporation can still validly
cease or close its business operations because such right is legally allowed, so long as it was not
done for the purpose of circumventing the provisions on termination of employment embodied in the
Labor Code.48 As has been stressed by this Court in Industrial Timber Corporation v. Ababon, thus:

Just as no law forces anyone to go into business, no law can compel anybody to continue the same.
It would be stretching the intent and spirit of the law if a court interferes with management's
prerogative to close or cease its business operations just because the business is not suffering from
any loss or because of the desire to provide the workers continued employment. 49
A careful perusal of the records revealed that, indeed, petitioner corporation has stopped and
ceased business operations beginning 30 June 1997. This was evidenced by a notarized Affidavit of
Non-Operation dated 31 August 1998. There was also no showing that the cessation of its business
operations was done in bad faith or to circumvent the Labor Code. Nevertheless, in doing so,
petitioner corporation failed to comply with the one-month prior written notice rule. The records
disclosed that respondent, being petitioner corporations employee, and the DOLE were not given a
written notice at least one month before petitioner corporation ceased its business operations.
Moreover, the records clearly show that respondents dismissal was effected on the same date that
petitioner corporation decided to stop and cease its operation. Similarly, respondent was not paid
separation pay upon termination of his employment.

As respondents dismissal was not due to serious business losses, respondent is entitled to payment
of separation pay equivalent to one month pay or at least one-half month pay for every year of
service, whichever is higher. The rationale for this was laid down in Reahs Corporation v. National
Labor Relations Commission,50 thus:

The grant of separation pay, as an incidence of termination of employment under Article 283, is a
statutory obligation on the part of the employer and a demandable right on the part of the employee,
except only where the closure or cessation of operations was due to serious business losses or
financial reverses and there is sufficient proof of this fact or condition. In the absence of such proof
of serious business losses or financial reverses, the employer closing his business is obligated to
pay his employees and workers their separation pay.

The rule, therefore, is that in all cases of business closure or cessation of operation or undertaking of
the employer, the affected employee is entitled to separation pay. This is consistent with the state
policy of treating labor as a primary social economic force, affording full protection to its rights as well
as its welfare. The exception is when the closure of business or cessation of operations is due to
serious business losses or financial reverses duly proved, in which case, the right of affected
employees to separation pay is lost for obvious reasons.51 [Emphasis supplied.]

As previously discussed, respondents dismissal was due to an authorized cause, however,


petitioner corporation failed to observe procedural due process in effecting such dismissal. In Culili v.
Eastern Telecommunications Philippines, Inc.,52 this Court made the following pronouncements, thus:

x x x there are two aspects which characterize the concept of due process under the Labor Code:
one is substantive whether the termination of employment was based on the provision of the
Labor Code or in accordance with the prevailing jurisprudence; the other is procedural the
manner in which the dismissal was effected.

Section 2(d), Rule I, Book VI of the Rules Implementing the Labor Code provides:

(d) In all cases of termination of employment, the following standards of due process shall be
substantially observed:

xxxx

For termination of employment as defined in Article 283 of the Labor Code, the requirement of due
process shall be deemed complied with upon service of a written notice to the employee and the
appropriate Regional Office of the Department of Labor and Employment at least thirty days before
effectivity of the termination, specifying the ground or grounds for termination.

In Mayon Hotel & Restaurant v. Adana, [citation omitted] we observed:

The requirement of law mandating the giving of notices was intended not only to enable the
employees to look for another employment and therefore ease the impact of the loss of their jobs
and the corresponding income, but more importantly, to give the Department of Labor and
Employment (DOLE) the opportunity to ascertain the verity of the alleged authorized cause of
termination.53 [Emphasis supplied].

The records of this case disclosed that there was absolutely no written notice given by petitioner
corporation to the respondent and to the DOLE prior to the cessation of its business operations. This
is evident from the fact that petitioner corporation effected respondents dismissal on the same date
that it decided to stop and cease its business operations. The necessary consequence of such
failure to comply with the one-month prior written notice rule, which constitutes a violation of an
employees right to statutory due process, is the payment of indemnity in the form of nominal
damages.54 In Culili v. Eastern Telecommunications Philippines, Inc., this Court further held:

In Serrano v. National Labor Relations Commission [citation omitted], we noted that "a job is more
than the salary that it carries." There is a psychological effect or a stigma in immediately finding
ones self laid off from work. This is exactly why our labor laws have provided for mandating
procedural due process clauses. Our laws, while recognizing the right of employers to terminate
employees it cannot sustain, also recognize the employees right to be properly informed of the
impending severance of his ties with the company he is working for. x x x.

x x x Over the years, this Court has had the opportunity to reexamine the sanctions imposed upon
employers who fail to comply with the procedural due process requirements in terminating its
employees. In Agabon v. National Labor Relations Commission [citation omitted], this Court reverted
back to the doctrine in Wenphil Corporation v. National Labor Relations Commission [citation
omitted] and held that where the dismissal is due to a just or authorized cause, but without
observance of the due process requirements, the dismissal may be upheld but the employer must
pay an indemnity to the employee. The sanctions to be imposed however, must be stiffer than those
imposed in Wenphil to achieve a result fair to both the employers and the employees.

In Jaka Food Processing Corporation v. Pacot [citation omitted], this Court, taking a cue from
Agabon, held that since there is a clear-cut distinction between a dismissal due to a just cause and a
dismissal due to an authorized cause, the legal implications for employers who fail to comply with
the notice requirements must also be treated differently:

Accordingly, it is wise to hold that: (1) if the dismissal is based on a just cause under Article 282 but
the employer failed to comply with the notice requirement, the sanction to be imposed upon him
should be tempered because the dismissal process was, in effect, initiated by an act imputable to
the employee; and (2) if the dismissal is based on an authorized cause under Article 283 but the
employer failed to comply with the notice requirement, the sanction should be stiffer because the
dismissal process was initiated by the employer's exercise of his management
prerogative.55 [Emphasis supplied.]

Thus, in addition to separation pay, respondent is also entitled to an award of nominal damages. In
conformity with this Courts ruling in Culili v. Eastern Telecommunications Philippines, Inc. and
Shimizu Phils. Contractors, Inc. v. Callanta, both citing Jaka Food Processing Corporation v.
Pacot,56 this Court fixed the amount of nominal damages to P50,000.00.

With respect to petitioners contention that the Management Contract executed between respondent
and petitioner Lucila has no binding effect on petitioner corporation for having been executed way
before its incorporation, this Court finds the same meritorious.

Section 19 of the Corporation Code expressly provides:

Sec. 19. Commencement of corporate existence. - A private corporation formed or organized


under this Code commences to have corporate existence and juridical personality and is deemed
incorporated from the date the Securities and Exchange Commission issues a certificate of
incorporation under its official seal; and thereupon the incorporators, stockholders/members and
their successors shall constitute a body politic and corporate under the name stated in the articles of
incorporation for the period of time mentioned therein, unless said period is extended or the
corporation is sooner dissolved in accordance with law. [Emphasis supplied.]

Logically, there is no corporation to speak of prior to an entitys incorporation. And no contract


entered into before incorporation can bind the corporation.

As can be gleaned from the records, the Management Contract dated 16 January 1994 was
executed between respondent and petitioner Lucila months before petitioner corporations
incorporation on 15 August 1994. Similarly, it was done when petitioner Lucila was still the President
of Marc Marketing, Inc. Undeniably, it cannot have any binding and legal effect on petitioner
corporation. Also, there was no evidence presented to prove that petitioner corporation adopted,
ratified or confirmed the Management Contract. It is for the same reason that petitioner corporation
cannot be considered estopped from questioning its binding effect now that respondent was invoking
the same against it. In no way, then, can it be enforced against petitioner corporation, much less, its
provisions fixing respondents compensation as General Manager to 30% of petitioner corporations
net profit. Consequently, such percentage cannot be the basis for the computation of respondents
separation pay. This finding, however, will not affect the undisputed fact that respondent was,
indeed, the General Manager of petitioner corporation from its incorporation up to the time of his
dismissal.

Accordingly, this Court finds it necessary to still remand the present case to the Labor Arbiter to
conduct further proceedings for the sole purpose of determining the compensation that respondent
was actually receiving during the period that he was the General Manager of petitioner corporation,
this, for the proper computation of his separation pay.

As regards petitioner Lucilas solidary liability, this Court affirms the same.
As a rule, corporation has a personality separate and distinct from its officers, stockholders and
members such that corporate officers are not personally liable for their official acts unless it is shown
that they have exceeded their authority. However, this corporate veil can be pierced when the notion
of the legal entity is used as a means to perpetrate fraud, an illegal act, as a vehicle for the evasion
of an existing obligation, and to confuse legitimate issues. Under the Labor Code, for instance, when
a corporation violates a provision declared to be penal in nature, the penalty shall be imposed upon
the guilty officer or officers of the corporation.57

Based on the prevailing circumstances in this case, petitioner Lucila, being the President of
petitioner corporation, acted in bad faith and with malice in effecting respondents dismissal from
employment. Although petitioner corporation has a valid cause for dismissing respondent due to
cessation of business operations, however, the latters dismissal therefrom was done abruptly by its
President, petitioner Lucila. Respondent was not given the required one-month prior written notice
that petitioner corporation will already cease its business operations. As can be gleaned from the
records, respondent was dismissed outright by petitioner Lucila on the same day that petitioner
corporation decided to stop and cease its business operations. Worse, respondent was not given
separation pay considering that petitioner corporations cessation of business was not due to
business losses or financial reverses.

WHEREFORE, premises considered, the Decision and Resolution dated 20 June 2005 and 7 March
2006, respectively, of the Court of Appeals in CA-G.R. SP No. 76624 are hereby AFFIRMED with the
MODIFICATION finding respondents dismissal from employment legal but without proper
observance of due process. Accordingly, petitioner corporation, jointly and solidarily liable with
petitioner Lucila, is hereby ordered to pay respondent the following; (1) separation pay equivalent to
one month pay or at least one-half month pay for every year of service, whichever is higher, to be
computed from the commencement of employment until termination; and (2) nominal damages in the
amount of P50,000.00.

This Court, however, finds it proper to still remand the records to the Labor Arbiter to conduct further
proceedings for the sole purpose of determining the compensation that respondent was actually
receiving during the period that he was the General Manager of petitioner corporation for the proper
computation of his separation pay.

Costs against petitioners.

SO ORDERED.
Marc II Marketing, Inc. vs. Alfredo M. Joson

[GR No. 171993, December 12, 2011]

FACTS: Respondent Alfredo Joson was the General Manager, incorporator, director and stockholder of Marc II Marketing
(Petitioner Corporation). Before Petitioner Corporation was officially incorporated, respondent has already been engaged by
petitioner Lucila Joson, in her capacity as President of Marc Marketing Inc., to work as the General Manager of Petitioner
Corporation through a management contract.

However, Petitioner Corporation decided to stop and cease its operation wherein respondent's services were then terminated.
Feeling aggrieved, respondent filed a Complaint for Reinstatement and Money Claim against petitioners before the Labor Arbiter
which ruled in favor of respondent. The National Labor and Relations Commission (NLRC) reversed said decision. The Court of
Appeals (CA) however, upheld the ruling of the Labor Arbiter. Hence, this petition.

ISSUE: Whether or not the Labor Arbiter has jurisdiction over the controversy at bar

RULING: Yes. While Article 217(a) 229 of the Labor Code, as amended, provides that it is the Labor Arbiter who has the original
and exclusive jurisdiction over cases involving termination or dismissal of workers when the person dismissed or terminated is a
corporate officer, the case automatically falls within the province of the Regional Trial Court (RTC). The dismissal of a corporate
officer is always regarded as a corporate act and/or an intra-corporate controversy.

In conformity with Section 25 of the Corporation Code, whoever are the corporate officers enumerated in the by-laws are the
exclusive officers of the corporation and the Board has no power to create other officers without amending first the corporate by-
laws. However, the Board may create appointive positions other than the positions of the corporate officers, but the persons
occupying such positions are not considered as corporate officers within the meaning of Section 25 of the Corporation Code and
are not empowered to exercise the functions of the corporate officers, except those functions lawfully delegated to them. Their
functioning and duties are to be determined by the Board of Directors/Trustees.

In the case at bar, the respondent was not a corporate officer of Petitioner Corporation because his position as General Manager
was not specifically mentioned in the roster of corporate officers in its corporate by-laws. Thus respondent, can only be regarded
as its employee or subordinate official. Accordingly, respondent's dismissal as Petitioner Corporations General Manager did not
amount to an intra-corporate controversy. Jurisdiction therefore properly belongs with the Labor Arbiter and not with the RTC.

In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, herein petitioners Marc II Marketing, Inc. and
Lucila V. Joson assailed the Decision[1] dated 20 June 2005 of the Court of Appeals in CA-G.R. SP No. 76624 for reversing and
setting aside the Resolution[2] of the National Labor Relations Commission (NLRC) dated 15 October 2002, thereby affirming
the Labor Arbiters Decision[3] dated 1 October 2001 finding herein respondent Alfredo M. Josons dismissal from employment as
illegal. In the questioned Decision, the Court of Appeals upheld the Labor Arbiters jurisdiction over the case on the basis that
respondent was not an officer but a mere employee of petitioner Marc II Marketing, Inc., thus, totally disregarding the latters
allegation of intra-corporate controversy. Nonetheless, the Court of Appeals remanded the case to the NLRC for further
proceedings to determine the proper amount of monetary awards that should be given to respondent.

--
[G.R. No. 109383. June 15, 1998] MANILA CENTRAL LINE CORPORATION, petitioner, vs. MANILA CENTRAL LINE FREE
WORKERS UNION-NATIONAL FEDERATION OF LABOR and the NATIONAL LABOR RELATIONS COMMISSION,
respondents.

FACTS:
This case arose out of a collective bargaining deadlock between petitioner Manila Central Line Corporation and private
respondent Manila Central Line Free Workers Union-National Federation of Labor. The parties collective bargaining agreement
had expired on March 15, 1989. As the parties failed to reach new agreement, private respondent Manila Central Line Free
Workers Union-National Federation of Labor sought the aid of the National Conciliation and Mediation Board on October 30,
1989, but the deadlock remained unresolved.
Private respondent Manila Central Line Free Workers Union-National Federation of Labor filed a Petition for Compulsory
Arbitration in the Arbitration Branch for the National Capital Region of the National Labor Relations Commission. At the initial
hearing before the labor arbiter, the parties declared that conciliation efforts before the NCMB had terminated and it was their
desire to submit the case for compulsory arbitration. Accordingly, they were required to submit their position papers and
proposals, which they did, and in which they indicated portions of their respective proposals to which they agreed, leaving the
rest for arbitration.

Labor Arbiter's Decision


The petitioner UNION and the respondent COMPANY are directed to execute and formalize their new five-year collective
bargaining agreement (CBA) retroactive to the date of expiry of the 1986-1989 CBA

Petitioner appealed, but its appeal was denied by the NLRC. The NLRC denied petitioners motion for reconsideration. Hence,
this petition with the following assignment of errors:
a) The NLRC erred in affirming the Labor Arbiters decision
1. increasing the commission rate, the incentive pay, the salaries and wages of the fixed income employees covered by the
CBA.
2. granting P500.00 signing bonus to the complainant-appellee; and
3. holding that the effectivity of the renegotiated CBA shall be retroactive to March 15, 1989, the expiry date of the old CBA
b) There are serious errors in the findings of facts of the Labor Arbiter which were unqualified affirmed by the NLRC and which
justify the review by this Honorable SUPREME COURT.
c) The NLRC erred in upholding the jurisdiction of the Labor Arbiter; and
d) The NLRC erred in affirming the finalization of the CBA by the Labor Arbiter in disregard of the provisions agreed upon by the
parties.

ISSUES + HELD:
1) Whether NLRC erred in upholding the jurisdiction of the Labor Arbiter
Held: No. (Art 250(e) and 262 of the Labor Code; essence of voluntary arbitration - agreement of the parties; nothing in the law
that prohibits these labor arbiters from also acting as voluntary arbitrators)

Indeed, the Labor Code formerly provided that if the parties in collective bargaining fail to reach an agreement, the Bureau of
Labor Relations should call them to conciliation meetings and, if its efforts were not successful, certify the dispute to a labor
arbiter for compulsory arbitrarion. But this was changed by R.A.No. 6715 which took effect on March 21, 1989. Art 250(e) of the
Labor Code now provides that if effects of conciliation fail, the Board shall encourage the parties to submit their case to a
voluntary arbitrator. With specific reference to cases involving deadlocks in collective bargaining, Art. 262 provides:
Jurisdiction over other labor disputes The Voluntary Arbitrator or panel of Voluntary Arbitrators, upon agreement of the parties,
shall also hear and decide all other labor disputes including unfair labor practices and bargaining deadlocks.
This is what the parties did in this case. After the Board failed to resolve the bargaining deadlock between parties, the union filed
a petition for compulsory arbitration in the Arbitration Branch of the NLRC. Petitioner Manila Central Line Corporation joined the
petition and the case was submitted for decision. Although the unions petition was for compulsory arbitration, the subsequent
agreement of petitioner to submit the matter for arbitration in effect made the arbitration a voluntary one. The essence of
voluntary arbitration, after all is that it is by agreement of the parties, rather than compulsion of law, that a matter is submitted for
arbitration. It does not matter that the person chosen as arbitrator is a labor arbiter who, under Art 217 of the Labor Code, is
charged with the compulsory arbitration of certain labor cases. There is nothing in the law that prohibits these labor arbiters from
also acting as voluntary arbitrators as long as the parties agree to have him hear and decide their dispute.
Moreover, petitioner Manila Central Line Corporation must be deemed to be estopped from questioning the authority of Labor
Arbiter Donato G. Quinto, Jr., to act as voluntary arbitrator and render a decision in this case. Petitioner Manila Central Line
Corporation agreed together with the union, to refer their dispute for arbitration to him.

2) Whether NLRC erred in affirming the Labor Arbiters decision


Held: No. (Art. 262-A of the Labor Code; quantum of proof required in proceedings before administrative agencies is substantial
evidence")

The decisions of both the NLRC and the labor arbiter contain an exhaustive discussion of the issues, belying petitioners claim
that they did not fully consider the evidence and appreciate what it claims are the dire economic straits it is in. This is evident
from the following portion of the labor arbiters order which NLRC adopted:
As noted at present under the old CBA, the commission for drivers and conductor/tresses is 8% and 6%, respectively. During
and in the negotiation, respondent proposes to raise this rate by .5% thus making it 8.5 and 6.5 respectively. Manila Central Line
Corporation in proposing an increase of .5% justifies the same by saying that such is only what it can afford as it had been
incurring financial losses as shown by Financial Statement it submitted in evidence. This was rejected by the union which
proposes that the rate of the commission be raised to 10% and 8% respectively, from 8% and 6%, or an increase by 2%
respectively. The union debunked the claim of the Manila Central Line Corporation that it had been financially suffering and had
claim (sic) that it had earned profit in all the years that it had been under operation.
A look at the parties proposal and counter-proposal shows that the union was demanding that the rate be increased to 10% and
8% from the old rate of 8% and 6% or an increase of 2% while that of the company effectively increase the rate by .5% to make
the rate at 8.5% and 6.5%. From this, it appears that the disagreement lies on how much would the increase equivalent to at
least 25% for the drivers and at least 33% for the conductor/tresses, while that which proposed (sic) by the company shows an
increase of at least 6% and 8% respectively. The difference between the parties proposal and counter-proposal is at least 19%
and 25%, respectively. With this disagreement in this difference, it is thought of to be practical and reasonable to meet at the
middle of the difference in the rate by dividing the same into two. Hence, the increase in the rate should be from the present 8%
and 6% to 8.75% and 6.75%. However, in order to make the increase realistic it is opined that it should be rounded off to the
nearest full number that is to 9% and 7%, respectively. As regards the incentive pay, the following appears:
OLD CBA RESPONDENTS PROPOSAL (Manila UNIONS PROPOSAL
Central Line Corporation)
QUOTA INCENTIVE QUOTA INCENTIVE QUOTA INCENTIVE
P2,800.00 P 35.00 P3,276.00 P35.00 P2,600.00 P40.00
3,100.00 45.00 3,635.00 45.00 2,600.00 50.00
3,400.00 55.00 3,994.00 55.00 3,155.00 60.00

As can be gleaned from the above respondent raised the quota but maintained the rate for the incentive pay, while the
union lowers (sic) the quota and raises (sic) the rate for the incentive. To the mind of this arbitrator, he deems it proper and fair
for both parties, to adopt the quota as proposed by the respondent and the rate for the incentive pay as proposed by the
union. It is believe (sic) that such is fair and reasonable because as appearing in the parties proposal and counter proposal, it
would seem that they are trying to out-wit each other. Hence, such would be as follows:
Quota Rate of Incentive Pay
P3,276.00 P40.00
3,635.00 50.00
3,994.00 60.00
Petitioner Manila Central Line Corporation contends, however, that the labor arbiter has a duty to indicate in his order every
relevant proof necessary to show that the opposing partys evidence is superior to that of petitioner Manila Central Line
Corporation. This is not so. The quantum of proof required in proceedings before administrative agencies is substantial
evidence, not overwhelming or preponderant evidence. The quoted portion of the labor arbiters order shows that the proposals
of the parties as well as petitioners financial statements were carefully considered by him in arriving at his judgment . As the
Solicitor General states:
Nor did respondent NLRC overlook the protestations of the COMPANY that it is suffering from gargantuan economic trouble.
This assertion, however, was sufficiently refuted by the UNION by presenting proof that the COMPANY had acquired a bus
terminal area in Tunasan. Moreover, the COMPANY had just imported machines to recondition their old buses. Also, as can be
seen in the 1992 Financial Statement of the COMPANY had just imported machines to recondition their old buses. Also, as can
be seen in the1992 Financial Statement of the COMPANY, it acquired new buses worth P2,400,000.00. These facts verify the
findings of the Labor Arbiter that the COMPANY is not on the verge of financial collapse.Also, the COMPANY had offered an
increase of .5% but in the same breath, it claims that it can hardly maintain the commission rate of 8% and 6%. There is a
contradiction of facts right there and then, which considerably weakens its assertions
The increase in commission rate will not really affect the income of the COMPANY. By their very nature, commissions will only
be given to the employees if the COMPANY receives more income. They are given in the form of incentives or encouragement
so that employees would be inspired to put a little more industry on their particular tasks. This is unlike salaries and wages
which are fixed amounts and which should be given to the employees regardless of whether the COMPANY is making any
collection or not. Therefore, the employees are merely asking a percentage of the earnings of the COMPANY, which they,
through their efforts, helped produce.
As regards the incentive pay increase, the COMPANYs financial position was also taken into consideration. It appears that the
COMPANY and the UNION were trying to outwit each other in their respective proposals. Thus, the position adopted by the
Labor Arbiter - - increasing the quota and the amount of incentive is a middle ground which is fair to both parties.
The increase in salaries and wages was premised on the findings of the Labor Arbiter that the COMPANY was not on the verge
of financial collapse and that an increase would be mandated, particularly taking into consideration the inflation or increase in the
cost of living in the subsequent years after the CBA was finalized. In adopting the wage increase rates provided in the old CBA,
the financial condition of the COMPANY as well as the needs of the employees were taken into consideration. When
conclusions of the Labor Arbiter are sufficiently corroborated by the evidence on record, the same should be respected by the
appellate tribunals since he is in a better position to assess or evaluate the credibility of the contending parties [CDCP Tollways
Operation Employees and Workers Union v. NLRC, 211 SCRA 58).
Nor is the grant of a P500.00 signing bonus to employees unreasonable or arbitrary. The amount is a modest sum, to be given
by petitioner only once, in order to make employees finally agree to the new CBA. In ordering payment of this amount, the labor
arbiter acted in accordance with Art. 262-A of the Labor Code which provides in part:
Procedures. The voluntary Arbitrator or panel of Voluntary Arbitrators shall have the power to hold hearings, receive evidence
and take whatever action is necessary to resolve the issue or issues subject to dispute, including efforts to effect a voluntary
settlement between parties.

3) Whether NLRC erred in affirming the Labor Arbiters decision holding that the effectivity of the renegotiated CBA shall be
retroactive to March 15, 1989, the expiry date of the old CBA
Held: No. (Art. 253-A of the Labor Code

Petitioner Manila Central Line Corporation also contends that in ordering a new CBA to be effective on March 15, 1989, the
expiry date of the old CBA, the labor arbiter acted contrary to Art. 253-A of the Labor Code. This provision states, among others,
that: Any agreement on such other provision of the Collective Bargaining Agreement entered into within six (6) months from the
date of the expiry of the term of such other provisions as fixed in such Collective Bargaining Agreement, shall retroact to the day
immediately following such date. If any such agreement is entered into beyond six months, the parties shall agree on the
duration of retroactivity thereof. In case of a deadlock in the renegotiation of the collective bargaining agreement, the parties
may exercise their rights under this Code.
Art. 253-A refers to collective bargaining agreements entered into by the parties as a result of their mutual agreement. The CBA
in this case, on the other hand, is part of an arbitral award. As such, it may be made retroactive to the date of expiration of the
previous agreement.
Indeed, petitioner Manila Central Line Corporation has not shown that the question of effectivity was not included in the general
agreement of the parties to submit their dispute for arbitration. To the contrary, as to the order of the labor arbiter states, this
question was among those submitted for arbitration by the parties:
As regards the Effectivity and Duration clause, the company proposes that the collective bargaining agreement shall take effect
only upon its signing and shall remain in full force and effect for a period of five years. The union proposes that the agreement
shall take effect retroactive to March 15, 1989, the expiration date of the old CBA.
And after an evaluation of the parties respective contention and argument thereof, it is believed that the union is fair and
reasonable. It is the observation of this Arbitrator that in almost subsequent CBAs, the effectivity of the renegotiated CBA,
usually and most often is made effective retroactive to the date when the immediately proceeding CBA expires so as to give a
semblance of continuity. Hence, for this particular case, it is believed that there is nothing wrong adopting the stand of the union,
that is that this CBA be made retroactive effective March 15, 1989.

4) Whether NLRC erred in affirming the finalization of the CBA by the Labor Arbiter in disregard of the provisions agreed upon by
the parties
Held: No.
It is finally contended that the labor arbiter disregarded many provisions of the old CBA which the parties had retained, improved
and agreed upon, with the result that the CBA finalized by the Honorable Labor Arbiter does not reflect the true intention of the
parties. Petitioner Manila Central Line Corporation does not specify, however, what provisions of the old CBA were disregarded
by the labor arbiter. Consequently, this allegation should simply be dismissed.
Republic of the Philippines
Supreme Court
Manila

THIRD DIVISION

LOLITA LOPEZ, G.R. No. 155731


Petitioner,
Present:

YNARES-SANTIAGO, J.,
- versus - Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
BODEGA CITY (Video-Disco REYES, JJ.
Kitchen of the Philippines) and/or
ANDRES C. TORRES-YAP, Promulgated:
Respondents. September 3, 2007
x------------------------------------------------x

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing the July 18, 2002 Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No. 66861,
dismissing the petition for certiorari filed before it and affirming the Decision of the National
Labor Relations Commission (NLRC) in NLRC-NCR Case No. 00-03-01729-95; and its
Resolution dated October 16, 2002,[2] denying petitioners Motion for Reconsideration. The
NLRC Decision set aside the Decision of the Labor Arbiter finding that Lolita Lopez (petitioner)
was illegally dismissed by Bodega City and/or Andres C. Torres-Yap (respondents).
Respondent Bodega City (Bodega City) is a corporation duly registered and existing under and
by virtue of the laws of the Republic of the Philippines, while respondent Andres C. Torres-Yap
(Yap) is its owner/ manager. Petitioner was the lady keeper of Bodega City tasked with manning
its ladies comfort room.

In a letter signed by Yap dated February 10, 1995, petitioner was made to explain why the
concessionaire agreement between her and respondents should not be terminated or
suspended in view of an incident that happened on February 3, 1995, wherein petitioner was
seen to have acted in a hostile manner against a lady customer of Bodega City who informed
the management that she saw petitioner sleeping while on duty.

In a subsequent letter dated February 25, 1995, Yap informed petitioner that because of the
incident that happened on February 3, 1995, respondents had decided to terminate the
concessionaire agreement between them.

On March 1, 1995, petitioner filed with the Arbitration Branch of the NLRC, National Capital
Region, Quezon City, a complaint for illegal dismissal against respondents contending that she
was dismissed from her employment without cause and due process.

In their answer, respondents contended that no employer-employee relationship ever existed


between them and petitioner; that the latters services rendered within the premises
of BodegaCity was by virtue of a concessionaire agreement she entered into with respondents.

The complaint was dismissed by the Labor Arbiter for lack of merit. However, on appeal, the
NLRC set aside the order of dismissal and remanded the case for further proceedings. Upon
remand, the case was assigned to a different Labor Arbiter. Thereafter, hearings were
conducted and the parties were required to submit memoranda and other supporting
documents.
On December 28, 1999, the Labor Arbiter rendered judgment finding that petitioner was an
employee of respondents and that the latter illegally dismissed her.[3]
Respondents filed an appeal with the NLRC. On March 22, 2001, the NLRC issued a
Resolution, the dispositive portion of which reads as follows:

WHEREFORE, premises duly considered, the Decision appealed from is hereby


ordered SET ASIDE and VACATED, and in its stead, a new one entered
DISMISSING the above-entitled case for lack of merit.[4]

Petitioner filed a motion for reconsideration of the above-quoted NLRC Resolution, but the
NLRC denied the same.

Aggrieved, petitioner filed a Petition for Certiorari with the CA. On July 18, 2002, the CA
promulgated the presently assailed Decision dismissing her special civil action
for certiorari.Petitioner moved for reconsideration but her motion was denied.

Hence, herein petition based on the following grounds:

1. WITH DUE RESPECT, PUBLIC RESPONDENT COURT OF APPEALS


COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
IN EXCESS OF JURISDICTION IN RULING THAT THE NATIONAL LABOR
RELATIONS COMMISSION DID NOT COMMIT GRAVE ABUSE OF
DISCRETION IN REVERSING THE DECISION OF THE LABOR ARBITER
FINDING PETITIONER TO HAVE BEEN ILLEGALLY DISMISSED BY
PRIVATE RESPONDENTS.

2. WITH DUE RESPECT, PUBLIC RESPONDENT COURT OF APPEALS


COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
IN EXCESS OF JURISDICTION IN RULING THAT PETITIONER WAS NOT
AN EMPLOYEE OF PRIVATE RESPONDENTS.[5]

Petitioner contends that it was wrong for the CA to conclude that even if she did not sign the
document evidencing the concessionaire agreement, she impliedly accepted and thus bound
herself to the terms and conditions contained in the said agreement when she continued to
perform the task which was allegedly specified therein for a considerable length of
time. Petitioner claims that the concessionaire agreement was only offered to her during her
tenth year of service and after she organized a union and filed a complaint against
respondents. Prior to all these, petitioner asserts that her job as a lady keeper was a task
assigned to her as an employee of respondents.

Petitioner further argues that her receipt of a special allowance from respondents is a
clear evidence that she was an employee of the latter, as the amount she received was
equivalent to the minimum wage at that time.

Petitioner also contends that her identification card clearly shows that she was not a
concessionaire but an employee of respondents; that if respondents really intended the ID
card issued to her to be used simply for having access to the premises of Bodega City, then
respondents could have clearly indicated such intent on the said ID card.

Moreover, petitioner submits that the fact that she was required to follow rules and
regulations prescribing appropriate conduct while she was in the premises of Bodega City is
clear evidence of the existence of an employer-employee relationship between her and
petitioners.
On the other hand, respondents contend that the present petition was filed for the sole
purpose of delaying the proceedings of the case; the grounds relied upon in the instant
petition are matters that have been exhaustively discussed by the NLRC and the CA; the
present petition raises questions of fact which are not proper in a petition for review
on certiorari under Rule 45 of the Rules of Court; the respective decisions of the NLRC and
the CA are based on evidence presented by both parties; petitioners compliance with the
terms and conditions of the proposed concessionaire contract for a period of three years is
evidence of her implied acceptance of such proposal; petitioner failed to present evidence to
prove her allegation that the subject concessionaire agreement was only proposed to her in
her 10th year of employment with respondent company and after she organized a union and
filed a labor complaint against respondents; petitioner failed to present competent
documentary and testimonial evidence to prove her contention that she was an employee of
respondents since 1985.
The main issue to be resolved in the present case is whether or not petitioner is an employee
of respondents.

The issue of whether or not an employer-employee relationship exists in a given case is


essentially a question of fact.[6]

While it is a settled rule that only errors of law are generally reviewed by this Court in
petitions for review on certiorari of CA decisions,[7] there are well-recognized exceptions to
this rule, as in this case, when the factual findings of the NLRC as affirmed by the
CA contradict those of the Labor Arbiter.[8] In that event, it is this Courts task, in the exercise
of its equity jurisdiction, to re-evaluate and review the factual issues by looking into the
records of the case and re-examining the questioned findings.[9]

It is a basic rule of evidence that each party must prove his affirmative allegation. [10] If he
claims a right granted by law, he must prove his claim by competent evidence, relying on the
strength of his own evidence and not upon the weakness of that of his opponent.[11]

The test for determining on whom the burden of proof lies is found in the result of an inquiry
as to which party would be successful if no evidence of such matters were given.[12]

In an illegal dismissal case, the onus probandi rests on the employer to prove that its dismissal
of an employee was for a valid cause.[13] However, before a case for illegal dismissal can
prosper, an employer-employee relationship must first be established.[14]

In filing a complaint before the Labor Arbiter for illegal dismissal based on the premise that she
was an employee of respondent, it is incumbent upon petitioner to prove the employee-
employer relationship by substantial evidence.[15]

The NLRC and the CA found that petitioner failed to discharge this burden, and the
Court finds no cogent reason to depart from their findings.

The Court applies the four-fold test expounded in Abante v. Lamadrid Bearing and Parts Corp.,
[16]
to wit:

To ascertain the existence of an employer-employee relationship, jurisprudence


has invariably applied the four-fold test, namely: (1) the manner of selection and
engagement; (2) the payment of wages; (3) the presence or absence of the
power of dismissal; and (4) the presence or absence of the power of control. Of
these four, the last one is the most important. The so-called control test is
commonly regarded as the most crucial and determinative indicator of the
presence or absence of an employer-employee relationship. Under the control
test, an employer-employee relationship exists where the person for whom the
services are performed reserves the right to control not only the end achieved,
but also the manner and means to be used in reaching that end.[17]

To prove the element of payment of wages, petitioner presented a petty cash voucher showing
that she received an allowance for five (5) days. [18] The CA did not err when it held that a solitary
petty cash voucher did not prove that petitioner had been receiving salary from respondents or
that she had been respondents employee for 10 years.

Indeed, if petitioner was really an employee of respondents for that length of time, she should
have been able to present salary vouchers or pay slips and not just a single petty cash
voucher.The Court agrees with respondents that petitioner could have easily shown other
pieces of evidence such as a contract of employment, SSS or Medicare forms, or certificates of
withholding tax on compensation income; or she could have presented witnesses to prove her
contention that she was an employee of respondents. Petitioner failed to do so.

Anent the element of control, petitioners contention that she was an employee of respondents
because she was subject to their control does not hold water.

Petitioner failed to cite a single instance to prove that she was subject to the control of
respondents insofar as the manner in which she should perform her job as a lady keeper was
concerned.

It is true that petitioner was required to follow rules and regulations prescribing appropriate
conduct while within the premises of Bodega City. However, this was imposed upon petitioner
as part of the terms and conditions in the concessionaire agreement embodied in a 1992 letter
of Yap addressed to petitioner, to wit:
January 6, 1992

Dear Ms. Lolita Lopez,

The new owners of Bodega City, 1121 Food Service Corporation offers to
your goodself the concessionaire/contract to provide independently, customer
comfort services to assist users of the ladies comfort room of the Club to further
enhance its business, under the following terms and conditions:

1. You will provide at your own expense, all toilet supplies, useful for the purpose,
such as toilet papers, soap, hair pins, safety pins and other related items or
things which in your opinion is beneficial to the services you will undertake;

2. For the entire duration of this concessionaire contract, and during the Clubs
operating hours, you shall maintain the cleanliness of the ladies comfort room.
Provided, that general cleanliness, sanitation and physical maintenance of said
comfort rooms shall be undertaken by the owners of Bodega City;

3. You shall at all times ensure satisfaction and good services in the discharge of
your undertaking. More importantly, you shall always observe utmost courtesy in
dealing with the persons/individuals using said comfort room and shall refrain
from doing acts that may adversely affect the goodwill and business standing of
Bodega City;

4. All remunerations, tips, donations given to you by individuals/persons utilizing


said comfort rooms and/or guests of Bodega City shall be waived by the latter to
your benefit provided however, that if concessionaire receives tips or donations
per day in an amount exceeding 200% the prevailing minimum wage, then, she
shall remit fifty percent (50%) of said amount to Bodega City by way of royalty or
concession fees;

5. This contract shall be for a period of one year and shall be automatically
renewed on a yearly basis unless notice of termination is given thirty (30) days
prior to expiration. Any violation of the terms and conditions of this contract shall
be a ground for its immediate revocation and/or termination.

6. It is hereby understood that no employer-employee relationship exists between


Bodega City and/or 1121 FoodService Corporation and your goodself, as you are
an independent contractor who has represented to us that you possess the
necessary qualification as such including manpower compliment, equipment,
facilities, etc. and that any person you may engage or employ to work with or
assist you in the discharge of your undertaking shall be solely your own
employees and/or agents.

1121 FoodService Corporation


Bodega City

By:
(Sgd.) ANDRES C. TORRES-YAP

Conforme:
_______________
LOLITA LOPEZ[19]

Petitioner does not dispute the existence of the letter; neither does she deny that respondents
offered her the subject concessionaire agreement. However, she contends that she could not
have entered into the said agreement with respondents because she did not sign the document
evidencing the same.

Settled is the rule that contracts are perfected by mere consent, upon the acceptance by
the offeree of the offer made by the offeror.[20] For a contract, to arise, the acceptance must be
made known to the offeror.[21] Moreover, the acceptance of the thing and the cause, which are to
constitute a contract, may be express or implied as can be inferred from the contemporaneous
and subsequent acts of the contracting parties.[22] A contract will be upheld as long as there is
proof of consent, subject matter and cause; it is generally obligatory in whatever form it may
have been entered into.[23]
In the present case, the Court finds no cogent reason to disregard the findings of both the CA
and the NLRC that while petitioner did not affix her signature to the document evidencing the
subject concessionaire agreement, the fact that she performed the tasks indicated in the said
agreement for a period of three years without any complaint or question only goes to show that
she has given her implied acceptance of or consent to the said agreement.

Petitioner is likewise estopped from denying the existence of the subject concessionaire
agreement. She should not, after enjoying the benefits of the concessionaire agreement with
respondents, be allowed to later disown the same through her allegation that she was an
employee of the respondents when the said agreement was terminated by reason of her
violation of the terms and conditions thereof.

The principle of estoppel in pais applies wherein -- by ones acts, representations or admissions,
or silence when one ought to speak out -- intentionally or through culpable negligence, induces
another to believe certain facts to exist and to rightfully rely and act on such belief, so as to be
prejudiced if the former is permitted to deny the existence of those facts.[24]

Moreover, petitioner failed to dispute the contents of the affidavit [25] as well as the
testimony[26] of Felimon Habitan (Habitan), the concessionaire of the mens comfort room
of BodegaCity, that he had personal knowledge of the fact that petitioner was the
concessionaire of the ladies comfort room of Bodega City.

Petitioner also claims that the concessionaire agreement was offered to her only in her 10th year
of service, after she organized a union and filed a complaint against respondents. However,
petitioner's claim remains to be an allegation which is not supported by any evidence. It is a
basic rule in evidence that each party must prove his affirmative allegation,[27] that mere
allegation is not evidence.[28]

The Court is not persuaded by petitioners contention that the Labor Arbiter was correct in
concluding that there existed an employer-employee relationship between respondents and
petitioner. A perusal of the Decision[29] of the Labor Arbiter shows that his only basis for arriving
at such a conclusion are the bare assertions of petitioner and the fact that the latter did not sign
the letter of Yap containing the proposed concessionaire agreement. However, as earlier
discussed, this Court finds no error in the findings of the NLRC and the CA that petitioner is
deemed as having given her consent to the said proposal when she continuously performed the
tasks indicated therein for a considerable length of time. For all intents and purposes, the
concessionaire agreement had been perfected.

Petitioner insists that her ID card is sufficient proof of her employment. In Domasig v. National
Labor Relations Commission,[30] this Court held that the complainants ID card and the cash
vouchers covering his salaries for the months indicated therein were substantial evidence that
he was an employee of respondents, especially in light of the fact that the latter failed to deny
said evidence. This is not the situation in the present case. The only evidence presented by
petitioner as proof of her alleged employment are her ID card and one petty cash voucher for a
five-day allowance which were disputed by respondents.

As to the ID card, it is true that the words EMPLOYEES NAME appear printed below
petitioners name.[31] However, she failed to dispute respondents evidence consisting
ofHabitans testimony,[32] that he and the other contractors of Bodega City such as the singers
and band performers, were also issued the same ID cards for the purpose of enabling them to
enter the premises of Bodega City.

The Court quotes, with approval, the ruling of the CA on this matter, to wit:

Nor can petitioners identification card improve her cause any better. It is
undisputed that non-employees, such as Felimon Habitan, an admitted
concessionaire, musicians, singers and the like at Bodega City are also issued
identification cards. Given this premise, it appears clear to Us that petitioner's I.D.
Card is incompetent proof of an alleged employer-employee relationship between
the herein parties. Viewed in the context of this case, the card is at best a
passport from management assuring the holder thereof of his unmolested access
to the premises of Bodega City.[33]

With respect to the petty cash voucher, petitioner failed to refute respondents claim that it was
not given to her for services rendered or on a regular basis, but simply granted as financial
assistance to help her temporarily meet her familys needs.
Hence, going back to the element of control, the concessionaire agreement merely
stated that petitioner shall maintain the cleanliness of the ladies comfort room and observe
courtesy guidelines that would help her obtain the results they wanted to achieve. There is
nothing in the agreement which specifies the methods by which petitioner should achieve these
results.Respondents did not indicate the manner in which she should go about in maintaining
the cleanliness of the ladies comfort room. Neither did respondents determine the means and
methods by which petitioner could ensure the satisfaction of respondent companys
customers. In other words, petitioner was given a free hand as to how she would perform her
job as a lady keeper.In fact, the last paragraph of the concessionaire agreement even allowed
petitioner to engage persons to work with or assist her in the discharge of her functions.[34]

Moreover, petitioner was not subjected to definite hours or conditions of work. The fact that she
was expected to maintain the cleanliness of respondent companys ladies comfort room during
Bodega Citys operating hours does not indicate that her performance of her job was subject to
the control of respondents as to make her an employee of the latter. Instead, the requirement
that she had to render her services while Bodega City was open for business was dictated
simply by the very nature of her undertaking, which was to give assistance to the users of the
ladies comfort room.

In Consulta v. Court of Appeals,[35] this Court held:

It should, however, be obvious that not every form of control that the hiring party
reserves to himself over the conduct of the party hired in relation to the services
rendered may be accorded the effect of establishing an employer-employee
relationship between them in the legal or technical sense of the term. A line must
be drawn somewhere, if the recognized distinction between an employee and an
individual contractor is not to vanish altogether. Realistically, it would be a rare
contract of service that gives untrammeled freedom to the party hired and
eschews any intervention whatsoever in his performance of the engagement.

Logically, the line should be drawn between rules that merely serve as guidelines
towards the achievement of the mutually desired result without dictating the
means or methods to be employed in attaining it, and those that control or fix the
methodology and bind or restrict the party hired to the use of such means. The
first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means
used to achieve it.[36]

Lastly, the Court finds that the elements of selection and engagement as well as the power of
dismissal are not present in the instant case.
It has been established that there has been no employer-employee relationship between
respondents and petitioner. Their contractual relationship was governed by the concessionaire
agreement embodied in the 1992 letter. Thus, petitioner was not dismissed by
respondents. Instead, as shown by the letter of Yap to her dated February 15, 1995,[37] their
contractual relationship was terminated by reason of respondents' termination of the subject
concessionaire agreement, which was in accordance with the provisions of the agreement in
case of violation of its terms and conditions.

In fine, the CA did not err in dismissing the petition for certiorari filed before it by
petitioner.

WHEREFORE, the instant petition is DENIED. The assailed Decision and Resolution of the
Court of Appeals are AFFIRMED. Costs against petitioner.

SO ORDERED.
Lolita Lopez et.,al v. Quezon City Sports Club, Inc. (QCSC)
G.R. No. 164032, January 19, 2009

Facts :

The Kasapiang Manggatgawa sa Quezon City Sports Club (Union) filed a compliant for
Unfair Labor Practice (ULP) against QCSC. On July 1997, the union wrote to the
management for the release of the members salaries and for the implementation of wage
increase mandated by CBA. When the letter was unanswered, the union filed a notice of
strike. QCSC placed some of its employees under lay-off status due to redundancy and
likewise filed a petition for cancellation of registration against union.

QCSC contended that the union was not a legitimate labor union as it had a pending
complaint for cancellation of certificate of registration, that there was no valid CBA and
staged an illegal strike.

The Labor Arbiter (LA) decides finding QCSC guilty of ULP. In turn, the union filed a
Motion to Dismiss the Appeal for non-perfection due to failure to post the appeal bond. The
QCSC filed a Supplement to its appeal. The NLRC in its decision, granted the appeal and
reversed the LA decision.

Issue:

Whether the simultaneous filing of the matter to reduce the appeal bond and posting
of the reduced amount of bond within the reglementary period for appeal constitute
substantial compliance with Article 223 of the Labor Code.

Ruling:

It should be stressed that the right to appeal is not a natural right or a part of due
process, it is merely a statue of privilege and may be exercise only if in manner and in
accordance with the provisions of law. The party when seeks to avail himself of the same
must comply with the requirements of the rules. Failing to do so, the right to appeal is lost.

In case a judgment involving a monetary award, an appeal by the employer may be


perfected only upon the posting of a cash or surety bond raised by a reputable bonding
company and admitted by the Commission in the amount equivalent to the monetary award
in the judgment applied for.

Appeals involving monetary awards are perfected only upon compliance with the
following mandatory requisites, namely: (1) payment of the appeal fees; (2) filing of the
memorandum of appeal ; and (3) payment of the required cash or surety bond. Thus, the
posting of the bond is indispensable to the perfection of an appeal in cases involving
monetary awards from the decision of the labor arbiter

2
Patrcia Halaguea et,al. v. PAL
G.R. No. 172013, October 2, 2009.

Facts:

Petitioners were employed as flight attendants of respondent on different dates prior


to November 1996. They are members of FASAP union exclusive bargaining organization of
the flight attendants, flight stewards and pursers. On July 2001, respondent and FASAP
entered into a CBA incorporating the terms and conditions of their agreement for the years
2000 to 2005 (compulsory retirement of 55 for female and 60 for males).
In July 2003, petitioner and several female cabin crews, in a letter, manifested that
the provision in CBA on compulsory retirement is discriminatory. On July 2004, FASAP
president submitted their willingness to commence the collective bargaining negotiations at
the soonest possible time. On the same month, petitioners filed a Special Civil Action for
Declaratory Relief with issuance of TRO with the RTC Makati. The RTC issued a TRO. After
the denial of the respondent on its motion for reconsideration for the TRO, it filed a Petition
with the CA. CA granted respondents petition and ordered lower court to dismiss the case.
Hence, this petition.

Issue:

Whether the provision on compulsory retirement in CBA is unlawful and


unconstitutional.

Ruling:

The petitioners primary relief in Civil Case No. 04-886 is the annulment of Section
144, Part A of the PAL-FASAP CBA, which allegedly discriminates against them for being
female flight attendants. The subject of litigation is incapable of pecuniary estimation,
exlusively cognizable by the RTC, pursuant to Section 19 (1) of Batas Pambansa Blg. 129, as
amended. Being an ordinary civil action, the same is beyond the jurisdiction of labor
tribunals.

The said issue cannot be resolved solely by applying the Labor Code. Rather, it
requires the application of the Constitution, labor statutes, law on contracts and the
Convention on the Elimination of All Forms of Discrimination Against Women, and the power
to apply and interpret the constitution and CEDAW is within the jurisdiction of trial courts, a
court of general jurisdiction. In Georg Grotjahn GMBH & Co. v. Isnani, this Court held that
not every dispute between an employer and employee involves matters that only labor
arbiters and the NLRC can resolve in the exercise of their adjudicatory or quasi-judicial
powers. The jurisdiction of labor arbiters and the NLRC under Article 217 of the Labor Code
is limited to dispute arising from an employer-employee relationship which can only be
resolved by reference to the Labor Code other labor statutes, or their collective bargaining
agreement.
G Holdings, Inc., v. National Mines and Allied Workers Union Local 103
(NAMAWU)
G.R. No. 160236, October 16, 2009

Facts:

NAMAWU was the exclusive bargaining agent of the rank-and-file employees of


Maricalum Mining Corporation (MMC), an entity operating a copper mine and mill complex.
MMC was incorporated by the DBP and PNB on account of their foreclosure of MMCs assets.
Later, DBP and PNB transferred it to the National Government for disposition or privatization
because it had become a non-performing asset.

On October 1992, pursuant to a Purchase and Sale Agreement (PSA) executed


between petitioner and APT, petitioner brought 90% of MMCs shares and financial claims.
Upon signing of PSA and full satisfaction of the stipulated down payment, petitioner
immediately took physical possession of the mine and its facilities and took full control of the
management and operation of MMC.

Four years after, a labor dispute arose between MMC and NAMAWU with the latter
filing with the NCMB of a notice of strike. LA ruled in favor of NAMAWU. It ruled that the
lay-off implement by MMC is illegal and it committed ULP. On petition with this Court, we
sustained the decision of LA. A partial writ of execution was issued. The writ was not fully
satisfied because of MMCs resisted its enforcement.

On October 2002, GHI filed with RTC a Special Civil Action for Contempt with issuance
of TRO. GHI contented that the property were subject of a Deed of Real Estate and Chattel
Mortgage executed MMC in favor of petitioner. RTC issued a TRO. On appeal to CA, CA set
aside the RTC issuance of writ. Hence, this petition.

Issue:

Whether RTC can validly issued TRO to prevent the execution issued by labor
tribunal.

Ruling:

It is settled that a RTC can validly issue a TRO and, later, a writ of preliminary
injunction to prevent enforcement of a writ of execution raised by a labor tribunal on the
basis of a third-partys claim of ownership over the properties levied upon. While, as a rule,
no temporary or permanent injunction or restraining order in any case involving or growing
out of a labor dispute shall be issued by any court where the writ of execution issued by a
labor tribunal is sought to be enforced upon the property of a stranger to the labor dispute,
even upon a mere prima facie showing of ownership of such claimant a separate action for
injunctive relief against such levy may be maintained in court, since said action neither
involves nor grows out of labor disputes insofar as the third party is concerned.

Petition is granted.
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 170689 March 17, 2009

PANTRANCO EMPLOYEES ASSOCIATION (PEA-PTGWO) and PANTRANCO RETRENCHED


EMPLOYEES ASSOCIATION (PANREA), Petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC), PANTRANCO NORTH EXPRESS, INC.
(PNEI), PHILIPPINE NATIONAL BANK (PNB), PHILIPPINE NATIONAL BANK-MANAGEMENT
AND DEVELOPMENT CORPORATION (PNB-MADECOR), and MEGA PRIME REALTY AND
HOLDINGS CORPORATION (MEGA PRIME), Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 170705 March 17, 2009

PHILIPPINE NATIONAL BANK, Petitioner,


vs.
PANTRANCO EMPLOYEES ASSOCIATION, INC. (PEA-PTGWO), PANTRANCO RETRENCHED
EMPLOYEES ASSOCIATION (PANREA) AND PANTRANCO ASSOCIATION OF CONCERNED
EMPLOYEES (PACE), ET AL., PHILIPPINE NATIONAL BANK-MANAGEMENT DEVELOPMENT
CORPORATION (PNB-MADECOR), and MEGA PRIME REALTY HOLDINGS, INC., Respondents.

DECISION

NACHURA, J.:

Before us are two consolidated petitions assailing the Court of Appeals (CA) Decision 1 dated June 3,
2005 and its Resolution2 dated December 7, 2005 in CA-G.R. SP No. 80599.

In G.R. No. 170689, the Pantranco Employees Association (PEA) and Pantranco Retrenched
Employees Association (PANREA) pray that the CA decision be set aside and a new one be entered,
declaring the Philippine National Bank (PNB) and PNB Management and Development Corporation
(PNB-Madecor) jointly and solidarily liable for the P722,727,150.22 National Labor Relations
Commission (NLRC) judgment in favor of the Pantranco North Express, Inc. (PNEI)
employees;3 while in G.R. No. 170705, PNB prays that the auction sale of the Pantranco properties
be declared null and void.4

The facts of the case, as found by the CA,5 and established in Republic of the Phils. v.
NLRC,6 Pantranco North Express, Inc. v. NLRC,7 and PNB MADECOR v. Uy,8 follow:

The Gonzales family owned two corporations, namely, the PNEI and Macris Realty Corporation
(Macris). PNEI provided transportation services to the public, and had its bus terminal at the corner
of Quezon and Roosevelt Avenues in Quezon City. The terminal stood on four valuable pieces of
real estate (known as Pantranco properties) registered under the name of Macris. 9 The Gonzales
family later incurred huge financial losses despite attempts of rehabilitation and loan infusion. In
March 1975, their creditors took over the management of PNEI and Macris. By 1978, full ownership
was transferred to one of their creditors, the National Investment Development Corporation (NIDC),
a subsidiary of the PNB.

Macris was later renamed as the National Realty Development Corporation (Naredeco) and
eventually merged with the National Warehousing Corporation (Nawaco) to form the new PNB
subsidiary, the PNB-Madecor.

In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a company owned by Gregorio
Araneta III. In 1986, PNEI was among the several companies placed under sequestration by the
Presidential Commission on Good Government (PCGG) shortly after the historic events in EDSA. In
January 1988, PCGG lifted the sequestration order to pave the way for the sale of PNEI back to the
private sector through the Asset Privatization Trust (APT). APT thus took over the management of
PNEI.

In 1992, PNEI applied with the Securities and Exchange Commission (SEC) for suspension of
payments. A management committee was thereafter created which recommended to the SEC the
sale of the company through privatization. As a cost-saving measure, the committee likewise
suggested the retrenchment of several PNEI employees. Eventually, PNEI ceased its operation.
Along with the cessation of business came the various labor claims commenced by the former
employees of PNEI where the latter obtained favorable decisions.

On July 5, 2002, the Labor Arbiter issued the Sixth Alias Writ of Execution 10 commanding the NLRC
Sheriffs to levy on the assets of PNEI in order to satisfy the P722,727,150.22 due its former
employees, as full and final satisfaction of the judgment awards in the labor cases. The sheriffs were
likewise instructed to proceed against PNB, PNB-Madecor and Mega Prime. 11 In implementing the
writ, the sheriffs levied upon the four valuable pieces of real estate located at the corner of Quezon
and Roosevelt Avenues, on which the former Pantranco Bus Terminal stood. These properties were
covered by Transfer Certificate of Title (TCT) Nos. 87881-87884, registered under the name of PNB-
Madecor.12 Subsequently, Notice of Sale of the foregoing real properties was published in the
newspaper and the sale was set on July 31, 2002. Having been notified of the auction sale, motions
to quash the writ were separately filed by PNB-Madecor and Mega Prime, and PNB. They likewise
filed their Third-Party Claims.13 PNB-Madecor anchored its motion on its right as the registered
owner of the Pantranco properties, and Mega Prime as the successor-in-interest. For its part, PNB
sought the nullification of the writ on the ground that it was not a party to the labor case. 14 In its Third-
Party Claim, PNB alleged that PNB-Madecor was indebted to the former and that the Pantranco
properties

would answer for such debt. As such, the scheduled auction sale of the aforesaid properties was not
legally in order.15

On September 10, 2002, the Labor Arbiter declared that the subject Pantranco properties were
owned by PNB-Madecor. It being a corporation with a distinct and separate personality, its assets
could not answer for the liabilities of PNEI. Considering, however, that PNB-Madecor executed a
promissory note in favor of PNEI for P7,884,000.00, the writ of execution to the extent of the said
amount was concerned was considered valid.16

PNBs third-party claim to nullify the writ on the ground that it has an interest in the Pantranco
properties being a creditor of PNB-Madecor, on the other hand, was denied because it only had an
inchoate interest in the properties.17

The dispositive portion of the Labor Arbiters September 10, 2002 Resolution is quoted hereunder:

WHEREFORE, the Third Party Claim of PNB Madecor and/or Mega Prime Holdings, Inc. is hereby
GRANTED and concomitantly the levies made by the sheriffs of the NLRC on the properties of PNB
Madecor should be as it (sic) is hereby LIFTED subject to the payment by PNB Madecor to the
complainants the amount of P7,884,000.00.

The Motion to Quash and Third Party Claim of PNB is hereby DENIED.

The Motion to Quash of PNB Madecor and Mega Prime Holdings, Inc. is hereby PARTIALLY
GRANTED insofar as the amount of the writ exceeds P7,884,000.00.

The Motion for Recomputation and Examination of Judgment Awards is hereby DENIED for want of
merit.

The Motion to Expunge from the Records claimants/complainants Opposition dated August 3, 2002
is hereby DENIED for lack of merit.

SO ORDERED.18

On appeal to the NLRC, the same was denied and the Labor Arbiters disposition was
affirmed.19 Specifically, the NLRC concluded as follows:

(1) PNB-Madecor and Mega Prime contended that it would be impossible for them to comply
with the requirement of the labor arbiter to pay to the PNEI employees the amount of P7.8
million as a condition to the lifting of the levy on the properties, since the credit was already
garnished by Gerardo Uy and other creditors of PNEI. The NLRC found no evidence that Uy
had satisfied his judgment from the promissory note, and opined that even if the credit was in
custodia legis, the claim of the PNEI employees should enjoy preference under the Labor
Code.

(2) The PNEI employees contested the finding that PNB-Madecor was indebted to the PNEI
for only P7.8 million without considering the accrual of interest. But the NLRC said that there
was no evidence that demand was made as a basis for reckoning interest.
(3) The PNEI employees further argued that the labor arbiter may not properly conclude from
a decision of Judge Demetrio Macapagal Jr. of the RTC of Quezon City that PNB-Madecor
was the owner of the properties as his decision was reconsidered by the next presiding
judge, nor from a decision of the Supreme Court that PNEI was a mere lessee of the
properties, the fact being that the transfer of the properties to PNB-Madecor was done to
avoid satisfaction of the claims of the employees with the NLRC and that as a result of a civil
case filed by Mega Prime, the subsequent sale of the properties by PNB to Mega Prime was
rescinded. The NLRC pointed out that while the Macapagal decision was set aside by Judge
Bruselas and hence, his findings could not be invoked by the labor arbiter, the titles of PNB-
Madecor are conclusive and there is no evidence that PNEI had ever been an owner. The
Supreme Court had observed in its decision that PNEI owed back rentals of P8.7 million to
PNB-Madecor.

(4) The PNEI employees faulted the labor arbiter for not finding that PNEI, PNB, PNB-
Madecor and Mega Prime were all jointly and severally liable for their claims. The NLRC
underscored the fact that PNEI and Macris were subsidiaries of NIDC and had passed
through and were under the Asset Privatization Trust (APT) when the labor claims accrued.
The labor arbiter was correct in not granting PNBs third-party claim because at the time the
causes of action accrued, the PNEI was managed by a management committee appointed
by the PNB as the new owner of PNRI (sic) and Macris through a deed of assignment or
transfer of ownership. The NLRC says at length that the same is not true with PNB-Madecor
which is now the registered owner of the properties. 20

The parties separate motions for reconsideration were likewise denied. 21 Thereafter, the matter was
elevated to the CA by PANREA, PEA-PTGWO and the Pantranco Association of Concerned
Employees. The latter group, however, later withdrew its petition. The former employees petition
was docketed as CA-G.R. SP No. 80599.

PNB-Madecor and Mega Prime likewise filed their separate petition before the CA which was
docketed as CA-G.R. SP No. 80737, but the same was dismissed.22

In view of the P7,884,000.00 debt of PNB-Madecor to PNEI, on June 23, 2004, an auction sale was
conducted over the Pantranco properties to satisfy the claim of the PNEI employees, wherein CPAR
Realty was adjudged as the highest bidder.23

On June 3, 2005, the CA rendered the assailed decision affirming the NLRC resolutions.

The appellate court pointed out that PNB, PNB-Madecor and Mega Prime are corporations with
personalities separate and distinct from PNEI. As such, there being no cogent reason to pierce the
veil of corporate fiction, the separate personalities of the above corporations should be maintained.
The CA added that the Pantranco properties were never owned by PNEI; rather, their titles were
registered under the name of PNB-Madecor. If PNB and PNB-Madecor could not answer for the
liabilities of PNEI, with more reason should Mega Prime not be held liable being a mere successor-
in-interest of PNB-Madecor.

Unsatisfied, PEA-PTGWO and PANREA filed their motion for reconsideration;24 while PNB filed its
Partial Motion for Reconsideration.25 PNB pointed out that PNB-Madecor was made to answer
for P7,884,000.00 to the PNEI employees by virtue of the promissory note it (PNB-Madecor) earlier
executed in favor of PNEI. PNB, however, questioned the June 23, 2004 auction sale as the P7.8
million debt had already been satisfied pursuant to this Courts decision in PNB MADECOR v. Uy.26

Both motions were denied by the appellate court.27

In two separate petitions, PNB and the former PNEI employees come up to this Court assailing the
CA decision and resolution. The former PNEI employees raise the lone error, thus:

The Honorable Court of Appeals palpably departed from the established rules and jurisprudence in
ruling that private respondents Pantranco North Express, Inc. (PNEI), Philippine National Bank
(PNB), Philippine National Bank Management and Development Corporation (PNB-MADECOR),
Mega Prime Realty and Holdings, Inc. (Mega Prime) are not jointly and severally answerable to
the P722,727,150.22 Million NLRC money judgment awards in favor of the 4,000 individual
members of the Petitioners.28

They claim that PNB, through PNB-Madecor, directly benefited from the operation of PNEI and had
complete control over the funds of PNEI. Hence, they are solidarily answerable with PNEI for the
unpaid money claims of the employees.29 Citing A.C. Ransom Labor Union-CCLU v. NLRC,30 the
employees insist that where the employer corporation ceases to exist and is no longer able to satisfy
the judgment awards in favor of its employees, the owner of the employer corporation should be
made jointly and severally liable.31 They added that malice or bad faith need not be proven to make
the owners liable.

On the other hand, PNB anchors its petition on this sole assignment of error, viz.:

THE AUCTION SALE OF THE PROPERTY COVERED BY TCT NO. 87884 INTENDED TO
PARTIALLY SATISFY THE CLAIMS OF FORMER WORKERS OF PNEI IN THE AMOUNT
OF P7,884,000.00 (THE AMOUNT OF PNB-MADECORS PROMISSORY NOTE IN FAVOR OF
PNEI) IS NOT IN ORDER AS THE SAID PROPERTY IS NOT OWNED BY PNEI. FURTHER, THE
SAID PROMISSORY NOTE HAD ALREADY BEEN GARNISHED IN FAVOR OF GERARDO C. UY
WHICH LED TO THREE (3) PROPERTIES UNDER THE NAME OF PNB-MADECOR, NAMELY TCT
NOS. 87881, 87882 AND 87883, BEING LEVIED AND SOLD ON EXECUTION IN THE "PNB-
MADECOR VS. UY" CASE (363 SCRA 128 [2001]) AND "GERARDO C. UY VS. PNEI" (CIVIL CASE
NO. 95-72685, RTC MANILA, BRANCH 38).32

PNB insists that the Pantranco properties could no longer be levied upon because the promissory
note for which the Labor Arbiter held PNB-Madecor liable to PNEI, and in turn to the latters former
employees, had already been satisfied in favor of Gerardo C. Uy. It added that the properties were in
fact awarded to the highest bidder. Besides, says PNB, the subject properties were not owned by
PNEI, hence, the execution sale thereof was not validly effected. 33

Both petitions must fail.

G.R. No. 170689

Stripped of the non-essentials, the sole issue for resolution raised by the former PNEI employees is
whether they can attach the properties (specifically the Pantranco properties) of PNB, PNB-Madecor
and Mega Prime to satisfy their unpaid labor claims against PNEI.

We answer in the negative.

First, the subject property is not owned by the judgment debtor, that is, PNEI. Nowhere in the
records was it shown that PNEI owned the Pantranco properties. Petitioners, in fact, never alleged in
any of their pleadings the fact of such ownership. What was established, instead, in PNB MADECOR
v. Uy34 and PNB v. Mega Prime Realty and Holdings Corporation/Mega Prime Realty and Holdings
Corporation v. PNB35 was that the properties were owned by Macris, the predecessor of PNB-
Madecor. Hence, they cannot be pursued against by the creditors of PNEI.

We would like to stress the settled rule that the power of the court in executing judgments extends
only to properties unquestionably belonging to the judgment debtor alone. 36 To be sure, one mans
goods shall not be sold for another mans debts.37 A sheriff is not authorized to attach or levy on
property not belonging to the judgment debtor, and even incurs liability if he wrongfully levies upon
the property of a third person.38

Second, PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and
distinct from that of PNEI. PNB is sought to be held liable because it acquired PNEI through NIDC at
the time when PNEI was suffering financial reverses. PNB-Madecor is being made to answer for
petitioners labor claims as the owner of the subject Pantranco properties and as a subsidiary of
PNB. Mega Prime is also included for having acquired PNBs shares over PNB-Madecor.

The general rule is that a corporation has a personality separate and distinct from those of its
stockholders and other corporations to which it may be connected. 39 This is a fiction created by law
for convenience and to prevent injustice.40 Obviously, PNB, PNB-Madecor, Mega Prime, and PNEI
are corporations with their own personalities. The "separate personalities" of the first three
corporations had been recognized by this Court in PNB v. Mega Prime Realty and Holdings
Corporation/Mega Prime Realty and Holdings Corporation v. PNB41 where we stated that PNB was
only a stockholder of PNB-Madecor which later sold its shares to Mega Prime; and that PNB-
Madecor was the owner of the Pantranco properties. Moreover, these corporations are registered as
separate entities and, absent any valid reason, we maintain their separate identities and we cannot
treat them as one.

Neither can we merge the personality of PNEI with PNB simply because the latter acquired the
former. Settled is the rule that where one corporation sells or otherwise transfers all its assets to
another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of
the transferor.42

Lastly, while we recognize that there are peculiar circumstances or valid grounds that may exist to
warrant the piercing of the corporate veil, 43 none applies in the present case whether between PNB
and PNEI; or PNB and PNB-Madecor.
Under the doctrine of "piercing the veil of corporate fiction," the court looks at the corporation as a
mere collection of individuals or an aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of the corporation unifying the group. 44 Another
formulation of this doctrine is that when two business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when necessary to protect the rights of third
parties, disregard the legal fiction that two corporations are distinct entities and treat them as
identical or as one and the same.45

Whether the separate personality of the corporation should be pierced hinges on obtaining facts
appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with
caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when
necessary in the interest of justice. After all, the concept of corporate entity was not meant to
promote unfair objectives.46

As between PNB and PNEI, petitioners want us to disregard their separate personalities, and insist
that because the company, PNEI, has already ceased operations and there is no other way by which
the judgment in favor of the employees can be satisfied, corporate officers can be held jointly and
severally liable with the company. Petitioners rely on the pronouncement of this Court in A.C.
Ransom Labor Union-CCLU v. NLRC47 and subsequent cases.48

This reliance fails to persuade. We find the aforesaid decisions inapplicable to the instant case.

For one, in the said cases, the persons made liable after the companys cessation of operations
were the officers and agents of the corporation. The rationale is that, since the corporation is an
artificial person, it must have an officer who can be presumed to be the employer, being the person
acting in the interest of the employer. The corporation, only in the technical sense, is the
employer.49 In the instant case, what is being made liable is another corporation (PNB) which
acquired the debtor corporation (PNEI).

Moreover, in the recent cases Carag v. National Labor Relations Commission 50 and McLeod v.
National Labor Relations Commission,51 the Court explained the doctrine laid down in AC Ransom
relative to the personal liability of the officers and agents of the employer for the debts of the latter. In
AC Ransom, the Court imputed liability to the officers of the corporation on the strength of the
definition of an employer in Article 212(c) (now Article 212[e]) of the Labor Code. Under the said
provision, employer includes any person acting in the interest of an employer, directly or indirectly,
but does not include any labor organization or any of its officers or agents except when acting as
employer. It was clarified in Carag and McLeod that Article 212(e) of the Labor Code, by itself, does
not make a corporate officer personally liable for the debts of the corporation. It added that the
governing law on personal liability of directors or officers for debts of the corporation is still Section
3152 of the Corporation Code.

More importantly, as aptly observed by this Court in AC Ransom, it appears that Ransom, foreseeing
the possibility or probability of payment of backwages to its employees, organized Rosario to replace
Ransom, with the latter to be eventually phased out if the strikers win their case. The execution could
not be implemented against Ransom because of the disposition posthaste of its leviable assets
evidently in order to evade its just and due obligations. 53Hence, the Court sustained the piercing of
the corporate veil and made the officers of Ransom personally liable for the debts of the latter.

Clearly, what can be inferred from the earlier cases is that the doctrine of piercing the corporate veil
applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate
fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the
corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases,
where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or
where the corporation is so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation. 54 In the absence of
malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate
officer cannot be made personally liable for corporate liabilities.55

Applying the foregoing doctrine to the instant case, we quote with approval the CA disposition in this
wise:

It would not be enough, then, for the petitioners in this case, the PNEI employees, to rest on their
laurels with evidence that PNB was the owner of PNEI. Apart from proving ownership, it is necessary
to show facts that will justify us to pierce the veil of corporate fiction and hold PNB liable for the
debts of PNEI. The burden undoubtedly falls on the petitioners to prove their affirmative allegations.
In line with the basic jurisprudential principles we have explored, they must show that PNB was
using PNEI as a mere adjunct or instrumentality or has exploited or misused the corporate privilege
of PNEI.
We do not see how the burden has been met. Lacking proof of a nexus apart from mere ownership,
the petitioners have not provided us with the legal basis to reach the assets of corporations separate
and distinct from PNEI.56

Assuming, for the sake of argument, that PNB may be held liable for the debts of PNEI, petitioners
still cannot proceed against the Pantranco properties, the same being owned by PNB-Madecor,
notwithstanding the fact that PNB-Madecor was a subsidiary of PNB. The general rule remains that
PNB-Madecor has a personality separate and distinct from PNB. The mere fact that a corporation
owns all of the stocks of another corporation, taken alone, is not sufficient to justify their being
treated as one entity. If used to perform legitimate functions, a subsidiarys separate existence shall
be respected, and the liability of the parent corporation as well as the subsidiary will be confined to
those arising in their respective businesses.57

In PNB v. Ritratto Group, Inc.,58 we outlined the circumstances which are useful in the determination
of whether a subsidiary is but a mere instrumentality of the parent-corporation, to wit:

1. The parent corporation owns all or most of the capital stock of the subsidiary;

2. The parent and subsidiary corporations have common directors or officers;

3. The parent corporation finances the subsidiary;

4. The parent corporation subscribes to all the capital stock of the subsidiary or otherwise
causes its incorporation;

5. The subsidiary has grossly inadequate capital;

6. The parent corporation pays the salaries and other expenses or losses of the subsidiary;

7. The subsidiary has substantially no business except with the parent corporation or no
assets except those conveyed to or by the parent corporation;

8. In the papers of the parent corporation or in the statements of its officers, the subsidiary is
described as a department or division of the parent corporation, or its business or financial
responsibility is referred to as the parent corporations own;

9. The parent corporation uses the property of the subsidiary as its own;

10. The directors or executives of the subsidiary do not act independently in the interest of
the subsidiary, but take their orders from the parent corporation;

11. The formal legal requirements of the subsidiary are not observed.

None of the foregoing circumstances is present in the instant case. Thus, piercing of PNB-Madecors
corporate veil is not warranted. Being a mere successor-in-interest of PNB-Madecor, with more
reason should no liability attach to Mega Prime.

G.R. No. 170705

In its petition before this Court, PNB seeks the annulment of the June 23, 2004 execution sale of the
Pantranco properties on the ground that the judgment debtor (PNEI) never owned said lots. It
likewise contends that the levy and the eventual sale on execution of the subject properties was null
and void as the promissory note on which PNB-Madecor was made liable had already been
satisfied.

It has been repeatedly stated that the Pantranco properties which were the subject of execution sale
were owned by Macris and later, the PNB-Madecor. They were never owned by PNEI or PNB.
Following our earlier discussion on the separate personalities of the different corporations involved in
the instant case, the only entity which has the right and interest to question the execution sale and
the eventual right to annul the same, if any, is PNB-Madecor or its successor-in-interest. Settled is
the rule that proceedings in court must be instituted by the real party in interest.

A real party in interest is the party who stands to be benefited or injured by the judgment in the suit,
or the party entitled to the avails of the suit.59 "Interest" within the meaning of the rule means material
interest, an interest in issue and to be affected by the decree, as distinguished from mere interest in
the question involved, or a mere incidental interest. 60 The interest of the party must also be personal
and not one based on a desire to vindicate the constitutional right of some third and unrelated
party.61 Real interest, on the other hand, means a present substantial interest, as distinguished from
a mere expectancy or a future, contingent, subordinate, or consequential interest. 62

Specifically, in proceedings to set aside an execution sale, the real party in interest is the person who
has an interest either in the property sold or the proceeds thereof. Conversely, one who is not
interested or is not injured by the execution sale cannot question its validity.63

In justifying its claim against the Pantranco properties, PNB alleges that Mega Prime, the buyer of its
entire stockholdings in PNB-Madecor was indebted to it (PNB). Considering that said indebtedness
remains unpaid, PNB insists that it has an interest over PNB-Madecor and Mega Primes assets.

Again, the contention is bereft of merit. While PNB has an apparent interest in Mega Primes assets
being the creditor of the latter for a substantial amount, its interest remains inchoate and has not yet
ripened into a present substantial interest, which would give it the standing to maintain an action
involving the subject properties. As aptly observed by the Labor Arbiter, PNB only has an inchoate
right to the properties of Mega Prime in case the latter would not be able to pay its indebtedness.
This is especially true in the instant case, as the debt being claimed by PNB is secured by the
accessory contract of pledge of the entire stockholdings of Mega Prime to PNB-Madecor.64

The Court further notes that the Pantranco properties (or a portion thereof ) were sold on execution
to satisfy the unpaid obligation of PNB-Madecor to PNEI. PNB-Madecor was thus made liable to the
former PNEI employees as the judgment debtor of PNEI. It has long been established in PNB-
Madecor v. Uy and other similar cases that PNB-Madecor had an unpaid obligation to PNEI
amounting to more or less P7 million which could be validly pursued by the creditors of the latter.
Again, this strengthens the proper parties right to question the validity of the execution sale,
definitely not PNB.

Besides, the issue of whether PNB has a substantial interest over the Pantranco properties has
already been laid to rest by the Labor Arbiter.65 It is noteworthy that in its Resolution dated
September 10, 2002, the Labor Arbiter denied PNBs Third-Party Claim primarily because PNB only
has an inchoate right over the Pantranco properties.66Such conclusion was later affirmed by the
NLRC in its Resolution dated June 30, 2003.67 Notwithstanding said conclusion, PNB did not elevate
the matter to the CA via a petition for review. Hence it is presumed to be satisfied with the
adjudication therein.68 That decision of the NLRC has become final as against PNB and can no
longer be reviewed, much less reversed, by this Court.69 This is in accord with the doctrine that a
party who has not appealed cannot obtain from the appellate court any affirmative relief other than
the ones granted in the appealed decision.70

WHEREFORE, premises considered, the petitions are hereby DENIED for lack of merit.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 178296 January 12, 2011

THE HERITAGE HOTEL MANILA, acting through its owner, GRAND PLAZA HOTEL
CORPORATION,Petitioner,
vs.
NATIONAL UNION OF WORKERS IN THE HOTEL, RESTAURANT AND ALLIED INDUSTRIES-
HERITAGE HOTEL MANILA SUPERVISORS CHAPTER (NUWHRAIN-HHMSC), Respondent.

DECISION

NACHURA, J.:

Before the Court is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA)
dated May 30, 2005 and Resolution dated June 4, 2007. The assailed Decision affirmed the
dismissal of a petition for cancellation of union registration filed by petitioner, Grand Plaza Hotel
Corporation, owner of Heritage Hotel Manila, against respondent, National Union of Workers in the
Hotel, Restaurant and Allied Industries-Heritage Hotel Manila Supervisors Chapter (NUWHRAIN-
HHMSC), a labor organization of the supervisory employees of Heritage Hotel Manila.

The case stemmed from the following antecedents:

On October 11, 1995, respondent filed with the Department of Labor and Employment-National
Capital Region (DOLE-NCR) a petition for certification election. 2 The Med-Arbiter granted the petition
on February 14, 1996 and ordered the holding of a certification election. 3 On appeal, the DOLE
Secretary, in a Resolution dated August 15, 1996, affirmed the Med-Arbiters order and remanded
the case to the Med-Arbiter for the holding of a preelection conference on February 26, 1997.
Petitioner filed a motion for reconsideration, but it was denied on September 23, 1996.

The preelection conference was not held as initially scheduled; it was held a year later, or on
February 20, 1998. Petitioner moved to archive or to dismiss the petition due to alleged repeated
non-appearance of respondent. The latter agreed to suspend proceedings until further notice. The
preelection conference resumed on January 29, 2000.

Subsequently, petitioner discovered that respondent had failed to submit to the Bureau of Labor
Relations (BLR) its annual financial report for several years and the list of its members since it filed
its registration papers in 1995. Consequently, on May 19, 2000, petitioner filed a Petition for
Cancellation of Registration of respondent, on the ground of the non-submission of the said
documents. Petitioner prayed that respondents Certificate of Creation of Local/Chapter be cancelled
and its name be deleted from the list of legitimate labor organizations. It further requested the
suspension of the certification election proceedings. 4

On June 1, 2000, petitioner reiterated its request by filing a Motion to Dismiss or Suspend the
[Certification Election] Proceedings,5 arguing that the dismissal or suspension of the proceedings is
warranted, considering that the legitimacy of respondent is seriously being challenged in the petition
for cancellation of registration. Petitioner maintained that the resolution of the issue of whether
respondent is a legitimate labor organization is crucial to the issue of whether it may exercise rights
of a legitimate labor organization, which include the right to be certified as the bargaining agent of
the covered employees.

Nevertheless, the certification election pushed through on June 23, 2000. Respondent emerged as
the winner.6

On June 28, 2000, petitioner filed a Protest with Motion to Defer Certification of Election Results and
Winner,7stating that the certification election held on June 23, 2000 was an exercise in futility
because, once respondents registration is cancelled, it would no longer be entitled to be certified as
the exclusive bargaining agent of the supervisory employees. Petitioner also claimed that some of
respondents members were not qualified to join the union because they were either confidential
employees or managerial employees. It then prayed that the certification of the election results and
winner be deferred until the petition for cancellation shall have been resolved, and that respondents
members who held confidential or managerial positions be excluded from the supervisors bargaining
unit.
Meanwhile, respondent filed its Answer8 to the petition for the cancellation of its registration. It
averred that the petition was filed primarily to delay the conduct of the certification election, the
respondents certification as the exclusive bargaining representative of the supervisory employees,
and the commencement of bargaining negotiations. Respondent prayed for the dismissal of the
petition for the following reasons: (a) petitioner is estopped from questioning respondents status as
a legitimate labor organization as it had already recognized respondent as such during the
preelection conferences; (b) petitioner is not the party-in-interest, as the union members are the
ones who would be disadvantaged by the non-submission of financial reports; (c) it has already
complied with the reportorial requirements, having submitted its financial statements for 1996, 1997,
1998, and 1999, its updated list of officers, and its list of members for the years 1995, 1996, 1997,
1998, and 1999; (d) the petition is already moot and academic, considering that the certification
election had already been held, and the members had manifested their will to be represented by
respondent.

Citing National Union of Bank Employees v. Minister of Labor, et al. 9 and Samahan ng Manggagawa
sa Pacific Plastic v. Hon. Laguesma,10 the Med-Arbiter held that the pendency of a petition for
cancellation of registration is not a bar to the holding of a certification election. Thus, in an
Order11 dated January 26, 2001, the Med-Arbiter dismissed petitioners protest, and certified
respondent as the sole and exclusive bargaining agent of all supervisory employees.

Petitioner subsequently appealed the said Order to the DOLE Secretary.12 The appeal was later
dismissed by DOLE Secretary Patricia A. Sto. Tomas (DOLE Secretary Sto. Tomas) in the
Resolution of August 21, 2002.13Petitioner moved for reconsideration, but the motion was also
denied.14

In the meantime, Regional Director Alex E. Maraan (Regional Director Maraan) of DOLE-NCR finally
resolved the petition for cancellation of registration. While finding that respondent had indeed failed
to file financial reports and the list of its members for several years, he, nonetheless, denied the
petition, ratiocinating that freedom of association and the employees right to self-organization are
more substantive considerations. He took into account the fact that respondent won the certification
election and that it had already been certified as the exclusive bargaining agent of the supervisory
employees. In view of the foregoing, Regional Director Maraanwhile emphasizing that the non-
compliance with the law is not viewed with favorconsidered the belated submission of the annual
financial reports and the list of members as sufficient compliance thereof and considered them as
having been submitted on time. The dispositive portion of the decision 15 dated December 29, 2001
reads:

WHEREFORE, premises considered, the instant petition to delist the National Union of Workers in
the Hotel, Restaurant and Allied Industries-Heritage Hotel Manila Supervisors Chapter from the roll
of legitimate labor organizations is hereby DENIED.

SO ORDERED.16

Aggrieved, petitioner appealed the decision to the BLR.17 BLR Director Hans Leo Cacdac inhibited
himself from the case because he had been a former counsel of respondent.

In view of Director Cacdacs inhibition, DOLE Secretary Sto. Tomas took cognizance of the appeal.
In a resolution18dated February 21, 2003, she dismissed the appeal, holding that the constitutionally
guaranteed freedom of association and right of workers to self-organization outweighed
respondents noncompliance with the statutory requirements to maintain its status as a legitimate
labor organization.

Petitioner filed a motion for reconsideration,19 but the motion was likewise denied in a
resolution20 dated May 30, 2003. DOLE Secretary Sto. Tomas admitted that it was the BLR which
had jurisdiction over the appeal, but she pointed out that the BLR Director had voluntarily inhibited
himself from the case because he used to appear as counsel for respondent. In order to maintain the
integrity of the decision and of the BLR, she therefore accepted the motion to inhibit and took
cognizance of the appeal.

Petitioner filed a petition for certiorari with the CA, raising the issue of whether the DOLE Secretary
acted with grave abuse of discretion in taking cognizance of the appeal and affirming the dismissal
of its petition for cancellation of respondents registration.

In a Decision dated May 30, 2005, the CA denied the petition. The CA opined that the DOLE
Secretary may legally assume jurisdiction over an appeal from the decision of the Regional Director
in the event that the Director of the BLR inhibits himself from the case. According to the CA, in the
absence of the BLR Director, there is no person more competent to resolve the appeal than the
DOLE Secretary. The CA brushed aside the allegation of bias and partiality on the part of the DOLE
Secretary, considering that such allegation was not supported by any evidence.
The CA also found that the DOLE Secretary did not commit grave abuse of discretion when she
affirmed the dismissal of the petition for cancellation of respondents registration as a labor
organization. Echoing the DOLE Secretary, the CA held that the requirements of registration of labor
organizations are an exercise of the overriding police power of the State, designed for the protection
of workers against potential abuse by the union that recruits them. These requirements, the CA
opined, should not be exploited to work against the workers constitutionally protected right to self-
organization.

Petitioner filed a motion for reconsideration, invoking this Courts ruling in Abbott Labs. Phils., Inc. v.
Abbott Labs. Employees Union,21 which categorically declared that the DOLE Secretary has no
authority to review the decision of the Regional Director in a petition for cancellation of union
registration, and Section 4,22 Rule VIII, Book V of the Omnibus Rules Implementing the Labor Code.

In its Resolution23 dated June 4, 2007, the CA denied petitioners motion, stating that the BLR
Directors inhibition from the case was a peculiarity not present in the Abbott case, and that such
inhibition justified the assumption of jurisdiction by the DOLE Secretary.

In this petition, petitioner argues that:

I.

The Court of Appeals seriously erred in ruling that the Labor Secretary properly assumed jurisdiction
over Petitioners appeal of the Regional Directors Decision in the Cancellation Petition x x x.

A. Jurisdiction is conferred only by law. The Labor Secretary had no jurisdiction to review the
decision of the Regional Director in a petition for cancellation. Such jurisdiction is conferred
by law to the BLR.

B. The unilateral inhibition by the BLR Director cannot justify the Labor Secretarys exercise
of jurisdiction over the Appeal.

C. The Labor Secretarys assumption of jurisdiction over the Appeal without notice violated
Petitioners right to due process.

II.

The Court of Appeals gravely erred in affirming the dismissal of the Cancellation Petition despite the
mandatory and unequivocal provisions of the Labor Code and its Implementing Rules. 24

The petition has no merit.

Jurisdiction to review the decision of the Regional Director lies with the BLR. This is clearly provided
in the Implementing Rules of the Labor Code and enunciated by the Court in Abbott. But as pointed
out by the CA, the present case involves a peculiar circumstance that was not present or covered by
the ruling in Abbott. In this case, the BLR Director inhibited himself from the case because he was a
former counsel of respondent. Who, then, shall resolve the case in his place?

In Abbott, the appeal from the Regional Directors decision was directly filed with the Office of the
DOLE Secretary, and we ruled that the latter has no appellate jurisdiction. In the instant case, the
appeal was filed by petitioner with the BLR, which, undisputedly, acquired jurisdiction over the case.
Once jurisdiction is acquired by the court, it remains with it until the full termination of the case. 25

Thus, jurisdiction remained with the BLR despite the BLR Directors inhibition. When the DOLE
Secretary resolved the appeal, she merely stepped into the shoes of the BLR Director and
performed a function that the latter could not himself perform. She did so pursuant to her power of
supervision and control over the BLR.26

Expounding on the extent of the power of control, the Court, in Araneta, et al. v. Hon. M. Gatmaitan,
et al.,27pronounced that, if a certain power or authority is vested by law upon the Department
Secretary, then such power or authority may be exercised directly by the President, who exercises
supervision and control over the departments. This principle was incorporated in the Administrative
Code of 1987, which defines "supervision and control" as including the authority to act directly
whenever a specific function is entrusted by law or regulation to a subordinate. 28 Applying the
foregoing to the present case, it is clear that the DOLE Secretary, as the person exercising the
power of supervision and control over the BLR, has the authority to directly exercise the quasi-
judicial function entrusted by law to the BLR Director.
It is true that the power of control and supervision does not give the Department Secretary unbridled
authority to take over the functions of his or her subordinate. Such authority is subject to certain
guidelines which are stated in Book IV, Chapter 8, Section 39(1)(a) of the Administrative Code of
1987.29 However, in the present case, the DOLE Secretarys act of taking over the function of the
BLR Director was warranted and necessitated by the latters inhibition from the case and the
objective to "maintain the integrity of the decision, as well as the Bureau itself." 30

Petitioner insists that the BLR Directors subordinates should have resolved the appeal, citing the
provision under the Administrative Code of 1987 which states, "in case of the absence or disability of
the head of a bureau or office, his duties shall be performed by the assistant head." 31 The provision
clearly does not apply considering that the BLR Director was neither absent nor suffering from any
disability; he remained as head of the BLR. Thus, to dispel any suspicion of bias, the DOLE
Secretary opted to resolve the appeal herself.

Petitioner was not denied the right to due process when it was not notified in advance of the BLR
Directors inhibition and the DOLE Secretarys assumption of the case. Well-settled is the rule that
the essence of due process is simply an opportunity to be heard, or, as applied to administrative
proceedings, an opportunity to explain ones side or an opportunity to seek a reconsideration of the
action or ruling complained of.32 Petitioner had the opportunity to question the BLR Directors
inhibition and the DOLE Secretarys taking cognizance of the case when it filed a motion for
reconsideration of the latters decision. It would be well to state that a critical component of due
process is a hearing before an impartial and disinterested tribunal, for all the elements of due
process, like notice and hearing, would be meaningless if the ultimate decision would come from a
partial and biased judge.33 It was precisely to ensure a fair trial that moved the BLR Director to inhibit
himself from the case and the DOLE Secretary to take over his function.

Petitioner also insists that respondents registration as a legitimate labor union should be cancelled.
Petitioner posits that once it is determined that a ground enumerated in Article 239 of the Labor
Code is present, cancellation of registration should follow; it becomes the ministerial duty of the
Regional Director to cancel the registration of the labor organization, hence, the use of the word
"shall." Petitioner points out that the Regional Director has admitted in its decision that respondent
failed to submit the required documents for a number of years; therefore, cancellation of its
registration should have followed as a matter of course.

We are not persuaded.

Articles 238 and 239 of the Labor Code read:

ART. 238. CANCELLATION OF REGISTRATION; APPEAL

The certificate of registration of any legitimate labor organization, whether national or local, shall be
canceled by the Bureau if it has reason to believe, after due hearing, that the said labor organization
no longer meets one or more of the requirements herein prescribed.34

ART. 239. GROUNDS FOR CANCELLATION OF UNION REGISTRATION.

The following shall constitute grounds for cancellation of union registration:

xxxx

(d) Failure to submit the annual financial report to the Bureau within thirty (30) days after the closing
of every fiscal year and misrepresentation, false entries or fraud in the preparation of the financial
report itself;

xxxx

(i) Failure to submit list of individual members to the Bureau once a year or whenever required by
the Bureau.35

These provisions give the Regional Director ample discretion in dealing with a petition for
cancellation of a unions registration, particularly, determining whether the union still meets the
requirements prescribed by law. It is sufficient to give the Regional Director license to treat the late
filing of required documents as sufficient compliance with the requirements of the law. After all, the
law requires the labor organization to submit the annual financial report and list of members in order
to verify if it is still viable and financially sustainable as an organization so as to protect the employer
and employees from fraudulent or fly-by-night unions. With the submission of the required
documents by respondent, the purpose of the law has been achieved, though belatedly.
We cannot ascribe abuse of discretion to the Regional Director and the DOLE Secretary in denying
the petition for cancellation of respondents registration. The union members and, in fact, all the
employees belonging to the appropriate bargaining unit should not be deprived of a bargaining
agent, merely because of the negligence of the union officers who were responsible for the
submission of the documents to the BLR.

Labor authorities should, indeed, act with circumspection in treating petitions for cancellation of
union registration, lest they be accused of interfering with union activities. In resolving the petition,
consideration must be taken of the fundamental rights guaranteed by Article XIII, Section 3 of the
Constitution, i.e., the rights of all workers to self-organization, collective bargaining and negotiations,
and peaceful concerted activities. Labor authorities should bear in mind that registration confers
upon a union the status of legitimacy and the concomitant right and privileges granted by law to a
legitimate labor organization, particularly the right to participate in or ask for certification election in a
bargaining unit.36 Thus, the cancellation of a certificate of registration is the equivalent of snuffing out
the life of a labor organization. For without such registration, it loses - as a rule - its rights under the
Labor Code.37

It is worth mentioning that the Labor Codes provisions on cancellation of union registration and on
reportorial requirements have been recently amended by Republic Act (R.A.) No. 9481, An Act
Strengthening the Workers Constitutional Right to Self-Organization, Amending for the Purpose
Presidential Decree No. 442, As Amended, Otherwise Known as the Labor Code of the Philippines,
which lapsed into law on May 25, 2007 and became effective on June 14, 2007. The amendment
sought to strengthen the workers right to self-organization and enhance the Philippines compliance
with its international obligations as embodied in the International Labour Organization (ILO)
Convention No. 87,38 pertaining to the non-dissolution of workers organizations by administrative
authority.39 Thus, R.A. No. 9481 amended Article 239 to read:

ART. 239. Grounds for Cancellation of Union Registration.The following may constitute grounds for
cancellation of union registration:

(a) Misrepresentation, false statement or fraud in connection with the adoption or ratification
of the constitution and by-laws or amendments thereto, the minutes of ratification, and the
list of members who took part in the ratification;

(b) Misrepresentation, false statements or fraud in connection with the election of officers,
minutes of the election of officers, and the list of voters;

(c) Voluntary dissolution by the members.

R.A. No. 9481 also inserted in the Labor Code Article 242-A, which provides:

ART. 242-A. Reportorial Requirements.The following are documents required to be submitted to


the Bureau by the legitimate labor organization concerned:

(a) Its constitution and by-laws, or amendments thereto, the minutes of ratification, and the
list of members who took part in the ratification of the constitution and by-laws within thirty
(30) days from adoption or ratification of the constitution and by-laws or amendments
thereto;

(b) Its list of officers, minutes of the election of officers, and list of voters within thirty (30)
days from election;

(c) Its annual financial report within thirty (30) days after the close of every fiscal year; and

(d) Its list of members at least once a year or whenever required by the Bureau.

Failure to comply with the above requirements shall not be a ground for cancellation of union
registration but shall subject the erring officers or members to suspension, expulsion from
membership, or any appropriate penalty.

ILO Convention No. 87, which we have ratified in 1953, provides that "workers and employers
organizations shall not be liable to be dissolved or suspended by administrative authority." The ILO
has expressed the opinion that the cancellation of union registration by the registrar of labor unions,
which in our case is the BLR, is tantamount to dissolution of the organization by administrative
authority when such measure would give rise to the loss of legal personality of the union or loss of
advantages necessary for it to carry out its activities, which is true in our jurisdiction. Although the
ILO has allowed such measure to be taken, provided that judicial safeguards are in place, i.e., the
right to appeal to a judicial body, it has nonetheless reminded its members that dissolution of a
union, and cancellation of registration for that matter, involve serious consequences for occupational
representation. It has, therefore, deemed it preferable if such actions were to be taken only as a last
resort and after exhausting other possibilities with less serious effects on the organization. 40

The aforesaid amendments and the ILOs opinion on this matter serve to fortify our ruling in this
case. We therefore quote with approval the DOLE Secretarys rationale for denying the petition, thus:

It is undisputed that appellee failed to submit its annual financial reports and list of individual
members in accordance with Article 239 of the Labor Code. However, the existence of this ground
should not necessarily lead to the cancellation of union registration. Article 239 recognizes the
regulatory authority of the State to exact compliance with reporting requirements. Yet there is more
at stake in this case than merely monitoring union activities and requiring periodic documentation
thereof.

The more substantive considerations involve the constitutionally guaranteed freedom of association
and right of workers to self-organization. Also involved is the public policy to promote free trade
unionism and collective bargaining as instruments of industrial peace and democracy. An overly
1avvphi1

stringent interpretation of the statute governing cancellation of union registration without regard to
surrounding circumstances cannot be allowed. Otherwise, it would lead to an unconstitutional
application of the statute and emasculation of public policy objectives. Worse, it can render nugatory
the protection to labor and social justice clauses that pervades the Constitution and the Labor Code.

Moreover, submission of the required documents is the duty of the officers of the union. It would be
unreasonable for this Office to order the cancellation of the union and penalize the entire union
membership on the basis of the negligence of its officers. In National Union of Bank Employees vs.
Minister of Labor, L-53406, 14 December 1981, 110 SCRA 296, the Supreme Court ruled:

As aptly ruled by respondent Bureau of Labor Relations Director Noriel: "The rights of workers to
self-organization finds general and specific constitutional guarantees. x x x Such constitutional
guarantees should not be lightly taken much less nullified. A healthy respect for the freedom of
association demands that acts imputable to officers or members be not easily visited with capital
punishments against the association itself."

At any rate, we note that on 19 May 2000, appellee had submitted its financial statement for the
years 1996-1999. With this submission, appellee has substantially complied with its duty to submit
its financial report for the said period. To rule differently would be to preclude the union, after having
failed to meet its periodic obligations promptly, from taking appropriate measures to correct its
omissions. For the record, we do not view with favor appellees late submission. Punctuality on the
part of the union and its officers could have prevented this petition. 41

WHEREFORE, premises considered, the Court of Appeals Decision dated May 30, 2005 and
Resolution dated June 4, 2007 are AFFIRMED.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 178989 March 18, 2010

EAGLE RIDGE GOLF & COUNTRY CLUB, Petitioner,


vs.
COURT OF APPEALS and EAGLE RIDGE EMPLOYEES UNION (EREU), Respondents.

DECISION

VELASCO, JR., J.:

In this petition for certiorari under Rule 65, Eagle Ridge Golf & Country Club (Eagle Ridge) assails
and seeks to nullify the Resolutions of the Court of Appeals (CA) dated April 27, 2007 1 and June 6,
2007,2 issued in CA-G.R. SP No. 98624, denying a similar recourse petitioner earlier interposed to
set aside the December 21, 2006 Decision3 of the Bureau of Labor Relations (BLR), as reiterated in
a Resolution4 of March 7, 2007.

Petitioner Eagle Ridge is a corporation engaged in the business of maintaining golf courses. It had,
at the end of CY 2005, around 112 rank-and-file employees. The instant case is an off-shot of the
desire of a number of these employees to organize themselves as a legitimate labor union and their
employers opposition to their aspiration.

The Facts

On December 6, 2005, at least 20% of Eagle Ridges rank-and-file employeesthe percentage


threshold required under Article 234(c) of the Labor Code for union registrationhad a meeting
where they organized themselves into an independent labor union, named "Eagle Ridge Employees
Union" (EREU or Union),5 elected a set of officers,6and ratified7 their constitution and by-laws.8

On December 19, 2005, EREU formally applied for registration 9 and filed BLR Reg. Form No. I-LO,
s. 199810 before the Department of Labor and Employment (DOLE) Regional Office IV (RO IV). In
time, DOLE RO IV granted the application and issued EREU Registration Certificate (Reg. Cert.) No.
RO400-200512-UR-003.

The EREU then filed a petition for certification election in Eagle Ridge Golf & Country Club, docketed
as Case No. RO400-0601-RU-002. Eagle Ridge opposed this petition, 11 followed by its filing of a
petition for the cancellation12 of Reg. Cert. No. RO400-200512-UR-003. Docketed as RO400-0602-
AU-003, Eagle Ridges petition ascribed misrepresentation, false statement, or fraud to EREU in
connection with the adoption of its constitution and by-laws, the numerical composition of the Union,
and the election of its officers.

Going into specifics, Eagle Ridge alleged that the EREU declared in its application for registration
having 30 members, when the minutes of its December 6, 2005 organizational meeting showed it
only had 26 members. The misrepresentation was exacerbated by the discrepancy between the
certification issued by the Union secretary and president that 25 members actually ratified the
constitution and by-laws on December 6, 2005 and the fact that 26 members affixed their signatures
on the documents, making one signature a forgery.

Finally, Eagle Ridge contended that five employees who attended the organizational meeting had
manifested the desire to withdraw from the union. The five executed individual affidavits
or Sinumpaang Salaysay13 on February 15, 2006, attesting that they arrived late at said meeting
which they claimed to be drinking spree; that they did not know that the documents they signed on
that occasion pertained to the organization of a union; and that they now wanted to be excluded from
the Union. The withdrawal of the five, Eagle Ridge maintained, effectively reduced the union
membership to 20 or 21, either of which is below the mandatory minimum 20% membership
requirement under Art. 234(c) of the Labor Code. Reckoned from 112 rank-and-file employees of
Eagle Ridge, the required number would be 22 or 23 employees.

As a counterpoint, EREU, in its Comment,14 argued in gist:


1) the petition for cancellation was procedurally deficient as it does not contain a certification
against forum shopping and that the same was verified by one not duly authorized by Eagle
Ridges board;

2) the alleged discrepancies are not real for before filing of its application on December 19,
2005, four additional employees joined the union on December 8, 2005, thus raising the
union membership to 30 members as of December 19, 2005;

3) the understatement by one member who ratified the constitution and by-laws was a
typographical error, which does not make it either grave or malicious warranting the
cancellation of the unions registration;

4) the retraction of 5 union members should not be given any credence for the reasons that:
(a) the sworn statements of the five retracting union members sans other affirmative
evidence presented hardly qualify as clear and credible evidence considering the joint
affidavits of the other members attesting to the orderly conduct of the organizational meeting;
(b) the retracting members did not deny signing the union documents; (c) following, Belyca
Corporation v. Ferrer-Calleja15 and Oriental Tin Can Labor Union v. Secretary of Labor and
Employment,16 it can be presumed that "duress, coercion or valuable consideration" was
brought to bear on the retracting members; and (d) citing La Suerte Cigar and Cigarette
Factory v. Director of Bureau of Labor Relations,17 Belyca Corporation and Oriental Tin Can
Labor Union, where the Court ruled that "once the required percentage requirement has
been reached, the employees withdrawal from union membership taking place after the filing
of the petition for certification election will not affect the petition," it asserted the applicability
of said ruling as the petition for certification election was filed on January 10, 2006 or long
before February 15, 2006 when the affidavits of retraction were executed by the five union
members, thus contending that the retractions do not affect nor be deemed compelling
enough to cancel its certificate of registration.

The Union presented the duly accomplished union membership forms 18 dated December 8, 2005 of
four additional members. And to rebut the allegations in the affidavits of retraction of the five union
members, it presented the Sama-Samang Sinumpaang Salaysay19 dated March 20, 2006 of eight
union members; another Sama-Samang Sinumpaang Salaysay,20 also bearing date March 20, 2006,
of four other union members; and the Sworn Statement21 dated March 16, 2006 of the Unions legal
counsel, Atty. Domingo T. Aonuevo. These affidavits attested to the orderly and proper proceedings
of the organizational meeting on December 6, 2005.

In its Reply,22 Eagle Ridge reiterated the grounds it raised in its petition for cancellation and asserted
further that the four additional members were fraudulently admitted into the Union. As Eagle Ridge
claimed, the applications of the four neither complied with the requirements under Section 2, Art. IV
of the unions constitution and by-laws nor were they shown to have been duly received, issued
receipts for admission fees, processed with recommendation for approval, and approved by the
union president.

Moreover, Eagle Ridge presented another Sinumpaang Salaysay23 of retraction dated March 15,
2006 of another union member. The membership of EREU had thus been further reduced to only 19
or 20. This same member was listed in the first Sama-Samang Sinumpaang Salaysay24 presented by
the Union but did not sign it.

The Ruling of the DOLE Regional Director

After due proceedings, the DOLE Regional Director, Region IV-A, focusing on the question of
misrepresentation, issued on April 28, 2006 an Order25 finding for Eagle Ridge, its petition to cancel
Reg. Cert. No. RO400-200512-UR-003 being granted and EREU being delisted from the roster of
legitimate labor organizations.

Aggrieved, the Union appealed to the BLR, the recourse docketed as BLR A-C-30-5-31-06 (Case
No. RO400-0602-AU-003).

The Ruling of the BLR

Initially, the BLR, then headed by an Officer-in-Charge (OIC), affirmed26 the appealed order of the
DOLE Regional Director.

Undeterred by successive set backs, EREU interposed a motion for reconsideration, contending
that:

1) Contrary to the ruling of the BLR OIC Director, a certificate of non-forum shopping is
mandatory requirement, under Department Order No. (DO) 40-03 and the Rules of Court,
non-compliance with which is a ground to dismiss a petition for cancellation of a certificate of
registration;

2) It was erroneous for both the Regional Director and the BLR OIC Director to give
credence to the retraction statements of union members which were not presented for
reaffirmation during any of the hearings of the case, contrary to the requirement for the
admission of such evidence under Sec. 11, Rule XI of DO 40-03.

In a Decision dated December 21, 2006, the BLR, now headed by Director Rebecca C. Chato, set
aside the July 28, 2006 order of the BLR OIC Director, disposing as follows:

WHEREFORE, the motion for reconsideration is hereby GRANTED and our Resolution dated 28
July 2006 is hereby VACATED. Accordingly, the Eagle Ridge Employees Union (EREU) shall remain
in the roster of legitimate organizations.

In finding for the Union, the BLR Director eschewed procedural technicalities. Nonetheless, she
found as without basis allegations of misrepresentation or fraud as ground for cancellation of
EREUs registration.

In turn aggrieved, Eagle Ridge sought but was denied reconsideration per the BLRs Resolution
dated March 7, 2007.

Eagle Ridge thereupon went to the CA on a petition for certiorari.

The Ruling of the CA

On April 27, 2007, the appellate court, in a terse two-page Resolution, 27 dismissed Eagle Ridges
petition for being deficient, as:

1. the questioned [BLR] Decision dated December 21, 2006 and the Resolution dated March
7, 2007 Resolution [appended to the petition] are mere machine copies; and

2. the verification and certification of non-forum shopping was subscribed to by Luna C.


Piezas on her representation as the legal counsel of the petitioner, but sans [the requisite]
Secretarys Certificate or Board Resolution authorizing her to execute and sign the same.

The CA later denied, in its second assailed resolution, Eagle Ridges motion for reconsideration,
albeit the latter had submitted a certificate to show that its legal counsel has been authorized, per a
board resolution, to represent the corporation.

The Issues

Eagle Ridge is now before us via this petition for certiorari on the submissions that:

I.

[THE CA] COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION AMOUNTING
TO LACK OR EXCESS OF JURISDICTION IN DISMISSING THE COMPANYS PETITION FOR
CERTIORARI AND DENYING ITS MOTION FOR RECONSIDERATION CONSIDERING THAT THE
COMPANYS PREVIOUS COUNSEL WAS AUTHORIZED TO REPRESENT THE COMPANY IN
THE PETITION FOR CERTIORARI FILED BEFORE THE [CA];

II.

IN ORDER NOT TO FURTHER PREJUDICE THE COMPANY, IT IS RESPECTFULLY SUBMITTED


THAT THIS HONORABLE COURT COULD TAKE COGNIZANCE OF THE MERITS OF THIS CASE
AND RESOLVE THAT BASED ON THE EVIDENCE ON RECORD, THERE WAS FRAUD,
MISREPRESENTATION AND/OR FALSE STATEMENT WHICH WARRANT THE CANCELLATION
OF CERTIFICATE OF REGISTRATION OF EREU.28

The Courts Ruling

We dismiss the petition.

Procedural Issue: Lack of Authority


Certiorari is an extraordinary, prerogative remedy and is never issued as a matter of
right.29 Accordingly, the party who seeks to avail of it must strictly observe the rules laid down by
law.30

Petitions for certiorari under Rule 65 of the Rules of Court require a "sworn certification of non-forum
shopping as provided in the third paragraph of Section 3, Rule 46."31 Sec. 3, paragraphs 4 and 6 of
Rule 46 pertinently provides:

SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. x x x x

xxxx

xxxx

The petitioner shall also submit together with the petition a sworn certification that he has not
theretofore commenced any action involving the same issues in the Supreme Court, the Court
of Appeals x x x, or any other tribunal or agency; if there is such other action or proceeding, he must
state the status of the same x x x.

xxxx

The failure of the petitioner to comply with any of the foregoing requirements shall be
sufficient ground for the dismissal of the petition. (Emphasis supplied.)

Evidently, the Rules requires the petitioner, not his counsel, to sign under oath the requisite
certification against non-forum shopping. Such certification is a peculiar personal representation on
the part of the principal party, an assurance to the court that there are no other pending cases
involving basically the same parties, issues, and cause of action.32

In the instant case, the sworn verification and certification of non-forum shopping in the petition for
certiorari of Eagle Ridge filed before the CA carried the signature of its counsel without the requisite
authority.

Eagle Ridge tried to address its faux pas by submitting its board secretarys Certificate33 dated May
15, 2007, attesting to the issuance on May 10, 2007 of Board Resolution No. ERGCCI 07/III-01 that
authorized its counsel of record, Atty. Luna C. Piezas, to represent it before the appellate court.

The CA, however, rejected Eagle Ridges virtual plea for the relaxation of the rules on the signing of
the verification and certification against forum shopping, observing that the board resolution adverted
to was approved after Atty. Piezas has signed and filed for Eagle Ridge the petition for certiorari.

The appellate courts assailed action is in no way tainted with grave abuse of discretion, as Eagle
Ridge would have this Court believed. Indeed, a certification of non-forum shopping signed by
counsel without the proper authorization is defective and constitutes a valid cause for dismissal of
the petition.34

The submission of the board secretarys certificate through a motion for reconsideration of the CAs
decision dismissing the petition for certiorari may be considered a substantial compliance with the
Rules of Court.35 Yet, this rule presupposes that the authorizing board resolution, the approval of
which is certified to by the secretarys certification, was passed within the reglementary period for
filing the petition. This particular situation does not, however, obtain under the premises. The records
yield the following material dates and incidents: Eagle Ridge received the May 7, 2007 resolution of
the BLR Director on March 9, 2007, thus giving it 60 days or up to May 8, 2007 to file a petition for
certiorari, as it in fact filed its petition on April 18, 2007 before the CA. The authorization for its
counsel, however, was only issued in a meeting of its board on May 10, 2007 or a couple of days
beyond the 60-day reglementary period referred to in filing a certiorari action. Thus, there was no
substantial compliance with the Rules.

As with most rules of procedure, however, exceptions are invariably recognized and the relaxation of
procedural rules on review has been effected to obviate jeopardizing substantial justice. 36 This
liberality stresses the importance of review in our judicial grievance structure to accord every party
litigant the amplest opportunity for the proper and just disposition of his cause, freed from the
constraints of technicalities.37 But concomitant to a liberal interpretation of the rules of procedure
should be an effort on the part of the party invoking liberality to adequately explain his failure to
abide by the rules.38
1avvphi1

To us, Eagle Ridge has not satisfactorily explained its failure to comply. It may be true, as Eagle
Ridge urges, that its counsels authority to represent the corporation was never questioned before
the DOLE regional office and agency. But EREUs misstep could hardly lend Eagle Ridge comfort.
And obviously, Eagle Ridge and its counsel erred in equating the latters representation as legal
counsel with the authority to sign the verification and the certificate of non-forum shopping in the
formers behalf. We note that the authority to represent a client before a court or quasi-judicial
agency does not require an authorizing board resolution, as the counsel-client relationship is
presumed by the counsels representation by the filing of a pleading on behalf of the client. In filing a
pleading, the counsel affixes his signature on it, but it is the client who must sign the verification and
the certification against forum shopping, save when a board resolution authorizes the former to sign
so.

It is entirely a different matter for the counsel to sign the verification and the certificate of non-forum
shopping. The attestation or certification in either verification or certification of non-forum shopping
requires the act of the principal party. As earlier indicated, Sec. 3 of Rule 46 exacts this requirement;
so does the first paragraph of Sec. 5 of Rule 7 pertinently reading:

SEC. 5. Certification against forum shopping. The plaintiff or principal party shall certify under
oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification
annexed thereto and simultaneously filed therewith: (a) that he has not theretofore commenced any
action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency and,
to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such
other pending action or claim, a complete statement of the present status thereof; and (c) if he
should thereafter learn that the same or similar action or claim has been filed or is pending, he shall
report that fact within five (5) days therefrom to the court wherein his aforesaid complaint or initiatory
pleading has been filed. (Emphasis added.)

It is, thus, clear that the counsel is not the proper person to sign the certification against forum
shopping. If, for any reason, the principal party cannot sign the petition, the one signing on his behalf
must have been duly authorized.39

In addition, Eagle Ridge maintains that the submitted board resolution, albeit passed after the filing
of the petition was filed, should be treated as a ratificatory medium of the counsels act of signing the
sworn certification of non-forum shopping.

We are not inclined to grant the desired liberality owing to Eagle Ridges failure to sufficiently explain
its failure to follow the clear rules.

If for the foregoing considerations alone, the Court could very well dismiss the instant petition.
Nevertheless, the Court will explore the merits of the instant case to obviate the inequity that might
result from the outright denial of the petition.

Substantive Issue: No Fraud in the Application

Eagle Ridge cites the grounds provided under Art. 239(a) and (c) of the Labor Code for its petition
for cancellation of the EREUs registration. On the other hand, the Union asserts bona
fide compliance with the registration requirements under Art. 234 of the Code, explaining the
seeming discrepancies between the number of employees who participated in the organizational
meeting and the total number of union members at the time it filed its registration, as well as the
typographical error in its certification which understated by one the number of union members who
ratified the unions constitution and by-laws.

Before their amendment by Republic Act No. 948140 on June 15, 2007, the then governing Art. 234
(on the requirements of registration of a labor union) and Art. 239 (on the grounds for cancellation of
union registration) of the Labor Code respectively provided as follows:

ART. 234. REQUIREMENTS OF REGISTRATION. Any applicant labor organization,


association or group of unions or workers shall acquire legal personality and shall be entitled to the
rights and privileges granted by law to legitimate labor organizations upon issuance of the certificate
of registration based on the following requirements:

(a) Fifty pesos (P50.00) registration fee;

(b) The names of its officers, their addresses, the principal address of the labor organization,
the minutes of the organizational meetings and the list of workers who participated in
such meetings;

(c) The names of all its members comprising at least twenty percent (20%) of all the
employees in the bargaining unit where it seeks to operate;

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(e) Four copies (4) of the constitution and by-laws of the applicant union, minutes of its
adoption or ratification and the list of the members who participated in it.41

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ART. 239. GROUNDS FOR CANCELLATION OF UNION REGISTRATION. The following shall
constitute grounds for cancellation of union registration:

(a) Misrepresentation, false statements or fraud in connection with the adoption or


ratification of the constitution and by-laws or amendments thereto, the minutes of
ratification, and the list of members who took part in the ratification;

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(c) Misrepresentation, false statements or fraud in connection with the election of


officers, minutes of the election of officers, the list of voters, or failure to submit these
documents together with the list of the newly elected/appointed officers and their postal
addresses within thirty (30) days from election.42 (Emphasis supplied.)

A scrutiny of the records fails to show any misrepresentation, false statement, or fraud committed by
EREU to merit cancellation of its registration.

First. The Union submitted the required documents attesting to the facts of the
organizational meeting on December 6, 2005, the election of its officers, and the adoption of
the Unions constitution and by-laws. It submitted before the DOLE Regional Office with its
Application for Registration and the duly filled out BLR Reg. Form No. I-LO, s. 1998, the
following documents, to wit:

(a) the minutes of its organizational meeting43 held on December 6, 2005 showing 26
founding members who elected its union officers by secret ballot;

(b) the list of rank-and-file employees44 of Eagle Ridge who attended the
organizational meeting and the election of officers with their individual signatures;

(c) the list of rank-and-file employees45 who ratified the unions constitution and by-
laws showing the very same list as those who attended the organizational meeting
and the election of officers with their individual signatures except the addition of four
employees without their signatures, i.e., Cherry Labajo, Grace Pollo, Annalyn
Poniente and Rowel Dolendo;

(d) the unions constitution and by-laws46 as approved on December 6, 2005;

(e) the list of officers47 and their addresses;

(f) the list of union members48 showing a total of 30 members; and

(g) the Sworn Statement49 of the unions elected president and secretary. All the
foregoing documents except the sworn statement of the president and the secretary
were accompanied by Certifications50 by the union secretary duly attested to by the
union president.

Second. The members of the EREU totaled 30 employees when it applied on December 19,
2005 for registration. The Union thereby complied with the mandatory minimum 20%
membership requirement under Art. 234(c). Of note is the undisputed number of 112 rank-
and-file employees in Eagle Ridge, as shown in the Sworn Statement of the Union president
and secretary and confirmed by Eagle Ridge in its petition for cancellation.

Third. The Union has sufficiently explained the discrepancy between the number of those
who attended the organizational meeting showing 26 employees and the list of union
members showing 30. The difference is due to the additional four members admitted two
days after the organizational meeting as attested to by their duly accomplished Union
Membership forms. Consequently, the total number of union members, as of December 8,
2005, was 30, which was truthfully indicated in its application for registration on December
19, 2005.

As aptly found by the BLR Director, the Union already had 30 members when it applied for
registration, for the admission of new members is neither prohibited by law nor was it
concealed in its application for registration. Eagle Ridges contention is flawed when it
equated the requirements under Art. 234(b) and (c) of the Labor Code. Par. (b) clearly
required the submission of the minutes of the organizational meetings and the list of workers
who participated in the meetings, while par. (c) merely required the list of names of all the
union members comprising at least 20% of the bargaining unit. The fact that EREU had 30
members when it applied for registration on December 19, 2005 while only 26 actually
participated in the organizational meeting is borne by the records.

Fourth. In its futile attempt to clutch at straws, Eagle Ridge assails the inclusion of the
additional four members allegedly for not complying with what it termed as "the sine qua
non requirements" for union member applications under the Unions constitution and by-
laws, specifically Sec. 2 of Art. IV. We are not persuaded. Any seeming infirmity in the
application and admission of union membership, most especially in cases of independent
labor unions, must be viewed in favor of valid membership.

The right of employees to self-organization and membership in a union must not be


trammeled by undue difficulties. In this case, when the Union said that the four employee-
applicants had been admitted as union members, it is enough to establish the fact of
admission of the four that they had duly signified such desire by accomplishing the
membership form. The fact, as pointed out by Eagle Ridge, that the Union, owing to its scant
membership, had not yet fully organized its different committees evidently shows the direct
and valid acceptance of the four employee applicants rather than deter their admissionas
erroneously asserted by Eagle Ridge.

Fifth. The difference between the number of 26 members, who ratified the Unions
constitution and by-laws, and the 25 members shown in the certification of the Union
secretary as having ratified it, is, as shown by the factual antecedents, a typographical error.
It was an insignificant mistake committed without malice or prevarication. The list of those
who attended the organizational meeting shows 26 members, as evidenced by the
signatures beside their handwritten names. Thus, the certifications understatement by one
member, while not factual, was clearly an error, but neither a misleading one nor a
misrepresentation of what had actually happened.

Sixth. In the more meaty issue of the affidavits of retraction executed by six union members,
we hold that the probative value of these affidavits cannot overcome those of the supporting
affidavits of 12 union members and their counsel as to the proceedings and the conduct of
the organizational meeting on December 6, 2005. The DOLE Regional Director and the BLR
OIC Director obviously erred in giving credence to the affidavits of retraction, but not
according the same treatment to the supporting affidavits.

The six affiants of the affidavits of retraction were not presented in a hearing before the
Hearing Officer (DOLE Regional Director), as required under the Rules Implementing Book V
of the Labor Code covering Labor Relations. Said Rules is embodied in Department Order
No. (DO) 40-03 which was issued on February 17, 2003 and took effect on March 15, 2003
to replace DO 9 of 1997. Sec. 11, Rule XI of DO 40-03 specifically requires:

Section 11. Affirmation of testimonial evidence. Any affidavit submitted by a party to


prove his/her claims or defenses shall be re-affirmed by the presentation of the
affiant before the Med-Arbiter or Hearing Officer, as the case may be. Any affidavit
submitted without the re-affirmation of the affiant during a scheduled hearing shall not
be admitted in evidence, except when the party against whom the affidavit is being offered
admits all allegations therein and waives the examination of the affiant.

It is settled that affidavits partake the nature of hearsay evidence, since they are not
generally prepared by the affiant but by another who uses his own language in writing the
affiants statement, which may thus be either omitted or misunderstood by the one writing
them.51 The above rule affirms the general requirement in adversarial proceedings for the
examination of the affiant by the party against whom the affidavit is offered. In the instant
case, it is required for affiants to re-affirm the contents of their affidavits during the hearing of
the instant case for them to be examined by the opposing party, i.e., the Union.

For their non-presentation and consonant to the above-quoted rule, the six affidavits of
retraction are inadmissible as evidence against the Union in the instant case. Moreover, the
affidavit and joint-affidavits presented by the Union before the DOLE Regional Director were
duly re-affirmed in the hearing of March 20, 2006 by the affiants. Thus, a reversible error was
committed by the DOLE Regional Director and the BLR OIC Director in giving credence to
the inadmissible affidavits of retraction presented by Eagle Ridge while not giving credence
to the duly re-affirmed affidavits presented by the Union.
Evidently, the allegations in the six affidavits of retraction have no probative value and at the
very least cannot outweigh the rebutting attestations of the duly re-affirmed affidavits
presented by the Union.

Seventh. The fact that six union members, indeed, expressed the desire to withdraw their
membership through their affidavits of retraction will not cause the cancellation of registration
on the ground of violation of Art. 234(c) of the Labor Code requiring the mandatory minimum
20% membership of rank-and-file employees in the employees union.

The six retracting union members clearly severed and withdrew their union membership. The
query is whether such separation from the Union can detrimentally affect the registration of
the Union.

We answer in the negative.

Twenty percent (20%) of 112 rank-and-file employees in Eagle Ridge would require a union
membership of at least 22 employees (112 x 205 = 22.4). When the EREU filed its
application for registration on December 19, 2005, there were clearly 30 union members.
Thus, when the certificate of registration was granted, there is no dispute that the Union
complied with the mandatory 20% membership requirement.

Besides, it cannot be argued that the six affidavits of retraction retroact to the time of the
application of registration or even way back to the organizational meeting. Prior to their
withdrawal, the six employees in question were bona fide union members. More so, they
never disputed affixing their signatures beside their handwritten names during the
organizational meetings. While they alleged that they did not know what they were signing, it
bears stressing that their affidavits of retraction were not re-affirmed during the hearings of
the instant case rendering them of little, if any, evidentiary value.

With the withdrawal of six union members, there is still compliance with the mandatory
membership requirement under Art. 234(c), for the remaining 24 union members constitute
more than the 20% membership requirement of 22 employees.

Eagle Ridge further argues that the list of union members includes a supervisory employee.
This is a factual issue which had not been raised at the first instance before the DOLE
Regional Director and cannot be appreciated in this proceeding. To be sure, Eagle Ridge
knows well who among its personnel belongs or does not belong to the supervisory group.
Obviously, its attempt to raise the issue referred to is no more than an afterthought and ought
to be rejected.

Eighth. Finally, it may not be amiss to note, given the factual antecedents of the instant
case, that Eagle Ridge has apparently resorted to filing the instant case for cancellation of
the Unions certificate of registration to bar the holding of a certification election. This can be
gleaned from the fact that the grounds it raised in its opposition to the petition for certification
election are basically the same grounds it resorted to in the instant case for cancellation of
EREUs certificate of registration. This amounts to a clear circumvention of the law and
cannot be countenanced.

For clarity, we reiterate the following undisputed antecedent facts:

(1) On December 6, 2005, the Union was organized, with 26 employees of Eagle
Ridge attending;

(2) On December 19, 2005, the Union filed its formal application for registration
indicating a total of 30 union members with the inclusion of four additional members
on December 8, 2005 (Reg. Cert. No. RO400-200512-UR-003 was eventually issued
by the DOLE RO IV-A);

(3) On January 10, 2006, the Union filed before the DOLE RO IV-A its petition for
certification election in Eagle Ridge;

(4) On February 13, 2006, Eagle Ridge filed its Position Paper opposing the petition
for certification election on essentially the same grounds it raised in the instant case;
and

(5) On February 24, 2006, Eagle Ridge filed the instant case for cancellation of the
Unions certificate of registration on essentially the same grounds it raised in its
opposition to the Unions petition for certification election.
Evidently, as the Union persuasively argues, the withdrawal of six member-employees from the
Union will affect neither the Unions registration nor its petition for certification election, as their
affidavits of retraction were executed after the Unions petition for certification election had been
filed. The initial five affidavits of retraction were executed on February 15, 2006; the sixth, on March
15, 2006. Indisputably, all six were executed way after the filing of the petition for certification
election on January 10, 2006.

In Eastland Manufacturing Company, Inc. v. Noriel,52 the Court emphasized, and reiterated its earlier
rulings,53 that "even if there were less than 30% [the required percentage of minimum membership
then] of the employees asking for a certification election, that of itself would not be a bar to
respondent Director ordering such an election provided, of course, there is no grave abuse of
discretion."54 Citing Philippine Association of Free Labor Unions v. Bureau of Labor Relations,55 the
Court emphasized that a certification election is the most appropriate procedure for the desired goal
of ascertaining which of the competing organizations should represent the employees for the
purpose of collective bargaining.56

Indeed, where the company seeks the cancellation of a unions registration during the pendency of a
petition for certification election, the same grounds invoked to cancel should not be used to bar the
certification election. A certification election is the most expeditious and fairest mode of ascertaining
the will of a collective bargaining unit as to its choice of its exclusive representative. 57 It is the fairest
and most effective way of determining which labor organization can truly represent the working
force. It is a fundamental postulate that the will of the majority, if given expression in an honest
election with freedom on the part of the voters to make their choice, is controlling. 58

The Court ends this disposition by reproducing the following apt excepts from its holding in S.S.
Ventures International, Inc. v. S.S. Ventures Labor Union (SSVLU) on the effect of the withdrawal
from union membership right before or after the filing of a petition for certification election:

We are not persuaded. As aptly noted by both the BLR and CA, these mostly undated written
statements submitted by Ventures on March 20, 2001, or seven months after it filed its petition for
cancellation of registration, partake of the nature of withdrawal of union membership executed after
the Unions filing of a petition for certification election on March 21, 2000. We have in precedent
cases said that the employees withdrawal from a labor union made before the filing of the
petition for certification election is presumed voluntary, while withdrawal after the filing of
such petition is considered to be involuntary and does not affect the same. Now then, if
a withdrawal from union membership done after a petition for certification election has been
filed does not vitiate such petition, is it not but logical to assume that such withdrawal cannot
work to nullify the registration of the union? Upon this light, the Court is inclined to agree with the
CA that the BLR did not abuse its discretion nor gravely err when it concluded that the affidavits of
retraction of the 82 members had no evidentiary weight. 59 (Emphasis supplied.)

WHEREFORE, premises considered, we DISMISS the instant petition for lack of merit.

Costs against petitioner.

SO ORDERED.