1.) [G.R. No. 155421. July 7, 2004]
99-52, the following branch employees are
ELMER M. MENDOZA, petitioner, vs. RURAL BANK OF
LUCBAN, respondent.
DECISION
PANGANIBAN, J.:
The law protects both the welfare of employees and the prerogatives of
management. Courts will not interfere with business judgments of employers,
provided they do not violate the law, collective bargaining agreements, and
general principles of fair play and justice. The transfer of personnel from one
area of operation to another is inherently a managerial prerogative that shall
be upheld if exercised in good faith -- for the purpose of advancing business
interests, not of defeating or circumventing the rights of employees.
The Case
The Court applies these principles in resolving the instant Petition for
Review[1] under Rule 45 of the Rules of Court, assailing the June 14, 2002
Decision[2] and September 25, 2002 Resolution[3] of the Court of Appeals
(CA) in CA-GR SP No. 68030. The assailed Decision disposed as follows:
WHEREFORE, the petition for certiorari is hereby DISMISSED for lack of
merit.[4]
The challenged Resolution denied petitioners Motion for Reconsideration.
The Facts
On April 25, 1999, the Board of Directors of the Rural Bank of Lucban, Inc.,
issued Board Resolution Nos. 99-52 and 99-53, which read:
Board Res. No. 99-52
RESOLVED AS IT IS HEREBY RESOLVED that in line with the policy of
the bank to familiarize bank employees with the various phases of bank
operations and further strengthen the existing internal control system[,] all
officers and employees are subject to reshuffle of assignments. Moreover,
this resolution does not preclude the transfer of assignment of bank officers
and employees from the branch office to the head office and vice-versa.
Board Res. No. 95-53
Pursuant to Resolution No.
hereby reshuffled to their new assignments without changes in their
compensation and other benefits.
NAME OF EMPLOYEES PRESENT ASSIGNMENT NEW ASSIGNMENT
JOYCE V. ZETA Bank Teller C/A Teller
CLODUALDO ZAGALA C/A Clerk Actg. Appraiser
ELMER L. MENDOZA Appraiser Clerk-Meralco Collection
CHONA R. MENDOZA Clerk-Meralco Bank Teller[5]
Collection
In a letter dated April 30, 1999, Alejo B. Daya, the banks board chairman,
directed Briccio V. Cada, the manager of the banks Tayabas branch, to
implement the reshuffle.[6] The new assignments were to be effective on May
1, 1999 without changes in salary, allowances, and other benefits received by
the aforementioned employees.[7]
On May 3, 1999, in an undated letter addressed to Daya, Petitioner
Elmer Mendoza expressed his opinion on the reshuffle, as follows:
RE: The recent reshuffle of employees as per
Board Resolution dated April 25, 1999
Dear Sir:
This is in connection with the aforementioned subject matter and which the
undersigned received on April 25, 1999.
Needless to state, the reshuffling of the undersigned from the present position
as Appraiser to Clerk-Meralco Collection is deemed to be a demotion without
any legal basis. Before this action on your part[,] the undersigned has been
besieged by intrigues due to [the] malicious machination of a certain public
official who is bruited to be your good friend. These malicious insinuations
were baseless and despite the fact that I have been on my job as Appraiser for
the past six (6) years in good standing and never involved in any anomalous
conduct, my being reshuffled to [C]lerk-[M]eralco [C]ollection is a blatant
harassment on your part as a prelude to my termination in due time. This will
constitute an unfair labor practice.
1
Meanwhile, may I beseech your good office that I may remain in my position
as Appraiser until the reason [for] my being reshuffled is made clear.
Your kind consideration on this request will be highly appreciated. [8]
On May 10, 1999, Daya replied:
Dear Mr. Mendoza,
Anent your undated letter expressing your resentment/comments on the
recent managements decision to reshuffle the duties of bank employees,
please be informed that it was never the intention (of management) to
downgrade your position in the bank considering that your due compensation
as Bank Appraiser is maintained and no future reduction was intended.
Aside from giving bank employees a wider experience in various banking
operations, the reshuffle will also afford management an effective tool in
providing the bank a sound internal control system/check and balance and a
basis in evaluating the performance of each employee. A continuing
bankwide reshuffle of employees shall be made at the discretion of
management which may include bank officers, if necessary as expressed in
Board Resolution No. 99-53, dated April 25, 1999. Management merely
shifted the duties of employees, their position title [may be] retained if
requested formally.
Being a standard procedure in maintaining an effective internal control
system recommended by the Bangko Sentral ng Pilipinas, we believe that the
conduct of reshuffle is also a prerogative of bank management. [9]
On June 7, 1999, petitioner submitted to the banks Tayabas branch manager a
letter in which he applied for a leave of absence from work:
Dear Sir:
I wish I could continue working but due to the ailment that I always feel
every now and then, I have the honor to apply for at least ten (10) days sick
leave effective June 7, 1999.
Hoping that this request [merits] your favorable and kind consideration and
understanding.[10]
On June 21, 1999, petitioner again submitted a letter asking for another leave
of absence for twenty days effective on the same date. [11]
On June 24, 1999, while on his second leave of absence, petitioner filed a
Complaint before Arbitration Branch No. IV of the National Labor Relations
Commission (NLRC). The Complaint -- for illegal dismissal, underpayment,
separation pay and damages -- was filed against the Rural Bank of Lucban
and/or its president, Alejo B. Daya; and its Tayabas branch manager, Briccio
V. Cada. The case was docketed as NLRC Case SRAB-IV-6-5862-99-Q. [12]
The labor arbiters June 14, 2000 Decision upheld petitioners claims as
follows:
WHEREFORE, premises considered, judgment is hereby rendered as
follows:
1. Declaring respondents guilty of illegal dismissal.
2. Ordering respondents to reinstate complainant to his former position
without loss of seniority rights with full backwages from date of dismissal to
actual reinstatement in the amount of P55,000.00 as of June 30, 2000.
3. Ordering the payment of separation pay if reinstatement is not possible in
the amount of P30,000.00 in addition to 13th month pay of P5,000.00 and the
usual P10,000.00 annual bonus afforded the employees.
4. Ordering the payment of unpaid salary for the period covering July 1-30,
1999 in the amount of P5,000.00
5. Ordering the payment of moral damages in the amount of P50,000.00.
6. Ordering the payment of exemplary damages in the amount of P25,000.00
7. Ordering the payment of Attorneys fees in the amount of P18,000.00
which is 10% of the monetary award.[13]
On appeal, the NLRC reversed the labor arbiter. [14] In its July 18, 2001
Resolution, it held:
We can conceive of no reason to ascribe bad faith or malice to the respondent
bank for its implementation of its Board Resolution directing the reshuffle of
employees at its Tayabas branch to positions other than those they were
occupying. While at first the employees thereby affected would experience
difficulty in adjusting to their new jobs, it cannot be gainsaid that the
objective for the reshuffle is noble, as not only would the employees obtain
additional knowledge, they would also be more well-rounded in the
2
operations of the bank and thus help the latter further strengthen its already
existing internal control system.
The only inconvenience, as [w]e see it, that the [petitioner] may have
experienced is that from an appraiser he was made to perform the work of a
clerk in the collection of Meralco payments, which he may have considered
as beneath him and his experience, being a pioneer employee. But it cannot
be discounted either that other employees at the Tayabas branch were
similarly reshuffled. The only logical conclusion therefore is that the Board
Resolution was not aimed solely at the [petitioner], but for all the other
employees of the x x x bank as well. Besides, the complainant has not shown
by clear, competent and convincing evidence that he holds a vested right to
the position of Appraiser. x x x.
How and by what manner a business concern conducts its affairs is not for
this Commission to interfere with, especially so if there is no showing, as in
the case at bar, that the reshuffle was motivated by bad faith or ill-will. x x x.
[15]
After the NLRC denied his Motion for Reconsideration, [16] petitioner brought
before the CA a Petition for Certiorari[17] assailing the foregoing Resolution.
Ruling of the Court of Appeals
Finding that no grave abuse of discretion could be attributed to the NLRC,
the CA Decision ruled thus:
The so-called harassment which Mendoza allegedly experienced in the
aftermath of the reshuffling of employees at the bank is but a figment of his
imagination as there is no evidence extant on record which substantiates the
same.His alleged demotion, the cold shoulder stance, the things about his
chair and table, and the alleged reason for the harassment are but allegations
bereft of proof and are perforce inadmissible as self-serving statements and
can never be considered repositories of truth nor serve as foundations of
court decisions anent the resolution of the litigants rights.
When Mendoza was reshuffled to the position of clerk at the bank, he was
not demoted as there was no [diminution] of his salary benefits and rank. He
could even retain his position title, had he only requested for it pursuant to
the reply of the Chairman of the banks board of directors to Mendozas letter
protesting the reshuffle. There is, therefore, no cause to doubt the reasons
which the bank propounded in support of its move to reshuffle its employees,
viz:
1. to familiarize bank employees with the various phases of bank operations,
and
2. to further strengthen the existing internal control system of the bank.
The reshuffling of its employees was done in good faith and cannot be made
the basis of a finding of constructive dismissal.
The fact that Mendoza was no longer included in the banks payroll for July 1
to 15, 1999 does not signify that the bank has dismissed the former from its
employ. Mendoza separated himself from the banks employ when, on June
24, 1999, while on leave, he filed the illegal dismissal case against his
employer for no apparent reason at all.[18]
Hence, this Petition.[19]
The Issues
Petitioner raises the following issues for our consideration:
I. Whether or not the petitioner is deemed to have voluntarily separated
himself from the service and/or abandoned his job when he filed his
Complaint for constructive and consequently illegal dismissal;
II. Whether or not the reshuffling of private respondent[s] employees was
done in good faith and cannot be made as the basis of a finding of
constructive dismissal, even as the [petitioners] demotion in rank is admitted
by both parties;
III. Whether or not the ruling in the landmark case of Ruben Serrano vs.
NLRC [and Isetann Department Store (323 SCRA 445)] is applicable to the
case at bar;
IV. Whether or not the Court of Appeals erred in dismissing the petitioners
money claims, damages, and unpaid salaries for the period July 1-30, 1999,
although this was not disputed by the private respondent; and
V. Whether or not the entire proceedings before the Honorable Court of
Appeals and the NLRC are a nullity since the appeal filed by private
respondent before the NLRC on August 5, 2000 was on the 15th day or five
(5) days beyond the reglem[e]ntary period of ten (10) days as provided for by
law and the NLRC Rules of Procedure.[20]
In short, the main issue is whether petitioner was constructively dismissed
from his employment.
3
The Courts Ruling
The Petition has no merit.
Main Issue:
Constructive Dismissal
Constructive dismissal is defined as an involuntary resignation resorted to
when continued employment is rendered impossible, unreasonable or
unlikely; when there is a demotion in rank or a diminution of pay; or when a
clear discrimination, insensibility or disdain by an employer becomes
unbearable to the employee.[21] Petitioner argues that he was compelled to file
an action for constructive dismissal, because he had been demoted from
appraiser to clerk and not given any work to do, while his table had been
placed near the toilet and eventually removed.[22] He adds that the reshuffling
of employees was done in bad faith, because it was designed primarily to
force him to resign.[23]
Management Prerogative
to Transfer Employees
Jurisprudence recognizes the exercise of management prerogatives. For this
reason, courts often decline to interfere in legitimate business decisions of
employers.[24] Indeed, labor laws discourage interference in employers
judgments concerning the conduct of their business. [25] The law must protect
not only the welfare of employees, but also the right of employers.
In the pursuit of its legitimate business interest, management has the
prerogative to transfer or assign employees from one office or area of
operation to another -- provided there is no demotion in rank or diminution of
salary, benefits, and other privileges; and the action is not motivated by
discrimination, made in bad faith, or effected as a form of punishment or
demotion without sufficient cause.[26] This privilege is inherent in the right of
employers to control and manage their enterprise effectively. [27] The right of
employees to security of tenure does not give them vested rights to their
positions to the extent of depriving management of its prerogative to change
their assignments or to transfer them.[28]
Managerial prerogatives, however, are subject to limitations provided by law,
collective bargaining agreements, and general principles of fair play and
justice.[29] The test for determining the validity of the transfer of employees
was explained in Blue Dairy Corporation v. NLRC[30] as follows:
[L]ike other rights, there are limits thereto. The managerial prerogative to
transfer personnel must be exercised without grave abuse of discretion,
bearing in mind the basic elements of justice and fair play. Having the right
should not be confused with the manner in which that right is
exercised. Thus, it cannot be used as a subterfuge by the employer to rid
himself of an undesirable worker. In particular, the employer must be able to
show that the transfer is not unreasonable, inconvenient or prejudicial to the
employee; nor does it involve a demotion in rank or a diminution of his
salaries, privileges and other benefits. Should the employer fail to overcome
this burden of proof, the employees transfer shall be tantamount to
constructive dismissal, which has been defined as a quitting because
continued employment is rendered impossible, unreasonable or unlikely; as
an offer involving a demotion in rank and diminution in pay. Likewise,
constructive dismissal exists when an act of clear discrimination,
insensibility or disdain by an employer has become so unbearable to the
employee leaving him with no option but to forego with his continued
employment.[31]
Petitioners Transfer Lawful
The employer bears the burden of proving that the transfer of the employee
has complied with the foregoing test. In the instant case, we find no reason to
disturb the conclusion of the NLRC and the CA that there was no
constructive dismissal. Their finding is supported by substantial evidence --
that amount of relevant evidence that a reasonable mind might accept as
justification for a conclusion.[32]
Petitioners transfer was made in pursuit of respondents policy to familiarize
bank employees with the various phases of bank operations and further
strengthen the existing internal control system [33] of all officers and
employees. We have previously held that employees may be transferred --
based on their qualifications, aptitudes and competencies -- to positions in
which they can function with maximum benefit to the company.[34] There
appears no justification for denying an employer the right to transfer
employees to expand their competence and maximize their full potential for
the advancement of the establishment. Petitioner was not singled out; other
employees were also reassigned without their express consent.
Neither was there any demotion in the rank of petitioner; or any diminution
of his salary, privileges and other benefits. This fact is clear in respondents
Board Resolutions, the April 30, 1999 letter of Bank President Daya to
Branch Manager Cada, and the May 10, 1999 letter of Daya to petitioner.
4
On the other hand, petitioner has offered no sufficient proof to support his
allegations. Given no credence by both lower tribunals was his bare and self-
serving statement that he had been positioned near the comfort room, made
to work without a table, and given no work assignment.[35] Purely conjectural
is his claim that the reshuffle of personnel was a harassment in retaliation for
an alleged falsification case filed by his relatives against a public official.
[36]
While the rules of evidence prevailing in courts of law are not controlling
in proceedings before the NLRC,[37] parties must nonetheless submit evidence
to support their contentions.

Secondary Issues:

Serrano v. NLRC Inapplicable

Serrano v. NLRC[38] does not apply to the present factual milieu. The Court
ruled therein that the lack of notice and hearing made the dismissal of the
employee ineffectual, but not necessarily illegal. [39] Thus, the procedural
infirmity was remedied by ordering payment of his full back wages from the
time of his dismissal.[40] The absence of constructive dismissal in the instant
case precludes the application of Serrano.Because herein petitioner was not
dismissed, then he is not entitled to his claimed monetary benefits.

Alleged Nullity of NLRC

and CA Proceedings

Petitioner argues that the proceedings before the NLRC and the CA were
void, since respondents appeal before the NLRC had allegedly been filed
beyond the reglementary period.[41] A careful scrutiny of his Petition for
Review[42] with the appellate court shows that this issue was not raised
there. Inasmuch as the instant Petition challenges the Decision of the CA, we
cannot rule on arguments that were not brought before it. This ruling is
consistent with the due-process requirement that no question shall be
entertained on appeal, unless it has been raised in the court below. [43]

WHEREFORE, this Petition is DENIED, and the June 14, 2002 Decision
and the September 25, 2002 Resolution of the Court of Appeals
are AFFIRMED. Costs against petitioner.

SO ORDERED.

5
2.) THIRD DIVISION
SHIE JIE CORPORATION/SEASTAR EX-IM
CORP., BIEN YANG, MICHAEL YANG and
SAMMY YANG,
Petitioners,
- versus -
NATIONAL FEDERATION OF LABOR,
MEMBERS ARNOLD FRANCISCO, NIDA
TORIBIO, SORRAYA AMPING, YOLANDA
LORENZO, VIVIAN MENDOZA, MERYLENE
DELOS REYES, MANUEL FRANCISCO,
WILFREDO TORIBIO, YASHER TANING and
ERNESTO ETRATA,
Respondents.
DECISION
Etrata, respondents, against Shie Jie Corporation/Seastar Ex-Im Corporation,
Bien Yang, Michael Yang and Sammy Yang, petitioners, docketed as NLRC
G.R. No. 153148 Case No. RAB-09-03-00105-99.
Respondents, in their complaint, alleged that they were employed as fish
processors by petitioners.[3] On July 20, 1998, Sammy Yang and Michael
Yang, petitioners, confronted them about their union activities. Immediately,
Present: they were ordered to go home. The next day, petitioners suspended them for
one week effective July 22 to 28, 1998 (except respondent Wilfredo
PANGANIBAN, J., Chairman,Toribio[4]). Upon their return, they were served with a notice of petitioners
SANDOVAL-GUTIERREZ, memorandum terminating their services for abandonment of work.
CORONA,
CARPIO MORALES, and Petitioners, in their answer, denied respondents allegations. They claimed
GARCIA, JJ. that on July 20, 1998, about 2:45 oclock in the afternoon, 13 rank-and-file
employees staged a walk-out and abandoned their work. Among them were
respondents Wilfredo Toribio, Nida Toribio, Yolanda Lorenzo, Sorraya
Amping, Vivian Mendoza, Merylene Delos Reyes, Arnold Francisco, and
Manuel Francisco. As a consequence, petitioners business operations were
interrupted and paralyzed, prompting them to issue a memorandum
Promulgated: suspending respondents for one week or from July 22 to 28, 1998. However,
on July 24, 1998, petitioners, in another memorandum, directed them to
report for work on July 27, 1998. Instead, respondents Ernesto Etrata,
July 15, 2005 Sorraya Amping, Yasher Taning, Yolanda Lorenzo, Merylene Delos Reyes,
and Wilfredo Toribio submitted their resignation letters and quitclaims.
Subsequently or on July 28, 1998, petitioners sent respondents Arnold
Francisco, Nida Toribio, Vivian Mendoza, and Manuel Francisco a notice
terminating their services for abandonment of work.

On August 20, 1999, the Labor Arbiter rendered a Decision finding

SANDOVAL-GUTIERREZ, J.:
At bar is a petition for review on certiorari under Rule 45 of the 1997 Rules
of Civil Procedure, as amended, assailing the Decision [1] dated November 29,
2001 and Resolution[2] dated April 9, 2002 rendered by the Court of Appeals
in CA-G.R. SP No. 61322.
The instant controversy stemmed from a complaint for unfair labor practice,
illegal dismissal and non-payment of benefits, damages and attorneys fees
filed with the Labor Arbiter, Regional Branch No. IX, Zamboanga City by
the National Federation of Labor, Arnold Francisco, Nida Toribio, Sorraya
Amping, Yolanda Lorenzo, Vivian Mendoza, Merylene Delos Reyes, Manuel
Francisco, Wilfredo Toribio, Yasher Taning and Ernesto
respondents guilty of unfair labor practice (for dismissing petitioners
illegally); and ordering them, jointly and severally, to pay
petitioners P843,960.62, thus:
WHEREFORE, in view of the foregoing considerations, judgment is hereby
rendered in the above-entitled case:
1. Declaring Shie Jie Corporation/Seastar Ex-Im Corporation, Michael Yang
and Sammy Yang to have committed unfair labor practice against the
complainants for violating the latters constitutional rights to self-
organization;
6

2. Declaring that complainants Ernesto Etrata, Nida Toribio, Sorraya
Amping, Yolanda Lorenzo, Vivian Mendoza, Merylene delos Reyes, Manuel
Francisco, Wilfredo Toribio, Yasher Taning and Arnold Francisco were
illegally dismissed by the respondents;
3. Ordering Shie Jie Corporation and/or Seastar Ex-Im Corporation to jointly
and severally pay the complainants the claims and awards listed and
specified in Annex A forming an integral part hereof, in the total amount of
Eight Hundred Forty Three Thousand Nine Hundred Sixty & 62/100 Pesos
(P843,960.62), Philippine currency; and
4. Dismissing the claims for rest day pay and unpaid waiting time, for lack of
merit.
SO ORDERED.
On appeal, the National Labor Relations Commission (NLRC) promulgated
its Decision dated April 27, 2000 reversing the Labor Arbiters Decision and
dismissing respondents complaint.
Respondents then filed a motion for reconsideration but was denied by the
NLRC in a Resolution dated June 29, 2000. Hence, they filed with the Court
of Appeals a petition for certiorari.
On November 29, 2001, the Appellate Court rendered a Decision reversing
and setting aside the NLRCs Decision and reinstating the Labor Arbiters
Decision, thus:
In resolving this issue we find for the petitioners.
When there is no showing of a clear valid and legal cause for the termination
of employment, the law considers the matter a case of illegal dismissal and
the burden is on the employer to prove that the termination was for a valid or
authorized cause. This burden of proof appropriately lies on the shoulders of
the employers and not on the employee because a workers job has some of
the characteristics of property rights and is therefore within the constitutional
mantle of protection. No person shall be deprived of life, liberty or property
without due process of law, nor shall any person be denied the equal
protection of the laws (Quebec, Sr. vs. NLRC, 301 SCRA 627, 633-634).
Aporopos thereto, Art. 277, par. (b) of the Labor Code mandates in explicit
terms that the burden of proving the validity of the termination of
employment rests on the employer. Failure to discharge this evidential
burden would necessarily mean that the dismissal was not justified, and,
therefore, illegal (Ibid.).
In this regard, the private respondents failed.
To our mind, the alleged resignation of the said six petitioners is incredible.
To constitute a resignation, it must be unconditional and with the intent to
operate as such. There must be an intention to relinquish a portion of the term
of office accompanied by an act of relinquishment (Azcor Manufacturing,
Inc. vs. NLRC, 303 SCRA 26, 33). In the instant case, the questioned
resignation letters were dated July 27, 1998. If indeed they resigned on the
said date then how come 17 days later or on August 13, 1998 they filed their
complaints against the private respondents? The same is therefore illogical
and contrary to human experience. The filing of the complaints and thereafter
their active pursuance of their cases for illegal dismissal negate any intention
on their part to relinquish their job with private respondent Shie Jie
Corporation/Seastar Corporation
The fact that the resignation letters were fully written by the six petitioners
themselves (Annex A to Comment in Respondents Position Paper, Id. at p.
93) is of no moment. Having introduced those resignation letters in evidence,
it was incumbent upon the private respondents to prove clearly and
convincingly their genuineness and due execution (Azcor Manufacturing,
Inc. vs. NLRC, 303 SCRA 26, 34). (Emphasis ours). This, they failed to do.
The fact that the subject resignation letters were all exactly worded lead us to
conclude that indeed the said petitioners merely copied the same and that
they only accomplished said letters for fear that they would not be
regularized in their jobs.
7
Regarding the four petitioners who were dismissed for abandonment, we rule
that they were likewise illegally dismissed.
In the instant case, the intent to abandon was not convincingly shown. It is
unlikely that the said petitioners abandoned their jobs considering that they
have worked with the private respondent company for 4-6 years with the
exception of petitioner Arnold Francisco, who started to work with the
company only in November 1997.
Moreover, well-settled is the rule that the filing of the complaint for illegal
dismissal negates the fact that an employee abandoned his work for it is
illogical for one to abandon his employment and then thereafter file a
complaint for illegal dismissal. The petitioners in immediately filing the
complaints for illegal dismissal clearly indicated that they have not given up
their work.
Furthermore, it must be stressed that abandonment of work does not per
se severe the employer-employee relationship. It is merely a form of neglect
of duty, which is in turn a just cause for termination of employment. The
operative act that will ultimately put an end to this relationship is the
dismissal of the employee after complying with the procedure prescribed by
law. If the employer does not follow this procedure, there is illegal dismissal
(De Paul/King Philip Customs Tailor vs. NLRC, 304 SCRA 448, 458-459). If
indeed they abandoned their work, then the private respondents should have
served the notices dated July 28, 1998 (Annexes C, D, E, and F to the
Position Paper of the Respondents, pp. 71-74) to the last known addresses of
the petitioners in accordance with the rules.
WHEREFORE, the decision of the public respondent is hereby REVERSED
and SET ASIDE. The decision of the labor arbiter is REINSTATED with the
following modifications:
1. The petitioners are entitled to the payment of full backwages; 13 th month
pay and service incentive leave subject to statutory limitations; and
2. Petitioner Wilfredo Toribios monetary claim should be corrected.
SO ORDERED.
On December 21, 2001, petitioners filed a motion for reconsideration, but
was denied by the Appellate Court in a Resolution dated April 9, 2002.
Hence, this petition for review on certiorari.
In this petition, the basic issue posed is whether the Court of Appeals erred in
holding that petitioners failed to prove by substantial evidence that
respondents voluntarily resigned and/or abandoned their work.
Voluntary resignation is defined as the act of an employee, who finds himself
in a situation in which he believes that personal reasons cannot be sacrificed
in favor of the exigency of the service; thus, he has no other choice but to
disassociate himself from his employment.[5] Acceptance of a resignation
tendered by an employee is necessary to make the resignation effective. [6] No
such acceptance, however, was shown in the instant case.
Moreover, the fact that respondents immediately filed a complaint for illegal
dismissal against petitioners and repudiated their alleged resignation
completely negated petitioners claim that they voluntarily resigned.
In Molave Tours Corporation vs. National Labor Relations Commission,
[7]
we held:
By vigorously pursuing the litigation of his action against petitioner, private
respondent clearly manifested that he has no intention of relinquishing his
employment, which act is wholly incompatible to petitioners assertion that he
voluntarily resigned.
Neither do we find any indication that respondents have shown by some
overt acts their intention to sever their employment in petitioner company.
In Samarca vs. Arc-Men Industries, Inc.,[8] we ruled:
x x x. Absence must be accompanied by overt acts unerringly pointing to the
fact that the employee simply does not want to work anymore. And the
burden of proof to show that there was unjustified refusal to go back to work
rests on the employer.
8
Abandonment is a matter of intention and cannot lightly be presumed from
certain equivocal acts. To constitute abandonment, there must be clear proof
of deliberate and unjustified intent to sever the employer-employee
relationship. Clearly, the operative act is still the employees ultimate act
of putting an end to his employment.

Settled is the rule that mere absence or failure to report for work is not
tantamount to abandonment of work. x x x.

In this case, respondents did not report back for work on July 27, 1998
because they were suspended by petitioners for one week effective July 22 to
28, 1998. Verily, their absence cannot be considered abandonment of work, a
just cause for termination of employment.

In fine, considering that respondents did not abandon their work, their
dismissal from the service is illegal.

WHEREFORE, the petition is DENIED. The assailed Decision dated

November 29, 2001 and Resolution dated April 9, 2002 of the Court of
Appeals in CA-G.R. SP No. 61322 are hereby AFFIRMED. Costs against
petitioners.

SO ORDERED.

9
3.) FIRST DIVISION As thoroughly told by the Court of Appeals and the Labor Arbiter, the
particulars are beyond dispute:
POSEIDON FISHING/TERRY G.R. No. 168052
DE JESUS, Petitioner Poseidon Fishing is a fishing company engaged in the deep-sea
Petitioners, fishing industry. Its various vessels catch fish in the outlying islands of
Present: the Philippines, which are traded and sold at the Navotas Fish Port. One of its
PANGANIBAN, C.J boat crew was private respondent Jimmy S. Estoquia.[3] Petitioner Terry de
Chairperson, Jesus is the manager of petitioner company.
YNARES-SANTIAGO,
- versus - AUSTRIA-MARTINEZ, Private respondent was employed by Poseidon Fishing in January 1988 as
CALLEJO, SR.,* and Chief Mate. After five years, he was promoted to Boat Captain. In 1999,
CHICO-NAZARIO, petitioners, without reason, demoted respondent from Boat Captain to Radio
Operator of petitioner Poseidon.[4] As a Radio Operator, he monitored the
daily activities in their office and recorded in the duty logbook the names of
NATIONAL LABOR RELATIONS Promulgated: the callers and time of their calls.[5]
COMMISSION AND JIMMY S. ESTOQUIA,
Respondents. February 20, 2006 On 3 July 2000, private respondent failed to record a 7:25 a.m. call in one of
the logbooks. However, he was able to record the same in the other
logbook. Consequently, when he reviewed the two logbooks, he noticed that
DECISION he was not able to record the said call in one of the logbooks so he
immediately recorded the 7:25 a.m. call after the 7:30 a.m. entry.[6]

CHICO-NAZARIO, J.:
Article 280 of the Labor Code, in its truest sense, distinguishes between
regular and casual employees to protect the interests of labor. Its language
evidently manifests the intent to safeguard the tenurial interest of the worker
who may be denied the rights and benefits due a regular employee by virtue
of lopsided agreements with the economically powerful employer who
can maneuver to keep an employee on a casual status for as long as
convenient.[1]
Around 9:00 oclock in the morning of 4 July 2000, petitioner Terry de Jesus
detected the error in the entry in the logbook. Subsequently, she asked private
respondent to prepare an incident report to explain the reason for the said
oversight.[7]
At around 2:00 oclock in the afternoon of that same day, petitioner Poseidons
secretary, namely Nenita Laderas, summoned private respondent to get his
separation pay amounting to Fifty-Five Thousand Pesos
(P55,000.00). However, he refused to accept the amount as he believed that
he did nothing illegal to warrant his immediate discharge from work. [8]

This petition assails the Decision[2] of the Court of Appeals dated 14 March
2005 in CA-G.R. SP No. 81140 entitled, Poseidon Fishing/Terry De Jesus v.
National Labor Relations Commission and Jimmy S. Estoquia which
affirmed that of the National Labor Relations Commission (NLRC). The
NLRC had affirmed with modification the Decision dated 5 December 2000
of Labor Arbiter Melquiades Sol D. Del Rosario in NLRC-NCR Case No.
00-07-03625-00, declaring private respondent to have been illegally
dismissed and entitled to backwages and separation pay.
Rising to the occasion, private respondent filed a complaint for illegal
dismissal on 11 July 2000 with the Labor Arbiter, alleging nonpayment of
wages with prayer for back wages, damages, attorneys fees, and other
monetary benefits.
In private respondents position paper, he averred that petitioner Poseidon
employed him as a Chief Mate sometime in January 1988. He claimed that
he was promoted to the position of Boat Captain five years after. However, in
1999, he was demoted from Boat Captain to Radio Operator without any

10
reason and shortly, he was terminated without just cause and without due
process of law.
Conversely, petitioners Poseidon and Terry de Jesus strongly asserted that
private respondent was a contractual or a casual employee whose services
could be terminated at the end of the contract even without a just or
authorized cause in view of Article 280 of the Labor Code, which provides:
Art. 280. Regular and Casual Employment. The provisions of written
agreement to the contrary notwithstanding and regardless of the oral
agreement of the parties, an employment shall be deemed to be regular where
the employee has been engaged to perform activities which are usually
necessary or desirable in the usual business or trade of the employer, except
where the employment has been fixed for a specific project or undertaking
the completion or termination of which has been determined at the time of
the engagement of the employee or where the work or services to be
performed is seasonal in nature and the employment is for the duration of the
season.
An employment shall be deemed to be casual if it is not covered by the
preceding paragraph: Provided, That any employee who has rendered at least
one year of service, whether such service is continuous or broken, shall be
considered a regular employee with respect to the activity in which he is
employed and his employment shall continue while such actually exists.
(Emphasis supplied.)
Petitioners further posited that when the private respondent was engaged, it
was made clear to him that he was being employed only on a por viaje or per
trip basis and that his employment would be terminated at the end of the trip
for which he was being hired. As such, the private respondent could not be
entitled to separation pay and other monetary claims.
On 5 December 2000, following the termination of the hearing of the case,
the Labor Arbiter decided in favor of private respondent. The Labor Arbiter
held that even if the private respondent was a casual employee, he became a
regular employee after a period of one year and, thereafter, had
attained tenurial security which could only be lost due to a legal cause after
observing due process. The dispositive portion of the Decision reads:
CONFORMABLY WITH THE FOREGOING, judgment is hereby rendered
finding complainant to have been illegally dismissed and so must
immediately be reinstated to his former position as radio operator and paid
by respondent[s] in solidum his backwages which as of December 3, 2000
had already accumulated in the sum of P35,880.00 plus his unpaid one (1)
week salary in the sum of P1,794.00.
Respondents are further ordered to pay attorneys fees in a sum equivalent to
10% of the awarded claims.[9]
Consequently, the petitioners filed their Memorandum of Appeal with the
NLRC for the reversal of the aforesaid decision. On 24 September 2002, the
NLRC affirmed the decision of the Labor Arbiter with the
modification, inter alia, that: (a) the private respondent would be paid his
separation pay equivalent to one-half of his monthly pay for every year of
service that he has rendered in lieu of reinstatement; and (b) an amount
equivalent to six months salary should be deducted from his
full backwages because it was his negligence in the performance of his work
that brought about his termination. It held:
WHEREFORE, the decision is modified as follows:
1. The amount equivalent to six (6) months salary is to be
deducted from the total award of backwages;
2. The respondent is ordered to pay complainant separation pay
equivalent to one-half (1/2) month pay for every year of service counted
from 1998; x x x
3. The respondent is ordered to pay complainants unpaid wages in
the amount of P1,794.00; and
4. Respondent is ordered to pay attorneys fees in a sum equivalent
to ten percent (10%) of the awarded claims. [10]
Petitioners moved for the reconsideration of the NLRC decision, but were
denied in a Resolution dated 29 August 2003.
Petitioners filed a Petition for Certiorari with the Court of Appeals, imputing
grave abuse of discretion, but the Court of Appeals found none. The
following is the fallo of the decision:
WHEREFORE, the foregoing premises considered, the instant petition is
hereby DENIED.[11]
11
In a last attempt at vindication, petitioners filed the present petition for
review with the following assignment of errors:
I.
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
THE RESPONDENT WAS A REGULAR EMPLOYEE WHEN IN TRUTH
HE WAS A CONTRACTUAL/PROJECT/SEASONAL EMPLOYEE.
II.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
THE RESPONDENT WAS ILLEGALLY DISMISSED FROM
EMPLOYMENT.
III.
THE HONORABLE COURT OF APPEALS ERRED IN NOT
CONSIDERING THE RESPONDENT A SEASONAL EMPLOYEE AND
APPLYING THE RULING IN RJL MARTINEZ FISHING
CORPORATION vs. NLRC THAT THE ACTIVITY OF FISHING IS A
CONTINUOUS PROCESS AND COULD HARDLY BE CONSIDERED AS
SEASONAL IN NATURE.
IV.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
THE RESPONDENT IS ENTITLED TO BACKWAGES, SEPARATION
PAY, ATTORNEYS FEES AND OTHER MONETARY BENEFITS.
V.
THE HONORABLE COURT OF APPEALS ERRED IN NOT RESOLVING
THE PRAYER FOR THE ISSUANCE OF PRELIMINARY INJUNCTION
AND/OR TEMPORARY RESTRAINING ORDER.[12]
The fundamental issue entails the determination of the nature of the
contractual relationship between petitioners and private
respondent, i.e., was private respondent a regular employee at the time his
employment was terminated on 04 July 2000?
Asserting their right to terminate the contract with private respondent per
the Kasunduan with him, petitioners pointed to the provision thereof
stating that he was being employed only on a porviaje basis and that his
employment would be terminated at the end of the trip for which he was
being hired, to wit:
NA, kami ay sumasang-ayon na MAGLINGKOD at
GUMAWA ng mga gawaing magmula sa pag-alis ng lantsa sa pondohan sa N
avotas patungo sa palakayahan; pabalik sa pondohan ng lantsa sa Navotashan
ggang sa paghango ng mga kargang isda.[13]
Petitioners lament that fixed-term employment contracts are recognized as
valid under the law notwithstanding the provision of Article 280 of the Labor
Code. Petitioners theorize that the Civil Code has always recognized the
validity of contracts with a fixed and definite period, and imposes no
restraints on the freedom of the parties to fix the duration of the contract,
whatever its object, be it species, goods or services, except the general
admonition against stipulations contrary to law, morals, good customs, public
order and public policy. Quoting Brent School Inc. v. Zamora,[14] petitioners
are hamstrung on their reasoning that under the Civil Code, fixed-term
employment contracts are not limited, as they are under the present Labor
Code, to those that by their nature are seasonal or for specific projects with
pre-determined dates of completion as they also include those to which the
parties by free choice have assigned a specific date of termination. Hence,
persons may enter into such contracts as long as they are capacitated to act,
petitioners bemoan.
We are far from persuaded by petitioners ratiocination.
Petitioners construal of Brent School, Inc. v. Zamora, has certainly gone
astray. The subject of scrutiny in the Brent case was the employment contract
inked between the school and one engaged as its Athletic Director. The
contract fixed a specific term of five years from the date of execution of the
agreement. This Court upheld the validity of the contract between therein
petitioner and private respondent, fixing the latters period of
employment. This Court laid down the following criteria for judging the
validity of such fixed-term contracts, to wit:
Accordingly, and since the entire purpose behind the development of
legislation culminating in the present Article 280 of the Labor Code clearly
12
appears to have been, as already observed, to prevent circumvention of the
employees right to be secure in his tenure, the clause in said article
indiscriminately and completely ruling out all written or oral agreements
conflicting with the concept of regular employment as defined therein should
be construed to refer to the substantive evil that the Code itself has singled
out: agreements entered into precisely to circumvent security of tenure. It
should have no application to instances where a fixed period of employment
was agreed upon knowingly and voluntarily by the parties, without any force,
duress or improper pressure being brought to bear upon the employee and
absent any other circumstances vitiating his consent, or where it
satisfactorily appears that the employer and employee dealt with each other
on more or less equal terms with no moral dominance whatever being
exercised by the former over the latter. Unless thus limited in its purview, the
law would be made to apply to purposes other than those explicitly stated by
its framers; it thus becomes pointless and arbitrary, unjust in its effects and
apt to lead to absurd and unintended consequences. [15] (Emphasis supplied.)
Brent cited some familiar examples of employment contracts which may
neither be for seasonal work nor for specific projects, but to which a fixed
term is an essential and natural appurtenance, i.e., overseas employment
contracts, appointments to the positions of dean, assistant dean, college
secretary, principal, and other administrative offices in educational
institutions, which are by practice or tradition rotated among the faculty
members, and where fixed terms are a necessity without which no reasonable
rotation would be possible.[16] Thus, in Brent, the acid test in considering
fixed-term contracts as valid is: if from the circumstances it is apparent
that periods have been imposed to preclude acquisition
of tenurial security by the employee, they should be disregarded for
being contrary to public policy.
On the same tack as Brent, the Court in Pakistan International Airlines
Corporation v. Ople,[17] ruled in this wise:
It is apparent from Brent School that the critical consideration is the presence
or absence of a substantial indication that the period specified in an
employment agreement was designed to circumvent the security of tenure of
regular employees which is provided for in Articles 280 and 281 of the Labor
Code. This indication must ordinarily rest upon some aspect of the agreement
other than the mere specification of a fixed term of the employment
agreement, or upon evidence aliunde of the intent to evade.
Consistent with the pronouncements in these two earlier cases, the Court,
in Cielo v. National Labor Relations Commission,[18] did not hesitate to
nullify employment contracts stipulating a fixed term after finding that the
purpose behind these individual contracts was to evade the application
of the labor laws.
In the case under consideration, the agreement has such an objective - to
frustrate the security of tenure of private respondent- and fittingly, must be
nullified. In this case, petitioners intent to evade the application of Article
280 of the Labor Code is unmistakable. In a span of 12 years, private
respondent worked for petitioner company first as a Chief Mate, then Boat
Captain, and later as Radio Operator. His job was directly related to the deep-
sea fishing business of petitioner Poseidon. His work was, therefore,
necessary and important to the business of his employer. Such being the
scenario involved, private respondent is considered a regular employee of
petitioner under Article 280 of the Labor Code, the law in point, which
provides:
Art. 280. Regular and Casual Employment. The provisions of written
agreement to the contrary notwithstanding and regardless of the oral
agreement of the parties, an employment shall be deemed to be regular
where the employee has been engaged to perform activities which are usually
necessary or desirable in the usual business or trade of the employer, except
where the employment has been fixed for a specific project or undertaking
the completion or termination of which has been determined at the time of
the engagement of the employee or where the work or services to be
performed is seasonal in nature and the employment is for the duration of the
season.
An employment shall be deemed to be casual if it is not covered by the
preceding paragraph: Provided, That any employee who has rendered at least
one year of service, whether such service is continuous or broken, shall be
considered a regular employee with respect to the activity in which he is
employed and his employment shall continue while such actually exists.
(Emphasis supplied.)
Moreover, unlike in the Brent case where the period of the contract was fixed
and clearly stated, note that in the case at bar, the terms of employment of
private respondent as provided in the Kasunduan was not only vague, it
13
also failed to provide an actual or specific date or period for the
contract. As adroitly observed by the Labor Arbiter:
There is nothing in the contract that says complainant, who happened to be
the captain of said vessel, is a casual, seasonal or a project worker. The
date July 1 to 31, 1998 under the heading Pagdating had been placed there
merely to indicate the possible date of arrival of the vessel and is not an
indication of the status of employment of the crew of the vessel.
Actually, the exception under Article 280 of the Labor Code in which the
respondents have taken refuge to justify its position does not apply in the
instant case. The proviso, Except where the employment has been fixed for a
specific project or undertaking the completion or determination of which has
been determined at the time of the engagement of the employee or where the
work or services to be performed is seasonal in nature and the employment is
for the duration of the season. (Article 280 Labor Code), is inapplicable
because the very contract adduced by respondents is unclear and uncertain.
The kasunduan does not specify the duration that complainant had been
hired x x x.[19] (Emphasis supplied.)
Furthermore, as petitioners themselves admitted in their petition before this
Court, private respondent was repeatedly hired as part of the boats crew and
he acted in various capacities onboard the vessel. In Integrated Contractor
and Plumbing Works, Inc. v. National Labor Relations Commission,[20] we
held that the test to determine whether employment is regular or not is the
reasonable connection between the particular activity performed by the
employee in relation to the usual business or trade of the employer. And, if
the employee has been performing the job for at least one year, even if the
performance is not continuous or merely intermittent, the law deems the
repeated and continuing need for its performance as sufficient evidence of
the necessity, if not indispensability of that activity to the business. [21]
In Bustamante v. National Labor Relations Commission,[22] the Court
expounded on what are regular employees under Article 280 of
the Labor Code, viz:
It is undisputed that petitioners were illegally dismissed from employment.
Article 280 of the Labor Code, states:
ART. 280. Regular and Casual Employment. - The provisions of written
agreement to the contrary notwithstanding and regardless of the oral
agreement of the parties, an employment shall be deemed to be regular where
the employee has been engaged to perform activities which are usually
necessary or desirable in the usual business or trade of the employer, except
where the employment has been fixed for a specific project or undertaking
the completion or termination of which has been determined at the time of
the engagement of the employee or where the work or services to be
performed is seasonal in nature and the employment is for the duration of the
season.
An employment shall be deemed to be casual if it is not covered by the
preceding paragraph: Provided, that, any employee who has rendered at least
one year of service, whether such service is continuous or broken, shall be
considered a regular employee with respect to the activity in which he is
employed and his employment shall continue while such activity exists.
This provision draws a line between regular and casual employment, a
distinction however often abused by employers. The provision enumerates
two (2) kinds of employees, the regular employees and the casual
employees. The regular employees consist of the following:
1) those engaged to perform activities which are usually necessary or
desirable in the usual business or trade of the employer; and
2) those who have rendered at least one year of service whether such service
is continuous or broken.[23]
Ostensibly, in the case at bar, at different times, private respondent occupied
the position of Chief Mate, Boat Captain, and Radio Operator. In petitioners
interpretation, however, this act of hiring and re-hiring actually highlight
private respondents contractual status saying that for every engagement, a
fresh contract was entered into by the parties at the outset as the conditions of
employment changed when the private respondent filled in a different
position. But to this Court, the act of hiring and re-hiring in various
capacities is a mere gambit employed by petitioner to thwart
the tenurial protection of private respondent. Such pattern of re-hiring and
the recurring need for his services are testament to the necessity and
indispensability of such services to petitioners business or trade. [24]
Petitioners would brush off private respondents length of service by stating
that he had worked for the company merely for several years [25] and that in
those times, his services were not exclusive to petitioners. On the other hand,
to prove his claim that he had continuously worked for petitioners from 1988
to 2000, private respondent submitted a copy of his payroll [26] from 30 May
1988 to October 1988 and a copy of his SSS Employees Contributions[27] as
of the year 2000. These documents were submitted by private respondent in
order to benchmark his claim of 12 years of service. Petitioners, however,
failed to submit the pertinent employee files, payrolls, records, remittances
and other similar documents which would show that private respondents
14
work was not continuous and for less than 12 years. Inasmuch as these
documents are not in private respondents possession but in the custody and
absolute control of petitioners, their failure to refute private respondents
evidence or even categorically deny private respondents allegations lead us
to no other conclusion than that private respondent was hired in 1988 and had
been continuously in its employ since then. Indeed, petitioners failure to
submit the necessary documents, which as employers are in their possession,
gives rise to the presumption that their presentation is prejudicial to its cause.
[28]
To recapitulate, it was after 12 long years of having private respondent under
its wings when petitioners, possibly sensing a brewing brush with the law as
far as private respondents employment is concerned, finally found a loophole
to kick private respondent out when the latter failed to properly record a 7:25
a.m. call. Capitalizing on this faux pas, petitioner summarily dismissed
private respondent. On this note, we disagree with the finding of the NLRC
that private respondent was negligent on account of his failure to properly
record a call in the log book. A review of the records would ineluctably show
that there is no basis to deduct six months worth of salary from the total
separation pay that private respondent is entitled to. We note further that
the NLRCs finding clashes with that of the Labor Arbiter which found no
such negligence and that such inadvertence on the part of private respondent,
at best, constitutes simple negligence punishable only with admonition or
suspension for a day or two.
As the records bear out, private respondent himself seasonably realized his
oversight and in no time recorded the 7:25 a.m. call after the 7:30 a.m. call.
Gross negligence under Article 282 of the Labor Code, [29] as amended,
connotes want of care in the performance of ones duties, while habitual
neglect implies repeated failure to perform ones duties for a period of time,
depending upon the circumstances.[30] Here, it is not disputed that private
respondent corrected straight away the recording of the call and petitioners
failed to prove the damage or injury that such inadvertence caused the
company. We find, as the Labor Arbiter[31] had found, that there is no
sufficient evidence on record to prove private respondents negligence, gross
or simple for that matter, in the performance of his duties to warrant a
reduction of six months salary from private respondents separation
pay. Moreover, respondent missed to properly record, not two or three calls,
but just a single call. It was also a first infraction on the part of private
respondent, not to mention that the gaffe, if at all, proved to be innocuous.
Thus, we find such slip to be within tolerable range. After all, is it not a
rule[32] that in carrying out and interpreting the provisions of
the Labor Code and its implementing regulations, the workingman's welfare
should be primordial?
Petitioners next assert that deep-sea fishing is a seasonal industry because
catching of fish could only be undertaken for a limited duration or seasonal
within a given year. Thus, according to petitioners, private respondent was a
seasonal or project employee.
We are not won over.
As correctly pointed out by the Court of Appeals, the activity of catching fish
is a continuous process and could hardly be considered as seasonal in nature.
[33]
In Philex Mining Corp. v. National Labor Relations Commission,[34] we
defined project employees as those workers hired (1) for a specific project or
undertaking, and (2) the completion or termination of such project has been
determined at the time of the engagement of the employee. The principal test
for determining whether particular employees are project employees as
distinguished from regular employees, is whether or not the project
employees were assigned to carry out a specific project or undertaking, the
duration and scope of which were specified at the time the employees were
engaged for that project. In this case, petitioners have not shown that
private respondent was informed that he will be assigned to a specific project
or undertaking. As earlier noted, neither has it been established that he was
informed of the duration and scope of such project or undertaking at the time
of their engagement.
More to the point, in Maraguinot, Jr. v. National Labor Relations
Commission,[35] we ruled that once a project or work pool employee has been:
(1) continuously, as opposed to intermittently, re-hired by the same employer
for the same tasks or nature of tasks; and (2) these tasks are vital, necessary
and indispensable to the usual business or trade of the employer, then the
employee must be deemed a regular employee.
In fine, inasmuch as private respondents functions as described above are no
doubt usually necessary or desirable in the usual business or trade of
petitioner fishing company and he was hired continuously for 12 years for
the same nature of tasks, we are constrained to say that he belongs to the ilk
of regular employee. Being one, private respondents dismissal without valid
cause was illegal. And, where illegal dismissal is proven, the worker is
entitled to back wages and other similar benefits without deductions or
conditions.[36]
15
Indeed, it behooves this Court to be ever vigilant in checking the
unscrupulous efforts of some of our entrepreneurs, primarily aimed at
maximizing their return on investments at the expense of the lowly
workingman.[37]

WHEREFORE, the present petition is hereby DENIED. The Decision of the

Court of Appeals dated 14 March 2005 in CA-G.R. SP No. 81140
is hereby AFFIRMED WITH MODIFICATION by deleting the reduction
of an amount equivalent to six months of pay from private respondents
separation pay. The case is remanded to the Labor Arbiter for further
proceedings solely for the purpose of determining the monetary liabilities of
petitioners in accordance with the decision. The Labor Arbiter
is ORDERED to submit his compliance thereon within thirty (30) days from
notice of this decision, with copies furnished to the parties. Costs against
petitioners.

SO ORDERED.

16
4.) [G.R. No. 150092. September 27, 2002]
GLOBE TELECOM, INC., DELFIN LAZARO, JR., and ROBERTO
GALANG, petitioners, vs. JOAN FLORENDO-FLORES, respondent.
DECISION
BELLOSILLO, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking to
annul and set aside the Decision[1] of the Court of Appeals of 25 May 2001 in
CA-G.R. SP No. 60284 which affirmed the Decision of the National Labor
Relations Commission of 28 January 2000 in NLRC RAB-CAR 05-0170-98,
NLRC NCR CA No. 020270-99.[2]
Petitioner GLOBE TELECOM, INC. (GLOBE) is a corporation duly
organized and existing under the laws of the
Philippines. Petitioners Delfin Lazaro Jr. was its President and Roberto
Galang its former Director-Regional Sales. Respondent Joan Florendo-Flores
was the Senior Account Manager for Northern Luzon.
On 1 July 1998 Joan Florendo-Flores filed with the Regional Arbitration
Branch of the National Labor Relations Commission (NLRC) an amended
complaint for constructive dismissal against GLOBE, Lazaro, Galang, and
Cacholo M. Santos, her immediate superior, Luzon Head-Regional Sales. In
her affidavit submitted as evidence during the arbitration proceedings,
Florendo-Flores bared that Cacholo M. Santos never accomplished and
submitted her performance evaluation report thereby depriving her of salary
increases, bonuses and other incentives which other employees of the same
rank had been receiving; reduced her to a house-to-house selling agent
(person-to-person sales agent or direct sales agent) of company products
("handyphone") despite her rank as supervisor of company dealers and
agents; never supported her in the sales programs and recommendations she
presented; and, withheld all her other benefits, i.e., gasoline allowance, per
diems, representation allowance, and car maintenance, to her extreme pain
and humiliation.[3]
GLOBE and its co-petitioners claimed that after receiving her salary in the
second week of May 1998 Florendo-Flores went AWOL (Absent Without
Leave) without signifying through letter or any other means that she was
resigning from her position; that notwithstanding her absence and the filing
of her case, respondent Florendo-Flores' employment was not terminated as
shown by the fact that salary was still provided her until July
1998 to be released upon her presentation of the attendance-record sheet
indicating that she already returned and reported for work; that she continued
to have the use a of company car and company "handyphone" unit; that she
was replaced only when her absence became indefinite and intolerable as the
marketing operations in Northern Luzon began to suffer; that during the pre-
trial conference it was learned that Florendo-Flores' complaint rested on her
alleged personal and private disagreement with her immediate superior
Cacholo M. Santos; that there was no official act from GLOBE or from other
officers of the company, including respondents Lazaro and Galang, which
called for Florendo-Flores' termination, diminution in rank, seniority and
benefits, or would imply, even remotely, any of the same; and, that Florendo-
Flores filed the complaint without going through the grievance process of
GLOBE's Human Resources Department and without informing its officers
of her problems with Cacholo M. Santos.
Labor Arbiter Monroe C. Tabingan declared Florendo-Flores to have been
illegally dismissed and ordered petitioners to reinstate her without loss of
seniority rights and full benefits; and to pay full back wages, inclusive of
basic pay, allowances and bonuses as prayed for in the complaint amounting
to P307,625.00, exemplary damages in the sum of P200,000.00, and ten
percent (10%) of the total monetary award as attorney's fees. However, the
Labor Arbiter set aside the claim of abandonment as the company failed to
send the requisite notice to Florendo-Flores,[4] hence, there was no
adherence to procedural due process. Although he recognized that the
problem brewed and eventually boiled over due to the acts of Cacholo M.
Santos, GLOBE's former Head of Regional Sales, Luzon Area, the Labor
Arbiter found the company negligent in monitoring all its key personnel, and
thus assessed against it exemplary damages at the same time deleting actual
and moral damages.[5]
Petitioners appealed the decision to the NLRC which modified the judgment
of the Labor Arbiter. The NLRC ruled that petitioners did not dismiss
Florendo-Flores but that the latter actually abandoned her employment
because of a disagreement with her immediate superior which she failed to
bring to the attention of GLOBE and its officers, particularly petitioners
Lazaro and Galang.[6] However, the NLRC declared that if only as an act of
grace for the latter's past services with the company, GLOBE, Lazaro and
Galang should be held accountable for the back wages of Florendo-Flores
amounting to P307,625.00 minus the amount of P63,000.00 for the value of
the company car in Florendo-Flores' possession, or the net amount
of P244,625.00.[7]
17
Both parties elevated the NLRC decision to the Court of Appeals, each side
through a petition for certiorari. In its Resolution of 2 September 2000 the
appellate court dismissed the petition of Florendo-Flores for failure to
append the required verification and certification of non-forum shopping,
[8]
while it gave due course to the petition of GLOBE, Lazaro and Galang.
In their petition before the appellate court, GLOBE, Lazaro and Galang
averred that the NLRC committed grave abuse of discretion amounting to
lack or excess of jurisdiction when it ordered them to pay Florendo-Flores
full back wages and damages despite its express finding that they did not
cause the dismissal of Florendo-Flores as the latter had actually abandoned
her employment on account of her personal differences with her superior.
In its Decision of 25 May 2001 the Court of Appeals found that Florendo-
Flores was constructively dismissed and that payment of back wages and
damages was in order. On 21 June 2001 GLOBE, Lazaro and Galang filed a
motion for reconsideration but the motion was denied in the appellate court's
Resolution of 19 September 2001.
Petitioners pose the following questions in this petition: In a special civil
action for certiorari where factual findings are deemed to be final and
conclusive, can the Court of Appeals alter or substitute the findings of fact of
the lower court/tribunal? In the face of the finding of the NLRC that
respondent abandoned her employment because of a personal squabble with
her immediate superior, and that petitioners had nothing to do with the
severance of Flores' employment, can petitioners be held legally liable for
back wages while the guilty party Cacholo M. Santos is legally absolved of
liability?
Petitioners submit that the answers to both questions must be in the
negative. They argue that the appellate court can neither alter nor substitute
the factual findings of the NLRC as they are legally deemed to be final and
conclusive in a certiorari proceeding. They contend that a special civil action
for certiorari is an extraordinary remedy created not to correct mistakes in the
factual findings or conclusions of the lower court or tribunal, but a remedy
intended to rectify jurisdictional errors and grave abuse of discretion. Thus,
the Court of Appeals cannot make its own factual findings and substitute
them for the factual findings of the NLRC, and on such basis render a
decision.
Petitioners further note that the appellate court failed to address the issues
raised in their petition. They reiterate their position that they cannot be held
liable for payment of back wages as an act of grace in view of the express
finding by the NLRC that respondent abandoned her employment because of
a personal rift with her immediate superior and not due to any act attributable
to them. They stress that there can be no liability in the absence of any
wrongful act.
Invoking the principle of res inter alios acta declaring that the rights of a
party cannot be prejudiced by the act, declaration or omission of another,
petitioners insist that since the NLRC found that respondent's problems arose
from the acts and deeds of Santos, he alone should be held liable. Petitioners
find special exception to the NLRC's application of the concept of "act of
grace" to justify the award since an "act of grace is not a source of
demandable obligation. They argue that it is not within the power of any
judicial or administrative agency to compel an employer to be liberal.
In the review of an NLRC decision through a special civil action for
certiorari, resolution is confined only to issues of jurisdiction and grave
abuse of discretion on the part of the labor tribunal. [9] Hence, the Court
refrains from reviewing factual assessments of lower courts and agencies
exercising adjudicative functions, such as the NLRC. Occasionally, however,
the Court is constrained to delve into factual matters where, as in the instant
case, the findings of the NLRC contradict those of the Labor Arbiter.
In this instance, the Court in the exercise of its equity jurisdiction may look
into the records of the case and re-examine the questioned findings. [10] As a
corollary, this Court is clothed with ample authority to review matters, even
if they are not assigned as errors in their appeal, if it finds that their
consideration is necessary to arrive at a just decision of the case. [11] The same
principles are now necessarily adhered to and are applied by the Court of
Appeals in its expanded jurisdiction over labor cases elevated through a
petition for certiorari; thus, we see no error on its part when it made anew a
factual determination of the matters and on that basis reversed the ruling of
the NLRC.
Glaring however is the discrepancy between the text of the decision of the
appellate court which declares that respondent Florendo-Flores "was
unlawfully constructively dismissed" from employment, [12] and its dispositive
portion which declares that "the assailed judgment is
affirmed."[13] It should be noted that the "assailed judgment" referred to the
NLRC Decision which declared that respondent was not illegally dismissed
but that she abandoned her employment. Even in the award of back wages
and exemplary damages the two (2) decisions are at odds: The award of back
wages made by the NLRC was a gratuity or an act of grace from petitioners
while the award made by the Court of Appeals could be assumed to be
18
anchored on its finding of illegal dismissal. How should the inconsistency be
reconciled?
Where there is conflict between the dispositive portion of the decision and
the body thereof, the dispositive portion controls irrespective of what appears
in the body.[14] While the body of the decision, order or resolution might
create some ambiguity in the manner the court's reasoning preponderates, it
is the dispositive portion thereof that finally invests rights upon the parties,
sets conditions for the exercise of those rights, and imposes the
corresponding duties or obligations.[15] Hence, for the Court of Appeals to
have affirmed the assailed judgment is to adopt and uphold the NLRC
finding of abandonment and its award of full back wages to respondent as an
"act of grace" from petitioners.
However, we believe this is not the proper view as the records reveal that
respondent was constructively dismissed from service.
Constructive dismissal exists where there is cessation of work because
"continued employment is rendered impossible, unreasonable or unlikely, as
an offer involving a demotion in rank and a diminution in pay."[16] All these
are discernible in respondent's situation. She was singularly edged out of
employment by the unbearable or undesirable treatment she received from
her immediate superior Cacholo M. Santos who discriminated against her
without reason - not preparing and submitting her performance evaluation
report that would have been the basis for her increased salary; not forwarding
her project proposals to management that would have been the source of
commendation; diminishing her supervisor stature by assigning her to house-
to-house sales or direct sales; and withholding from her the enjoyment of
bonuses, allowances and other similar benefits that were necessary for her
efficient sales performance. Although respondent continued to have the rank
of a supervisor, her functions were reduced to a mere house-to-house sales
agent or direct sales agent. This was tantamount to a demotion. She might not
have suffered any diminution in her basic salary but petitioners did not
dispute her allegation that she was deprived of all benefits due to another of
her rank and position, benefits which she apparently used to receive.
Far from pointing to Santos alone as the source of her woes, respondent
attributes her degraded state to petitioners as well. Florendo-Flores cited
petitioners' apathy or indifference to her plight as she was twice left out in a
salary increase in August 1987 and May 1998, without petitioners giving her
any reason.[17] It eludes belief that petitioners were entirely in the dark as the
salary increases were granted to all employees across-the-board but
respondent was the only one left receiving a P19,100.00 per month basic
salary while the rest received a basic salary of almost P35,000.00 per month.
[18]
It is highly improbable that the exclusion of respondent had escaped
petitioners' notice. The absence of an evaluation report from Santos should
have been noted by petitioners and looked into for proper action to have been
made. If a salary increase was unwarranted, then it should have been
sufficiently explained by petitioners to respondent.
Petitioners argue that respondent Florendo-Flores could have brought to their
attention the deplorable treatment she received from Santos by resorting to
the company's grievance machinery so that the problems in her relationship
with Santos could then have been easily ironed out, but she did not. It
remains uncontroverted that respondent had inquired from petitioners the
reason why her other benefits had been withheld and sought clarification for
her undeserved treatment but petitioner company and Santos remained mum.
[19]
Thus, contrary to the observation of the NLRC, the dispute was not a mere
private spat between respondent Florendo-Flores and her immediate superior
Santos. Granting that this was the case, it had exceeded the periphery of
simple personal affairs that overflowed into the realm of respondent's
employment.
Respondent narrates that sometime in June 1997 Santos wrote her a baseless
accusatory letter, and he together with GLOBE Sales Director Roberto
Galang, one of petitioners herein, verbally told her that she should resign
from her job, but she refused.[20] Thereafter, in July 1997 and the months
subsequent thereto all of respondent's other benefits were withheld without
any reason nor explanation from the company.[21] Even as petitioners
endeavored to lay the blame on Santos alone, he would not have been able to
single-handedly mastermind the entire affair as to influence Sales Director
Galang and manipulate the payroll. It only stands to reason that Santos was
acting pursuant to a management directive, or if not, then petitioners had
condoned it, or at the very least, were negligent in supervising all of their
employees.As aptly observed by the Labor Arbiter -
x x x x it would appear however that the respondent company was negligent
in monitoring all its key personnel. For it is the bounden duty of the
corporate officialdom to constantly monitor their managerial staff if only to
ascertainthe smooth flow of work and operations, which includes the inter-
personal relations of each and every key segment of the corporate
machinery. For such, it must be assessed with just and reasonable exemplary
damages.[22]
19
The unauthorized absence of respondent should not lead to the drastic
conclusion that she had chosen to abandon her work. To constitute
abandonment, there must be: (a) failure to report for work or absence without
valid or justifiable reason; and, (b) a clear intention, as manifested by some
overt act, to sever the employer-employee relationship, [23] requisites that are
negated by the immediate filing by respondent Florendo-Flores of a
complaint for constructive dismissal against petitioners. A charge of
abandonment is totally inconsistent with the immediate filing of a complaint
for illegal dismissal; more so, when it includes a prayer for reinstatement. [24]
The reduction of respondent's functions which were originally supervisory in
nature to a mere house-to-house sales agent or direct sales agent constitutes a
demotion in rank. For this act of illegal dismissal, she deserves no less than
full back wages starting from the time she had been illegally dismissed until
her actual reinstatement to her former position without loss of seniority rights
and other benefits - earned, accrued and demandable. She shall continue to
enjoy her benefits, privileges and incentives including the use of the
company car and "handyphone."
The managerial prerogative to transfer personnel must be exercised without
grave abuse of discretion. It must always bear in mind the basic elements of
justice and fair play. Having the right should not be confused with the
manner that right is exercised. Thus, it cannot be used as a subterfuge by the
employer to rid himself of an undesirable worker. [25]
from protecting the rights of management such that an award of back wages
should be forthcoming only when valid grounds exist to support it.
An award of actual and moral damages is not proper as the dismissal is not
shown to be attended by bad faith, or was oppressive to labor, or done in a
manner contrary to morals, good customs or public policy. [28] Exemplary
damages are likewise not proper as these are imposed only if moral,
temperate, liquidated or compensatory damages are awarded. [29]
WHEREFORE, the judgment appealed from is MODIFIED. The Decision
of the Court of Appeals of 25 May 2001 in CA-G.R. SP No. 60284 affirming
the Decision of the National Labor Relations Commission of 28 January
2000 declaring that respondent Joan Florendo-Flores had abandoned her
work is SET ASIDE. Petitioners Globe Telecom, Inc., Delfin Lazaro, Jr., and
Roberto Galang are ordered to pay respondent Joan Florendo-Flores full back
wages from the time she was constructively dismissed on 15 May 1998 until
the date of her effective reinstatement, without qualification or
deduction. Accordingly, petitioners are ordered to cause the immediate
reinstatement of respondent to her former position, without loss of seniority
rights and other benefits. No pronouncement as to costs.
SO ORDERED

In constructive dismissal, the employer has the burden of proving that the
transfer and demotion of an employee are for just and valid grounds such as
genuine business necessity.[26] The employer must be able to show that the
transfer is not unreasonable, inconvenient, or prejudicial to the employee. It
must not involve a demotion in rank or a diminution of salary and other
benefits. If the employer cannot overcome this burden of proof, the
employee's demotion shall be tantamount to unlawful constructive dismissal.

It should be noted that the award of back wages in the instant case is justified
upon the finding of illegal dismissal, and not under the principle of "act of
grace" for past services rendered. There are occasions when the Court
exercises liberality in granting financial awards to employees, but even then
they contemplate only the award of separation pay and/or financial
assistance, and only as a measure of social justicewhen the circumstances of
the case so warrant, such as instances of valid dismissal for causes other than
serious misconduct or those reflecting on the employees' moral character.
[27]
Proper regard for the welfare of the labor sector should not dissuade us

20

5.) THIRD DIVISION
MARICALUM MINING G.R. No. 158637
CORPORATION,
Petitioner, Present:
- versus - QUISUMBING, J.,
Chairperson,
CARPIO,
ANTONIO DECORION, CARPIO MORALES, and
Respondent. TINGA, JJ.
Promulgated:
April 12, 2006
DECISION
TINGA, J.:
This Petition[1] dated July 8, 2003 filed by Maricalum Mining Corporation
(Maricalum Mining) assails the Decision[2] of the Court of Appeals which
upheld the labor arbiters finding that respondent,
Antonio Decorion (Decorion), was constructively dismissed and therefore
entitled to reinstatement and backwages.
There is no substantial dispute on the operative facts of this case.
Decorion was a regular employee of Maricalum Mining who started out as a
Mill Mechanic assigned to the Concentrator Maintenance Department and
was later promoted to Foreman I. On April 11, 1996, the Concentrator
Maintenance Supervisor called a meeting which Decorion failed to attend as
he was then supervising the workers under him. Because of his alleged
insubordination for failure to attend the meeting, he was placed under
preventive suspension on the same day. He was also not allowed to report for
work the following day.
A month after or on May 12, 1996, Decorion was served a Notice of
Infraction and Proposed Dismissal to enable him to present his side. On May
15, 1996, he submitted to the Personnel Department his written reply to the
notice.
A grievance meeting was held upon Decorions request on June 5, 1996,
during which he manifested that he failed to attend the meeting on April 11,
1996 because he was then still assigning work to his men. He maintained that
he has not committed any offense and that his service record would show his
efficiency.
On July 23, 1996, Decorion filed before the National Labor Relations
Commission (NLRC) Regional Arbitration Branch VI of Bacolod City a
complaint for illegal dismissal and payment of moral and exemplary
damages and attorneys fees.[3]
In the meantime, the matter of Decorions suspension and proposed dismissal
was referred to Atty. Roman G. Pacia, Jr., Maricalum Minings Chief and
Head of Legal and Industrial Relations, who issued a memorandum
on August 13, 1996, recommending that Decorions indefinite suspension be
made definite with a warning that a repetition of the same conduct would be
punished with dismissal. Maricalum Minings Resident Manager issued a
memorandum on August 28, 1996, placing Decorion under definite
disciplinary suspension of six (6) months which would include the period of
his preventive suspension which was made to take effect retroactively
from April 11, 1996 to October 9, 1996.
On September 4, 1996, Decorion was served a memorandum informing him
of his temporary lay-off due to Maricalum Minings temporary suspension of
operations and shut down of its mining operations for six (6) months, with
the assurance that in the event of resumption of operations, he would be
reinstated to his former position without loss of seniority rights.
Decorion, through counsel, wrote a letter to Maricalum Mining on October 8,
1996, requesting that he be reinstated to his former position. The request was
denied with the explanation that priority for retention and inclusion in the
skeleton force was given to employees who are efficient and whose services
are necessary during the shutdown.
Conciliation proceedings having failed to amicably settle the case, the labor
arbiter rendered a decision[4] dated November 26, 1998,
finding Decorions dismissal illegal and ordering his reinstatement with
payment of backwages and attorneys fees. According to the labor
arbiter, Decorions failure to attend the meeting called by his supervisor did
21
not justify his preventive suspension. Further, no preventive suspension
should last longer than 30 days.
The NLRC, however, reversed the labor arbiters decision and
dismissed Decorions complaint.[5] The reversal was premised on the finding
that the case was litigated solely on Decorions allegation that he was
dismissed on April 11, 1996. However, during the grievance meeting held
on June 5, 1996, Decorion left it up to management to decide his fate,
indicating that as of that time, there was no decision to terminate his services
yet. According to the NLRC, to consider the events that transpired after April
11, 1996 and make the same the basis for the finding of illegal dismissal
would violate Maricalum Minings right to due process.
On petition for certiorari with the Court of Appeals, the decision of the labor
arbiter was reinstated. The appellate court held that Decorion was placed
under preventive suspension immediately after he failed to attend the
meeting called by his supervisor on April 11, 1996. At the time he filed the
complaint for illegal dismissal on July 23, 1996, he had already been under
preventive suspension for more than 100 days in violation of Sec. 9, Rule
XXIII, Book V of the Omnibus Rules Implementing the Labor Code
(Implementing Rules) which provides that no preventive suspension shall last
longer than 30 days.
The appellate court denied Maricalum Minings motion for reconsideration in
its Resolution[6] dated May 16, 2003.
In this petition, Maricalum Mining insists that Decorion was not dismissed
but merely preventively suspended on April 11, 1996. Citing the case
of Valdez v. NLRC,[7] petitioner contends that constructive dismissal occurs
only after the lapse of more than six (6) months from the time an employee is
placed on a floating status as a result of temporary preventive suspension
from employment. Thus, it goes on to argue, since Decorion was suspended
for less than six (6) months, his suspension was legal.
Decorion filed a Comment[8] dated December 5, 2003, maintaining that he
was dismissed from employment on April 11, 1996 as he was then prevented
from reporting for work. He avers that had the intention
of Maricalum Mining been to merely suspend him, it could have manifested
this intention by at least informing him of his suspension. As it happened, he
was not served with any notice relative to why he was disallowed to report
for work. The grievance meeting conducted on June 5, 1996 was allegedly
called only after he had repeatedly requested reconsideration of his dismissal.
Maricalum Mining filed a Reply[9] dated April 22, 2004 in reiteration of its
arguments.
We reject the petition.
Sections 8 and 9 of Rule XXIII, Book V of the Implementing Rules provide
as follows:
Section 8. Preventive suspension. --- The employer may place the worker
concerned under preventive suspension if his continued employment poses a
serious and imminent threat to the life or property of the employer or his co-
workers.
Section 9. Period of Suspension --- No preventive suspension shall last
longer than thirty (30) days. The employer shall thereafter reinstate the
worker in his former or in a substantially equivalent position or the employer
may extend the period of suspension provided that during the period of
extension, he pays the wages and other benefits due to the worker. In such
case, the worker shall not be bound to reimburse the amount paid to him
during the extension if the employer decides, after completion of the hearing,
to dismiss the worker. [Emphasis supplied.]
The Rules are explicit that preventive suspension is justified where the
employees continued employment poses a serious and imminent threat to the
life or property of the employer or of the employees co-workers. Without this
kind of threat, preventive suspension is not proper.
In this case, Decorion was suspended only because he failed to attend a
meeting called by his supervisor. There is no evidence to indicate that his
failure to attend the meeting prejudiced his employer or that his presence in
the companys premises posed a serious threat to his employer and co-
workers. The preventive suspension was clearly unjustified. [10]
What is more, Decorions suspension persisted beyond the 30-day period
allowed by the Implementing Rules. In Premiere Development Bank v.
NLRC,[11] private respondents suspension lasted for more than 30 days
counted from the time she was placed on preventive suspension on March 13,
1986 up to the last day of investigation on April 23, 1986. The Court ruled
that preventive suspension which lasts beyond the maximum period allowed
by the Implementing Rules amounts to constructive dismissal.
22
Similarly, from the time Decorion was placed under preventive suspension
on April 11, 1996 up to the time a grievance meeting was conducted on June
5, 1996, 55 days had already passed. Another 48 days went by before he filed
a complaint for illegal dismissal on July 23, 1996. Thus, at the
time Decorion filed a complaint for illegal dismissal, he had already been
suspended for a total of 103 days.

Maricalum Minings contention that there was as yet no illegal dismissal at

the time of the filing of the complaint is evidently
unmeritorious. Decorions preventive suspension had already ripened into
constructive dismissal at that time. While actual dismissal and constructive
dismissal do take place in different fashion, the legal consequences they
generate are identical.

Decorions employment may not have been actually terminated in the sense
that he was not served walking papers but there is no doubt that he was
constructively dismissed as he wasforced to quit because continued
employment was rendered impossible, unreasonable or
unlikely[12] by Maricalum Minings act of preventing him from reporting for
work. Petitioners reliance on Valdez v. NLRC, supra, is misplaced. The legal
basis of the ruling in that case is the principle underlying Article 286 of the
Labor Code which provides that the bona fide suspension of the operation of
a business or undertaking for a period not exceeding six (6) months shall not
terminate employment. In contrast, the instant case involves the preventive
suspension of an employee not by reason of the suspension of the business
operations of the employer but because of the employees failure to attend a
meeting. The allowable period of suspension in such a case is only 30 days as
provided by the Implementing Rules.

In sum, Maricalum Mining cannot feign denial of due process. Its theory is
based entirely on its erroneous reading of Valdez v. NLRC. The fact is
that Decorions preventive suspension was unwarranted and unjustified and
lasted for more than the period allowed by law.
WHEREFORE, the instant petition is hereby DENIED. The challenged
Decision and Resolution of the Court of Appeals respectively dated May 29,
2002 and May 16, 2003 are hereby AFFIRMED. Costs against petitioner.

SO ORDERED

23

6.) THIRD DIVISION
[G.R. No. 99359. September 2, 1992.]
ORLANDO M. ESCAREAL, Petitioner, v. NATIONAL LABOR
RELATIONS COMMISSION, HON. MANUEL P. ASUNCION, Labor
Arbiter, NLRC, National Capital Region, PHILIPPINE REFINING
COMPANY, INC., CESAR BAUTISTA and GEORGE B.
DITCHING, Respondents.
R.S. Arlanza & Associates for Petitioner.
Siguion Reyna, Montecillo & Ongsiako for Private Respondents.
SYLLABUS
1. LABOR LAWS AND SOCIAL LEGISLATION; TERMINATION OF
EMPLOYMENT; REDUNDANCY IN PERSONNEL FORCE AS A
GROUND; DEFINED. — In Wiltshire File Co., Inc. v. NLRC, (193 SCRA
665 [1991]) this Court held that redundancy, for purposes of the Labor Code,
exists where the services of an employee are in excess of what is reasonably
demanded by the actual requirements of the enterprise; a position is
redundant when it is superfluous, and superfluity of a position or positions
may be the outcome of a number of factors, such as the overhiring of
workers, a decreased volume of business or the dropping of a particular
product line or service activity previously manufactured or undertaken by the
enterprise. Redundancy in an employer’s personnel force, however, does not
necessarily or even ordinarily refer to duplication of work. That no other
person was holding the same position which the dismissed employee held
prior to the termination of his services does not show that his position had
not become redundant.
2. ID.; ID.; ID.; NOT JUSTIFIED IN CASE AT BAR; REASON
THEREFOR. — Private respondent PRC had no valid and acceptable basis
to declare the position of Pollution Control and Safety Manager redundant as
the same may not be considered as superfluous; by the express mandate of
the provisions earlier cited, said positions are required by law. Thus, it cannot
be gainsaid that the services of the petitioner are in excess of what is
reasonably required by the enterprise. Otherwise, PRC would not have
allowed ten (10) long years to pass before opening its eyes to that fact;
neither would it have increased the petitioner’s salary to P23,100.00 a month
effective 1 April 1988. The latter by itself is an unequivocal admission of the
specific and special need for the position and an open recognition of the
valuable services rendered by the petitioner. Such admission and recognition
are inconsistent with the proposition that petitioner’s positions are redundant.
If based on the ground of redundancy, a substitution of the petitioner by
Miguelito S. Navarro would be invalid as the creation of said position is
mandated by the law; the same cannot therefore be declared redundant. If the
change was effected to consolidate the functions of the pollution control and
safety officer with the duties of the Industrial Engineering Manager, as
private respondent postulates, such substitution was done in bad faith for as
had already been pointed out, Miguelito S. Navarro was hardly qualified for
the position. If the aim was to generate savings in terms of the salaries that
PRC would not be paying the petitioner any more as a result of the
streamlining of operations for improved efficiency, such a move could hardly
be justified in the face of PRC’s hiring of ten (10) fresh graduates for the
position of Management Trainee and advertising for vacant positions in the
Engineering/Technical Division at around the time of the termination.
Besides, there would seem to be no compelling reason to save money by
removing such an important position. As shown by their recent financial
statements, PRC’s year-end net profits had steadily increased from 1987 to
1990. While concededly, Article 283 of the Labor Code does not require that
the employer should be suffering financial losses before he can terminate the
services of the employee on the ground of redundancy, it does not mean
either that a company which is doing well can effect such a dismissal
whimsically or capriciously. The fact that a company is suffering from
business losses merely provides stronger justification for the termination.
3. ID.; ID.; RIGHT OF EMPLOYEE ILLEGALLY DISMISSED; RULE;
CASE AT BAR. — Since We have concluded that the petitioner’s dismissal
was illegal and can not be justified under a valid redundancy initiative,
Article 283 of the Labor Code, as amended, on the benefits to be received by
the dismissed employee in the case of redundancy, retrenchment to prevent
losses, closure of business or the installation of labor saving devices, is not
applicable. Instead, We apply Article 279 thereof which provides, in part, that
an "employee who is unjustly dismissed from work shall be entitled to
reinstatement without loss of seniority rights and other privileges and to his
full backwages, inclusive of allowances, and to his other benefits or their
monetary equivalent computed from the time his compensation was withheld
24
from him up to the time of his actual reinstatement.
4. ID.; RIGHT OF EMPLOYEE TO SECURITY OF TENURE;
CONSTRUED IN CASE AT BAR. — It is evident that petitioner’s right to
security of tenure was violated by the private respondent PRC. Both the
Constitution (Section 3, Article XIII) and the Labor Code (Article 279, P.D.
442, as amended) enunciate this right as available to an employee. In a host
of cases, this Court has upheld the employee’s right to security of tenure in
the face of oppressive management behavior and management prerogative.
(Dosch v. NLRC, 123 SCRA 296 [1983]; Tolentino v. NLRC, 152 SCRA 717
[1987]; Cebu Royal Plant v. Deputy Minister of Labor, 153 SCRA 38 [1987];
PT&T v. NLRC, 183 SCRA 451 [1990]; Filipinas Manufacturers Bank v.
NLRC, 182 SCRA 848 [1990]; Batongbacal v. Associated Bank, 168 SCRA
600 [1988]; International Harvester Macleod v. NLRC, 149 SCRA 641
[1987]; Remerco Garments v. Minister of Labor, 135 SCRA 167 [1985];
Cebu Royal Plant v. Deputy Minister of Labor, 153 SCRA 38 [1987])
Security of tenure is a right which may not be denied on mere speculation of
any unclear and nebulous basis. (Tolentino v. NLRC, 152 SCRA 717 [1987])
In this regard, it could be concluded that the respondent PRC was merely in a
hurry to terminate the services of the petitioner as soon as possible in view of
the latter’s impending retirement; it appears that said company was merely
trying to avoid paying the retirement benefits the petitioner stood to receive
upon reaching the age of sixty (60). PRC acted in bad faith.
5. ID.; EMPLOYMENT CONTRACT; PERIOD OF EMPLOYMENT
STIPULATED THEREIN; EXPLAINED; CASE AT BAR. — An
examination of the contents of the contract of employment yields the
conclusion arrived at by the Solicitor General. There is no indication that
PRC intended to offer uninterrupted employment until the petitioner reached
the mandatory retirement age; it merely informs the petitioner of the
compulsory retirement age and the terms pertaining to the retirement. In
Brent School, Inc. v. Zamora, (181 SCRA 702 [1990]) this Court, in
upholding the validity of a contract of employment with a fixed or specific
period, declared that the "decisive determinant in term employment should
not be the activities that the employee is called upon to perform, but the day
certain agreed upon by the parties for the commencement and termination of
their employment relationship, a day certain being understood to be ‘that
which must necessarily come, although it may not ‘be known when.’" (Id.,
citing Article 1193 (third paragraph), Civil Code) The term period was
further defined to be, "Length of existence; duration. A point of time marking
a termination as of a cause or an activity; an end, a limit, a bound;
conclusion; termination. A series of years, months or days in which
something is completed. A time of definite length. . . . the period from one
fixed date to another fixed date . . . ." (Id., citing Capiral v. Manila Electric
Co., 119 Phil. 124 [1963], cited in MORENO, Philippine Law Dictionary,
3rd ed.)
6. ID.; SEPARATION PAY; DISTINGUISHED FROM BACKWAGES. —
In Torillo v. Leogardo, Jr., (197 SCRA 471 [1991]) an amplification was
made on Article 279 of the Labor Code and the distinction between
separation pay and backwages. Citing the case of Santos v. NLRC, (154
SCRA 166 [1987]), We held in the former: "The normal consequences of a
finding that an employee has been illegally dismissed are, firstly, that the
employee becomes entitled to reinstatement to his former position without
loss of seniority rights and, secondly, the payment of backwages
corresponding to the period from his illegal dismissal up to actual
reinstatement . . . Though the grant of reinstatement commonly carries with it
an award to backwages, the inappropriateness or non-availability of one does
not carry with it the inappropriateness or non-availability the other . . . Put a
little differently, payment of backwages is a form of relief that restores the
income that was lost by reason of unlawful dismissal; separation pay, in
contrast, is oriented towards the immediate future, the transitional period the
dismissed employee must undergo before locating a replacement job."
DECISION
DAVIDE, JR., J.:
Petitioner seeks to set aside the Decision 1 dated 14 January 1991 and the
Resolution 2 dated 13 May 1991 of the respondent National Labor Relations
Commission (hereinafter, NLRC) in NLRC Case No. 00-08-03412-88
entitled Orlando M. Escareal v. Philippine Refining Company, Inc. The said
Decision affirmed with modification the 19 February 1990 Decision 3 of the
respondent Labor Arbiter Manuel P. Asuncion while the Resolution denied
the motion for a reconsideration of the former.cralawnad
The dispositive portion of the respondent Labor Arbiter’s Decision
reads:jgc:chanrobles.com.ph
"WHEREFORE, the respondent is hereby ordered to pay the complainant his
redundancy pay in accordance with existing company policy on the matter.
25
This is without prejudice to the grant of additional benefits offered by the
respondent during the negotiation stage of the case, though it never
materialized for failure of the parties to reach an agreement.
SO ORDERED."cralaw virtua1aw library
The controversy stemmed from the dismissal of the petitioner from the
private respondent Philippine Refining Company, Inc. (hereinafter, PRC)
after almost eleven (11) years of gainful employment.
Petitioner was hired by the PRC for the position of Pollution Control
Manager effective on 16 September 1977 with a starting monthly pay of
P4,230 00; 4 the employment was made permanent effective on 16 March
1978. 5 The contract of employment provides, inter alia, that his "retirement
date will be the day you reach your 60th birthday, but there is provision (sic)
for voluntary retirement when you reach your 50th birthday. Bases for the
hiring of the petitioner are Letter of Instruction (LOI) No. 588 implementing
the National Pollution Control Decree, P.D No. 984, dated 19 August 1977,
the pertinent portion of which reads:jgc:chanrobles.com.ph
"1. All local governments, development authorities, government-owned or
controlled corporations, industrial, commercial and manufacturing
establishments, and all other public and private entities, whose functions
involve the discharge or emission of pollutants into the water, air and/or land
resources or the operation, installation or construction of any anti-pollution
device, treatment work or facility, sewerage or sewerage disposal system,
shall each appoint and/or designate a Pollution Control Officer." chanrobles
law library
and Memorandum Circular No. 02, 6 dated 3 August 1981 and implementing
LOI No. 588, which amended Memorandum Circular No. 007, Series of
1977, issued by the National Pollution Control Commission (NPCC), the
pertinent portions of which read:jgc:chanrobles.com.ph
"Section 3. Appointment/Designation of Pollution Control Officer. — All
local governments, development authorities, government-owned or
controlled corporations, industrial and manufacturing establishments, and
public and private entities falling within the purview of Letter of Instruction
No. 588, shall each appoint and/or designate a Pollution Control Officer.
x x x
Section 6. Employment Status-In the employment of Pollution Control
Officer, the following additional requirements shall be observed:chanrob1es
virtual 1aw library
x x x
(b) Private Entities —
1. Industrial and Manufacturing establishment and other private entities with
capitalization of one million pesos and above shall employ a full time
pollution control officer.
x x x
Section 9. Accreditation of Pollution Control Officer. — A (sic) duly
appointed and/or designated pollution control officers shall submit copies of
their designation and/or appointments to the Commission within thirty (30)
days from the date of such designation/appointment together with their
biodata and curriculum vitae for accreditation purposes. In case of the
termination of the appointment/designation of a pollution control officer for
any reason whatsoever, it shall be the responsibility of his employer to
inform the Commission of the same immediately to appoint/designate his
successor within thirty (30) days after said termination. (Emphasis
supplied)"
On 1 April 1979, petitioner was also designated as Safety Manager pursuant
to Article 162 of the Labor Code (P.D. 442, as amended) and the pertinent
implementing rule thereon. At the time of such designation, petitioner was
duly accredited as a Safety Practitioner by the Bureau of Labor Standards,
Department of Labor and Employment (DOLE) and the Safety Organization
of the Philippines. Article 162 of the Labor Code, as amended,
provides:chanrobles virtual lawlibrary
ARTICLE 162. Safety and Health Standard. — The Secretary of Labor shall,
by appropriate orders, set and enforce mandatory occupational safety and
health standards to eliminate or reduce occupational safety and health
hazards in all workplaces and institute new, and update existing, programs to
ensure safe and healthful working conditions in all places of
employment."cralaw virtua1aw library
In addition, the pertinent rules on Occupational Health and Safety
implementing the Labor Code provide for the designation of full-time safety
26
men to ensure compliance with the safety requirements prescribed by the
Bureau of Labor Standards. 7 Consequently, petitioner’s designation was
changed to Pollution Control and Safety Manager.
In the course of his employment, petitioner’s salary was regularly upgraded;
the last pay hike was granted on 28 March 1988 when he was officially
informed 8 that his salary was being increased to P23,100.00 per month
effective 1 April 1988. This last increase is indisputably a far cry from his
starting monthly salary of P4,230.00.
Sometime in the first week of November 1987, private respondent George B.
Ditching, who was then PRC’s Personnel Administration Manager, informed
petitioner about the company’s plan to declare the position of Pollution
Control and Safety Manager redundant. Ditching attempted to convince
petitioner to accept the redundancy offer or avail of the company’s early
retirement plan. Petitioner refused and instead insisted on completing his
contract as he still had about three and a half (3 1/2) years left before
reaching the mandatory retirement age of sixty (60).
On 15 June 1988, Jesus P. Javelona, PRC’s Engineering Department Manager
and petitioner’s immediate superior, formally informed the petitioner that the
position of "Safety and Pollution Control Manager will be declared
redundant effective at the close of work hours on 15th July 1988." 9
Petitioner was also notified that the functions and duties of the position to be
declared redundant will be absorbed and integrated with the duties of the
Industrial Engineering Manager; as a result thereof, the petitioner "will
receive full separation benefits provided under the PRC Retirement Plan and
additional redundancy payment under the scheme applying to employees
who are 50 years old and above and whose jobs have been declared
redundant by Management." chanrobles law library : red
Petitioner protested his dismissal via his 22 June 1988 letter to Javelona. 10
This notwithstanding, the PRC unilaterally circulated a clearance 11 dated 12
July 1988, to take effect on 15 July 1988, indicating therein that its purpose
is for the petitioner’s "early retirement" — and not redundancy. Petitioner
confronted Javelona; the latter, in his letter dated 13 July 1988, advised the
former that the employment would be extended for another month, or up to
15 August 1988. 12 Petitioner responded with a letter dated 25 July 1988
threatening legal action. 13
Subsequently, or on 14 July 1988, Bernardo N. Jambalos III, respondent
company’s Industrial Relations Manager, sent a Notice of Termination 14 to
the Ministry of Labor and Employment (MOLE) informing the latter that the
petitioner was being terminated on the ground of redundancy effective 15
August 1988.
On 5 August 1988, petitioner had a meeting with private respondent Cesar
Bautista and Dr. Reynaldo Alejandro, PRC’s President and Corporate Affairs
Director, respectively. To his plea that he be allowed to finish his contract of
employment as he only had three (3) years left before reaching the
mandatory retirement age, Bautista retorted that the termination was final.
On 8 August 1988, petitioner presented to Javelona a computation 15
showing the amount of P2,436,534.50 due him (petitioner) by way of
employee compensation and benefits.
On the date of the effectivity of his termination, petitioner was only fifty-
seven (57) years of age. He had until 21 July 1991, his sixtieth (60th) birth
anniversary, before he would have been compulsorily retired.
Also, on the date of effectivity of petitioner’s termination, 16 August 1988,
Miguelito S. Navarro, PRC’s Industrial Engineering Manager, was
designated as the Pollution Control and Safety Officer. Such appointment is
evidenced by two (2) company correspondences. In its letter dated 6
September 1988 to the Laguna Lake Development Authority, 16 PRC
informed the said Authority, to wit:jgc:chanrobles.com.ph
"With effect from 16 August 1988 the functions and duties of our Safety and
Pollution Control Officer has (sic) been integrated and absorbed with those
of our Industrial Engineering Manager.
x x x
The main tasks of our Industrial Engineering Manager, Mr. Miguelito S.
Navarro, now includes (sic) safety and pollution
control.chanrobles.com:cralaw:red
Attached to (sic) the bio-data of Mr. Navarro for your accreditation as our
designated Pollution Control Officer."cralaw virtua1aw library
In its letter to the Safety Organization of the Philippines 17 dated 14
December 1988, PRC articulated Mr. Miguelito S. Navarro’s designation as
"Safety Officer of Phil. Refining Company."cralaw virtua1aw library
27
In view of all this, petitioner filed a complaint for illegal dismissal with
damages against the private respondent PRC before the Arbitration Branch,
NLRC, National Capital Region; the case was docketed as NLRC-NCR Case
No. 00-08-03412-88. 18 After trial, respondent Labor Arbiter Manuel P.
Asuncion rendered a decision dated 19 February 1990, the dispositive portion
of which was quoted earlier.
Petitioner appealed the said decision to the NLRC which, in its decision of
14 January 1991, made the following findings:jgc:chanrobles.com.ph
"Respondent contended that complainant Orlando M. Escareal was employed
as Safety and Pollution Control Engineer on September 16, 1977; that as part
of the Company’s policy to streamline the work force and to keep the
Organization more effective, it allegedly declared redundant several positions
from all levels and departments of the company; that the position of ‘Safety
and Pollution Control Manager’ which the herein complainant was holding at
the time of dismissal, is one of those that were affected; that the functions of
Mr. Escareal were fused with the Industrial Engineering Department, the
latter being under the control and supervision of Mr. Miguelito S. Navarro;
that no replacement and/or new appointment to said questioned position have
(sic) been made; that respondent terminated complainant on the ground of
redundancy and offered him P458,929.00 a separation pay; and that the
above mentioned amount, is far above what complainant can get under the
Labor Code, as amended.
x x x Undaunted by this second setback, the petitioner filed a Motion for
The determination as to the usefulness of a particular department or section
as an integral aspect of company prerogative, may not be questioned, the
objective of which being to (sic) achieve profitability. (Special Events
Control Shipping Office Workers Union v. San Miguel Corporation, 122
SCRA 557).
x x x reconsideration other than his pecuniary interest is hereby Dismissed for lack
To submit to the argument of herein Complainant that there is no basis in the
management’s decision to declare his position redundant is to deny the
company of its inherent prerogative, without due process of law.
x x x amount of P363,825.00; and
Turning to another issue of whether or not a fixed period of employment has
been concluded, suffice it to say that it lacks legal and factual
basis.chanrobles virtual lawlibrary
x x x
If indeed, a fixed period of contract of employment has been concluded
under the circumstances, the complainant would not have acceded to have
undergone a probationary period. The (sic) latter being a condition sine-qua
non before he became a regular worker. Consequently, the averment of
breach of Contract pursuant to Article 1159, 1306 and 1308 of the New Civil
Code of the Phils., is not in point. Additionally, to subscribe to the
protestation of herein complainant that the reference of the retirement age at
60 in the company’s letter dated August 22, 1977 meant fixed duration is to
tie the hands of management in doing what is necessary to meet the
exigencies of the business . . ."cralaw virtua1aw library
and then ruled that:jgc:chanrobles.com.ph
"WHEREFORE, the appealed decision is hereby Affirmed, with modification
ordering respondent-company to pay complainant his retirement pay in
accordance with the company policy and other benefits granted to him
thereunder, less outstanding obligations of the complainant with the company
at the time of his dismissal." 19
Reconsideration 20 of this decision on 25 January 1991. Private respondent
PRC also filed its own motion for reconsideration on the ground that
petitioner is entitled to only one (1) benefit, and not to both. In a Resolution
promulgated on 13 May 1991, the NLRC’s First Division 21 ruled as
follows:jgc:chanrobles.com.ph
"WHEREFORE, in view thereof, the complainant’s motion for
of merit. Accordingly, respondent-company (PRC) is ordered to pay Mr.
Escareal’s redundancy benefits in accordance with the company policy on the
matter as follows:chanrob1es virtual 1aw library
(a) Retirement credit of 1.5 months pay for every year of service in the
(b) Ex-gratia, amounting to:chanrob1es virtual 1aw library
28
P81,496.80
——————
TOTAL P445,321.80"
As a consequence thereof, the instant petition was filed on 29 May 1991. 22
Private respondent PRC filed its Comment on 21 August 1991 23 while the
public respondent, through the Office of the Solicitor General, filed its
Comment on 10 October 1991. 24
On 16 October 1991, 25 this Court resolved, inter alia, to give due course to
the petition and require the parties to file their respective Memoranda
Petitioner complied with this Resolution on 12 December 1991; 26 public
respondent NLRC, on the other hand, filed its Memorandum only on 24
March 1992. 27
In his thorough and exhaustive Memorandum, herein petitioner makes the
following assignment of errors:chanrobles law library : red
"I
RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR IN (sic) EXCESS OF JURISDICTION IN
AFFIRMING THE DECISION OF THE RESPONDENT LABOR
ARBITER THAT PETITIONER’S TERMINATION AS POLLUTION
CONTROL AND SAFETY MANAGER OF RESPONDENT PRC ON THE
GROUND OF REDUNDANCY WAS VALID — TOTALLY IGNORING
THE FACT THAT PETITIONER’S POSITION WAS NEVER ABOLISHED
BUT WAS MERELY GIVEN TO ANOTHER EMPLOYEE (MIGUELITO
S. NAVARRO) WHO WAS IMMEDIATELY DESIGNATED AS A
REPLACEMENT.
II
RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR IN (sic) EXCESS OF JURISDICTION IN
DECLARING THAT PETITIONER’S WRITTEN CONTRACT OF
EMPLOYMENT WITH RESPONDENT PRC WAS NOT FOR A DEFINITE
PERIOD, AND THAT IT IS NOT VIOLATED NOTWITHSTANDING THE
FACT THAT RESPONDENT PRC PREMATURELY SHORTENED
PETITIONER’S RETIREMENT AGE AT 57 INSTEAD OF 60.
III
RESPONDENT NLRC COMMITTED A VERY SERIOUS ERROR
AMOUNTING TO LACK OR IN (sic) EXCESS OF JURISDICTION IN
DECLARING THAT THE PETITIONER IS NOT ENTITLED TO ANY
SEPARATION PAY SUCH AS CASH EQUIVALENT OF HIS
ACCUMULATED VACATION AND SICK LEAVE CREDITS,
REDUNDANCY PAY, BONUSES, ETC., BUT ONLY TO HIS
RETIREMENT BENEFITS UNDER THE PRC RETIREMENT PLAN UP
TO AUGUST 16, 1988 (DATE OF HIS TERMINATION).
IV
RESPONDENT NLRC SERIOUSLY ERRED IN DECLARING THAT
PETITIONER IS NOT ENTITLED TO DAMAGES,
NOTWITHSTANDING RESPONDENT PRC’S AND ITS OFFICERS’
EVIDENT BAD FAITH, WANTON AND PATENT VIOLATION OF
PETITIONER’S WRITTEN CONTRACT OF EMPLOYMENT.
V
RESPONDENT NLRC GRAVELY ERRED IN NOT AWARDING
PETITIONER AN AMOUNT FOR ATTORNEY’S FEE EQUIVALENT TO
TEN (10%) PERCENT OF THE AMOUNT DUE, NOTWITHSTANDING
THAT PETITIONER WAS COMPELLED TO LITIGATE BY REASON OF
HIS ILLEGAL DISMISSAL AND OF RESPONDENT PRC’S AND ITS
OFFICERS’ MALICIOUS AND WANTON ACTS." 28
We find for the petitioner.chanrobles law library : red
Article 283 of the Labor Code provides:jgc:chanrobles.com.ph
"ARTICLE 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
Ministry of Labor and Employment at least one (1) month before the
intended date thereof. In case of termination due to the installation of labor
saving devices or redundancy, the worker affected thereby shall be entitled to
29
a separation pay equivalent to at least his one (1) month pay or to at least one
(1) month pay for every year of service, whichever is higher. 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 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."cralaw virtua1aw library
In Wiltshire File Co., Inc. v. NLRC, 29 this Court held that redundancy, for
purposes of the Labor Code, exists where the services of an employee are in
excess of what is reasonably demanded by the actual requirements of the
enterprise; a position is redundant when it is superfluous, and superfluity of a
position or positions may be the outcome of a number of factors, such as the
overhiring of workers, a decreased volume of business or the dropping of a
particular product line or service activity previously manufactured or
undertaken by the enterprise. 30 Redundancy in an employer’s personnel
force, however, does not necessarily or even ordinarily refer to duplication of
work. That no other person was holding the same position which the
dismissed employee held prior to the termination of his services does not
show that his position had not become redundant.
Private respondent PRC had no valid and acceptable basis to declare the
position of Pollution Control and Safety Manager redundant as the same may
not be considered as superfluous; by the express mandate of the provisions
earlier cited, said positions are required by law. Thus, it cannot be gainsaid
that the services of the petitioner are in excess of what is reasonably required
by the enterprise. Otherwise, PRC would not have allowed ten (10) long
years to pass before opening its eyes to that fact; neither would it have
increased the petitioner’s salary to P23,100.00 a month effective 1 April
1988. The latter by itself is an unequivocal admission of the specific and
special need for the position and an open recognition of the valuable services
rendered by the petitioner. Such admission and recognition are inconsistent
with the proposition that petitioner’s positions are redundant. It cannot also
be argued that the said functions were duplicative, and hence could be
absorbed by the duties pertaining to the Industrial Engineering Manager. If
indeed they were, and assuming that the Industrial Engineering department of
the PRC had been created earlier, petitioner’s positions should not have been
created and filled up. If, on the other hand, the department was created later,
and there is no evidence to this effect, and it was to absorb the petitioner’s
positions, then there would be no reason for the unexplained delay in its
implementation, the restructuring then should have been executed long
before the salary increases in petitioner’s favor. That petitioner’s positions
were not duplicitous is best evidenced by the PRC’s recognition of their
imperative need thereof, this is underscored by the fact that Miguelito S.
Navarro, the company’s Industrial Engineering Manager, was designated as
Pollution Control and Safety Manager on the very same day of petitioner’s
termination. While the petitioner had over ten (10) years of experience as a
pollution control and safety officer, Navarro was a virtual greenhorn lacking
the requisite training and experience for the assignment. A cursory perusal of
his bio-data 31 reveals that it was only several months after his appointment
that he attended his first Occupational Safety & Health Seminar (14-17
November 1988), moreover, it was only after his second seminar (Loss
Control Management Seminar — 6-9 December 1988) that the PRC
requested his accreditation with the Safety Organization of the Philippines.
32 In trying to prop up Navarro’s competence for the position, PRC alleges
that the former finished from the University of the Philippines with a degree
in Chemical Engineering, took some units in pollution in the process and had
"undergone job training in pollution in cement firms through the Bureau of
Mines." 33 Compared to the training and experience of the petitioner,
Navarro’s orientation would seem to pale.chanrobles virtual lawlibrary
The private respondent alleges further 34 that its decision to declare
petitioner’s position as redundant "stemmed from its well-considered view
that in order for the corporation’s safety and pollution program to be more
effective, such program would have to be tied up with the functions of the
Industrial Engineering Manager." It is further posited that since the job of
safety and pollution engineer "requires coordination with operating
departments, knowledge of the manufacturing processes, and adequate
presence in plant areas, a task which the company’s safety and pollution
control officer would not be up to as he works singlehandedly, it is only the
Industrial Engineer, commanding a department of five (5) engineers and one
(1) clerk, who can live up to corporate expectations. Indeed, the proposition
that a department manned by a number of engineers presumably because of
the heavy workload, could still take on the additional responsibilities which
were originally reposed in an altogether separate section headed by the
petitioner, is difficult to accept. It seems more reasonable to view the set-up
which existed before the termination as being more conducive to efficient
operations. And even if We were to sustain PRC’s explanation, why did it so
suddenly incorporate functions after the separate position of Pollution and
Safety Control Manager had existed for over ten (10) years? No effort
whatsoever was undertaken to gradually integrate both functions over this
span of time. Anent this specific point, all that the private respondent has to
say is that the declaration of redundancy was made pursuant to its continuing
30
program, which has been ongoing for the past ten (10) years, of streamlining
the personnel complement and maintaining a lean and effective organization.
35
Furthermore, if PRC felt that either the petitioner was incompetent or that the
task could be performed by someone more qualified, then why is it that the
person designated to the position hardly had any experience in the field
concerned? And why reward the petitioner, barely five (5) months before the
dismissal, with an increase in salary? Assuming PRC’s good faith, it would
still seem quite surprising that it did not at least provide a transition period
wherein the Industrial Engineering Manager would be adequately trained for
his new assignment; such reckless conduct is not the expected behavior of a
well-oiled and progressive multinational company. Petitioner himself could
have very well supervised a training and familiarization program which
could have taken the remaining three (3) years of his employment. But no
such move was initiated. Instead, a clever scheme to oust the petitioner from
a position held for so long was hatched and implemented. On the very same
day of petitioner’s termination, the position vacated was resurrected and
reconstituted as a component of the position of Industrial Engineering
Manager. After more than ten (10) years of unwavering service and loyalty to
the company, the petitioner was so cruelly and callously
dismissed.chanrobles.com:cralaw:red
What transpired then was a substitution of the petitioner by Miguelito S.
Navarro. If based on the ground of redundancy, such a move would be
invalid as the creation of said position is mandated by the law; the same
cannot therefore be declared redundant. If the change was effected to
consolidate the functions of the pollution control and safety officer with the
duties of the Industrial Engineering Manager, as private respondent
postulates, such substitution was done in bad faith for as had already been
pointed out, Miguelito S. Navarro was hardly qualified for the position. If the
aim was to generate savings in terms of the salaries that PRC would not be
paying the petitioner any more as a result of the streamlining of operations
for improved efficiency, such a move could hardly be justified in the face of
PRC’s hiring of ten (10) fresh graduates for the position of Management
Trainee 36 and advertising for vacant positions in the Engineering/Technical
Division at around the time of the termination. 37 Besides, there would seem
to be no compelling reason to save money by removing such an important
position. As shown by their recent financial statements, PRC’s year-end net
profits had steadily increased from 1987 to 1990. 38 While concededly,
Article 283 of the Labor Code does not require that the employer should be
suffering financial losses before he can terminate the services of the
employee on the ground of redundancy, it does not mean either that a
company which is doing well can effect such a dismissal whimsically or
capriciously. The fact that a company is suffering from business losses
merely provides stronger justification for the termination.
The respondent NLRC 39 relied on Wiltshire File Co., v. NLRC 40 in
declaring that the employer has no legal obligation to keep in its payroll more
employees than are necessary for the operation of its business. Aside from
the fact that in the case at bar, there was no compelling reason to dismiss the
petitioner as the company was not incurring any losses, the position declared
redundant in the Wiltshire case was that of a Sales Manager, a management
created position. In the case at bar, petitioner’s position is one created by law.
The NLRC adds further that the termination was effected in the exercise of
management prerogative and that account should also be taken of the "life of
the company which is . . . an active pillar of our economy and upon whose
existence still depends the livelihood of a great number of workers." 41 It
goes on to observe that" [t]he records are bereft of proof which could have
been the basis of vengeful termination other than the company’s legitimate
objective to trim its work force." 42 In the face of the circumstances
surrounding the dismissal, this Court finds it extremely difficult to give
credence to such conclusions.
Thus, it is evident from the foregoing that petitioner’s right to security of
tenure was violated by the private respondent PRC. Both the Constitution
(Section 3, Article XIII) and the Labor Code (Article 279, P.D. 442, as
amended) enunciate this right as available to an employee. In a host of cases,
this Court has upheld the employee’s right to security of tenure in the face of
oppressive management behavior and management prerogative. 43 Security
of tenure is a right which may not be denied on mere speculation of any
unclear and nebulous basis. 44
In this regard, it could be concluded that the respondent PRC was merely in a
hurry to terminate the services of the petitioner as soon as possible in view of
the latter’s impending retirement; it appears that said company was merely
trying to avoid paying the retirement benefits the petitioner stood to receive
upon reaching the age of sixty (60). PRC acted in bad faith.chanrobles law
library : red
Both the Labor Arbiter and the respondent NLRC clearly acted with grave
abuse of discretion in disregarding the facts and in deliberately closing their
eyes to the unlawful scheme resorted to by the PRC.
31

We cannot, however, subscribe to the theory of petitioner that his
employment was for a fixed definite period to end at the celebration of his
sixtieth (60th) birthday because of the stipulation as to the retirement age of
sixty (60) years. The Solicitor General’s refutation, to
wit:jgc:chanrobles.com.ph
"A perusal of the provision in the August 22, 1977 letter cited by petitioner
merely informs him of the company policy which pegs the compulsory
retirement age of its employees at 60 and which commences on the date of
the employee’s 60th birthday. It likewise informs him that the company
recognizes the right of the employee to retire voluntarily, which option can
be availed of when the employee reaches his 50th birthday. Clearly, the cited
provision is limited solely to the pertinent issue of retirement." 45
is correct.
An examination of the contents of the contract of employment 46 yields the
conclusion arrived at by the Solicitor General. There is no indication that
PRC intended to offer uninterrupted employment until the petitioner reached
the mandatory retirement age, it merely informs the petitioner of the
compulsory retirement age and the terms pertaining to the retirement.
In Brent School, Inc. v. Zamora, 47 this Court, in upholding the validity of a
contract of employment with a fixed or specific period, declared that the
"decisive determinant in term employment should not be the activities that
the employee is called upon to perform, but the day certain agreed upon by
the parties for the commencement and termination of their employment
relationship, a day certain being understood to be ‘that which must
necessarily come, although it may not ‘be known when.’" 48 The term period
was further defined to be, "Length of existence; duration. A point of time
marking a termination as of a cause or an activity; an end, a limit, a bound;
conclusion; termination. A series of years, months or days in which
something is completed. A time of definite length. . . . the period from one
fixed date to another fixed date . . ." 49
The letter to the petitioner confirming his appointment does not categorically
state when the period of employment would end. It stands to reason then that
petitioner’s employment was not one with a specific period.chanrobles law
library
Coming to the third assigned error, since We have concluded that the
petitioner’s dismissal was illegal and can not be justified under a valid
redundancy initiative, Article 283 of the Labor Code, as amended, on the
benefits to be received by the dismissed employee in the case of redundancy,
retrenchment to prevent losses, closure of business or the installation of labor
saving devices, is not applicable. Instead, We apply Article 279 thereof which
provides, in part, that an "employee who is unjustly dismissed from work
shall be entitled to reinstatement without loss of seniority rights and other
privileges and to his full backwages, inclusive of allowances, and to his other
benefits or their monetary equivalent computed from the time his
compensation was withheld from him up to the time of his actual
reinstatement."cralaw virtua1aw library
In Torillo v. Leagardo, Jr., 50 an amplification was made on Article 279 of
the Labor Code and the distinction between separation pay and backwages.
Citing the case of Santos v. NLRC, 51 We held in the
former:jgc:chanrobles.com.ph
"The normal consequences of a finding that an employee has been illegally
dismissed are, firstly, that the employee becomes entitled to reinstatement to
his former position without loss of seniority rights and, secondly, the
payment of backwages corresponding to the period from his illegal dismissal
up to actual reinstatement.
x x x
Though the grant of reinstatement commonly carries with it an award of
backwages, the inappropriateness or non-availability of one does not carry
with it the inappropriateness or non-availability of the other.
x x x
Put a little differently, payment of backwages is a form of relief that restores
the income that was lost by reason of unlawful dismissal, separation pay, in
contrast, is oriented towards the immediate future, the transitional period the
dismissed employee must undergo before locating a replacement job."cralaw
virtua1aw library
Reinstatement then of the petitioner would have been proper. However, since
he reached the mandatory retirement age on 21 July 1991, reinstatement is no
longer feasible. He should thus be awarded his backwages from 16 August
1988 to 21 July 1991, inclusive of allowances and the monetary equivalent of
the other benefits due him for that period, plus retirement benefits under the
32
PRC’s compulsory retirement scheme which he would have been entitled to
had he not been illegally dismissed.

Finally, anent the last two (2) assigned errors, this Court notes that in his
complaint and the attached Affidavit-Complaint, 52 petitioner does not
mention any claim for damages and attorney s fees; furthermore, no evidence
was offered to prove them. An award therefor would not be
justified.chanroblesvirtualawlibrary

WHEREFORE, judgment is hereby rendered GRANTING the petition,

SETTING ASIDE the Decision and Resolution of respondent National Labor
Relations Commission, dated 14 January 1991 and 13 May 1991,
respectively in Labor Case No. NLRC-NCR-00-08-03412-88 and
ORDERING private respondent Philippine Refining Co., Inc. to pay
petitioner Orlando M. Escareal his backwages from 16 August 1988 to 21
July 1991 inclusive of allowances and the monetary equivalent of other
benefits due him for that period, as well as his retirement pay and other
benefits provided under the former’s compulsory retirement scheme. The
respondent Labor Arbiter or his successor is hereby directed to make the
appropriate computation of these awards within twenty (20) days from
receipt of a copy of this Decision, which respondent Philippine Refining Co.,
Inc. shall pay to the petitioner within ten (10) days from notice thereof.

Costs against private respondent Philippine Refining Co., INC

SO ORDERED.

33
7.) Industrial Timber vs. Ababon, 480 SCRA 171, GR 164518, January
25, 2006
DECISION
YNARES-SANTIAGO, J.:
Before us are two petitions for review under Rule 45 of the Rules of Court.
G.R. No. 164518 assails the October 21, 2002 Decision[1] of the Court of
Appeals, in CA-GR. SP No. 51966, which set aside the May 24, 1995
Decision[2] of the National Labor Relations Commission (NLRC), as well as
the July 16, 2004 Resolution[3] denying its motion for reconsideration. G.R.
No. 164965 assails only the July 16, 2004 Resolution of the Court of Appeals
which denied their partial motion for reconsideration. These cases were
consolidated because they arose out of the same facts set forth below.
Industrial Plywood Group Corporation (IPGC) is the owner of a plywood
plant located at Agusan, Pequeo, Butuan City, leased to Industrial Timber
Corporation (ITC) on August 30, 1985 for a period of five years.
[4]
Thereafter, ITC commenced operation of the plywood plant and hired 387
workers.
On March 16, 1990, ITC notified the Department of Labor and Employment
(DOLE) and its workers that effective March 19, 1990 it will undergo a no
plant operation due to lack of raw materials and will resume only after it can
secure logs for milling.[5]
Meanwhile, IPGC notified ITC of the expiration of the lease contract in
August 1990 and its intention not to renew the same.
On June 26, 1990, ITC notified the DOLE and its workers of the plants
shutdown due to the non-renewal of anti-pollution permit that expired in
April 1990.[6] This fact and the alleged lack of logs for milling constrained
ITC to lay off all its workers until further notice. This was followed by a final
notice of closure or cessation of business operations on August 17, 1990 with
an advice for all the workers to collect the benefits due them under the law
and CBA.[7]
On October 15, 1990, IPGC took over the plywood plant after it was issued a
Wood Processing Plant Permit No. WPR-1004-081791-042,[8] which
included the anti-pollution permit, by the Department of Environment and
Natural Resources (DENR) coincidentally on the same day the ITC ceased
operation of the plant.
This prompted Virgilio Ababon, et al. to file a complaint against ITC and
IPGC for illegal dismissal, unfair labor practice and damages. They alleged,
among others, that the cessation of ITCs operation was intended to bust the
union and that both corporations are one and the same entity being controlled
by one owner.
On January 20, 1992, after requiring both parties to submit their respective
position papers, Labor Arbiter Irving A. Petilla rendered a decision which
refused to pierce the veil of corporate fiction for lack of evidence to prove
that it was used to perpetuate fraud or illegal act; upheld the validity of the
closure; and ordered ITC to pay separation pay of month for every year of
service. The dispositive portion of the decision reads:
PREMISES CONSIDERED, judgment is hereby rendered ordering
respondent Industrial Timber Corporation (ITC) to pay herein ninety-seven
individual complainants their separation pay at the rate of one-half (1/2)
months pay for every year of service, a fraction of at least six (6) months to
be considered as one whole year, reckoned until August 1990.
All other claims of complainants are hereby ordered DISMISSED for want of
merit.
SO ORDERED.[9]
Ababon, et al. appealed to the NLRC. On May 20, 1993, the NLRC set aside
the decision of the Labor Arbiter and ordered the reinstatement of the
employees to their former positions, and the payment of full back wages,
damages and attorneys fees.[10]
ITC and IPGC filed a Motion for Reconsideration through JRS, a private
courier, on June 24, 1993.[11] However, it was dismissed for being filed out of
time having been filed only on the date of actual receipt by the NLRC on
June 29, 1993, three days after the last day of the reglamentary period.
[12]
Thus, they filed a Petition for Relief from Resolution, [13] which was
treated as a second motion for reconsideration by the NLRC and dismissed
for lack of merit in a Resolution dated September 29, 1994. [14]
34
From said dismissal, petitioners filed a Notice of Appeal with the Supreme
Court.[15] Subsequently, they filed a Motion for Reconsideration/Second
Petition for Relief with the NLRC.[16]
On December 7, 1994, the Supreme Court dismissed the Notice of Appeal for
being a wrong mode of appeal from the NLRC decision. [17] On the other
hand, the NLRC granted the Second Petition for Relief and set aside all its
prior decision and resolutions. The dispositive portion of the May 24, 1995
decision reads:
WHEREFORE, the decision of this Commission dated May 10, 1993 and its
subsequent resolutions dated June 22, 1994 and September 29, 1994 are Set
Aside and Vacated. Accordingly, the appeal of complainants is Dismissed for
lack of merit and the decision of the Labor Arbiter dated January 20, 1992 is
Reinstated and hereby Affirmed.
SO ORDERED.[18]
On October 2, 1995, Virgilio Ababon, et al. filed a Petition for Certiorari
with the Supreme Court, which was docketed as G.R. No. 121977.
[19]
However, pursuant to our ruling in St. Martins Funeral Home v. NLRC,
we referred the petition to the Court of Appeals for appropriate action and
disposition.[20]
On October 21, 2002, the Court of Appeals rendered a decision setting aside
the May 24, 1995 decision of the NLRC and reinstated its May 20, 1993
decision and September 29, 1993 resolution, thus:
WHEREFORE, the petition is GRANTED. The decision dated May 24, 1995
of the National Labor Relations Commission is ANNULLED and SET
ASIDE, with the result that its decision dated May 20, 1993 and resolution
dated September 29, 1994 are REINSTATED.
SO ORDERED.[21]
Both parties filed their respective motions for reconsideration which were
denied, hence, the present consolidated petitions for review based on the
following assigned errors:
In G.R. No. 164518
THE COURT OF APPEALS ERRED IN LIBERALLY APPLYING THE
RULES OF PROCEDURE WITH RESPECT TO RESPONDENTS BUT
BEING RIGID IN ITS APPLICATION AS REGARDS PETITIONERS.[22]
In G.R. No. 164965
WITH DUE RESPECT, THE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR WHEN IT REFUSED TO APPLY SECTION 279
OF THE LABOR CODE AS AMENDED BY RA 6715 TO MODIFY THE
DECISION OF 20 MAY 1993 WITH RESPECT TO BACKWAGES FOR
PETITIONERS.[23]
ITC and IPGC contend that the Court of Appeals erred in reversing the May
24, 1995 decision of the NLRC since its May 20, 1993 decision had become
immutable for their failure to file motion for reconsideration within the
reglementary period. While they admit filing their motion for reconsideration
out of time due to excusable negligence of their counsels secretary, however,
they advance that the Court of Appeals should have relaxed the rules of
technicality in the paramount interest of justice, as it had done so in favor of
the employees, and ruled on the merits of the case; after all, the delay was
just three days.
Ordinarily, once a judgment has become final and executory, it can no longer
be disturbed, altered or modified. However, this rule admits of exceptions in
cases of special and exceptional nature as we held in Industrial Timber
Corporation v. National Labor Relations Commission:[24]
It is true that after a judgment has become final and executory, it can no
longer be modified or otherwise disturbed. However, this principle admits of
exceptions, as where facts and circumstances transpire which render its
execution impossible or unjust and it therefore becomes necessary, in the
interest of justice, to direct its modification in order to harmonize the
disposition with the prevailing circumstances.
A careful scrutiny of the facts and circumstances of these consolidated cases
warrants liberality in the application of technical rules and procedure. We
agree with the NLRC that substantial justice is best served by allowing the
petition for relief despite procedural defect of filing the motion for
reconsideration three days late, for to rule otherwise, a greater injustice
would be done to ITC by ordering it to reinstate the employees to their
former positions that no longer exist due to valid and legitimate cessation of
business and pay huge judgment award.[25]
Moreover, under Article 218 (c) of the Labor Code, the NLRC may, in the
exercise of its appellate powers, correct, amend, or waive any error, defect or
35
irregularity whether in substance or in form. Further, Article 221 of the same
code provides that in any proceeding before the Commission or any of the
Labor Arbiters, the rules of evidence prevailing in courts of law or equity
shall not be controlling and it is the spirit and intention of this Code that the
Commission and its members and the Labor Arbiters shall use every and all
reasonable means to ascertain the facts in each case speedily and objectively
and without regard to technicalities of law or procedure, all in the interest of
due process.[26]
Also, the rule under Section 14 of Rule VII of the New Rules of Procedure of
the NLRC that a motion for reconsideration of any order, resolution or
decision of the Commission shall not be entertained except when based on
palpable or patent errors, provided that the motion is under oath and filed
within 10 calendar days from receipt of the order, resolution or
decision should not be interpreted as to sacrifice substantial justice to
technicality. It should be borne in mind that the real purpose behind the
limitation of the period is to forestall or avoid an unreasonable delay in the
administration of justice, from which the NLRC absolved ITC and IPGC
because the filing of their motion for reconsideration three days later than the
prescribed period was due to excusable negligence. Indeed, the Court has the
power to except a particular case from the operation of the rule whenever the
purposes of justice requires it because what should guide judicial action is
that a party is given the fullest opportunity to establish the merits of his
action or defense rather than for him to lose life, honor, or property on mere
technicalities.[27]
We now come to the main issues of whether Ababon, et al. were illegally
dismissed due to the closure of ITCs business; and whether they are entitled
to separation pay, backwages, and other monetary awards.
Work is a necessity that has economic significance deserving legal
protection. The social justice and protection to labor provisions in the
Constitution dictate so. On the other hand, employers are also accorded rights
and privileges to assure their self-determination and independence, and
reasonable return of capital. This mass of privileges comprises the so-
called management prerogatives. Although they may be broad and unlimited
in scope, the State has the right to determine whether an employer's privilege
is exercised in a manner that complies with the legal requirements and does
not offend the protected rights of labor. One of the rights accorded an
employer is the right to close an establishment or undertaking. [28]
The right to close the operation of an establishment or undertaking is one of
the authorized causes in terminating employment of workers, the only
limitation being that the closure must not be for the purpose of circumventing
the provisions on termination of employment embodied in the Labor Code.
Article 283 of the Labor Code provides:
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
Ministry of Labor and Employment at least one (1) month before the
intended date thereof. In case of termination due to the installation of labor
saving devices or redundancy, the worker affected thereby shall be entitled to
a separation pay equivalent to at least his one (1) month pay or to at least one
(1) month pay for every year of service, whichever is higher. 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.
A reading of the foregoing law shows that a partial or total closure or
cessation of operations of establishment or undertaking may either be due to
serious business losses or financial reverses or otherwise. Under the first
kind, the employer must sufficiently and convincingly prove its allegation of
substantial losses,[29] while under the second kind, the employer can lawfully
close shop anytime[30] as long as cessation of or withdrawal from business
operations was bona fide in character and not impelled by a motive to defeat
or circumvent the tenurial rights of employees, [31] and as long as he pays his
employees their termination pay in the amount corresponding to their length
of service.[32] 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.[33]
In sum, under Article 283 of the Labor Code, three requirements are
necessary for a valid cessation of business operations: (a) service of a written
36
notice to the employees and to the 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 these consolidated cases, we find that ITCs closure or cessation of
business was done in good faith and for valid reasons.
The records reveal that the decision to permanently close business operations
was arrived at after a suspension of operation for several months precipitated
by lack of raw materials used for milling operations, the expiration of the
anti-pollution permit in April 1990, and the termination of the lease contract
with IPGC in August 1990 over the plywood plant at Agusan, Pequeo,
Butuan City. We quote with approval the observation of the Labor Arbiter:
As borne out from the records, respondent ITC actually underwent no plant
operation since 19 March 1990 due to lack of log supply. This fact is
admitted by complainants (Minutes of hearing, 28 October 1991). Since then
several subsequent incidents prevented respondent ITC to resume its business
operations e.g. expiration and non-renewal of the wood processing plant
permit, anti-pollution permit, and the lease contract on the plywood
plant. Without the raw materials respondent ITC has nothing to produce.
Without the permits it cannot lawfully operate the plant. And without the
contract of lease respondent ITC has no option but to cease operation and
turn over the plant to the lessor.[34] (Emphasis supplied)
Moreover, the lack of raw materials used for milling operations was affirmed
in Industrial Timber Corporation v. National Labor Relations
Commission[35] as one of the reasons for the valid closure of ITCs Butuan
Logs Plant in 1989. In said case, we upheld the management prerogative to
close the plant as the only remedy available in order to prevent imminent
heavy losses on account of high production costs, erratic supply of raw
materials, depressed prices and poor market conditions for its wood products.
In Shoppers Gain Supermarket v. National Labor Relations Commission,
[36]
we held that the non-renewal of petitioner corporations lease contract and
its consequent closure and cessation of operations may be considered an
event beyond petitioners control, in the nature of a force majeure situation.
As such, it amounts to an authorized cause for termination of the private
respondents.
Having established that ITCs closure of the plywood plant was done in good
faith and that it was due to causes beyond its control, the conclusion is
inevitable that said closure is valid. Consequently, Ababon, et al. could not
have been illegally dismissed to be entitled to full backwages. Thus, we find
it no longer necessary to discuss the issue regarding the computation of their
backwages. However, they are entitled to separation pay equivalent to one
month pay or at least one-half month pay for every year of service,
whichever is higher.
Although the closure was done in good faith and for valid reasons, we find
that ITC did not comply with the notice requirement. While an employer is
under no obligation to conduct hearings before effecting termination of
employment due to authorized cause,[37] however, the law requires that it
must notify the DOLE and its employees at least one month before the
intended date of closure.
In the case at bar, ITC notified its employees and the DOLE of the no plant
operation on March 16, 1990 due to lack of raw materials. This was followed
by a shut down notice dated June 26, 1990 due to the expiration of the anti-
pollution permit. However, this shutdown was only temporary as ITC assured
its employees that they could return to work once the renewal is acted upon
by the DENR. On August 17, 1990, the ITC sent its employees a final notice
of closure or cessation of business operations to take effect on the same day
it was released. We find that this falls short of the notice requirement for
termination of employment due to authorized cause considering that the
DOLE was not furnished and the notice should have been furnished both the
employees and the DOLE at least one month before the intended date of
closure.
In Ariola v. Philex Mining Corporation,[38] we held:
In Agabon v. National Labor Relations Commission and Jaka Food
Processing Corporation v. Pacot, the Court sustained the dismissals for just
cause under Article 282 and for authorized cause under Article 283 of the
Labor Code, respectively, despite non-compliance with the statutory
requirement of notice and hearing. The grounds for the dismissals in those
cases, namely, neglect of duty and retrenchment, remained valid because the
non-compliance with the notice and hearing requirement in the Labor Code
did not undermine the validity of the grounds for the dismissals. Indeed, to
invalidate a dismissal merely because of a procedural defect creates absurdity
and runs counter to public interest. We explained in Agabon:
37
The unfairness of declaring illegal or ineffectual dismissals for valid or
authorized causes but not complying with statutory due process may have
far-reaching consequences.

This would encourage frivolous suits, where even the most notorious
violators of company policy are rewarded by invoking due process. This also
creates absurd situations where there is a just or authorized cause for
dismissal but a procedural infirmity invalidates the termination. Let us take
for example a case where the employee is caught stealing or threatens the
lives of his co-employees or has become a criminal, who has fled and cannot
be found, or where serious business losses demand that operations be ceased
in less than a month. Invalidating the dismissal would not serve public
interest. It could also discourage investments that can generate employment
in the local economy.

Where the dismissal is based on an authorized cause under Article 283 of the
Labor Code but the employer failed to comply with the notice requirement,
the sanction should be stiff as the dismissal process was initiated by the
employers exercise of his management prerogative, as opposed to a dismissal
based on a just cause under Article 282 with the same procedural infirmity
where the sanction to be imposed upon the employer should be tempered as
the dismissal process was, in effect, initiated by an act imputable to the
employee.[39]

In light of the factual circumstances of the cases at bar, we deem it wise and
reasonable to award P50,000.00 to each employee as nominal damages.

WHEREFORE, in view of the foregoing, the October 21, 2002 Decision of

the Court of Appeals in CA-GR. SP No. 51966, which set aside the May 24,
1995 Decision of the NLRC, as well as the July 16, 2004 Resolution denying
ITCs motion for reconsideration, are hereby REVERSED. The May 24,
1995 Decision of the NLRC reinstating the decision of the Labor Arbiter
finding the closure or cessation of ITCs business valid, is AFFIRMED with
the MODIFICATIONS that ITC is ordered to pay separation pay equivalent
to one month pay or to at least one-half month pay for every year of service,
whichever is higher, and P50,000.00 as nominal damages to each employee.

SO ORDERED.

38
8.) G.R. No. 140189. February 28, 2005]
GREAT SOUTHERN MARITIME SERVICES CORPORATION,
FERRY CASINOS LIMITED and PIONEER INSURANCE AND
SURETY CORPORATION, petitioners, vs. JENNIFER ANNE B. ACUA,
HAYDEE ANNE B. ACUA, MARITES T. CLARION, MARISSA C.
ENRIQUEZ, GRACIELA M. TORRALBA and MARY PAMELA A.
SANTIAGO, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of
Court assailing the Decision[1] of the Court of Appeals dated June 30, 1999 in
CA-G.R. SP No. 50504, which set aside the Decision of the National Labor
Relations Commission (NLRC) dated January 15, 1997 in NLRC CA No.
010186-96.
The factual background of the case is as follows:
Petitioner Great Southern Maritime Services Corporation (GSMSC) is a
manning agency organized and existing under Philippine laws. It is the local
agent of petitioner Ferry Casinos Limited. Petitioner Pioneer Insurance and
Surety Corporation is the surety company of petitioner GSMSC.
On October 7, 1993, respondents Jennifer Anne B. Acua, Haydee Anne B.
Acua, Marites T. Clarion, Marissa C. Enriquez, Graciela M. Torralba, and
Mary Pamela A. Santiago filed a complaint for illegal dismissal against
petitioners before the Philippine Overseas Employment Administration
(POEA), docketed as POEA Case No. (M) 93-10-1987.[2]
Respondents claim that: between the months of March and April 1993, they
were deployed by petitioner GSMSC to work as croupiers (card dealers) for
petitioner Ferry Casinos Limited under a six-month contract with monthly
salaries of US$356.45 plus fixed overtime pay of US$107 a month and
vacation leave pay equivalent to two months salary pro rata, except for
respondent Jennifer Anne B. Acua who had a monthly salary of US$250.56
plus fixed overtime pay of US$87.17 and vacation leave pay equivalent to
two months salary pro rata; sometime in July 1993, Sue Smits, the Casino
Manager, informed them that their services were no longer needed;
considering that their plane tickets were already ready and they were
subjected to harassment, they had no alternative but to sign documents on
July 11 and 12, 1993 specifying that they were the ones who terminated their
employment; they were repatriated on July 25, 1993. [3]
Petitioners denied the allegations of respondents and averred that respondents
voluntarily resigned from employment. They contend that: respondents were
hired by petitioner Ferry Casinos Limited through petitioner GSMSC to work
as croupiers for a period of six months; sometime in July 1993, respondents
intimated their desire to resign; petitioner Ferry Casinos Limited did not
allow them to resign as the simultaneous loss of croupiers would paralyze
casino operations; respondents thereafter exhibited lukewarm attitude
towards work, became defiant and rude; consequently, petitioner Ferry
Casinos Limited was forced to accede to respondents demands; and
respondents executed resignation letters and disembarked on July 27, 1993. [4]
On October 5, 1995, the POEA decided the case against petitioners, thus:
WHEREFORE, premises considered, respondent Great Southern Maritime
Services [Corporation] and Pioneer Insurance and Surety Corporation, are
hereby ordered jointly and severally liable to pay complainants the following
amounts:
1. Jennifer B. Acua US $ 610.17
2. Marissa C. Enriquez 986.17
3. Marites T. Clarion 986.17
4. Graciela M. Torralba 986.17
5. Pamela Santiago 582.20
6. Haydee Anne B. Acua 582.20
representing their salaries for the unexpired portion of their contract. All
other claims are dismissed for lack of merit.
SO ORDERED.[5]
The POEA ruled that the respondents were illegally dismissed since
petitioners failed to prove that respondents voluntarily resigned from
employment. It held that the alleged resignation letters are only declarations
of release and quitclaim.
Petitioners appealed to the NLRC[6] which, on January 15, 1997, set aside the
decision of the POEA and dismissed the complaint for illegal dismissal.
[7]
The NLRC held that the contested letters are not only declarations of
release and quitclaim but resignations as well. It further held that there is no
concrete evidence of undue pressure, force and duress in the execution of the
39
resignation letters. The NLRC gave credence to petitioners claim that
respondents pre-terminated their contracts en masse because two of the
respondents, Haydee Anne B. Acua and Marites T. Clarion, are now working
in Singapore.
Respondents filed a motion for reconsideration[8] but the NLRC denied the
same in a Resolution dated April 30, 1997.[9]
On July 18, 1997, respondents filed a petition for certiorari before us,
docketed as G.R. No. 129673.[10]
On October 3, 1997, petitioners, in their Comment, prayed for outright
dismissal of the petition for: (a) failure of respondents to submit a verified
statement of the material dates to show that the petition was filed on time,
and (b) filing a certification on non-forum shopping signed only by their
counsel. In addition, petitioners argued that the issues raised are factual and
there is no showing that the NLRC committed grave abuse of discretion. [11]
On January 27, 1998, the Solicitor General, in lieu of Comment, manifested
that he is unable to sustain the position of the NLRC because the allegation
that respondents voluntarily resigned was not substantially established and
respondents non-compliance with the formal requirements of the petition
should be waived since the petition is meritorious.[12]
The NLRC, in compliance with our Resolution dated March 16, 1998,
[13]
filed its own Comment praying for the dismissal of the petition and the
affirmance of its decision with finality. It argued that in reversing the POEA,
it focused its attention on the correct evaluation of the evidence on record
which substantially showed that petitioners did not dismiss respondents but
that the latter resigned en masse on July 12, 1993. [14]
In accordance with St. Martin Funeral Homes vs. NLRC,[15] we referred the
petition to the Court of Appeals which, on June 30, 1999, set aside the
decision of the NLRC and reinstated the decision of the POEA. [16] The Court
of Appeals held that respondents were illegally dismissed since the
petitioners failed to substantiate their claim that respondents voluntarily
resigned from employment. It ruled that the quitclaims are not sufficient to
show valid terminations. Anent non-compliance with the formal requirements
of the petition, the Court of Appeals, adopting the observation of the Solicitor
General, held that the case is an exception to the rule on strict adherence to
technicality.
On July 21, 1999, petitioners filed a motion for reconsideration but the Court
of Appeals denied it in a Resolution dated September 22, 1999.
Hence, the present petition for review on certiorari on the following
grounds:
1. Under the law and applicable jurisprudence, the Petition for Certiorari
filed by respondents should have been denied outright for non-compliance
with the requirements for filing a Petition for Certiorari. [17]
2. Under the law and applicable jurisprudence, respondents cannot be
considered to have been dismissed from employment, because it was
respondents who resigned from their employment. [18]
Petitioners maintain that the petition for certiorari should have merited
outright dismissal for non-compliance with the mandatory requirements of
the rules. There is no statement indicating the material dates when the
decision of the NLRC was received and when the motion for reconsideration
was filed. Likewise, the certification on non-forum shopping was not signed
by respondents but by their counsel. In any event, petitioners insist that
respondents voluntarily resigned from their employment.
In their Comment, respondents allege that the instant petition highlights the
same arguments already raised and squarely resolved by the Court of
Appeals. Nevertheless, they reiterate that they did not resign from
employment but were abruptly and unceremoniously terminated by petitioner
Ferry Casinos Limited.[19]
Section 3[20] of Rule 46 of the Rules of Court provides that there are three
material dates that must be stated in a petition for certiorari brought under
Rule 65: (a) the date when notice of the judgment or final order or resolution
was received, (b) the date when a motion for new trial or for reconsideration
when one such was filed, and, (c) the date when notice of the denial thereof
was received. This requirement is for the purpose of determining the
timeliness of the petition, since the perfection of an appeal in the manner and
within the period prescribed by law is jurisdictional and failure to perfect an
appeal as required by law renders the judgment final and executory. [21]
The same rule requires the pleader to submit a certificate of non-forum
shopping to be executed by the plaintiff or principal party. Obviously, it is the
plaintiff or principal party, and not the counsel whose professional services
have been retained for a particular case, who is in the best position to know
whether he or it actually filed or caused the filing of a petition in that case. [22]
As a general rule, these requirements are mandatory, meaning, non-
compliance therewith is a sufficient ground for the dismissal of the petition.
[23]
40
In the case before us, the failure to comply with the rule on a statement of
material dates in the petition may be excused since the dates are evident from
the records. A thorough scrutiny of the records reveals that the January 15,
1997 decision of the NLRC was received by respondents counsel on January
24, 1997.[24] On February 19, 1997, respondents filed a motion for
reconsideration[25] which was denied by the NLRC in a Resolution dated
April 30, 1997.[26] Respondents counsel received the resolution on May 30,
1997 and they filed the petition for certiorari on July 18, 1997.
In view of the retroactive application of procedural laws, [27] Section 4, Rule
65 of the 1997 Rules of Procedure, [28] as amended by A.M. No. 00-2-03
which took effect on September 1, 2000, is the governing provision. It
provides that when a motion for reconsideration is timely filed, the 60-day
period for filing a petition for certiorari shall be counted from notice of the
denial of said motion. While respondents motion for reconsideration was
filed 16 days late,[29] the NLRC nonetheless acted thereon and denied it on
the basis of lack of merit. In resolving the merits of the motion despite being
filed out of time, the NLRC undoubtedly recognized that it is not strictly
bound by the technicalities of law and procedure. Thus, the 60-day period for
filing of a petition for certiorari should be reckoned from the date of the
receipt of the resolution denying the motion for reconsideration, i.e., May 30,
1997, and thus, the filing made on July 18, 1997 was well within the 60-day
reglementary period.
As regards the verification signed only by respondents counsel, this
procedural lapse could have warranted the outright dismissal of respondents
petition for certiorari before the Court of Appeals. However, it must be
remembered that the rules on forum shopping, which were precisely designed
to promote and facilitate the orderly administration of justice, should not be
interpreted with such absolute literalness as to subvert its own ultimate and
legitimate objective which is the goal of all rules of procedure - that is, to
achieve substantial justice as expeditiously as possible. [30]
Needless to stress, rules of procedure are merely tools designed to facilitate
the attainment of justice. They were conceived and promulgated to
effectively aid the court in the dispensation of justice. Courts are not slaves
to or robots of technical rules, shorn of judicial discretion. In rendering
justice, courts have always been, as they ought to be, conscientiously guided
by the norm that on the balance, technicalities take a backseat against
substantive rights, and not the other way around. Thus, if the application of
the Rules would tend to frustrate rather than promote justice, it is always
within our power to suspend the rules or except a particular case from its
operation.[31]
As the Court eloquently stated in the case of Aguam vs. Court of Appeals:[32]
The court has the discretion to dismiss or not to dismiss an appellant's appeal.
It is a power conferred on the court, not a duty. The "discretion must be a
sound one, to be exercised in accordance with the tenets of justice and fair
play, having in mind the circumstances obtaining in each case."
Technicalities, however, must be avoided. The law abhors technicalities that
impede the cause of justice. The court's primary duty is to render or dispense
justice. "A litigation is not a game of technicalities." "Lawsuits unlike duels
are not to be won by a rapier's thrust. Technicality, when it deserts its proper
office as an aid to justice and becomes its great hindrance and chief enemy,
deserves scant consideration from courts." Litigations must be decided on
their merits and not on technicality. Every party litigant must be afforded the
amplest opportunity for the proper and just determination of his cause, free
from the unacceptable plea of technicalities. Thus, dismissal of appeals
purely on technical grounds is frowned upon where the policy of the court is
to encourage hearings of appeals on their merits and the rules of procedure
ought not to be applied in a very rigid, technical sense; rules of procedure are
used only to help secure, not override substantial justice. It is a far better
and more prudent course of action for the court to excuse a technical
lapse and afford the parties a review of the case on appeal to attain the
ends of justice rather than dispose of the case on technicality and cause a
grave injustice to the parties, giving a false impression of speedy disposal
of cases while actually resulting in more delay, if not a miscarriage of
justice.[33] (Emphasis supplied)
Thus, in Sy Chin vs. Court of Appeals,[34] we held that the procedural lapse of
a partys counsel in signing the certificate of non-forum shopping may be
overlooked if the interests of substantial justice would thereby be served.
Further, in Damasco vs. NLRC,[35] we noted that the certificate of non-forum
shopping was executed by the petitioners counsel, but nevertheless resolved
the case on its merits for the reason that technicality should not be allowed to
stand in the way of equitably and completely resolving the equity and
obligations of the parties to a labor case.
Indeed, where a decision may be made to rest on informed judgment rather
than rigid rules, the equities of the case must be accorded their due weight
because labor determinations should not only be secundum rationem but
also secundum caritatem.[36]
In this case, the Court of Appeals aptly found compelling reasons to
disregard respondents procedural lapses in order to obviate a patent injustice.
41
Time and again we have ruled that in illegal dismissal cases like the present
one, the onus of proving that the employee was not dismissed or if dismissed,
that the dismissal was not illegal, rests on the employer and failure to
discharge the same would mean that the dismissal is not justified and
therefore illegal.[37] Thus, petitioners must not only rely on the weakness of
respondents evidence but must stand on the merits of their own defense. A
party alleging a critical fact must support his allegation with substantial
evidence for any decision based on unsubstantiated allegation cannot stand as
it will offend due process.[38] Petitioners failed to discharge this burden.
Petitioners complete reliance on the alleged resignation letters cum release
and quitclaim to support their claim that respondents voluntarily resigned is
unavailing as the filing of the complaint for illegal dismissal is inconsistent
with resignation.[39] Resignation is the voluntary act of employees who are
compelled by personal reasons to dissociate themselves from their
employment. It must be done with the intention of relinquishing an office,
accompanied by the act of abandonment.[40] Thus, it is illogical for
respondents to resign and then file a complaint for illegal dismissal. We find
it highly unlikely that respondents would just quit even before the expiration
of their contracts, after all the expenses and the trouble they went through in
seeking greener pastures and financial upliftment, and the concomitant
tribulations of being separated from their families, having invested so much
time, effort and money to secure their employment abroad. Considering the
hard economic times, it is incongruous for respondents to simply give up
their work, return home and be jobless once again.
Likewise, petitioners submission that respondents voluntarily resigned
because of their desire to seek employment elsewhere, as accentuated by the
concurrent fact that two of the respondents, Haydee Anne B. Acua and
Marites T. Clarion, already have jobs in Singapore is an unreasonable
inference. The fact that these two have already found employment elsewhere
should not be weighed against their favor. It should be expected that they
would seek other means of income to tide them over during the time that the
legality of their termination is under litigation. They should not be faulted for
seeking employment elsewhere for their economic survival.
We further note that the alleged resignation letters, one of which reads:
In signing this document, I am declaring my decision to return to the
Philippines with the other eight employees of Ferry Casinos Limited and
Great Southern Maritime Corporation, on the 25th July 1993. I understand
that my contract is uncompleted and I fully understand the consequences of
that. I do however promise to work to full for both companies before my
departure.
I realise (sic) that I may be dismissed by the captain or Purser of my assigned
vessel, if I am suspected of misconduct in the remaining weeks of my
employment, until my departure, and I understand that I will compansate
(sic) both companies for the results from (sic) my actions.
I sign to say that I will follow the instructions of Captain A. Sanchez upon
my arrival in the Philippines and that any previous arrangements to this date
are nul (sic) and void.
I recognise (sic) that I have been fairly treated by both companies and for this
I will not jeopardise (sic) them upon my arrival in the Philippines.
I acknowledge and accept this as evidence for (sic) my departure to be shown
to the P.O.E.A. in the Philippines.[41]
which were all prepared by petitioner Ferry Casinos Limited, are
substantially similarly worded and of the same tenor. A thorough scrutiny of
the purported resignation letters reveals the true nature of these documents.
In reality, they are waivers or quitclaims which are not sufficient to show
valid separation from work or bar respondents from assailing their
termination. The burden of proving that quitclaims were voluntarily entered
into falls upon the employer.[42] Deeds of release or quitclaim cannot bar
employees from demanding benefits to which they are legally entitled or
from contesting the legality of their dismissal. [43] The reason for this rule was
laid down in the landmark case of Cario vs. ACCFA:[44]
Acceptance of those benefits would not amount to estoppel. The reason is
plain. Employer and employee, obviously, do not stand on the same footing.
The employer drove the employee to the wall. The latter must have to get
hold of money. Because, out of job, he had to face the harsh necessities of
life. He thus found himself in no position to resist money proffered. His,
then, is a case of adherence, not of choice. One thing sure, however, is that
petitioners did not relent their claim. They pressed it. They are deemed not to
have waived any of their rights. Renuntiatio non praesumitur.
Thus, we are more than convinced that respondents did not voluntarily quit
their jobs. Rather, they were forced to resign or were summarily dismissed
without just cause. The Court of Appeals acted in the exercise of its sound
discretion when it denied petitioners insistence to dismiss the petition
for certiorari, in light of the factual and antecedent milieu. By so doing, the
42
appellate court correctly gave more importance to the resolution of the case
on the merits.

WHEREFORE, the instant petition is DENIED and the assailed Decision of

the Court of Appeals dated June 30, 1999 in CA-G.R. SP No. 50504 is
AFFIRMED. Costs against petitioners.

SO ORDERED.

9.) [G.R. No. 153904. January 17, 2005]

43
PNOC-EDC, NAZARIO VASQUEZ, President; MARCELINO
TONGCO, Acting Manager Project Operations & Manager, Project
Development; JESUS QUEVENCO, JR., Resident Manager,
SNGP/PIPE; and REMEGIO B. CORNELIO, Human Resource Officer,
SNGP-PIPE, petitioners, vs. FREDERICK V. ABELLA, respondent.
DECISION
CHICO-NAZARIO, J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, as amended, with a prayer for the issuance of a writ of
preliminary injunction and/or temporary restraining order, seeking to set
aside the Decision[1] of the Court of Appeals dated 30 January 2002 in CA-
G.R. SP No. 54484, which affirmed, with modification, the Decision[2] of the
National Labor Relations Commission (NLRC), Fourth Division, Cebu City,
dated 08 May 1998, reversing the Decision[3] of the Labor Arbiter dated 25
April 1997 in the consolidated cases RAB VII-07-0082-94-D and RAB VII-
08-0082-95-D.
Petitioner Philippine National Oil Company - Energy Development
Corporation (PNOC-EDC) is a government-owned and controlled
corporation organized under the Corporation Code of the Philippines, with
Nazario Vasquez as its president; Marcelino M. Tongco, Acting Manager,
Project Development; Jesus Quevenco, Jr., Resident Manager, Southern
Negros Geothermal Plant (SNGP)/PIPE; and Remegio Cornelio, Human
Resource Officer, SNGP/PIPE. Private respondent Frederick V. Abella is an
employee of the petitioner company, assigned as a Security Assistant.
The Facts of the Case
On 01 June 1989, herein private respondent Frederick V. Abella started
working with herein petitioner PNOC-EDC as a probationary Security
Assistant at its SNGP in Ticala, Valencia, Negros Oriental. Subsequently, he
became a regular employee.
Less than one year later, or on 20 April 1990, Abella was informed that his
employment with PNOC-EDC would be terminated effective 21 May 1990,
allegedly due to a company-wide reorganization pursuant to its Manpower
Reduction Program, wherein the position of Security Assistant at PNOC-
EDC SNGP had been abolished.
Aggrieved, Abella filed a case of illegal dismissal, and for actual, moral, and
exemplary damages with the NLRC, Regional Arbitration Branch No. VII at
Dumaguete City, docketed as NLRC RAB VII-05-364-90-D, against the
PNOC-EDC and its officers.
After hearing the parties, Labor Arbiter Geoffrey P. Villahermosa rendered a
Decision[4] dated 27 August 1991, holding that Abella was illegally dismissed
as the company and its officers failed to show a clear scheme and convincing
proof of reorganization, to wit:
WHEREFORE, premises considered judgment is hereby rendered ordering
respondents to reinstate complainant to his former position without loss of
seniority rights and privileges; his backwages from the time he was
terminated on 21 May 1990 up to his actual reinstatement; his withheld
second half salary for the month of May 1990 in the amount of P4,291.17;
moral damages amounting to P30,000.00; exemplary damages for public
good amounting to P20,000.00 and 10% attorneys fees from the total
adjudicated claims.
The computation of the award of the complainant is hereto attached and
forms as [an] integral part hereof.
All other claims are dismissed.
An appeal was timely filed with the NLRC.
Meanwhile, with said appeal still pending in the NLRC, the labor arbiter
issued an order[5] dated 20 November 1991, directing the company to admit
back to work or reinstate the complainant 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.
Pursuant to the above order, Abella was reinstated in the payroll as a General
Services Assistant (PAL II), his original position of Security Assistant having
been abolished by virtue of the company-wide reorganization. According to
the company, the position is of the same level as Assistant Security and had
the same salary rate and benefits.[6]
On 11 February 1992, Abella, through counsel, wrote Quevenco, Resident
Manager at the SNGP, to protest his assignment in the payroll as General
Services Assistant (PAL II). Subsequently, he was again re-slotted in the
payroll as a Pipeline Maintenance Foreman, which, according to the
petitioners, is another position with the same salary and benefits [7] as another
Security Assistant. This change of position was classified as a lateral transfer.
[8]
44
On 24 August 1992, Abella wrote[9] petitioner Quevenco,[10] to request that he
(Abella) be physically reinstated and allowed to perform security functions.
He wrote:
Engr. Jesus M. Quevenco, Jr.
Resident Manager
PNOC Energy Development Corporation
Southern Negros Geothermal Project
Ticala, Valencia
Negros Oriental
Sir:
This is to officially inform you that despite my lawyers letter [11] dated
February 11, 1992, I am willing to perform security functions at PNOC-
Energy Development Corporation, Southern Negros Geothermal Project.
In view of this, may I request adjustments/arrangements with our Head
Office so I can immediately assume duty at your convenience.
Very respectfully yours,
(Sgd.) FREDERICK V. ABELLA[12]
Said request was granted on 27 October 1992 when Abella
was temporarily[13] detailed as Security Assistant at SNGPs PAL II
Development Project, Northern Cotabato. But on even date, he was also
concomitantly designated as Acting Security Officer for the entire SNGP due
to the reassignment of the incumbent Security Officer to the Northern Negros
Geothermal Project of the company.[14]
On 03 November 1992, Abella wrote a letter, this time addressed to Vasquez,
then Vice-President of the company, to confirm that he had assumed his
security functions; that he was open for negotiations regarding his case; and,
that he hoped that his appointment/work status would be normalized.
On 15 December 1992, in a telegraphic message, Tongco informed Abella to
immediately report to Mindanao I Geothermal Plant (MIGP), Kidapawan,
North Cotabato. In the same correspondence, Tongco defined private
respondents duties and functions and delimited the duration of his stay at
MIGP as temporary, or for about 3 months only.
Shortly thereafter, or on 28 January 1993, Abella and the company agreed to
settle NLRC RAB Case No. VII-05-364-90-D. Abella consequently received
the amount of One Hundred Twenty-Four Thousand Eight Hundred Twenty-
Four Pesos and Thirty-One Centavos (P124,824.31) as settlement of the said
case and by virtue of the said agreement, both parties filed a Joint Motion to
Dismiss[15] before the NLRC, viz:
JOINT MOTION TO DISMISS
COMES NOW herein parties to the entitled case, to this Honorable
Commission respectfully state that
1. Complainant has offered and Respondent has accepted a proposal to settle
the instant case amicably;
2. The parties have agreed to shoulder their respective costs;
3. All other claims, damages, and causes of action arising out of the instant
case are waived;
4. Consequently, the parties are no longer interested in pursuing and desire to
dismiss the case.
WHEREFORE, PREMISES CONSIDERED, it is hereby prayed that the
instant case be dismissed.[16] (Emphasis supplied)
Acting on the Joint Motion to Dismiss, the NLRC issued a Resolution dated
22 February 1993, granting the above motion dismissing the appeal earlier
filed before it, the pertinent portions of which read:
Submitted before Us is a joint motion to dismiss the instant case dated
February 1, 1993, filed by both parties duly assisted by their respective
counsel.
In view of the manifest intention of the parties to effect a settlement of the
dispute between them and it appearing that the terms of the instant motion is
not contrary to law, morals, public order, and public policy, the same is
hereby granted. After all Compromise being the essence of labor justice
should be honored.
WHEREFORE, in view of the foregoing, the instant joint motion to dismiss
is hereby granted. The appeal is hereby dismissed as prayed for by the
45
parties. Let the records of this case be forwarded to the Regional Arbitration
Branch of origin for proper disposition.[17]
An Entry of Finality of Judgment was subsequently entered in the books on
29 March 1993.
At this time, while carrying out security functions at MIGP, Kidapawan,
North Cotabato, Abellas official item or position in the payroll
was Maintenance Foreman, SNGP, Valencia, Negros Oriental. Said state of
affairs prompted the late Jerry T. Susas[18] to write Tongco about it and to
recommend that proper action be made in order to harmonize security-related
support services at MIGP.[19]
On 10 December 1993, Abella filed a motion for the issuance of a writ of
execution of the decision dated 27 August 1991, of the labor arbiter.
Corollary to the said motion, he informed Quevenco of his intention to report
back to SNGP, Ticala, Valencia, Negros Oriental, his original assignment
prior to the filing of the 1991 case[20] for illegal dismissal.
On 31 January 1994, Abella received a show cause memorandum dated 28
January 1994 for his alleged absence without official leave (AWOL) and
insubordination.
Responding to the above, Abella explained in a letter dated 02 February 1994
that his position as SGS Maintenance is in complete contravention of the
decision of the labor arbiter.[21]
On 01 March 1994, despite the above response, Abella was nevertheless
transferred to PNOC-EDC Leyte-A Geothermal Project, as a Security
Assistant,[22] a position that was vacant at that time. Said transfer was
accompanied by a Transfer or Change of Position Form [23] showing Abellas
change of official position from Pipeline Maintenance Foreman to Security
Assistant to be a lateral transfer.
On 24 May 1994, Tongco sent Abella a radiogram message instructing him to
present himself, this time at the Mt. Labo Geothermal Project, Camarines
Norte, as a Security Assistant. A second message followed emphasizing the
need for Abella to report at the said site not later than 25 May 1994. On 01
June 1994, Abella was once more instructed to report to the petitioner
companys Mt. Labo Geothermal Project. Said order was again accompanied
by a Transfer or Change of Position Form[24] stating the transfer of Abella as a
Security Assistant from Leyte to Mt. Labo to be a lateral transfer.
All the above-mentioned directives were disregarded or ignored.
In the intervening time, on 16 June 1994, the labor arbiter ruled on the
motion for execution filed by the complainant by issuing a Writ of Execution
directing the Sheriff, NLRC, Cebu City, to proceed to the premises of the
company at Ticala, Valencia, Negros Oriental, to effect and to cause the
reinstatement of Abella either by physical or by payroll reinstatement. On 17
June 1994, Sheriff Remegio B. Cornelio issued a certification that per
attached pay slip, private respondent had been reinstated in the payroll with
PNOC-EDC.
In the meantime, for failing to heed the directives of his supervisors, Abella
received another show cause memorandum dated 14 July 1994, from Tongco,
ordering him to explain in writing why no disciplinary action should be taken
against him for insubordination and for being AWOL.
Abella, in his reply[25] dated 16 July 1994, countered that he is not guilty of
insubordination since he was not reinstated to his former position as Security
Assistant at Ticala, Valencia, Negros Oriental, per Writ of Execution issued
by the labor arbiter.
On 18 July 1994, claiming unfair and prejudicial treatment, Abella filed a
complaint before the NLRC, Sub-Regional Arbitration Branch No. VII,
Dumaguete City, for unfair labor practice, illegal suspension, nonpayment of
mid-year bonus and 13th month pay for 1990 and 1991, claim for hazard pay,
and annual salary increase against the company and its officers, docketed
as NLRC Sub-RAB Case No. 07-0082-94-D.
Several months later, or on 06 October 1994, Abella received a notice [26] of
disciplinary action of Grave Suspension with Final Warning, dated 28
September 1994, against him.
In response, on 17 October 1994, Abella filed another complaint with the
NLRC, against the company and its officers, for unfair labor practice, illegal
suspension, and nonpayment of wages with damages, docketed as NLRC
Sub-RAB Case No. 010-0123-94-D.
Nevertheless, Abella continued working at SNGP, Ticala, Valencia, Negros
Oriental, until he was accordingly notified of his termination for cause.
Thereafter, he filed a third complaint with the NLRC against the company
and its officers, this time for unfair labor practice, illegal dismissal, and
nonpayment of wages, with prayer for reinstatement and payment of moral
and exemplary damages as well as attorneys fees docketed as NLRC Sub-
RAB Case No. 08-0082-95-D.
46
After hearing the parties, Labor Arbiter Geoffrey Villahermosa [27] rendered a
consolidated Decision[28] dated 25 April 1997, the dispositive portion of
which states:
WEREFORE, in the light of the foregoing, judgment is hereby rendered
declaring the respondents not guilty of unfair labor practice and illegally
dismissing the complainant, but however, as a measure of social justice and
due to the afore-cited Supreme Court Ruling, the respondents are directed to
pay the complainant his separation pay computed from June 1, 1989 to April
30, 1997 at one (1) month pay for every year of service, . . .
In maintaining that Abella was not illegally dismissed, the labor arbiter
opined that the records of the case show that Abella was reassigned from his
position in Ticala, Valencia, Negros Oriental, to that in Cotabato province by
virtue of a memorandum issued by Tongco which Abella readily accepted
and agreed to said transfer, therefore there is no valid basis for the claim that
he was not validly reinstated. Thus, the charges of insubordination and
AWOL committed by Abella fall squarely within the provision of Rule 26 of
the petitioner companys rules and regulations as contained in the PNOC
Rules and Regulations on Discipline. Said rules provide for a penalty ranging
up to dismissal even for the first offense.
On appeal, the NLRC reversed and set aside the Decision [29] of the labor
arbiter and entered a new one, viz:
WHEREFORE, as above-disquisitioned the decision appealed from is
REVERSED and SET ASIDE and a new one ENTERED finding the
dismissal illegal, hence complainant should be ordered reinstated to his
former position as Security Assistant SNGP pursuant to the Decision of
August 27, 1991 with full backwages from December 1, 1991 when he was
illegally declared as AWOL up to his actual reinstatement.
The NLRC found that Abella was illegally dismissed considering that at bar,
the parties had reached a settlement without vacating the decision (of the
labor arbiter dated 27 August 1991), then the decision should be given its full
force and effect, and as the [r]ecords show that he was never reinstated to his
former position as admitted by the correspondence of J.T. Susas dated 25
March 1993, memorandum of complainant dated 17 September 1993 and
letter of complainants counsel to Engr. Quevenco, dated 03 January 1994.
The tribunal further held that a review of the facts and circumstances of the
case, we find that while the monetary consideration of the decision of 27
August 1991 has been satisfied the reinstatement aspect of the decision
remained unsatisfied which prompted counsel to file a motion for the
issuance of [a] writ of execution. The assignments of the complainants (sic)
to the various positions could not equate to full enforcement of the decision
of 27 August 1991 considering that these positions were not his former
position and his assumption to these positions were under protest.
There being a timely motion for reconsideration, the Honorable Commission,
in a Resolution[30] dated 14 June 1999, reversed itself insofar as the order for
reinstatement and computation of backwages were concerned. Instead, the
Commission held that since Abella had already reached the retirement age of
sixty (60) years, reinstatement would no longer be possible. Necessarily, the
computation of backwages should only be from 01 December 1994 up to 15
January 1998. After 15 January 1998, Abella should be given all the benefits
due him under the retirement provision of the collective bargaining
agreement of the company.
With the denial of their motion for reconsideration, the company and its
officers came to the Court of Appeals via a petition for certiorari under Rule
65 of the Revised Rules of Court and sought to nullify the abovestated NLRC
Decision dated 08 May 1998 and Resolution dated 14 June 1999.
On 27 February 2002, the appellate court promulgated the impugned
Decision[31] dismissing the petition for lack of merit, the dispositive portion
of which states:
WHEREFORE, premises considered, the petition is DISMISSED for lack of
merit. Accordingly, the assailed decision and resolution of the NLRC, Fourth
Division, Cebu City, are hereby AFFIRMED. No pronouncement as to cost.
The company and its officers motion for reconsideration having been denied,
the instant petition was filed with the following assignment of errors:
I.
CONTRARY TO THE OPINION OF THE COURT OF APPEALS, IT IS
NOT TRUE THAT THE REINSTATEMENT OF RESPONDENT WAS NOT
A FAITHFUL COMPLIANCE OF THE PROVISIONS OF PARAGRAPH 3,
ARTICLE 223 OF THE LABOR CODE.
II.
CONTRARY TO THE OPINION OF THE COURT OF APPEALS, THE
JOINT MOTION TO DISMISS SUBMITTED BY PETITIONERS AND
RESPONDENT BEFORE THE FOURTH DIVISION OF THE NATIONAL
LABOR RELATIONS COMMISSION, CEBU CITY, SHOULD OPERATE
47
TO DISMISS THIS CASE IN ITS TOTALITY, AND NOT JUST THE
APPEAL PENDING BEFORE THE SAID DIVISION.
III.
CONTRARY TO THE OPINION OF THE COURT OF APPEALS, THERE
IS CLEAR LEGAL AND FACTUAL BASIS TO HOLD RESPONDENT
GUILTY OF THE OFFENSES OF INSUBORDINATION AND OF
INFRACTION OF COMPANY RULES ON UNAUTHORIZED
ABSENCES; HENCE, THE TERMINATION OF RESPONDENT FROM
EMPLOYMENT AFTER OBSERVANCE OF DUE PROCESS WAS
LEGAL.[32]
The Ruling of the Court
The first and second issues question the validity of the actual reinstatement
of the private respondent following the order of the Labor Arbiter Geoffrey P.
Villahermosa in NLRC RAB VII-05-364-90-D.
The issue of reinstatement is addressed by paragraph three of Article 223 of
the Labor Code, to wit:
ART. 223. Appeal . . . .
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 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 above-stated provision of the Labor Code, however, must be read in
conjunction with the implementing rules and regulations of the said law. Sec.
4(a) of Rule 1, Book VI of the Rules and Regulations Implementing the
Labor Code, provides that:
SEC. 4. Reinstatement to former position. (a) An employee who is separated
from work without just cause shall be reinstated to his former
position, unless such position no longer exists at the time of his
reinstatement, in which case he shall be given a substantially equivalent
position in the same establishment without loss of seniority rights. [Emphasis
supplied.]
Reinstatement presupposes that the previous position from which one had
been removed still exists, or that there is an unfilled position more or less of
a similar nature as this previously occupied by the employee. [33]
Accordingly, an employee who is separated from his employment on a false
or nonexistent cause is entitled to be reinstated to his former position because
the separation is illegal. If the position is no longer available for any other
valid and justifiable reason, however, the reinstatement of the illegally
dismissed employee to his former position would neither be fair nor just. The
law itself can not exact compliance with what is impossible. Ad imposible
tenetur.[34] The employers remedy is to reinstate the employee to a
substantially equivalent position without loss of seniority rights as provided
for above.
In the case at bar, strictly applying the rules provided above, private
respondent Abella should have been reinstated back to his old position as a
Security Assistant at the SNGP, Ticala, Valencia, Negros Oriental. Or, at the
very least, since the position of Security Assistant at Ticala, Valencia, Negros
Oriental, had been abolished as claimed by the petitioners, he should have
been reinstated to another position that is substantially equivalent to his
former one. In reality, private respondent Abella was first reinstated in the
payroll, as a General Services Assistant and subsequently, as a Pipeline
Foreman, while he was actually discharging the functions of a Security
Assistant. As insisted by the petitioners, this situation was due to the fact that
the original position of the private respondent had already been abolished in
the previous company-wide reorganization[35] in 1991.
But then, the private respondent was reslotted as Security Assistant when he
was transferred to the Leyte Geothermal Project. He was, thus, performing
the functions of a Security Assistant and at the same time occupying the
official position of a Security Assistant though in a geographically different
location, when said position became vacant.
Be that as it may, notwithstanding the above disquisitions, the atypical
circumstances in this case capitulate against the outright application of the
said rules. Whether or not the private respondent was validly reinstated per
Order of the Labor Arbiter dated 27 August 1991, in NLRC RAB VII-05-
364-90-D, is beside the point in view of the fact that the Joint Motion to
Dismiss filed by the parties in the earlier case contained a clause whereby the
parties agreed that [a]ll other claims, damages and causes of action arising
out of the instant case are waived.
48
Regrettably, the Court of Appeals and the NLRC have overlooked this very
important fact.
The clause agreed to by the parties in the Joint Motion to Dismiss filed
before the NLRC was in the nature of a compromise agreement, i.e., an
agreement between two or more persons, who for preventing or putting an
end to a lawsuit, adjust their difficulties by mutual consent in the manner
which they agree on, and which everyone of them prefers to the hope of
gaining, balanced by the danger of losing.[36]Settlement of disputes by way of
compromise, is an accepted, nay desirable and encouraged practice in courts
of law and administrative tribunals.[37] Generally favored in law, such
agreement is a bilateral act or transaction that is binding on the contracting
parties and is expressly acknowledged by the Civil Code as a juridical
agreement between them.
Prevailing case law provides that a compromise once approved by final
orders of the court has the force of res judicata between the parties and
should not be disturbed except for vices of consent or forgery. Hence, a
decision on a compromise agreement is final and executory. Such agreement
has the force of law and is conclusive on the parties. It transcends its identity
as a mere contract binding only upon the parties thereto, as it becomes
a judgment that is subject to execution in accordance with the Rules. Judges
therefore have the ministerial and mandatory duty to implement and enforce
it.[38] (Underlining supplied.) Hence, compromise agreements duly approved
by the courts are considered the decisions in the particular cases they involve.
[39]
In the case at bar, when both parties agreed to waive all other claims,
damages and causes of action arising out of NLRC RAB VII-05-364-90-D, a
compromise they entered into in good faith absent any allegation otherwise,
they did not only agree to dismiss the appeal pending before the NLRC.
Particularly, the private respondent also agreed to receive One Hundred
Twenty-Four Thousand Eight Hundred Twenty-Four Pesos and Thirty-One
Centavos (P124,824.31), thus, relinquishing his claim to the
Decision[40] dated 27 August 1991, rendered by the labor arbiter in his favor.
In return, the petitioner company, to put an end to the labor dispute,
acquiesced to have its appeal before the NLRC dismissed.
The waiver, executed by the private respondent and the petitioner company
in which mutual concessions were given and mutual benefits were derived,
was approved and considered by the NLRC when it promulgated its Order
dated 22 February 1993, dismissing the appeal of the petitioners.
Conformably, to cite jurisprudence, the Compromise Agreement approved by
the proper authority became the decision in this particular case.
Settlements of this kind not only are recognized to be proper agreements but
so encouraged as well.[41]
Undoubtedly, the allegations of invalid reinstatement on the part of the
petitioners are a mere afterthought on private respondents part in a
fascinating attempt to extricate himself from an assignment that brought him
to a far away place and caused him to be separated from his family.
It is well to note that even if each party agreed to something that neither
might have actually wanted, except for the peace that would be brought by
the avoidance of a protracted litigation, still, the agreement must govern their
relations. If the agreement was voluntarily entered into and represents a
reasonable settlement, it is binding on the parties and may not later be
disowned or conveniently forgotten, simply because of a change of mind. It is
only where there is clear proof that the waiver was wangled from an
unsuspecting or gullible person, or the terms of settlement are
unconscionable on its face, that the law will step in to annul the questionable
transaction. But where it is shown that the person making the waiver did so
voluntarily, with full understanding of what he was doing, and the
consideration for the quitclaim is credible and reasonable, the transaction
must be recognized as a valid and binding undertaking. [42] In the case at bar,
the Joint Motion to Dismiss was not only signed by the private respondent,
but by his counsel as well.
The resolution of the third issue hinges upon a determination of the validity
of the orders directing the transfer of the private respondent from one site to
another.
In this jurisdiction, we recognize that management has wide latitude to
regulate, according to his own discretion and judgment, all aspects of
employment, to the requirements of its business. [43] The scope and limits of
the exercise of management prerogative, however, should attain a state of
equilibrium when pitted against the constitutional right of labor to security of
tenure.
Of relevant significance in the case at bar is the right of the employer to
transfer employees in their work station. We have previously held that it is
the employers prerogative, based on its assessment and perception of its
employees qualifications, aptitudes and competence, to move them around in
the various areas of its business operations in order to ascertain where they
49
will function with maximum benefit of the company. [44] This right flows from
ownership and from the established rule that labor (laws) do not authorize the
substitution of judgment of the employer in the conduct of his business,
unless it is shown to be contrary to law, morals, or public policy. [45]
The rationale behind this rule is that an employees right to security of tenure
does not give him such a vested right in his position as would deprive the
company of its prerogative to change his assignment or transfer him where
he will be most useful.[46] Especially so in this case where the respondent was
not appointed for a security assistant for a specified place but was only
designated therein. But of course, the managerial prerogative to transfer
personnel must be exercised without grave abuse of discretion --- not
unnecessary, inconvenient nor prejudicial to the displaced employee,
meaning there is no demotion in rank or diminution of salary, benefits and
other privileges.
In this case, the private respondent was charged with insubordination for
failing to heed the directives of his superior transferring him from one site to
another. The Court of Appeals negated said charge and declared that when
private respondent Abella failed to obey the orders of the petitioners
reinstating him to Leyte and Mt. Labo sites, said failure cannot give rise to
insubordination as private respondent Abella had the right to be reinstated
under the same terms as and conditions prevailing prior to his dismissal on
21 May 1990, especially so when the latters refusal was premised on the fact
that the labor arbiter had earlier issued a Writ of Execution ordering the
reinstatement of the private respondent to his former position at PNOC-EDC
SNGP, Ticala, Valencia, Negros Oriental.
We do not agree.
First and foremost, as discussed earlier, the order of the labor arbiter
reinstating the private respondent to his former position in SNGP had already
been superseded by the agreement of both parties to waive [a]ll other claims,
damages and causes of action arising out of the instant case . . . .
Consequently, the writ issued by the labor arbiter executing the order of
reinstatement had no leg to stand on. Secondly, the law does not preclude the
reinstatement of an employee, who has been separated from work without
just cause, to a substantially equivalent position in the same establishment
without loss of seniority rights, and with the same rank, salary and privileges,
[47]
if the former position is no longer available. Therefore, the claim of lack
of insubordination due to lack of valid reinstatement must fail.
Insubordination or willful disobedience by an employee, to constitute a just
cause for terminating his employment, the orders, regulations, or instructions
of the employer or representative must be:
1. reasonable and lawful;
2. sufficiently known to the employee; and
3. in connection with the duties which the employee has been engaged to
discharge.
There is no doubt in this case that the assailed transfer orders fulfill the
second and third elements above-stated. Private respondent Abella was well
informed of the orders of transfer and said orders were well in connection
with the security functions of the private respondent. It is only the issue of
reasonableness and lawfulness of said orders that have to be elucidated on.
The reasonableness and lawfulness of an order, regulation, or instruction
depend on the circumstances availing in each case. Reasonableness pertains
to the kind or character of directives and commands and to the manner in
which they are made.[48]
The petitioners aver that the orders were well within their managerial
prerogative to make and that there was never any agreement that private
respondent Abella had to be posted in a fixed place.
The appellate court, on the other hand, stated that its finding that the private
respondent was not guilty of insubordination and abandonment was based on
the fact that the dismissal of private respondent Abella was effected with bad
faith, as it was intended to punish him for refusal to heed his employers
unreasonable orders.
The records of the present case fail to show any hint of truth to the
declaration of the appellate court.
A thorough review of the records of the case shows that there is a valid
reason behind the transfer of the private respondent to MIGP in Kidapawan,
North Cotabato. As stated in the telegraphic message received by the private
respondent,
DMD-15
DMK-22
DEC 15/92
50
TO: ABC / SEP CC EBP / JLA / FVA / MBP / BMO
FR: MMT
IN VIEW OF APOS CRITICAL SECURITY SITUATION, AS DISCUSSED
WITH EBP, FVABELLA WILL BE ASSIGNED TO MIGP IMMEDIATELY
TO STRENGTHEN OUR APO SECURITY COVERAGE. FVA, WILL
HANDLE OVERALL STRATEGIC PLANNING. PLS ADVISE FVAS
EARLIEST TRAVEL TO MIGP.
EMC[49]
Nothing in the above message alludes to any bad faith on the part of the
petitioners. In truth, it is quite apparent that the order of transfer of the
private respondent from Negros Oriental to Northern Cotabato was due to the
exigencies of the state of affairs in the geothermal plants of the petitioner
company. Other internal messages[50] between the petitioner companys
officers and employees also sustain the validity of the necessity and lack of
bad faith in ordering the transfer of the private respondent, to wit:
DMK-35
JAN. 06, 1993
TO: JLA CC: FVA/MBP
FM: MMT CC: EBP
WITH FVAS PRESENCE IN M1GP, I EXPECT THAT WE WILL ATTAIN
FF. OBJECTIVES:
COMPLETE, FINALIZE AND PUT INTO EFFECT OUR CONTINGENCY
PLANS, SECUTIRY SOPS, ACCESS PROCEDURES AND CONDUCT
QEKVTYXELI/NJETTQ.
2. EFFECTIVE COORDINATION BOTH WITH HIGHER KETEXYJM
YVXBLJEXERQ AND SITE LPPEARJQ.
3. EFFECTIVE MONITORING AND CONTROL OF OUR SECURITY
PROVISIONS I.E. DTVR ZVYJNQ, KETEXYJM.
4. IMPROVE RELATIONS WITH KETEXYJM.
5. ADDRESS CONCERNS OF OUR STAFF REGARDING QRAVJEXM
ALCRJYZR. . . .
PLS. USE DAY 6 CODE.
2210H[51]
TO: JLA (KIDAP) FVA (DGTE) FR: MMT
CC: FCC (LABO) MBP (KIDAP)
AA. DUE TO THE ACCELERATED DRILLING AT LABO REQUIRING
IMMEDIATE SECURITY COORDINATION AND SETTING-UP,
EFFECTIVE IMMEDIATELY FVABELLA IS TRANSFERRED TO MT.
LABO GEOTHERMAL PROJECT AS SECURITY ASSISTANT. . .
BB. TO RDO. OPERATOR SNGP PLS ENSURE MESSAGE IS SENT TO
FVA.
CC. TO FVA, ADVISE ME TRAVEL DETAILS.[52]
TO: FVA (DGTE) FR: MMT
CC: FCC (LABO)
THE SITUATION AT LABO IS CRITICAL AND YOU HAVE TO BE
THERE IMMEDIATELY. IT IS IMPERATIVE THAT YOU TRAVEL
IMMEDIATELY, NOT LATER THEN (sic) 25 MAY. ADVISE TRAVEL
DETAILS.[53]
By virtue of the characteristic or nature of the functions of security
personnel, rotation and reassignment from one place to another, depending
on the security needs of the company, are well within the job description of
the private respondent.
As explained, the orders to the private respondent to report to the Leyte
Geothermal Plant and, later on, to the Mt. Labo site in Camarines Norte
undeniably met the standards aforestated. What is more, the private
respondent, when he accepted the offer of employment with the petitioner
company, was aware that there was a possibility of a provincial assignment.
When he accomplished his application for employment, [54] in answering the
question: Are you Willing To Accept A Provincial Assignment? the private
respondent answered in the affirmative. Another irrefutable fact is that the
records of the case bear out that even before the first controversy [55] arose
between the parties, the private respondent had been reassigned to at least
three (3) different locations. His first assignment with the petitioner company
was in Negros Oriental. A few months later, he was transferred to Camarines
51
Norte; then again to Negros Oriental in 1990. In fact, in a
memorandum[56] dated 24 January 1990, the private respondent was one of
the three security personnel directed to transfer from one assignment to
another.

Finally, it cannot be gainsaid that though the private respondent was assigned
to perform security functions at other different sites, he had been receiving
the same salary and benefits due a security personnel. Records even show
that he was even accorded hazard pay for the duties and functions he was
currently executing.[57]

The Philippine Constitution, while inexorably committed towards the

protection of the working class from exploitation and unfair treatment,
nevertheless mandates the policy of social justice so as to strike a balance
between an avowed predilection for labor, on the one hand, and the
maintenance of the legal rights of capital, the proverbial hen that lays the
golden egg, on the other. Indeed, we should not be unmindful of the legal
norm that justice is in every case for the deserving, to be dispensed with in
the light of established facts, the applicable law, and existing jurisprudence.
[58]

WHEREFORE, premises considered, the petition is hereby GRANTED.

The Decision dated 30 January 2002, of the Court of Appeals and its
Resolution dated 29 May 2002, denying the petitioners Motion for
Reconsideration, are REVERSED and SET ASIDE. No costs.

SO ORDERED

52
10.) [G.R. No. 137863. March 31, 2005]
BANK OF THE PHILIPPINE ISLANDS EMPLOYEES UNION and
ZENAIDA UY, petitioners, vs. BANK OF THE PHILIPPINE ISLANDS,
CARLOS FRAGANTE, DELFIN SANTOS, ALBERTO JUGO and/or
OSCAR CONTRERAS, respondents.
DECISION
CHICO-NAZARIO, J.:
This petition for review on certiorari under Rule 45 of the 1997 Rules on
Civil Procedure, as amended, seeks to partially reverse the Decision [1] of 28
October 1998 and the Resolution[2] of 08 March 1999 of the Court of
Appeals, in CA-G.R. SP No. 47363, which affirmed with modification the
Decision[3] rendered by the Accredited Voluntary Arbitrator dated 31
December 1997, in VA Case No. 08-001-97. The case before the Voluntary
Arbitrator was for illegal transfer and termination, with the latter ruling in
favor of the petitioners herein.
The facts as narrated by the Court of Appeals are quoted hereunder:
On 26 October 1995, respondent[4] Zenaida V. Uy, former teller of the Escolta
Branch of BPI, shouted at her Senior Manager, petitioner [5] Delfin D. Santos
(Santos for brevity). Uy was told to go to the office of the petitioner Carlos
B. Fragante, BPIs area head and Assistant Vice President, to discuss her
complaint. On the same date, AVP Fragante told Uy to transfer to the nearby
Plaza Cervantes Branch of BPI and report to its operations manager to defuse
(sic) the tense situation prevailing at the Escolta Branch. On 27 October
1995, AVP Fragante received the report of the Escolta Branch Manager
(Santos) on the shouting incident, together with the written letter-reports of
some branch personnel. On the same day, AVP Fragante ordered Uy to
transfer to the Plaza Cervantes Branch. Upon receipt of the order, Uy
commented that she will not transfer and will await the result of the
grievance meeting. The respondent BPI Employees Union initiated a
grievance proceeding against the BPI Management for the transfer of Uy to
the Plaza Cervantes Branch. A meeting was set for 30 October 1995. On 30
October 1995, AVP Fragante sent Uy a letter . . . directing her to explain
within 24 hours why no disciplinary action should be taken against her for
insubordination, for not paying heed to the order to transfer. Uy sent a reply
on the same date . . . explaining that she could not transfer from Escolta
Branch because there was no proper turnover of her accountabilities; that she
was not able to do so on October 27, 1995 because she was not allowed to
open (as a teller); and, that since then she has been barred from entering the
bank premises. On the same day, a meeting was held to hear Uys grievance
relative to her transfer, but no agreement was reached. On 31 October 1995,
AVP Fragante sent Uy another letter . . . asking her to explain why no
disciplinary action should be taken against her for uttering disrespectful,
discourteous, insulting and unbecoming language to her superior, Senior
Manager Delfin Santos. Uy sent an undated reply thereto . . . reiterating why
she could just not leave her position at the Escolta Branch, and requesting
that she be considered on leave starting November 2, 1995. On 13 November
1995, AVP Fragante wrote Uy another letter . . . directing her to show cause
on or before 16 November 1995 why no disciplinary action, including
possible termination, should be taken against her for the October 26, 1995
incident, for insubordination or defiance to the transfer order, and for going
on absence without leave. A copy thereof was furnished the Union. Uy sent a
reply letter dated November 20, 1995, asking for particulars relative to the
alleged highly disrespectful, discourteous, insulting, threatening, and
unbecoming language and behavior towards your Manager, Delfin Santos
and on the alleged past instances when she was involved with quarrels with
your co-employees, and alleging that she felt binabastos mo ako (I was being
sexually harassed) when he uttered Dito ka na lang, marami and [ang] lalaki
dito (You just stay here, there are plenty of men here), and when she
answered Hindi ako mahilig sa lalaki (I am not fond of men), he
retorted, Maski dito ka na lang sa kuwarto ko(You may just stay here in my
room . . .). The union asked for a suspension of the grievance machinery and
for investigation of the sexual harassment charge. On November 24, 1995,
Uy requested Management through Mr. Oscar L. Cervantes, for transfer to
the Taft Avenue Branch to save on gasoline expenses. Two meetings were
held between the union side and the management side, represented by Mr.
Fragantes superior, Senior Vice President Alberto Jugo and Senior Manager
Efren Tuble. When no agreement was reached, the management advised Uy
and the Union as well as their counsel that the management had no choice
but to terminate Uy. Both the union and Uy were sent copies of the Notice of
Termination . . . dated December 8, 1995, which had the following tenor:
NOTICE OF TERMINATION
Dear Ms. Uy:
This is to advise you of the termination of your employment effective
December 14, 1995 on the grounds of gross disrespect/discourtesy towards
an officer, insubordination and absence without leave.
53
It has been established that you used highly disrespectful, discourteous,
insulting, threatening and unbecoming language and behavior towards your
branch manager, Delfin Santos, last October 26. Despite being given the
chance to explain or justify your actions, you chose to skirt the issue by
pointing out that I am in no position to make a conclusion as I was not
around when the incident happened. You know fully well that as Sales
Director of North Manila area having supervision over Escolta Branch, such
incident was reported to me. Mr. Delfin Santos appropriately inhibited
himself from conducting the investigation for obvious reasons. We disagree
with you when you dismissed the incident as trivial. Moreover, the
explanations you gave at our Head Office were found wanting in
circumstances that would absolve you or mitigate your wrongdoing as said
explanations in fact confirmed the findings at the branch level. With regard to
quarrels with your officemates, you can be considered as recidivist. You can
of course recall your quarrels, using very strong and insulting words, with
your co-employees Ms. Teresa Manalang last year and with Jocelyn Ng this
year.
You refused to follow the transfer instruction to report to Cervantes Branch
last October 27 alleging failure to properly turn over your accountabilities
despite being in the branch for practically the whole day on October 27. We
have adequate procedure for the opening of pico boxes in the presence of
witnesses in cases of refusal and AWOL.
In a further manifestation of your contempt towards managerial authority,
you went on absence without leave starting October 30. After refusing to
receive all communications sent to your residence, you tried to rectify this
AWOL by sending an undated letter received by us last November 6 wherein
you declared yourself to be on leave beginning November 2. You have since
refused to report for work.
Under the circumstances, you left us with no alternative but to terminate your
employment with us.
(SGD.) CARLOS B. FRAGANTE
Asst. Vice President
Uy filed a case for illegal transfer and termination. On June 29, 1996, Labor
Arbiter Manuel R. Caday who initially heard and decided the case issued a
decision declaring the dismissal of Uy as illegal and ordering her
reinstatement with full backwages and 10% attorneys fees BPI appealed the
said decision to the National Labor Relations Commission (NLRC) which
rendered a decision on May 28, 1997, setting aside the Labor Arbiters
Decision for lack of jurisdiction, and ruling that the case falls under the
jurisdiction of a Voluntary Arbitrator.
The case was raffled to respondent Arbitrator Entuna, who requested the
parties to submit their respective position papers. [6]
The Voluntary Arbitrator, in his disputed Decision of 31 December 1997,
adjudged:
WHEREFORE, premises considered, judgment is hereby rendered declaring
the dismissal of complainant Zenaida Uy as illegal and ordering the
respondent Bank of the Philippine Islands to immediately reinstate her to her
position as bank teller of the Escolta Branch without loss of seniority rights
and with full backwages computed from the time she was dismissed on
December 14, 1995 until she is actually reinstated in the service, and
including all her other benefits which are benefits under their Collective
Bargaining Agreement (CBA).
For reasonable attorneys fees, respondent is also ordered to pay complainant
the equivalent of 10% of the recoverable award in this case. [7]
The Motion for Reconsideration of the herein respondents BPI, et al., was
subsequently denied.
Aggrieved, they then filed a Petition for Review before the Court of Appeals
assailing the aforestated decision.
On 28 October 1998, the Court of Appeals issued the assailed decision
affirming the finding of the Voluntary Arbitrator that indeed Uys employment
was illegally terminated. The appellate court, however, modified the award
for backwages by limiting it to three years as well as finding that there was
strained relations between the parties, to wit:
WHEREFORE, the judgment appealed from is AFFIRMED with
the MODIFICATION that instead of reinstatement, the petitioner Bank of the
Philippine Islands is DIRECTED to pay Uy back salaries not exceeding three
(3) years and separation pay of one month for every year of service. The said
judgment is AFFIRMED in all other respects.[8]
Both parties seasonably filed their respective motions for partial
reconsideration of the aforesaid decision but the appellate court denied them
in a Resolution dated 08 March 1999.
54
Hence, the parties individually went to this Court via a Petition for Review
on Certiorari.
The petition[9] filed by herein respondents BPI, et al., however, was denied
for their failure to submit a certification duly executed by themselves that no
other action or proceeding involving the same issues raised in this case has
been filed or is pending before this Court, the Court of Appeals, or in the
different divisions thereof, or in any other tribunal or quasi-judicial agency,
with the undertaking to inform the Court of any similar case filed or pending
in any court, tribunal or quasi-judicial agency that may thereafter come to
their knowledge in accordance with Section 4(e), Rule 45 in relation to
Section 5, Rule 7, Section 2, Rule 42, and Sections 4 and 5(d), Rule 56 of the
Rules of Court. The corresponding Entry of Judgment[10] was entered in the
Book of Entries of Judgments on 22 September 1999.
For the reason above stated, only the following errors imputed by herein
petitioners Bank of the Philippine Islands Employees Union (BPIEU) and Uy
to the appellate court are in issue:
I of Osmalik Bustamante, et al. v. NLRC and Evergreen Farms, Inc. [15] We held
WITH DUE RESPECT, THE QUESTIONED RESOLUTION AND
DECISION OF THE HONORABLE COURT OF APPEALS ARE
CONTRARY TO LAW INSOFAR AS THEY LIMITED THE AWARD OF
BACKWAGES TO THREE (3) YEARS; AND
II
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS
COMMITTED GRAVE ABUSE OF DISCRETION IN HOLDING THAT
STRAINED RELATIONS EXIST BETWEEN THE BANK AND
PETITIONER UY DESPITE THE FACT THAT THE SHOUTING
INCIDENT IS NOT SO SERIOUS AND IT INVOLVED ONLY
PETITIONER UY AND RESPONDENT DELFIN SANTOS.[11]
Anent the first issue, the petitioners contend that the decision of the appellate
court limiting the award of backwages to three (3) years is contrary to law
and jurisprudence.
The petition is meritorious.
The rule providing for the entitlement of an illegally dismissed employee to
only three years backwages without deduction or qualification to obviate the
need for further proceedings in the course of execution, otherwise known as
the Mercury Drug Rule,[12] has long been abandoned.
In a long line of cases,[13] we have stated that the case of Mercury Drug, Co.,
Inc. v. CIR,[14] is no longer applicable. To preclude the recurrence of the
situation where the employee, with folded arms, remains inactive in the
expectation that windfall would come to him and to speed up the process of
execution, the aforementioned Mercury Drug case provided a remedy by
ruling that an employee whose illegal termination had lasted some years was
entitled to backwages for a fixed period without further qualifications, i.e.,
without need of taking account of whatever he might have earned during
such period, and deducting it from the amount of recovery, by providing a
base period of three years. The three-year-limit doctrine has been
consistently and uniformly applied by this Court over many years until the
promulgation of Republic Act No. 6715 which amended Article 279 of the
Labor Code in 1989.
With the new law before us, we clarified the computation of backwages due
an employee on account of his illegal dismissal from employment in the case
that the passing of Republic Act No. 6715,[16] particularly Section 34,
[17]
which took effect on 21 March 1989, amended Article 279 of the Labor
Code, which now states in part:
ART. 279. Security of Tenure. - An employee who is unjustly dismissed from
work shall be entitled to reinstatement without loss of seniority rights and
other privileges and to his full backwages, inclusive of allowances, and to his
other benefits or their monetary equivalent computed from the time his
compensation was withheld from him up to the time of his actual
reinstatement.
Verily, the evident legislative intent as expressed in Rep. Act No. 6715,
above-quoted, is that the backwages to be awarded to an illegally dismissed
employee, should not, as a general rule, be diminished or reduced by the
earnings derived by him elsewhere during the period of his illegal dismissal.
The underlying reason for this ruling is that the employee, while litigating the
legality (illegality) of his dismissal, must still earn a living to support himself
and his family. Corollary thereto, full backwages have to be paid by the
employer as part of the price or penalty he has to pay for illegally dismissing
his employee. Thus, a closer adherence to the legislative policy behind Rep.
Act. No. 6715 points to full backwages as meaning exactly that, i.e., without
deducting from backwages the earnings derived elsewhere by the concerned
employee during the period of his illegal dismissal. In other words, the
55
provision calling for full backwages to illegally dismissed employees is clear,
plain and free from ambiguity and, therefore, must be applied without
attempted or strained interpretation.[18]
Consequently, in accordance with Section 34, Rep. Act No. 6715, employees
illegally dismissed after 21 March 1989 are entitled to their full backwages,
inclusive of other benefits or their monetary equivalent, from the time their
actual compensation was withheld from them up to the time of their actual
reinstatement.
Under the factual circumstances of the case, the law and jurisprudence
prevailing, therefore, we find that the Court of Appeals committed a
reversible error in limiting the award of backwages for a fixed period of three
years. The illegal dismissal of petitioner Uy was effected in 1995, or after
Rep. Act No. 6715 took effect on 21 March 1989. Absent any exceptional
circumstance, it is now settled that an employee who is unjustly dismissed
from work shall be entitled to full backwages, inclusive of allowances, and to
his other benefits or their monetary equivalent from the time his
compensation was withheld from him up to the time of his actual
reinstatement.[19]
Apropos the issue of non-reinstatement of petitioner Uy, the Court of
Appeals held that in a number of cases, the High Court had allowed mere
payment of severance pay, when reinstatement would no longer be beneficial
to either party in view of strained relations between them. [20] And, thus, in
lieu of reinstatement, it ordered the payment of separation pay instead.
The petitioners, on the other hand, posit that the material incidents of the case
at bar are but confined or personal to the individual respondents Delfin
Santos and Carlos Fragante. The other respondents, namely Alberto Jugo and
Oscar Contreras were impleaded merely because of their position in
respondent BPIs Human Resources Department. In the words of the
petitioners, the controversy was a personal matter between Ms. Uy and
Messrs. Delfin Santos and Carlos Fragante.[21] In addition, they bolstered
their position by relying on what this Court had to say in Globe-Mackay
Cable and Radio Corp. v. NLRC:[22]
Obviously, the principle of strained relations cannot be applied
indiscriminately. Otherwise, reinstatement can never be possible simply
because some hostility is invariably engendered between the parties as a
result of litigation. That is human nature.
Besides, no strained relations should arise from a valid and legal act of
asserting ones right; otherwise an employee who shall assert his right could
be easily separated from the service, by merely paying his separation pay on
the pretext that his relationship with his employer had already become
strained.
Petitioners reliance is well placed.
We have oft said that mere allegation of strained relations to bar
reinstatement is frowned upon.
In the case of PLDT, et al. v. Tolentino,[23] we reiterated our ruling in Quijano
v. Mercury Drug Corp.[24] wherein we propitiously said that the strained
relations doctrine should be strictly applied so as not to deprive an illegally
dismissed employee of his right to reinstatement. We further stated that:
Well-entrenched is the rule that an illegally dismissed employee is entitled to
reinstatement as a matter of right. Over the years, however, the case law
developed that where reinstatement is not feasible, expedient or practical, as
where reinstatement would only exacerbate the tension and strained relations
between the parties, or where the relationship between the employer and
employee has been unduly strained by reason of their irreconcilable
differences, particularly where the illegally dismissed employee held a
managerial or key position in the company, it would be more prudent to order
payment of separation pay instead of reinstatement. Some unscrupulous
employers, however, have taken advantage of the overgrowth of this doctrine
of strained relations by using it as a cover to get rid of its employees and thus
defeat their right to job security.
To protect labors security of tenure, we emphasize that the doctrine of
strained relations should be strictly applied so as not to deprive an illegally
dismissed employee of his right to reinstatement. Every labor dispute almost
always results in strained relations and the phrase cannot be given an
overarching interpretation, otherwise, an unjustly dismissed employee can
never be reinstated.
The said case went on further to quote our pronouncement in the case
of Almira v. B.F. Goodrich, Philippines, Inc.:[25]
This Court is cognizant of managements right to select the people who will
manage its business as well as its right to dismiss them. However, this right
cannot be abused. Its exercise must always be tempered with compassion and
understanding. As former Chief Justice Enrique Fernando eloquently put it:
56
Where penalty less severe would suffice, whatever missteps may be
committees by labor ought not to be visited with consequence so severe. It is
not only because of the laws concern for the workingmen. There is, in
addition, his family to consider. Unemployment brings untold hardships and
sorrows on those dependent on the wage-earner. The misery and pain
attendant on the loss of jobs then could be avoided if there be acceptance of
the view that under all the circumstances of a case, the workers should not be
deprived of their means of livelihood. Nor is this to condone what has been
done by them.

Moreover, it has been almost a decade since the incident that led to the
dismissal of petitioner Uy occurred. Petitioner Uy contends, and the
respondents do not contradict, that respondent Carlos Fragante has long been
assigned in another area and Messrs. Alberto Jugo and Oscar Contreras are
no longer connected with respondent BPI. Considering, thus, that there now
appears no more basis for strained relations between the present management
and petitioner Uy, reinstatement is possible.

WHEREFORE, the instant petition is GRANTED. The assailed 28 October

1998 Decision and 8 March 1999 Resolution of the Court of Appeals are
hereby MODIFIED as follows: 1) respondent BPI is DIRECTED to pay
petitioner Uy backwages from the time of her illegal dismissal until her
actual reinstatement; and 2) respondent BPI is ORDERED to reinstate
petitioner Uy to her former position, or to a substantially equivalent one,
without loss of seniority right and other benefits attendant to the position.

SO ORDERED.

57
11.) Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 164772 June 8, 2006
EQUITABLE BANKING CORPORATION (now known as
EQUITABLE-PCI BANK), petitioner,
vs.
RICARDO SADAC, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari with Motion to Refer the
Petition to the Court En Banc filed by Equitable Banking Corporation (now
known as Equitable-PCI Bank), seeking to reverse the Decision 1 and
Resolution2 of the Court of Appeals, dated 6 April 2004 and 28 July 2004,
respectively, as amended by the Supplemental Decision 3 dated 26 October
2004 in CA-G.R. SP No. 75013, which reversed and set aside the Resolutions
of the National Labor Relations Commission (NLRC), dated 28 March 2001
and 24 September 2002 in NLRC-NCR Case No. 00-11-05252-89.
The Antecedents
As culled from the records, respondent Sadac was appointed Vice President
of the Legal Department of petitioner Bank effective 1 August 1981, and
subsequently General Counsel thereof on 8 December 1981. On 26 June
1989, nine lawyers of petitioner Bank’s Legal Department, in a letter-petition
to the Chairman of the Board of Directors, accused respondent Sadac of
abusive conduct, inter alia, and ultimately, petitioned for a change in
leadership of the department. On the ground of lack of confidence in
respondent Sadac, under the rules of client and lawyer relationship, petitioner
Bank instructed respondent Sadac to deliver all materials in his custody in all
cases in which the latter was appearing as its counsel of record. In reaction
thereto, respondent Sadac requested for a full hearing and formal
investigation but the same remained unheeded. On 9 November 1989,
respondent Sadac filed a complaint for illegal dismissal with damages against
petitioner Bank and individual members of the Board of Directors thereof.
After learning of the filing of the complaint, petitioner Bank terminated the
services of respondent Sadac. Finally, on 10 August 1989, respondent Sadac
was removed from his office and ordered disentitled to any compensation
and other benefits.4
In a Decision5 dated 2 October 1990, Labor Arbiter Jovencio Ll. Mayor, Jr.,
dismissed the complaint for lack of merit. On appeal, the NLRC in its
Resolution6 of 24 September 1991 reversed the Labor Arbiter and declared
respondent Sadac’s dismissal as illegal. The decretal portion thereof reads,
thus:
WHEREFORE, in view of all the foregoing considerations, let the Decision
of October 2, 1990 be, as it is hereby, SET ASIDE, and a new one
ENTERED declaring the dismissal of the complainant as illegal, and
consequently ordering the respondents jointly and severally to reinstate him
to his former position as bank Vice-President and General Counsel without
loss of seniority rights and other privileges, and to pay him full backwages
and other benefits from the time his compensation was withheld to his actual
reinstatement, as well as moral damages of P100,000.00, exemplary damages
of P50,000.00, and attorney’s fees equivalent to Ten Percent (10%) of the
monetary award. Should reinstatement be no longer possible due to strained
relations, the respondents are ordered likewise jointly and severally to grant
separation pay at one (1) month per year of service in the total sum of
P293,650.00 with backwages and other benefits from November 16, 1989 to
September 15, 1991 (cut off date, subject to adjustment) computed at
P1,055,740.48, plus damages of P100,000.00 (moral damages), P50,000.00
(exemplary damages) and attorney’s fees equal to Ten Percent (10%) of all
the monetary award, or a grand total of P1,649,329.53. 7
Petitioner Bank came to us for the first time via a Special Civil Action for
Certiorari assailing the NLRC Resolution of 24 September 1991 in Equitable
Banking Corporation v. National Labor Relations Commission, docketed as
G.R. No. 102467.8
In our Decision9 of 13 June 1997, we held respondent Sadac’s dismissal
illegal. We said that the existence of the employer-employee relationship
between petitioner Bank and respondent Sadac had been duly established
bringing the case within the coverage of the Labor Code, hence, we did not
permit petitioner Bank to rely on Sec. 26, Rule 13810 of the Rules of Court,
claiming that the association between the parties was one of a client-lawyer
relationship, and, thus, it could terminate at any time the services of
respondent Sadac. Moreover, we did not find that respondent Sadac’s
dismissal was grounded on any of the causes stated in Article 282 of the
Labor Code. We similarly found that petitioner Bank disregarded the
procedural requirements in terminating respondent Sadac’s employment as so
required by Section 2 and Section 5, Rule XIV, Book V of the Implementing
Rules of the Labor Code. We decreed:
58
WHEREFORE, the herein questioned Resolution of the NLRC is
AFFIRMED with the following MODIFICATIONS: That private respondent
shall be entitled to backwages from termination of employment until turning
sixty (60) years of age (in 1995) and, thereupon, to retirement benefits in
accordance with law; that private respondent shall be paid an additional
amount of P5,000.00; that the award of moral and exemplary damages are
deleted; and that the liability herein pronounced shall be due from petitioner
bank alone, the other petitioners being absolved from solidary liability. No
costs.11
On 28 July 1997, our Decision in G.R. No. 102467 dated 13 June 1997
became final and executory.12
Pursuant thereto, respondent Sadac filed with the Labor Arbiter a Motion for
Execution13 thereof. Likewise, petitioner Bank filed a Manifestation and
Motion14 praying that the award in favor of respondent Sadac be computed
and that after payment is made, petitioner Bank be ordered forever released
from liability under said judgment.
Per respondent Sadac’s computation, the total amount of the monetary award
is P6,030,456.59, representing his backwages and other benefits, including
the general increases which he should have earned during the period of his
illegal termination. Respondent Sadac theorized that he started with a
monthly compensation of P12,500.00 in August 1981, when he was
appointed as Vice President of petitioner Bank’s Legal Department and later
as its General Counsel in December 1981. As of November 1989, when he
was dismissed illegally, his monthly compensation amounted to P29,365.00
or more than twice his original compensation. The difference, he posited, can
be attributed to the annual salary increases which he received equivalent to
15 percent (15%) of his monthly salary.
Respondent Sadac anchored his claim on Article 279 of the Labor Code of
the Philippines, and cited as authority the cases of East Asiatic Company,
Ltd. v. Court of Industrial Relations,15 St. Louis College of Tuguegarao v.
National Labor Relations Commission,16 and Sigma Personnel Services v.
National Labor Relations Commission.17According to respondent Sadac, the
catena of cases uniformly holds that it is the obligation of the employer to
pay an illegally dismissed employee the whole amount of the salaries or
wages, plus all other benefits and bonuses and general increases to which he
would have been normally entitled had he not been dismissed; and therefore,
salary increases should be deemed a component in the computation of
backwages. Moreover, respondent Sadac contended that his check-up benefit,
clothing allowance, and cash conversion of vacation leaves must be included
in the computation of his backwages.
Petitioner Bank disputed respondent Sadac’s computation. Per its
computation, the amount of monetary award due respondent Sadac is
P2,981,442.98 only, to the exclusion of the latter’s general salary increases
and other claimed benefits which, it maintained, were unsubstantiated. The
jurisprudential precedent relied upon by petitioner Bank in assailing
respondent Sadac’s computation is Evangelista v. National Labor Relations
Commission,18 citing Paramount Vinyl Products Corp. v. National Labor
Relations Commission,19 holding that an unqualified award of backwages
means that the employee is paid at the wage rate at the time of his dismissal.
Furthermore, petitioner Bank argued before the Labor Arbiter that the award
of salary differentials is not allowed, the established rule being that upon
reinstatement, illegally dismissed employees are to be paid their backwages
without deduction and qualification as to any wage increases or other
benefits that may have been received by their co-workers who were not
dismissed or did not go on strike.
On 2 August 1999, Labor Arbiter Jovencio Ll. Mayor, Jr. rendered an
Order20 adopting respondent Sadac’s computation. In the main, the Labor
Arbiter relying on Millares v. National Labor Relations
Commission21 concluded that respondent Sadac is entitled to the general
increases as a component in the computation of his backwages. Accordingly,
he awarded respondent Sadac the amount of P6,030,456.59 representing his
backwages inclusive of allowances and other claimed benefits, namely
check-up benefit, clothing allowance, and cash conversion of vacation leave
plus 12 percent (12%) interest per annum equivalent to P1,367,590.89 as of
30 June 1999, or a total of P7,398,047.48. However, considering that
respondent Sadac had already received the amount of P1,055,740.48 by
virtue of a Writ of Execution22 earlier issued on 18 January 1999, the Labor
Arbiter directed petitioner Bank to pay respondent Sadac the amount of
P6,342,307.00. The Labor Arbiter also granted an award of attorney’s fees
equivalent to ten percent (10%) of all monetary awards, and imposed a 12
percent (12%) interest per annum reckoned from the finality of the judgment
until the satisfaction thereof.
The Labor Arbiter decreed, thus:
WHEREFORE, in view of al (sic) the foregoing, let an "ALIAS" Writ of
Execution be issued commanding the Sheriff, this Branch, to collect from
respondent Bank the amount of Ph6,342,307.00 representing the backwages
with 12% interest per annum due complainant.23
59
Petitioner Bank interposed an appeal with the NLRC, which reversed the
Labor Arbiter in a Resolution,24promulgated on 28 March 2001. It
ratiocinated that the doctrine on general increases as component in
computing backwages in Sigma Personnel Services and St. Louis was merely
obiter dictum. The NLRC found East Asiatic Co., Ltd. inapplicable on the
ground that the original circumstances therein are not only peculiar to the
said case but also completely strange to the case of respondent Sadac.
Further, the NLRC disallowed respondent Sadac’s claim to check-up benefit
ratiocinating that there was no clear and substantial proof that the same was
being granted and enjoyed by other employees of petitioner Bank. The award
of attorney’s fees was similarly deleted.
The dispositive portion of the Resolution states:
WHEREFORE, the instant appeal is considered meritorious and accordingly,
the computation prepared by respondent Equitable Banking Corporation on
the award of backwages in favor of complainant Ricardo Sadac under the
decision promulgated by the Supreme Court on June 13, 1997 in G.R. No.
102476 in the aggregate amount of P2,981,442.98 is hereby ordered. 25
Respondent Sadac’s Motion for Reconsideration thereon was denied by the
NLRC in its Resolution,26 promulgated on 24 September 2002.
Aggrieved, respondent Sadac filed before the Court of Appeals a Petition for
Certiorari seeking nullification of the twin resolutions of the NLRC, dated 28
March 2001 and 24 September 2002, as well as praying for the reinstatement
of the 2 August 1999 Order of the Labor Arbiter.
For the resolution of the Court of Appeals were the following issues, viz.:
(1) Whether periodic general increases in basic salary, check-up benefit,
clothing allowance, and cash conversion of vacation leave are included in the
computation of full backwages for illegally dismissed employees;
(2) Whether respondent is entitled to attorney’s fees; and
(3) Whether respondent is entitled to twelve percent (12%) per annum as
interest on all accounts outstanding until full payment thereof.
Finding for respondent Sadac (therein petitioner), the Court of Appeals
rendered a Decision on 6 April 2004, the dispositive portion of which is
quoted hereunder:
WHEREFORE, premises considered, the March 28, 2001 and the September
24, 2002 Resolutions of the National Labor Relations Commissions (sic) are
REVERSED and SET ASIDE and the August 2, 1999 Order of the Labor
Arbiter is REVIVED to the effect that private respondent is DIRECTED TO
PAY petitioner the sum of PhP6,342,307.00, representing full back wages
(sic) which sum includes annual general increases in basic salary, check-up
benefit, clothing allowance, cash conversion of vacation leave and other
sundry benefits plus 12% per annum interest on outstanding balance from
July 28, 1997 until full payment.
Costs against private respondent.27
The Court of Appeals, citing East Asiatic held that respondent Sadac’s
general increases should be added as part of his backwages. According to the
appellate court, respondent Sadac’s entitlement to the annual general
increases has been duly proven by substantial evidence that the latter, in fact,
enjoyed an annual increase of more or less 15 percent (15%). Respondent
Sadac’s check-up benefit, clothing allowance, and cash conversion of
vacation leave were similarly ordered added in the computation of
respondent Sadac’s basic wage.
Anent the matter of attorney’s fees, the Court of Appeals sustained the
NLRC. It ruled that our Decision28 of 13 June 1997 did not award attorney’s
fees in respondent Sadac’s favor as there was nothing in the aforesaid
Decision, either in the dispositive portion or the body thereof that supported
the grant of attorney’s fees. Resolving the final issue, the Court of Appeals
imposed a 12 percent (12%) interest per annum on the total monetary award
to be computed from 28 July 1997 or the date our judgment in G.R. No.
102467 became final and executory until fully paid at which time the
quantification of the amount may be deemed to have been reasonably
ascertained.
On 7 May 2004, respondent Sadac filed a Partial Motion for
Reconsideration29 of the 6 April 2004 Court of Appeals Decision insofar as
the appellate court did not award him attorney’s fees. Similarly, petitioner
Bank filed a Motion for Partial Reconsideration thereon. Following an
exchange of pleadings between the parties, the Court of Appeals rendered a
Resolution,30 dated 28 July 2004, denying petitioner Bank’s Motion for
Partial Reconsideration for lack of merit.
Assignment of Errors
60
Hence, the instant Petition for Review by petitioner Bank on the following
assignment of errors, to wit:
(a) The Hon. Court of Appeals erred in ruling that general salary increases
should be included in the computation of full backwages.
(b) The Hon. Court of Appeals erred in ruling that the applicable authorities
in this case are: (i) East Asiatic, Ltd. v. CIR, 40 SCRA 521 (1971); (ii) St.
Louis College of Tuguegarao v. NLRC, 177 SCRA 151 (1989); (iii) Sigma
Personnel Services v. NLRC, 224 SCRA 181 (1993); and (iv) Millares v.
NLRC, 305 SCRA 500 (1999) and not (i) Art. 279 of the Labor Code; (ii)
Paramount Vinyl Corp. v. NLRC, 190 SCRA 525 (1990); (iii) Evangelista v.
NLRC, 249 SCRA 194 (1995); and (iv) Espejo v. NLRC, 255 SCRA 430
(1996).
(c) The Hon. Court of Appeals erred in ruling that respondent is entitled to
check-up benefit, clothing allowance and cash conversion of vacation leaves
notwithstanding that respondent did not present any evidence to prove
entitlement to these claims.
(d) The Hon. Court of Appeals erred in ruling that respondent is entitled to be
paid legal interest even if the principal amount due him has not yet been
correctly and finally determined.31
Meanwhile, on 26 October 2004, the Court of Appeals rendered a
Supplemental Decision granting respondent Sadac’s Partial Motion for
Reconsideration and amending the dispositive portion of the 6 April 2004
Decision in this wise, viz.:
WHEREFORE, premises considered, the March 24 (sic), 2001 and the
September 24, 2002 Resolutions of the National Labor Relations
Commission are hereby REVERSED and SET ASIDE and the August 2,
1999 Order of the Labor Arbiter is hereby REVIVED to the effect that
private respondent is hereby DIRECTED TO PAY petitioner the sum of
P6,342,307.00, representing full backwages which sum includes annual
general increases in basic salary, check-up benefit, clothing allowance, cash
conversion of vacation leave and other sundry benefits "and attorney’s fees
equal to TEN PERCENT (10%) of all the monetary award" plus 12% per
annum interest on all outstanding balance from July 28, 1997 until full
payment.
Costs against private respondent.32
On 22 November 2004, petitioner Bank filed a Supplement to Petition for
Review33 contending in the main that the Court of Appeals erred in issuing
the Supplemental Decision by directing petitioner Bank to pay an additional
amount to respondent Sadac representing attorney’s fees equal to ten percent
(10%) of all the monetary award.
The Court’s Ruling
I.
We are called to write finis to a controversy that comes to us for the second
time. At the core of the instant case are the divergent contentions of the
parties on the manner of computation of backwages.
Petitioner Bank asseverates that Article 279 of the Labor Code of the
Philippines does not contemplate the inclusion of salary increases in the
definition of "full backwages." It controverts the reliance by the appellate
court on the cases of (i) East Asiatic; (ii) St. Louis; (iii) Sigma Personnel; and
(iv) Millares. While it is in accord with the pronouncement of the Court of
Appeals that Republic Act No. 6715, in amending Article 279, intends to give
more benefits to workers, petitioner Bank submits that the Court of Appeals
was in error in relying on East Asiatic to support its finding that salary
increases should be included in the computation of backwages as nowhere in
Article 279, as amended, are salary increases spoken of. The prevailing rule
in the milieu of the East Asiatic doctrine was to deduct earnings earned
elsewhere from the amount of backwages payable to an illegally dismissed
employee.
Petitioner Bank posits that even granting that East Asiatic allowed general
salary increases in the computation of backwages, it was because the
inclusion was purposely to cushion the blow of the deduction of earnings
derived elsewhere; with the amendment of Article 279 and the consequent
elimination of the rule on the deduction of earnings derived elsewhere, the
rationale for including salary increases in the computation of backwages no
longer exists. On the references of salary increases in the aforementioned
cases of (i) St. Louis; (ii) Sigma Personnel; and (iii) Millares, petitioner Bank
contends that the same were merely obiter dicta. In fine, petitioner Bank
anchors its claim on the cases of (i) Paramount Vinyl Products Corp. v.
National Labor Relations Commission;34 (ii) Evangelista v. National Labor
Relations Commission;35 and (iii) Espejo v. National Labor Relations
Commission,36 which ruled that an unqualified award of backwages is
exclusive of general salary increases and the employee is paid at the wage
rate at the time of the dismissal.
61
For his part, respondent Sadac submits that the Court of Appeals was correct
when it ruled that his backwages should include the general increases on the
basis of the following cases, to wit: (i) East Asiatic; (ii) St. Louis; (iii) Sigma
Personnel; and (iv) Millares.
Resolving the protracted litigation between the parties necessitates us to
revisit our pronouncements on the interpretation of the term backwages. We
said that backwages in general are granted on grounds of equity for earnings
which a worker or employee has lost due to his illegal dismissal. 37 It is not
private compensation or damages but is awarded in furtherance and
effectuation of the public objective of the Labor Code. Nor is it a redress of a
private right but rather in the nature of a command to the employer to make
public reparation for dismissing an employee either due to the former’s
unlawful act or bad faith.38 The Court, in the landmark case of Bustamante v.
National Labor Relations Commission,39 had the occasion to explicate on the
meaning of full backwages as contemplated by Article 279 40 of the Labor
Code of the Philippines, as amended by Section 34 of Rep. Act No. 6715.
The Court in Bustamante said, thus:
The Court deems it appropriate, however, to reconsider such earlier ruling on
the computation of backwages as enunciated in said Pines City Educational
Center case, by now holding that conformably with the evident legislative
intent as expressed in Rep. Act No. 6715, above-quoted, backwages to be
awarded to an illegally dismissed employee, should not, as a general rule, be
diminished or reduced by the earnings derived by him elsewhere during the
period of his illegal dismissal. The underlying reason for this ruling is that
the employee, while litigating the legality (illegality) of his dismissal, must
still earn a living to support himself and family, while full backwages have to
be paid by the employer as part of the price or penalty he has to pay for
illegally dismissing his employee. The clear legislative intent of the
amendment in Rep. Act No. 6715 is to give more benefits to workers than
was previously given them under the Mercury Drug rule or the "deduction of
earnings elsewhere" rule. Thus, a closer adherence to the legislative policy
behind Rep. Act No. 6715 points to "full backwages" as meaning exactly
that, i.e., without deducting from backwages the earnings derived elsewhere
by the concerned employee during the period of his illegal dismissal. In other
words, the provision calling for "full backwages" to illegally dismissed
employees is clear, plain and free from ambiguity and, therefore, must be
applied without attempted or strained interpretation. Index animi sermo est. 41
Verily, jurisprudence has shown that the definition of full backwages has
forcefully evolved. In Mercury Drug Co., Inc. v. Court of Industrial
Relations,42 the rule was that backwages were granted for a period of three
years without qualification and without deduction, meaning, the award of
backwages was not reduced by earnings actually earned by the dismissed
employee during the interim period of the separation. This came to be known
as the Mercury Drug rule.43 Prior to the Mercury Drug ruling in 1974, the
total amount of backwages was reduced by earnings obtained by the
employee elsewhere from the time of the dismissal to his reinstatement. The
Mercury Drug rule was subsequently modified in Ferrer v. National Labor
Relations Commission44 and Pines City Educational Center v. National Labor
Relations Commission,45 where we allowed the recovery of backwages for
the duration of the illegal dismissal minus the total amount of earnings which
the employee derived elsewhere from the date of dismissal up to the date of
reinstatement, if any. In Ferrer and in Pines, the three-year period was
deleted, and instead, the dismissed employee was paid backwages for the
entire period that he was without work subject to the deductions, as
mentioned. Finally came our ruling in Bustamante which superseded Pines
City Educational Center and allowed full recovery of backwages without
deduction and without qualification pursuant to the express provisions of
Article 279 of the Labor Code, as amended by Rep. Act No. 6715, i.e.,
without any deduction of income the employee may have derived from
employment elsewhere from the date of his dismissal up to his reinstatement,
that is, covering the entirety of the period of the dismissal.
The first issue for our resolution involves another aspect in the computation
of full backwages, mainly, the basis of the computation thereof. Otherwise
stated, whether general salary increases should be included in the base figure
to be used in the computation of backwages.
In so concluding that general salary increases should be made a component
in the computation of backwages, the Court of Appeals ratiocinated, thus:
The Supreme Court held in East Asiatic, Ltd. v. Court of Industrial Relations,
40 SCRA 521 (1971) that "general increases" should be added as a part of
full backwages, to wit:
In other words, the just and equitable rule regarding the point under
discussion is this: It is the obligation of the employer to pay an illegally
dismissed employee or worker the whole amount of the salaries or wages,
plus all other benefits and bonuses and general increases, to which he would
have been normally entitled had he not been dismissed and had not stopped
working, but it is the right, on the other hand of the employer to deduct from
the total of these, the amount equivalent to the salaries or wages the
employee or worker would have earned in his old employment on the
corresponding days he was actually gainfully employed elsewhere with an
62
equal or higher salary or wage, such that if his salary or wage in his other
employment was less, the employer may deduct only what has been actually
earned.
The doctrine in East Asiatic was subsequently reiterated, in the cases of St.
Louis College of Tugueg[a]rao v. NLRC, 177 SCRA 151 (1989); Sigma
Personnel Services v. NLRC, 224 SCRA 181 (1993) and Millares v. National
Labor Relations Commission, 305 SCRA 500 (1999).
Private respondent, in opposing the petitioner’s contention, alleged in his
Memorandum that only the wage rate at the time of the employee’s illegal
dismissal should be considered – private respondent citing the following
decisions of the Supreme Court: Paramount Vinyl Corp. v. NLRC 190 SCRA
525 (1990); Evangelista v. NLRC, 249 SCRA 194 (1995); Espejo v. NLRC,
255 SCRA 430 (1996) which rendered obsolete the ruling in East Asiatic,
Ltd. v. Court of Industrial Relations, 40 SCRA 521 (1971).
We are not convinced.
The Supreme Court had consistently held that payment of full backwages is
the price or penalty that the employer must pay for having illegally dismissed
an employee.
In Ala Mode Garments, Inc. v. NLRC 268 SCRA 497 (1997) and Bustamante
v. NLRC and Evergreen Farms, Inc. 265 SCRA 61 (1996) the Supreme Court
held that the clear legislative intent in the amendment in Republic Act 6715
was to give more benefits to workers than was previously given them under
the Mercury Drug rule or the "deductions of earnings elsewhere" rule.
The Paramount Vinyl, Evangelista, and Espejo cases cited by private
respondent are inapplicable to the case at bar. The doctrines therein came
about as a result of the old Mercury Drug rule, which was repealed with the
passage of Republic Act 6715 into law. It was in Alex Ferrer v. NLRC 255
SCRA 430 (1993) when the Supreme Court returned to the doctrine in East
Asiatic, which was soon supplanted by the case of Bustamante v. NLRC and
Evergreen Farms, Inc., which held that the backwages to be awarded to an
illegally dismissed employee, should not, as a general rule, be diminished or
reduced by the earnings derived from him during the period of his illegal
dismissal. Furthermore, the Mercury Drug rule was never meant to prejudice
the workers, but merely to speed the recovery of their backwages.
Ever since Mercury Drug Co. Inc. v. CIR 56 SCRA 694 (1974), it had been
the intent of the Supreme Court to increase the backwages due an illegally
dismissed employee. In the Mercury Drug case, full backwages was to be
recovered even though a three-year limitation on recovery of full backwages
was imposed in the name of equity. Then in Bustamante, full backwages was
interpreted to mean absolutely no deductions regardless of the duration of the
illegal dismissal. In Bustamante, the Supreme Court no longer regarded
equity as a basis when dealing with illegal dismissal cases because it is not
equity at play in illegal dismissals but rather, it is employer’s obligation to
pay full back wages (sic). It is an obligation of the employer because it is
"the price or penalty the employer has to pay for illegally dismissing his
employee."
The applicable modern definition of full backwages is now found in Millares
v. National Labor Relations Commission 305 SCRA 500 (1999), where
although the issue in Millares concerned separation pay – separation pay and
backwages both have employee’s wage rate at their foundation.
x x x The rationale is not difficult to discern. It is the obligation of the
employer to pay an illegally dismissed employee the whole amount of his
salaries plus all other benefits, bonuses and general increases to which he
would have been normally entitled had he not been dismissed and had not
stopped working. The same holds true in case of retrenched employees. x x x
xxxx
x x x Annual general increases are akin to "allowances" or "other
benefits." 46 (Italics ours.)
We do not agree.
Attention must be called to Article 279 of the Labor Code of the Philippines,
as amended by Section 34 of Rep. Act No. 6715. The law provides as
follows:
ART. 279. Security of Tenure. – In cases of regular employment, the
employer shall not terminate the services of an employee except for a just
cause or when authorized by this Title. An employee who is unjustly
dismissed from work shall be entitled to reinstatement without loss of
seniority rights and other privileges and to his full backwages, inclusive of
allowances, and to his other benefits or their monetary equivalent computed
from the time his compensation was withheld from him up to the time of his
actual reinstatement. (Emphasis supplied.)
Article 279 mandates that an employee’s full backwages shall be inclusive of
allowances and other benefits or their monetary equivalent. Contrary to the
ruling of the Court of Appeals, we do not see that a salary increase can be
63
interpreted as either an allowance or a benefit. Salary increases are not akin
to allowances or benefits, and cannot be confused with either. The term
"allowances" is sometimes used synonymously with "emoluments," as
indirect or contingent remuneration, which may or may not be earned, but
which is sometimes in the nature of compensation, and sometimes in the
nature of reimbursement.47 Allowances and benefits are granted to the
employee apart or separate from, and in addition to the wage or salary. In
contrast, salary increases are amounts which are added to the employee’s
salary as an increment thereto for varied reasons deemed appropriate by the
employer. Salary increases are not separate grants by themselves but once
granted, they are deemed part of the employee’s salary. To extend the
coverage of an allowance or a benefit to include salary increases would be to
strain both the imagination of the Court and the language of law. As aptly
observed by the NLRC, "to otherwise give the meaning other than what the
law speaks for by itself, will open the floodgates to various
interpretations."48 Indeed, if the intent were to include salary increases as
basis in the computation of backwages, the same should have been explicitly
stated in the same manner that the law used clear and unambiguous terms in
expressly providing for the inclusion of allowances and other benefits.
Moreover, we find East Asiatic inapplicable to the case at bar. In East Asiatic,
therein petitioner East Asiatic Company, Ltd. was found guilty of unfair labor
practices against therein respondent, Soledad A. Dizon, and the Court
ordered her reinstatement with back pay. On the question of the amount of
backwages, the Court granted the dismissed employee the whole amount of
the salaries plus all general increases and bonuses she would have received
during the period of her lay-off with the corresponding right of the employer
to deduct from the total amounts, all the earnings earned by the employee
during her lay-off. The emphasis in East Asiatic is the duty of both the
employer and the employee to disclose the material facts and competent
evidence within their peculiar knowledge relative to the proper determination
of backwages, especially as the earnings derived by the employee elsewhere
are deductions to which the employer are entitled. However, East Asiatic
does not find relevance in the resolution of the issue before us. First, the
material date to consider is 21 March 1989, when the law amending Article
279 of the Labor Code, Rep. Act No. 6715, otherwise known as the Herrera-
Veloso Law, took effect. It is obvious that the backdrop of East Asiatic,
decided by this Court on 31 August 1971 was prior to the current state of the
law on the definition of full backwages. Second, it bears stressing that East
Asiatic was decided at a time when even as an illegally dismissed employee
is entitled to the whole amount of the salaries or wages, it was the recognized
right of the employer to deduct from the total of these, the amount equivalent
to the salaries or wages the employee or worker would have earned in his old
employment on the corresponding days that he was actually gainfully
employed elsewhere with an equal or higher salary or wage, such that if his
salary or wage in his other employment was less, the employer may deduct
only what has been actually earned.49 It is for this reason the Court centered
its discussion on the duty of both parties to be candid and open about facts
within their knowledge to establish the amount of the deductions, and not
leave the burden on the employee alone to establish his claim, as well as on
the duty of the court to compel the parties to cooperate in disclosing such
material facts. The inapplicability of East Asiatic to respondent Sadac was
sufficiently elucidated upon by the NLRC, viz.:
A full discernment of the pertinent portion of the judgment sought to be
executed in East Asiatic Co., Ltd. would reveal as follows:
"x x x to reinstate Soledad A. Dizon immediately to her former position with
backwages from September 1, 1958 until actually reinstated with all the
rights and privileges acquired and due her, including seniority and such other
terms and conditions of employment AT THE TIME OF HER LAY-OFF"
The basis on which this doctrine was laid out was summed up by the
Supreme Court which ratiocinated in this light. To quote:
"x x x on the other hand, of the employer to deduct from the total of these,
the amount equivalent to these salaries or wages the employee or worker
would have earned in his old employment on the corresponding days that he
was actually gainfully employed elsewhere with an equal or higher salary or
wage, such that if his salary or wage in his other employment was less, the
employer may deduct only what has been actually earned x x x" (Ibid, pp.
547-548).
But the Supreme Court, in the instant case, pronounced a clear but different
judgment from that of East Asiatic Co. decretal portion, in this wise:
"WHEREFORE, the herein questioned Resolution of the NLRC is
AFFIRMED with the following MODIFICATIONS: that private respondent
shall be entitled to backwages from termination of employment until turning
sixty (60) years of age (in 1995) and, thereupon, to retirement benefits in
accordance with law; xxx"
Undisputably (sic), it was decreed in plain and unambiguous language that
complainant Sadac "shall be entitled to backwages." No more, no less.
64
Thus, this decree for Sadac cannot be considered in any way, substantially in
essence, with the award of backwages as pronounced for Ms. Dizon in the
case of East Asiatic Co. Ltd.50
In the same vein, we cannot accept the Court of Appeals’ reliance on the
doctrine as espoused in Millares. It is evident that Millares concerns itself
with the computation of the salary base used in computing the separation pay
of petitioners therein. The distinction between backwages and separation pay
is elementary. Separation pay is granted where reinstatement is no longer
advisable because of strained relations between the employee and the
employer. Backwages represent compensation that should have been earned
but were not collected because of the unjust dismissal. The bases for
computing the two are different, the first being usually the length of the
employee’s service and the second the actual period when he was unlawfully
prevented from working.51
The issue that confronted the Court in Millares was whether petitioners’
housing and transportation allowances therein which they allegedly received
on a monthly basis during their employment should have been included in
the computation of their separation pay. It is plain to see that the reference to
general increases in Millares citing East Asiatic was a mere obiter. The crux
in Millares was our pronouncement that the receipt of an allowance on a
monthly basis does not ipso facto characterize it as regular and forming part
of salary because the nature of the grant is a factor worth considering.
Whether salary increases are deemed part of the salary base in the
computation of backwages was not the issue in Millares.
Neither can we look at St. Louis of Tuguegarao to resolve the instant
controversy. What was mainly contentious therein was the inclusion of fringe
benefits in the computation of the award of backwages, in particular
additional vacation and sick leaves granted to therein concerned employees,
it evidently appearing that the reference to East Asiatic in a footnote was a
mere obiter dictum. Salary increases are not akin to fringe benefits 52 and
neither is it logical to conceive of both as belonging to the same taxonomy.
We must also resolve against the applicability of Sigma Personnel Services to
the case at bar. The basic issue before the Court therein was whether the
employee, Susan Sumatre, a domestic helper in Abu Dhabi, United Arab
Emirates, had been illegally dismissed, in light of the contention of Sigma
Personnel Services, a duly licensed recruitment agency, that the former was a
mere probationary employee who was, on top of this status, mentally
unsound.53 Even a cursory reading of Sigma Personnel Services citing St.
Louis College of Tuguegarao would readily show that inclusion of salary
increases in the computation of backwages was not at issue. The same was
not on all fours with the instant petition.
What, then, is the basis of computation of backwages? Are annual general
increases in basic salary deemed component in the computation of full
backwages? The weight of authority leans in petitioner Bank’s favor and
against respondent Sadac’s claim for the inclusion of general increases in the
computation of his backwages.
We stressed in Paramount that an unqualified award of backwages means that
the employee is paid at the wage rate at the time of his dismissal, thus:
The determination of the salary base for the computation of backwages
requires simply an application of judicial precedents defining the term
"backwages". Unfortunately, the Labor Arbiter erred in this regard. An
unqualified award of backwages means that the employee is paid at the wage
rate at the time of his dismissal [Davao Free Worker Front v. Court of
Industrial Relations, G.R. No. L-29356, October 27, 1975, 67 SCRA 418;
Capital Garments Corporation v. Ople, G.R. No. 53627, September 30, 1982,
117 SCRA 473; Durabilt Recapping Plant & Company v. NLRC, G.R. No.
76746, July 27, 1987, 152 SCRA 328]. And the Court has declared that the
base figure to be used in the computation of backwages due to the employee
should include not just the basic salary, but also the regular allowances that
he had been receiving, such as the emergency living allowances and the 13th
month pay mandated under the law [See Pan-Philippine Life Insurance
Corporation v. NLRC, G.R. No. 53721, June 29, 1982, 144 SCRA 866;
Santos v. NLRC, G.R. No. 76721, September 21, 1987, 154 SCRA 166;
Soriano v. NLRC, G.R. No. 75510, October 27, 1987, 155 SCRA 124;
Insular Life Assurance Co., Ltd. v. NLRC, supra.] 54 (Emphasis supplied.)
There is no ambivalence in Paramount, that the base figure to be used in the
computation of backwages is pegged at the wage rate at the time of the
employee’s dismissal, inclusive of regular allowances that the employee had
been receiving such as the emergency living allowances and the 13th month
pay mandated under the law.
In Evangelista v. National Labor Relations Commission,55 we addressed the
sole issue of whether the computation of the award of backwages should be
based on current wage level or the wage levels at the time of the dismissal.
We resolved that an unqualified award of backwages means that the
employee is paid at the wage rate at the time of his dismissal, thus:
65
As explicitly declared in Paramount Vinyl Products Corp. vs. NLRC, the
determination of the salary base for the computation of backwages requires
simply an application of judicial precedents defining the term "backwages."
An unqualified award of backwages means that the employee is paid at the
wage rate at the time of his dismissal. Furthermore, the award of salary
differentials is not allowed, the established rule being that upon
reinstatement, illegally dismissed employees are to be paid their backwages
without deduction and qualification as to any wage increases or other
benefits that may have been received by their co-workers who were not
dismissed or did not go on strike.56
The case of Paramount was relied upon by the Court in the latter case of
Espejo v. National Labor Relations Commission,57 where we reiterated that
the computation of backwages should be based on the basic salary at the time
of the employee’s dismissal plus the regular allowances that he had been
receiving. Further, the clarification made by the Court in General Baptist
Bible College v. National Labor Relations Commission,58 settles the issue,
thus:
We also want to clarify that when there is an award of backwages this
actually refers to backwages without qualifications and deductions. Thus, We
held that:
"The term ‘backwages without qualification and deduction’ means that the
workers are to be paid their backwages fixed as of the time of the dismissal
or strike without deduction for their earnings elsewhere during their layoff
and without qualification of their wages as thus fixed; i.e., unqualified by any
wage increases or other benefits that may have been received by their co-
workers who are not dismissed or did not go on strike. Awards including
salary differentials are not allowed. The salary base properly used should,
however, include not only the basic salary but also the emergency cost of
living allowances and also transportation allowances if the workers are
entitled thereto."59 (Italics supplied.)
Indeed, even a cursory reading of the dispositive portion of the Court’s
Decision of 13 June 1997 in G.R. No. 102467, awarding backwages to
respondent Sadac, readily shows that the award of backwages therein is
unqualified, ergo, without qualification of the wage as thus fixed at the time
of the dismissal and without deduction.
A demarcation line between salary increases and backwages was drawn by
the Court in Paguio v. Philippine Long Distance Telephone Co., Inc., 60 where
therein petitioner Paguio, on account of his illegal transfer sought
backwages, including an amount equal to 16 percent (16%) of his monthly
salary representing his salary increases during the period of his demotion,
contending that he had been consistently granted salary increases because of
his above average or outstanding performance. We said:
In several cases, the Court had the opportunity to elucidate on the reason for
the grant of backwages. Backwages are granted on grounds of equity to
workers for earnings lost due to their illegal dismissal from work. They are a
reparation for the illegal dismissal of an employee based on earnings which
the employee would have obtained, either by virtue of a lawful decree or
order, as in the case of a wage increase under a wage order, or by rightful
expectation, as in the case of one’s salary or wage. The outstanding feature of
backwages is thus the degree of assuredness to an employee that he would
have had them as earnings had he not been illegally terminated from his
employment.
Petitioner’s claim, however, is based simply on expectancy or his assumption
that, because in the past he had been consistently rated for his outstanding
performance and his salary correspondingly increased, it is probable that he
would similarly have been given high ratings and salary increases but for his
transfer to another position in the company.
In contrast to a grant of backwages or an award of lucrum cessans in the civil
law, this contention is based merely on speculation. Furthermore, it assumes
that in the other position to which he had been transferred petitioner had not
been given any performance evaluation. As held by the Court of Appeals,
however, the mere fact that petitioner had been previously granted salary
increases by reason of his excellent performance does not necessarily
guarantee that he would have performed in the same manner and, therefore,
qualify for the said increase later. What is more, his claim is tantamount to
saying that he had a vested right to remain as Head of the Garnet Exchange
and given salary increases simply because he had performed well in such
position, and thus he should not be moved to any other position where
management would require his services. 61
Applying Paguio to the case at bar, we are not prepared to accept that this
degree of assuredness applies to respondent Sadac’s salary increases. There
was no lawful decree or order supporting his claim, such that his salary
increases can be made a component in the computation of backwages. What
is evident is that salary increases are a mere expectancy. They are, by its
nature volatile and are dependent on numerous variables, including the
company’s fiscal situation and even the employee’s future performance on
the job, or the employee’s continued stay in a position subject to management
66
prerogative to transfer him to another position where his services are needed.
In short, there is no vested right to salary increases. That respondent Sadac
may have received salary increases in the past only proves fact of receipt but
does not establish a degree of assuredness that is inherent in backwages.
From the foregoing, the plain conclusion is that respondent Sadac’s
computation of his full backwages which includes his prospective salary
increases cannot be permitted.
Respondent Sadac cannot take exception by arguing that jurisprudence
speaks only of wage and not salary, and therefore, the rule is inapplicable to
him. It is respondent Sadac’s stance that he was not paid at the wage rate nor
was he engaged in some form of manual or physical labor as he was hired as
Vice President of petitioner Bank. He cites Gaa v. Court of Appeals 62 where
the Court distinguished between wage and salary.
The reliance is misplaced. The distinction between salary and wage in Gaa
was for the purpose of Article 1708 of the Civil Code which mandates that,
"[t]he laborer’s wage shall not be subject to execution or attachment, except
for debts incurred for food, shelter, clothing and medical attendance." In
labor law, however, the distinction appears to be merely semantics.
Paramount and Evangelista may have involved wage earners, but the
petitioner in Espejo was a General Manager with a monthly salary of
P9,000.00 plus privileges. That wage and salary are synonymous has been
settled in Songco v. National Labor Relations Commission. 63 We said:
Broadly, the word "salary" means a recompense or consideration made to a
person for his pains or industry in another man’s business. Whether it be
derived from "salarium," or more fancifully from "sal," the pay of the Roman
soldier, it carries with it the fundamental idea of compensation for services
rendered. Indeed, there is eminent authority for holding that the words
"wages" and "salary" are in essence synonymous (Words and Phrases, Vol.
38 Permanent Edition, p. 44 citing Hopkins vs. Cromwell, 85 N.Y.S.839,
841, 89 App. Div. 481; 38 Am. Jur. 496). "Salary," the etymology of which is
the Latin word "salarium," is often used interchangeably with "wage", the
etymology of which is the Middle English word "wagen". Both words
generally refer to one and the same meaning, that is, a reward or recompense
for services performed. Likewise, "pay" is the synonym of "wages" and
"salary" (Black’s Law Dictionary, 5th Ed). x x x64 (Italics supplied.)
II.
Petitioner Bank ascribes as its second assignment of error the Court of
Appeals’ ruling that respondent Sadac is entitled to check-up benefit,
clothing allowance and cash conversion of vacation leaves notwithstanding
that respondent Sadac did not present any evidence to prove entitlement to
these claims.65
The determination of respondent Sadac’s entitlement to check-up benefit,
clothing allowance, and cash conversion of vacation leaves involves a
question of fact. The well-entrenched rule is that only errors of law not of
facts are reviewable by this Court in a petition for review. 66 The jurisdiction
of this Court in a petition for review on certiorari under Rule 45 of the 1997
Rules of Civil Procedure, as amended, is limited to reviewing only errors of
law, not of fact, unless the factual findings being assailed are not supported
by evidence on record or the impugned judgment is based on a
misapprehension of facts.67 This Court is also not precluded from delving
into and resolving issues of facts, particularly if the findings of the Labor
Arbiter are inconsistent with those of the NLRC and the Court of
Appeals.68 Such is the case in the instant petition. The Labor Arbiter and the
Court of Appeals are in agreement anent the entitlement of respondent Sadac
to check-up benefit, clothing allowance, and cash conversion of vacation
leaves, but the findings of the NLRC were to the contrary. The Labor Arbiter
sustained respondent Sadac’s entitlement to check-up benefit, clothing
allowance and cash conversion of vacation leaves. He gave weight to
petitioner Bank’s acknowledgment in its computation that respondent Sadac
is entitled to certain benefits, namely, rice subsidy, tuition fee allowance, and
medicine allowance, thus, there exists no reason to deprive respondent Sadac
of his other benefits. The Labor Arbiter also reasoned that the petitioner Bank
did not adduce evidence to support its claim that the benefits sought by
respondent Sadac are not granted to its employees and officers. Similarly, the
Court of Appeals ratiocinated that if ordinary employees are entitled to
receive these benefits, so it is with more reason for a Vice President, like
herein respondent Sadac to receive the same.
We find in the records that, per petitioner Bank’s computation, the benefits to
be received by respondent are monthly rice subsidy, tuition fee allowance per
year, and medicine allowance per year.69 Contained nowhere is an
acknowledgment of herein claimed benefits, namely, check-up benefit,
clothing allowance, and cash conversion of vacation leaves. We cannot
sustain the rationalization that the acknowledgment by petitioner Bank in its
computation of certain benefits granted to respondent Sadac means that the
latter is also entitled to the other benefits as claimed by him but not
acknowledged by petitioner Bank. The rule is, he who alleges, not he who
denies, must prove. Mere allegations by respondent Sadac does not suffice in
the absence of proof supporting the same.
67
III.
We come to the third assignment of error raised by petitioner Bank in its
Supplement to Petition for Review, assailing the 26 October 2004
Supplemental Decision of the Court of Appeals which amended the fallo of
its 6 April 2004 Decision to include "attorney’s fees equal to TEN PERCENT
(10%) of all the monetary award" granted to respondent Sadac. Petitioner
Bank posits that neither the dispositive portion of our 13 June 1997 Decision
in G.R. No. 102467 nor the body thereof awards attorney’s fees to respondent
Sadac. It is postulated that the body of the 13 June 1997 Decision does not
contain any findings of facts or conclusions of law relating to attorney’s fees,
thus, this Court did not intend to grant to respondent Sadac the same,
especially in the light of its finding that the petitioner Bank was not
motivated by malice or bad faith and that it did not act in a wanton,
oppressive, or malevolent manner in terminating the services of respondent
Sadac.70
We do not agree.
At the outset it must be emphasized that when a final judgment becomes
executory, it thereby becomes immutable and unalterable. The judgment may
no longer be modified in any respect, even if the modification is meant to
correct what is perceived to be an erroneous conclusion of fact or law, and
regardless of whether the modification is attempted to be made by the Court
rendering it or by the highest Court of the land. The only recognized
exceptions are the correction of clerical errors or the making of so-called
nunc pro tunc entries which cause no prejudice to any party, and, of course,
where the judgment is void.71 The Court’s 13 June 1997 Decision in G.R. No.
102467 became final and executory on 28 July 1997. This renders moot
whatever argument petitioner Bank raised against the grant of attorney’s fees
to respondent Sadac. Of even greater import is the settled rule that it is the
dispositive part of the judgment that actually settles and declares the rights
and obligations of the parties, finally, definitively, and authoritatively,
notwithstanding the existence of inconsistent statements in the body that may
tend to confuse.72
Proceeding therefrom, we make a determination of whether the Court in
Equitable Banking Corporation v. National Labor Relations
Commission,73 G.R. No. 102467, dated 13 June 1997, awarded attorney’s
fees to respondent Sadac. In recapitulation, the dispositive portion of the
aforesaid Decision is hereunder quoted:
WHEREFORE, the herein questioned Resolution of the NLRC is
AFFIRMED with the following MODIFICATIONS: That private respondent
shall be entitled to backwages from termination of employment until turning
sixty (60) years of age (in 1995) and, thereupon, to retirement benefits in
accordance with law; that private respondent shall be paid an additional
amount of P5,000.00; that the award of moral and exemplary damages are
deleted; and that the liability herein pronounced shall be due from petitioner
bank alone, the other petitioners being absolved from solidary liability. No
costs.74
The dispositive portion of the 24 September 1991 Decision of the NLRC
awards respondent Sadac attorney’s fees equivalent to ten percent (10%) of
the monetary award, viz:
WHEREFORE, in view of all the foregoing considerations, let the Decision
of October 2, 1990 be, as it is hereby, SET ASIDE and a new one ENTERED
declaring the dismissal of the complainant as illegal, and consequently
ordering the respondents jointly and severally to reinstate him to his former
position as bank Vice-President and General Counsel without loss of
seniority rights and other privileges, and to pay him full backwages and other
benefits from the time his compensation was withheld to his actual
reinstatement, as well as moral damages of P100,000.00, exemplary damages
of P50,000.00, and attorney’s fees equivalent to Ten Percent (10%) of the
monetary award. Should reinstatement be no longer possible due to strained
relations, the respondents are ordered likewise jointly and severally to grant
separation pay at one (1) month per year of service in the total sum of
P293,650.00 with backwages and other benefits from November 16, 1989 to
September 15, 1991 (cut off date, subject to adjustment) computed at
P1,055,740.48, plus damages of P100,000.00 (moral damages), P50,000.00
(exemplary damages) and attorney’s fees equal to Ten Percent (10%) of all
the monetary award, or a grand total of P1,649,329.53. 75 (Italics Ours.)
As can be gleaned from the foregoing, the Court’s Decision of 13 June 1997
AFFIRMED with MODIFICATION the NLRC Decision of 24 September
1991, which modification did not touch upon the award of attorney’s fees as
granted, hence, the award stands. Juxtaposing the decretal portions of the
NLRC Decision of 24 September 1991 with that of the Court’s Decision of
13 June 1997, we find that what was deleted by the Court was "the award of
moral and exemplary damages," but not the award of "attorney’s fees
equivalent to Ten Percent (10%) of the monetary award." The issue on the
grant of attorney’s fees to respondent Sadac has been adequately and
definitively threshed out and settled with finality when petitioner Bank came
to us for the first time on a Petition for Certiorari in Equitable Banking
68
Corporation v. National Labor Relations Commission, docketed as G.R. No.
102467. The Court had spoken in its Decision of 13 June 1997 in the said
case which attained finality on 28 July 1997. It is now immutable.
IV.
We proceed with the penultimate issue on the entitlement of respondent
Sadac to twelve percent (12%) interest per annum on the outstanding balance
as of 28 July 1997, the date when our Decision in G.R. No. 102467 became
final and executory.
In Eastern Shipping Lines, Inc. v. Court of Appeals,76 the Court, speaking
through the Honorable Justice Jose C. Vitug, laid down the following rules of
thumb:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on "Damages" of the
Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual or
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until
the demand can be established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the interest shall begin to
run from the time the claim is made judicially or extrajudicially (Article
1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in
any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2 above, shall be 12% per annum from such finality
until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit. 77
It is obvious that the legal interest of twelve percent (12%) per annum shall
be imposed from the time judgment becomes final and executory, until full
satisfaction thereof. Therefore, petitioner Bank is liable to pay interest from
28 July 1997, the finality of our Decision in G.R. No. 102467.78 The Court of
Appeals was not in error in imposing the same notwithstanding that the
parties were at variance in the computation of respondent Sadac’s
backwages. What is significant is that the Decision of 13 June 1997 which
awarded backwages to respondent Sadac became final and executory on 28
July 1997.
V.
Finally, petitioner Bank’s Motion to Refer the Petition En Banc must
necessarily be denied as established in our foregoing discussion. We are not
herein modifying or reversing a doctrine or principle laid down by the Court
en banc or in a division. The instant case is not one that should be heard by
the Court en banc.791avvphil.net
Fallo
WHEREFORE, the petition is PARTIALLY GRANTED in the sense that in
the computation of the backwages, respondent Sadac’s claimed prospective
salary increases, check-up benefit, clothing allowance, and cash conversion
of vacation leaves are excluded. The petition is PARTIALLY DENIED
insofar as we AFFIRMED the grant of attorney’s fees equal to ten percent
(10%) of all the monetary award and the imposition of twelve percent (12%)
interest per annum on the outstanding balance as of 28 July 1997. Hence, the
Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 75013,
dated 6 April 2004 and 28 July 2004, respectively, and the Supplemental
Decision dated 26 October 2004 are MODIFIED in the following manner, to
wit:
Petitioner Bank is DIRECTED TO PAY respondent Sadac the following:
69
(1) BACKWAGES in accordance with Our Decision dated 13 June 1997 in
G.R. No. 102467 with a clarification that the award of backwages
EXCLUDES respondent Sadac’s claimed prospective salary increases,
check-up benefit, clothing allowance, and cash conversion of vacation
leaves;

(2) ATTORNEY’S FEES equal to TEN PERCENT (10%) of the total sum of
all monetary award; and

(3) INTEREST of TWELVE PERCENT (12%) per annum is hereby imposed

on the total sum of all monetary award from 28 July 1997, the date of finality
of Our Decision in G.R. No. 102467 until full payment of the said monetary
award.

The Motion to Refer the Petition to the Court En Banc is DENIED.

No costs.

SO ORDERED.

70
12.) Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 159354 April 7, 2006
EASTERN SHIPPING LINES, INC., and/or ERWIN L.
CHIONGBIAN, Petitioners,
vs.
DIOSCORO D. SEDAN, Respondent.
DECISION
QUISUMBING, J.:
For review on certiorari are the Decision1 and Resolution,2 dated February
14, 2003 and August 7, 2003, respectively, of the Court of Appeals in CA-
G.R. SP No. 70836, which reversed the October 4, 20013 Resolution of the
National Labor Relations Commission affirming the Labor Arbiter’s
Decision of June 15, 2000.4
The antecedent facts, as culled from the records, are as follows:
On December 30, 1973, petitioners hired on a per-voyage basis private
respondent Dioscoro5 Sedan as 3rd marine engineer and oiler in one of the
vessels owned by petitioners. His last voyage was on July 27, 1997 on board
the vessel M/V Eastern Universe. His monthly pay
was P22,000.6 Additionally, after each voyage his earned leave credits are
monetized and paid in cash. He said he was disembarking because he was
going to take the board examinations for marine engineers.
Two months later, on September 27, 1997, Sedan sent a letter to petitioners
applying for optional retirement, citing as reason the death of his only
daughter, hence the retirement benefits he would receive would ease his
financial burden. However, petitioners deferred action on his application for
optional retirement since his services on board ship were still needed.
Nonetheless, according to petitioners, the company expressed intention to
extend him a loan in order to defray the costs incurred for the burial and
funeral expenses of his daughter.
On October 28, 1997, Sedan sent petitioners another letter 7 insisting on the
release of half of his optional retirement benefits. Later, he said that he no
longer wanted to continue working on board a vessel for reasons of health. 8
On December 1, 1997, Sedan sent another letter to petitioners threatening to
file a complaint if his application was not granted. In reply, according to
petitioners, the company management sent a telegram on December 9, 1997
informing Sedan that his services were needed on board a vessel and that he
should report immediately for work as there was no available replacement.
Sedan claims he did not receive the telegram, nor was this fact proved by the
company before the Labor Arbiter or the NLRC.
Sedan proceeded to file a complaint with the Labor Arbiter against
petitioners, docketed as NLRC-NCR CASE NO. 00-12-08578-97,
demanding payment of his retirement benefits, leave pay, 13th month pay
and attorney’s fees. The Labor Arbiter ruled in favor of Sedan, as follows:
WHEREFORE, premises all considered, judgment is hereby rendered as
follows:
1. Ordering respondents to pay complainant retirement gratuity/separation
pay of P253,000.00 (23 yrs. x P22,000.00 at ½ month for every year of
service).
2. Ordering respondents to pay complainant 10% of the total monetary award
by way of attorney’s fees.
All other claims are dismissed for lack of merit.
SO ORDERED.9
Petitioners appealed the said decision to the National Labor Relations
Commission. However, the NLRC found the factual findings of the Labor
Arbiter consistent with the evidence on record. Hence, the NLRC dismissed
the appeal for lack of merit. Petitioners’ motion for reconsideration was
likewise denied.
Dissatisfied, petitioners filed a special civil action for certiorari with the
Court of Appeals anchored on the following grounds:
1. PUBLIC RESPONDENT NLRC COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
IN AWARDING RETIREMENT GRATUITY/SEPARATION PAY TO THE
PRIVATE RESPONDENT BY HOLDING THAT THERE WAS NO
EVIDENCE TO SHOW THAT PRIVATE RESPONDENT WAS
INFORMED/NOTIFIED OF PETITIONERS’ NEED FOR HIS SERVICES
OR DIRECTING HIM TO REPORT FOR WORK, INCLUDING [ACTION]
ON HIS APPLICATION FOR OPTIONAL RETIREMENT.
71
2. PUBLIC RESPONDENT NLRC COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
IN AWARDING ATTORNEY’S FEES TO THE PRIVATE RESPONDENT
CONSIDERING THAT PETITIONERS ACTED IN GOOD FAITH IN
REFUSING THE SUBJECT CLAIM.10
The Court of Appeals granted the petition and ruled that the retirement
gratuity and attorney’s fees awarded by the Labor Arbiter and the NLRC had
no basis in fact or law since pursuant to the Agreement between the company
and the employees, the granting of optional retirement is the exclusive
prerogative of the employer, herein petitioners. Unless such prerogative was
exercised arbitrarily or capriciously, private respondent cannot demand it as a
right. Nonetheless, the Court of Appeals ordered petitioners to pay private
respondent P200,000 as financial assistance, to wit:
WHEREFORE, FOREGOING PREMISES CONSIDERED, this petition is
GRANTED. The assailed Decision dated October 4, 2001 and the Resolution
dated April 22, 2002 of public respondent National Labor Relations
Commission in NLRC NCR Case No. 00-12-08578-97/NLRC CA No.
026697-00 entitled, "Dioscoro D. Sedan, complainant-appellee vs. Eastern
Shipping Lines, Inc. and/or Erwin L. Chiongbian, respondents-appellants"
are hereby reversed and set aside for having been rendered/issued with grave
abuse of discretion amounting to lack or in excess of jurisdiction and, in lieu
thereof, petitioners are hereby ordered to pay respondent Dioscoro D. Sedan
the amount of Two Hundred Thousand (P200,000.00) Pesos as financial
assistance.
SO ORDERED.11
Petitioners filed a motion for reconsideration, but it was denied by the Court
of Appeals.
Hence, the instant petition raising as sole issue:
WHETHER OR NOT THE COURT OF APPEALS ERRED IN GIVING
THE RESPONDENT PHP200,000.00 AS FINANCIAL ASSISTANCE
WHEN IN FACT IT WAS THE RESPONDENT WHO REFUSED TO
REPORT FOR WORK.12
Petitioners contend that by refusing to report for work and insisting on
applying for optional retirement, private respondent wrongly assumed that he
was justified in abandoning his job. Petitioners maintain that private
respondent’s refusal to report back to work, despite being duly notified of the
need for his service, is tantamount to voluntary resignation. Therefore,
petitioners contend, the respondent should not be entitled to any financial
assistance.
Moreover, granting arguendo that private respondent was entitled to financial
assistance, petitioners protest the amount of the financial assistance awarded
by the Court of Appeals for being disproportionately excessive. Petitioners
cite Manggagawa ng Komunikasyon sa Pilipinas v. NLRC,13 where the
employee was given only P10,000 as financial assistance.
In his Comment, private respondent argues that the Court of Appeals
awarded him P200,000 for equity consideration. Private respondent claims
that the retirement policy of the company, which states that "[i]t will be the
exclusive prerogative and sole option of this company to retire any covered
employee,"14 must be interpreted in favor of the working class. Otherwise,
private respondent laments, he will be placed at the mercy of the company,
contrary to the constitutional mandate to afford full protection to labor.
At the outset, we rule for petitioners on the matter of optional retirement
benefits.
Private respondent is not entitled to retirement benefits. The pertinent law
governing retirement is found in the Labor Code, which provides:
ART. 287. Retirement. – Any employee may be retired upon reaching the
retirement age established in the collective bargaining agreement or other
applicable employment contract.
In case of retirement, the employee shall be entitled to receive such
retirement benefits as he may have earned under existing laws and any
collective bargaining agreement and other agreements: Provided, however,
That an employee’s retirement benefits under any collective bargaining and
other agreements shall not be less than those provided herein.
In the absence of a retirement plan or agreement providing for retirement
benefits of employees in the establishment, an employee upon reaching the
age of sixty (60) years or more, but not beyond sixty-five (65) years which is
hereby declared the compulsory retirement age, who has served at least five
(5) years in the said establishment may retire and shall be entitled to
retirement pay equivalent to at least one half (1/2) month salary for every
year of service, a fraction of at least six (6) months being considered as one
whole year.
xxx
72
The age of retirement is primarily determined by the existing agreement 22 years 66%
between the employer and the employees. However, in the absence of such 23 years 69%
agreement, the retirement age shall be fixed by law. Under the aforecited 24 years 72%
article of the Labor Code, the legally mandated age for compulsory 25 years 75%
retirement is 65 years, while the set minimum age for optional retirement is 26 years 80%
60 years. 27 years 85%
28 years 90%
In the instant case, there is an agreement 15 between petitioner shipping 29 years 95%
company and its employees. The agreement states: 30 years or above 100%
xxx The computation of the benefit shall be based on the final basic pay, for
every year of credited service, a fraction of at least six (6) months being
B. Retirement under the Labor Code:
considered as one whole year but shall be exclusive of fringe benefits and
Any employee whether land-based office personnel or shipboard employee other special emoluments.16
who shall reach the age of sixty (60) while in active employment with this
xxx
company may retire from the service upon his written request in accordance
with the provisions of Art. 277 of the Labor Code and its Implementing Clearly, the eligibility age for optional retirement is set at 60
Rules, Book 6, Rule 1, Sec. 13 and he shall be paid termination pay years.17 However, employees of herein petitioners who are under the age of
equivalent to fifteen (15) days pay for every year of service as stated in said 60 years, but have rendered at least 3650 days (10 years) on board ship or
Labor Code and its Implementing Rules. However, the company may at its fifteen (15) years of service for land-based employees may also avail of
own volition grant him a higher benefit which shall not exceed the benefits optional retirement, subject to the exclusive prerogative and sole option of
provided for in the Retirement Gratuity table mentioned elsewhere in this petitioner company.18
policy.
Records show that private respondent was only 48 years old 19 when he
C. Optional Retirement: applied for optional retirement. Thus he cannot claim optional retirement
benefits as a matter of right. His application for optional retirement was
It will be the exclusive prerogative and sole option of this company to retire
subject to the exclusive prerogative and sole option of the shipping company
any covered employee who shall have rendered at least fifteen (15) years of
pursuant to the abovecited agreement between the workers and the company.
credited service for land based employees and 3,650 days actually on board
In this regard, no error was committed by the appellate court when it set
vessel for shipboard personnel. Such employee shall be entitled to a
aside the ruling of the Labor Arbiter and the NLRC granting herein private
Retirement Gratuity which shall be computed in accordance with the
respondent P253,000 retirement gratuity/separation pay.
following table:
So now we come to the grant of financial assistance by the appellate court.
Monthly Basic Pay
Years of Service We are not unmindful of the rule that financial assistance is allowed only in
(Percentage)
instances where the employee is validly dismissed for causes other than
serious misconduct or those reflecting on his moral character. 20 Neither are
15 years 55%
16 years 56% we unmindful of this Court’s pronouncements in Arc- Corporation v.
NLRC,21 Lemery Savings and Loan Bank v. NLRC,22 where the Court ruled
17 years 57%
18 years 58% that when there is no dismissal to speak of, an award of financial assistance is
not in order.
19 years 59%
20 years 60%
21 years 63%
73
But we must stress that this Court did allow, in several instances, the grant of
financial assistance.23 In the words of Justice Sabino de Leon, Jr., now
deceased, financial assistance may be allowed as a measure of social justice
and exceptional circumstances, and as an equitable concession. 24 The instant
case equally calls for balancing the interests of the employer with those of
the worker, if only to approximate what Justice Laurel calls justice in its
secular sense.25
In this instance, our attention has been called to the following circumstances:
that private respondent joined the company when he was a young man of 25
years and stayed on until he was 48 years old; that he had given to the
company the best years of his youth, working on board ship for almost 24
years; that in those years there was not a single report of him transgressing
any of the company rules and regulations; that he applied for optional
retirement under the company’s non-contributory plan when his daughter
died and for his own health reasons; and that it would appear that he had
served the company well, since even the company said that the reason it
refused his application for optional retirement was that it still needed his
services; that he denies receiving the telegram asking him to report back to
work; but that considering his age and health, he preferred to stay home
rather than risk further working in a ship at sea.
In our view, with these special circumstances, we can call upon the same
"social and compassionate justice" cited in several cases 26 allowing financial
assistance. These circumstances indubitably merit equitable concessions, via
the principle of "compassionate justice" for the working class. Thus, we
agree with the Court of Appeals to grant financial assistance to private
respondent. The only catch is whether, as the shipping company alleges, the
amount of P200,000 that the Court of Appeals granted him is "arbitrary and
excessive".
with no derogatory record. In Aparente, Sr. v. NLRC,29 for blatant
disobedience of company rules, one-half (½) month’s pay for every year of
service was also deemed equitable. In the 1998 case of Salavarria v.
NLRC,30 for the teacher who had previously been meted with a two week
suspension for the same offense, illegally soliciting contributions from
students, the Court granted one month’s salary for every year of service
because, said the Court, she never took custody of the illegally solicited
funds.
Considering the doctrine in the abovecited NLRC cases and taking into
account equitable results in those cases, we find the grant of two hundred
thousand pesos (P200,000) by the Court of Appeals, neither arbitrary nor
excessive. Private respondent who has no derogatory record in his 23 years
of service should be granted equitable assistance equal to one-half month’s
pay for each of his 23 years of service.1avvphil.net
To conclude, in the instant case, private respondent has no claim against
petitioners for retirement benefits. We agree with the appellate court,
however, that financial assistance could be awarded him but only as an
equitable concession under the special circumstances of this case.
WHEREFORE, the petition is DENIED. The decision of the Court of
Appeals granting assistance to private respondent in the amount of two
hundred thousand pesos (P200,000) is AFFIRMED. No pronouncement as
to cost.
SO ORDERED.

The propriety of awarding financial assistance has long been tackled by this
Court. In Philippine Long Distance Telephone Co. v. NLRC,27 we laid down
the rule that henceforth separation pay shall be allowed as a measure of
social justice only in the instances where the employee is validly dismissed
for causes other than serious misconduct or those reflecting on his moral
character. A contrary rule, we said would have the effect of rewarding rather
than punishing an erring employee.

Subsequent to PLDT, in the 2004 case of Piñero v. NLRC,28 Piñero who was
dismissed for an illegal strike was granted one-half (½) month’s pay for the
29 years of his service. His infraction was deemed not so reprehensible nor
unscrupulous as to warrant complete disregard of his long years of service
74
13,) THIRD DIVISION entitled to a termination pay in accordance with law. The COMPANY shall
HANFORD PHILIPPINES, G.R. No. 158251 give termination pay to those who voluntarily resign due to the reasons
INCORPORATED and VICTOR heretofore stated subject to the following terms and conditions:
TE, a) 1 to 30 years of service shall be paid 20 days for every year of service;
Petitioners, Present: b) 16 to 20 years of service to the COMPANY shall be paid 15 days pay
for every year of service;
c) 11 to 15 years of service to the COMPANY shall be paid 10 days pay
PANGANIBAN, J., Chairman, for every year of service; and
- versus - SANDOVAL-GUTIERREZ, d) 5 to 10 years of service to the COMPANY shall be paid 5 days pay for
CORONA, every year of service.[5]
CARPIO MORALES, and
GARCIA, JJ. Petitioner denied respondents request on the ground that under the Labor
Code, voluntary resignation is not one of the grounds which justifies the
SHIRLEY JOSEPH, grant of separation pay.[6]
Respondent. Promulgated: On December 17, 1998, respondent filed with the Office of the Labor Arbiter
a complaint for the payment of her separation pay against
March 31, 2005 petitioner Hanford and co-petitioner Victor Te, docketed as NLRC NCR CN.
00-12-10238-98.
DECISION On May 20, 1999, the Labor Arbiter rendered a Decision[7] granting
respondents petition and ordering petitioners to pay her separation pay in the
amount of P93,820.00 as authorized by Section 1, Article IV of the parties
SANDOVAL-GUTIERREZ, J.: CBA.
On appeal, the National Labor Relations Commission (NLRC) rendered its
Resolution[8] dated April 14, 2000 affirming the Labor Arbiters Decision.
Before us is a petition for review on certiorari under Rule 45 of the 1997 Forthwith, petitioners filed their motion for reconsideration
Rules of Civil Procedure, as amended, assailing the Decision [1] of the Court but was denied by the NLRC in its Resolution[9] dated July 24, 2000,
of Appeals dated January 23, 2003 and its Resolution dated April 29, 2003 in prompting them to file with the Court of Appeals a petition
CA-G.R. SP No. 60701. for certiorari under Rule 65 of the 1997 Rules of Civil Procedure, as
On July 17, 1978, petitioner Hanford Philippines, Inc. (Hanford) hired amended.
Shirley Joseph, herein respondent, as a sewer. On January 23, 2003, the Appellate Court rendered its Decision [10] dismissing
On August 10, 1998, respondent voluntarily tendered her resignation the petition.
effective September 17, 1998,[2] which petitioner accepted the following day. The Court of Appeals held that the parties CBA clearly provides that
[3]
petitioner Hanford shall give termination pay to those who voluntarily
Petitioner then paid respondent her last salary, 13th month pay and the cash resigned due to the following reasons: reduction of personnel; employees or
conversion of her unused vacation and sick leave. workers who may be separated without cause; and those whose services are
On November 19, 1998,[4] respondent sent a letter to petitioner requesting terminated due to suspension or cessation of operation. Here, respondent
payment of her separation pay pursuant to Section 1, Article IV of the voluntarily resigned. This separation from the service is one without cause as
Collective Bargaining Agreement (CBA) quoted as follows: provided by the CBA. Hence, pursuant thereto, petitioner is entitled to a
SECTION 1. Regular employees or workers separated by the COMPANY separation pay.
because of reduction of personnel and employees or workers who may be Petitioners filed a motion for reconsideration. However, it was denied by the
separated without cause, or those whose services are terminated or are Appellate Court in a Resolution dated April 29, 2003.[11]
separated from work due to suspension or cessation of operation shall be

75
Hence, the present recourse. Petitioners contend that the Court of are the intended beneficiaries of such program and our Constitution mandates
Appeals erred in ruling that a resigned employee is entitled to separation pay a clear bias in favor of the working class.
under Section 1, Article IV of the CBA.[12]
Respondent counters that the Decision of the Court of Appeals should not be WHEREFORE, the petition is hereby DENIED. Costs against petitioners.
disturbed. She worked with petitioner company for twenty years but decided SO ORDERED.
to resign believing that pursuant to the CBA, she is entitled to a separation
pay. She also avers that several former employees of petitioner, namely:
Astor Madamag, Danilo Suplito, Domingo Bobis, Rosita Bobis, Evelyn
Cunanan, Fe Viray, Doris Angeles and Dula Imperia, were granted separation
pay pursuant to the CBA and petitioners policy and practice. [13]
It is well to note that there is no provision in the Labor Code which grants
separation pay to employees who voluntarily resign. Under the Code,
separation pay may be awarded only in cases when the termination of
employment is due to: (a) installation of labor saving devices, (b)
redundancy, (c) retrenchment, (d) closing or cessation of business operations,
(e) disease of an employee and his continued employment is prejudicial to
himself or his co-employees, or (f) when an employee is illegally dismissed
but
reinstatement is no longer feasible.
In Hinatuan Mining Corporation and/or the Manager versus National Labor
Relations and Margo Batister,[14] we held that while it is true that under the
Labor Code, an employee who voluntarily resigns may not be granted
separation pay, as in fact, the general rule is that an employee who
voluntarily resigns is not entitled to separation pay, however, there is an
exception, that is, when it is stipulated in the employment contract or CBA or
such payment is authorized by the employers practice or policy, as in this
case.[15]
As aptly held by the Labor Arbiter, the NLRC and the Court of Appeals, it is
very clear from the CBA that when an employee or worker voluntarily
resigns due to, among others, separation from the company without
cause, such as voluntary resignation, then he is entitled to a separation pay.
Moreover, records show that petitioners granted the employees mentioned
earlier their separation pay upon their separation by reason of their
retirement. Under the Labor Code, retirement is not also a ground for the
grant of separation pay. If petitioners could be liberal to those employees
who retired, there is no reason why they should not also extend such
liberality to respondent considering that she served petitioner for twenty one
years.
Our ruling in Philippine National Construction vs. NLRC finds application
here, thus:
In the interpretation of an employers program providing for separation
benefits, all doubts should be construed in favor of labor. After all, workers

76
14.) Republic of the Philippines
SUPREME COURT The Facts
Manila
FIRST DIVISION Sometime in March 1998, Kukan, Inc. conducted a bidding for the supply
KUKAN INTERNATIONAL G.R. No. 182729 and installation of signages in a building being constructed in Makati City.
CORPORATION, Morales tendered the winning bid and was awarded the PhP 5 million
Petitioner, Present: contract. Some of the items in the project award were later excluded resulting
in the corresponding reduction of the contract price to PhP 3,388,502.
- versus - CORONA, C.J., Chairperson,Despite his compliance with his contractual undertakings, Morales was only
CARPIO,* paid the amount of PhP 1,976,371.07, leaving a balance of PhP 1,412,130.93,
VELASCO, JR., which Kukan, Inc. refused to pay despite demands. Shortchanged, Morales
HON. AMOR REYES, in her capacity as LEONARDO-DE CASTRO, and filed a Complaint[6] with the RTC against Kukan, Inc. for a sum of money, the
Presiding Judge of the Regional Trial Court PEREZ, JJ. case docketed as Civil Case No. 99-93173 and eventually raffled to Branch
of Manila, Branch 21, and ROMEO M. 17 of the court.
MORALES, doing business under the name
and style RM Morales Trophies and Plaques, Promulgated: Following the joinder of issues after Kukan, Inc. filed an answer with
Respondents. counterclaim, trial ensued. However, starting November 2000, Kukan, Inc.
September 29, 2010 no longer appeared and participated in the proceedings before the trial court,
prompting the RTC to declare Kukan, Inc. in default and paving the way for
Morales to present his evidence ex parte.
DECISION
On November 28, 2002, the RTC rendered a Decision finding for Morales
VELASCO, JR., J.: and against Kukan, Inc., disposing as follows:

WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil

The Case
This Petition for Review on Certiorari under Rule 45 seeks to nullify and
reverse the January 23, 2008 Decision[1] and the April 16, 2008
Resolution[2] rendered by the Court of Appeals (CA) in CA-G.R. SP No.
100152.
The assailed CA decision affirmed the March 12, 2007[3] and June 7,
2007[4] Orders of the Regional Trial Court (RTC) of Manila, Branch 21, in
Civil Case No. 99-93173, entitled Romeo M. Morales, doing business under
the name and style RM Morales Trophies and Plaques v. Kukan, Inc. In the
said orders, the RTC disregarded the separate corporate identities of Kukan,
Inc. and Kukan International Corporation and declared them to be one and
the same entity. Accordingly, the RTC held Kukan International Corporation,
albeit not impleaded in the underlying complaint of Romeo M. Morales,
liable for the judgment award decreed in a Decision dated November 28,
2002[5] in favor of Morales and against Kukan, Inc.
Procedure, and by preponderance of evidence, judgment is hereby rendered
in favor of the plaintiff, ordering Kukan, Inc.:
1. to pay the sum of ONE MILLION TWO HUNDRED ONE
THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS
(P1,201,724.00) with legal interest at 12% per annum from February 17,
1999 until full payment;
2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral
damages;
3. to pay the sum of TWENTY THOUSAND PESOS, (P20,000.00) as
reasonable attorneys fees; and
4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY
PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses.

77
For lack of factual foundation, the counterclaim is DISMISSED.
IT IS SO ORDERED.[7]
After the above decision became final and executory, Morales moved for and
secured a writ of execution[8] against Kukan, Inc. The sheriff then levied upon
various personal properties found at what was supposed to be Kukan, Inc.s
office at Unit 2205,
88 Corporate Center, Salcedo Village, Makati City. Alleging that it owned
the properties thus levied and that it was a different corporation from Kukan,
Inc., Kukan International Corporation (KIC) filed an Affidavit of Third-Party
Claim. Notably, KIC was incorporated in August 2000, or shortly after
Kukan, Inc. had stopped participating in Civil Case No. 99-93173.
In reaction to the third party claim, Morales interposed an Omnibus
Motion dated April 30, 2003. In it, Morales prayed, applying the principle of
piercing the veil of corporate fiction, that an order be issued for the
satisfaction of the judgment debt of Kukan, Inc. with the properties under the
name or in the possession of KIC, it being alleged that both corporations are
but one and the same entity.KIC opposed Morales motion. By Order of May
29, 2003[9] as reiterated in a subsequent order, the court denied the omnibus
motion.
In a bid to establish the link between KIC and Kukan, Inc., and thus
determine the true relationship between the two, Morales filed a Motion for
Examination of Judgment Debtors dated May 4, 2005. In this motion
Morales sought that subponae be issued against the primary stockholders of
Kukan, Inc., among them Michael Chan, a.k.a. Chan Kai Kit. This too was
denied by the trial court in an Order dated May 24, 2005. [10]
Morales then sought the inhibition of the presiding judge, Eduardo B.
Peralta, Jr., who eventually granted the motion. The case was re-raffled to
Branch 21, presided by public respondent Judge Amor Reyes.
Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil
of Corporate Fiction to declare KIC as having no existence separate from
Kukan, Inc. This time around, the RTC, by Order dated March 12, 2007,
granted the motion, the dispositive portion of which reads:
WHEREFORE, premises considered, the motion is hereby GRANTED. The
Court hereby declares as follows:
1. defendant Kukan, Inc. and newly created Kukan International
Corp. as one and the same corporation;
2. the levy made on the properties of Kukan International Corp. is
hereby valid;
3. Kukan International Corp. and Michael Chan are jointly and
severally liable to pay the amount awarded to plaintiff pursuant to the
decision of November [28], 2002 which has long been final and executory.
SO ORDERED.
From the above order, KIC moved but was denied reconsideration in another
Order dated June 7, 2007.
KIC went to the CA on a petition for certiorari to nullify the aforesaid March
12 and June 7, 2007 RTC Orders.
On January 23, 2008, the CA rendered the assailed decision, the dispositive
portion of which states:
WHEREFORE, premises considered, the petition is hereby DENIED and the
assailed Orders dated March 12, 2007 and June 7, 2007 of the court a quo are
both AFFIRMED. No costs.
SO ORDERED.[11]
The CA later denied KICs motion for reconsideration in the assailed
resolution.
Hence, the instant petition for review, with the following issues KIC raises
for the Courts consideration:
1. There is no legal basis for the [CA] to resolve and declare that
petitioners Constitutional Right to Due Process was not violated by the
public respondent in rendering the Orders dated March 12, 2007 and June 7,
2007 and in declaring petitioner to be liable for the judgment obligations of
the corporation Kukan, Inc. to private respondent as petitioner is a stranger to
the case and was never made a party in the case before the trial court nor was
it ever served a summons and a copy of the complaint.
78

2. There is no legal basis for the [CA] to resolve and declare that the
Orders dated March 12, 2007 and June 7, 2007 rendered by public
respondent declaring the petitioner liable to the judgment obligations of the
corporation Kukan, Inc. to private respondent are valid as said orders of the
public respondent modify and/or amend the trial courts final and executory
decision rendered on November 28, 2002.
3. There is no legal basis for the [CA] to resolve and declare that the
Orders dated March 12, 2007 and June 7, 2007 rendered by public
respondent declaring the petitioner [KIC] and the corporation Kukan, Inc. as
one and the same, and, therefore, the Veil of Corporate Fiction between them
be pierced as the procedure undertaken by public respondent which the [CA]
upheld is not sanctioned by the Rules of Court and/or established
jurisprudence enunciated by this Honorable Supreme Court. [12]
In gist, the issues to be resolved boil down to the question of, first, whether
the trial court can, after the judgment against Kukan, Inc. has attained
finality, execute it against the property of KIC; second, whether the trial
court acquired jurisdiction over KIC; and third, whether the trial and
appellate courts correctly applied, under the premises, the principle of
piercing the veil of corporate fiction.
The Ruling of the Court
The petition is meritorious.
First Issue: Against Whom Can a Final and
Executory Judgment Be Executed
The preliminary question that must be answered is whether or not the trial
court can, after adjudging Kukan, Inc. liable for a sum of money in a final
and executory judgment, execute such judgment debt against the property of
KIC.
The poser must be answered in the negative.
In Carpio v. Doroja,[13] the Court ruled that the deciding court has
supervisory control over the execution of its judgment:
A case in which an execution has been issued is regarded as still pending so
that all proceedings on the execution are proceedings in the suit. There is no
question that the court which rendered the judgment has a general
supervisory control over its process of execution, and this power carries with
it the right to determine every question of fact and law which may be
involved in the execution.
We reiterated the above holding in Javier v. Court of Appeals[14] in this wise:
The said branch has a general supervisory control over its processes in the
execution of its judgment with a right to determine every question of fact and
law which may be involved in the execution.
The courts supervisory control does not, however, extend as to authorize the
alteration or amendment of a final and executory decision, save for certain
recognized exceptions, among which is the correction of clerical errors. Else,
the court violates the principle of finality of judgment and its immutability,
concepts which the Court, in Tan v. Timbal,[15] defined:
As we held in Industrial Management International Development
Corporation vs. NLRC:
It is an elementary principle of procedure that the resolution of the court in a
given issue as embodied in the dispositive part of a decision or order is the
controlling factor as to settlement of rights of the parties. Once a decision or
order becomes final and executory, it is removed from the power or
jurisdiction of the court which rendered it to further alter or amend it. It
thereby becomes immutable and unalterable and any amendment or
alteration which substantially affects a final and executory judgment is
null and void for lack of jurisdiction, including the entire proceedings
held for that purpose. An order of execution which varies the tenor of
the judgment or exceeds the terms thereof is a nullity. (Emphasis
supplied.)
Republic v. Tango[16] expounded on the same principle and its exceptions:
Deeply ingrained in our jurisprudence is the principle that a decision that
has acquired finality becomes immutable and unalterable. As such, it
may no longer be modified in any respect even if the modification is meant
to correct erroneous conclusions of fact or law and whether it will be made
by the court that rendered it or by the highest court of the land. x x x
79
The doctrine of finality of judgment is grounded on the fundamental
principle of public policy and sound practice that, at the risk of occasional
error, the judgment of courts and the award of quasi-judicial agencies must
become final on some definite date fixed by law. The only exceptions to the
general rule are the correction of clerical errors, the so-called nunc pro
tunc entries which cause no prejudice to any party, void judgments, and
whenever circumstances transpire after the finality of the decision which
render its execution unjust and inequitable. None of the exceptions obtains
here to merit the review sought. (Emphasis added.)
So, did the RTC, in breach of the doctrine of immutability and inalterability
of judgment, order the execution of its final decision in a manner as would
amount to its prohibited alteration or modification?
We repair to the dispositive portion of the final and executory RTC decision.
Pertinently, it provides:
WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil
Procedure, and by preponderance of evidence, judgment is hereby rendered
in favor of the plaintiff, ordering Kukan, Inc.:
1. to pay the sum of ONE MILLION TWO HUNDRED ONE
THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS
(P1,201,724.00) with legal interest at 12% per annum from February 17,
1999 until full payment;
2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral
damages;
3. to pay the sum of TWENTY THOUSAND PESOS (P20,000.00) as
reasonable attorneys fees; and
4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY
PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses.
x x x x (Emphasis supplied.)
As may be noted, the above decision, in unequivocal terms, directed Kukan,
Inc. to pay the aforementioned awards to Morales. Thus, making KIC, thru
the medium of a writ of execution, answerable for the above judgment
liability is a clear case of altering a decision, an instance of granting relief not
contemplated in the decision sought to be executed. And the change does not
fall under any of the recognized exceptions to the doctrine of finality and
immutability of judgment. It is a settled rule that a writ of execution must
conform to the fallo of the judgment; as an inevitable corollary, a writ
beyond the terms of the judgment is a nullity.[17]
Thus, on this ground alone, the instant petition can already be
granted. Nonetheless, an examination of the other issues raised by KIC
would be proper.
Second Issue: Propriety of the RTC
Assuming Jurisdiction over KIC
The next issue turns on the validity of the execution the trial court authorized
against KIC and its property, given that it was neither made a party nor
impleaded in Civil Case No. 99-93173, let alone served with summons. In
other words, did the trial court acquire jurisdiction over KIC?
In the assailed decision, the appellate court deemed KIC to have voluntarily
submitted itself to the jurisdiction of the trial court owing to its filing of four
(4) pleadings adverted to earlier, namely: (a) the Affidavit of Third-Party
Claim;[18] (b) the Comment and Opposition to Plaintiffs Omnibus Motion;
[19]
(c) the Motion for Reconsideration of the RTC Order dated March 12,
2007;[20] and (d) the Motion for Leave to Admit Reply.[21] The CA, citing
Section 20, Rule 14 of the Rules of Court, stated that the procedural rule on
service of summons can be waived by voluntary submission to the courts
jurisdiction through any form of appearance by the party or its counsel. [22]
We cannot give imprimatur to the appellate courts appreciation of the thrust
of Sec. 20, Rule 14 of the Rules in concluding that the trial court acquired
jurisdiction over KIC.
Orion Security Corporation v. Kalfam Enterprises, Inc.[23] explains how
courts acquire jurisdiction over the parties in a civil case:
Courts acquire jurisdiction over the plaintiffs upon the filing of the
complaint. On the other hand, jurisdiction over the defendants in a civil
case is acquired either through the service of summons upon them or
through their voluntary appearance in court and their submission to its
authority. (Emphasis supplied.)
80

In the fairly recent Palma v. Galvez,[24] the Court reiterated its holding
in Orion Security Corporation, stating: [I]n civil cases, the trial court
acquires jurisdiction over the person of the defendant either by the service of
summons or by the latters voluntary appearance and submission to the
authority of the former.
The courts jurisdiction over a party-defendant resulting from his voluntary
submission to its authority is provided under Sec. 20, Rule 14 of the Rules,
which states:
Section 20. Voluntary appearance. The defendants voluntary appearance in
the actions shall be equivalent to service of summons. The inclusion in a
motion to dismiss of other grounds aside from lack of jurisdiction over the
person of the defendant shall not be deemed a voluntary appearance.
To be sure, the CAs ruling that any form of appearance by the party or its
counsel is deemed as voluntary appearance finds support in the
kindred Republic v. Ker & Co., Ltd.[25] and De Midgely v. Ferandos.[26]
Republic and De Midgely, however, have already been modified if not
altogether superseded[27] by La Naval Drug Corporation v. Court of Appeals,
[28]
wherein the Court essentially ruled and elucidated on the current view in
our jurisdiction, to wit: [A] special appearance before the courtchallenging its
jurisdiction over the person through a motion to dismiss even if the movant
invokes other groundsis not tantamount to estoppel or a waiver by the
movant of his objection to jurisdiction over his person; and such is not
constitutive of a voluntary submission to the jurisdiction of the court. [29]
In the instant case, KIC was not made a party-defendant in Civil Case No.
99-93173. Even if it is conceded that it raised affirmative defenses through
its aforementioned pleadings, KIC never abandoned its challenge, however
implicit, to the RTCs jurisdiction over its person. The challenge was
subsumed in KICs primary assertion that it was not the same entity as Kukan,
Inc. Pertinently, in its Comment and Opposition to Plaintiffs Omnibus
Motion dated May 20, 2003, KIC entered its special but not voluntary
appearance alleging therein that it was a different entity and has a separate
legal personality from Kukan, Inc. And KIC would consistently reiterate this
assertion in all its pleadings, thus effectively resisting all along the RTCs
jurisdiction of its person. It cannot be overemphasized that KIC could not file
before the RTC a motion to dismiss and its attachments in Civil Case No. 99-
93173, precisely because KIC was neither impleaded nor served with
summons.Consequently, KIC could only assert and claim through its
affidavits, comments, and motions filed by special appearance before the
RTC that it is separate and distinct from Kukan, Inc.
Following La Naval Drug Corporation,[30] KIC cannot be deemed to have
waived its objection to the courts lack of jurisdiction over its person. It would
defy logic to say that KIC unequivocally submitted itself to the jurisdiction
of the RTC when it strongly asserted that it and Kukan, Inc. are different
entities. In the scheme of things obtaining, KIC had no other option but to
insist on its separate identity and plead for relief consistent with that position.
Third Issue: Piercing the
Veil of Corporate Fiction
The third and main issue in this case is whether or not the trial and appellate
courts correctly applied the principle of piercing the veil of corporate
entitycalled also as disregarding the fiction of a separate juridical personality
of a corporationto support a conclusion that Kukan, Inc. and KIC are but one
and the same corporation with respect to the contract award referred to at the
outset. This principle finds its context on the postulate that a corporation is
an artificial being invested with a personality separate and distinct from those
of the stockholders and from other corporations to which it may be connected
or related.[31]
In Pantranco Employees Association (PEA-PTGWO) v. National Labor
Relations Commission,[32] the Court revisited the subject principle of piercing
the veil of corporate fiction and wrote:
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. 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.
81
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. x x x (Emphasis supplied.)
The same principle was the subject and discussed in Rivera v. United
Laboratories, Inc.:
While a corporation may exist for any lawful purpose, the law will regard it
as an association of persons or, in case of two corporations, merge them
into one, when its corporate legal entity is used as a cloak for fraud or
illegality. This is the doctrine of piercing the veil of corporate fiction. The
doctrine applies only when such corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, or when it is
made as a shield to confuse the legitimate issues, or where a corporation is
the 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.
To disregard the separate juridical personality of a corporation, the
wrongdoing must be established clearly and convincingly. It cannot be
presumed.[33] (Emphasis supplied.)
Now, as before the appellate court, petitioner KIC maintains that the RTC
violated its right to due process when, in the execution of its November 28,
2002 Decision, the court authorized the issuance of the writ against KIC for
Kukan, Inc.s judgment debt, albeit KIC has never been a party to the
underlying suit. As a counterpoint, Morales argues that KICs specific
concern on due process and on the validity of the writ to execute the RTCs
November 28, 2002 Decision would be mooted if it were established that
KIC and Kukan, Inc. are indeed one and the same corporation.
Morales contention is untenable.
The principle of piercing the veil of corporate fiction, and the resulting
treatment of two related corporations as one and the same juridical person
with respect to a given transaction, is basically applied only to determine
established liability;[34] it is not available to confer on the court a jurisdiction
it has not acquired, in the first place, over a party not impleaded in a
case. Elsewise put, a corporation not impleaded in a suit cannot be subject to
the courts process of piercing the veil of its corporate fiction. In that
situation, the court has not acquired jurisdiction over the corporation and,
hence, any proceedings taken against that corporation and its property would
infringe on its right to due process. Aguedo Agbayani, a recognized authority
on Commercial Law, stated as much:
23. Piercing the veil of corporate entity applies to determination of liability
not of jurisdiction. x x x
This is so because the doctrine of piercing the veil of corporate fiction
comes to play only during the trial of the case after the court has already
acquired jurisdiction over the corporation. Hence, before this doctrine
can be applied, based on the evidence presented, it is imperative that the
court must first have jurisdiction over the corporation. [35] x x x (Emphasis
supplied.)
The implication of the above comment is twofold: (1) the court must first
acquire jurisdiction over the corporation or corporations involved before its
or their separate personalities are disregarded; and (2) the doctrine of
piercing the veil of corporate entity can only be raised during a full-blown
trial over a cause of action duly commenced involving parties duly brought
under the authority of the court by way of service of summons or what passes
as such service.
The issue of jurisdiction or the lack of it over KIC has already been
discussed. Anent the matter of the time and manner of raising the principle in
question, it is undisputed that no full-blown trial involving KIC was had
when the RTC disregarded the corporate veil of KIC. The reason for this
actuality is simple and undisputed: KIC was not impleaded in Civil Case No.
99-93173 and that the RTC did not acquire jurisdiction over it. It was
dragged to the case after it reacted to the improper execution of its properties
and veritably hauled to court, not thru the usual process of service of
summons, but by mere motion of a party with whom it has no privity of
contract and after the decision in the main case had already become final and
executory. As to the propriety of a plea for the application of the principle by
mere motion, the following excerpts are instructive:
Generally, a motion is appropriate only in the absence of remedies by
regular pleadings, and is not available to settle important questions of
law, or to dispose of the merits of the case. A motion is usually a
proceeding incidental to an action, but it may be a wholly distinct or
82
independent proceeding. A motion in this sense is not within this discussion
even though the relief demanded is denominated an order.
A motion generally relates to procedure and is often resorted to in order to
correct errors which have crept in along the line of the principal actions
progress. Generally, where there is a procedural defect in a proceeding and
no method under statute or rule of court by which it may be called to the
attention of the court, a motion is an appropriate remedy. In many
jurisdictions, the motion has replaced the common-law pleas testing the
sufficiency of the pleadings, and various common-law writs, such as writ of
error coram nobis and audita querela. In some cases, a motion may be one of
several remedies available. For example, in some jurisdictions, a motion to
vacate an order is a remedy alternative to an appeal therefrom.
Statutes governing motions are given a liberal construction.[36] (Emphasis
supplied.)
The bottom line issue of whether Morales can proceed against KIC for the
judgment debt of Kukan, Inc.assuming hypothetically that he can, applying
the piercing the corporate veil principleresolves itself into the question of
whether a mere motion is the appropriate vehicle for such purpose.
Verily, Morales espouses the application of the principle of piercing the
corporate veil to hold KIC liable on theory that Kukan, Inc. was out to
defraud him through the use of the separate and distinct personality of
another corporation, KIC. In net effect, Morales adverted motion to pierce
the veil of corporate fiction dated January 3, 2007 stated a new cause of
action, i.e., for the liability of judgment debtor Kukan, Inc. to be borne by
KIC on the alleged identity of the two corporations. This new cause of action
should be properly ventilated in another complaint and subsequent trial
where the doctrine of piercing the corporate veil can, if appropriate, be
applied, based on the evidence adduced. Establishing the claim of Morales
and the corresponding liability of KIC for Kukan Inc.s indebtedness could
hardly be the subject, under the premises, of a mere motion interposed after
the principal action against Kukan, Inc. alone had peremptorily been
terminated. After all, a complaint is one where the plaintiff alleges causes of
action.
In any event, the principle of piercing the veil of corporate fiction finds no
application to the instant case.
As a general rule, courts should be wary of lifting the corporate veil between
corporations, however related. Philippine National Bank v. Andrada Electric
Engineering Company[37] explains why:
A corporation is an artificial being created by operation of law. x x x It has a
personality separate and distinct from the persons composing it, as well as
from any other legal entity to which it may be related.This is basic.
Equally well-settled is the principle that the corporate mask may be removed
or the corporate veil pierced when the corporation is just an alter ego of a
person or of another corporation. For reasons of public policy and in the
interest of justice, the corporate veil will justifiably be impaled only when it
becomes a shield for fraud, illegality or inequity committed against third
persons.
Hence, any application of the doctrine of piercing the corporate veil
should be done with caution. A court should be mindful of the milieu where
it is to be applied. It must be certain that the corporate fiction was
misused to such an extent that injustice, fraud, or crime was committed
against another, in disregard of its rights. The wrongdoing must be
clearly and convincingly established; it cannot be presumed. Otherwise,
an injustice that was never unintended may result from an erroneous
application.
This Court has pierced the corporate veil to ward off a judgment credit, to
avoid inclusion of corporate assets as part of the estate of the decedent, to
escape liability arising from a debt, or to perpetuate fraud and/or confuse
legitimate issues either to promote or to shield unfair objectives or to cover
up an otherwise blatant violation of the prohibition against forum-
shopping. Only in these and similar instances may the veil be pierced and
disregarded. (Emphasis supplied.)
In fine, to justify the piercing of the veil of corporate fiction, it must be
shown by clear and convincing proof that the separate and distinct
personality of the corporation was purposefully employed to evade a
legitimate and binding commitment and perpetuate a fraud or like
wrongdoings. To be sure, the Court has, on numerous occasions,[38] applied
the principle where a corporation is dissolved and its assets are transferred to
another to avoid a financial liability of the first corporation with the result
83
that the second corporation should be considered a continuation and
successor of the first entity.
In those instances when the Court pierced the veil of corporate fiction of two
corporations, there was a confluence of the following factors:
1. A first corporation is dissolved;
2. The assets of the first corporation is transferred to a second
corporation to avoid a financial liability of the first corporation; and
3. Both corporations are owned and controlled by the same persons
such that the second corporation should be considered as a continuation and
successor of the first corporation.
In the instant case, however, the second and third factors are conspicuously
absent. There is, therefore, no compelling justification for disregarding the
fiction of corporate entity separating Kukan, Inc. from KIC. In applying the
principle, both the RTC and the CA miserably failed to identify the presence
of the abovementioned factors. Consider:
The RTC disregarded the separate corporate personalities of Kukan, Inc. and
KIC based on the following premises and arguments:
While it is true that a corporation has a separate and distinct personality from
its stockholder, director and officers, the law expressly provides for an
exception. When Michael Chan, the Managing Director of defendant Kukan,
Inc. (majority stockholder of the newly formed corporation [KIC]) confirmed
the award to plaintiff to supply and install interior signages in the Enterprise
Center he (Michael Chan, Managing Director of defendant Kukan, Inc.)
knew that there was no sufficient corporate funds to pay its
obligation/account, thus implying bad faith on his part and fraud in
contracting the obligation. Michael Chan neither returned the interior
signages nor tendered payment to the plaintiff. This circumstance may
warrant the piercing of the veil of corporation fiction. Having been guilty of
bad faith in the management of corporate matters the corporate trustee,
director or officer may be held personally liable. x x x
Since fraud is a state of mind, it need not be proved by direct evidence but
may be inferred from the circumstances of the case. x x x [A]nd the
circumstances are: the signature of Michael Chan, Managing Director of
Kukan, Inc. appearing in the confirmation of the award sent to the plaintiff;
signature of Chan Kai Kit, a British National appearing in the Articles of
Incorporation and signature of Michael Chan also a British National
appearing in the Articles of Incorporation [of] Kukan International Corp. give
the impression that they are one and the same person, that Michael Chan and
Chan Kai Kit are both majority stockholders of Kukan International Corp.
and Kukan, Inc. holding 40% of the stocks; that Kukan International Corp. is
practically doing the same kind of business as that of Kukan, Inc.
[39]
(Emphasis supplied.)
As is apparent from its disquisition, the RTC brushed aside the separate
corporate existence of Kukan, Inc. and KIC on the main argument that
Michael Chan owns 40% of the common shares of both corporations,
obviously oblivious that overlapping stock ownership is a common business
phenomenon. It must be remembered, however, that KICs properties were
the ones seized upon levy on execution and not that of Kukan, Inc. or of
Michael Chan for that matter. Mere ownership by a single stockholder or by
another corporation of a substantial block of shares of a corporation does not,
standing alone, provide sufficient justification for disregarding the separate
corporate personality.[40] For this ground to hold sway in this case, there must
be proof that Chan had control or complete dominion of Kukan and KICs
finances, policies, and business practices; he used such control to commit
fraud; and the control was the proximate cause of the financial loss
complained of by Morales. The absence of any of the elements prevents the
piercing of the corporate veil.[41] And indeed, the records do not show the
presence of these elements.
On the other hand, the CA held:
In the present case, the facts disclose that Kukan, Inc. entered into a
contractual obligation x x x worth more than three million pesos although it
had only Php5,000.00 paid-up capital; [KIC] was incorporated shortly before
Kukan, Inc. suddenly ceased to appear and participate in the trial; [KICs]
purpose is related and somewhat akin to that of Kukan, Inc.; and in [KIC]
Michael Chan, a.k.a., Chan Kai Kit, holds forty percent of the outstanding
stocks, while he formerly held the same amount of stocks in Kukan
Inc. These would lead to the inescapable conclusion that Kukan, Inc.
committed fraudulent representation by awarding to the private
respondent the contract with full knowledge that it was not in a position
to comply with the obligation it had assumed because of inadequate
paid-up capital. It bears stressing that shareholders should in good faith put
at the risk of the business, unencumbered capital reasonably adequate for its
84
prospective liabilities. The capital should not be illusory or trifling compared
with the business to be done and the risk of loss.
Further, it is clear that [KIC] is a continuation and successor of Kukan, Inc.
Michael Chan, a.k.a. Chan Kai Kit has the largest block of shares in both
business enterprises. The emergence of the former was cleverly timed with
the hasty withdrawal of the latter during the trial to avoid the financial
liability that was eventually suffered by the latter. The two companies have a
related business purpose. Considering these circumstances, the obvious
conclusion is that the creation of Kukan International Corporation
served as a device to evade the obligation incurred by Kukan, Inc. and
yet profit from the goodwill attained by the name Kukan by continuing
to engage in the same line of business with the same list of clients.
[42]
(Emphasis supplied.)
Evidently, the CA found the meager paid-up capitalization of Kukan, Inc. and
the similarity of the business activities in which both corporations are
engaged as a jumping board to its conclusion that the creation of KIC served
as a device to evade the obligation incurred by Kukan, Inc. The appellate
court, however, left a gaping hole by failing to demonstrate that Kukan, Inc.
and its stockholders defrauded Morales. In fine, there is no showing that the
incorporation, and the separate and distinct personality, of KIC was used to
defeat Morales right to recover from Kukan, Inc. Judging from the records,
no serious attempt was made to levy on the properties of Kukan, Inc. Morales
could not, thus, validly argue that Kukan, Inc. tried to avoid liability or had
no property against which to proceed.
Morales further contends that Kukan, Inc.s closure is evidenced by its failure
to file its 2001 General Information Sheet (GIS) with the Securities and
Exchange Commission. However, such fact does not necessarily mean that
Kukan, Inc. had altogether ceased operations, as Morales would have this
Court believe, for it is stated on the face of the GIS that it is only upon a
failure to file the corporate GIS for five (5) consecutive years that non-
operation shall be presumed.
The fact that Kukan, Inc. entered into a PhP 3.3 million contract when it only
had a paid-up capital of PhP 5,000 is not an indication of the intent on the
part of its management to defraud creditors. Paid-up capital is merely seed
money to start a corporation or a business entity. As in this case, it merely
represented the capitalization upon incorporation in 1997 of Kukan,
Inc. Paid-up capitalization of PhP 5,000 is not and should not be taken as a
reflection of the firms capacity to meet its recurrent and long-term
obligations. It must be borne in mind that the equity portion cannot be
equated to the viability of a business concern, for the best test is the working
capital which consists of the liquid assets of a given business relating to the
nature of the business concern.
Neither should the level of paid-up capital of Kukan, Inc. upon its
incorporation be viewed as a badge of fraud, for it is in compliance with Sec.
13 of the Corporation Code,[43] which only requires a minimum paid-up
capital of PhP 5,000.
The suggestion that KIC is but a continuation and successor of Kukan, Inc.,
owned and controlled as they are by the same stockholders, stands without
factual basis. It is true that Michael Chan, a.k.a. Chan Kai Kit, owns 40% of
the outstanding capital stock of both corporations. But such circumstance,
standing alone, is insufficient to establish identity. There must be at least a
substantial identity of stockholders for both corporations in order to consider
this factor to be constitutive of corporate identity.
It would not avail Morales any to rely[44] on General Credit Corporation v.
Alsons Development and Investment Corporation.[45] General Credit
Corporation is factually not on all fours with the instant case. There, the
common stockholders of the corporations represented 90% of the
outstanding capital stock of the companies, unlike here where Michael Chan
merely represents 40% of the outstanding capital stock of both KIC and
Kukan, Inc., not even a majority of it. In that case, moreover, evidence was
adduced to support the finding that the funds of the second corporation came
from the first. Finally, there was proof in General Credit Corporation of
complete control, such that one corporation was a mere dummy or alter ego
of the other, which is absent in the instant case.
Evidently, the aforementioned case relied upon by Morales cannot justify the
application of the principle of piercing the veil of corporate fiction to the
instant case. As shown by the records, the name Michael Chan, the similarity
of business activities engaged in, and incidentally the word Kukan appearing
in the corporate names provide the nexus between Kukan, Inc. and KIC. As
illustrated, these circumstances are insufficient to establish the identity of
KIC as the alter ego or successor of Kukan, Inc.
It bears reiterating that piercing the veil of corporate fiction is frowned upon.
Accordingly, those who seek to pierce the veil must clearly establish that the
separate and distinct personalities of the corporations are set up to justify a
wrong, protect fraud, or perpetrate a deception. In the concrete and on the
85
assumption that the RTC has validly acquired jurisdiction over the party
concerned, Morales ought to have proved by convincing evidence that
Kukan, Inc. was collapsed and thereafter KIC purposely formed and operated
to defraud him. Morales has not to us discharged his burden.

WHEREFORE, the petition is hereby GRANTED. The CAs January 23,

2008 Decision and April 16, 2008 Resolution in CA-G.R. SP No. 100152 are
hereby REVERSED and SET ASIDE. The levy placed upon the personal
properties of Kukan International Corporation is hereby ordered lifted and
the personal properties ordered returned to Kukan International
Corporation. The RTC of Manila, Branch 21 is hereby directed to execute the
RTC Decision dated November 28, 2002 against Kukan, Inc. with reasonable
dispatch.

No costs.

SO ORDERED.

86
15.) THIRD DIVISION
[G.R. No. 135136. May 19, 1999]
DELFIN A. BRION, petitioner, vs. SOUTH PHILIPPINE UNION
MISSION OF THE SEVENTH DAY ADVENTIST CHURCH,
represented by PASTORS PATERNO DIAZ, ULYSSES CAMAGAY,
MANUEL DONATO and WENDELL SERRANO, respondents.
DECISION
ROMERO, J.:
Blow, blow, thou winter wind,
Thou art not so unkind
As mans ingratitude
[Shakespeare: As You Like It, Act II, sc. 7, Line 174]
Vilified as an ingrate by his erstwhile church, accused of being possessed by
the devil, and likened to the dog that bit the hand that fed him, petitioner
Delfin A. Brion comes to this Court with a novel question of law: Must the
conditions for eligibility for retirement be met only at the time of retirement
or are these conditions continuing ones which must be complied with even
after one has retired?
The facts are simple.
Petitioner Delfin A. Brion became a member of respondent South Philippine
Union Mission of the Seventh Day Adventist Church (hereafter SDA)
sometime in 1949. He worked his way up the ladder, starting as a literature
evangelist, then a janitor or office helper, until he became an ordained
minister and president of the Northeastern Mindanao Mission of the Seventh
Day Adventist Church in Butuan City.
Respondent claims that due to corruption charges, petitioner was transferred
to the Davao Mission of the SDA. Thereafter, allegedly due to an act of
indiscretion with a masseuse, petitioner was demoted to the position of
Sabbath School Director at the Northern Mindanao Mission of the SDA
located at Cagayan de Oro City. Here, petitioner worked until he retired in
1983. As was the practice of the SDA, petitioner was provided a monthly
amount as a retirement benefit.
Sometime thereafter, petitioner got into an argument with Samuel Sanes,
another pastor of the SDA. This disagreement degenerated into a rift between
petitioner and the SDA, culminating in the establishment by petitioner of a
rival religious group which he called the Home Church. Petitioner succeeded
in enticing a number of SDA members to become part of his congregation
even as he continued disparaging and criticizing the SDA. Because of his
actions, petitioner was excommunicated by the SDA and, on July 3, 1993, his
name was dropped from the Church Record Book. As a consequence of his
disfellowship, petitioners monthly retirement benefit was discontinued by the
SDA.
On December 21, 1995, petitioner filed an action for mandamus with the
Regional Trial Court of Cagayan de Oro City asking that the SDA restore his
monthly retirement benefit. On July 10, 1996, the trial court rendered a
decision, the dispositive portion of which reads:
WHEREFORE, premises considered, the Court finds in favor of plaintiff and
hereby orders defendant to pay the retirement benefits due to the plaintiff
from October 1995 to the present and all subsequent monthly benefits that
may be due to the plaintiff until his demise. The Court finds no basis or no
justification to the (sic) award any damages considering that there is no
showing of bad faith on the part of defendant, since the latter acted in good
faith and believing that it is within their right to withhold the benefits that
may be due to the plaintiff.
Without pronouncement as to cost.
SO ORDERED.[1]
Aggrieved by the trial courts decision, the SDA filed an appeal with the
Court of Appeals, docketed therein as CA-G.R. SP No. 43846. On March 19,
1998, the appellate court set aside the decision of the trial court and ordered
the dismissal of petitioners complaint. Petitioner filed a motion for
reconsideration, which was denied on August 3, 1998, hence this petition.
We find for petitioner.
The following provisions on retirement, contained in the General Conference
Working Policy of the SDA, are of primary importance in resolving the issue
at hand:
[Paragraph] Z1010 Beneficiaries of Retirement Plan The benefits of the
retirement plan are designed for those who have devoted their lives to the
work of the Seventh-day Adventist Church and are eligible to retire for
reasons of old age and/or disability.
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[Paragraph] Z1025 Termination of Benefits The benefits shall terminate with
the decease of the beneficiary, except where there is an eligible surviving
spouse and/or children.[2]
On the basis of these two provisions, the trial court ruled in favor of
petitioner. In its own words:
Going over the aforecited provisions in the Retirement Plan of defendant
church, it is very clear that the benefit of retirement provided therein are
designed for those who have devoted their lives to the work of the
SDA. The word have in the quoted provision refers to past acts rendered
by the retiree to the defendant church. There is no doubt that plaintiff has
devoted his life to the service. That is the reason he is qualified to receive
the retirement benefit.
The second quoted provision does not impose any other cause of termination
of the benefit except the death of the beneficiary. Since there is no other
condition that is attached to the same except the death of the
beneficiary, then the plaintiff must be entitled to receive the benefits
provided. The retirement benefit is not conditional, but rather it is for past
services that have already been rendered. The grant of retirement benefit is
absolute since it is a reward for one who has devoted his life to the defendant
church up to the time plaintiff retired.[3]
The above declaration was, however, refuted by the Court of Appeals when it
stated in its decision that:
In the first place, its ruling that the wording of paragraph Z1010 that by using
the word have, both parties intended to refer to past acts rendered by the
retiree to the Church is erroneous. The provision was couched in the present
perfect tense, the word have being used as an auxiliary verb prefixed to the
past participial form of the verb devote. It is an elementary rule in grammar
that the present perfect tense is used to refer to an action or condition that
began in the past and continues to the present or has just been
completed. Such being the case, the SDAs argument that a member must
maintain loyalty and fealty to the Church for him to continue to qualify for
benefits gains ground. The use of the word lives also implies that the
beneficiary devoted all of his life not just a part of it, to the work of the
Church. On the other hand, the word work, instead of service, connotes the
ministry of the Church, to which one can be devoted by loyalty, if no longer
active participation.[4]
Furthermore, the Court of Appeals considered of great significance the fact
that petitioner had been disfellowed and expelled by SDA. Citing American
Jurisprudence, the appellate court held that:
It may preliminarily be observed that the profession of priest or minister of
any denomination is held subject to its laws; he acquires it by compact, and is
not exempt from the proper discipline and authority of his church. A minister,
in the legal point of view, is a voluntary member of the association to which
he belongs. The position is not forced upon him; he seeks it. He accepts it
with all its burdens and consequences, with all the rules and laws and canons
subsisting or to be made by competent authority, and may, at pleasure and
with impunity, abandon it. While a member of the association, however, and
having a full share in the benefits resulting therefrom, he should adhere to its
discipline, conform to its doctrines and mode of worship, and obey its laws
and canons.
The continuance, powers, and emoluments of a priest or minister depend on
the will of the church, and the sentence of the church judicatory in a proper
case deprives him of the position and the right to further salary or
emoluments; hence, upon the dissolution or suspension of the pastoral
relation, or upon the expulsion of a priest or minister from a pastorate, all
right to further salary ceases.
x x x x x x x x x.[5]
Retirement has been defined as a withdrawal from office, public station,
business, occupation, or public duty.[6] It is the result of a bilateral act of the
parties, a voluntary agreement between the employer and the employee
whereby the latter, after reaching a certain age, agrees and/or consents to
sever his employment with the former.[7] In this connection, the modern
socio-economic climate has fostered the practice of setting up pension and
retirement plans for private employees, initially through their voluntary
adoption by employers, and lately, established by legislation. Pension
schemes, while initially humanitarian in nature, now concomitantly serve to
secure loyalty and efficiency on the part of employees, and to increase
continuity of service and decrease the labor turnover by giving to the
employees some assurance of security as they approach and reach the age at
which earning ability and earnings are materially impaired or at an end. [8]
It must be noted, however, that the nature of the rights conferred by a
retirement or pension plan depends in large measure upon the provisions of
such particular plan. The Labor Code provides:
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Art. 287. Retirement. Any employee may be retired upon reaching the
retirement age established in the collective bargaining agreement or other
applicable employment contract.
In case of retirement, the employee shall be entitled to receive such
retirement benefits as he may have earned under existing laws and any
collective bargaining agreement and other agreements
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From the above, it can be gleaned that employer and employee are free to
stipulate on retirement benefits, as long as these do not fall below the floor
limits provided by law.
Again, it has been held that pension and retirement plans create a contractual
obligation in which the promise to pay benefits is made in consideration of
the continued faithful service of the employee for the requisite period.[9] In
other words, before a right to retirement benefits or pension vests in an
employee, he must have met the stated conditions of eligibility with respect
to the nature of employment, age, and length of service. This is a condition
precedent to his acquisition of rights thereunder.
Under the SDAs theory, however, the right to a pension never really vests in
an employee, there being no fixed period for eligibility for retirement. The
SDA insists that an employee must devote his life to the work of the Seventh-
day Adventist Church even after retirement to continue enjoying retirement
benefits. There is, thus, no definite length of service provided as the SDA can
withdraw retirement benefits at any time after retirement, if it determines that
a retired employee is not devoting his life to the work of the
church. Furthermore, the SDAs eligibility requirement as to length of service
is even more stringent than that required by law. Under the Labor Code, an
employee upon reaching the age of sixty (60) years or more, but not beyond
sixty-five (65) years which is hereby declared the compulsory retirement
age, who has served at least five (5) years in the said establishment may
retire and shall be entitled to retirement pay Under the law, service for five
years is enough to entitle an employee who meets the requisite age to
retirement benefits. However, the SDA would require its employees to serve
it for all his lifetime.It must be noted that petitioner has served the SDA for
thirty-four (34) years.
Likewise, the SDAs theory negates the very concept of retirement. As earlier
defined, retirement means to withdraw from ones office, occupation, or
duty. To require petitioner to continue devoting his life to the work of the
Seventh-day Adventist Church would mean that petitioner never really
withdraws from his office or occupation, that of working for the church. It is
an oxymoron to retire an employee and yet require him to continue working
for the same employer. This Court cannot, thus give its imprimatur to SDAs
theory. We rule that the conditions of eligibility for retirement must be met at
the time of retirement at which juncture the right to retirement benefits or
pension, if the employee is eligible, vests in him.
In the present case, petitioner was adjudged by the SDA in 1983, to be
qualified for retirement, such that when it began paying petitioner retirement
benefits in said year, it must have been convinced that petitioner had devoted
his life to the work of the Seventh-day Adventist Church. Having arrived at
such a conclusion, it may not now reverse this finding to the detriment of
petitioner.
Furthermore, pension and retirement plans, in line with the Constitutional
mandate of affording full protection to labor,[10] must be liberally construed in
favor of the employee, it being the general rule that pension plans formulated
by an employer are to be construed most strongly against the employer.
[11]
Hence, where two constructions of a retirement plan are possible, one of
which requires the retiree to devote his life to the service of the church even
after retirement, and the other of which sanctions the severance by the retiree
of his employment thereto at retirement, this Court will not hesitate to adopt
the latter interpretation.
Bolstering this conclusion is this Courts observation in UST Faculty Union v.
NLRC[12] that upon the retirement of an employee or official in the public or
private service his employment is deemed terminated. With the termination
of employment, the right of the employer to control the employees conduct,
the so-called control test also terminates; hence, after retirement, the SDA
may no longer require petitioner to devote his life to the work of the church,
it having lost control over its erstwhile employee.
Given the above disquisition, it can be seen that the importance placed by the
appellate court on petitioners excommunication and disfellowship is
misplaced. While it is true that upon the expulsion of a priest or minister
from a pastorate, all right to further salary ceases, [13] this presupposes that the
priest or minister is still on active duty, so to speak. Here, petitioner has
already retired. Hence, he already had a vested right to receive retirement
benefits, a right which could not be taken away from him by expulsion or
excommunication, this not being a ground for termination of retirement
benefits under the SDAs retirement plan. In fact, under paragraph Z1025 of
the SDAs General Conference Working Policy, retirement benefits terminate
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only with the decease of the beneficiary, an event which has not yet intervene and restore. There must be, in addition, a violation of law, the
transpired here. The SDA must, thus, pay petitioner his retirement benefits commission of what the law knows as an actionable wrong, before the courts
despite his establishment of a rival church and his excommunication. are authorized to lay hold the situation and remedy it.

Again, while paying retirement benefits to petitioner may be odious and
abhorrent to the SDA, in the absence of any other stipulation for the
termination of petitioners retirement benefits, the SDA must comply with its
contractual obligations, the contract being the law between the parties. As
correctly pointed out by the trial court:
While what plaintiff is doing may be inimical, despicable or repulsive to the
view of defendant, it is of no consequence. Dura lex sed lex, the law is hard
but that is the law. Since the only condition for the termination of the same is
death of (sic) beneficiary, then the defendant cannot legally cut off what is
due to the plaintiff.[14]
Petitioners establishment of a rival church hardly qualifies as an actionable
wrong. In fact, it is a perfectly legitimate exercise of ones freedom of religion
enshrined in our Constitution.
WHEREFORE, premises considered, the decision of the Court of Appeals
dated March 19, 1998 is hereby REVERSED and SET ASIDE and the
decision of the trial court dated July 10, 1996 AFFIRMED in toto. No
pronouncement as to costs.
SO ORDERED.

In refutation of this point, the appellate court declared that:

[I]t is not only death which would terminate receipt of benefits under the
retirement plan, as per paragraph Z1025 of the GCWP; to this extent, the
covenant must be deemed subject to the implied condition that the
beneficiary continues to be a member in good standing of the church. The
Court believes that such an understanding is inherent in every relationship
between the believer and his church.[15]

Obviously, the SDA would have petitioner cease and desist from organizing
and running a rival church. This is analogous to provisions limiting or
prohibiting a retiree or pensioner from engaging in a competitive business or
accepting employment with a business competitor, a clause not infrequently
found in private retirement or pension plans. The SDA, however, chose not
to include such a provision in its General Conference Working Policy. For its
lack of foresight, it now seeks to extricate itself from a messy situation
through the assistance of the Court. This Courts pronouncement in Vales v.
Villa[16]seems particularly apropos:

Courts cannot follow [a person] every step of his life and extricate him from
bad bargains, protect him from unwise investments, relieve him from one-
sided contracts, or annul the effects of foolish acts. Courts cannot constitute
themselves guardians of persons who are not legally incompetent. Courts
operate not because one person has been defeated or overcome by another,
but because he has been defeated or overcome illegally. Men may do foolish
things, make ridiculous contracts, use miserable judgment, and lose money
by them-indeed, all they have in the world; but not for that alone can the law

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