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G.R. No.

149329

July 12, 2004

ROSITA PANGILINAN, YOLANDA LAYOLA, SALLY GOLDE, AIDA QUITE,


FERDINAND CALE, RAUL ARUITA, MANUEL ERIFUL, ARNEL PAULO,
ROSEMARIE GEOTINA, SAMUELA KUMAR, REBECCA PEREZ, EDGAR
BELLO, JOSEPH SORIANO, DANILO AMPULLER, TOLENTINO CALLAO,
MANOLITA MANALANG, TORIBIO LETIM, NANCY BELGICA, ALFREDO
ARELLANO, JOSEFA CEBUJANO, JUN DEL ROSARIO, AVELINO AGUILAR,
MILAROSA TIAMSON, EDNA DICHOSO, JASMIN BOLISAY, JULIETA
DIDAL, GERARDO BARISO, ANGELITO PEAFLOR, NERISSA LETIM,
ALEXANDER BARBOSA, ELIZABETH SAENS, NYMPHA LUGTU, MYRNA
MORALES, LIZA CRUZ, ELENA FANG, EDNA CRUZA, GORGONIO
PALMA, JOSE VERGARA, ALDRIN REMORQUE, RUDY BLANCO, MARIO
BUENVIAJE, MA. CRISTY CEA, REYNALDO GUELAS VILLASENOR, RHOY
TADO, LYDIA SALIPOT, ANGELITO PEREZ VERGARA, RODOLFO GACHO,
JESSIE SAN PEDRO, MARINAO ORCA, JR., PEBELITO LERONA, PEPE
CONGRESO, NIMFA NAPAO, WILHELMINA BAGUISA, OLIVIA CAINCAY,
JERRY MANUEL NICOLAS, CARLOS ABRATIQUE, JESUS LIM, JR., AND
GERRY ROXAS, petitioners,
vs.
GENERAL MILLING CORPORATION, respondent.

DECISION

CALLEJO, SR., J.:


Before this Court is a petition for review on certiorari of the Decision1 of the
Court of Appeals in CA-G.R. SP No. 51678 and its Resolution denying the
motion for reconsideration thereon.
The Antecedents
The respondent General Milling Corporation is a domestic corporation
engaged in the production and sale of livestock and poultry.2 It is, likewise,
the distributor of dressed chicken to various restaurants and establishments
nationwide.3 As such, it employs hundreds of employees, some on a regular
basis and others on a casual basis, as "emergency workers."

The petitioners4 were employed by the respondent on different dates as


emergency workers at its poultry plant in Cainta, Rizal, under separate
"temporary/casual contracts of employment" for a period of five
months.5 Most of them worked as chicken dressers, while the others served
as packers or helpers.6 Upon the expiration of their respective contracts,
their services were terminated. They later filed separate complaints for
illegal dismissal and non-payment of holiday pay, 13th month pay, night-shift
differential and service incentive leave pay against the respondent before
the Arbitration Branch of the National Labor Relations Commission, docketed
as NLRC Case No. RAB-IV-9-4519-92-RI; NLRC Case No. RAB-IV-9-4520-92-RI;
NLRC Case No. RAB-IV-9-4521-92-RI; NLRC Case No. RAB-IV-9-4541-92-RI;
NLRC Case No. RAB-IV-10-4552-92-RI; NLRC Case No. RAB-IV-10-4595-92-RI
and NLRC Case No. RAB-IV-11-4599-92-RI. 7
The petitioners alleged that their work as chicken dressers was necessary
and desirable in the usual business of the respondent, and added that
although they worked from 10:00 p.m. to 6:00 a.m., they were not paid
night-shift differential.8 They stressed that based on the nature of their work,
they were regular employees of the respondent; hence, could not be
dismissed from their employment unless for just cause and after due notice.
In support thereof, the petitioners cited the decision of the Honorable Labor
Arbiter Perlita B. Velasco in NLRC Case No. NCR-6-2168-86, entitled Estelita
Jayme, et al. vs. General Milling Corporation; and NLRC Case No. NCR-9-372686, entitled Marilou Carino, et al. vs. General Milling Corporation.9 They
asserted that the respondent GMC terminated their contract of employment
without just cause and due notice. They further argued that the respondent
could not rely on the nomenclature of their employment as "temporary or
casual."
On August 18, 1997, Labor Arbiter (LA) Voltaire A. Balitaan rendered a
decision in favor of the petitioners declaring that they were regular
employees. Finding that the termination of their employment was not based
on any of the just causes provided for in the Labor Code, the LA declared
that they were allegedly illegally dismissed. The decretal portion of the
decision reads:
WHEREFORE, judgment is hereby rendered in these cases, as follows:
1. Declaring respondent corporation guilty of illegally dismissing
complainants, except Rosalina Basan and Filomena Lanting whose
complaints are hereby dismissed on ground of prescription, and as a
consequence therefor ordering the said respondent corporation to
reinstate them to their former positions without loss of seniority rights
and other privileges and with full backwages from the time they were
illegally dismissed in the aggregate amount of P15,328,594.04;

2. Ordering respondent corporation to pay the said complainants their


13th month pay, holiday pay and service incentive leave pay in the
aggregate amount of P1,979,148.23;
3. Ordering respondent corporation to pay said complainants the
amount of P1,730,744.22 by way of attorney's fees, representing ten
(10%) percentum of the total judgment awards.
The case against individual respondent Medardo Quiambao is hereby
dismissed.10
A copy of the decision was sent by registered mail to the respondent on
October 23, 1997 under Registered Mail No. 004567 addressed to Atty.
Emmanuel O. Pacsi, counsel for GMC, 6th Floor, Corinthian Plaza Bldg., 121
Paseo de Roxas, Makati City.11 However, Beth Cacal, a clerk of the respondent
GMC received the said decision on October 28, 1997.12 Contending that a
copy thereof was received only on November 3, 1997, the respondent filed
an appeal on November 12, 1997, before the National Labor Relations
Commission (NLRC), docketed as NLRC NCR CA No. 014462-98. The
petitioners filed a Motion to Dismiss Respondents' Notice of Appeal/Appeal
Memorandum on the ground that the appeal was filed five days late,
considering that the August 18, 1997 Decision was received by the
respondent through its employee, Beth Cacal, on October 28, 1997.13
The respondent opposed the motion, contending that Cacal was a mere
clerk, and was not a member of the staff of its Legal Department. It further
contended that the Legal Department was located at the sixth (6th) floor of
Corinthian Plaza and had its own staff, including the legal secretary who
served as the Legal Department's receiving clerk.14 Invoking Section 10, Rule
13 of the Rules of Court, in relation to Section 2 thereof, the respondent
alleged that Cacal's receipt of the mail and/or decision was not equivalent to
receipt by its counsel. In support thereof, the respondent cited the cases
of Adamson University v. Adamson University Faculty and Employees
Association,15 and PLDT vs. NLRC.16
On May 25, 1998, the NLRC rendered a decision reversing that of the Labor
Arbiter, the dispositive portion of which is herein quoted:
WHEREFORE, except for its award of "13th month pay, holiday pay and
service incentive leave pay in the aggregate amount of P1,979,148.23"
which is hereby affirmed, the appealed decision is set aside for being
contrary to settled jurisprudence.17
The NLRC ruled that the respondent GMC filed its appeal within the
reglementary period. Citing the case ofCaete v. NLRC18 which, in turn,
cited Adamson v. Adamson19 and United Placement International v.

NLRC,20the NLRC held that service by registered mail is completed only "upon
actual receipt thereof by the addressee." Since the addressee of the mail is
the respondent's counsel and the person who received it was a non-member
of the Legal Staff, the decision cannot be said to have been validly served on
the respondent's counsel on October 28, 1997.
The NLRC also held that the petitioners, who were temporary or contractual
employees of the respondent, were legally terminated upon the expiration of
their respective contracts. Citing the case of Brent School, Inc. vs.
Zamora,21 the NLRC explained that while the petitioners' work was necessary
and desirable in the usual business of GMC, they cannot be considered as
regular employees since they agreed to a fixed term.
The petitioners' motion for reconsideration of the decision having been
denied by the NLRC on October 12, 1998,22 they filed a petition for certiorari
before the Court of Appeals and assigned the following errors:
I
THE RESPONDENT COMMISSION SERIOUSLY ERRED AND ACTED WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK AND/OR IN
EXCESS OF ITS JURISDICTION IN ENTERTAINING AND GIVING DUE
COURSE TO RESPONDENT COMPANY'S APPEAL WHICH WAS
UNDENIABLY FILED OUT OF TIME AND CONSEQUENTLY SETTING ASIDE
THE FINAL DECISION OF THE LABOR ARBITER.
II
THE RESPONDENT COMMISSION SERIOUSLY ERRED AND ACTED WITH
GRAVE ABUSE OF DISCRETION IN HOLDING THAT PETITIONERS'
DISMISSAL WAS LEGAL ON THE GROUND OF EXPIRATION OF
EMPLOYMENT CONTRACT WHICH IS NOT A STATUTORY CAUSE UNDER
THE LABOR CODE.
III
THE RESPONDENT COMMISSION [S]ERIOUSLY ERRED AND ACTED WITH
GRAVE ABUSE OF DISCRETION IN NOT FINDING THAT PETITIONERS, AS
REGULAR EMPLOYEES, CANNOT BE DISMISSED WITHOUT JUST CAUSE
AND THE REQUIRED DUE PROCESS.23
On September 29, 2000, the CA rendered a decision affirming with
modification the decision of the NLRC, the decretal portion of which reads:
WHEREFORE, the appealed decision of the NLRC is hereby AFFIRMED,
with the MODIFICATION that the award of 13th month pay, holiday pay,

and service incentive leave pay shall cover only the year or years when
petitioners were actually employed with herein respondent General
Milling Corporation.24
The CA ruled that no grave abuse of discretion could be imputed to the
NLRC, considering that the ten-day period to appeal began to run only from
the date the decision of the LA was validly served on the respondent's
counsel. The appellate court also ruled that even assuming arguendo that
the respondent GMC's appeal was filed late, in view of the substantial
amount involved, giving due course to the appeal did not amount to grave
abuse of discretion.
On the merits of the petition, the CA ruled that where the duties of the
employee consist of activities usually necessary or desirable in the usual
business of the employer, it does not necessarily follow that the parties are
forbidden from agreeing on a period of time for the performance of such
activities, and cited the case of St. Theresa's School of Novaliches
Foundation v. NLRC.25 The CA affirmed the entitlement of the petitioners to a
proportionate thirteenth (13th) month pay for the particular year/s the
petitioners were employed. As to the awards of holiday pay and service
incentive leave pay, the CA ruled that they should be limited to the year/s of
actual service.26
The petitioners filed a motion for reconsideration of the said decision, which
was denied on July 24, 2001.27
The Present Petition
The petitioners filed the instant petition, ascribing the following errors to the
appellate court:
I
THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND ACTED
WITHOUT JURISDICTION WHEN IT MODIFIED THE LABOR ARBITER'S
JUDGMENT THAT HAS BECOME FINAL AND EXECUTORY FOR FAILURE OF
THE RESPONDENT TO APPEAL WITHIN THE REGLEMENTARY PERIOD.
II
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING
THAT THE DECISION OF THE LABOR ARBITER WAS DEEMED SERVED
NOT ON THE DATE WHEN THE DECISION WAS DELIVERED BY THE
POSTMASTER TO THE OFFICE OF THE RESPONDENT'S LAWYER, BUT ON
THE DATE WHEN THE RECEIVING CLERK GAVE THE DECISION TO THE
LAWYER.

III
THE RESPONDENT'S PRACTICE OF HIRING CHICKEN DRESSERS ON A 5MONTH CONTRACT AND REPLACING THEM WITH ANOTHER SET OF 5MONTH CONTRACT WORKERS, OBVIOUSLY TO PREVENT THEM FROM
ATTAINING REGULAR STATUS, IS VIOLATIVE OF THE CONSTITUTION AND
ARTICLES 279 AND 280 OF THE LABOR CODE.28
The issues for resolution are (a) whether or not the respondent's appeal from
the Labor Arbiter's decision was filed within the reglementary period
therefor; and, (b) whether or not the petitioners were regular employees of
the respondent GMC when their employment was terminated.
In petitions for review on certiorari of the decision of the CA, only errors of
law are generally reviewed.29Normally, the Supreme Court is not a trier of
facts.30 In the absence of any showing that the NLRC committed grave abuse
of discretion, or otherwise acted without or in excess of jurisdiction, the Court
is bound by its findings.31 Such findings are not infallible, however,
particularly when there is a showing that they were arrived at arbitrarily or in
disregard of the evidence on record. In such case, they may be re-examined
by the Court.
Hence, when the factual findings of the NLRC are contrary to those of the
Labor Arbiter, the evidentiary facts may be reviewed by the appellate
court.32 Considering that the NLRC's findings clash with those of the Labor
Arbiter's, this Court is compelled to go over the records of the case as well as
the submissions of the parties.33
The Ruling of the Court
The petition is bereft of merit.
Anent the first issue, we agree with the CA that the NLRC did not act with
grave abuse of discretion when it gave due course to the appeal of the
respondent. Decisions of the Labor Arbiter are final and executory, unless
appealed to the Commission, within ten (10) calendar days from receipt
thereof.34 Copies of decisions or final awards are served on both parties and
their counsel by registered mail,35 and such service by registered mail is
completed upon actual receipt by the addressee or five (5) days from receipt
of the first notice of the postmaster, whichever is earlier.36
The records show that the August 18, 1997 Decision of the Labor Arbiter was
served via registered mail, addressed to the respondent GMC's counsel, Atty.
Emmanuel O. Pacsi, at the sixth (6th) Floor, Corinthian Plaza Bldg., 121 Paseo
de Roxas, Makati City.37 It was received by Beth Cacal, a clerk of the
respondent, on October 28, 1997. The petitioners insist that Cacal is a
person with authority to receive legal and judicial correspondence for the

respondent's Legal Department. They point out that such authority to receive
mail for and in behalf of the respondent's Legal Department is bolstered by
the certification from the Makati Post Office that she received the copy of
their motion to dismiss the appeal, addressed to the said department.
The respondent GMC counters that the service of the LA's decision to a
person not connected to its Legal Department is not a valid service, and that
it is only when a copy of such decision is actually given to such department
that a valid service of the decision is deemed to have been made. Stressing
that factual issues are not proper in a petition for certiorari under Rule 45,
the respondent no longer discussed Cacal's authority to receive legal and
judicial communications for the respondent.
A review of the records reveal that Cacal was a clerk at the respondent's
office and was assigned at the sixth floor of the Corinthian Plaza Bldg. She
was not assigned at the respondent's Legal Department, which has its own
office staff, including a secretary who serves as the department's receiving
clerk.38 The Court has ruled that a service of a copy of a decision on a person
who is neither a clerk nor one in charge of the attorney's office is
invalid.39 Thus, there was no grave abuse of discretion on the part of the
NLRC in giving due course to the respondent's appeal.
On the second issue, we agree that the petitioners were employees with a
fixed period, and, as such, were not regular employees.
Article 280 of the Labor Code comprehends three kinds of employees: (a)
regular employees or those whose work is necessary or desirable to the
usual business of the employer; (b) project employees or those whose
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;
and, (c) casual employees or those who are neither regular nor project
employees.40
A regular employee is one who is engaged to perform activities which are
necessary and desirable in the usual business or trade of the employer as
against those which are undertaken for a specific project or are
seasonal.41There are two separate instances whereby it can be determined
that an employment is regular: (1) if the particular activity performed by the
employee is necessary or desirable in the usual business or trade of the
employer; and, (2) if the employee has been performing the job for at least a
year.42
In the case of St. Theresa's School of Novaliches Foundation vs. NLRC,43 we
held that Article 280 of the Labor Code does not proscribe or prohibit an

employment contract with a fixed period. We furthered that it does not


necessarily follow that where the duties of the employee consist of activities
usually necessary or desirable in the usual business of the employer, the
parties are forbidden from agreeing on a period of time for the performance
of such activities. There is thus nothing essentially contradictory between a
definite period of employment and the nature of the employee's duties.
Indeed, in the leading case of Brent School Inc. v. Zamora,44 we laid down the
guideline before a contract of employment may be held as valid, to wit:
[S]tipulations in employment contracts providing for term
employment or fixed period employment are valid when the
period were agreed upon knowingly and voluntarily by the
parties without 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.45
An examination of the contracts entered into by the petitioners showed that
their employment was limited to a fixed period, usually five or six months,
and did not go beyond such period.
TEMPORARY/CASUAL CONTRACT OF EMPLOYMENT
KNOW ALL MEN BY THESE PRESENTS:
That the GENERAL MILLING CORPORATION, hereby temporarily hires ________________ as Emergency worker for a period beginning from
____________ to _____________, inclusive, at the rate of _____________ per
day, payable every 15th [day] and end of each month.
________________ hereby binds and obligates himself/herself to perform
his/her assigned work diligently and to the best of his/her ability, and
promise to obey all lawful orders of his/ her superior and/or
representatives made in connection with the work for which he/she is
employed.
IT IS CLEARLY STIPULATED THAT THE CONDITION OF THIS EMPLOYMENT
SHALL BE AS FOLLOWS:
1. This employment contract shall be on a DAY-TO-DAY BASIS and shall
not extend beyond the period specified above;

2. The employee aforementioned may be laid off or separated from the


Firm, EVEN BEFORE THE EXPIRY DATE OF THIS CONTRACT, if his/her
services are no longer needed, or if such services are found to be
unsatisfactory, or if she/he has violated any of the established rules
and regulations of the Company;
3. In any case, the period of employment shall not go beyond the
duration of the work or purpose for which the aforementioned
employee has been engaged;
4. That the employee hereby agrees to work in any work shift schedule
that may be assigned to him by the Firm during the period of this
contract; and
This Temporary/Casual Employment contract, unless sooner terminated
for any of the causes above-cited, shall then automatically cease on its
expiry date, without the necessity of any prior notice to the employee
concerned.46
The records reveal that the stipulations in the employment contracts were
knowingly and voluntarily agreed to by the petitioners without force, duress
or improper pressure, or any circumstances that vitiated their consent.
Similarly, nothing therein shows that these contracts were used as a
subterfuge by the respondent GMC to evade the provisions of Articles 279
and 280 of the Labor Code.
The petitioners were hired as "emergency workers" and assigned as chicken
dressers, packers and helpers at the Cainta Processing Plant. The respondent
GMC is a domestic corporation engaged in the production and sale of
livestock and poultry, and is a distributor of dressed chicken. While the
petitioners' employment as chicken dressers is necessary and desirable in
the usual business of the respondent, they were employed on a mere
temporary basis, since their employment was limited to a fixed period. As
such, they cannot be said to be regular employees, but are merely
"contractual employees." Consequently, there was no illegal dismissal when
the petitioners' services were terminated by reason of the expiration of their
contracts.47 Lack of notice of termination is of no consequence, because
when the contract specifies the period of its duration, it terminates on the
expiration of such period. A contract for employment for a definite period
terminates by its own term at the end of such period.48
In sum, we rule that the appeal was filed within the ten (10)-day
reglementary period. Although the petitioners who mainly worked as chicken
dressers performed work necessary and desirable in the usual business of
the respondent, they were not regular employees therein. Consequently, the

termination of their employment upon the expiry of their respective


contracts was valid.
IN LIGHT OF ALL THE FOREGOING, the petition is hereby DENIED DUE
COURSE. The Decision of the Court of Appeals in CA-G.R. SP No. 51678 is
AFFIRMED. No costs.
SO ORDERED.

ISABELO VIOLETA and JOVITO BALTAZAR, petitioners, vs. NATIONAL


LABOR
RELATIONS
COMMISSION,
Fifth
Division,
and
DASMARINAS
INDUSTRIAL
AND
STEELWORKS
CORPORATIONS, respondents.
DECISION
REGALADO, J.:
Petitioners Isabelo Violeta and Jovito Baltazar were former employees of
private respondent Dasmarias Industrial and Steelworks Corporation
(DISC). Their records of service and employment, insofar as the same are
material to this case, are not in dispute.
Petitioner Violeta worked in Construction and Development Corporation of
the Philippines (CDCP), a sister corporation of private respondent, at its
project in CDCP Mines, Basay, Negros Oriental from December 15, 1980 up to
February 15, 1981. Private respondent then hired him as Erector II at the
formers project for Philphos in Isabel, Leyte on November 10, 1982 until the
termination of the project on December 3, 1984. On January 21, 1985, he
was reassigned as Erector II for Five Stand TCM Project, with vacation and
sick leaves, and was designated as a regular project employee at private
respondents project for National Steel Corporation (NSC) in Iligan City. After
receiving a salary adjustment, he was again hired on June 6, 1989 as
Handyman for the civil works of a construction project for NSC. [1] On February
10, 1992, he was appointed for project employment, again as Handyman, to
NSC ETL #3 Civil Works by private respondent. Due to the completion of the
particular item of work he was assigned to, private respondent terminated
the services of petitioner Violeta on March 15, 1992.[2]
Petitioner Baltazar started in the employ of CDCP on June 23, 1980. He
was hired by private respondent as Lead Carpenter for project Agua VII on
October 1, 1981. Like petitioner Violeta, he was transferred from one project
to another as a regular project employee. [3] On November 28, 1991, he was
hired as Leadman II in ETL #3 Civil Works by private respondent in its project
for NSC, but he was separated from such employment on December 20,
1991 as a result of the completion of said item of work.[4]
Upon their separation, petitioners executed a quitclaim wherein they
declared that they have no claim against private respondent and supposedly

discharged private
employment.[5]

respondent

from

any

liability

arising

from

their

Contending that they are already regular employees who cannot be


dismissed on the ground of completion of the particular project where they
are engaged, petitioners filed two separate complaints for illegal dismissal
against private respondent, with a prayer for reinstatement and back wages
plus damages.
Private respondent admitted that it is engaged in the development and
construction of infrastructure projects and maintained that Violeta was hired
on June 6, 1989 to March 15, 1992 as Handyman while Baltazar was
employed on June 6, 1989 to December 20, 1991 as Leadman II. [6] It argued
that both are project employees based on their declaration in their
Appointments for Project Employment that they are employed only for the
period and specific works stated in their respective appointments, in addition
to their admission that they are project employees who are subject to the
provisions of Policy Instruction No. 20.[7]
Labor Arbiter Guardson A. Siao dismissed the claims of petitioners for
lack of merit but ordered private respondent to grant them separation pay.
[8]
The labor arbiter concluded that petitioners are project employees based
on their admission that they are regular project employees. Thus, their
employment was deemed coterminous with the project for which their
employer engaged them. Their separation was declared valid and their
claims for reinstatement and back wages were denied. The award of
separation pay was based on the findings of the labor arbiter that it is the
policy of private respondent to pay employees who have rendered at least
one year of continuous service.
Petitioners and private respondent duly appealed the ruling of the labor
arbiter to respondent NLRC.
Finding petitioners to be non-project employees in its resolution dated
August 17, 1994,[9] the Fifth Division of the NLRC reversed the decision of the
labor arbiter and declared petitioners dismissal as illegal. Private respondent
company was thereafter ordered to reinstate petitioners to their former
positions without loss of seniority rights and to pay them back wages
operative from the date of petitioners dismissal. In the event that
reinstatement can no longer be made due to any lawful supervening event,
the labor tribunal directed private respondent to further give petitioners the

corresponding separation pay. Private respondent was also required to pay


attorneys fees to petitioners.
According to the NLRC, although the appointment contracts of petitioners
specified fixed terms or periods of employment, the fact that they were hired
and transferred from one project to another made both petitioners nonproject employees who cannot be terminated by reason alone of the
completion of the project. They were hired not only for one particular project
but different projects, one after the other.
However, on November 15, 1994,[10] the same division of the NLRC
reversed itself upon motion of private respondent and set aside its earlier
resolution. Reportedly, a reexamination of the same evidence before it led
the labor court to conclude that the employment of petitioners in ETL #3
Civil Works was allegedly for a specific or fixed period thus making
petitioners project employees. This time, it held that since the termination of
petitioners employment was due to the completion of the project, petitioners
are therefore not entitled to separation pay. It ruled that this would hold true
even if petitioners were categorized as regular project employees because
their employment was not permanent but coterminous with the projects to
which they were assigned. No other substantial reason was given for the
adjudicative turnabout.
In this petition for certiorari, petitioners contend that public respondent
(NLRC) committed grave abuse of discretion amounting to lack of jurisdiction
when it granted the motion for reconsideration of private respondents in its
November 15, 1994 resolution. Such novatory resolution, petitioners
contend, was not only too abbreviated but actually disregarded applicable
laws and jurisprudence governing the characterization of employees in the
construction industry.
We have held that the services of project employees are coterminous
with the project and may be terminated upon the end or completion of that
project for which they were hired.Regular employees, in contrast, are legally
entitled to remain in the service of their employer until their services are
terminated by one or another of the recognized modes of termination of
service under the Labor Code.[11]
Foremost for our resolution then is the issue of whether petitioners are
regular (non-project) employees or project employees. Upon the resolution of
this query rests the validity of petitioners dismissal.

The source of the definition of a regular employee vis--vis a project


employee is found in 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 beenfixed 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 service to be performed is seasonal in
nature and the employment is for the duration of the season.
An employee 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. (Emphases ours).
Article 280 was emplaced in our statute books to prevent the
circumvention of the employees right to be secure in his tenure by
indiscriminately and completely ruling out all written and oral agreements
inconsistent with the concept of regular employment defined therein.
[12]
Where an employee has been engaged to perform activities which are
usually necessary or desirable in the usual business of the employer, such
employee is deemed a regular employee and is entitled to security of tenure
notwithstanding the contrary provisions of his contract of employment.[13]
As Handyman and Erector II, respectively, petitioners services are both
necessary and vital to the operation of the business of private
respondent. This is not at all traversed, but is even confirmed by the fact that
they were continually and successively assigned to the different projects of
private respondent and its sister company, CDCP.
In order to properly characterize petitioners employment, we now
proceed to ascertain whether or not their employment falls under the
exceptions provided in Article 280 of the Code.

The principal test for determining whether particular employees are


properly characterized as 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. [14] As
defined, project employees are those workers hired (1) for a specific project
or undertaking, and (2) the completion or termination of such project or
undertaking has been determined at the time of engagement of the
employee.[15]
Based on the above criteria, we find petitioners to be regular employees
of private respondent, and not project employees as postulated by
respondent NLRC. Petitioners dismissal, therefore, could not be justified by
the completion of their items of work.
The predetermination of the duration or period of a project employment
is important in resolving whether one is a project employee or not. On this
score, the term period has been defined to be a 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 or the period from one fixed date to another fixed date.[16]
There is no debate that petitioners were hired for a specific project or
undertaking. Their Appointments for Project Employment clearly state that
their employment is for NSC ETL #3 Civil Works. The fact of the completion
of said item of work is also undisputed. However, the records are barren of
any definite period or duration for the expiration of the assigned items of
work of petitioners at the time of their engagement. An examination of said
appointments reveal that the completion or termination of the project for
which petitioners were hired was not determined at the start of their
employment. There is no specific mention of the period or duration when the
project will be completed or terminated. In fact, the lines for DATE OF
COVERAGE in the appointments (referring to the particular items of work for
which petitioners are engaged) are left blank.
While the word co-terminus was adopted in the appointments of
petitioners, it cannot readily be concluded that their employment with
private respondent is for a definite duration, that is, until the completion of
their items of work, because there are other words used in the aforesaid

appointments affecting their entitlement to stay in their job. To be concrete,


the pertinent terms of the Appointments For Project Employment of
petitioners are quoted below, thus:
Your herein Appointments will be co-terminus with the need of
_____________as it
(State item of work)
will necessitate personnel in such number and duration contingent
upon the progress accomplishment from time to time. The company
shall determine the personnel and the number as work progresses.
An interpretation of the above provisions is important for the correct
labeling of petitioners employment with private respondent. Propitiously, this
Court has already been confronted withcontracts of employment of the same
and exact tenor as above in De Jesus vs. Philippine National Construction
Corp. and National Labor Relations Commission. et al. [17] The contracts
involved in said case also provided as follows:
Your herein Appointment Employment will be co-terminus with the
need of Structures [of North Luzon Expressway (Stage) II] as it will
necessitate personnel in such number and duration contingent upon
the progress accomplishment from time to time. The company shall
determine the personnel and the number as the work progresses.
On such premises, the Court declared:
Without question, the petitioner, a carpenter, performs work
necessary, or desirable in the construction business, the corporations
field of activity. The fact however that he had been involved in project
works will not alter his status because the law requires specific project
or undertaking the completion or termination of which has been
determined at the time of engagement in order to make a project
employee a true project employee. x x x we can not say that the
petitioners engagement has been predetermined because the
duration of the work is contingent upon the progress accomplishment
and secondly, the company, under the contract, is free to determine
the personnel and the number as the work progresses. Clearly, the
employment is subject to no term but rather, a condition, that is,
progress accomplishment. It can not therefore be said to be definite

that will therefore exempt the respondent company from the effects of
Article 280.
Following the rule on precedents, we once again hold that the respective
employments of the present petitioners is not subject to a term but rather to
a condition, that is, progress accomplishment. As we have stated in De Jesus,
it cannot be said that their employment had been pre-determined because,
firstly, the duration of their work is contingent upon the progress
accomplishment and, secondly, the contract gives private respondent the
liberty to determine the personnel and the number as the work progresses. It
is ineluctably not definite so as to exempt private respondent from the
strictures and effects of Article 280.
To add our own observation, the appointments of petitioners herein were
not coterminous with NSC ETL #3 Civil Works but with the need for such
particular items of work as were assigned to them, as distinguished from the
completion of the project.
With such ambiguous and obscure words and conditions, petitioners
employment was not co-existent with the duration of their particular work
assignments because their employer could, at any stage of such work,
determine whether their services were needed or not. Their services could
then be terminated even before the completion of the phase of work
assigned to them.
We find this explication necessary and in accord with the principle that in
controversies between a laborer and his master, doubts reasonably arising
from the evidence, or in the interpretation of agreements and writings should
be resolved in the formers favor.[18]
To be exempted from the presumption of regularity of employment,
therefore, the agreement between a project employee and his employer
must strictly conform with the requirements and conditions provided in
Article 280. It is not enough that an employee is hired for a specific project or
phase of work. There must also be a determination of or a clear agreement
on the completion or termination of the project at the time the employee is
engaged if the objective of Article 280 is to be achieved. Since this second
requirement was not met in petitioners case, they should be considered as
regular employees despite their admissions and declarations that they are
project employees made under circumstances unclear to us.

Parenthetically, it is relevant to observe that the similarities in the


stipulations of the employment/appointment contracts can be explained by
the indirect relationship of the Philippine National Construction Corporation
(PNCC) and private respondent. CDCP was the predecessor of PNCC which, in
turn, is an existing sister company of private respondent. Apparently, private
respondent ignored the mistake committed by its said sister company. Also,
if only the NLRC had thoroughly read the De Jesus decision, it would have
discovered that the PNCC also raised as a defense the admission of therein
petitioner De Jesus that he was a project employee, but to no avail.
There is another reason why we should rule in favor of
petitioners. Nowhere in the records is there any showing that private
respondent reported the completion of its projects and the dismissal of
petitioners in its finished projects to the nearest Public Employment Office in
compliance with Policy Instruction No. 20 of then Labor Secretary Blas F.
Ople.
Jurisprudence abounds with the consistent rule that the failure of an
employer to report to the nearest Public Employment Office the termination
of its workers services every time a project or a phase thereof is
completed indicates that said workers are not project employees. [19] In the
case at bar, only the last and final termination of petitioners was reported to
the aforementioned labor office.
Private respondent should have filed as many reports of termination as
there were construction projects actually finished if petitioners were indeed
project employees, considering that petitioners were hired and again rehired
for various projects or the phases of work therein. Its failure to submit
reports of termination cannot but sufficiently convince us further that
petitioners are truly regular employees. Just as important, the fact that
petitioners had rendered more than one year of service at the time of their
dismissal overturns private respondents allegations that petitioners were
hired for a specific or a fixed undertaking for a limited period of time.[20]
Even if we disregard the stints of petitioners with CDCP, it cannot be
disclaimed that they have rendered long years of service in private
respondents business affairs. Beginning his service in 1982, petitioner Violeta
served in the employ of private respondent up to 1992. In the case of
petitioner Baltazar, he worked for private respondent from 1981 to
1991. Private respondent repeatedly appointed petitioners to new projects

after the completion of every project or item of work in which they were
previously employed, each over a span of about 10 years.
Public respondent contends that the gaps in the employment of
petitioners, consisting of the periods in between the completion of one
project and the engagement of petitioners in the next, show that they could
not have been regular employees under the control of private respondent,
and that petitioners could have applied for or accepted employment from
other employers during those periods. This is puerile and speculative.
In the first place, Article 280 of the Labor Code contemplates both
continuous and broken services. In the second place, there is absolutely no
evidence of petitioners having applied for or accepted such other or outside
employment during the brief interregna in the continuity of their work with
private respondent. Their undertaking in the Employment Terms and
Conditions of their service to private respondent bound them to work in such
place of work or project as DISC may assign or transfer them, with the
further agreement that they would so work during rest day, holidays, night
time and night shift or during emergencies.[21]
These are self-evident refutations of private respondents theory and
further bolster petitioners position that they were not mere employees
engaged for a single or particular project.They were thus removed from the
scope of project employment and considered as regular employees since
their employment as so-called project employees was extended long after
the termination of different projects.[22]
The fact that petitioners signed quitclaims will not bar them from
pursuing their claims against private respondent because quitclaims
executed by laborers are frowned upon as contrary to public policy, and are
ineffective to bar claims for the full measure of the workers legal rights.
[23]
The so-called quitclaims signed by petitioners were actually pro
forma provisions printed in the clearance certificate they had to get from
private respondent. These were not in the nature of a compromise but a
compulsory general release required from them, for which no consideration
was either given or even stated.
In answer to private respondents reliance on Department of Labor and
Employment (DOLE) Order No. 19, Series of 1993, which took effect on April
1, 1993, we have ruled in Samson vs. National Labor Relations Commission,
et al.[24] that said administrative order does not have retroactive effect. Since

the termination of petitioners services and the filing of their complaints took
place long before the effectivity of the said regulation, it cannot be applied in
favor of private respondent.
Besides, as expounded earlier, contrary to private respondents
insistence, the following badges of project employment are lacking in this
particular case, viz.: (1) the duration of the specific/identified undertaking for
which the worker is engaged is reasonably determinable, and (2) such
duration, as well as the specific work/service to be performed, is defined in
an employment agreement and made clear to the employee at the time of
hiring. Hence, even assuming for the moment that DOLE Order No. 19 is
effectual in the case at bar, private respondent cannot successfully invoke
the Order in its favor because the absence of the above indicia persuades us
all the more that petitioners are really regular employees of private
respondent.
WHEREFORE, the instant petition for certiorari is GRANTED. The
challenged resolution of the Fifth Division of respondent National Labor
Relations Commission dated November 15, 1994 in NLRC CA No. M-001233 is
REVERSED and SET ASIDE, and its earlier resolution therein dated August 17,
1994 is hereby REINSTATED.
SO ORDERED.

G.R. No. 149011

June 28, 2005

SAN MIGUEL CORPORATION, petitioner


vs.
PROSPERO A. ABALLA, BONNY J. ABARING, EDWIN M. ADLA-ON,
ALVIN C. ALCALDE, CELANIO D. ARROLLADO, EDDIE A. ARROLLADO,
REYNALDO T. ASONG, RENE A. ASPERA, JOEL D. BALATERIA, JOSEPH
D. BALATERIA, JOSE JOLLEN BALLADOS, WILFREDO B. BASAS, EDWIN
E. BEATINGO, SONNY V. BERONDO, CHRISTOPHER D. BRIONES,
MARLON D. BRIONES, JOEL C. BOOC, ENRIQUE CABALIDA, DIOSCORO
R. CAHINOD, ERNESTO P. CAHINOD, RENANTE S. CAHINOD,
RUDERICK R. CALIXTON, RONILO C. CALVEZ, PANCHO CAETE, JUNNY
CASTEL, JUDY S. CELESTE, ROMEO CHUA, DANILO COBRA, ARMANDO
C. DEDOYCO, JOEY R. DELA CRUZ, JOHN D. DELFIN, RENELITO P.
DEON, ARNEL C. DE PEDRO, ORLANDO DERDER, CLIFFORD A. DESPI,
RAMIE A. DESPI, SR., VICTOR A. DESPI, ROLANDO L. DINGLE,
ANTONIO D. DOLORFINO, LARRY DUMA-OP, NOEL DUMOL, CHITO L.
DUNGOG, RODERICK C. DUQUEZA, ROMMEL ESTREBOR, RIC E.
GALPO, MANSUETO GILLE, MAXIMO L. HILA-US, GERARDO J. JIMENEZ,
ROBERTLY Y. HOFILEA, ROBERTO HOFILEA, VICENTE INDENCIO,
JONATHAN T. INVENTOR, PETER PAUL T. INVENTOR, JOEBERT G.
LAGARTO, RENATO LAMINA, ALVIN LAS POBRES, ALBERT LAS
POBRES, LEONARD LEMONCHITO, JERRY LIM, JOSE COLLY S. LUCERO,
ROBERTO E. MARTIL, HERNANDO MATILLANO, VICENTE M.
MATILLANO, TANNY C. MENDOZA, WILLIAM P. NAVARRO, WILSON P.
NAVARRO, LEO A. OLVIDO, ROBERTO G. OTERO, BIENVENIDO C.
PAROCHILIN, REYNALDO C. PAROCHILIN, RICKY PALANOG, BERNIE O.
PILLO, ALBERTO O. PILLO, JOE-MARIE S. PUGNA, EDWIN G. RIBON,
RAUL A. RUBIO, HENRY S. SAMILLANO, EDGAR SANTIAGO, ROLAND B.
SANTILLANA, ROLDAN V. SAYAM, JOSEPH S. SAYSON, RENE
SUARNABA, ELMAR TABLIGAN, JERRY D. TALITE, OSCAR TALITE,
WINIFREDO TALITE, CAMILO N. TEMPOROSA, JOSE TEMPOROSA,
RANDY TINGALA, TRISTAN A. TINGSON, ROGELIO TOMESA, DIONISE
A. TORMIS, ADELINO C. UNTAL, FELIX T. UNTAL, RONILO E. VISTA,
JOAN C. VIYO and JOSE JOFER C. VIYO and the COURT OF
APPEALS, respondents.
DECISION
CARPIO-MORALES, J.:

Petitioner San Miguel Corporation (SMC), represented by its Assistant Vice


President and Visayas Area Manager for Aquaculture Operations Leopoldo S.
Titular, and Sunflower Multi-Purpose Cooperative (Sunflower), represented by
the Chairman of its Board of Directors Roy G. Asong, entered into a one-year
Contract of Services1 commencing on January 1, 1993, to be renewed on a
month to month basis until terminated by either party. The pertinent
provisions of the contract read:
1. The cooperative agrees and undertakes to perform and/or provide
for the company, on a non-exclusive basis for a period of one year the
following services for the Bacolod Shrimp Processing Plant:
A. Messengerial/Janitorial
B. Shrimp Harvesting/Receiving
C. Sanitation/Washing/Cold Storage2
2. To carry out the undertaking specified in the immediately preceding
paragraph, the cooperative shall employ the necessary personnel and
provide adequate equipment, materials, tools and apparatus, to
efficiently, fully and speedily accomplish the work and services
undertaken by the cooperative. xxx
3. In consideration of the above undertaking the company expressly
agrees to pay the cooperative the following rates per activity:
A. Messengerial/Janitorial Monthly Fixed Service Charge of:
Nineteen Thousand Five Hundred Pesos Only (P19,500.00)
B. Harvesting/Shrimp Receiving. Piece rate of P0.34/kg. Or
P100.00 minimum per person/activity whichever is higher, with
provisions as follows:
P25.00 Fixed Fee per person
Additional meal allowance P15.00 every meal time in case
harvest duration exceeds one meal.
This will be pre-set every harvest based on harvest plan
approved by the Senior Buyer.

C. Sanitation/Washing and Cold Storage P125.00/person for 3


shifts.
One-half of the payment for all services rendered shall be
payable on the fifteenth and the other half, on the end of each
month. The cooperative shall pay taxes, fees, dues and other
impositions that shall become due as a result of this contract.
The cooperative shall have the entire charge, control and
supervision of the work and services herein agreed upon. xxx
4. There is no employer-employee relationship between the company
and the cooperative, or the cooperative and any of its members, or the
company and any members of the cooperative. The cooperative is an
association of self-employed members, an independent contractor, and
an entrepreneur. It is subject to the control and direction of the
company only as to the result to be accomplished by the work or
services herein specified, and not as to the work herein contracted.
The cooperative and its members recognize that it is taking a business
risk in accepting a fixed service fee to provide the services contracted
for and its realization of profit or loss from its undertaking, in relation
to all its other undertakings, will depend on how efficiently it deploys
and fields its members and how they perform the work and manage its
operations.
5. The cooperative shall, whenever possible, maintain and keep under
its control the premises where the work under this contract shall be
performed.
6. The cooperative shall have exclusive discretion in the selection,
engagement and discharge of its member-workers or otherwise in the
direction and control thereof. The determination of the wages, salaries
and compensation of the member-workers of the cooperative shall be
within its full control. It is further understood that the cooperative is an
independent contractor, and as such, the cooperative agrees to comply
with all the requirements of all pertinent laws and ordinances, rules
and regulations. Although it is understood and agreed between the
parties hereto that the cooperative, in the performance of its
obligations, is subject to the control or direction of the company merely
as a (sic) result to be accomplished by the work or services herein
specified, and not as to the means and methods of accomplishing such

result, the cooperative hereby warrants that it will perform such work
or services in such manner as will be consistent with the achievement
of the result herein contracted for.
xxx
8. The cooperative undertakes to pay the wages or salaries of its
member-workers, as well as all benefits, premiums and protection in
accordance with the provisions of the labor code, cooperative code and
other applicable laws and decrees and the rules and regulations
promulgated by competent authorities, assuming all responsibility
therefor.
The cooperative further undertakes to submit to the company within
the first ten (10) days of every month, a statement made, signed and
sworn to by its duly authorized representative before a notary public or
other officer authorized by law to administer oaths, to the effect that
the cooperative has paid all wages or salaries due to its employees or
personnel for services rendered by them during the month
immediately preceding, including overtime, if any, and that such
payments were all in accordance with the requirements of law.
xxx
12. Unless sooner terminated for the reasons stated in paragraph 9 this
contract shall be for a period of one (1) year commencing on January 1,
1993. Thereafter, this Contract will be deemed renewed on a month-tomonth basis until terminated by either party by sending a written
notice to the other at least thirty (30) days prior to the intended date
of termination.
xxx3 (Underscoring supplied)
Pursuant to the contract, Sunflower engaged private respondents to, as they
did, render services at SMCs Bacolod Shrimp Processing Plant at Sta. Fe,
Bacolod City. The contract was deemed renewed by the parties every month
after its expiration on January 1, 1994 and private respondents continued to
perform their tasks until September 11, 1995.
In July 1995, private respondents filed a complaint before the NLRC, Regional
Arbitration Branch No. VI, Bacolod City, praying to be declared as regular

employees of SMC, with claims for recovery of all benefits and privileges
enjoyed by SMC rank and file employees.
Private respondents subsequently filed on September 25, 1995 an Amended
Complaint4 to include illegal dismissal as additional cause of action following
SMCs closure of its Bacolod Shrimp Processing Plant on September 15,
19955 which resulted in the termination of their services.
SMC filed a Motion for Leave to File Attached Third Party Complaint6 dated
November 27, 1995 to implead Sunflower as Third Party Defendant which
was, by Order7 of December 11, 1995, granted by Labor Arbiter Ray Alan T.
Drilon.
In the meantime, on September 30, 1996, SMC filed before the Regional
Office at Iloilo City of the Department of Labor and Employment (DOLE) a
Notice of Closure8 of its aquaculture operations effective on even date, citing
serious business losses.
By Decision of September 23, 1997, Labor Arbiter Drilon dismissed private
respondents complaint for lack of merit, ratiocinating as follows:
We sustain the stand of the respondent SMC that it could properly exercise
its management prerogative to contract out the preparation and processing
aspects of its aquaculture operations. Judicial notice has already been taken
regarding the general practice adopted in government and private
institutions and industries of hiring independent contractors to perform
special services. xxx
xxx
Indeed, the law allows job contracting. Job contracting is permissible under
the Labor Code under specific conditions and we do not see how this activity
could not be legally undertaken by an independent service cooperative like
the third-party respondent herein.
There is no basis to the demand for regularization simply on the theory that
complainants performed activities which are necessary and desirable in the
business of respondent. It has been held that the definition of regular
employees as those who perform activities which are necessary and
desirable for the business of the employer is not always
determinative because any agreement may provide for one (1) party to

render services for and in behalf of another for a consideration even without
being hired as an employee.
The charge of the complainants that third-party respondent is a mere laboronly contractor is a sweeping generalization and completely
unsubstantiated. xxx In the absence of clear and convincing evidence
showing that third-party respondent acted merely as a labor only contractor,
we are firmly convinced of the legitimacy and the integrity of its service
contract with respondent SMC.
In the same vein, the closure of the Bacolod Shrimp Processing Plant was a
management decision purely dictated by economic factors which was (sic)
mainly serious business losses. The law recognizes the right of the employer
to close his business or cease his operations for bonafide reasons, as much
as it recognizes the right of the employer to terminate the employment of
any employee due to closure or cessation of business operations, unless the
closing is for the purpose of circumventing the provisions of the law on
security of tenure. The decision of respondent SMC to close its Bacolod
Shrimp Processing Plant, due to serious business losses which has (sic)
clearly been established, is a management prerogative which could hardly be
interfered with.
xxx The closure did affect the regular employees and workers of the Bacolod
Processing Plant, who were accordingly terminated following the legal
requisites prescribed by law. The closure, however, in so far as the
complainants are concerned, resulted in the termination of SMCs service
contract with their cooperative xxx9(Underscoring supplied)
Private respondents appealed to the NLRC.
By Decision of December 29, 1998, the NLRC dismissed the appeal for lack of
merit, it finding that third party respondent Sunflower was an independent
contractor in light of its observation that "[i]n all the activities of private
respondents, they were under the actual direction, control and supervision of
third party respondent Sunflower, as well as the payment of wages, and
power of dismissal."10
Private respondents Motion for Reconsideration11 having been denied by the
NLRC for lack of merit by Resolution of September 10, 1999, they filed a
petition for certiorari12 before the Court of Appeals (CA).

Before the CA, SMC filed a Motion to Dismiss13 private respondents petition
for non-compliance with the Rules on Civil Procedure and failure to show
grave abuse of discretion on the part of the NLRC.
SMC subsequently filed its Comment14 to the petition on March 30, 2000.
By Decision of February 7, 2001, the appellate court reversed the NLRC
decision and accordingly found for private respondents, disposing as follows:
WHEREFORE, the petition is GRANTED. Accordingly, judgment is hereby
RENDERED: (1) REVERSING and SETTING ASIDE both the 29 December 1998
decision and 10 September 1999 resolution of the National Labor Relations
Commission (NLRC), Fourth Division, Cebu City in NLRC Case No. V-0361-97
as well as the 23 September 1997 decision of the labor arbiter in RAB Case
No. 06-07-10316-95; (2) ORDERING the respondent, San Miguel Corporation,
to GRANT petitioners: (a) separation pay in accordance with the computation
given to the regular SMC employees working at its Bacolod Shrimp
Processing Plant with full backwages, inclusive of allowances and other
benefits or their monetary equivalent, from 11 September 1995, the time
their actual compensation was withheld from them, up to the time of the
finality of this decision; (b) differentials pays (sic) effective as of and from the
time petitioners acquired regular employment status pursuant to the
disquisition mentioned above, and all such other and further benefits as
provided by applicable collective bargaining agreement(s) or other relations,
or by law, beginning such time up to their termination from employment on
11 September 1995; and ORDERING private respondent SMC to PAY unto the
petitioners attorneys fees equivalent to ten (10%) percent of the total
award.
No pronouncement as to costs.
SO ORDERED.15 (Underscoring supplied)
Justifying its reversal of the findings of the labor arbiter and the NLRC, the
appellate court reasoned:
Although the terms of the non-exclusive contract of service between SMC
and [Sunflower] showed a clear intent to abstain from establishing an
employer-employee relationship between SMC and [Sunflower] or the latters
members, the extent to which the parties successfully realized this intent in

the light of the applicable law is the controlling factor in determining the real
and actual relationship between or among the parties.
xxx
With respect to the power to control petitioners conduct, it appears
that petitioners were under the direct control and supervision of SMC
supervisors both as to the manner they performed their functions and as to
the end results thereof. It was only after petitioners lodged a complaint to
have their status declared as regular employees of SMC that certain
members of [Sunflower] began to countersign petitioners daily time records
to make it appear that they (petitioners) were under the control and
supervision of [Sunflower] team leaders (rollo, pp. 523-527). xxx
Even without these instances indicative of control by SMC over the
petitioners, it is safe to assume that SMC would never have allowed the
petitioners to work within its premises, using its own facilities, equipment
and tools, alongside SMC employees discharging similar or identical activities
unless it exercised a substantial degree of control and supervision over the
petitioners not only as to the manner they performed their functions but also
as to the end results of such functions.
xxx
xxx it becomes apparent that [Sunflower] and the petitioners do not qualify
as independent contractors.[Sunflower] and the petitioners did not have
substantial capital or investment in the form of tools, equipment,
implements, work premises, et cetera necessary to actually perform the
service under their own account, responsibility, and method. The only "work
premises" maintained by [Sunflower] was a small office within the confines of
a small "carinderia" or refreshment parlor owned by the mother of its chair,
Roy Asong; the only equipment it owned was a typewriter (rollo, pp. 525525) and, the only assets it provided SMC were the bare bodies of its
members, the petitioners herein (rollo, p. 523).
In addition, as shown earlier, petitioners, who worked inside the premises of
SMC, were under the control and supervision of SMC both as to
the manner and method in discharging their functions and as to
the resultsthereof.

Besides, it should be taken into account that the activities undertaken by the
petitioners as cleaners, janitors, messengers and shrimp harvesters, packers
and handlers were directly related to the aquaculture business of
SMC (See Guarin vs. NLRC, 198 SCRA 267, 273). This is confirmed by
the renewal of the service contract from January 1993 to September 1995, a
period of close to three (3) years.
Moreover, the petitioners here numbering ninety seven (97), by itself, is a
considerable workforce and raises the suspicion that the non-exclusive
service contract between SMC and [Sunflower] was "designed to evade the
obligations inherent in an employer-employee relationship" (See RhonePoulenc Agrochemicals Philippines, Inc. vs. NLRC, 217 SCRA 249, 259).
Equally suspicious is the fact that the notary public who signed the
by-laws of [Sunflower] and its [Sunflower] retained counsel are both
partners of the local counsel of SMC (rollo, p. 9).
xxx
With these observations, no other logical conclusion can be reached except
that [Sunflower] acted as an agent of SMC, facilitating the manpower
requirements of the latter, the real employer of the petitioners. We simply
cannot allow these two entities through the convenience of a non-exclusive
service contract to stipulate on the existence of employer-employee relation.
Such existence is a question of law which cannot be made the subject of
agreement to the detriment of the petitioners (Tabas vs. California
Manufacturing, Inc., 169 SCRA 497, 500).
xxx
There being a finding of "labor-only" contracting, liability must be shouldered
either by SMC or [Sunflower] or shared by both (See Tabas vs. California
Manufacturing, Inc., supra, p. 502). SMC however should be
heldsolely liable for [Sunflower] became non-existent with the closure
of the aquaculture business of SMC.
Furthermore, since the closure of the aquaculture operations of SMC appears
to be valid, reinstatement is no longer feasible. Consistent with the
pronouncement in Bustamante, et al., vs. NLRC, G.R. No. 111651, 28
November 1996, petitioners are thus entitled to separation pay (in the
computation similar to those given to regular SMC employees at its Bacolod

Shrimp Processing Plant) "with full backwages, inclusive of allowances and


other benefits or their monetary equivalent, from the time their actual
compensation was withheld from them" up to the time of the finality of this
decision. This is without prejudice to differentials pays (sic) effective as of
and from the time petitioners acquired regular employment status pursuant
to the discussion mentioned above, and all such other and further benefits as
provided by applicable collective bargaining agreement(s) or other relations,
or by law, beginning such time up to their termination from employment on
11 September 1995.16 (Emphasis and underscoring supplied)
SMCs Motion for Reconsideration17 having been denied for lack of merit by
Resolution of July 11, 2001, it comes before this Court via the present
petition for review on certiorari assigning to the CA the following errors:
I
THE COURT OF APPEALS GRAVELY ERRED IN GIVING DUE COURSE AND
GRANTING RESPONDENTS PATENTLY DEFECTIVE PETITION FOR CERTIORARI.
IN DOING SO, THE COURT OF APPEALS DEPARTED FROM THE ACCEPTED AND
USUAL COURSE OF JUDICIAL PROCEEDINGS.
II
THE COURT OF APPEALS GRAVELY ERRED IN RECOGNIZING ALL THE
RESPONDENTS AS COMPLAINANTS IN THE CASE BEFORE THE LABOR
ARBITER. IN DOING SO, THE COURT OF APPEALS DECIDED THIS CASE IN A
MANNER NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS
OF THE SUPREME COURT.
III
THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RESPONDENTS
ARE EMPLOYEES OF SMC.
IV
THE COURT OF APPEALS GRAVELY ERRED IN NOT FINDNG (sic) THAT
RESPONDENTS ARE NOT ENTITLED TO ANY RELIEF. THE CLOSURE OF THE
BACOLOD SHRIMP PROCESSING PLANT WAS DUE TO SERIOUS BUSINESS
LOSSES.18 (Underscoring supplied)

SMC bewails the failure of the appellate court to outrightly dismiss the
petition for certiorari as only three out of the ninety seven named petitioners
signed the verification and certification against forum-shopping.
While the general rule is that the certificate of non-forum shopping must be
signed by all the plaintiffs or petitioners in a case and the signature of only
one of them is insufficient,19 this Court has stressed that the rules on forum
shopping, which were 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.20 Strict
compliance with the provisions regarding the certificate of non-forum
shopping merely underscores its mandatory nature in that the certification
cannot be altogether dispensed with or its requirements completely
disregarded.21It does not, however, thereby interdict substantial compliance
with its provisions under justifiable circumstances.22
Thus in the recent case of HLC Construction and Development Corporation v.
Emily Homes Subdivision Homeowners Association,23 this Court held:
Respondents (who were plaintiffs in the trial court) filed the complaint
against petitioners as a group, represented by their homeowners association
president who was likewise one of the plaintiffs, Mr. Samaon M.
Buat.Respondents raised one cause of action which was the breach of
contractual obligations and payment of damages. They shared a common
interest in the subject matter of the case, being the aggrieved residents of
the poorly constructed and developed Emily Homes Subdivision. Due to the
collective nature of the case, there was no doubt that Mr. Samaon M. Buat
could validly sign the certificate of non-forum shopping in behalf of all his coplaintiffs. In cases therefore where it is highly impractical to require all the
plaintiffs to sign the certificate of non-forum shopping, it is sufficient, in order
not to defeat the ends of justice, for one of the plaintiffs, acting as
representative, to sign the certificate provided that xxx the plaintiffs share
a common interest in the subject matter of the case or filed the case
as a "collective," raising only one common cause of action or
defense.24 (Emphasis and underscoring supplied)
Given the collective nature of the petition filed before the appellate court by
herein private respondents, raising one common cause of action against
SMC, the execution by private respondents Winifredo Talite, Renelito Deon
and Jose Temporosa in behalf of all the other private respondents of the

certificate of non-forum shopping constitutes substantial compliance with the


Rules.25 That the three indeed represented their co-petitioners before the
appellate court is, as it correctly found, "subsequently proven to be true as
shown by the signatures of the majority of the petitioners appearing in their
memorandum filed before Us."26
Additionally, the merits of the substantive aspects of the case may also be
deemed as "special circumstance" or "compelling reason" to take cognizance
of a petition although the certification against forum shopping was not
executed and signed by all of the petitioners.27
SMC goes on to argue that the petition filed before the CA is fatally defective
as it was not accompanied by "copies of all pleadings and documents
relevant and pertinent thereto" in contravention of Section 1, Rule 65 of the
Rules of Court.28
This Court is not persuaded. The records show that private respondents
appended the following documents to their petition before the appellate
court: the September 23, 1997 Decision of the Labor Arbiter,29 their Notice of
Appeal with Appeal Memorandum dated October 16, 1997 filed before the
NLRC,30 the December 29, 1998NLRC D E C I S I O
N,31 their Motion for Reconsideration dated March 26, 1999 filed with the
NLRC32 and the September 10, 1999 NLRC Resolution.33
It bears stressing at any rate that it is the appellate court which ultimately
determines if the supporting documents are sufficient to make out a prima
facie case.34 It discerns whether on the basis of what have been submitted it
could already judiciously determine the merits of the petition. 35 In the case at
bar, the CA found that the petition was adequately supported by relevant
and pertinent documents.
At all events, this Court has allowed a liberal construction of the rule on the
accomplishment of a certificate of non-forum shopping in the following
cases: (1) where a rigid application will result in manifest failure or
miscarriage of justice; (2) where the interest of substantial justice will be
served; (3) where the resolution of the motion is addressed solely to the
sound and judicious discretion of the court; and (4) where the injustice to the
adverse party is not commensurate with the degree of his thoughtlessness in
not complying with the procedure prescribed.36

Rules of procedure should indeed be viewed as mere tools designed to


facilitate the attainment of justice. Their strict and rigid application, which
would result in technicalities that tend to frustrate rather than promote
substantial justice, must always be eschewed.37
SMC further argues that the appellate court exceeded its jurisdiction in
reversing the decisions of the labor arbiter and the NLRC as "findings of facts
of quasi-judicial bodies like the NLRC are accorded great respect and finality,"
and that this principle acquires greater weight and application in the case at
bar as the labor arbiter and the NLRC have the same factual findings.
The general rule, no doubt, is that findings of facts of an administrative
agency which has acquired expertise in the particular field of its endeavor
are accorded great weight on appeal.38 The rule is not absolute and admits of
certain well-recognized exceptions, however. Thus, when the findings of fact
of the labor arbiter and the NLRC are not supported by substantial evidence
or their judgment was based on a misapprehension of facts, the appellate
court may make an independent evaluation of the facts of the case.39
SMC further faults the appellate court in giving due course to private
respondents petition despite the fact that the complaint filed before the
labor arbiter was signed and verified only by private respondent Winifredo
Talite; that private respondents position paper40 was verified by only six41 out
of the ninety seven complainants; and that their Joint-Affidavit42 was
executed only by twelve43 of the complainants.
Specifically with respect to the Joint-Affidavit of private respondents, SMC
asserts that it should not have been considered by the appellate court in
establishing the claims of those who did not sign the same, citing this Courts
ruling in Southern Cotabato Development and Construction, Inc. v. NLRC.44
SMCs position does not lie.
A perusal of the complaint shows that the ninety seven complainants were
being represented by their counsel of choice. Thus the first sentence of their
complaint alleges: "xxx complainants, by counsel and unto this Honorable
Office respectfully state xxx." And the complaint was signed by Atty. Jose
Max S. Ortiz as "counsel for the complainants." Following Section 6, Rule III of
the 1990 Rules of Procedure of the NLRC, now Section 7, Rule III of the 1999
NLRC Rules, Atty. Ortiz is presumed to be properly authorized by private
respondents in filing the complaint.

That the verification wherein it is manifested that private respondent Talite


was one of the complainants and was causing the preparation of the
complaint "with the authority of my co-complainants" indubitably shows that
Talite was representing the rest of his co-complainants in signing the
verification in accordance with Section 7, Rule III of the 1990 NLRC Rules,
now Section 8, Rule 3 of the 1999 NLRC Rules, which states:
Section 7. Authority to bind party. Attorneys and other representatives of
parties shall have authority to bind their clients in all matters of procedure;
but they cannot, without a special power of attorney or express consent,
enter into a compromise agreement with the opposing party in full or partial
discharge of a clients claim. (Underscoring supplied)
As regards private respondents position paper which bore the signatures of
only six of them, appended to it was an Authority/Confirmation of
Authority45 signed by the ninety one others conferring authority to their
counsel "to file RAB Case No. 06-07-10316-95, entitled Winifredo Talite et
al. v. San Miguel Corporation presently pending before the sala of Labor
Arbiter Ray Alan Drilon at the NLRC Regional Arbitration Branch No. VI in
Bacolod City" and appointing him as their retained counsel to represent them
in the said case.
That there has been substantial compliance with the requirement on
verification of position papers under Section 3, Rule V of the 1990 NLRC
Rules of Procedure46 is not difficult to appreciate in light of the provision of
Section 7, Rule V of the 1990 NLRC Rules, now Section 9, Rule V of the 1999
NLRC Rules which reads:
Section 7. Nature of Proceedings. The proceedings before a Labor Arbiter
shall be non-litigious in nature. Subject to the requirements of due
process, the technicalities of law and procedure and the rules obtaining in
the courts of law shall not strictly apply thereto. The Labor Arbiter may avail
himself of all reasonable means to ascertain the facts of the controversy
speedily, including ocular inspection and examination of well-informed
persons. (underscoring supplied)
As regards private respondents Joint-Affidavit which is being assailed in view
of the failure of some complainants to affix their signatures thereon, this
Court quotes with approval the appellate courts ratiocinations:

A perusal of the Southern Cotabato Development Case would reveal that


movant did not quote the whole text of paragraph 5 on page 865 of 280
SCRA. The whole paragraph reads:
"Clearly then, as to those who opted to move for the dismissal of their
complaints, or did not submit their affidavits nor appear during trial and in
whose favor no other independent evidence was adduced, no award for back
wages could have been validly and properly made for want of factual
basis. There is no showing at all that any of the affidavits of the thirty-four
(34) complainants were offered as evidence for those who did not submit
their affidavits, or that such affidavits had any bearing at all on the rights
and interest of the latter. In the same vein, private respondents position
paper was not of any help to these delinquent complainants.
The implication is that as long as the affidavits of the complainants
were offered as evidence for those who did not submit theirs, or the
affidavits were material and relevant to the rights and interest of
the latter, such affidavits may be sufficient to establish the claims of
those who did not give their affidavits.
Here, a reading of the joint affidavit signed by twelve (12) of the ninetyseven (97) complainants (petitioners herein) would readily reveal that the
affidavit was offered as evidence not only for the signatories therein but for
all of the complainants. (These ninety-seven (97) individuals were previously
identified during the mandatory conference as the only complainants in the
proceedings before the labor arbiter) Moreover, the affidavit touched on the
common interest of all of the complainants as it supported their claim of the
existence of an employer-employee relationship between them and
respondent SMC. Thus, the said affidavit was enough to prove the claims of
the rest of the complainants.47 (Emphasis supplied, underscoring in the
original)
In any event, SMC is reminded that the rules of evidence prevailing in courts
of law or equity do not control proceedings before the Labor Arbiter. So
Article 221 of the Labor Code enjoins:
ART. 221. Technical rules not binding and prior resort to amicable
settlement. 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. xxx
As such, their application may be relaxed to serve the demands of
substantial justice.48
On the merits, the petition just the same fails.
SMC insists that private respondents are the employees of Sunflower, an
independent contractor. On the other hand, private respondents assert that
Sunflower is a labor-only contractor.
Article 106 of the Labor Code provides:
ART. 106. Contractor or subcontracting. Whenever an employer enters
into a contract with another person for the performance of the formers work,
the employees of the contractor and of the latters subcontractor, if any shall
be paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his
employees in accordance with this Code, the employer shall be jointly and
severally liable with his contractor or subcontractor to such employees to the
extent of the work performed under the contract, in the same manner and
extent that he is liable to employees directly employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit
the contracting out of labor to protect the rights of workers established under
the Code. In so prohibiting or restricting, he may make appropriate
distinctions between labor-only contracting and job contracting as well as
differentiations within these types of contracting and determine who among
the parties involved shall be considered the employer for purposes of this
Code, to prevent any violation or circumvention of any provision of this Code.
There is "labor-only" contracting where the person supplying workers to an
employer does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others, and the
workers recruited and placed by such person are performing activities which
are directly related to the principal business of such employer. In such cases,
the person or intermediary shall be considered merely as an agent of the

employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.
Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as
amended by Department Order No. 18, distinguishes between legitimate and
labor-only contracting:
Section 3. Trilateral Relationship in Contracting
Arrangements. In legitimate contracting, there exists a trilateral
relationship under which there is a contract for a specific job, work or service
between the principal and the contractor or subcontractor, and a contract of
employment between the contractor or subcontractor and its workers.
Hence, there are three parties involved in these arrangements, the principal
which decides to farm out a job or service to a contractor or subcontractor,
the contractor or subcontractor which has the capacity to independently
undertake the performance of the job, work or service, and the contractual
workers engaged by the contractor or subcontractor to accomplish the job,
work or service.
Section 5. Prohibition against labor-only contracting. Labor-only
contracting Sis hereby declared prohibited. For this purpose, labor-only
contracting shall refer to an arrangement where the contractor or
subcontractor merely recruits, supplies or places workers to perform a job,
work or service for a principal, and any of the following elements are present:
i) The contractor or subcontractor does not have substantial capital or
investment which relates to the job, work or service to be performed
and the employees recruited, supplied or placed by such contractor or
subcontractor are performing activities which are directly related to the
main business of the principal, or
ii) The contractor does not exercise the right to control over the
performance of the work of the contractual employee.
The foregoing provisions shall be without prejudice to the application of
Article 248 (c) of the Labor Code, as amended.
"Substantial capital or investment" refers to capital stocks and subscribed
capitalization in the case of corporations, tools, equipment, implements,
machineries and work premises, actually and directly used by the contractor

or subcontractor in the performance or completion of the job, work or service


contracted out.
The "right to control" shall refer to the right reserved to the person for whom
the services of the contractual workers are performed, to determine not only
the end to be achieved, but also the manner and means to be used in
reaching that end.
The test to determine the existence of independent contractorship
is whether one claiming to be an independent contractor has
contracted to do the work according to his own methods and
without being subject to the control of the employer, except only as
to the results of the work.49
In legitimate labor contracting, the law creates an employer-employee
relationship for a limited purpose, i.e., to ensure that the employees are paid
their wages. The principal employer becomes jointly and severally liable with
the job contractor, only for the payment of the employees wages whenever
the contractor fails to pay the same. Other than that, the principal employer
is not responsible for any claim made by the employees.50
In labor-only contracting, the statute creates an employer-employee
relationship for a comprehensive purpose: to prevent a circumvention of
labor laws. The contractor is considered merely an agent of the principal
employer and the latter is responsible to the employees of the labor-only
contractor as if such employees had been directly employed by the principal
employer.51
The Contract of Services between SMC and Sunflower shows that the parties
clearly disavowed the existence of an employer-employee relationship
between SMC and private respondents. The language of a contract is not,
however, determinative of the parties relationship; rather it is the totality of
the facts and surrounding circumstances of the case.52 A party cannot
dictate, by the mere expedient of a unilateral declaration in a contract, the
character of its business, i.e., whether as labor-only contractor or job
contractor, it being crucial that its character be measured in terms of and
determined by the criteria set by statute.53
SMC argues that Sunflower could not have been issued a certificate of
registration as a cooperative if it had no substantial capital.54

While indeed Sunflower was issued Certificate of Registration No. IL087555 on February 10, 1992 by the Cooperative Development Authority, this
merely shows that it had at least P2,000.00 in paid-up share capital as
mandated by Section 5 of Article 1456 of Republic Act No. 6938, otherwise
known as the Cooperative Code, which amount cannot be considered
substantial capitalization.
What appears is that Sunflower does not have substantial capitalization or
investment in the form of tools, equipment, machineries, work premises and
other materials to qualify it as an independent contractor.
On the other hand, it is gathered that the lot, building, machineries and all
other working tools utilized by private respondents in carrying out their tasks
were owned and provided by SMC. Consider the following uncontroverted
allegations of private respondents in the Joint Affidavit:
[Sunflower], during the existence of its service contract with respondent
SMC, did not own a single machinery, equipment, or working tool used in the
processing plant. Everything was owned and provided by respondent SMC.
The lot, the building, and working facilities are owned by respondent SMC.
The machineries and equipments (sic) like washer machine, oven or cooking
machine, sizer machine, freezer, storage, and chilling tanks, push carts,
hydrolic (sic) jack, tables, and chairs were all owned by respondent SMC. All
the boxes, trays, molding pan used in the processing are also owned by
respondent SMC. The gloves and boots used by the complainants were also
owned by respondent SMC. Even the mops, electric floor cleaners, brush,
hoose (sic), soaps, floor waxes, chlorine, liquid stain removers, lysol and the
like used by the complainants assigned as cleaners were all owned and
provided by respondent SMC.
Simply stated, third-party respondent did not own even a small capital in the
form of tools, machineries, or facilities used in said prawn processing
xxx
The alleged office of [Sunflower] is found within the confines of a small
"carinderia" or "refreshment" (sic) owned by the mother of the Cooperative
Chairman Roy Asong.
xxx In said . . . office, the only equipment used and owned by [Sunflower]
was a typewriter. 57

And from the job description provided by SMC itself, the work assigned to
private respondents was directly relatedto the aquaculture operations of
SMC. Undoubtedly, the nature of the work performed by private respondents
in shrimp harvesting, receiving and packing formed an integral part of the
shrimp processing operations of SMC. As for janitorial and messengerial
services, that they are considered directly related to the principal business of
the employer58 has been jurisprudentially recognized.
Furthermore, Sunflower did not carry on an independent business or
undertake the performance of its service contract according to its own
manner and method, free from the control and supervision of its principal,
SMC, its apparent role having been merely to recruit persons to work for
SMC.
Thus, it is gathered from the evidence adduced by private respondents
before the labor arbiter that their daily time records were signed by SMC
supervisors Ike Puentebella, Joemel Haro, Joemari Raca, Erwin Tumonong,
Edison Arguello, and Stephen Palabrica, which fact shows that SMC exercised
the power of control and supervision over its employees.59 And control of the
premises in which private respondents worked was by SMC. These tend to
disprove the independence of the contractor.60
More. Private respondents had been working in the aqua processing plant
inside the SMC compound alongside regular SMC shrimp processing workers
performing identical jobs under the same SMC supervisors.61 This
circumstance is another indicium of the existence of a labor-only
contractorship.62
And as private respondents alleged in their Joint Affidavit which did not
escape the observation of the CA, no showing to the contrary having been
proffered by SMC, Sunflower did not cater to clients other than SMC,63 and
with the closure of SMCs Bacolod Shrimp Processing Plant, Sunflower
likewise ceased to exist. This Courts ruling in San Miguel Corporation v.
MAERC Integrated Services, Inc.64 is thus instructive.
xxx Nor do we believe MAERC to have an independent business. Not only
was it set up to specifically meet the pressing needs of SMC which was then
having labor problems in its segregation division, none of its workers was
also ever assigned to any other establishment, thus convincing us that it was
created solely to service the needs of SMC. Naturally, with the severance of
relationship between MAERC and SMC followed MAERCs cessation of

operations, the loss of jobs for the whole MAERC workforce and the resulting
actions instituted by the workers.65(Underscoring supplied)
All the foregoing considerations affirm by more than substantial evidence the
existence of an employer-employee relationship between SMC and private
respondents.
Since private respondents who were engaged in shrimp processing
performed tasks usually necessary or desirable in the aquaculture business
of SMC, they should be deemed regular employees of the latter66 and as such
are entitled to all the benefits and rights appurtenant to regular
employment.67 They should thus be awarded differential pay corresponding
to the difference between the wages and benefits given them and those
accorded SMCs other regular employees.1awphi1.zw+
Respecting the private respondents who were tasked with janitorial and
messengerial duties, this Court quotes with approval the appellate courts
ruling thereon:
Those performing janitorial and messengerial services however acquired
regular status only after rendering one-year service pursuant to Article 280
of the Labor Code. Although janitorial and messengerial services are
considered directly related to the aquaculture business of SMC, they are
deemed unnecessary in the conduct of its principal business; hence, the
distinction (See Coca Cola Bottlers Phils., Inc. v. NLRC, 307 SCRA 131, 136137 and Philippine Bank of Communications v. NLRC, supra, p. 359).68
The law of course provides for two kinds of regular employees, namely: (1)
those who are 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 continuous or broken,
with respect to the activity in which they are employed.69
As for those of private respondents who were engaged in janitorial and
messengerial tasks, they fall under the second category and are thus entitled
to differential pay and benefits extended to other SMC regular employees
from the day immediately following their first year of service.70
Regarding the closure of SMCs aquaculture operations and the consequent
termination of private respondents, 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
Department 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. (Underscoring supplied)
In the case at bar, a particular department under the SMC group of
companies was closed allegedly due to serious business reverses. This
constitutes retrenchment by, and not closure of, the enterprise or the
company itself as SMC has not totally ceased operations but is still very
much an on-going and highly viable business concern.71
Retrenchment is a management prerogative consistently recognized and
affirmed by this Court. It is, however, subject to faithful compliance with the
substantive and procedural requirements laid down by law and
jurisprudence.72
For retrenchment to be considered valid the following substantial
requirements must be met: (a) the losses expected should be substantial and
not merely de minimis in extent; (b) the substantial losses apprehended
must be reasonably imminent such as can be perceived objectively and in
good faith by the employer; (c) the retrenchment must be reasonably
necessary and likely to effectively prevent the expected losses; and (d) the
alleged losses, if already incurred, and the expected imminent losses sought
to be forestalled, must be proved by sufficient and convincing evidence.73
In the discharge of these requirements, it is the employer who has the onus,
being in the nature of an affirmative defense.74

Normally, the condition of business losses is shown by audited financial


documents like yearly balance sheets, profit and loss statements and annual
income tax returns. The financial statements must be prepared and signed
by independent auditors failing which they can be assailed as self-serving
documents.75
In the case at bar, company losses were duly established by financial
documents audited by Joaquin Cunanan & Co. showing that the aquaculture
operations of SMCs Agribusiness Division accumulated losses amounting
toP145,848,172.00 in 1992 resulting in the closure of its Calatrava
Aquaculture Center in Negros Occidental,P11,393,071.00 in 1993
and P80,325,608.00 in 1994 which led to the closure of its San Fernando
Shrimp Processing Plant in Pampanga and the Bacolod Shrimp Processing
Plant in 1995.
SMC has thus proven substantial business reverses justifying retrenchment
of its employees.
For termination due to retrenchment to be valid, however, the law requires
that written notices of the intended retrenchment be served by the employer
on the worker and on the DOLE at least one (1) month before the actual date
of the retrenchment,76 in order to give employees some time to prepare for
the eventual loss of their jobs, as well as to give DOLE the opportunity to
ascertain the verity of the alleged cause of termination.77
Private respondents, however, were merely verbally informed on September
10, 1995 by SMC Prawn Manager Ponciano Capay that effective the following
day or on September 11, 1995, they were no longer to report for work as
SMC would be closing its operations.78
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.79
In light of the factual circumstances of the case at bar, this Court
awards P50,000.00 to each private respondent as nominal damages.

The grant of separation pay as an incidence of termination of employment


due to retrenchment to prevent losses is a statutory obligation on the part of
the employer and a demandable right on the part of the employee. Private
respondents should thus be awarded separation pay equivalent to at least
one (1) month pay or to at least one-half month pay for every year of
service, whichever is higher, as mandated by Article 283 of the Labor Code
or the separation pay awarded by SMC to other regular SMC employees that
were terminated as a result of the retrenchment, depending on which is most
beneficial to private respondents.
Considering that private respondents were not illegally dismissed, however,
no backwages need be awarded. It is well settled that backwages may be
granted only when there is a finding of illegal dismissal.80 The appellate court
thus erred in awarding backwages to private respondents upon the authority
of Bustamante v. NLRC,81 what was involved in that case being one of illegal
dismissal.
With respect to attorneys fees, in actions for recovery of wages or where an
employee was forced to litigate and thus incurred expenses to protect his
rights and interests,82 a maximum of ten percent (10%) of the total monetary
award83 by way of attorneys fees is justifiable under Article 111 of the Labor
Code,84 Section 8, Rule VIII, Book III of its Implementing Rules,85 and
paragraph 7, Article 2208 of the Civil Code.86 Although an express finding of
facts and law is still necessary to prove the merit of the award, there need
not be any showing that the employer acted maliciously or in bad faith when
it withheld the wages. There need only be a showing that the lawful wages
were not paid accordingly, as in this case.87
Absent any evidence showing that Sunflower has been dissolved in
accordance with law, pursuant to Rule VIII-A, Section 1988 of the Omnibus
Rules Implementing the Labor Code, Sunflower is held solidarily liable with
SMC for all the rightful claims of private respondents.
WHEREFORE, the petition is DENIED. The assailed Decision dated February
7, 2001 and Resolution dated July 11, 2001 of the Court of Appeals are
AFFIRMED with MODIFICATION.
Petitioner San Miguel Corporation and Sunflower Multi-Purpose Cooperative
are hereby ORDERED to jointly and severally pay each private respondent
differential pay from the time they became regular employees up to the date
of their termination; separation pay equivalent to at least one (1) month pay

or to at least one-half month pay for every year of service, whichever is


higher, as mandated by Article 283 of the Labor Code or the separation pay
awarded by SMC to other regular SMC employees that were terminated as a
result of the retrenchment, depending on which is most beneficial to private
respondents; and ten percent (10%) attorneys fees based on the herein
modified award.
Petitioner San Miguel Corporation is further ORDERED to pay each private
respondent the amount ofP50,000.00, representing nominal damages for
non-compliance with statutory due process.
The award of backwages is DELETED.
SO ORDERED.

G.R. No. 149440

January 28, 2003

HACIENDA FATIMA and/or PATRICIO VILLEGAS, ALFONSO VILLEGAS


and CRISTINE SEGURA, petitioners,
vs.
NATIONAL FEDERATION OF SUGARCANE WORKERS-FOOD AND
GENERAL TRADE, respondents.
PANGANIBAN, J.:
Although the employers have shown that respondents performed work that
was seasonal in nature, they failed to prove that the latter worked only for
the duration of one particular season. In fact, petitioners do not deny that
these workers have served them for several years already. Hence, they are
regular not seasonal employees.
The Case
Before the Court is a Petition for Review under Rule 45 of the Rules of Court,
seeking to set aside the February 20, 2001 Decision of the Court of
Appeals 1 (CA) in CA-GR SP No. 51033. The dispositive part of the Decision
reads:
"WHEREFORE, premises considered, the instant special civil action for
certiorari is hereby DENIED." 2
On the other hand, the National Labor Relations Commission (NLRC)
Decision, 3 upheld by the CA, disposed in this wise:
"WHEREFORE, premises considered, the decision of the Labor Arbiter is
hereby SET ASIDE and VACATED and a new one entered declaring
complainants to have been illegally dismissed. Respondents are hereby
ORDERED to reinstate complainants except Luisa Rombo, Ramona
Rombo, Bobong Abriga and Boboy Silva to their previous position and
to pay full backwages from September 1991 until reinstated.
Respondents being guilty of unfair labor practice are further ordered to
pay complainant union the sum of P10,000.00 as moral damages and
P5,000.00 as exemplary damages." 4
The Facts
The facts are summarized in the NLRC Decision as follows:
"Contrary to the findings of the Labor Arbiter that complainants [herein
respondents] refused to work and/or were choosy in the kind of jobs

they wanted to perform, the records is replete with complainants'


persistence and dogged determination in going back to work.
"Indeed, it would appear that respondents did not look with favor
workers' having organized themselves into a union. Thus, when
complainant union was certified as the collective bargaining
representative in the certification elections, respondents under the
pretext that the result was on appeal, refused to sit down with the
union for the purpose of entering into a collective bargaining
agreement. Moreover, the workers including complainants herein were
not given work for more than one month. In protest, complainants
staged a strike which was however settled upon the signing of a
Memorandum of Agreement which stipulated among others that:
'a) The parties will initially meet for CBA negotiations on the 11th
day of January 1991 and will endeavor to conclude the same
within thirty (30) days.
'b) The management will give priority to the women workers who
are members of the union in case work relative . . . or
amount[ing] to gahit and [dipol] arises.
'c) Ariston Eruela Jr. will be given back his normal work load
which is six (6) days in a week.
'd) The management will provide fifteen (15) wagons for the
workers and that existing workforce prior to the actual strike will
be given priority. However, in case the said workforce would not
be enough, the management can hire additional workers to
supplement them.
'e) The management will not anymore allow the scabs,
numbering about eighteen (18) workers[,] to work in the
hacienda; and
'f) The union will immediately lift the picket upon signing of this
agreement.'
"However, alleging that complainants failed to load the fifteen wagons,
respondents reneged on its commitment to sit down and bargain
collectively. Instead, respondent employed all means including the use
of private armed guards to prevent the organizers from entering the
premises.
"Moreover, starting September 1991, respondents did not any more
give work assignments to the complainants forcing the union to stage

a strike on January 2, 1992. But due to the conciliation efforts by the


DOLE, another Memorandum of Agreement was signed by the
complainants and respondents which provides:
'Whereas the union staged a strike against management on January 2,
1992 grounded on the dismissal of the union officials and members;
'Whereas parties to the present dispute agree to settle the case
amicably once and for all;
'Now therefore, in the interest of both labor and management,
parties herein agree as follows:
'1. That the list of the names of affected union members hereto
attached and made part of this agreement shall be referred to
the Hacienda payroll of 1990 and determine whether or not this
concerned Union members are hacienda workers;
'2. That in addition to the payroll of 1990 as reference, herein
parties will use as guide the subjects of a Memorandum of
Agreement entered into by and between the parties last January
4, 1990;
'3. That herein parties can use other employment references in
support of their respective claims whether or not any or all of the
listed 36 union members are employees or hacienda workers or
not as the case may be;
'4. That in case conflict or disagreement arises in the
determination of the status of the particular hacienda workers
subject of this agreement herein parties further agree to submit
the same to voluntary arbitration;
'5. To effect the above, a Committee to be chaired by Rose
Mengaling is hereby created to be composed of three
representatives each and is given five working days starting Jan.
23, 1992 to resolve the status of the subject 36 hacienda
workers. (Union representatives: Bernardo Torres, Martin Alas-as,
Ariston Arulea Jr.)"
"Pursuant thereto, the parties subsequently met and the Minutes of the
Conciliation Meeting showed as follows:
'The meeting started at 10:00 A.M. A list of employees was
submitted by Atty. Tayko based on who received their 13th month
pay. The following are deemed not considered employees:

1. Luisa Rombo

2. Ramona Rombo

3. Bobong Abrega

4. Boboy Silva

'The name Orencio Rombo shall be verified in the 1990 payroll.


'The following employees shall be reinstated immediately upon
availability of work:

1. Jose Dagle

7. Alejandro
Tejares

2. Rico Dagle

8. Gaudioso
Rombo

3. Ricardo Dagle

9. Martin Alas-as
Jr.

4. Jesus Silva

10. Cresensio
Abrega

5. Fernando Silva 11. Ariston Eruela


Sr.

6. Ernesto Tejares 12. Ariston Eruela


Jr.'

"When respondents again reneged on its commitment; complainants


filed the present complaint.
"But for all their persistence, the risk they had to undergo in
conducting a strike in the face of overwhelming odds, complainants in
an ironic twist of fate now find themselves being accused of 'refusing
to work and being choosy in the kind of work they have to
perform'." 5 (Citations omitted)
Ruling of the Court of Appeals
The CA affirmed that while the work of respondents was seasonal in nature,
they were considered to be merely on leave during the off-season and were
therefore still employed by petitioners. Moreover, the workers enjoyed
security of tenure. Any infringement upon this right was deemed by the CA
to be tantamount to illegal dismissal.
The appellate court found neither "rhyme nor reason in petitioner's argument
that it was the workers themselves who refused to or were choosy in their
work." As found by the NLRC, the record of this case is "replete with
complainants' persistence and dogged determination in going back to
work." 6
The CA likewise concurred with the NLRC's finding that petitioners were
guilty of unfair labor practice.
Hence this Petition.

Issues
Petitioners raise the following issues for the Court's consideration:
"A. Whether or not the Court of Appeals erred in holding that
respondents, admittedly seasonal workers, were regular employees,
contrary to the clear provisions of Article 280 of the Labor Code, which
categorically state that seasonal employees are not covered by the
definition of regular employees under paragraph 1, nor covered under
paragraph 2 which refers exclusively to casual employees who have
served for at least one year.
"B. Whether or not the Court of Appeals erred in rejecting the ruling in
Mercado, . . . and relying instead on rulings which are not directly
applicable to the case at bench, viz, Philippine Tobacco, BacolodMurcia, and Gaco, . . .

"C Whether or not the Court of Appeals committed grave abuse of


discretion in upholding the NLRC's conclusion that private respondents
were illegally dismissed, that petitioner[s were] guilty of unfair labor
practice, and that the union be awarded moral and exemplary
damages." 8
Consistent with the discussion in petitioners' Memorandum, we shall take up
Items A and B as the first issue and Item C as the second.
The Court's Ruling
The Petition has no merit.
First Issue:
Regular Employment
At the outset, we must stress that only errors of law are generally reviewed
by this Court in petitions for review on certiorari of CA decisions. 9 Questions
of fact are not entertained. 10 The Court is not a trier of facts and, in labor
cases, this doctrine applies with greater force. 11 Factual questions are for
labor tribunals to resolve. 12 In the present case, these have already been
threshed out by the NLRC. Its findings were affirmed by the appellate court.
Contrary to petitioners' contention, the CA did not err when it held that
respondents were regular employees.
Article 280 of the Labor Code, as amended, 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 exist." (Italics supplied)

For respondents to be excluded from those classified as regular employees, it


is not enough that they perform work or services that are seasonal in nature.
They must have also been employed only for the duration of one season. The
evidence proves the existence of the first, but not of the second, condition.
The fact that respondents with the exception of Luisa Rombo, Ramona
Rombo, Bobong Abriga and Boboy Silva repeatedly worked as sugarcane
workers for petitioners for several years is not denied by the latter. Evidently,
petitioners employed respondents for more than one season. Therefore, the
general rule of regular employment is applicable.
In Abasolo v. National Labor Relations Commission,
clarification:

13

the Court issued this

"[T]he test of whether or not an employee is a regular employee has


been laid down in De Leon v. NLRC, in which this Court held:
"The primary standard, therefore, of determining regular employment
is the reasonable connection between the particular activity performed
by the employee in relation to the usual trade or business of the
employer. The test is whether the former is usually necessary or
desirable in the usual trade or business of the employer. The
connection can be determined by considering the nature of the work
performed and its relation to the scheme of the particular business or
trade in its entirety. Also if the employee has been performing the job
for at least a year, even if the performance is not continuous and
merely intermittent, the law deems repeated and continuing need for
its performance as sufficient evidence of the necessity if not
indispensability of that activity to the business. Hence, the
employment is considered regular, but only with respect to such
activity and while such activity exists.
xxx

xxx

xxx

". . . [T]he fact that [respondents] do not work continuously for one
whole year but only for the duration of the . . . season does not detract
from considering them in regular employment since in a litany of cases
this Court has already settled that seasonal workers who are called to
work from time to time and are temporarily laid off during off-season
are not separated from service in said period, but merely considered
on leave until re-employed." 14
The CA did not err when it ruled that Mercado v. NLRC 15 was not applicable
to the case at bar. In the earlier case, the workers were required to perform
phases of agricultural work for a definite period of time, after which their
services would be available to any other farm owner. They were not hired
regularly and repeatedly for the same phase/s of agricultural work, but on

and off for any single phase thereof. On the other hand, herein respondents,
having performed the same tasks for petitioners every season for several
years, are considered the latter's regular employees for their respective
tasks. Petitioners' eventual refusal to use their services even if they were
ready, able and willing to perform their usual duties whenever these were
available and hiring of other workers to perform the tasks originally
assigned to respondents amounted to illegal dismissal of the latter.
The Court finds no reason to disturb the CA's dismissal of what petitioners
claim was their valid exercise of a management prerogative. The sudden
changes in work assignments reeked of bad faith. These changes were
implemented immediately after respondents had organized themselves into
a union and started demanding collective bargaining. Those who were union
members were effectively deprived of their jobs. Petitioners' move actually
amounted to unjustified dismissal of respondents, in violation of the Labor
Code.
"Where there is no showing of 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
and authorized cause." 16 In the case at bar, petitioners failed to prove any
such cause for the dismissal of respondents who, as discussed above, are
regular employees.
Second Issue:
Unfair Labor Practice
The NLRC also found herein petitioners guilty of unfair labor practice. It ruled
as follows:
"Indeed, from respondents' refusal to bargain, to their acts of economic
inducements resulting in the promotion of those who withdrew from
the union, the use of armed guards to prevent the organizers to come
in, and the dismissal of union officials and members, one cannot but
conclude that respondents did not want a union in their haciendaa
clear interference in the right of the workers to self-organization." 17
We uphold the CA's affirmation of the above findings. Indeed, factual findings
of labor officials, who are deemed to have acquired expertise in matters
within their respective jurisdictions, are generally accorded not only respect
but even finality. Their findings are binding on the Supreme Court. 18 Verily,
their conclusions are accorded great weight upon appeal, especially when
supported by substantial evidence. 19 Consequently, the Court is not dutybound to delve into the accuracy of their factual findings, in the absence of a
clear showing that these were arbitrary and bereft of any rational basis." 20

The finding of unfair labor practice done in bad faith carries with it the
sanction of moral and exemplary damages." 21
WHEREFORE, the Petition is hereby DENIED and the assailed
Decision AFFIRMED. Costs against petitioners.
SO ORDERED.

G.R. No. 126000 October 7, 1998


METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM
(MWSS), petitioner,
vs.
COURT OF APPEALS, HON. PERCIVAL LOPEZ, AYALA CORPORATION
and AYALA LAND, INC.,respondents.
G.R. No. 128520 october 7, 1998
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner,
vs.
HON. PERCIVAL MANDAP LOPEZ, CAPITOL HILLS GOLF AND COUNTRY
CLUB INC., SILHOUETTE TRADING CORPORATION, and PABLO ROMAN
JR., respondents.

MARTINEZ, J.:
These are consolidated petitions for review emanating from Civil Case No. Q93-15266 of the Regional Trial Court of Quezon City, Branch 78, entitled
"Metropolitan Waterworks and Sewerage System (hereafter MWSS) vs.
Capitol Hills Golf & Country Club Inc. (hereafter, CHGCCI), STC (hereafter,
SILHOUETTE), Ayala Corporation, Ayala Land, Inc. (hereafter AYALA) Pablo
Roman, Jr., Josefina A. Roxas, Jesus Hipolito, Alfredo Juinito, National Treasurer
of the Philippines and the Register of Deeds of Quezon City."
From the voluminous pleadings and other documents submitted by the
parties and their divergent styles in the presentation of the facts, the basic
antecedents attendant herein are as follows:
Sometime in 1965, petitioner MWSS (then known as NAWASA) leased around
one hundred twenty eight (128) hectares of its land (hereafter, subject
property) to respondent CHGCCI (formerly the International Sports
Development Corporation) for twenty five (25) years and renewable for
another fifteen (15) years or until the year 2005, with the stipulation allowing
the latter to exercise a right of first refusal should the subject property be
made open for sale. The terms and conditions of respondent CHGCCI's
purchase thereof shall nonetheless be subject to presidential approval.

Pursuant to Letter of instruction (LOI) No. 440 issued on July 29,1976 by then
President Ferdinand E. Marcos directing petitioner MWSS to negotiate the
cancellation of the MWSS-CHGCCI lease agreement for the disposition of the
subject property, Oscar Ilustre, then General Manager of petitioner MWSS,
sometime in November of 1980 informed respondent CHGCCI, through its
president herein respondent Pablo Roman, Jr., of its preferential right to buy
the subject property which was up for sale. Valuation thereof was to be made
by an appraisal company of petitioner MWSS' choice, the Asian Appraisal Co.,
Inc. which, on January 30, 1981, pegged a fair market value of P40.00 per
square meter or a total of P53,800,000.00 for the subject property.
Upon being informed that petitioner MWSS and respondent CHGCCI had
already agreed in principle on the purchase of the subject property, President
Marcos expressed his approval of the sale as shown in his marginal note on
the letter sent by respondents Jose Roxas and Pablo Roman, Jr. dated
December 20, 1982.
The Board of Trustees of petitioner MWSS thereafter passed Resolution 3683, approving the sale of the subject property in favor of respondent
SILHOUETTE, as assignee of respondent CHGCCI, at the appraised value
given by Asian Appraisal Co., Inc. Said Board Resolution reads:
NOW, THEREFORE, BE IT RESOLVED, as it is hereby resolved, that
in accordance with Section 3, Par. (g) of the MWSS Charter and
subject to the approval of the President of the Philippines, the
sale of a parcel of land located in Balara, Quezon City, covered
by TCT No. 36069 of the Registry of Deeds of Quezon City,
containing an area of ONE HUNDRED TWENTY SEVEN (127.313)
hectares more or less, which is the remaining portion of the area
under lease after segregating a BUFFER ZONE already surveyed
along the undeveloped area near the treatment plant and the
developed portion of the CHGCCI golf course, to SILHOUETTE
TRADING CORPORATION as Assignee of Capitol Hills Golf &
Country Club, Inc., at FORTY (P40.00) PESOS per square meter,
be and is hereby approved.
BE IT RESOLVED FURTHER, that the General Manager be
authorized, as he is hereby authorized to sign for and in behalf of
the MWSS the contract papers and other pertinent documents
relative thereto.

The MWSS-SILHOUETTE sales agreement eventually pushed through. Per the


Agreement dated May 11, 1983 covering said purchase, the total price for
the subject property is P50,925,200, P25 Million of which was to be paid upon
President Marcos' approval of the contract and the balance to be paid within
one (1) year from the transfer of the title to respondent SILHOUETTE as
vendee with interest at 12% per annum. The balance was also secured by an
irrevocable letter of credit. A Supplemental Agreement was forged between
petitioner MWSS and respondent SILHOUETTE on August 11, 1983 to
accurately identify the subject property.
Subsequently, respondent SILHOUETTE, under a deed of sale dated July 26,
1984, sold to respondent AYALA about sixty-seven (67) hectares of the
subject property at P110.00 per square meter. Of the total price of around
P74 Million, P25 Million was to be paid by respondent AYALA directly to
petitioner MWSS for respondent SILHOUETTE's account and P2 Million directly
to respondent SILHOUETTE. P11,600,000 was to be paid upon the issuance of
title in favor of respondent AYALA, and the remaining balance to be payable
within one (1) year with 12% per annum interest.
Respondent AYALA developed the land it purchased into a prime residential
area now known as the Ayala Heights Subdivision.
Almost a decade later, petitioner MWSS on March 26, 1993 filed an action
against all herein named respondents before the Regional Trial Court of
Quezon City seeking for the declaration of nullity of the MWSS-SILHOUETTE
sales agreement and all subsequent conveyances involving the subject
property, and for the recovery thereof with damages.
Respondent AYALA filed its answer pleading the affirmative defenses of (1)
prescription, (2) laches, (3) waiver/estoppel/ratification, (4) no cause of
action, (5) non-joinder of indispensable parties, and (6) non-jurisdiction of the
court for non-specification of amount of damages sought.
On June 10, 1993; the trial court issued an Order dismissing the complaint of
petitioner MWSS on grounds of prescription, laches, estoppel and non-joinder
of indispensable parties.
Petitioner MWSS's motion for reconsideration of such Order was denied,
forcing it to seek relief from the respondent Court where its appeal was
docketed as CA-G.R. CV No. 50654. It assigned as errors the following:

I. The court a quo committed manifest serious error


and gravely abused its discretion when it ruled that
plaintiffs cause of action is for annulment of contract
which has already prescribed in the face of the clear
and unequivocal recitation of six causes of action in
the complaint, none of which is for annulment.
II. The lower court erred and exceeded its jurisdiction
when, contrary to the rules of court and
jurisprudence, it treated and considered the
affirmative defenses of Ayalas defenses not
categorized by the rules as grounds for a motion to
dismiss as grounds of a motion to dismiss which
justify the dismissal of the complaint.
III. The lower court abused its discretion and
exceeded its jurisdiction when it favorably acted on
Ayala's motion for preliminary hearing of affirmative
defenses (motion to dismiss) by dismissing the
complaint without conducting a hearing or otherwise
requiring the Ayalas to present evidence on the
factual moorings of their motion.
IV. The lower court acted without jurisdiction and
committed manifest error when it resolved factual
issues and made findings and conclusions of facts all
in favor of the Ayalas in the absence of any evidence
presented by the parties.
V. The court a quo erred when, contrary to the rules
and jurisprudence, it prematurely ruled that laches
and estoppel bar the complaint as against Ayalas or
that otherwise the alleged failure to implead
indispensable parties dictates the dismissal of the
complaint.
In the meantime, respondents CHGCCI and Roman filed their own motions to
hear their affirmative defenses which were identical to those adduced by
respondent AYALA. For its part, respondent SILHOUETTE filed a similarly
grounded motion to dismiss.

Ruling upon these motions, the trial court issued an order dated December
13, 1993 denying all of them. The motions for reconsideration of the
respondents concerned met a similar fate in the May 9, 1994 Order of the
trial court. They thus filed special civil actions for certiorari before the
respondent Court which were docketed as CA-G.R. SP Nos. 34605, 34718 and
35065 and thereafter consolidated with CA-G.R. CV No. 50694 for disposition.
Respondent court, on August 19, 1996, rendered the assailed decision, the
dispositive portion of which reads:
WHEREFORE, judgment is rendered:
1.) DENYING the petitions for writ of certiorari for lack of merit;
and
2.) AFFIRMING the order of the lower court dismissing the
complaint against the appellees Ayalas.
SO ORDERED.
Petitioner MWSS appealed to this Court that portion of the respondent
Court's decision affirming the trial court's dismissal of its complaint against
respondent AYALA, docketed as G.R. No. 126000. The portion dismissing the
petition for certiorari (CA-GR Nos. 34605, 347718 and 35065) of respondents
Roman, CHGCCI and SILHOUETTE, however, became final and executory for
their failure to appeal therefrom. Nonetheless, these respondents were able
to thereafter file before the trial court another motion to dismiss grounded,
again, on prescription which the trial court in an Order of October 1996
granted.
This prompted petitioner MWSS to file another petition for review of said trial
court Order before this Court and docketed as G.R. No. 128520. On motion of
petitioner MWSS, this Court in a Resolution dated December 3, 1997 directed
the consolidation of G.R. Nos. 126000 and 128520.
The errors assigned by petitioner MWSS in CA-GR No. 126000 are:
I.
In holding, per the questioned Decision dated 19 August 1996,
that plaintiffs cause of action is for annulment of contract which

has already prescribed in the face of the clear and unequivocal


recitation of six causes of action in the complaint, none of which
is for annulment, and in effect affirming the dismissal by the
respondent judge of the complaint against respondent Ayalas.
This conclusion of respondent CH is, with due respect, manifestly
mistaken and legally absurd.
II.
In failing to consider that the complaint recited six alternative
causes of action, such that the insufficiency of one cause
assuming there is such insufficiency does not render
insufficient the other causes and the complaint itself. The
contrary ruling in this regard by respondent CA is founded
entirely on speculation and conjecture and is constitutive of
grave abuse of discretion.
In G.R. No. 128520, petitioner MWSS avers that:
I.
The court of origin erred in belatedly granting respondent's
motions to dismiss which are but a rehash, a disqualification, of
their earlier motion for preliminary hearing of affirmative defense
/ motion to dismiss. These previous motions were denied by the
lower court, which denial the respondents raised to the Court of
Appeals by way of perfection for certiorari, which petitions in turn
were dismissed for lack of merit by the latter court. The
correctness and validity of the lower court's previous orders
denying movant's motion for preliminary hearing of affirmative
defense / motion to dismiss has accordingly been settled already
with finality and cannot be disturbed or challenged anew at this
instance of defendant's new but similarly anchored motions to
dismiss, without committing procedural heresy causative of
miscarriage of justice.
II.
The lower court erred in not implementing correctly the decision
of the Court of Appeal. After all, respondents' own petitions
for certiorari questioning the earlier denial of their motion for

preliminary hearing of affirmative defense / motion to dismiss


were dismissed by the Court of Appeal, in the process of
affirming the validity and legality of such denial by the court a
quo. The dismissal of the respondents' petitions are embodied in
the dispositive portion of the said decision of the Court of
Appeals dated 19 August 1996. The lower court cannot choose to
disregard such decretal aspect of the decision and instead
implement an obiter dictum.
III.
That part of the decision of the decision of the Court of Appeals
resolving the issue of prescription attendant to the appeal of
plaintiff against the Ayalas, has been appealed by plaintiff to the
Supreme Court by way of a petition for review on certiorari. Not
yet being final and executory, the lower court erred in making
capital out of the same to dismiss the case against the other
defendants, who are the respondents herein.
IV.
The lower court erred in holding, per the questioned orders, that
plaintiff's cause of action is for annulment of contract which has
already prescribed in the face of the clear and unequivocal
recitation of six causes of action in the complaint, none of which
is for annulment. This conclusion of public respondent is
manifestly mistaken and legally absurd.
V.
The court a quo erred in failing to consider the complaint recites
six alternative causes of action, such that the insufficiency of one
cause assuming there is such insufficiency does not render
insufficient the other cause and the complaint itself. The contrary
ruling in this regard by public respondent is founded entirely on
speculation and conjecture and is constitutive of grave abuse of
discretion.
In disposing of the instant petition, this Court shall dwell on the more crucial
grounds upon which the trial court and respondent based their respective

rulings unfavorable to petitioner MWSS; i.e., prescription, laches,


estoppel/ratification and non-joinder of indispensable parties.
RE: Prescription
Petitioner MWSS claims as erroneous both the lower courts' uniform finding
that the action has prescribed, arguing that its complaint is one to declare
the MWSS-SILHOUETTE sale, and all subsequent conveyances of the subject
property, void which is imprescriptible.
We disagree.
The very allegations in petitioner MWSS' complaint show that the subject
property was sold through contracts which, at most, can be considered only
as voidable, and not void. Paragraph 12 of the complaint reads in part:
12. . . . .
The plaintiff has been in continuous, peaceful and public
possession and ownership of the afore-described properties, the
title (TCT No. [36069] 199170) thereto, including its derivative
titles TCT Nos. 213872 and 307655, having been duly issued in
its name. However, as a result of fraudulent and illegal acts of
herein defendants, as described in the paragraphs hereinafter
following, the original of said title/s were cancelled and in lieu
thereof new titles were issued to corporate defendant/s covering
subject 127.9271 hectares. . . . .
Paragraph 34 alleges:
34. Sometime thereafter, clearly influenced by the premature if
not questionable approval by Mr. Marcos of a non-existent
agreement, and despite full knowledge that both the assessed
and market value of subject property were much higher, the
MWSS Board of Trusties illegally passed an undated resolution
("Resolution No. 36-83"), approving the "sale" of the property to
CHGCCI at P40/sq.m. and illegally authorizing General Manager
Ilustre to sign the covering contract.

This "resolution" was signed by Messrs. Jesus Hipolito as


Chairman; Oscar Ilustre, as Vice Chairman; Aflredo Junio, as
Member; and Silvestre Payoyo, as Member; . . . .
Paragraph 53 states:
53. Defendants Pablo Roman, Jr., Josefino Cenizal, and Jose Roxas
as well as defendant corporations (CHGCCI, STC and Ayala) who
acted through the former and their other principal officers,
knowingly induced and caused then President Marcos and the
former officers of plaintiff MWSS to enter into the aforesaid
undated "Agreement" which are manifestly and grossly
disadvantageous to the government and which gave the same
defendants unwarranted benefits, i.e., the ownership and
dominion of the afore-described property of plaintiff.
Paragraph 54 avers:
54. Defendants Jesus Hipolito and Alfredo Junio, then public
officers, together with the other public officers who are now
deceased (Ferdinand Marcos, Oscar Ilustre, and Sivestre Payoyo)
knowingly allowed themselves to be persuaded, induced and
influenced to approve and/or enter into the aforementioned
"Agreements" which are grossly and manifestly disadvantageous
to the MWSS/government and which bestowed upon the other
defendants the unwarranted benefit/ownership of subject
property.
The three elements of a contract consent, the object, and the cause of
obligation 1 are all present. It cannot be otherwise argued that the contract
had for its object the sale of the property and the cause or consideration
thereof was the price to be paid (on the part of respondents
CHGCCI/SILHOUETTE) and the land to be sold (on the part of petitioner
MWSS). Likewise, petitioner MWSS' consent to the May 11, 1983 and August
11, 1983 Agreements is patent on the face of these documents and on its
own resolution No. 36-83.
As noted by both lower courts, petitioner MWSS admits that it consented to
the sale of the property, with the qualification that such consent was
allegedly unduly influenced by the President Marcos. Taking such allegation
to be hypothetically true, such would have resulted in only voidable

contracts because all three elements of a contract, still obtained


nonetheless. The alleged vitiation of MWSS' consent did not make the sale
null and void ab initio. Thus, "a contract where consent is given through
mistake, violence, intimidation, undue influence or fraud, is voidable" 2.
Contracts "where consent is vitiated by mistake, violence, intimidation,
undue influence or fraud" are voidable or annullable 3. These are not void as

Concepts of Voidable Contracts. Voidable or anullable


contracts are existent, valid, and binding, although they can be
annulled because of want of capacity or vitiated consent of the
one of the parties, but before annulment, they are effective and
obligatory between parties. Hence, it is valid until it is set aside
and its validity may be assailed only in an action for that
purpose. They can be confirmed or ratified. 4
As the contracts were voidable at the most, the four year prescriptive period
under Art. 1391 of the New Civil Code will apply. This article provides that the
prescriptive period shall begin in the cases of intimidation, violence or undue
influence, from the time the defect of the consent ceases", and "in case of
mistake or fraud, from the time of the discovery of the same time".
Hypothetically admitting that President Marcos unduly influenced the sale,
the prescriptive period to annul the same would have begun on February 26,
1986 which this Court takes judicial notice of as the date President Marcos
was deposed. Prescription would have set in by February 26, 1990 or more
than three years before petitioner MWSS' complaint was failed.
However, if petitioner MWSS' consent was vitiated by fraud, then the
prescriptive period commenced upon discovery. Discovery commenced from
the date of the execution of the sale documents as petitioner was party
thereto. At the least, discovery is deemed to have taken place on the date of
registration of the deeds with the register of Deeds as registration is
constructive notice to the world. 5 Given these two principles on discovery,
the prescriptive period commenced in 1983 as petitioner MWSS actually
knew of the sale, or, in 1984 when the agreements were registered and titles
thereafter were issued to respondent SILHOUTTE. At the latest, the action
would have prescribed by 1988, or about five years before the complaint was
instituted. Thus, in Aznar vs. Bernard 6, this Court held that:

Lastly, even assuming that the petitioners had indeed failed to


raise the affirmative defense of prescription in a motion to
dismiss or in an appropriate pleading (answer, or amended or
supplemental answer) and an amendment would no longer be
feasible, still prescription, if apparent on the face of the
complaint, may be favorably considered. In the case at bar, the
private respondents admit in their complaint that the contract or
real estate mortgage which they alleged to be fraudulent and
which had been foreclosed, giving rise to this controversy with
the petitioners, was executed on July 17, 1978, or more than
eight long years before the commencement of the suit in the
court a quo, on September 15, 1986. And an action declare a
contract null and void on the ground of fraud must be instituted
within four years. Extinctive prescription is thus apparent on the
face of the complaint itself as resolved by the Court.
Petitioner MWSS further contends that prescription does not apply as its
complaint prayed not for the nullification of voidable contracts but for the
declaration of nullity of void ab initio contracts which are imprescriptible.
This is incorrect, as the prayers in a complaint are not determinative of what
legal principles will operate based on the factual allegations of the complaint.
And these factual allegations, assuming their truth, show that MWSS
consented to the sale, only that such consent was purportedly vitiated by
undue influence or fraud. Therefore, the rules on prescription will operate.
Even if petitioner MWSS asked for the declaration of nullity of these
contracts, the prayers will not be controlling as only the factual allegations in
the complaint determine relief. "(I)t is the material allegations of fact in the
complaint, not the legal conclusion made therein or the prayer that
determines the relief to which the plaintiff is entitled" 7. Respondent court is
thus correct in holding that:
xxx xxx xxx
The totality then of those allegations in the complaint makes up
a case of a voidable contract of sale not a void one. The
determinative allegations are those that point out that the
consent of MWSS in the Agreement of Sale was vitiated either by
fraud or undue for the declaration of nullity of the said contract
because the Complaint says no. Basic is the rule however that it
is the body and not the caption nor the prayer of the Complaint

that determines the nature of the action. True, the caption and
prayer of the Complaint state that the action is for a judicial
declaration of nullity of a contract, but alas, as already pointed
out, its body unmistakably alleges only a voidable contract. One
cannot change the real nature of an action adopting a different
nomenclature any more than one can change gin into whisky by
just replacing the label on the bottle with that of the latter's and
calling it whisky. No matter what, the liquid inside remains gin.
xxx xxx xxx
Petitioner MWSS also theorizes that the May 11, 1983 MWSS-SILHOUTTE
Agreement and the August 11, 1983 Supplemental Agreement were void ab
initio because the "initial agreement" from which these agreements
emanated was executed "without the knowledge, much less the approval" of
petitioner MWSS through its Board of Trustees. The "initial agreement"
referred to in petitioner MWSS' argument is the December 20, 1982 letter of
respondents Roxas and Roman, Jr. to President Marcos where the authors
mentioned that they had reached an agreement with petitioner's then
general manager, Mr. Oscar Ilustre. Petitioner MWSS maintains that Mr.
Ilustre was not authorized to enter into such "initial agreement", contrary to
Art. 1874 of the New Civil Code which provides that "when a sale of a parcel
of land or any interest therein is through an agent, the authority of the latter
shall be in writing otherwise the sale shall be void." It then concludes that
since its Res. No. 36-83 and the May 11, 1983 and August 11, 1983
Agreements are "fruits" of the "initial agreement" (for which Mr. Ilustre was
allegedly not authorized in writing), all of these would have been also void
under Art. 1422 of NCC, which provides that a contract which is the direct
result of a pronounced illegal contract, is also void and inexistent."
The argument does not impress. The "initial agreement" reflected in the
December 20, 1982 letter of respondent Roman to Pres. Marcos, is not a sale
under Art. 1874. Since the nature of the "initial agreement" is crucial, we
quotes 8 the letter in full:
We respectfully approach Your Excellency in all humility and in
the spirit of the Yuletide Season. We have explained to Your
Excellency when you allowed us the honor to see you, that the
negotiations with MWSS which the late Pablo R. Roman initiated

way back in 1975, with your kind approval, will finally be


concluded.
We have agreed in principle with Mr. Oscar Ilustre on the terms of
the sale as evidenced by the following:
1. Our written agreement to hire Asian
Appraisal Company to appraise the entire
leased area which then be the basis for
the negotiations of the purchase price of
the property; and
2. Our exchange of communications
wherein made a counter-offer and our
acceptance counter-offer.
However, we were informed by Mr. Ilustre that only written
instruction from Your Excellency will allow us to finally sign the
Agreement.
In sum, our Agreement is for the purchase price of FIFTY-SEVEN
MILLION TWO-HUNDRED-FORTY THOUSAND PESOS (P57,240,000)
for the entire leased area of 135 hectares; TWENTY-SEVEN
MILLION PESOS (P27,000,000) payable upon approval of the
contract by Your Excellency and the balance of THIRTY MILLION
TWO HUNDRED FORTY THOUSAND PESOS (P30,240,000) after
one (1) year inclusive of a 12% interest.
We believe that this arrangement is fair and equitable to both
parties considering that the value of the land was appraised by a
reputable company and independent appraisal company jointly
commissioned by both parties and considering further that
Capitol Hills has still a 23-year lien on the property by virtue of its
existing lease contract with MWSS.
We humbly seek your instruction, Your Excellency and please
accept our families' sincere wish for a Merry Christmas and a
Happy New Year to you and the First Family.
The foregoing does not document a sale, but at most, only the conditions
proposed by respondent Roman to enter into one. By the terms thereof, it

refers only to an "agreement in principle". Reflecting a future consummation,


the letter mentions "negotiations with MWSS (which) with your (Marcos) kind
approval, will finally be concluded". It must likewise be noted that
presidential approval had yet to be obtained. Thus, the "initial agreement"
was not a sale as it did not in any way transfer ownership over the property.
The proposed terms had yet to be approval by the President and the
agreement in principle still had to be formalized in a deed of sale. Written
authority as is required under Art. 1834 of the New Civil Code, was not
needed at the point of the "initial agreement".
Verily, the principle on prescription of actions is designed to cover situations
such as the case at bar, where there have been a series of transfers to
innocent purchasers for value. To set aside these transactions only to
accommodate a party who has slept on his rights is anathema to good
order. 9
RE: Laches
Even assuming, for argument's sake, that the allegations in the complaint
establish the absolute nullity of the assailed contracts and hence
imprescriptible, the complaint can still be dismissed on the ground of laches
which is different from prescription. This Court, as early as 1966, has
distinguished these two concepts in this wise:
. . . (T)he defense of laches applies independently of prescription.
Laches is different from the statute of limitations. Prescription is
concerned with the fact of delay, whereas laches, is concerned
with the effect of delay. Prescription is a matter of time; laches is
principally a question of inequity of permitting a claim to be
enforced, this inequity being founded on some change in the
condition of the property or the relation of the parties.
Prescription is statutory; laches is not. Laches applies in inequity,
whereas prescription applies at law. Prescription is based on
fixed-time; laches is not. 10
Thus, the prevailing doctrine is that the right to have a contract
declared void ab initio may be barred by laches although not barred by
prescription. 11
It has, for all its elements are present, viz:

(1) conduct on the part of the defendant,


or one under whom he claims, giving rise
to the situation that led to the complaint
and for which the complaint seeks a
remedy;
(2) delay in asserting the complainant's
rights, having had knowledge or notice of
the defendant's conduct and having been
afforded an opportunity to institute a
suit;
(3) lack of knowledge or notice on the
part of the defendant that the
complainant would assert the right on
which he bases his suit; and
(4) injury or prejudice to the defendant in
the event relief is accorded to the
complainant, or the suit is not held
barred. 12
There is no question on the presence of the first element. the main thrust of
petitioner MWSS's complaint is to bring to the fore what it claims as
fraudulent and/or illegal acts of the respondents in the acquisition of the
subject property.
The second element of delay is evident from the fact that petitioner tarried
for almost ten (10) years from the conclusion of the sale sometime in 1983
before formally laying claim to the subject property in 1993.
The third element is present as can be deduced from the allegations in the
complaint that petitioner MWSS (a) demanded for a downpayment for no less
than three times; (b) accepted downpayment for P25 Million; and (c)
accepted a letter of credit for the balance. The pertinent paragraphs in the
complaint thus read:
38. In a letter dated September 19, 1983, for failure of CHGCCI to
pay on time, Mr. Ilustre demanded payment of the downpayment
of P25 Million which was due as of 18 April 1983. A copy of this
letter is hereto attached as Annex "X";

39. Again, in a letter dated February 7, 1984, then MWSS Acting


General Manager Aber Canlas demanded payment from CHGCCI
of the purchase price long overdue. A copy of this letter is hereto
attached as Annex "Y";
40. Likewise, in a letter dated March 14, 1984, Mr. Canlas again
demanded from CHGCCI payment of the price. A copy of this
demand letter is hereto attached as Annex "Z";
41. Thereafter, in a letter dated July 27, 1984, another entity,
defendant Ayala Corporation, through SVP Renato de la Fuente,
paid with a check the long overdue downpayment of
P25,000,000.00 of STC/CHGCCI. Likewise a domestic stand-by
letter of credit for the balance was issued in favor of MWSS;
Copies of the said letter, check and letter of credit are hereto
attached as Annexes "AA", "BB", and "CC", respectively.
Under these facts supplied by petitioner MWSS itself, respondents have
every good reason to believe that petitioner was honoring the validity
of the conveyances of the subject property, and that the sudden
institution of the complaint in 1993 alleging the nullity of such
conveyances was surely an unexpected turn of events for respondents.
Hence, petitioner MWSS cannot escape the effect of laches.
RE: Ratification
Pertinent to this issue is the claim of petitioner MWSS that Mr. Ilustre was
never given the authority by its Board of Trustees to enter into the "initial
agreement" of December 20, 1982 and therefore, the sale of the subject
property is invalid.
Petitioner MWSS misses the paint. The perceived infirmity in the "initial
agreement" can be cured by ratification. So settled is the precept that
ratification can be made by the corporate board either expressly or impliedly.
Implied ratification may take various forms like silence or acquiescence;
by acts showing approval or adoption of the contract; or by acceptance and
retention of benefits flowing therefrom. 13 Both modes of ratification have
been made in this case.
There was express ratification made by the Board of petitioner MWSS when it
passed Resolution No. 36-83 approving the sale of the subject property to

respondent SILHOUETTE and authorizing Mr. Ilustre, as General Manager, "to


sign for and in behalf of the MWSS the contract papers and other pertinent
documents relative thereto." Implied ratification by "silence or acquiescence"
is revealed from the acts of petitioner MWSS in (a) sending three (3) demand
letters for the payment of the purchase price, (b) accepting P25 Million as
downpayment, and (c) accepting a letter of credit for the balance, as
hereinbefore mentioned. It may well be pointed out also that nowhere in
petitioner MWSS' complaint is it alleged that it returned the amounts, or any
part thereof, covering the purchase price to any of the respondents-vendees
at any point in time. This is only indicative of petitioner MWSS' acceptance
and retention of benefits flowing from the sales transactions which is another
form of implied ratification.
RE: Non-joinder of indispensable parties
There is no denying that petitioner MWSS' action against herein respondents
for the recovery of the subject property now converted into a prime
residential subdivision would ultimately affect the proprietary rights of the
many lot owners to whom the land has already been parceled out. They
should have been included in the suit as parties-defendants, for "it is well
established that owners of property over which reconveyance is asserted are
indispensable parties without whom no relief is available and without whom
the court can render no valid judgment." 14 Being indispensable parties, the
absence of these lot-owners in the suit renders all subsequent actions of the
trial court null and void for want of authority to act, not only as to the absent
parties but even as to those present. 15Thus, when indispensable parties are
not before the court, the action should be dismissed. 16
WHEREFORE, in view of the foregoing, the consolidated petitions are hereby
DENIED.
SO ORDERED.

WPP MARKETING
COMMUNICATIONS, INC.,
JOHN STEEDMAN,
MARK WEBSTER, and
NOMINADA LANSANG,
Petitioners,

G.R. No. 169207

- versus JOCELYN M. GALERA,


Respondent.
x-------------------x
JOCELYN M. GALERA,
Petitioner,

G.R. No. 169239

- versus -

Present:

WPP MARKETING
COMMUNICATIONS, INC.,
JOHN STEEDMAN,
MARK WEBSTER, and
NOMINADA LANSANG,
Respondents.

CARPIO, Acting C.J.,


Chairperson,
BRION,
DEL CASTILLO,
ABAD, and
PEREZ, JJ.
Promulgated:

March 25, 2010


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

DECISION
CARPIO, Acting C.J.:
The Case
G.R. Nos. 169207 and 169239 are petitions for review [1] assailing the
Decision[2] promulgated
on
14
April
2005
as
well
as
the
[3]
Resolution promulgated on 1 August 2005 of the Court of Appeals
(appellate court) in CA-G.R. SP No. 78721. The appellate court granted and
gave due course to the petition filed by Jocelyn M. Galera (Galera). The
appellate courts decision reversed and set aside that of the National Labor

Relations Commission (NLRC), and directed WPP Marketing Communications,


Inc. (WPP) to payGalera backwages, separation pay, unpaid housing benefit,
unpaid personal and accident insurance benefits, cash value under the
companys pension plan, 30 days paid holiday benefit, moral damages,
exemplary damages, 10% of the total judgment award as attorneys fees, and
costs of the suit.

The Facts
The appellate court narrated the facts as follows:
Petitioner is Jocelyn Galera (GALERA), a [sic] American citizen
who was recruited from the United States of America by private
respondent John Steedman, Chairman-WPP Worldwide and Chief
Executive Officer of Mindshare, Co., a corporation based in Hong
Kong, China, to work in the Philippines for private respondent
WPP Marketing Communications, Inc. (WPP), a corporation
registered and operating under the laws of Philippines. GALERA
accepted the offer and she signed an Employment Contract
entitled Confirmation of Appointment and Statement of Terms
and Conditions (Annex B to Petition for Certiorari). The relevant
portions of the contract entered into between the parties are as
follows:
Particulars:
Name: Jocelyn M. Galera
Address: 163 Mediterranean Avenue
Hayward, CA 94544
Position: Managing Director
Mindshare Philippines
Annual Salary: Peso 3,924,000
Start Date: 1 September 1999
Commencement Date: 1 September 1999
(for continuous service)
Office: Mindshare Manila
6. Housing Allowance
The Company will provide suitable housing in Manila
at a maximum cost (including management fee and
other associated costs) of Peso 576,000 per annum.
7. Other benefits.

The Company will provide you with a fully maintained


company car and a driver.
The Company will continue to provide medical,
health, life and personal accident insurance plans, to
an amount not exceeding Peso 300,000 per annum,
in accordance with the terms of the respective plans,
as provided by JWT Manila.
The Company will reimburse you and your spouse
one way business class air tickets from USA to Manila
and the related shipping and relocation cost not
exceeding
US$5,000
supported
by
proper
documentation. If you leave the Company within one
year, you will reimburse the Company in full for all
costs of the initial relocation as described therein.
You will participate in the JWT Pension Plan under the
terms of this plan, the Company reserves the right to
transfer this benefit to a Mindshare Pension Plan in
the future, if so required.
8. Holidays
You are entitled to 20 days paid holiday in addition to
public holidays per calendar year to be taken at
times agreed with the Company. Carry-over of
unused accrued holiday entitlement into a new
holiday year will not normally be allowed. No
payment will be made for holidays not taken. On
termination of your employment, unless you have
been summarily dismissed, you will be entitled to
receive payment for unused accrued holiday pay. Any
holiday taken in excess of your entitlement shall be
deducted from your final salary payment.
9. Leave Due to Sickness or Injury
The maximum provision for sick leave is 15 working
days per calendar year.
12. Invention/Know-How
Any discovery, invention, improvement in procedure,
trademark, trade name, designs, copyrights or getups made, discovered or created by you during the
continuance of your employment hereunder relating
to the business of the Company shall belong to and
shall be the absolute property of the Company. If
required to do so by the Company (whether during or
after the termination of your employment) you shall
at the expense of the company execute all

instruments and do all things necessary to vest in


ownership for all other rights, title and interests
(including any registered rights therein) in such
discovery, invention, improvement in procedure,
trademark, trade name, design, copyright or get-up
in the Company (or its Nominee) absolutely and as
sole beneficial owner.
14. Notice.
The first three months of your employment will be a
trial period during which either you or the Company
may terminate your employment on one weeks
notice. If at the end of that period, the Company is
satisfied with your performance, you will become a
permanent employee. Thereafter you will give
Company and the Company will give you three
months notice of termination of employment. The
above is always subject to the following: (1) the
Companys right to terminate the contract of
employment on no or short notice where you are in
breach of contract; (2) your employment will at any
event cease without notice on your retirement date
when you are 60 years of age.
SIGNED JOCELYN M. GALERA 8-16-99
Date of Borth [sic] 12-25-55
Employment of GALERA with private respondent WPP became
effective on September 1, 1999 solely on the instruction of the
CEO and upon signing of the contract, without any further action
from the Board of Directors of private respondent WPP.
Four months had passed when private respondent WPP filed
before the Bureau of Immigration an application for petitioner
GALERA to receive a working visa, wherein she was designated
as Vice President of WPP. Petitioner alleged that she was
constrained to sign the application in order that she could remain
in the Philippines and retain her employment.
Then, on December 14, 2000, petitioner GALERA alleged she
was verbally notified by private respondent STEEDMAN that her
services had been terminated from private respondent WPP. A
termination letter followed the next day.[4]

On 3 January 2001, Galera filed a complaint for illegal dismissal,


holiday pay, service incentive leave pay, 13 th month pay, incentive plan,
actual and moral damages, and attorneys fees against WPP and/or
John Steedman (Steedman),
Mark
Webster
(Webster)
and Nominada Lansang (Lansang). The case was docketed as NLRC NCR
Case No. 30-01-00044-01.
The Labor Arbiters Ruling

In
his
Decision
dated
31
January
2002,
Labor
Arbiter Edgardo M. Madriaga (Arbiter Madriaga)
held
WPP, Steedman,
Webster,
and Lansang liable
for
illegal
dismissal
and
damages. Arbiter Madriaga stated
that Galera was
not
only
illegally
dismissed
but
was
also
not
accorded
due
process. Arbiter Madriaga explained, thus:
[WPP] failed to observe the two-notice rule. [WPP] through
respondent Steedman for a five (5) minute meeting on December
14, 2000 where she was verbally told that as of that day, her
employment was being terminated. [WPP] did not give [Galera]
an opportunity to defend herself and explain her side. [Galera]
was even prohibited from reporting for work that day and was
told not to report for work the next day as it would be awkward
for her and respondent Steedman to be in the same premises
after her termination. [WPP] only served [Galera] her written
notice of termination only on 15 December 2001, one day after
she was verbally apprised thereof.
The law mandates that the dismissal must be properly
done otherwise, the termination is gravely defective and may be
declared unlawful as we hereby hold [Galeras] dismissal to be
illegal and unlawful. Where 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. The law mandates that both the substantive
and procedural aspects of due process should be observed. The
facts clearly show that respondents were remiss on both
aspects. Perforce, the dismissal is void and unlawful.

xxxx
Considering the work performance and achievements of [Galera]
for the year 2000, we do not find any basis for the alleged claim
of incompetence by herein respondents. Had [Galera] been really
incompetent, she would not have been able to generate
enormous amounts [sic] of revenues and business for [WPP]. She
also appears to be well liked as a leader by her subordinates,
who have come forth in support of [Galera]. These facts remain
undisputed by respondents.
A mans job being a property right duly protected by our laws, an
employer who deprives an employee [of] the right to defend
himself is liable for damages consistent with Article 32 of the
Civil Code. To allow an employer to terminate the employment of
his worker based merely on allegations without proof places the
[employee] in an uncertain situation. The unflinching rule in
illegal dismissal cases is that the employer bears the burden of
proof.
In the instant case, respondents have not been able to muster
evidence to counter [Galeras] allegations. [Galeras] allegations
remain and stand absent proof from respondents rebutting
them.Hence, our finding of illegal dismissal against respondents
who clearly have conspired in bad faith to deprive [Galera] of her
right to substantive and procedural due process.[5]

The dispositive portion of Arbiter Madriagas decision reads as follows:


WHEREFORE, premises considered, we hereby hold herein
respondents liable for illegal dismissal and damages, and award
to [Galera], by virtue of her expatriate status, the following:
a.
rights.

Reinstatement

without

loss

of

seniority

b.
Backwages amounting to $120,000 per year
at P50.00 to US $1 exchange rate, 13th month pay,
transportation and housing benefits.
c.
Remuneration for business acquisitions
amounting to Two Million Eight Hundred Fifty Thousand
Pesos (P2,850,000.00) and Media Plowback Incentive
equivalent to Three Million Pesos (P3,000,000.00) or a total

of not less than One Hundred Thousand US Dollars


($100,000.00).
d.
US Tax Protection of up to 35% coverage
equivalent to Thirty Eight Thousand US Dollars ($38,000).
e.
Moral damages including implied defamation
and punitive damages equivalent to Two Million Dollars
(US$2,000,000.00).
f.
Exemplary damages
Million Dollars ($1,000,000.00).
g.
herein.

equivalent

to

One

Attorneys fees of 10% of the total award

SO ORDERED.[6]

The Ruling of the NLRC


The First Division of the NLRC reversed the ruling of
Arbiter Madriaga. In its Decision[7] promulgated on 19 February 2003, the
NLRC stressed that Galera was WPPsVice-President, and therefore, a
corporate officer at the time she was removed by the Board of Directors on
14 December 2000. The NLRC stated thus:
It matters not that her having been elected by the Board to an
added position of being a member of the Board of Directors did
not take effect as her May 31, 2000 election to such added
position was conditioned to be effective upon approval by SEC of
the Amended By-Laws, an approval which took place only in
February 21, 2001, i.e., after her removal on December 14,
2000. What counts is, at the time of her removal, she continued
to be WPPs Vice-President, a corporate officer, on hold over
capacity.
Ms. Galeras claim that she was not a corporate officer at the time
of her removal because her May 31, 2000 election as Vice
President for Media, under WPPs Amended By-Laws, was subject
to the approval by the Securities and Exchange Commission and
that the SEC approved the Amended By-Laws only in February
2001. Such claim is unavailing. Even if Ms. Galerassubsequent

election as Vice President for Media on May 31, 2000 was subject
to approval by the SEC, she continued to hold her previous
position as Vice President under the December 31, 1999 election
until such time that her successor is duly elected and qualified. It
is a basic principle in corporation law, which principle is also
embodied in WPPs by-laws, that a corporate officer continues to
hold his position as such until his successor has been duly
elected and qualified. When Ms. Galera was elected as Vice
President on December 31, 1999, she was supposed to have held
that position until her successor has been duly elected and
qualified. The record shows that Ms. Galera was not replaced by
anyone. She continued to be Vice President of WPP with the
same operational title of Managing Director for Mindshare and
continued to perform the same functions she was performing
prior to her May 31, 2000 election.
In
the
recent
case
of Dily Dany Nacpil v.
International
Broadcasting Corp., the definition of corporate officer for
purposes of intra-corporate controversy was even broadened to
include a Comptroller/Assistant Manager who was appointed by
the General Manager, and whose appointment was later
approved by the Board of Directors. In this case, the position of
comptroller was not even expressly mentioned in the By-Laws of
the corporation, and yet, the Supreme Court found him to be a
corporate officer. The Court ruled that
(since) petitioners appointment as comptroller
required the approval and formal action of IBCs
Board of Directors to become valid, it is clear
therefore that petitioner is a corporate officer whose
dismissal may be the subject of a controversy
cognizable by the SEC... Had the petitioner been an
ordinary employee, such board action would not
have been required.
Such being the case, the imperatives of law require that we hold
that the Arbiter below had no jurisdiction over Galeras case as,
again, she was a corporate officer at the time of her removal.
WHEREFORE, the appeals of petitioner from the Decision of Labor
Arbiter Edgardo Madriaga dated January 31, 2002 and his Order
dated March 21, 2002, respectively, are granted. The January 31,
2002 decision of the Labor Arbiter is set aside for being null and
void and the temporary restraining order we issued on April 24,

2002
is
hereby
made
permanent. The
complaint
Jocelyn Galera is dismissed for lack of jurisdiction.

of

SO ORDERED.[8]
In its Resolution[9] promulgated on 4 June 2003, the NLRC further stated:
We are fully convinced that this is indeed an intra-corporate
dispute which is beyond the labor arbiters jurisdiction. These
consolidated cases clearly [involve] the relationship between a
corporation and its officer and is properly within the definition of
an intra-corporate relationship which, under P.D. No. 902-A, is
within the jurisdiction of the SEC (now the commercial courts).
Such being the case, We are constrained to rule that the Labor
Arbiter below had no jurisdiction over Ms. Galeras complaint for
illegal dismissal.
WHEREFORE, the motion for reconsideration filed by
Ms. Galera is hereby denied for lack of merit. We reiterate our
February 19, 2003 Decision setting aside the Labor Arbiters
Decision dated January 31, 2002 for being null and void.
SO ORDERED.[10]

Galera assailed the NLRCs decision and resolution before the appellate court
and raised a lone assignment of error.
The National Labor Relations Commission acted with grave abuse
of discretion amounting to lack or excess of jurisdiction when
it reversed the decision of the Labor Arbiter not on the merits
but for alleged lack of jurisdiction.[11]

The Decision of the Appellate Court

The appellate court reversed and set aside the decision of the NLRC. The
appellate court ruled that the NLRCs dismissal of Galeras appeal is not in
accord with jurisprudence. A person could be considered a corporate officer
only if appointed as such by a corporations Board of Directors, or if pursuant
to the power given them by either the Articles of Incorporation or the ByLaws.[12]

The appellate court explained:


A corporation, through its board of directors, could only act in the
manner and within the formalities, if any, prescribed by its
charter or by the general law. If the action of the Board
is ultravires such is motu proprio void ab initio and without legal
effect whatsoever. The by-laws of a corporation are its own
private laws which substantially have the same effect as the laws
of the corporation. They are, in effect, written into the charter. In
this sense, they beome part of the fundamental law of the
corporation with which the corporation and its directors and
officers must comply.
Even if petitioner GALERA had been appointed by the Board of
Directors on December 31, 1999, private respondent WPPs ByLaws provided for only one Vice-President, a position already
occupied by private respondent Webster. The same defect also
stains the Board of Directors appointment of petitioner GALERA
as a Director of the corporation, because at that time the ByLaws provided for only five directors. In addition, the By-laws
only empowered the Board of Directors to appoint a general
manager and/or assistant general manager as corporate officers
in addition to a chairman, president, vice-president and
treasurer. There is no mention of a corporate officer entitled
Managing Director.
Hence, when the Board of Directors enacted the Resolutions of
December 31, 1999 and May 31, 2000, it exceeded its authority
under the By-Laws and are, therefore, ultra vires. Although
private respondent WPP sought to amend these defects by filing
Amended By-Laws with the Securities and Exchange
Commission, they did not validate the ultra vires resolutions
because the Amended By-Laws did not take effect until February
16, 2001, when it was approved by the SEC. Since by-laws
operate
only
prospectively,
they
could
not
validate
the ultra vires resolutions.[13]

The dispositive portion of the appellate courts decision reads:


WHEREFORE, the petition is hereby GRANTED and GIVEN DUE
COURSE. The assailed Decision of the National Labor Relations
Commission is hereby REVERSED and SET ASIDE and a new one

is entered DIRECTING private respondent WPP MARKETING


COMMUNICATIONS, INC. to:
1.

Pay [Galera] backwages at the peso equivalent of


US$120,000.00 per annum plus three months from her
summary December 14, 2000 dismissal up to March 14,
2001 because three months notice is required under the
contract, plus 13th month pay, bonuses and general
increases to which she would have been normally
entitled, had she not been dismissed and had she not
been forced to stop working, including US tax protection
of up to 35% coverage which she had been enjoying as
an expatriate;

2.

Pay
x x x GALERA
the
peso
equivalent
US$185,000.00 separation pay (1 years);

3.

Pay x x x GALERA any unpaid housing benefit for the


18 months of her employment in the service to the
Company as an expatriate in Manila, Philippines at the
rate of P576,000 per year; unpaid personal and accident
insurance benefits for premiums at the rate
of P300,000.00 per year; whatever cash value in the JWT
Pension Plan; and thirty days paid holiday benefit under
the contract for the 1 calendar years with the Company;

4.

Pay
x x x GALERA
the
reduced
PhP2,000,000.00 as moral damages;

5.

Pay [Galera] the reduced amount of PhP1,000,000.00


as exemplary damages;

6.

Pay [Galera] an amount equivalent to 10% of the


judgment award as attorneys fees;

7.

amount

of

of

Pay the cost of the suit.

SO ORDERED.[14]

Respondents filed a motion for reconsideration on 5 May 2005. Galera filed a


motion for partial reconsideration and/or clarification on the same date. The
appellate court found no reason to revise or reverse its previous decision and

subsequently denied the motions in a Resolution promulgated on 1 August


2005.[15]
The Issues
WPP, Steedman, Webster, and Lansang raised the following grounds in
G.R. No. 169207:
I.

The Court of Appeals seriously erred in ruling that the


NLRC has jurisdiction over [Galeras] complaint because she
was not an employee. [Galera] was a corporate officer of WPP
from the beginning of her term until her removal from office.

II.

Assuming arguendo that the Court of Appeals correctly ruled


that the NLRC has jurisdiction over [Galeras] complaint, it
should have remanded the case to the Labor Arbiter for
reception of evidence on the merits of the case.

III. [Galera] is an alien, hence, can never attain a regular or


permanent working status in the Philippines.
IV.

[Galera] is not entitled to recover backwages, other


benefits and damages from WPP.[16]

On the other hand, in G.R. No. 169239, Galera raised the following
grounds in support of her petition:
The CA decision should be consistent with Article 279 of the
Labor
Code
and
applicable
jurisprudence,
that
full backwages and
separation
pay
(when
in
lieu
of
reinstatement), should be reckoned from time of dismissal up to
time of reinstatement (or payment of separation pay, in case
separation instead of reinstatement is awarded).
Accordingly,
petitioner Galera should
be
awarded
full backwages and separation pay for the period from 14
December 2000 until the finality of judgment by the
respondents, or, at the very least, up to the promulgation date of
the CA decision.
The
individual
respondents Steedman,
Webster
and Lansang must be held solidarily liable with respondent WPP

for the wanton and summary dismissal of petitioner Galera, to be


consistent with law and jurisprudence as well as the specific
finding of the CA of bad faith on the part of respondents.[17]

This Court ordered the consolidation of G.R. Nos. 169207 and 169239 in a
resolution dated 16 January 2006.[18]

The Ruling of the Court


In its consolidated comment, the Office of the Solicitor General (OSG)
recommended that (A) the Decision dated 14 April 2005 of the appellate
court finding (1) Galera to be a regular employee of WPP; (2) the NLRC to
have jurisdiction over the present case; and (3) WPP to have illegally
dismissed Galera, be affirmed; and (B) the case remanded to the Labor
Arbiter for the computation of the correct monetary award. Despite the OSGs
recommendations, we see that Galeras failure to seek an employment permit
prior to her employment poses a serious problem in seeking relief before this
Court. Hence, we settle the various issues raised by the parties for the
guidance of the bench and bar.
Whether Galera is an Employee or a Corporate Officer
Galera, on the belief that she is an employee, filed her complaint before the
Labor
Arbiter. On
the
other
hand,
WPP, Steedman,
Webster
and Lansang contend that Galera is a corporate officer; hence, any
controversy regarding her dismissal is under the jurisdiction of the Regional
Trial Court. We agree with Galera.
Corporate officers are given such character either by the Corporation Code or
by the corporations by-laws. Under Section 25 of the Corporation Code, the
corporate officers are the president, secretary, treasurer and such other
officers as may be provided in the by-laws.[19] Other officers are sometimes
created by the charter or by-laws of a corporation,or the board of directors
may be empowered under the by-laws of a corporation to create additional
offices as may be necessary.

An
examination
of WPPs by-laws
resulted
in
a
finding
that Galeras appointment as a corporate officer (Vice-President with the
operational title of Managing Director of Mindshare) during a special meeting
of WPPs Board of Directors is an appointment to a non-existent corporate
office. WPPs by-laws provided for only one Vice-President. At the time
of Galeras appointment on 31 December 1999, WPP already had one VicePresident in the person of Webster. Galera cannot be said to be a director of
WPP also because all five directorship positions provided in the by-laws are
already occupied. Finally, WPP cannot rely on its Amended By-Laws to
support its argument that Galera is a corporate officer. The Amended ByLaws provided for more than one Vice-President and for two additional
directors. Even though WPPs stockholders voted for the amendment on 31
May 2000, the SEC approved the amendments only on 16 February
2001. Galera was dismissed on 14 December 2000. WPP, Steedman,
Webster, and Lansang did not present any evidence that Galeras dismissal
took effect with the action of WPPs Board of Directors.
The appellate court further justified that Galera was an employee and not a
corporate officer by subjecting WPP and Galeras relationship to the four-fold
test: (a) the selection and engagement of the employee; (b) the payment of
wages; (c) the power of dismissal; and (d) the employers power to control
the employee with respect to the means and methods by which the work is
to be accomplished. The appellate court found:
x x x Sections 1 and 4 of the employment contract mandate
where and how often she is to perform her work; sections 3, 5, 6
and 7 show that wages she receives are completely controlled by
xx x WPP; and sections 10 and 11 clearly state that she is subject
to the regular disciplinary procedures of x x x WPP.
Another indicator that she was a regular employee and not a
corporate officer is Section 14 of the contract, which clearly
states that she is a permanent employee not a Vice-President or
a member of the Board of Directors.
xxxx
Another indication that the Employment Contract was one of
regular employment is Section 12, which states that the rights to

any invention, discovery, improvement in procedure, trademark,


or copyright created or discovered by petitioner GALERA during
her employment shall automatically belong to private respondent
WPP. Under Republic Act 8293, also known as the Intellectual
Property Code, this condition prevails if the creator of the work
subject to the laws of patent or copyright is an employee of the
one entitled to the patent or copyright.
Another convincing indication that she was only a regular
employee and not a corporate officer is the disciplinary
procedure under Sections 10 and 11 of the Employment
Contract, which states that her right of redress is
through Mindshares Chief Executive Officer for the AsiaPacific. This implies that she was not under the disciplinary
control of private respondent WPPs Board of Directors (BOD),
which should have been the case if in fact she was a corporate
officer because only the Board of Directors could appoint and
terminate such a corporate officer.

Although petitioner GALERA did sign the Alien Employment


Permit from the Department of Labor and Employment and the
application for a 9(g) visa with the Bureau of Immigration both of
which stated that she was private respondents WPP Vice
President
these
should
not
be
considered
against
her. Assurming arguendo that her appointment as Vice-President
was a valid act, it must be noted that these appointments
occurred afater she was hired as a regular employee. After her
appointments, there was no appreciable change in her duties.
[20]
Whether the Labor Arbiter and the NLRC
have jurisdiction over the present case
Galera being an employee, then the Labor Arbiter and the NLRC have
jurisdiction over the present case. Article 217 of the Labor Code provides:
Jurisdiction of Labor Arbiters and the Commission. (a) Except as
otherwise provided under this Code, the Labor Arbiters shall have
original and exclusive jurisdiction to hear and decide x x xthe
following cases involving all workers, whether agricultural or nonagricultural:

1.

Unfair labor practice cases;

2.

Termination disputes;

3.
If
accompanied
with
a
claim
for
reinstatement, those cases that workers may file involving
wages, rates of pay, hours of work and other terms and
conditions of employment;
4.
Claims for actual, moral, exemplary and other
forms of damages arising from the employer-employee
relations;
5.
Cases arising from any violation of Article
264 of this Code, including questions involving the legality
of strikes and lockouts;
6.
Except claims for Employees Compensation,
Social Security, Medicare and other maternity benefits, all
other claims, arising from employer-employee relations,
including those of persons in domestic or household
service, involving an amount exceeding five thousand
pesos (P5,000.00) regardless of whether accompanied with
a claim for reinstatement.
(b) The Commission shall have exclusive appellate
jurisdiction over all cases decided by Labor Arbiters.
(c) Cases arising from the interpretation of collective
bargaining agreements and those arising from the
interpretation or enforcement of company personnel
policies shall be disposed of by the Labor Arbiter by
referring the same to the grievance machinery and
voluntary arbitration as may be provided in said
agreements.

In contrast, Section 5.2 of Republic Act No. 8799, or the Securities Regulation
Code, states:
The Commissions jurisdiction over all cases enumerated under
Section 5 of Presidential Decree No. 902-A is hereby transferred
to the courts of general jurisdiction or the appropriate Regional
Trial Court: Provided, That the Supreme Court in the exercise of
its authority may designate the Regional Trial Court branches

that shall exercise jurisdiction over these cases. The Commission


shall retain jurisdiction over pending cases involving intracorporate disputes submitted for final resolution which should be
resolved within one year from the enactment of this Code. The
Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until
finally disposed.

The pertinent portions of Section 5 of Presidential Decree No. 902-A,


mentioned above, states:
b) Controversies arising out of intra-corporate or partnership
relations, between and among stockholders, members or
associates; between any or all of them and the corporation,
partnership or association of which they are stockholders,
members or associates, respectively; and between such
corporation, partnership or association and the state insofar as it
concerns their individual franchise or right to exist as such entity;
c) Controversies in the election or appointments of directors,
trustees, officers or managers of such corporations, partnerships
or associations.
Whether WPP illegally dismissed Galera
WPPs dismissal of Galera lacked both substantive and procedural due
process.

Apart from Steedmans letter dated 15 December 2000 to Galera, WPP failed
to prove any just or authorized cause for Galeras dismissal. Steedmans letter
to Galera reads:
The operations are currently in a shamble. There is lack of
leadership and confidence in your abilities from within, our
agency partners and some clients.

Most of the staff I spoke with felt they got more guidance and
direction from Minda than yourself. In your role as Managing
Director, that is just not acceptable.
I believe your priorities are mismanaged. The recent situation
where you felt an internal strategy meeting was more important
than a new business pitch is a good example.
You failed to lead and advise on the two new business pitches. In
both cases, those involved sort (sic) Mindas input. As I discussed
with you back in July, my directive was for you to lead and review
all business pitches. It is obvious [that] confusion existed
internally right up until the day of the pitch.
The quality output is still not to an acceptable standard, which
was also part of my directive that you needed to focus on back in
July.
I do not believe you understand the basic skills and industry
knowledge required to run a media special operation.[21]
WPP, Steedman, Webster, and Lansang, however, failed to substantiate the
allegations in Steedmans letter. Galera, on the other hand, presented
documentary evidence[22] in the form of congratulatory letters, including one
from Steedman, which contents are diametrically opposed to the 15
December 2000 letter.
The law further requires that the employer must furnish the worker sought to
be dismissed with two written notices before termination of employment can
be legally effected: (1) notice which apprises the employee of the particular
acts or omissions for which his dismissal is sought; and (2) the subsequent
notice which informs the employee of the employers decision to dismiss
him. Failure to comply with the requirements taints the dismissal with
illegality.[23] WPPs acts clearly show that Galeras dismissal did not comply
with the two-notice rule.
Whether Galera is entitled to the monetary award
WPP, Steedman, Webster, and Lansang argue that Galera is not entitled
to backwages because she is an alien. They further state that there is no

guarantee that the Bureau of Immigration and the Department of Labor and
Employment will continue to grant favorable rulings on the applications for a
9(g) visa and an Alien Employment Permit after the expiry of the validity
of Galeras documents on 31 December 2000. WPPs argument is a circular
argument, and assumes what it attempts to prove. Had WPP not
dismissedGalera, there is no doubt in our minds that WPP would have taken
action for the approval of documents required for Galeras continued
employment.
This is Galeras dilemma: Galera worked in the Philippines without a proper
work permit but now wants to claim employees benefits under Philippine
labor laws.
Employment of GALERA with private respondent WPP
became effective on September 1, 1999 solely on the
instruction of the CEO and upon signing of the contract, without
any further action from the Board of Directors of
private respondent WPP.
Four months had passed when private respondent WPP
filed before the Bureau of Immigration an application for
petitioner GALERA to receive a working visa, wherein she
was designated as Vice President of WPP. Petitioner alleged that
she was constrained to sign the application in order that she
could remain in the Philippines and retain her employment.[24]
The law and the rules are consistent in stating that the employment permit
must be acquired prior to employment. The Labor Code states: Any alien
seeking admission to the Philippines for employment purposes and any
domestic or foreign employer who desires to engage an alien for
employment in the Philippines shall obtain an employment permit from the
Department of Labor.[25] Section 4, Rule XIV, Book 1 of the Implementing
Rules and Regulations provides:
Employment permit required for entry. No alien seeking
employment, whether as a resident or non-resident, may enter
the Philippines without first securing an employment permit from
the Ministry. If an alien enters the country under a non-working
visa and wishes to be employed thereafter, he may only be

allowed to be employed upon presentation of a duly approved


employment permit.
Galera cannot
come
to
this
Court
with
unclean
hands. To
grant Galeras prayer is to sanction the violation of the Philippine labor laws
requiring aliens to secure work permitsbefore their employment. We hold
that the status quo must prevail in the present case and we leave the parties
where they are. This ruling, however, does not bar Galera from seeking relief
from other jurisdictions.
WHEREFORE, we PARTIALLY GRANT the petitions in G.R. Nos. 169207 and
169239. We SET ASIDE the Decision of the Court of Appeals promulgated on
14 April 2005 as well as the Resolution promulgated on 1 August 2005 in CAG.R. SP No. 78721.
SO ORDERED.

[G.R. No. 106648. June 17, 1999]


AUDION ELECTRIC CO., INC., petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION and NICOLAS MADOLID, respondents.
DECISION
GONZAGA_REYES, J.:
In this special civil action for certiorari, petitioner seeks the annulment of
the resolution[1] dated March 24, 1992, of the National Labor Relations
Commission in NLRC NCR-CA No. 001034-90 and the Order [2] dated July 31,
1992, denying petitioners motion for reconsideration dated April 22, 1992.
The facts of the case as summarized by Labor Arbiter Cresencio R. Iniego
in his decision rendered on November 15, 1990 in NLRC-NCR Case No. -0008-03906-89, and which are quoted in the questioned Resolution dated
March 24, 1992 of the public respondent are as follows:
From the position paper and affidavit corroborated by oral testimony, it
appears that complainant was employed by respondent Audion Electric
Company on June 30, 1976 as fabricator and continuously rendered service
assigned in different offices or projects as helper electrician, stockman and
timekeeper. He has rendered thirteen (13) years of continuous, loyal and
dedicated service with a clean record. On August 3, complainant was
surprised to receive a letter informing him that he will be considered
terminated after the turnover of materials, including respondents tools and
equipments not later than August 15, 1989.
Complainant claims that he was dismissed without justifiable cause and due
process and that his dismissal was done in bad faith which renders the
dismissal illegal. For this reason, he claims that he is entitled to
reinstatement with full backwages. He also claims that he is entitled to moral
and exemplary damages. He includes payment of his overtime pay, project
allowance, minimum wage increase adjustment, proportionate 13th month
pay and attorneys fees.
On its part, respondent merely relied on its unverified letter-communication
signed by its project manager, dated September 25, 1989, the contents of
which are as follows:

Your Honor:
Apropos to the complaints filed by NICOLAS MADOLID with your honorable
office are as stated and corresponding allegations as our defense to said
complaints.
A. ILLEGAL DISMISSAL- There is no course (sic) to complain since
employment contract signed by complainant with respondent is coterminus with the project. xxx
B. UNPAID WAGES- Admitting that salary payment was delayed due to
late remittance of collection from respondents Japanese prime
contractor but nonetheless settled with complainant as evidenced
by signed Payroll Slips by complainant. xxx
C. NON-PAYMENT OF 13th MONTH PAY- As earlier admitted, there
was a relative delay in the remittance of collection payment from
our Japanese prime contractor but respondent knowing the
economic predecament (sic) of complainant has seen to it that
respondent be satisfied without awaiting for remittance of 13th
month from its Japanese contractor. attached is a xxx
In full satisfaction of the enumerated complaints made by complainant
NICOLAS MADOLID against respondent THE AUDION ELECTRIC CO., INC., we
pray that charges against respondent be withdrawn and dropped.[3]
On November 15, 1990, Labor Arbiter Cresencio R. Iniego rendered a
decision, the dispositive portion states:
WHEREFORE, judgment is hereby rendered ordering respondent Audion
Electric Co., Inc. and/or Robert S. Coran, Manager:
1. to reinstate complainant Nicolas Madolid to his former position with
full backwages from the date of his dismissal on August 15, 1989
up to the signing of this decision without loss of seniority rights in
the amount of P34,710.00;
2. to pay complainant his overtime pay for the period March 16 to
April 3, 1989 in the amount of P 765.63;
3. to pay complainant his project allowances as follows:

April 16, 1989 to April 30, 1989 P30.00


May 1 to May 15, 1989 P45.00
May 16 to May 31, 1989 P30.00
June 1 to June 15, 1989 P45.00
June 16 to June 30, 1989 P30.00
July 1 to July 15, 1989 P30.00
July 16 to July 31, 1989 P45.00
4. to pay complainant the minimum wage increase adjustment from
August 1 to 14, 1989 in the amount of P256.50;
5. to pay complainant his proportionate 13th month pay from January
to May 1988 in the amount of P700.00;
6. to pay complainant moral and exemplary damages in the amount
of P20,000.00; and
7. to pay attorneys fees equivalent to 10% of the total award of
complainant.[4]
Petitioner appealed to the National Labor Relations Commission which
rendered the questioned Resolution dated March 24, 1992 dismissing the
appeal.
The motion for reconsideration filed by petitioner was denied by the NLRC
in its Order dated July 31, 1992.
Petitioner is now before us raising the following issues:
I
THE RESPONDENT COMMISSION ACTED WITH GRAVE ABUSE OF DISCRETION
IN AFFIRMING THE DECISION OF THE LABOR ARBITER DIRECTING THE
REINSTATEMENT OF THE PRIVATE RESPONDENT TO HIS FORMER POSITION
WITHOUT LOSS OF SENIORITY RIGHTS AND WITH BACKWAGES AMOUNTING

TO P34,710.00 NOTWITHSTANDING THE FACT THAT THE PRIVATE


RESPONDENT WAS MERELY A PROJECT EMPLOYEE.
II
THE RESPONDENT COMMISSION ACTED WITH GRAVE ABUSE OF DISCRETION
WHEN IT AWARDED THE CLAIM FOR OVERTIME PAY TO PRIVATE RESPONDENT
WHEN NO OVERTIME WORK WAS RENDERED.
III
THE RESPONDENT COMMISSION ACTED WITH GRAVE ABUSE OF DISCRETION
WHEN IT AWARDED THE CLAIMS OF PRIVATE RESPONDENT FOR PROJECT
ALLOWANCES, MINIMUM WAGE INCREASE ADJUSTMENT AND PROPORTIONATE
13TH MONTH PAY WITHOUT ANY EVIDENCE TO PROVE THE SAME.
IV
THE RESPONDENT COMMISSION ACTED WITH GRAVE ABUSE OF DISCRETION
WHEN IT DENIED PETITIONERS CLAIM THAT IT WAS DENIED DUE PROCESS.
V
THE RESPONDENT COMMISSION ACTED WITH GRAVE ABUSE OF DISCRETION
WHEN IT DID NOT TOUCH UPON MUCH LESS DISCUSS THE PETITIONERS
ASSIGNMENTS OF ERRORS IN ITS APPEAL.
VI
THE RESPONDENT COMMISSION ACTED WITH GRAVE ABUSE OF DISCRETION
IN AWARDING MORAL AND EXEMPLARY DAMAGES IN THE AMOUNT
OF P20,000 AS WELL AS ATTORNEYS FEES CONSIDERING THAT THE SAME
ARE WITHOUT FACTUAL AND LEGAL BASIS.[5]
The core issues presented before us are (a) whether the respondent NLRC
committed grave abuse of discretion amounting to lack or excess of
jurisdiction when it ruled that private respondent was a regular employee
and not a project employee, (b) whether petitioner was denied due process
when all the money claims of private respondent, i.e. overtime pay, project
allowances, salary differential, proportionate 13th month pay, moral and
exemplary damages as well as attorneys fees, were granted.

Petitioner contends that as an electrical contractor, its business depends


on contracts it may obtain from private and government establishments,
hence the duration of the employment of its work force is not permanent but
co-terminous with the project to which they are assigned; that the conclusion
reached by the Labor Arbiter and affirmed by the respondent court that
private respondent was a regular employee of petitioner was merely based
on mere allegations of private respondent since the Labor Arbiter did not
consider the letter-communication filed by petitioner through its project
manager for the reason that it was not under oath; that although private
respondents employment records showed that he was hired by petitioner as
fabricator, helper/electrician, stockman and timekeeper in its various projects
from 1976 to August 14, 1989, the same employment record showed a gap
in his employment service by reason of completion of a particular project,
hence, private respondent would be re-assigned to other on-going projects of
the petitioner or be laid off if there is no available project; that private
respondent is a project worker whose employment is co-terminous with the
completion of project, regardless of the number of projects in which he had
worked as provided under Policy Instruction No. 20 of the Labor Department
defining project employees as those employed in connection with a
particular construction project. Petitioner relies on the rulings laid down in
Sandoval Shipyard Inc. vs. NLRC[6] and Cartagenas vs. Romago Electric Co.,
Inc[7] where this court declared the employment of project employees as coterminous with the completion of the project for which they were hired.
Well-settled is the rule that the findings of the NLRC, except when there is
grave abuse of discretion, are practically conclusive on this Court. It is only
when the NLRCs findings are bereft of any substantial support from the
records that the Court may step in and proceed to make its own independent
evaluation of the facts.[8] We see no reason to deviate from the rule.
In finding that private respondent was a regular employee of petitioner
and not a mere project employee, the respondent Commission held:
"Firstly, respondents assigning complainant to its various projects did not
make complainant a project worker. As found by the Labor Arbiter, it appears
that complainant was employed by respondent xxx as fabricator and or
projects as helper electrician, stockman and timekeeper. Simply put,
complainant was a regular non-project worker."[9]

Private
respondents
employment
status
was
established
by
the Certification of Employment dated April 10, 1989 issued by petitioner
which certified that private respondent is a bonafide employee of the
petitioner from June 30, 1976 up to the time the certification was issued on
April 10, 1989. The same certificate of employment showed that private
respondents exposure to their field of operation was as fabricator,
helper/electrician, stockman/timekeeper. This proves that private respondent
was regularly and continuously employed by petitioner in various job
assignments from 1976 to 1989, for a total of 13 years. The alleged gap in
employment service cited by petitioner does not defeat private respondents
regular status as he was rehired for many more projects without interruption
and performed functions which are vital, necessary and indispensable to the
usual business of petitioner.
We have held that where the employment of project employees is
extended long after the supposed project has been finished, the employees
are removed from the scope of project employees and considered regular
employees.[10] Private respondent had presented substantial evidence to
support his position, while petitioner merely presented an unverified position
paper merely stating therein that private respondent has no cause to
complain since the employment contract signed by private respondent with
petitioner was co-terminous with the project. Notably, petitioner failed to
present such employment contract for a specific project signed by private
respondent that would show that his employment with the petitioner was for
the duration of a particular project. Moreover, notwithstanding petitioners
claim in its reply that in taking interest in the welfare of its workers,
petitioner would strive to provide them with more continuous work by
successively employing its workers, in this case, private respondent,
petitioner failed to present any report of termination. Petitioner should have
submitted or filed as many reports of termination as there were construction
projects actually finished, considering that private respondent had been
hired since 1976. The failure of petitioner to submit reports of termination
supports the claim of private respondent that he was indeed a regular
employee.
Policy Instruction No. 20 of the Department of Labor is explicit that
employers of project employees are exempted from the clearance
requirement but not from the submission of termination report. This court
has consistently held that failure of the employer to file termination reports
after every project completion with the nearest public employment office is

an indication that private respondent was not and is not a project employee.
[11]
Department Order No. 19 superseding Policy Instruction No. 20 expressly
provides that the report of termination is one of the indications of project
employment.[12]
As stated earlier, the rule in our jurisdiction is that findings of facts of the
NLRC affirming those of the Labor Arbiter are entitled to great weight and will
not be disturbed if they are supported by substantial evidence. [13] Substantial
evidence is an amount of relevant evidence which a reasonable mind might
accept as adequate to justify a conclusion. [14] We find no grave abuse of
discretion committed by NLRC in finding that private respondent was not a
project employee.
Our ruling in the case of Sandoval Shipyard vs. NLRC, supra, is not in
point. In the said case, the hiring of construction workers was not continuous
for the reason that the shipyard merely accepts contracts for shipbuilding or
for repair of vessels from third parties and, it is only on occasions when it has
work contracts of this nature that it hires workers for the job which lasts only
for less than a year or longer. With respect to Cartagenas vs. Romago Electric
Co. also relied upon by the petitioner, the complainants were considered
project employees because they were issued appointments from project to
project, which were co-terminous with the phase or item of work assigned to
them in said project, a situation which is not obtaining in the instant case.
Petitioner further claims that respondent Commission erred in sustaining
the awards for overtime pay, project allowances, minimum wage increase
adjustment and proportionate 13th month pay to private respondent in the
absence of any substantial evidence supporting the same; that private
respondent failed to present any documentary evidence other than his selfserving allegation that he actually rendered overtime work and that he failed
to specify in his position paper the actual number of overtime work alleged
to have been rendered; that in petitioners letter-communication filed with the
labor arbiter, it showed that claims for allowances and salary differential and
13th month pay were already satisfied although petitioner admitted that
there was a delay in the payment which was not rebutted by private
respondent.
We find no merit in petitioners contention.
Private respondent clearly specified in his affidavit the specific dates in
which he was not paid overtime pay, that is, from the period March 16, 1989

to April 3, 1989 amounting to P765.63, project allowance from April 16, 1989
to July 31, 1989 in the total amount of P255.00, wage adjustment for the
period from August 1, 1989 to August 14, 1989 in the amount of P256.50 and
the proportionate 13th month pay for the period covering January to May
1988, November-December 1988, and from January to August 1989. This
same affidavit was confirmed by private respondent in one of the scheduled
hearings where he moved that he be allowed to present his evidence exparte for failure of petitioner or any of his representative to appear
thereat. On the other hand, petitioner submitted its unverified Comment to
private respondents complaint stating that he had already satisfied the
unpaid wages and 13th month pay claimed by private respondent, but this
was not considered by the Labor Arbiter for being unverified. As a rule, one
who pleads payment has the burden of proving it. Even where the plaintiff
must allege non-payment, the general rule is that the burden rests on the
defendant to prove payment, rather than on the plaintiff to prove nonpayment.[15] The debtor has the burden of showing with legal certainty that
the obligation has been discharged by payment.[16] Petitioner failed to rebut
the claims of private respondent. It failed to show proof by means of payroll
or other evidence to disprove the claim of private respondent. Petitioner was
given the opportunity to cross-examine private respondent yet petitioner
forfeited such chance when it did not attend the hearing, and failed to rebut
the claims of private respondent.
Petitioners contention that it was denied due process when it was not
given the chance to cross-examine the adverse party and his witnesses, is
devoid of merit. The essence of due process is simply an opportunity to be
heard[17] or as applied to administrative proceedings, an opportunity to
explain ones side or an opportunity to seek a reconsideration of the action or
ruling complained of.[18] What the law prohibits is absolute absence of the
opportunity to be heard; hence, a party cannot feign denial of due process
where he had been afforded the opportunity to present his side. [19] Petitioner
was not denied due process. As the respondent commission observed:
The case was initially set for hearing on September 12, 1989 wherein
complainant himself appeared. Respondents representative appeared
late. For this reason, the case was reset to September 26, 1989 at 9:30 a.m.
wherein both parties appeared. Complainant filed his position paper and
respondents through its project manager filed a one-page unverified
communication stating therein its defense. The case was then reset to
October 9 and 10, 1990 both at 3:00 p.m. warning the parties that no further

postponement will be allowed. On October 9, 1989 complainant and his


counsel appeared but respondents and representative failed to appear
despite due notice and warning. A reply to respondents position paper was
filed by complainant through counsel during the hearing. To give a chance to
respondents to appear, hearing was reset the next day, October 10,
1989. However, respondents or representative again failed to appear which
constrained counsel for complainant to move that he be allowed to present
evidence ex-parte which motion was granted. Complainant was presented as
witness, confirmed his affidavit, testified on additional direct examination
and identified the annexes attached to his position paper.
To allow the respondents to cross examine the complainant, hearing was
again reset to October 31, 1989 at 9:30 a.m. with the warning that if
respondents again fail to appear, presentation of evidence will be deemed
waived and the case will be considered submitted for decision. On October
31, 1989, despite due notice and warning, counsel for respondents failed to
appear although a representative appeared requesting for a resetting
alleging that counsel for respondents is busy with the Office of the
Commission of Immigration. Said motion was denied and the motion of
counsel for complainant to submit the case for decision was granted.[20]
Clearly, petitioner had ample opportunity to present its side of the
controversy not only before the Labor Arbiter but also with the NLRC on
appeal, where petitioner submitted a memorandum as well as a motion for
reconsideration, which were all considered by the NLRC in the course of
resolving the case.[21] It cannot thereafter interpose lack of due process since
it was given the chance to be heard and present his case. [22] Consequently,
the alleged defect in the proceedings before the Labor Arbiter, if there be
any, should be deemed cured.
Petitioners contention that the respondent Commission did not touch
upon each one of the errors enumerated in petitioners appeal in its
resolution of March 24, 1992 is untenable. In affirming the decision of the
Labor Arbiter, the respondent NLRC found the evidence supporting the labor
arbiters factual findings to be substantial, and for this reason found it
unnecessary to make a separate discussion.
However, the award of moral and exemplary damages must be deleted
for being devoid of legal basis. Moral and exemplary damages are
recoverable only where the dismissal of an employee was attended by bad

faith or fraud, or constituted an act oppressive to labor, or was done in a


manner contrary to morals, good customs or public policy. [23] The person
claiming moral damages must prove the existence of bad faith by clear and
convincing evidence for the law always presumes good faith. [24] It is not
enough that one merely suffered sleepless nights, mental anguish, serious
anxiety as the result of the actuations of the other party. Invariably, such
action must be shown to have been willfully done in bad faith or with ill
motive, and bad faith or ill motive under the law cannot be presumed but
must be established with clear and convincing evidence. [25] Private
respondent predicated his claim for such damages on his own allegations of
sleepless nights and mental anguish, without establishing bad faith, fraud or
ill motive as legal basis therefor.
Private respondent not being entitled to award of moral damages, an
award of exemplary damages is likewise baseless. [26] Where the award of
moral and exemplary damages is eliminated, so must the award for
attorneys fees be deleted.[27] Private respondent has not shown that he is
entitled thereto pursuant to Art. 2208 of the Civil Code.
WHEREFORE, the challenged resolutions of the respondent NLRC are
hereby AFFIRMED with the MODIFICATION that the awards of moral and
exemplary damages and attorneys fees are DELETED.
SO ORDERED.