Civil law cases 2nd batch

Case Digest: Morales v. Metrobank

G.R. No. 182475 : November 21, 2012
LENN MORALES, Petitioner, v. METROPOLITAN BANK AND TRUST COMPANY,
Respondent.
PEREZ, J.:
FACTS:
Sometime in August 1992, petitioner Lenn Morales (Morales) was hired by
Solidbank as Teller for its Rizal Avenue Branch in Tacloban City. With said banks
merger with respondent Metropolitan Bank & Trust Company (Metrobank), the latter
absorbed Morales and assigned him to its Customer Service Relations-Reserve
Pool (CSR-RP) which was composed of employees who, with no permanent places
of assignment, acted as relievers whenever temporary vacancies arise in other
branches.
Morales was later-on promoted as a Customer Service Representative (CSR).
Federico Mariano, the Senior Manager of Metrobank, informed Morales that he was
covered by the banks Special Separation Program (SSP) and that, in accordance
therewith, his employment was going to be terminated on the ground of redundancy.
On 27 August 2003, Morales was furnished a copy of a memorandum of the same
date informing him that, after a review of its organizational structure, Metrobank had
found his services redundant and will consider him separated effective 1 October
2003. Assured that his termination was through no fault of his own but mainly due to
business exigencies and developments in the banking industry, Morales was notified
that he shall be paid the following: (a) a redundancy premium/separation pay, on top
of his entitlements under the banks retirement plan; (b) proportionate 13th month
pay; (c) cash conversion of his outstanding vacation and sick leave credits; and, if
applicable, (d) the return of his Provident Fund contributions; and, (e) cash
surrender value of his Insurance. Morales then executed Release, Waiver and
Quitclaim acknowledging receipt of the sum of P158,496.95 as full payment of his
monetary entitlements. However, Morales filed against Metrobank a complaint for
illegal dismissal.
The Labor Arbiter ruled that Morales was illegally dismissed. The NLRC reversed the
Labor Arbiter. On appeal, the Court of Appeals sustained the NLRC.

ISSUE: Whether or not Morales was illegally dismissed?

HELD: The petition is bereft of merit.
LABOR LAW: redundancy; quitclaim
One of the authorized causes for the dismissal of an employee, redundancy exists
when the service capability of the workforce is in excess of what is reasonably
needed to meet the demands of the business enterprise. For the implementation of
a redundancy program to be valid, however, the employer must comply with the
following requisites: (1) written notice served on both the employees and the DOLE
at least one month prior to the intended date of termination of employment; (2)
payment of separation pay equivalent to at least one month pay for every year of
service; (3) good faith in abolishing the redundant positions; and (4) fair and
reasonable criteria in ascertaining what positions are to be declared redundant and
accordingly abolished.
Contrary to the first and second errors Morales imputes against the CA, our perusal
of the record shows that Metrobank has more than amply proven compliance with
the third and fourth of the above-enumerated requisites for the validity of his
termination from service on the ground of redundancy. Under the SSP which
Metrobank adopted in 1995, employees who voluntarily gave up their employment
were paid the amount of separation pay they were entitled under the law and a
premium equivalent to 50%-75% of their salaries. It appears that employees "whose
work evaluation showed consistent poor performance and/or those who had not
been promoted for five years" were also considered primary candidates for optional
separation from service.
In implementing a redundancy program, it has been ruled that the employer is
required to adopt a fair and reasonable criteria, taking into consideration such
factors as (a) preferred status; (b) efficiency; and (c) seniority, among others. As
these employees had no permanent place of assignment and merely acted as
relievers whenever temporary vacancies arise in other branches, they were the most
logical candidates for inclusion in the SSP.
Morales next insists that Metrobank failed to comply in good faith with the notice
requirement under Article 283 of the Labor Code which allows the employer to
terminate the employment of any employee due to redundancy by serving a written
notice on the worker and the DOLE at least one (1) month before the intended date
thereof. Intended to enable the employee to prepare himself for the legal battle to
protect his tenure of employment and to find other means of employment and ease
the impact of the loss of his job and his income, said notice requirement is also
designed to allow the DOLE to ascertain the verity of the cause for the termination.
As correctly determined by the CA, Metrobanks compliance with this requirement is
evident from its service of the 27 August 2003 notice of termination upon Morales on

the same date, effective 1 October 2003 or 30 days after the date of said notice.
While it may be accepted as ground to annul a quitclaim if the consideration is
unconscionably low and the employee was tricked into accepting it, dire necessity is
not, however, an acceptable ground for annulling the release when it is not shown
that the employee has been forced to execute it. This Court has held that not all
quitclaims are per se invalid or against public policy, except (1) where there is clear
proof that the waiver was wangled from an unsuspecting or gullible person, or (2)
where the terms of settlement are unconscionable on their face. These two
instances are not present in this case.
Petition is DENIED.

[G.R. No. 112096. January 30, 1996]

MARCELINO B. AGOY, petitioner, vs. NATIONAL LABOR RELATIONS

COMMISSION,
EUREKA
PERSONNEL
MANAGEMENT
SERVICES, INC., ET. AL.,respondents.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF ADMINISTRATIVE
BODIES; RULE; EXCEPTION. - This Court has consistently adhered to the rule
that in reviewing administrative decisions such as those rendered by the NLRC, the
findings of fact made therein are to be accorded not only great weight and respect,
but even finality, for as long as they are supported by substantial evidence. It is not
the function of the Court to once again review and weigh the conflicting evidence,
determine the credibility of the witnesses or otherwise substitute its own judgment
for that of the administrative agency on the sufficiency of the evidence.
Nevertheless, when the inference made or the conclusion drawn on the basis of
certain state of facts is manifestly mistaken, the Court is not estopped from
exercising its power of review.
2. LABOR AND SOCIAL LEGISLATION; TERMINATION OF EMPLOYMENT;
PROBATIONARY EMPLOYEES; ENTITLED TO SECURITY OF TENURE;
GROUNDS FOR TERMINATION. - Probationary employees, notwithstanding their
limited tenure, are also entitled to security of tenure. Thus, except for just cause as
provided by law or under the employment contract, a probationary employee cannot
be terminated. As explicitly provided under Article 281 of the Labor Code, a
probationary employee may be terminated on two grounds: (a) for just cause or (b)
when he fails to qualify as a regular employee in accordance with reasonable
standards made known by the employer to the employee at the time of his
engagement.

3. ID.; ID.; ID.; EMPLOYERS OBLIGATION TO INFORM THE PROBATIONARY

EMPLOYEE REGARDING THE STANDARDS OR REQUIREMENTS THAT MUST
BE COMPLIED WITH IN ORDER TO BECOME A REGULAR EMPLOYEE; NOT
COMPLIED WITH IN CASE AT BAR. - The record is bereft of any evidence to
show that respondent employer ever conveyed to petitioner-employee the
standards or requirements that he must comply with in order to become a regular
employee. In fact, petitioner has consistently denied that he was even given the
chance to qualify for the position for which he was contracted. Private respondent
Al-Khodaris general averments regarding petitioners failure to meet its standards for
regular employment, which were not even corroborated by any other evidence, are
insufficient to justify petitioners dismissal.
4. ID.; ID.; QUITCLAIMS, WAIVERS OR RELEASES; DISFAVORED. - In our
jurisprudence, quitclaims, waivers or releases are looked upon with disfavor,
particularly those executed by employees who are inveigled or pressured into
signing them by unscrupulous employers seeking to evade their legal
responsibilities. The fact that petitioner signed his notice of termination and failed to
make any outright objection thereto did not altogether mean voluntariness on his
part. Neither did the execution of a final settlement and receipt of the amounts
agreed upon foreclose his right to pursue a legitimate claim for illegal dismissal.
Expounding on the reasons therefor, the following pronouncements are in point: In
labor jurisprudence, it is well established that quitclaims and/or complete releases
executed by the employees do not estop them from pursuing their claims arising
from the unfair labor practice of the employer. The basic reason for this is that such
quitclaims and/or complete releases are against public policy and therefore, null
and void. The acceptance of termination pay does not divest a laborer of the right to
prosecute his employer for unfair labor practice acts. (Cario vs. ACCFA, L-19808,
September 29, 1966, 18 SCRA 183 and other cases cited) In the Cario
case, supra, the Supreme Court, speaking thru Justice Sanchez, said: Acceptance
of those benefits would not amount to estoppel. The reason is plain. Employer and
employee, obviously, do not stand on the same footing. The employer drove the
employee to the wall. The latter must have to get hold of money. Because, out of
job, he had to face the harsh necessities of life. He thus found himself in no position
to resist money proffered. His, then, is a case of adherence, not of choice. One
thing sure, however, is that petitioners did not relent their claim. They pressed it.
They are deemed not to have waived any of their rights. Renuntiationon
praesumitur.

APPEARANCES OF COUNSEL
Prisciliano I. Casis for petitioner.
The Solicitor General for respondents.

DECISION
FRANCISCO, J.:

Initially, this suit was resolved in private respondents favor with the dismissal of
petitioners complaint for illegal dismissal against the former by the Philippine Overseas
Employment Administration (POEA) Adjudication Office [POEA Case No. (L) 90-05516]. However, upon appeal to the National Labor Relations Commission (NLRC), the
decision of the POEA was reversed and judgment was instead rendered in favor of
petitioner [NLRC CA No. 001713-91]. Still not satisfied, both parties filed their respective
motions for reconsideration. In a resolution dated September 22, 1993,1 the NLRC
decided both motions against petitioner and in favor of private respondents.
Petitioner is now before this Court through the instant petition for certiorari, assailing
the aforementioned Resolution of the NLRC which set aside its previous decision
datedDecember 9, 19922 and reinstated the decision of the POEA dated April 10,
19913 dismissing petitioners complaint for illegal dismissal. Grave abuse of discretion is
imputed to respondent NLRC consequent to the assailed resolution which petitioner
maintains was rendered with evident partiality and mental prejudice.
In his complaint filed with the POEA, petitioner Marcelino Agoy alleged that he
applied for overseas employment as civil engineer with private respondent Eureka
Personnel Management Services, Inc. (EUREKA), and was subsequently accepted to
work as CE/Road Engineer for private respondent Al-Khodari Establishment (ALKHODARI) under a two year contract with a basic salary of SR1,750.00 per month and
food allowance of SR200.00 with free accommodation.
On January
28,
1990,
petitioner
was
deployed
by
respondent Eureka to Jubail, Saudi Arabia through Exit Pass No. 2310220 P, mistakenly
issued in the name of Belleli Saudi Heavy Industries Ltd. as employer, under the
category of Foreman at a basic monthly salary of US$460.00, which terms were
allegedly different from the original contract.
Thereafter, petitioner was deployed to Al-Khodaris maintenance project with the
Royal Commission in Jubail, Saudi Arabia as Road Foreman and not as CE/Road
Engineer as initially agreed upon. Left with no other choice, petitioner was forced to
accept the position and started to work on February 7, 1990.
Petitioner, having been accepted by the Royal Commission to work only as a Road
Foreman, was later asked by respondent Al-Khodari to sign a new contract at a reduced
salary rate of SR1,200.00 or suffer termination and repatriation. Complainants refusal to
sign the new contract eventually resulted in his dismissal from employment on March
26, 1990. After being paid the remaining balance of his salary, petitioner executed a
Final Settlement4 releasing respondent Al-Khodari from all claims and liabilities.

On April 5, 1990, petitioner received a letter dated April 2, 1990 with subject Termination
of Services Within the Probation Period5 which he was forced to sign and consent to.
Petitioner was finally repatriated to Manila on April 6, 1990. Thereafter, he filed a
complaint for illegal dismissal with claims for payment of salary for the unexpired portion
of his contract, salary differential and damages against respondents Eureka and AlKhodari.
Denying petitioners claim of illegal dismissal, respondent Eureka alleged that
petitioner was actually hired by respondent Al-Khodari only as Road Foreman with a
monthly salary of SR1,750.00 equivalent to $460.00 because petitioner failed to qualify
as Road Engineer during his interview. Moreover, according to respondent Eureka,
upon request of petitioner, respondent Al-Khodari gave petitioner two chances to qualify
for the position of Road Engineer, both of which he failed. As petitioner refused to work
as a Road Foreman, Al-Khodari terminated his services in accordance with paragraph
14 of the contract stipulating that the employer has the right to dismiss the employee
during the probationary period. Respondent agency maintained that petitioner made no
objection to his dismissal as evidenced by the Final Settlement that he executed and
the Letter of Termination dated April 2, 1990 to which he affixed his signature.6
In its decision dated April 10, 1991, the POEA dismissed petitioners complaint after
finding that the evidence on record clearly indicated that petitioner himself voluntarily
consented to his termination and repatriation. It also found as self-serving and hardly
credible petitioners allegation that he was merely forced by his employer to indicate
agreed to his notice of termination, absent any clear and convincing proof to corroborate
the same. Moreover, the POEA upheld respondent employers right to dismiss petitioner
within the probationary period on the ground that he failed to meet its performance
standard.7
Petitioner appealed to the NLRC which reversed the decision of the POEA and held
private respondents liable for illegal dismissal. According to the NLRC, petitioners
termination from service during the probationary period has no factual and legal basis
on account of the following:

x x x In the first place, it was not proven what are the standards being used to
determine the performance of the complainant as not satisfactory. Secondly, there is a
presumption that complainant is qualified to the position since he was hired
by Eureka and interviewed by a representative of Al-Khodari. Thirdly, complainant
should have passed the necessary trade test, or else, he will not be hired. All these
show that complainant possessed all the qualifications to the job and in the absence of
showing how he really failed to the standards required to the position, the act of
relegating him to a lower position with a lower salary other than what is provided for
in the contract is considered already as illegal dismissal.
8

The NLRC also ruled that contrary to the findings of the POEA, petitioner was
forced to resign and execute all the necessary documents for his repatriation as he was
helpless in a foreign land because of threats to his freedom or life in case he disagreed

with his employer. Thus, the NLRC declared as a nullity all documents releasing
respondents from all liabilities and claims for not having been voluntarily executed by
petitioner, and held respondents liable for the sum of SR39,674.00 representing
petitioners unpaid salaries under his contract.9
As earlier mentioned, both parties filed their respective Motions for Reconsideration
with private respondents assailing the reversal of the POEAs decision, while petitioner,
not content with the monetary award granted by the NLRC, further claimed salary
differentials, overtime pay, moral damages, temperate damages, exemplary damages,
nominal damages, refund of placement fees, attorneys fees, cost of suit, fines for
alleged illegal exaction, misrepresentation and other recruitment violations.
Resolving both motions, the NLRC set aside its decision and held in favor of private
respondents. The NLRC backtracked on its conclusion that petitioner was presumed
competent on the basis of a trade test and declared that the same was without factual
basis. After reviewing the records, the NLRC found that no trade test was ever
administered to petitioner because he was hired as a licensed professional engineer
and not as an ordinary skilled worker to whom the trade test is normally applied. Thus, it
was ruled that petitioners competence could be determined only during the probationary
period, and as it turned out, petitioner failed to meet respondent employers standard
during the said period thereby leading to his dismissal. 10
The NLRC also discarded petitioners allegation that he was merely forced to agree
to his dismissal as the record is bereft of any evidence of force and intimidation
perpetrated by respondent employer. According to the NLRC, petitioner failed to raise
any objection to his dismissal despite being given the opportunity to do so in the letter of
termination dated April 2, 1990, and instead simply acknowledged receipt of the same
and affixed his signature thereto. The NLRC found merit in private respondents claim
that as a civil engineer with outstanding credentials, it was doubtful that petitioner would
be intimidated and forced to sign his notice of termination without making any
objections. In arriving at this conclusion, the NLRC took into account the additional
documentary evidence submitted by petitioner attesting to his claim of professional
excellence which should entitle him to the additional monetary awards prayed for in his
motion for reconsideration.11
In assailing the NLRC resolution reversing its earlier decision in his favor, petitioner
asserts that its conclusion with respect to his competence is clearly the result of a
biased negative emotional conception of the totality of the facts. 12
This Court has consistently adhered to the rule that in reviewing administrative
decisions such as those rendered by the NLRC, the findings of fact made therein are to
be accorded not only great weight and respect, but even finality, for as long as they are
supported by substantial evidence.13 It is not the function of the Court to once again
review and weigh the conflicting evidence, determine the credibility of the witnesses or
otherwise substitute its own judgment for that of the administrative agency on the
sufficiency of the evidence.14Nevertheless, when the inference made or the conclusion
drawn on the basis of certain state of facts is manifestly mistaken, the Court is not
estopped from exercising its power of review.15

Public respondent NLRC premised the reversal of its decision and the affirmation of
the validity of petitioners dismissal on the latters alleged failure to qualify for the position
of Road Engineer as contracted for during the probationary period.
Probationary employees, notwithstanding their limited tenure, are also entitled to
security of tenure. Thus, except for just cause as provided by law or under the
employment contract, a probationary employee cannot be terminated. 16 As explicitly
provided under Article 281 of the Labor Code, a probationary employee may be
terminated on two grounds: (a) for just cause or (b) when he fails to qualify as a regular
employee in accordance with reasonable standards made known by the employer to the
employee at the time of his engagement.17
Respondents attempt to justify petitioners dismissal based on the aforecited second
ground is unwarranted. The record is bereft of any evidence to show that respondent
employer ever conveyed to petitioner-employee the standards or requirements that he
must comply with in order to become a regular employee. In fact, petitioner has
consistently denied that he was even given the chance to qualify for the position for
which he was contracted. 18 Private respondent Al-Khodaris general averments regarding
petitioners failure to meet its standards for regular employment, which were not even
corroborated by any other evidence, are insufficient to justify petitioners dismissal.
Neither do we subscribe to the conclusion that petitioner voluntarily consented to his
dismissal despite his signature in the letter of termination dated April 2, 1990, indicating
assent to his termination from service for failing to qualify for the position and releasing
private respondents from all claims and liabilities. In our jurisprudence, quitclaims,
waivers or releases are looked upon with disfavor, particularly those executed by
employees who are inveigled or pressured into signing them by unscrupulous
employers seeking to evade their legal responsibilities. 19 The fact that petitioner signed
his notice of termination and failed to make any outright objection thereto did not
altogether mean voluntariness on his part. Neither did the execution of a final settlement
and receipt of the amounts agreed upon foreclose his right to pursue a legitimate claim
for illegal dismissal. Expounding on the reasons therefor, the following pronouncements
are in point:

In labor jurisprudence, it is well established that quitclaims and/or complete releases

executed by the employees do not estop them from pursuing their claims arising from
the unfair labor practice of the employer.The basic reason for this is that such
quitclaims and/or complete releases are against public policy and therefore, null and
void. The acceptance of termination pay does not divest a laborer of the right to
prosecute his employer for unfair labor practice acts. (Cario vs. ACCFA, L-19808,
September 29, 1966, 18 SCRA 183; Philippine Sugar Institute vs. CIR, L-13475,
September 29, 1960, 109 Phil. 452; Mercury Drug Co., Inc. vs. CIR, L-23357, April
30, 1974, 56 SCRA 694, 704).
In the Cario case, supra, the Supreme Court, speaking thru Justice Sanchez, said:

Acceptance of those benefits would not amount to estoppel. The reason is plain.
Employer and employee, obviously, do not stand on the same footing. The employer
drove the employee to the wall. The latter must have to get hold of money. Because,
out of job, he had to face the harsh necessities of life. He thus found himself in no
position to resist money proffered. His, then, is a case of adherence, not of choice.
One thing sure, however, is that petitioners did not relent their claim. They pressed it.
They are deemed not to have waived any of their rights. Renuntiationon
praesumitur. (Italics supplied)
20

Moreover, it is noteworthy that petitioner lost no time in immediately pursuing his

claim against private respondents by filing his complaint for illegal dismissal a month
after being repatriated on April 2, 1990. This is hardly expected from someone who
voluntarily consented to his dismissal, thus, completely negating the conclusion that
petitioners consent was given freely and bolstering the claim that the same was
obtained through force and intimidation.
It must be emphasized that in termination cases like the one at bench, the burden of
proof rests on the employer to show that the dismissal is for just cause, and failure to
discharge the same would mean that the dismissal is not justified and therefore illegal. 21
As already elaborated above, private respondents failed to justify petitioners
dismissal, thereby rendering it illegal. Resultingly, it was grave abuse of discretion on
the part of the NLRC to reverse its previous decision and uphold petitioners dismissal
despite convincing evidence to the contrary.
Consequent to his illegal dismissal, petitioner is therefore entitled to the amount of
SR39,674.00 - representing his salary for the unexpired portion of his employment
contract22 - as adjudged in the NLRCs December 9, 1992 decision. However, anent
petitioners claim for additional compensation (detailed and prayed for in his motion for
reconsideration), we find no reason to award the same for being speculative and without
any proper legal and factual basis.
ACCORDINGLY, the petition is hereby GRANTED. The assailed Resolution of
respondent NLRC dated September 22, 1993 is hereby SET ASIDE and the Decision
datedDecember 9, 1992 is REINSTATED.
SO ORDERED.
Narvasa, C.J. (Chairman), Davide, Jr., Melo, and Panganiban, JJ., concur.

Republic of the Philippines

Supreme Court
Manila
SECOND DIVISION

F.F. CRUZ & CO., INC.,

Petitioner,

G.R. No. 187521

Present:

- versus -

HR CONSTRUCTION CORP.,
Respondent.

CARPIO, J.,
Chairperson,
BRION,
PEREZ,
SERENO, and
REYES, JJ.
Promulgated:
March 14, 2012

x----------------------------------------------------------------------------------------x
DECISION
REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court filed by petitioner F.F. Cruz & Co., Inc. (FFCCI) assailing
the Decision[1] dated February 6, 2009 and Resolution[2] dated April 13, 2009 issued
by the Court of Appeals (CA) in CA-G.R. SP No. 91860.

The Antecedent Facts

Sometime in 2004, FFCCI entered into a contract with the Department of
Public Works and Highways (DPWH) for the construction of the Magsaysay
Viaduct, known as the Lower Agusan Development Project. On August 9, 2004,
FFCCI, in turn, entered into a Subcontract Agreement [3] with HR Construction
Corporation (HRCC) for the supply of materials, labor, equipment, tools and
supervision for the construction of a portion of the said project called the East

Bank Levee and Cut-Off Channel in accordance with the specifications of the main
contract.
The subcontract price agreed upon by the parties amounted
to P31,293,532.72. Pursuant to the Subcontract Agreement, HRCC would submit
to FFCCI a monthly progress billing which the latter would then pay, subject to
stipulated deductions, within 30 days from receipt thereof.
The parties agreed that the requests of HRCC for payment should include
progress accomplishment of its completed works as approved by FFCCI.
Additionally, they agreed to conduct a joint measurement of the completed works
of HRCC together with the representative of DPWH and consultants to arrive at a
common quantity.
Thereafter, HRCC commenced the construction of the works pursuant to the
Subcontract Agreement.
On September 17, 2004, HRCC submitted to FFCCI its first progress billing
in the amount of P2,029,081.59 covering the construction works it completed from
August 16 to September 15, 2004.[4] However, FFCCI asserted that the DPWH was
then able to evaluate the completed works of HRCC only until July 25, 2004. Thus,
FFCCI only approved the gross amount of P423,502.88 for payment. Pursuant to
the Subcontract Agreement, FFCCI deducted from the said gross
amount P42,350.29 for retention andP7,700.05 for expanded withholding tax
leaving a net payment in the amount of P373,452.54. This amount was paid by
FFCCI to HRCC on December 3, 2004.[5]
FFCCI and the DPWH then jointly evaluated the completed works of HRCC
for the period of July 26 to September 25, 2004. FFCCI claimed that the gross
amount due for the completed works during the said period was P2,008,837.52.
From the said gross amount due, FFCCI deducted therefrom P200,883.75 for
retention and P36,524.07 for expanded withholding tax leaving amount
of P1,771,429.45 as the approved net payment for the said period. FFCCI paid this
amount on December 21, 2004.[6]

On October 29, 2004, HRCC submitted to FFCCI its second progress billing
in the amount of P1,587,760.23 covering its completed works from September 18
to 25, 2004.[7] FFCCI did not pay the amount stated in the second progress billing,
claiming that it had already paid HRCC for the completed works for the period
stated therein.
On even date, HRCC submitted its third progress billing in the amount
of P2,569,543.57 for its completed works from September 26 to October 25, 2004.
[8]
FFCCI did not immediately pay the amount stated in the third progress billing,
claiming that it still had to evaluate the works accomplished by HRCC.
On November 25, 2004, HRCC submitted to FFCCI its fourth progress
billing in the amount of P1,527,112.95 for the works it had completed from
October 26 to November 25, 2004.
Subsequently, FFCCI, after it had evaluated the completed works of HRCC
from September 26 to November 25, 2004, approved the payment of the gross
amount ofP1,505,570.99 to HRCC. FFCCI deducted therefrom P150,557.10 for
retention and P27,374.02 for expanded withholding tax leaving a net payment
of P1,327,639.87, which amount was paid to HRCC on March 11, 2005.[9]
Meanwhile, HRCC sent FFCCI a letter[10] dated December 13, 2004
demanding the payment of its progress billings in the total amount
of P7,340,046.09, plus interests, within three days from receipt thereof.
Subsequently, HRCC completely halted the construction of the subcontracted
project after taking its Christmas break on December 18, 2004.
On March 7, 2005, HRCC, pursuant to the arbitration clause in the
Subcontract Agreement, filed with the Construction Industry Arbitration
Commission (CIAC) a Complaint[11] against FFCCI praying for the payment of the
following: (1) overdue obligation in the reduced amount of P4,096,656.53 as of
December 15, 2004 plus legal interest; (2) P1,500,000.00 as attorneys fees;
(3) P80,000.00 as acceptance fee and representation expenses; and (4) costs of
litigation.

In its Answer,[12] FFCCI claimed that it no longer has any liability on the
Subcontract Agreement as the three payments it made to HRCC, which amounted
toP3,472,521.86, already represented the amount due to the latter in view of the
works actually completed by HRCC as shown by the survey it conducted jointly
with the DPWH. FFCCI further asserted that the delay in the payment processing
was primarily attributable to HRCC inasmuch as it presented unverified work
accomplishments contrary to the stipulation in the Subcontract Agreement
regarding requests for payment.
Likewise, FFCCI maintained that HRCC failed to comply with the condition
stated under the Subcontract Agreement for the payment of the latters progress
billings, i.e.joint measurement of the completed works, and, hence, it was justified
in not paying the amount stated in HRCCs progress billings.
On June 16, 2005, an Arbitral Tribunal was created composed of Engineer
Ricardo B. San Juan, Joven B. Joaquin and Attorney Alfredo F. Tadiar, with the
latter being appointed as the Chairman.
In a Preliminary Conference held on July 5, 2005, the parties defined the
issues to be resolved in the proceedings before the CIAC as follows:
1. What is the correct amount of [HRCCs] unpaid progress billing?
2. Did [HRCC] comply with the conditions set forth in subparagraph
4.3 of the Subcontract Agreement for the submission,
evaluation/processing and release of payment of its progress billings?
3. Did [HRCC] stop work on the project?
3.1 If so, is the work stoppage justified?
3.2 If so, what was the percentage and value of [HRCCs] work
accomplishment at the time it stopped work on the project?
4. Who between the parties should bear the cost of arbitration or in
what proportion should it be shared by the parties? [13]

Likewise, during the said Preliminary Conference, HRCC further reduced

the amount of overdue obligation it claimed from FFCCI to P2,768,916.66. During
the course of the proceedings before the CIAC, HRCC further reduced the said
amount to P2,635,397.77 the exact difference between the total amount of HRCCs
progress billings (P6,107,919.63) and FFCCIs total payments in favor of the latter
(P3,472,521.86).
The CIAC Decision
On September 6, 2005, after due proceedings, the CIAC rendered a
Decision[14] in favor of HRCC, the decretal portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the
Claimant HR
CONSTRUCTION
CORPORATION and AWARD made on its monetary claim against
Respondent F.F. CRUZ & CO., INC., as follows:
[P]2,239,452.63 as the balance of its unpaid billings and
101,161.57 as reimbursement of the arbitration costs.
[P]2,340,614.20 Total due the Claimant
Interest on the foregoing amount [P]2,239,452.63 shall be paid at
the rate of 6% per annum from the date of this Decision. After finality of
this Decision, interest at the rate of 12% per annum shall be paid thereon
until full payment of the awarded amount shall have been made x x x.
SO ORDERED.[15]

The CIAC held that the payment method adopted by FFCCI is actually what
is known as the back-to-back payment scheme which was not agreed upon under
the Subcontract Agreement. As such, the CIAC ruled that FFCCI could not impose
upon HRCC its valuation of the works completed by the latter. The CIAC gave
credence to HRCCs valuation of its completed works as stated in its progress
billings. Thus:

During the trial, [FFCCIs] Aganon admitted that [HRCCs]

accomplishments are included in its own billings to the DPWH together
with a substantial mark-up to cover overhead costs and profit. He further
admitted that it is only when DPWH approves its (Respondents) billings
covering [HRCCs] scope of work and pays for them, that [FFCCI] will
in turn pay [HRCC] for its billings on the sub-contracted works.
On clarificatory questioning by the Tribunal, [FFCCI] admitted
that there is no back-to-back provision in the sub-contract as basis for
this sequential payment arrangement and, therefore, [FFCCIs]
imposition thereof by withholding payment to [HRCC] until it is first
paid by the project owner on the Main Contract, clearly violates said
sub-contract. It [is] this unauthorized implementation of a back-to-back
payment scheme that is seen to be the reason for [FFCCIs] non-payment
of the third progress billings.
It is accordingly the holding of this Arbitral Tribunal that
[FFCCI] is not justified in withholding payment of [HRCCs] third
progress billing for this scheme that [HRCC] has not agreed to in the
sub-contract agreement x x x.
xxx
The total retention money deducted by [FFCCI] from [HRCCs]
three progress billings, amounts to [P]395,945.14 x x x. The retention
money is part of [HRCCs] progress billings and must, therefore, be
credited to this account. The two amounts (deductions and net payments)
total [P]3,868,467.00 x x x. This represents the total gross payments that
should be credited and deducted from the total gross billings to arrive at
what has not been paid to the [HRCC]. This results in the amount
of [P]2,239,452.63 ([P]6,107,919.63 - [P]3,868,467.00) as the correct
balance of [HRCCs] unpaid billings.[16]

Further, the CIAC ruled that FFCCI had already waived its right under the
Subcontract Agreement to require a joint measurement of HRCCs completed
works as a condition precedent to the payment of the latters progress billings.
Hence:
[FFCCI] admits that in all three instances where it paid [HRCC]
for its progress billings, it never required compliance with the

aforequoted contractual provision of a prior joint quantification.

Such repeated omission may reasonably be construed as a waiver by
[FFCCI] of its contractual right to require compliance of said condition
and it is now too late in the day to so impose it. Article 6 of the Civil
Code expressly provides that rights may be waived unless the waiver is
contrary to law, public order, public policy, morals or good customs. The
tribunal cannot see any such violation in this case.
xxx
[FFCCIs] omission to enforce the contractually required condition
of payment, has led [HRCC] to believe it to be true that indeed [FFCCI]
has waived the condition of joint quantification and, therefore, [FFCCI]
may not be permitted to falsify such resulting position. [17]

Likewise, the CIAC held that FFCCIs non-payment of the progress billings
submitted by HRCC gave the latter the right to rescind the Subcontract Agreement
and, accordingly, HRCCs work stoppage was justified. It further opined that, in
effect, FFCCI had ratified the right of HRCC to stop the construction works as it
did not file any counterclaim against HRCC for liquidated damages arising
therefrom.
FFCCI then filed a petition for review with CA assailing the foregoing
disposition by the CIAC.
The CA Decision
On February 6, 2009, the CA rendered the herein assailed
Decision[18] denying the petition for review filed by FFCCI. The CA agreed with
the CIAC that FFCCI had waived its right under the Subcontract Agreement to
require a joint quantification of HRCCs completed works.
The CA further held that the amount due to HRCC as claimed by FFCCI
could not be given credence since the same was based on a survey of the
completed works conducted without the participation of HRCC. Likewise, being
the main contractor, it ruled that it was the responsibility of FFCCI to include
HRCC in the joint measurement of the completed works. Furthermore, the CA held

that HRCC was justified in stopping its construction works on the project as the
failure of FFCCI to pay its progress billings gave the former the right to rescind the
Subcontract Agreement.
FFCCI sought a reconsideration[19] of the said February 6, 2009 Decision but
it was denied by the CA in its Resolution[20] dated April 13, 2009.
Issues
In the instant petition, FFCCI submits the following issues for this Courts
resolution:
[I.]
x x x First, [d]oes the act of [FFCCI] in conducting a verification
survey of [HRCCs] billings in the latters presence amount to a waiver of
the right of [FFCCI] to verify and approve said billings? What, if any, is
the legal significance of said act?
[II.]
x x x Second, [d]oes the payment of [FFCCI] to [HRCC] based on
the results of the above mentioned verification survey result in the
former being obliged to accept whatever accomplishment was reported
by the latter?
[III.]
x x x Third, [d]oes the mere comparison of the payments made by
[FFCCI] with the contested progress billings of [HRCC] amount to an
adjudication of the controversy between the parties?
[IV.]
x x x Fourth, [d]oes the failure of [FFCCI] to interpose a
counterclaim against [HRCC] for liquidated damages due to the latters
work stoppage, amount to a ratification of such work stoppage?
[V.]

x x x Fifth, [d]id the [CA] disregard or overlook significant and

material facts which would affect the result of the litigation? [21]

In sum, the crucial issues for this Courts resolution are: first, what is the
effect of FFCCIs non-compliance with the stipulation in the Subcontract
Agreement requiring a joint quantification of the works completed by HRCC on
the payment of the progress billings submitted by the latter; and second, whether
there was a valid rescission of the Subcontract Agreement by HRCC.
The Courts Ruling
The petition is not meritorious.

Procedural Issue:
Finality and Conclusiveness of the CIACs Factual Findings
Before we delve into the substantial issues raised by FFCCI, we shall first address
the procedural issue raised by HRCC. According to HRCC, the instant petition
merely assails the factual findings of the CIAC as affirmed by the CA and,
accordingly, not proper subjects of an appeal under Rule 45 of the Rules of Court.
It likewise pointed out that factual findings of the CIAC, when affirmed by the CA,
are final and conclusive upon this Court.
Generally, the arbitral award of CIAC is
final and may not be appealed except on
questions of law.
Executive Order (E.O.) No. 1008[22] vests upon the CIAC original and exclusive
jurisdiction over disputes arising from, or connected with, contracts entered into by
parties involved in construction in the Philippines. Under Section 19 of E.O. No.
1008, the arbitral award of CIAC "shall be final and inappealable except on
questions of law which shall be appealable to the Supreme Court."[23]

In Hi-Precision Steel Center, Inc. v. Lim Kim Steel Builders, Inc.,[24] we

explained raison d etre for the rule on finality of the CIACs arbitral award in this
wise:
Voluntary arbitration involves the reference of a dispute to an
impartial body, the members of which are chosen by the parties
themselves, which parties freely consent in advance to abide by the
arbitral award issued after proceedings where both parties had the
opportunity to be heard. The basic objective is to provide a speedy and
inexpensive method of settling disputes by allowing the parties to avoid
the formalities, delay, expense and aggravation which commonly
accompany ordinary litigation, especially litigation which goes through
the entire hierarchy of courts. Executive Order No. 1008 created an
arbitration facility to which the construction industry in
the Philippines can have recourse. The Executive Order was enacted to
encourage the early and expeditious settlement of disputes in the
construction industry, a public policy the implementation of which is
necessary and important for the realization of national development
goals.
Aware of the objective of voluntary arbitration in the labor field,
in the construction industry, and in any other area for that matter, the
Court will not assist one or the other or even both parties in any effort to
subvert or defeat that objective for their private purposes. The Court will
not review the factual findings of an arbitral tribunal upon the artful
allegation that such body had "misapprehended the facts" and will not
pass upon issues which are, at bottom, issues of fact, no matter how
cleverly disguised they might be as "legal questions." The parties here
had recourse to arbitration and chose the arbitrators themselves; they
must have had confidence in such arbitrators. x x x[25] (Citation omitted)

Thus, in cases assailing the arbitral award rendered by the CIAC, this Court
may only pass upon questions of law. Factual findings of construction arbitrators
are final and conclusive and not reviewable by this Court on appeal. This rule,
however, admits of certain exceptions.

In Spouses David v. Construction Industry and Arbitration Commission,[26] we laid

down the instances when this Court may pass upon the factual findings of the
CIAC, thus:
We reiterate the rule that factual findings of construction arbitrators are
final and conclusive and not reviewable by this Court on appeal, except
when the petitioner proves affirmatively that: (1) the award was procured
by corruption, fraud or other undue means; (2) there was evident
partiality or corruption of the arbitrators or of any of them; (3) the
arbitrators were guilty of misconduct in refusing to postpone the hearing
upon sufficient cause shown, or in refusing to hear evidence pertinent
and material to the controversy; (4) one or more of the arbitrators were
disqualified to act as such under section nine of Republic Act No. 876
and willfully refrained from disclosing such disqualifications or of any
other misbehavior by which the rights of any party have been materially
prejudiced; or (5) the arbitrators exceeded their powers, or so
imperfectly executed them, that a mutual, final and definite award upon
the subject matter submitted to them was not made. x x x [27](Citation
omitted)

Issues on the proper interpretation of the

terms of the Subcontract Agreement
involve questions of law.
A question of law arises when there is doubt as to what the law is on a certain state
of facts, while there is a question of fact when the doubt arises as to the truth or
falsity of the alleged facts. For a question to be one of law, the same must not
involve an examination of the probative value of the evidence presented by the
litigants or any of them. The resolution of the issue must rest solely on what the
law provides on the given set of circumstances. Once it is clear that the issue
invites a review of the evidence presented, the question posed is one of fact.[28]
On the surface, the instant petition appears to merely raise factual questions
as it mainly puts in issue the appropriate amount that is due to HRCC. However, a
more thorough analysis of the issues raised by FFCCI would show that it actually
asserts questions of law.

FFCCI primarily seeks from this Court a determination of whether amount

claimed by HRCC in its progress billing may be enforced against it in the absence
of a joint measurement of the formers completed works. Otherwise stated, the main
question advanced by FFCCI is this: in the absence of the joint measurement
agreed upon in the Subcontract Agreement, how will the completed works of
HRCC be verified and the amount due thereon be computed?
,The determination of the foregoing question entails an interpretation of the
terms of the Subcontract Agreement vis--vis the respective rights of the parties
herein. On this point, it should be stressed that where an interpretation of the true
agreement between the parties is involved in an appeal, the appeal is in effect an
inquiry of the law between the parties, its interpretation necessarily involves a
question of law.[29]
Moreover, we are not called upon to examine the probative value of the
evidence presented before the CIAC. Rather, what is actually sought from this
Court is an interpretation of the terms of the Subcontract Agreement as it relates to
the dispute between the parties.
First Substantive Issue: Effect of Non-compliance with the Joint
Quantification Requirement on the Progress Billings of HRCC
Basically, the instant issue calls for a determination as to which of the parties
respective valuation of accomplished works should be given credence. FFCCI
claims that its valuation should be upheld since the same was the result of a
measurement of the completed works conducted by it and the DPWH. On the other
hand, HRCC maintains that its valuation should be upheld on account of FFCCIs
failure to observe the joint measurement requirement in ascertaining the extent of
its completed works.
The terms of the Subcontract Agreement
should prevail.

In resolving the dispute as to the proper valuation of the works accomplished by

HRCC, the primordial consideration should be the terms of the Subcontract
Agreement. It is basic that if the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its stipulations
shall control.[30]
In Abad v. Goldloop Properties, Inc.,[31] we stressed that:
A courts purpose in examining a contract is to
interpret the intent of the contracting parties, as
objectively manifested by them. The process of
interpreting a contract requires the court to make a
preliminary inquiry as to whether the contract before it is
ambiguous. A contract provision is ambiguous if it is
susceptible
of
two
reasonable
alternative
interpretations. Where the written terms of the
contract are not ambiguous and can only be read
one way, the court will interpret the contract as a
matter of law. If the contract is determined to be
ambiguous, then the interpretation of the contract is left
to the court, to resolve the ambiguity in the light of the
intrinsic evidence.[32] (Emphasis supplied and citation
omitted)

Article 4 of the Subcontract Agreement, in part, contained the

following stipulations:
ARTICLE 4
SUBCONTRACT PRICE
4.1 The total SUBCONTRACT Price shall be THIRTY ONE MILLION
TWO HUNDRED NINETY THREE THOUSAND FIVE
HUNDRED THIRTY TWO PESOS & 72/100 ONLY
([P]31,293,532.72) inclusive of Value Added Tax x x x.
xxx
4.3 Terms of Payment

FFCCI shall pay [HRCC] within thirty (30) days upon receipt
of the [HRCCs] Monthly Progress Billings subject to deductions
due to ten percent (10%) retention, and any other sums that may be
due and recoverable by FFCCI from [HRCC] under this
SUBCONTRACT. In all cases, however, two percent (2%)
expanded withholding tax on the [HRCCs] income will be deducted
from the monthly payments.
Requests for the payment by the [HRCC] shall include progress
accomplishment of completed works (unit of work accomplished
x unit cost) as approved by [FFCCI]. Cut-off date of monthly
billings shall be every 25 th of the month and joint measurement
shall be conducted with the DPWHs representative,
Consultants, FFCCI and [HRCC] to arrive at a common/agreed
quantity.[33] (Emphasis supplied)

Pursuant to the terms of payment agreed upon by the parties, FFCCI obliged
itself to pay the monthly progress billings of HRCC within 30 days from receipt of
the same. Additionally, the monthly progress billings of HRCC should indicate the
extent of the works completed by it, the same being essential to the valuation of the
amount that FFCCI would pay to HRCC.
The parties further agreed that the extent of HRCCs completed works that
would be indicated in the monthly progress billings should be determined through
a joint measurement conducted by FFCCI and HRCC together with the
representative of DPWH and the consultants.
It is the responsibility of FFCCI to call for
the joint measurement of HRCCs
completed works.
It bears stressing that the joint measurement contemplated under the Subcontract
Agreement should be conducted by the parties herein together with the
representative of the DPWH and the consultants. Indubitably, FFCCI, being the

main contractor of DPWH, has the responsibility to request the representative of

DPWH to conduct the said joint measurement.
On this score, the testimony of Engineer Antonio M. Aganon, Jr., project
manager of FFCCI, during the reception of evidence before the CIAC is telling,
thus:
MR. J. B. JOAQUIN:
Engr. Aganon, earlier there was a stipulation that in all the four billings,
there never was a joint quantification.
PROF. A. F. TADIAR:
He admitted that earlier. Pinabasa ko sa kanya.
ENGR. R. B. SAN JUAN:
The joint quantification was done only between them and DPWH.
xxxx
ENGR. AGANON:
Puwede ko po bang i-explain sandali lang po regarding lang po doon sa
quantification na iyon? Basically po as main contractor of DPWH, we
are the ones who [are] requesting for joint survey quantification
with the owner, DPWH. Ngayon po, although wala sa papel na nagwitness and [HRCC] still the same po, nandoon din po sila during that
time, kaya lang ho . . .
MR. J. B. JOAQUIN:
Hindi pumirma?
ENGR. AGANON:
Hindi sila puwede pumirma kasi ho kami po ang contractor ng DPWH
hindi sila.[34] (Emphasis supplied)

FFCCI had waived its right to demand

for a joint measurement of HRCCs
completed works under the Subcontract
Agreement.
The CIAC held that FFCCI, on account of its failure to demand the joint
measurement of HRCCs completed works, had effectively waived its right to ask
for the conduct of the same as a condition sine qua non to HRCCs submission of
its monthly progress billings.
We agree.
In People of the Philippines v. Donato,[35] this Court explained the doctrine of
waiver in this wise:
Waiver is defined as "a voluntary and intentional relinquishment
or abandonment of a known existing legal right, advantage, benefit,
claim or privilege, which except for such waiver the party would have
enjoyed; the voluntary abandonment or surrender, by a capable person,
of a right known by him to exist, with the intent that such right shall be
surrendered and such person forever deprived of its benefit; or such
conduct as warrants an inference of the relinquishment of such
right; or the intentional doing of an act inconsistent with claiming
it."
As to what rights and privileges may be waived, the authority is
settled:
x x x the doctrine of waiver extends to rights and privileges
of any character, and, since the word waiver covers every
conceivable right, it is the general rule that a person may
waive any matter which affects his property, and any
alienable right or privilege of which he is the owner or
which belongs to him or to which he is legally entitled,
whether secured by contract, conferred with statute, or
guaranteed by constitution, provided such rights and
privileges rest in the individual, are intended for his sole

benefit, do not infringe on the rights of others, and

further provided the waiver of the right or privilege is
not forbidden by law, and does not contravene public
policy; and the principle is recognized that everyone has a
right to waive, and agree to waive, the advantage of a law
or rule made solely for the benefit and protection of the
individual in his private capacity, if it can be dispensed
with and relinquished without infringing on any public
right, and without detriment to the community at large. x x
x[36] (Emphasis supplied and citations omitted)

Here, it is undisputed that the joint measurement of HRCCs completed works

contemplated by the parties in the Subcontract Agreement never materialized.
Indeed, HRCC, on separate occasions, submitted its monthly progress billings
indicating the extent of the works it had completed sans prior joint measurement.
Thus:
Progress Billing
1st Progress Billing dated
September 17, 2004[37]
nd
2 Progress Billing dated
October 29, 2004[38]
3rd Progress Billing dated
October 29, 2004[39]
4th Progress Billing dated
November 25, 2004

Period Covered

Amount

August 16 to September 15, 2004

P2,029,081.59

September 18 to 25, 2004

P1,587,760.23

September 26 to October 25, 2004

P2,569,543.57

October 26 to November 25, 2004

P1,527,112.95

FFCCI did not contest the said progress billings submitted by HRCC despite the
lack of a joint measurement of the latters completed works as required under the
Subcontract Agreement. Instead, FFCCI proceeded to conduct its own verification
of the works actually completed by HRCC and, on separate dates, made the
following payments to HRCC:
Date of Payment

Period Covered

Amount

December 3, 2004[40]
December 21, 2004[41]

April 2 to July 25, 2004

July 26 to September 25, 2004

P373,452.24
P1,771,429.45

March 11, 2005[42]

September 26 to November 25, 2004

P1,327,639.87

FFCCIs voluntary payment in favor of HRCC, albeit in amounts substantially

different from those claimed by the latter, is a glaring indication that it had
effectively waived its right to demand for the joint measurement of the completed
works. FFCCIs failure to demand a joint measurement of HRCCs completed works
reasonably justified the inference that it had already relinquished its right to do so.
Indeed, not once did FFCCI insist on the conduct of a joint measurement to verify
the extent of HRCCs completed works despite its receipt of the four monthly
progress billings submitted by the latter.
FFCCI is already barred from contesting
HRCCs valuation of the completed works
having waived its right to demand the
joint measurement requirement.
In view of FFCCIs waiver of the joint measurement requirement, the CA,
essentially echoing the CIACs disposition, found that FFCCI is obliged to pay the
amount claimed by HRCC in its monthly progress billings. The CA reasoned thus:
Verily, the joint measurement that [FFCCI] claims it conducted
without the participation of [HRCC], to which [FFCCI] anchors its claim
of full payment of its obligations to [HRCC], cannot be applied, nor
imposed, on [HRCC]. In other words, [HRCC] cannot be made to accept
a quantification of its works when the said quantification was made
without its participation. As a consequence, [FFCCIs] claim of full
payment cannot be upheld as this is a result of a quantification that was
made contrary to the express provisions of the Subcontract Agreement.
The Court is aware that by ruling so, [FFCCI] would seem to be
placed at a disadvantage because it would result in [FFCCI] having to
pay exactly what [HRCC] was billing the former. If, on the other hand,
the Court were to rule otherwise[,] then [HRCC] would be the one at a
disadvantage because it would be made to accept payment that is less
than what it was billing.
Circumstances considered, however, the Court deems it proper to
rule in favor of [HRCC] because of the explicit provision of the
Subcontract Agreement that requires the participation of the latter in the
joint measurement. If the Court were to rule otherwise, then the Court

would, in effect, be disregarding the explicit agreement of the parties in

their contract.[43]

Essentially, the question that should be resolved is this: In view of FFCCIs waiver
of its right to demand a joint measurement of HRCCs completed works, is FFCCI
now barred from disputing the claim of HRCC in its monthly progress billings?
We rule in the affirmative.
As intimated earlier, the joint measurement requirement is a mechanism essentially
granting FFCCI the opportunity to verify and, if necessary, contest HRCCs
valuation of its completed works prior to the submission of the latters monthly
progress billings.
In the final analysis, the joint measurement requirement seeks to limit the
dispute between the parties with regard to the valuation of HRCCs completed
works. Accordingly, any issue which FFCCI may have with regard to HRCCs
valuation of the works it had completed should be raised and resolved during the
said joint measurement instead of raising the same after HRCC had submitted its
monthly progress billings. Thus, having relinquished its right to ask for a joint
measurement of HRCCs completed works, FFCCI had necessarily waived its right
to dispute HRCCs valuation of the works it had accomplished.

Second Substantive Issue:

Validity of HRCCs Rescission of the Subcontract Agreement
Both the CA and the CIAC held that the work stoppage of HRCC was justified as
the same is but an exercise of its right to rescind the Subcontract Agreement in
view of FFCCIs failure to pay the formers monthly progress billings. Further, the
CIAC stated that FFCCI could no longer assail the work stoppage of HRCC as it
failed to file any counterclaim against HRCC pursuant to the terms of the
Subcontract Agreement.

For its part, FFCCI asserted that the work stoppage of HRCC was not
justified and, in any case, its failure to raise a counterclaim against HRCC for
liquidated damages before the CIAC does not amount to a ratification of the latters
work stoppage.
The determination of the validity of HRCCs work stoppage depends on a
determination of the following: first, whether HRCC has the right to extrajudicially
rescind the Subcontract Agreement; and second, whether FFCCI is already barred
from disputing the work stoppage of HRCC.
HRCC had waived its right to rescind the
Subcontract Agreement.
The right of rescission is statutorily recognized in reciprocal obligations.
Article 1191 of the Civil Code pertinently reads:
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what
is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either case.
He may also seek rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with Articles 1385
and 1388 and the Mortgage Law.

The rescission referred to in this article, more appropriately referred to as

resolution is on the breach of faith by the defendant which is violative of the
reciprocity between the parties.[44] The right to rescind, however, may be waived,
expressly or impliedly.[45]

While the right to rescind reciprocal obligations is implied, that is, that such right
need not be expressly provided in the contract, nevertheless the contracting parties
may waive the same.[46]
Contrary to the respective dispositions of the CIAC and the CA, we find that
HRCC had no right to rescind the Subcontract Agreement in the guise of a work
stoppage, the latter having waived such right. Apropos is Article 11.2 of the
Subcontract Agreement, which reads:
11.2

Effects of Disputes and Continuing Obligations

Notwithstanding any dispute, controversy, differences or
arbitration proceedings relating directly or indirectly to this
SUBCONTRACT Agreement and without prejudice to the
eventual outcome thereof, [HRCC] shall at all times proceed
with the prompt performance of the Works in accordance
with the directives of FFCCI and this SUBCONTRACT
Agreement.[47] (Emphasis supplied)

Hence, in spite of the existence of dispute or controversy between the parties

during the course of the Subcontract Agreement, HRCC had agreed to continue the
performance of its obligations pursuant to the Subcontract Agreement. In view of
the provision of the Subcontract Agreement quoted above, HRCC is deemed to
have effectively waived its right to effect extrajudicial rescission of its contract
with FFCCI. Accordingly, HRCC, in the guise of rescinding the Subcontract
Agreement, was not justified in implementing a work stoppage.
The costs of arbitration should be shared
by the parties equally.
Section 1, Rule 142 of the Rules of Court provides:
Section 1. Costs ordinarily follow results of suit. Unless otherwise
provided in these rules, costs shall be allowed to the prevailing party as a
matter of course, but the court shall have power, for special reasons, to

adjudge that either party shall pay the costs of an action, or that the same
be divided, as may be equitable. No costs shall be allowed against the
Republic of thePhilippines unless otherwise provided by law. (Emphasis
supplied)

Although, generally, costs are adjudged against the losing party, courts
nevertheless have discretion, for special reasons, to decree otherwise.
Here, considering that the work stoppage of HRCC is not justified, it is only
fitting that both parties should share in the burden of the cost of arbitration equally.
HRCC had a valid reason to institute the complaint against FFCCI in view of the
latters failure to pay the full amount of its monthly progress billings. However, we
disagree with the CIAC and the CA that only FFCCI should shoulder the
arbitration costs. The arbitration costs should be shared equally by FFCCI and
HRCC in view of the latters unjustified work stoppage.
WHEREFORE,
in
consideration
of
the
foregoing
disquisitions, the Decision dated February 6, 2009 and Resolution
dated April 13, 2009 of the Court of Appeals in CA-G.R. SP No.
91860 are hereby AFFIRMED with MODIFICATION that the
arbitration costs shall be shared equally by the parties herein.

SO ORDERED.

THIRD DIVISION

[G.R. No. 133215. July 15, 1999]

PAGPALAIN
HAULERS,
INC., petitioner,
vs. The
HONORABLE
CRESENCIANO B. TRAJANO, in his official capacity as Secretary of

Labor and Employment, the HONORABLE RENATO D. PARUNGO,

in his official capacity as the Med-Arbiter in DOLE Case No. NCR-ODM-9705-006, and the INTEGRATED LABOR ORGANIZATION (ILOPHILS) PAGPALAIN WORKERS UNION-ILO-PHILS. respondents.
DECISION
ROMERO, J.:

On May 14, 1997, respondent Integrated Labor Organization-Pagpalain Haulers Workers

Union (hereafter referred to as ILO-PHILS), in a bid to represent the rank-and-file drivers and
helpers of petitioner Pagpalain Haulers, Inc. (hereafter referred to as Pagpalain), filed a petition
for certification election with the Department of Labor and Employment. ILO-PHILS attached to
the petition copies of its charter certificate, its constitution and by-laws, its books of account, and
a list of its officers and their addresses.
On July 10, 1997, Pagpalain filed a motion to dismiss the petition, alleging that ILO-PHILS
was not a legitimate labor organization due to its failure to comply with the requirements for
registration under the Labor Code. Specifically, it claimed that the books of account submitted by
ILO-PHILS were not verified under oath by its treasurer and attested to by its president, a
required by Rule II, Book V of the Omnibus Rules Implementing the Labor Code.
In a reply dated August 4, 1997, ILO-PHILS dismissed Pagpalains claims, saying that
Department Order No. 9, Series of 1997 had dispensed with the requirement that a local or
chapter of a national union submit books of account in order to be registered with the
Department of Labor and Employment.
Finding in favor of ILO-PHILS, the Med-Arbiter, on August 27, 1997, ordered the holding
of certification elections among the rank-and-file of Pagpalain Haulers. Pagpalain promptly
appealed the decision to the Secretary of Labor and Employment. It claimed that the MedArbiter had gravely abused his discretion in allowing Department Order No. 9 to take precedence
over a ruling of the Supreme Court.Pagpalain cited Protection Technology v. Secretary,
Department of ,Labor and Employment [1] and Progressive Development Corporation v. Secretary
of Labor[2] in support of its contention.
Declaring Protection and Progressive to be inapplicable to the case before him, the
Secretary, on February 27, 1998, issued a resolution dismissing Pagpalains appeal. In his own
words, [I]n these aforementioned cases, the Supreme Court premised its ruling on the previous
rules implementing the Labor Code, particularly Book V, that provides the requirements for the
registration of a local or chapter of a federation or national union. With the issuance of
Department Order No. 09 amending the rules implementing Book V of the Code, the
requirement on books of account no longer exists.[3]
Aggrieved by said resolution, Pagpalain now comes to this Court for relief claiming that the
Secretary of Labor acted without jurisdiction in issuing the questioned resolution. In support of
its proposition, it claims that:
1. DEPARTMENT ORDER NO. 9, SERIES OF 1997, ISSUED BY PUBLIC RESPONDENT
SECRETARY OF LABOR IS NULL AND VOID FOR BEING CONTRARY TO PUBLIC

POLICY LAID DOWN BY THE SUPREME COURT IN PROTECTION TECHNOLOGY,

INC. V. SECRETARY OF LABOR (G.R. NO. 117211, 1 MARCH 1995)
AND PROGRESSIVE DEVELOPMENT CORP. V. SECRETARY OF LABOR (G.R. NO.
96425, 4 FEBRUARY 1992);
2. DEPARTMENT ORDER NO. 9, SERIES OF 1997, OF PUBLIC RESPONDENT
SECRETARY OF LABOR CANNOT ALTER THE REQUIREMENTS OF ARTICLES
241(H) AND (J) OF THE LABOR CODE OF THE PHILIPPINES, NOR CAN IT PREVAIL
OVER THE RULINGS OF THE SUPREME COURT, WHICH FORM PART OF THE LAW
OF THE LAND.

Pagpalains contentions are without merit.

Under Article 234 of the Labor Code, the requirements for registration of a labor
organization is as follows:

Art. 234. Requirements of registration. Any applicant labor organization, association

or group of unions or workers shall acquire legal personality and shall be entitled to
the rights and privileges granted by law to legitimate labor organizations upon
issuance of the certificate of registration based on the following requirements:
(a) Fifty pesos (P50.00) registration fee;
(b) The names of its officers, their addresses, the principal address of the labor
organization, the minutes of the organizational meetings and the list of the workers
who participated in such meetings;
(c) The names of all its members comprising at least twenty percent (20%) of all the
employees in the bargaining unit where it seeks to operate;
(d) If the applicant union has been in existence for one or more years, copies of its
annual financial reports; and
(e) Four (4) copies of the constitution and by-laws of the applicant union, minutes of
its adoption or ratification, and the list of the members who participated in it.
As can be gleaned from the above, the Labor Code does not require the submission of books
of account in order for a labor organization to be registered as a legitimate labor
organization. The requirement that books of account be submitted as a requisite for a registration
can be found only in Book V of the Omnibus Rules Implementing the Labor Code, prior to its
amendment by Department Order No. 9, Series of 1997. Specifically, the old Section 3(e), Rule
II, of Book V provided that [t]he local or chapter of a labor federation or national union shall
have and maintain a constitution and by-laws, set of officers andbooks of accounts. For
reporting purposes, the procedure governing the reporting of independently registered unions,
federations or national unions shall be observed.

In Progressive Development Corporation, cited by Pagpalain, this Court held that the abovementioned procedure governing the reporting of independently registered unions refers to the
certification and attestation requirements contained in Article 235, paragraph 2. Article 235,
paragraph 2 provides that [a]ll requisite documents and papers shall be certified under oath by
the secretary or the treasurer of the organization, as the case may be, and attested to by its
president; hence, in the above-mentioned case, we ruled that in applications for registration by a
local or chapter of a federation or national union, the constitution and by-laws, set of officers
and books of account submitted by said local or chapter must be certified under oath by the
secretary or treasurer and attested to by its president.
Three years later, in Protection Technology v. Secretary of Labor, we amplified our ruling
in Progressive, saying that the non-submission of books of account certified by and attested to by
the appropriate officer is a ground for an employer to legitimately oppose a petition for
certification election filed by a local or chapter of a national union.
By virtue of Department Order No. 9, Series of 1997, however, the documents needed to be
submitted by a local or chapter have been reduced to the following:
(a) A charter certificate issued by the federation or national union indicating the creation or
establishment of the local/chapter;
(b) The names of the local/chapters officers, their addresses, and the principal office of the
local/chapter;
(c) The local/chapters constitution and by-laws; provided that where the local/chapters
constitution and by-laws is the same as that of the federation or national union, this fact shall
be indicated accordingly.

All the foregoing supporting requirements shall be certified under oath by the Secretary or
Treasurer of the local/chapter and attested by its President.[4]
Since the Department Order No. 9 has done away with the submission of books of account
as a requisite for registration, Pagpalains only recourse now is to have said order declared null
and void. It premises its case on the principles laid down in Progressive and Protection
Technology. First, Pagpalain maintains that Department Order No. 9 is illegal, allegedly because
it contravenes the above-mentioned rulings of this Court. Citing Article 8 of the Civil Code,
which provides that [j]udicial decisions applying or interpreting the laws or the Constitution shall
form a part of the legal system of the Philippines, Pagpalain declares the two cases part of the
law of the land which, under the third paragraph of Article 7 of the Civil Code, [5] may not be
supplanted by mere regulation.
Second, it claims that dispensing with books of account contravenes public policy,
citing Protection Technology, as follows:

It is immaterial that the Union, having been organized for less than a year before the
application for registration with the BLR, would have had no real opportunity to levy
and collect dues and fees from its members which need to be recorded in the books of
account. Such accounting books can and must be submitted to the BLR, even if they
contain no detailed or extensive entries as yet. The point to be stressed is that the

applicant local or chapter must demonstrate to the BLR that it is entitled to registered
status because it has in place a system for accounting for members contributions to its
fund even before it actually receives dues and fees from its members. The controlling
intention is to minimize the risk of fraud and diversion in the course of
the subsequent formation and growth of the Union fund. [Underscoring petitioners]
To buttress its argument, Pagpalain also cites Progressive, thus:

The employer naturally needs assurance that the union it is dealing with is a bona fide
organization, one which has not submitted false statements or misrepresentations to
the Bureau. The inclusion of the certification and attestation requirements will in a
marked degree allay these apprehensions of management. Not only is the issuance of
any false statement and misrepresentation a ground for cancellation of registration
(See Article 239(a), (c) and (d)); it is also a ground for a criminal charge of perjury.
The certification and attestation requirements are preventive measures against the
commission of fraud. They likewise afford a measure of protection to unsuspecting
employees who may be lured into joining unscrupulous or fly-by-night unions whose
sole purpose is to control union funds or to use the union for dubious
ends. [Underscoring petitioners]
Finally, Pagpalain cites as indicative of public policy, the following sections of Article 241
of the Labor Code:

The following are the rights and conditions of membership in a labor organization:
xxx xxx xxx

(h) Every payment of fees, dues, or other contributions by a member shall be

evidenced by a receipt signed by the officer or agent making the collection and
entered into the record of the organization to be kept and maintained for that purpose;
xxx xxx xxx

(j) Every income or revenue of the organization shall be evidenced by a record

showing its source, and every expenditure of its funds shall be evidenced by a receipt
from the person to whom the payment is made, which shall state the date, place and
purpose of such payment. Such record or receipt shall form part of the financial
records of the organization. [Underscoring petitioners]
Under Article 8 of the Civil Code, [j]udicial decisions applying or interpreting the laws or
the Constitution shall form a part of the legal system of the Philippines. This does not mean,
however, that courts can create law. The courts exist for interpreting the law, not for enacting

it. To allow otherwise would be violative of the principle of separation of powers, inasmuch as
the sole function of our courts is to apply or interpret the laws, particularly where gaps
or lacunae exist or where ambiguities becloud issues, but it will not arrogate unto itself the task
of legislating.
Consequently, Progressive and Protection Technology are not to be deemed as laws on the
registration of unions. They merely interpret and apply the implementing rules of the Labor Code
as to registration of unions. It is this interpretation that forms part of the legal system of the
Philippines, for the interpretation placed upon the written law by a competent court has the force
of law.[6] Progressive and Protection Technology, however, applied and interpreted the then
existing Book V of the Omnibus Rules Implementing the Labor Code. Since Book V of the
Omnibus Rules, as amended by Department Order No. 9, no longer requires a local or chapter to
submit books of accounts as a prerequisite for registration, the doctrines enunciated in the abovementioned cases, with respect to books of account, are already passe and therefore, no longer
applicable. Hence, Pagpalain cannot insist that ILO-PHILS comply with the requirements
prescribed in said rulings, for the current implementing rules have deleted the same.
Neither can Pagpalain contend that Department Order No. 9 is an invalid exercise of rulemaking power by the Secretary of Labor. For an administrative order to be valid, it must (i) be
issued on the authority of law and (ii) it must not be contrary to the law and Constitution.[7]
Department Order No. 9 has been issued on authority of law. Under the law, the Secretary is
authorized to promulgate rules and regulations to implement the Labor Code. Specifically,
Article 5 of the Labor Code provides that [t]he Department of Labor and other government
agencies charged with the administration and enforcement of this Code or any of its parts shall
promulgate the necessary implementing rules and regulations. Consonant with this article, the
Secretary of Labor and Employment promulgated the Omnibus Rules Implementing the Labor
Code. By virtue of this self-same authority, the Secretary amended the above-mentioned omnibus
rules by issuing Department Order No. 9, Series of 1997.
Moreover, Pagpalain has failed to show that Department Order No. 9 is contrary to the law
or the Constitution. At the risk of being repetitious, the Labor Code does not require a local or
chapter to submit books of account in order for it to be registered as a legitimate labor
organization. There is, thus, no inconsistency between the Labor Code and Department Order
No. 9. Neither has Pagpalain shown that said order contravenes any provision of the
Constitution.
Pagpalain cannot also allege that Department Order No. 9 is violative of public policy. As
adverted to earlier, the sole function of our courts is to apply or interpret the laws. [8] It does not
formulate public policy, which is the province of the legislative and executive branches of
government. It cannot, thus, be said that the principles laid down by the court
in Progressive and Protection Technology constitute public policy on the matter. They do,
however, constitute the Courts interpretation of public policy, as formulated by the executive
department through its promulgation of rules implementing the Labor Code. However, this
public policy has itself been changed by the executive department, through the amendments
introduced in Book V of the Omnibus Rules by Department Order No. 9. It is not for us to
question this change in policy, it being a well-established principle beyond question that it is not
within the province of the courts to pass judgment upon the policy of legislative or executive
action.[9] Notwithstanding the expanded judicial power under Section 1, Article VIII of the

Constitution, an inquiry on the above-stated policy would delve into matters of wisdom not
within the powers of this Court.
Furthermore, the controlling intention in requiring the submission of books of account is the
protection of labor through the minimization of the risk of fraud and diversion in the handling of
union funds. As correctly pointed out by the Solicitor General, this intention can still be realized
through other provisions of the Labor Code. Article 241 of the Labor Code, for instance:

Art. 241. Rights and conditions of membership in a labor organization The following
are the rights and conditions of membership in a labor organization:
xxx xxx xxx

(b) The members shall be entitled to full and detailed reports from their officers and
representatives of all financial transactions as provided for in the constitution and bylaws of the organization;
xxx xxx xxx

(g) No officer, agent or member of a labor organization shall collect any fees, dues, or
other contributions in its behalf or make any disbursement of its funds unless he is
duly authorized pursuant to its constitution and by-laws;
(h) Every payment of fees, dues, or other contributions by a member shall be
evidenced by a receipt signed by the officer or agent making the collection and
entered into the record of the organization to be kept and maintained for the that
purpose;
(i) The funds of the organization shall not be applied for any purpose or object other
than those expressly provided by its constitution or by-laws or those expressly
authorized by written resolution adopted by the majority of the members at a general
meeting duly called for the purpose;
(j) Every income or revenue of the organization shall be evidenced by a record
showing its source, and every expenditure of its funds shall be evidenced by a receipt
from the person to whom the payment is made, which shall state the date, place and
purpose of such payment. Such record or receipt shall form part of the financial
records of the organization.
xxx xxx xxx

(l) The treasurer of any labor organization and every officer thereof who is responsible
for the account of such organization or for the collection, management, disbursement,
custody or control of the fund, moneys and other properties of the organization, shall

render to the organization and to its members a true and correct account of all the
moneys received and paid by him since he assumed office or since the last day on
which he rendered such account, and of all bonds, securities and other properties of
the organization entrusted to his custody or under his control. The rendering of such
account shall be made:
(1) At least once a year within 30 days after the close of its fiscal year;
(2) At such other times as may be required by a resolution of the majority of the members of the
organization;
(3) Upon vacating his office.

The account shall be duly audited and verified by affidavit and a copy thereof shall be
furnished the Secretary of Labor.
(m) The books of account and other records of the financial activities of any labor
organization shall be open to inspection by any officer or member thereof during
office hours;
xxx xxx xxx
Furthermore, Article 274 of the Labor Code empowers the Secretary of Labor or his duly
authorized representative to inquire into the financial activities of legitimate labor organizations
upon the filing of a complaint under oath duly supported by the written consent of 20% of the
total membership of the labor organization concerned, as well as to examine their books of
accounts and other records to determine compliance or non-compliance with the law. All of these
provisions are designed to safeguard the funds of a labor organization that they may not be
squandered or frittered away by its officers or by third persons to the detriment of its members.
Lastly, Department Order No. 9 only dispenses with books of account as a requirement for
registration of a local or chapter of a national union or federation. As provided by Article 241 (h)
and (j), a labor organization must still maintain books of account, but it need not submit the same
as a requirement for registration. Given the foregoing disquisition, we find no cogent reason to
declare Department Order No. 9 null and void, as well as to reverse the assailed resolution of the
Secretary of Labor.
WHEREFORE, premises considered, the instant petition is hereby DISMISSED for lack of
merit and the resolution of the Secretary of Labor dated February 27, 1998 AFFIRMED. Costs
against petitioner.
SO ORDERED.
Vitug, Panganiban, Purisima, and Gonzaga_Reyes, JJ., concur