OSCAR VILLAMARIA, JR. G.R. No.

165881
Petitioner,
Present:

PANGANIBAN, C.J.,
Chairperson,
- versus - YNARES-SANTIAGO,
AUSTRIA-MARTINEZ.
CALLEJO, SR., and
CHICO-NAZARIO, JJ.

COURT OF APPEALS and Promulgated:

JERRY V. BUSTAMANTE,
Respondents. April 19, 2006

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

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 65 of the Revised

Rules of Court assailing the Decision[1] and Resolution[2] of the Court of Appeals
(CA) in CA-G.R. SP No. 78720 which set aside the Resolution[3] of the National
Labor Relations Commission (NLRC) in NCR-30-08-03247-00, which in turn
affirmed the Decision[4] of the Labor Arbiter dismissing the complaint filed by
respondent Jerry V. Bustamante.

Petitioner Oscar Villamaria, Jr. was the owner of Villamaria Motors, a sole
proprietorship engaged in assembling passenger jeepneys with a public utility
franchise to operate along the Baclaran-Sucat route. By 1995, Villamaria stopped
assembling jeepneys and retained only nine, four of which he operated by
employing drivers on a boundary basis. One of those drivers was respondent
Bustamante who drove the jeepney with Plate No. PVU-660. Bustamante
remitted P450.00 a day to Villamaria as boundary and kept the residue of his daily
earnings as compensation for driving the vehicle. In August 1997, Villamaria
verbally agreed to sell the jeepney to Bustamante under the boundary-
hulog scheme, where Bustamante would remit to Villarama P550.00 a day for a
period of four years; Bustamante would then become the owner of the vehicle and
continue to drive the same under Villamarias franchise. It was also agreed that
Bustamante would make a downpayment of P10,000.00.

On August 7, 1997, Villamaria executed a contract entitled Kasunduan ng

Bilihan ng Sasakyan sa Pamamagitan ng Boundary-Hulog[5] over the passenger
jeepney with Plate No. PVU-660, Chassis No. EVER95-38168-C and Motor No.
SL-26647. The parties agreed that if Bustamante failed to pay the boundary-
hulogfor three days, Villamaria Motors would hold on to the vehicle until
Bustamante paid his arrears, including a penalty of P50.00 a day; in case
Bustamante failed to remit the daily boundary-hulog for a period of one week,
the Kasunduan would cease to have legal effect and Bustamante would have to
return the vehicle to Villamaria Motors.

Under the Kasunduan, Bustamante was prohibited from driving the vehicle
without prior authority from Villamaria Motors. Thus, Bustamante was authorized
to operate the vehicle to transport passengers only and not for other purposes. He
was also required to display an identification card in front of the windshield of the
vehicle; in case of failure to do so, any fine that may be imposed by government
authorities would be charged against his account. Bustamante further obliged
himself to pay for the cost of replacing any parts of the vehicle that would be lost
or damaged due to his negligence. In case the vehicle sustained serious damage,
Bustamante was obliged to notify Villamaria Motors before commencing
repairs. Bustamante was not allowed to wear slippers, short pants or undershirts
while driving. He was required to be polite and respectful towards the
passengers. He was also obliged to notify Villamaria Motors in case the vehicle
was leased for two or more days and was required to attend any meetings which
may be called from time to time. Aside from the boundary-hulog, Bustamante was
also obliged to pay for the annual registration fees of the vehicle and the premium
for the vehicles comprehensive insurance. Bustamante promised to strictly comply
with the rules and regulations imposed by Villamaria for the upkeep and
maintenance of the jeepney.

Bustamante continued driving the jeepney under the supervision and control of
Villamaria. As agreed upon, he made daily remittances of P550.00 in payment of
the purchase price of the vehicle. Bustamante failed to pay for the annual
registration fees of the vehicle, but Villamaria allowed him to continue driving the
jeepney.
 In 1999, Bustamante and other drivers who also had the same arrangement
with Villamaria Motors failed to pay their respective boundary-hulog. This
prompted Villamaria to serve a Paalala,[6] reminding them that under
the Kasunduan, failure to pay the daily boundary-hulog for one week, would mean
their respective jeepneys would be returned to him without any complaints. He
warned the drivers that the Kasunduan would henceforth be strictly enforced and
urged them to comply with their obligation to avoid litigation.

On July 24, 2000, Villamaria took back the jeepney driven by Bustamante
and barred the latter from driving the vehicle.

On August 15, 2000, Bustamante filed a Complaint[7] for Illegal Dismissal

against Villamaria and his wife Teresita. In his Position Paper,[8] Bustamante
alleged that he was employed by Villamaria in July 1996 under the boundary
system, where he was required to remit P450.00 a day. After one year of
continuously working for them, the spouses Villamaria presented
the Kasunduan for his signature, with the assurance that he (Bustamante) would
own the jeepney by March 2001 after paying P550.00 in daily installments and that
he would thereafter continue driving the vehicle along the same route under the
same franchise. He further narrated that in July 2000, he informed the Villamaria
spouses that the surplus engine of the jeepney needed to be replaced, and was
assured that it would be done. However, he was later arrested and his drivers
license was confiscated because apparently, the replacement engine that was
installed was taken from a stolen vehicle. Due to negotiations with the
apprehending authorities, the jeepney was not impounded. The Villamaria spouses
took the jeepney from him on July 24, 2000, and he was no longer allowed to drive
the vehicle since then unless he paid them P70,000.00.

Bustamante prayed that judgment be rendered in his favor, thus:

WHEREFORE, in the light of the foregoing, it is most respectfully prayed

that judgment be rendered ordering the respondents, jointly and severally, the
following:

1. Reinstate complainant to his former position without loss of seniority

rights and execute a Deed of Sale in favor of the complainant relative to the PUJ
with Plate No. PVU-660;

2. Ordering the respondents to pay backwages in the amount of P400.00 a

day and other benefits computed from July 24, 2000 up to the time of his actual
reinstatement;
 3. Ordering respondents to return the amount of P10,000.00
and P180,000.00 for the expenses incurred by the complainant in the repair and
maintenance of the subject jeep;

4. Ordering the respondents to refund the amount of One Hundred

(P100.00) Pesos per day counted from August 7, 1997 up to June 2000 or a total
of P91,200.00;

5. To pay moral and exemplary damages of not less than P200,000.00;

6. Attorneys fee[s] of not less than 10% of the monetary award.

Other just and equitable reliefs under the premises are also being prayed
[9]
for.

In their Position Paper,[10] the spouses Villamaria admitted the existence of

the Kasunduan, but alleged that Bustamante failed to pay the P10,000.00
downpayment and the vehicles annual registration fees. They further alleged that
Bustamante eventually failed to remit the requisite boundary-hulog of P550.00 a
day, which prompted them to issue the Paalaala. Instead of complying with his
obligations, Bustamante stopped making his remittances despite his daily trips and
even brought the jeepney to the province without permission. Worse, the jeepney
figured in an accident and its license plate was confiscated; Bustamante even
abandoned the vehicle in a gasoline station in Sucat, Paraaque City for two
weeks. When the security guard at the gasoline station requested that the vehicle
be retrieved and Teresita Villamaria asked Bustamante for the keys, Bustamante
told her: Di kunin ninyo. When the vehicle was finally retrieved, the tires were
worn, the alternator was gone, and the battery was no longer working.

Citing the cases of Cathedral School of Technology v.

[11] [12]
NLRC and Canlubang Security Agency Corporation v. NLRC, the spouses
Villamaria argued that Bustamante was not illegally dismissed since
the Kasunduan executed on August 7, 1997 transformed the employer-employee
relationship into that of vendor-vendee.Hence, the spouses concluded, there was no
legal basis to hold them liable for illegal dismissal. They prayed that the case be
dismissed for lack of jurisdiction and patent lack of merit.

In his Reply,[13] Bustamante claimed that Villamaria exercised control and

supervision over the conduct of his employment. He maintained that the rulings of
the Court in National Labor Union v. Dinglasan,[14] Magboo v.
Bernardo,[15] and Citizen's League of Free Workers v. Abbas[16] are germane to the
issue as they define the nature of the owner/operator-driver relationship under the
boundary system. He further reiterated that it was the Villamaria spouses who
presented the Kasunduan to him and that he conformed thereto only upon their
representation that he would own the vehicle after four years. Moreover, it
appeared that the Paalalawas duly received by him, as he, together with other
drivers, was made to affix his signature on a blank piece of paper purporting to be
an attendance sheet.

On March 15, 2002, the Labor Arbiter rendered judgment[17] in favor of the
spouses Villamaria and ordered the complaint dismissed on the following
ratiocination:

Respondents presented the contract of Boundary-Hulog, as well as

the PAALALA, to prove their claim that complainant violated the terms of their
contract and afterwards abandoned the vehicle assigned to him. As against the
foregoing, [the] complaints (sic) mere allegations to the contrary cannot prevail.

Not having been illegally dismissed, complainant is not entitled to damages and
attorney's fees.[18]

Bustamante appealed the decision to the NLRC,[19] insisting that

the Kasunduan did not extinguish the employer-employee relationship between
him and Villamaria. While he did not receive fixed wages, he kept only the excess
of the boundary-hulog which he was required to remit daily to Villamaria under the
agreement. Bustamante maintained that he remained an employee because he was
engaged to perform activities which were necessary or desirable to Villamarias
trade or business.
The NLRC rendered judgment[20] dismissing the appeal for lack of merit,
thus:

WHEREFORE, premises considered, complainant's appeal is hereby

DISMISSED for reasons not stated in the Labor Arbiter's decision but mainly on a
jurisdictional issue, there being none over the subject matter of the controversy.[21]

The NLRC ruled that under the Kasunduan, the juridical relationship
between Bustamante and Villamaria was that of vendor and vendee, hence, the
Labor Arbiter had no jurisdiction over the complaint. Bustamante filed a Motion
for Reconsideration, which the NLRC resolved to deny on May 30, 2003.[22]

Bustamante elevated the matter to the CA via Petition for Certiorari,

alleging that the NLRC erred
 I
IN DISMISSING PETITIONERS APPEAL FOR REASON NOT STATED IN
THE LABOR ARBITERS DECISION, BUT MAINLY ON JURISDICTIONAL
ISSUE;
II
IN DISREGARDING THE LAW AND PREVAILING JURISPRUDENCE
WHEN IT DECLARED THAT THE RELATIONSHIP WHICH WAS
ESTABLISHED BETWEEN PETITIONER AND THE PRIVATE
RESPONDENT WAS DEFINITELY A MATTER WHICH IS BEYOND THE
PROTECTIVE MANTLE OF OUR LABOR LAWS.[23]

Bustamante insisted that despite the Kasunduan, the relationship between him and
Villamaria continued to be that of employer-employee and as such, the Labor
Arbiter had jurisdiction over his complaint. He further alleged that it is common
knowledge that operators of passenger jeepneys (including taxis) pay their drivers
not on a regular monthly basis but on commission or boundary basis, or even the
boundary-hulog system. Bustamante asserted that he was dismissed from
employment without any lawful or just cause and without due notice.
For his part, Villamaria averred that Bustamante failed to adduce proof of
their employer-employee relationship. He further pointed out that
the Dinglasan case pertains to the boundary system and not the boundary-
hulog system, hence inapplicable in the instant case. He argued that upon the
execution of the Kasunduan, the juridical tie between him and Bustamante was
transformed into a vendor-vendee relationship. Noting that he was engaged in the
manufacture and sale of jeepneys and not in the business of transporting
passengers for consideration, Villamaria contended that the daily fees which
Bustmante paid were actually periodic installments for the the vehicle and were not
the same fees as understood in the boundary system. He added that the boundary-
hulog plan was basically a scheme to help the driver-buyer earn money and
eventually pay for the unit in full, and for the owner to profit not from the daily
earnings of the driver-buyer but from the purchase price of the unit
sold. Villamaria further asserted that the apparently restrictive conditions in
the Kasunduan did not mean that the means and method of driver-buyers conduct
was controlled, but were mere ways to preserve the vehicle for the benefit of both
parties: Villamaria would be able to collect the agreed purchase price, while
Bustamante would be assured that the vehicle would still be in good running
condition even after four years. Moreover, the right of vendor to impose certain
conditions on the buyer should be respected until full ownership of the property is
vested on the latter. Villamaria insisted that the parallel circumstances obtaining
in Singer Sewing Machine Company v. Drilon [24] has analogous application to the
instant issue.

In its Decision[25] dated August 30, 2004, the CA reversed and set aside the
NLRC decision. The fallo of the decision reads:

UPON THE VIEW WE TAKE IN THIS CASE, THUS, the impugned

resolutions of the NLRC must be, as they are hereby are, REVERSED AND
SET ASIDE, and judgment entered in favor of petitioner:

1. Sentencing private respondent Oscar Villamaria, Jr. to

pay petitioner Jerry Bustamante separation pay computed from the
time of his employment up to the time of termination based on the
prevailing minimum wage at the time of termination; and,

2. Condemning private respondent Oscar Villamaria, Jr. to

pay petitioner Jerry Bustamante back wages computed from the
time of his dismissal up to March 2001 based on the prevailing
minimum wage at the time of his dismissal.

Without Costs.

SO ORDERED.[26]

The appellate court ruled that the Labor Arbiter had jurisdiction over
Bustamantes complaint. Under the Kasunduan, the relationship between him and
Villamaria was dual: that of vendor-vendee and employer-employee. The CA
ratiocinated that Villamarias exercise of control over Bustamantes conduct in
operating the jeepney is inconsistent with the formers claim that he was not
engaged in the transportation business. There was no evidence that petitioner was
allowed to let some other person drive the jeepney.

The CA further held that, while the power to dismiss was not mentioned in
the Kasunduan, it did not mean that Villamaria could not exercise it. It explained
that the existence of an employment relationship did not depend on how the worker
was paid but on the presence or absence of control over the means and method of
the employees work. In this case, Villamarias directives (to drive carefully, wear
an identification card, don decent attire, park the vehicle in his garage, and to
inform him about provincial trips, etc.) was a means to control the way in which
Bustamante was to go about his work. In view of Villamarias supervision and
control as employer, the fact that the boundary represented installment payments of
the purchase price on the jeepney did not remove the parties employer-employee
relationship.

While the appellate court recognized that a weeks default in paying the
boundary-hulog constituted an additional cause for terminating Bustamantes
employment, it held that the latter was illegally dismissed. According to the CA,
assuming that Bustamante failed to make the required payments as claimed by
Villamaria, the latter nevertheless failed to take steps to recover the unit and waited
for Bustamante to abandon it. It also pointed out that Villamaria neither submitted
any police report to support his claim that the vehicle figured in a mishap nor
presented the affidavit of the gas station guard to substantiate the claim that
Bustamante abandoned the unit.

Villamaria received a copy of the decision on September 8, 2004, and filed,

on September 17, 2004, a motion for reconsideration thereof. The CA denied the
motion in a Resolution[27] dated November 2, 2004, and Villamaria received a copy
thereof on November 8, 2004.

Villamaria, now petitioner, seeks relief from this Court via petition for review
on certiorari under Rule 65 of the Rules of Court, alleging that the CA committed
grave abuse of its discretion amounting to excess or lack of jurisdiction in
reversing the decision of the Labor Arbiter and the NLRC. He claims that the CA
erred in ruling that the juridical relationship between him and respondent under
the Kasunduan was a combination of employer-employee and vendor-vendee
relationships. The terms and conditions of the Kasunduan clearly state that he and
respondent Bustamante had entered into a conditional deed of sale over the
jeepney; as such, their employer-employee relationship had been transformed into
that of vendor-vendee. Petitioner insists that he had the right to reserve his title on
the jeepney until after the purchase price thereof had been paid in full.

In his Comment on the petition, respondent avers that the appropriate remedy of
petitioner was an appeal via a petition for review on certiorari under Rule 45 of the
Rules of Court and not a special civil action of certiorari under Rule 65. He argues
that petitioner failed to establish that the CA committed grave abuse of its
discretion amounting to excess or lack of jurisdiction in its decision, as the said
ruling is in accord with law and the evidence on record.

Respondent further asserts that the Kasunduan presented to him by

petitioner which provides for a boundary-hulog scheme was a devious
circumvention of the Labor Code of the Philippines. Respondent insists that his
juridical relationship with petitioner is that of employer-employee because he was
engaged to perform activities which were necessary or desirable in the usual
business of petitioner, his employer.

In his Reply, petitioner avers that the Rules of Procedure should be liberally
construed in his favor; hence, it behooves the Court to resolve the merits of his
petition.

We agree with respondents contention that the remedy of petitioner from the CA
decision was to file a petition for review on certiorari under Rule 45 of the Rules
of Court and not the independent action of certiorari under Rule 65. Petitioner had
15 days from receipt of the CA resolution denying his motion for the
reconsideration within which to file the petition under Rule 45.[28] But instead of
doing so, he filed a petition for certiorari under Rule 65 on November 22, 2004,
which did not, however, suspend the running of the 15-day reglementary period;
consequently, the CA decision became final and executory upon the lapse of the
reglementary period for appeal. Thus, on this procedural lapse, the instant petition
stands to be dismissed.[29]

It must be stressed that the recourse to a special civil action under Rule 65 of the
Rules of Court is proscribed by the remedy of appeal under Rule 45. As the Court
elaborated in Tomas Claudio Memorial College, Inc. v. Court of Appeals:[30]

We agree that the remedy of the aggrieved party from a decision or final
resolution of the CA is to file a petition for review on certiorari under Rule 45 of
the Rules of Court, as amended, on questions of facts or issues of law within
fifteen days from notice of the said resolution. Otherwise, the decision of the CA
shall become final and executory. The remedy under Rule 45 of the Rules of
Court is a mode of appeal to this Court from the decision of the CA. It is a
continuation of the appellate process over the original case. A review is not a
matter of right but is a matter of judicial discretion. The aggrieved party may,
however, assail the decision of the CA via a petition for certiorari under Rule 65
of the Rules of Court within sixty days from notice of the decision of the CA or
its resolution denying the motion for reconsideration of the same. This is based on
the premise that in issuing the assailed decision and resolution, the CA acted with
grave abuse of discretion, amounting to excess or lack of jurisdiction and there is
no plain, speedy and adequate remedy in the ordinary course of law. A remedy is
considered plain, speedy and adequate if it will promptly relieve the petitioner
from the injurious effect of the judgment and the acts of the lower court.
 The aggrieved party is proscribed from filing a petition for certiorari if appeal is
available, for the remedies of appeal and certiorari are mutually exclusive and not
alternative or successive. The aggrieved party is, likewise, barred from filing a
petition for certiorari if the remedy of appeal is lost through his negligence. A
petition for certiorari is an original action and does not interrupt the course of the
principal case unless a temporary restraining order or a writ of preliminary
injunction has been issued against the public respondent from further
proceeding. A petition for certiorari must be based on jurisdictional grounds
because, as long as the respondent court acted within its jurisdiction, any error
committed by it will amount to nothing more than an error of judgment which
may be corrected or reviewed only by appeal.[31]

However, we have also ruled that a petition for certiorari under Rule 65 may
be considered as filed under Rule 45, conformably with the principle that rules of
procedure are to be construed liberally, provided that the petition is filed within the
reglementary period under Section 2, Rule 45 of the Rules of Court, and where
valid and compelling circumstances warrant that the petition be resolved on its
merits.[32] In this case, the petition was filed within the reglementary period and
petitioner has raised an issue of substance: whether the existence of a boundary-
hulog agreement negates the employer-employee relationship between the vendor
and vendee, and, as a corollary, whether the Labor Arbiter has jurisdiction over a
complaint for illegal dismissal in such case.
We resolve these issues in the affirmative.

The rule is that, the nature of an action and the subject matter thereof, as
well as, which court or agency of the government has jurisdiction over the same,
are determined by the material allegations of the complaint in relation to the law
involved and the character of the reliefs prayed for, whether or not the
complainant/plaintiff is entitled to any or all of such reliefs. [33] A prayer or demand
for relief is not part of the petition of the cause of action; nor does it enlarge the
cause of action stated or change the legal effect of what is alleged. [34] In
determining which body has jurisdiction over a case, the better policy is to
consider not only the status or relationship of the parties but also the nature of the
action that is the subject of their controversy.[35]

Article 217 of the Labor Code, as amended, vests on the Labor Arbiter
exclusive original jurisdiction only over the following:

x x x (a) Except as otherwise provided under this Code, the Labor Arbiters
shall have original and exclusive jurisdiction to hear and decide, within thirty (30)
calendar days after the submission of the case by the parties for decision without
 extension, even in the absence of stenographic notes, the following cases
involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;
3. If accompanied with a claim for reinstatement, those
cases that workers may file involving wage, 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 violation of Article 264 of this
Code, including questions involving the legality of strikes and
lockouts; and

6. Except claims for Employees Compensation, Social

Security, Medicare and maternity benefits, all other claims,
arising from employer-employee relationship, 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 or implementation 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 the foregoing cases, an employer-employee relationship is an

indispensable jurisdictional requisite.[36] The jurisdiction of Labor Arbiters and the
NLRC under Article 217 of the Labor Code is limited to disputes arising from an
employer-employee relationship which can only be resolved by reference to the
Labor Code, other labor statutes or their collective bargaining agreement.[37] Not
every dispute between an employer and employee involves matters that only the
Labor Arbiter and the NLRC can resolve in the exercise of their adjudicatory or
quasi-judicial powers. Actions between employers and employees where the
employer-employee relationship is merely incidental is within the exclusive
original jurisdiction of the regular courts.[38] When the principal relief is to be
granted under labor legislation or a collective bargaining agreement, the case falls
within the exclusive jurisdiction of the Labor Arbiter and the NLRC even though a
claim for damages might be asserted as an incident to such claim.[39]

We agree with the ruling of the CA that, under the boundary-hulog scheme
incorporated in the Kasunduan, a dual juridical relationship was created between
petitioner and respondent: that of employer-employee and vendor-
vendee. The Kasunduan did not extinguish the employer-employee relationship of
the parties extant before the execution of said deed.
As early as 1956, the Court ruled in National Labor Union v.
Dinglasan[40] that the jeepney owner/operator-driver relationship under the
boundary system is that of employer-employee and not lessor-lessee. This doctrine
was affirmed, under similar factual settings, in Magboo v.
[41] [42]
Bernardo and Lantaco, Sr. v. Llamas, and was analogously applied to govern
the relationships between auto-calesa owner/operator and driver,[43] bus
owner/operator and conductor,[44] and taxi owner/operator and driver.[45]

The boundary system is a scheme by an owner/operator engaged in

transporting passengers as a common carrier to primarily govern the compensation
of the driver, that is, the latters daily earnings are remitted to the owner/operator
less the excess of the boundary which represents the drivers compensation. Under
this system, the owner/operator exercises control and supervision over the driver. It
is unlike in lease of chattels where the lessor loses complete control over the
chattel leased but the lessee is still ultimately responsible for the consequences of
its use. The management of the business is still in the hands of the owner/operator,
who, being the holder of the certificate of public convenience, must see to it that
the driver follows the route prescribed by the franchising and regulatory authority,
and the rules promulgated with regard to the business operations. The fact that the
driver does not receive fixed wages but only the excess of the boundary given to
the owner/operator is not sufficient to change the relationship between
them. Indubitably, the driver performs activities which are usually necessary or
desirable in the usual business or trade of the owner/operator.[46]

Under the Kasunduan, respondent was required to remit P550.00 daily to

petitioner, an amount which represented the boundary of petitioner as well as
respondents partial payment (hulog) of the purchase price of the jeepney.
Respondent was entitled to keep the excess of his daily earnings as his daily wage.
Thus, the daily remittances also had a dual purpose: that of petitioners boundary
and respondents partial payment (hulog) for the vehicle. This dual purpose was
expressly stated in the Kasunduan. The well-settled rule is that an obligation is not
novated by an instrument that expressly recognizes the old one, changes only the
terms of payment, and adds other obligations not incompatible with the old
provisions or where the new contract merely supplements the previous one. [47] The
two obligations of the respondent to remit to petitioner the boundary-hulog can
stand together.

In resolving an issue based on contract, this Court must first examine the
contract itself, keeping in mind that when the terms of the agreement are clear and
leave no doubt as to the intention of the contracting parties, the literal meaning of
its stipulations shall prevail.[48] The intention of the contracting parties should be
ascertained by looking at the words used to project their intention, that is, all the
words, not just a particular word or two or more words standing alone. The various
stipulations of a contract shall be interpreted together, attributing to the doubtful
ones that sense which may result from all of them taken jointly.[49] The parts and
clauses must be interpreted in relation to one another to give effect to the
whole. The legal effect of a contract is to be determined from the whole read
together.[50]

Under the Kasunduan, petitioner retained supervision and control over the
conduct of the respondent as driver of the jeepney, thus:

Ang mga patakaran, kaugnay ng bilihang ito sa pamamagitan ng

boundary hulog ay ang mga sumusunod:

1. Pangangalagaan at pag-iingatan ng TAUHAN NG IKALAWANG

PANIG ang sasakyan ipinagkatiwala sa kanya ng TAUHAN NG UNANG
PANIG.

2. Na ang sasakyan nabanggit ay gagamitin lamang ng TAUHAN NG

IKALAWANG PANIG sa paghahanapbuhay bilang pampasada o pangangalakal
sa malinis at maayos na pamamaraan.

3. Na ang sasakyan nabanggit ay hindi gagamitin ng TAUHAN NG

IKALAWANG PANIG sa mga bagay na makapagdudulot ng kahihiyan, kasiraan
o pananagutan sa TAUHAN NG UNANG PANIG.

4. Na hindi ito mamanehohin ng hindi awtorisado ng opisina ng UNANG

PANIG.

5. Na ang TAUHAN NG IKALAWANG PANIG ay kinakailangang

maglagay ng ID Card sa harap ng windshield upang sa pamamagitan nito ay
madaliang malaman kung ang nagmamaneho ay awtorisado ng VILLAMARIA
MOTORS o hindi.

6. Na sasagutin ng TAUHAN NG IKALAWANG PANIG ang [halaga ng]

multa kung sakaling mahuli ang sasakyang ito na hindi nakakabit ang ID card
sa wastong lugar o anuman kasalanan o kapabayaan.

7. Na sasagutin din ng TAUHAN NG IKALAWANG PANIG ang

materyales o piyesa na papalitan ng nasira o nawala ito dahil sa kanyang
kapabayaan.

8. Kailangan sa VILLAMARIA MOTORS pa rin ang garahe habang

hinuhulugan pa rin ng TAUHAN NG IKALAWANG PANIG ang nasabing
sasakyan.

9. Na kung magkaroon ng mabigat na kasiraan ang sasakyang

ipinagkaloob ng TAUHAN NG UNANG PANIG, ang TAUHAN NG
IKALAWANG PANIG ay obligadong itawag ito muna sa VILLAMARIA
MOTORS bago ipagawa sa alin mang Motor Shop na awtorisado ng
VILLAMARIA MOTORS.

10. Na hindi pahihintulutan ng TAUHAN NG IKALAWANG PANIG sa

panahon ng pamamasada na ang nagmamaneho ay naka-tsinelas, naka short
pants at nakasando lamang. Dapat ang nagmamaneho ay laging nasa maayos
ang kasuotan upang igalang ng mga pasahero.

11. Na ang TAUHAN NG IKALAWANG PANIG o ang awtorisado niyang

driver ay magpapakita ng magandang asal sa mga pasaheros at hindi dapat
magsasalita ng masama kung sakali man may pasaherong pilosopo upang
maiwasan ang anumang kaguluhan na maaaring kasangkutan.

12. Na kung sakaling hindi makapagbigay ng BOUNDARY HULOG ang

TAUHAN NG IKALAWANG PANIG sa loob ng tatlong (3) araw ay ang opisina
ng VILLAMARIA MOTORS ang may karapatang mangasiwa ng nasabing
sasakyan hanggang matugunan ang lahat ng
responsibilidad. Ang halagang dapat bayaran sa opisina ay may karagdagang
multa ng P50.00 sa araw-araw na ito ay nasa pangangasiwa ng VILLAMARIA
MOTORS.

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi

makapagbigay ng BOUNDARY HULOG sa loob ng isang linggo ay
nangangahulugan na ang kasunduang ito ay wala ng bisa at kusang ibabalik ng
TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG
UNANG PANIG.
 14. Sasagutin ng TAUHAN NG IKALAWANG PANIG ang bayad sa
rehistro, comprehensive insurance taon-taon at kahit anong uri ng aksidente
habang ito ay hinuhulugan pa sa TAUHAN NG UNANG PANIG.

15. Na ang TAUHAN NG IKALAWANG PANIG ay obligadong dumalo

sa pangkalahatang pagpupulong ng VILLAMARIA MOTORS sa tuwing tatawag
ang mga tagapangasiwa nito upang maipaabot ang anumang mungkahi sa
ikasusulong ng samahan.

16. Na ang TAUHAN NG IKALAWANG PANIG ay makikiisa sa lahat ng

mga patakaran na magkakaroon ng pagbabago o karagdagan sa mga darating
na panahon at hindi magiging hadlang sa lahat ng mga balakin ng
VILLAMARIA MOTORS sa lalo pang ipagtatagumpay at ikakatibay ng
Samahan.

17. Na ang TAUHAN NG IKALAWANG PANIG ay hindi magiging

buwaya sa pasahero upang hindi kainisan ng kapwa driver at maiwasan ang
pagkakasangkot sa anumang gulo.

18. Ang nasabing sasakyan ay hindi kalilimutang siyasatin ang

kalagayan lalo na sa umaga bago pumasada, at sa hapon o gabi naman ay
sisikapin mapanatili ang kalinisan nito.

19. Na kung sakaling ang nasabing sasakyan ay maaarkila at aabutin ng

dalawa o higit pang araw sa lalawigan ay dapat lamang na ipagbigay alam
muna ito sa VILLAMARIA MOTORS upang maiwasan ang mga anumang
suliranin.

20. Na ang TAUHAN NG IKALAWANG PANIG ay iiwasan ang

pakikipag-unahan sa kaninumang sasakyan upang maiwasan ang aksidente.

21. Na kung ang TAUHAN NG IKALAWANG PANIG ay mayroon

sasabihin sa VILLAMARIA MOTORS mabuti man or masama ay iparating agad
ito sa kinauukulan at iwasan na iparating ito kung [kani-kanino] lamang upang
maiwasan ang anumang usapin. Magsadya agad sa opisina ng VILLAMARIA
MOTORS.

22. Ang mga nasasaad sa KASUNDUAN ito ay buong galang at puso

kong sinasang-ayunan at buong sikap na pangangalagaan ng TAUHAN NG
IKALAWANG PANIG ang nasabing sasakyan at gagamitin lamang ito sa
paghahanapbuhay at wala nang iba pa.[51]

The parties expressly agreed that petitioner, as vendor, and respondent, as

vendee, entered into a contract to sell the jeepney on a daily installment basis
of P550.00 payable in four years and that petitioner would thereafter become its
owner. A contract is one of conditional sale, oftentimes referred to as contract to
sell, if the ownership or title over the
property sold is retained by the vendor, and is not passed to the vendee unless and
until there is full payment of the purchase price and/or upon faithful compliance
with the other terms and conditions that may lawfully be stipulated.[52] Such
payment or satisfaction of other preconditions, as the case may be, is a positive
suspensive condition, the failure of which is not a breach of contract, casual or
serious, but simply an event that would prevent the obligation of the vendor to
convey title from acquiring binding force.[53] Stated differently, the efficacy or
obligatory force of the vendor's obligation to transfer title is subordinated to the
happening of a future and uncertain event so that if the suspensive condition does
not take place, the parties would stand as if the conditional obligation had never
existed.[54] The vendor may extrajudicially terminate the operation of the contract,
refuse conveyance, and retain the sums or installments already received, where
such rights are expressly provided for.[55]

Under the boundary-hulog scheme, petitioner retained ownership of the

jeepney although its material possession was vested in respondent as its driver. In
case respondent failed to make his P550.00 daily installment payment for a week,
the agreement would be of no force and effect and respondent would have to return
the jeepney to petitioner; the employer-employee relationship would likewise be
terminated unless petitioner would allow respondent to continue driving the
jeepney on a boundary basis of P550.00 daily despite the termination of their
vendor-vendee relationship.

The juridical relationship of employer-employee between petitioner and

respondent was not negated by the foregoing stipulation in the Kasunduan,
considering that petitioner retained control of respondents conduct as driver of the
vehicle. As correctly ruled by the CA:

The exercise of control by private respondent over petitioners conduct in

operating the jeepney he was driving is inconsistent with private respondents
claim that he is, or was, not engaged in the transportation business; that, even if
petitioner was allowed to let some other person drive the unit, it was not shown
that he did so; that the existence of an employment relation is not dependent on
how the worker is paid but on the presence or absence of control over the means
and method of the work; that the amount earned in excess of the
boundary hulog is equivalent to wages; and that the fact that the power of
dismissal was not mentioned in the Kasunduan did not mean that private
respondent never exercised such power, or could not exercise such power.

Moreover, requiring petitioner to drive the unit for commercial use, or to

wear an identification card, or to don a decent attire, or to park the vehicle in
 Villamaria Motors garage, or to inform Villamaria Motors about the fact that the
unit would be going out to the province for two days of more, or to drive the unit
carefully, etc. necessarily related to control over the means by which the
petitioner was to go about his work; that the ruling applicable here is not Singer
Sewing Machine but National Labor Union since the latter case involved jeepney
owners/operators and jeepney drivers, and that the fact that the boundary here
represented installment payment of the purchase price on the jeepney did not
withdraw the relationship from that of employer-employee, in view of the overt
presence of supervision and control by the employer.[56]

Neither is such juridical relationship negated by petitioners claim that the

terms and conditions in the Kasunduan relative to respondents behavior and
deportment as driver was for his and respondents benefit: to insure that respondent
would be able to pay the requisite daily installment of P550.00, and that the vehicle
would still be in good condition despite the lapse of four years. What is primordial
is that petitioner retained control over the conduct of the respondent as driver of
the jeepney.

Indeed, petitioner, as the owner of the vehicle and the holder of the
franchise, is entitled to exercise supervision and control over the respondent, by
seeing to it that the route provided in his franchise, and the rules and regulations of
the Land Transportation Regulatory Board are duly complied with. Moreover, in a
business establishment, an identification card is usually provided not just as a
security measure but to mainly identify the holder thereof as a bona fide employee
of the firm who issues it.[57]

As respondents employer, it was the burden of petitioner to prove that

respondents termination from employment was for a lawful or just cause, or, at the
very least, that respondent failed to make his daily remittances of P550.00 as
boundary. However, petitioner failed to do so. As correctly ruled by the appellate
court:

It is basic of course that termination of employment must be effected in

accordance with law. The just and authorized causes for termination of
employment are enumerated under Articles 282, 283 and 284 of the Labor Code.

Parenthetically, given the peculiarity of the situation of the parties here,

the default in the remittance of the boundary hulog for one week or longer may be
considered an additional cause for termination of employment. The reason is
because the Kasunduan would be of no force and effect in the event that the
purchaser failed to remit the boundary hulog for one week. The Kasunduan in this
case pertinently stipulates:
 13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi
makapagbigay ng BOUNDARY HULOG sa loob ng isang linggo ay
NANGANGAHULUGAN na ang kasunduang ito ay wala ng bisa at
kusang ibabalik ng TAUHAN NG IKALAWANG PANIG ang nasabing
sasakyan sa TAUHAN NG UNANG PANIG na wala ng paghahabol pa.

Moreover, well-settled is the rule that, the employer has the burden of proving
that the dismissal of an employee is for a just cause. The failure of the employer
to discharge this burden means that the dismissal is not justified and that the
employee is entitled to reinstatement and back wages.

In the case at bench, private respondent in his position paper before the
Labor Arbiter, alleged that petitioner failed to pay the miscellaneous fee
of P10,000.00 and the yearly registration of the unit; that petitioner also stopped
remitting the boundary hulog, prompting him (private respondent) to issue
a Paalala, which petitioner however ignored; that petitioner even brought the unit
to his (petitioners) province without informing him (private respondent) about it;
and that petitioner eventually abandoned the vehicle at a gasoline station after
figuring in an accident. But private respondent failed to substantiate these
allegations with solid, sufficient proof. Notably, private respondents allegation
viz, that he retrieved the vehicle from the gas station, where petitioner abandoned
it, contradicted his statement in the Paalala that he would enforce the provision
(in the Kasunduan) to the effect that default in the remittance of the
boundary hulog for one week would result in the forfeiture of the
unit. The Paalala reads as follows:

Sa lahat ng mga kumukuha ng sasakyan

Sa pamamagitan ng BOUNDARY HULOG

Nais ko pong ipaalala sa inyo ang Kasunduan na inyong pinirmahan particular

na ang paragrapo 13 na nagsasaad na kung hindi kayo makapagbigay ng
Boundary Hulog sa loob ng isang linggo ay kusa ninyong ibabalik and nasabing
sasakyan na inyong hinuhulugan ng wala ng paghahabol pa.

Mula po sa araw ng inyong pagkatanggap ng Paalala na ito ay akin na pong

ipatutupad ang nasabing Kasunduan kayat aking pinaaalala sa inyong lahat na
tuparin natin ang nakalagay sa kasunduan upang maiwasan natin ito.

Hinihiling ko na sumunod kayo sa hinihingi ng paalalang ito upang hindi na tayo

makaabot pa sa korte kung sakaling hindi ninyo isasauli ang inyong sasakyan na
hinuhulugan na ang mga magagastos ay kayo pa ang magbabayad sapagkat ang
hindi ninyo pagtupad sa kasunduan ang naging dahilan ng pagsampa ng kaso.

Sumasainyo

Attendance: 8/27/99
 (The Signatures appearing herein
include (sic) that of petitioners) (Sgd.)
OSCAR VILLAMARIA, JR.

If it were true that petitioner did not remit the boundary hulog for one week or
more, why did private respondent not forthwith take steps to recover the unit, and
why did he have to wait for petitioner to abandon it?

On another point, private respondent did not submit any police report to support
his claim that petitioner really figured in a vehicular mishap. Neither did he
present the affidavit of the guard from the gas station to substantiate his claim that
petitioner abandoned the unit there.[58]

Petitioners claim that he opted not to terminate the employment of

respondent because of magnanimity is negated by his (petitioners) own evidence
that he took the jeepney from the respondent only on July 24, 2000.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The

decision of the Court of Appeals in CA-G.R. SP No. 78720 is AFFIRMED. Costs
against petitioner.

SO ORDERED.

LANDTEX V AYSON

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari[1] of the Decision[2] dated 13 February

2001 and of the Resolution[3] dated 16 October 2001 of the Court of Appeals
(appellate court) in CA-G.R. SP No. 50060. The Decision ordered
petitioners Landtex Industries (Landtex) and William Go to award respondent
Salvador M. Ayson(Ayson) separation pay in lieu of reinstatement, backwages,
13th month pay, service incentive leave pay, and attorneys fees.

The Facts

Landtex, a sole proprietorship owned by Alex Go and managed by William Go, is

a business enterprise engaged in the manufacture of garments. Ayson worked
in Landtex as a knitting operator from 19 May 1979 to 6 July 1996. Ayson was an
officer[4] of Landtex Industries Workers Union Federation of Free Workers (union)
which had an existing collective bargaining agreement (CBA) with Landtex.

Ayson received a letter[5] from Landtex dated 16 March 1996 which stated
that Ayson committed acts contrary to company policies on 2 and 7 March
1996. The letter required Ayson to explain in writing within 24 hours from receipt
why no disciplinary action should be taken against him for spreading damaging
rumors about the personal life of an unspecified person, and for having an
altercation with one of the companys owners when he was asked to submit an ID
picture.

Ayson replied in writing[6] that he could not defend himself from the charge of
spreading damaging rumors because Landtexs letter failed to state what rumors he
was supposed to have spread. Ayson further explained that he merely replied in a
loud voice to the company owners request because he was carrying
textiles. Ayson then apologized for his actions.

Landtex sent Ayson another letter dated 2 April 1996 informing him of its receipt
of his explanation. Landtex informed Ayson that the omission of the details about
the damaging rumors was intentional because other employees might be able to
read the letter. Furthermore, Landtex decided to conduct an investigation on 26
April 1996in view of Aysons denials.

The first meeting between Ayson and Landtexs counsel took place on 26 April
1996. The minutes of the 26 April 1996 meeting state that Ayson was informed
that there were witnesses who could testify that he spread rumors about the
personal life of William Go and his family. Ayson denied that he spread rumors
and requested for another meeting so that he could hear the alleged witnesses and
defend himself. Ayson further requested that the next investigation be held
at Landtexs Mauban office because he and the union officers accompanying him
suffer salary deductions for their attendance of investigations during office
hours.[7] Another meeting was scheduled for 5 May 1996, but Ayson was unable to
attend it and went home early because he allegedly needed to look after his child.

The second meeting between Ayson and Landtexs counsel took place on 5 June
1996. The minutes of the 5 June 1996 meeting state that Ayson and a union officer
accompanying him appeared but refused to sign the attendance sheet or to
participate. Landtexs counsel, Atty. Generosa Jacinto, made a note in the minutes
which reads, Pls. advise mgt. They can take any action they want.[8]

In a letter dated 19 June 1996, Landtex terminated Aysons services effective 30

June 1996 because of Aysons lack of cooperation during the
investigations. Despite this notice, Ayson still reported for work until 6 July 1996.

In a letter dated 8 July 1996, the union president requested Landtex for a formal
dialogue regarding Aysons case. Landtex reaffirmed its decision to
terminate Ayson in meetings with the union held on 10 and 16 July
1996. Landtex and the union agreed to refer the matter to a third party in
accordance with the provisions of law and of the CBA. Landtex expected Ayson to
refer the issue to the National Conciliation and Mediation Board (NCMB) for the
selection of a voluntary arbitrator. Ayson and the union, however, filed a complaint
before the labor arbiter.[9]

The labor arbiter conducted mandatory conferences for amicable settlement with
the participation of all parties. The parties agreed to the idea of payment of
separation pay in lieu of reinstatement but differed as to the amount. Ayson wanted
to receive one month basic salary for every year of service while Landtex wanted
to pay only one-half month basic salary for every year of service from date of
hiring to termination of employment.[10] The parties were not able to settle; hence,
the labor arbiter ordered them to submit their position papers.
In his position paper, Ayson asked whether his dismissal from employment has any
just cause. Ayson also asked whether Landtex complied with procedural due
process when it terminated his employment.

On the other hand, Landtex and William Go revealed in their position paper
that Ayson was seen having a drinking session with other Landtex employees near
the company premises. A Landtex security guard, who was a part of the drinking
session but whose identity was not revealed, stated that Ayson maliciously narrated
spiteful stories about the personal life of William Go. Landtex also questioned the
jurisdiction of the labor arbiter over Aysons case. Landtex insisted that the labor
arbiter should dismiss Aysons case and refer it to the NCMB for the selection of a
voluntary arbitrator.

The Ruling of the Labor Arbiter

On 30 September 1997, the labor arbiter promulgated his decision[11] which ruled
in favor of Ayson. The labor arbiter declared that despite the unions manifestation
of its desire to refer Aysons case to a third party in accordance with provisions of
law and CBA,[12] this manifestation did not affect Landtexs termination
of Aysonsemployment. Aysons termination thus properly falls under the
jurisdiction of the labor arbiter. Moreover, the labor arbiter did not find any
evidence supporting Landtexsallegations that Ayson spread malicious rumors
about William Go or shouted at William Gos wife. The pertinent portions of the
labor arbiters decision read:

Dismissal of a worker is no trifling matter; more so, of herein [Ayson]

who had been employed with [Landtex] for seventeen years, more or
less. The dismissal must be for a just cause, let alone with due process,
and must be based on substantial evidence. Mere allegations will not
suffice.

WHEREFORE, premises considered, judgment is hereby rendered

ordering [Landtex Industries and William Go] to reinstate [Ayson] to his
former position without loss of seniority rights with full backwages from
the date his salary has been withheld until the actual date of
reinstatement.
 [Landtex Industries and William Go] are further ordered to pay ten
(10%) percent of [Aysons] total monetary award as attorneys fees.

Backwages

6/30/96 8/31/97 = 14.0 mos.

P165.00 x 30 x 14.00 mos. = P 69,300.00

13th Month Pay = 5,775.00

SILP

5.833 days x P165.00 = 962.50

P 76,037.50

Attorneys Fees = 7,603.75

TOTAL P 83,641.25

All other claims of [Ayson] are dismissed for lack of merit.

SO ORDERED.[13]

Landtex and William Go appealed the labor arbiters decision to the National Labor
Relations Commission (NLRC). Landtex and William Go posted a bond in the
amount of the total award in the labor arbiters decision to perfect their appeal and
to enjoin the execution of the decision. Landtex and William Go insisted that the
labor arbiter had no jurisdiction over the parties and over the subject matter in the
present case.

The Ruling of the NLRC

On 20 July 1998, the NLRC promulgated its decision[14] which agreed

with Landtex and William Gos argument that Aysons case falls within the original
and exclusive jurisdiction of the voluntary arbitrators, as provided in Article 261 of
the Labor Code. Landtex merely imposed a disciplinary measure when it
terminated Aysonsemployment. Furthermore, the NLRC ruled that Ayson waived
his right to have his case heard before any other forum when he did not undergo
the grievance process mandated by his unions CBA with Landtex. The NLRC
declared that the disciplinary action meted out by Landtex to Ayson and the waiver
of Aysons right to have his case heard were matters which require the
interpretation of the CBA, and thus were within the original and exclusive
jurisdiction of the voluntary arbitrators. The dispositive portion of
the NLRCs decision reads:

WHEREFORE, the decision appealed from is hereby SET ASIDE on the

ground of lack of jurisdiction over the subject matter. The instant case is
hereby referred to Voluntary Arbitration in accordance with the
Collective Bargaining Agreement.

SO ORDERED.[15]

The NLRC dismissed Ayson and the unions motion for reconsideration on 11
September 1998. Ayson and the union then filed a petition for certiorari before the
appellate court.

The Ruling of the Appellate Court

In a decision promulgated on 13 February 2001, the appellate court sustained the

jurisdiction of the labor arbiter and modified the award in favor of Ayson. The
appellate court further stated that the records are bereft of any showing that a
grievance mediation had been undertaken so as to thresh out any disciplinary
measure against [Ayson].[16] The appellate court took Landtex and William Go to
task because they took the avenue of least resistance and discussed the possibility
of an amicable settlement instead of filing a motion to dismiss before the labor
arbiter. Moreover, the appellate court found that Ayson was illegally dismissed
because his termination was characterized by bad faith, [and] wanton and reckless
exercise of management prerogative.[17] Landtexs allegations against Ayson failed
to show that Aysons dismissal was for a just cause. The appellate court
awarded Ayson full backwages, separation pay (equivalent to one months pay for
every year of service, a fraction of at least six months being considered as one
whole year) in lieu of reinstatement, 13th month pay, service incentive leave pay,
and attorneys fees. The dispositive portion of the decision of the appellate court
reads:

WHEREFORE, premises considered, the petition is GRANTED and the

decision (promulgated on July 20, 1998) and the resolution (promulgated
on September 11, 1998) of the public respondent (National Labor
Relations Commission) in NLRC NCR Case No. 00-07-04492-92 is
hereby REVERSED and SET ASIDE. The decision of the labor arbiter,
which was rendered on September 30, 1997 is hereby
REINSTATEDsubject, however, to the MODIFICATION that
separation pay shall be awarded to [Ayson] in lieu of reinstatement. No
pronouncement as to costs.

SO ORDERED.[18]

Landtex and William Go filed a motion for reconsideration of the appellate courts
decision. Ayson and the union also contested the appellate courts award of
separation pay in lieu of reinstatement. The appellate court dismissed both motions
in a resolution promulgated on 16 October 2001.

Landtex and William Go then filed a petition for review before this Court on 11
December 2001. Ayson and the union also filed a petition for review,
docketed as G.R. No. 150392, but this petition was withdrawn as Ayson no longer
desired to question the resolution of the appellate court.[19] Emilia P. Ayson,
respondent Aysons wife, later made a manifestation that she would like to
represent Ayson in the present case since her husband died on 28 August 2002. She
attached Aysons death certificate and their marriage certificate to prove her
allegations.

When Landtex and William Go filed their memorandum in the present case, they
stated that Landtex started to suffer serious business reverses in the first quarter of
2001. Landtexs cutting and knitting departments temporarily closed in December
2002, and Landtex permanently ceased its operations in February
2003. Landtex and William Go attached Landtexs notice of closure to the union
dated 9 January 2003, Landtexs balance sheets for the years 2000 to
2002, Landtexs profit and loss statements for the years 2000 to 2002, notice of
extra-judicial sale of the property of spouses Alex and Nancy Go, demand letters
addressed to Alex Go, and unpaid utility bills in the name of Alex Go to prove
their allegations.

The Issues

Landtex and William Go raise the following issues before this Court:

A. Whether the NLRC correctly ruled that jurisdiction over the

subject matter of the instant case pertains exclusively to the
voluntary arbitrator considering that
1. The existing CBA provides that a grievance is one that arises
from the interpretation or implementation of this
agreement, including disciplinary action imposed on any
covered employee; and
2. The parties have undergone the grievance machinery of the
collective bargaining agreement.

B. Whether the instant case concerns enforcement and

implementation of company personnel policy and that the issue
therein was timely raised.

C. Whether there is a valid ground for termination of the

employment of [Ayson].

D. Whether [Ayson] is entitled to backwages and separation pay.

E. Whether [the appellate court] committed grave and patent abuse

of discretion and errors of law in setting aside the decision of the
NLRC.[20]

The Ruling of the Court

The petition has no merit.

The Labor Arbiters Jurisdiction

Landtex and William Go insist that the matter subject of the present petition is
covered by the CBAs provision on voluntary arbitration and thus is excluded from
the labor arbiters jurisdiction. They allege that Aysons termination merely
enforced Landtexs personnel policy against misconduct. They further claim that
the unions request for a formal dialogue signified the initiation of the grievance
procedure outlined in the CBA. Landtex and William Go even assert that because
of Aysons failure to submit his claim before the NCMB, he is barred from seeking
relief from a forum other than that provided in the CBA.

Section 1 of Article XV, Grievance Procedure, of the unions CBA

with Landtex reads:

Grievance Machinery. For purposes of this Agreement, a grievance is

one that arises from the interpretation or implementation of this
Agreement, including disciplinary action imposed on any covered
employee. Any grievance, dispute, or complaint which a covered
employee or UNION may have against the COMPANY: (a) relative to
the meaning, interpretation and application of the terms of this
agreement; or (b) arising out of the employment relationship, shall be
submitted to the grievance machinery in accordance with the following
procedure:

Step I The employee shall present his grievance, dispute, or

complaint in writing to the COMPANYs Section Head/In
Charge and to the UNIONs authorized representative, and
thereupon the said Section Head and UNION
representative shall endeavor to work out a settlement
within four (4) working days from presentation.
Step II If, under Step I, no settlement is reached within four (4)
working days from presentation, the grievance shall be
taken up by the UNION representative with the General
Manager.
Step III If, under Step II, no settlement is reached within four (4)
working days, the grievance shall be referred by the
parties to the Management-Employee Committee.
Step IV If under Step III, no settlement is reached within eight (8)
working days, the grievance shall be referred by both
parties to the National Conciliation and Mediation Board
(NCMB) for submission to voluntary arbitration in
accordance with NCMBs rules within ten (10) days from
 the date of the last meeting of the Management-Employee
Committee.

Where the grievance or complaint involves the UNION directly, Steps I

and II of the foregoing procedure shall be dispensed with and only Steps
III and IV shall be followed.[21]

Articles 217, 261, and 262 of the Labor Code tackle the jurisdiction of labor
arbiters and voluntary arbitration as follows:

Art. 217. Jurisdiction of the 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, within thirty
(30) calendar days after the submission of the case by the parties for
decision without extension, even in the absence of stenographic notes,
the following cases involving all workers, whether agricultural or non-
agricultural:

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; and

6. Except claims for Employees Compensation, Social Security,

Medicare and 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 or implementation 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.

Art. 261. Jurisdiction of Voluntary Arbitrators or panel of Voluntary

Arbitrators. - The Voluntary Arbitrator or panel of Voluntary Arbitrators
shall have original and exclusive jurisdiction to hear and decide all
unresolved grievances arising from the interpretation or implementation
of the Collective Bargaining Agreement and those arising from the
interpretation or enforcement of company personnel policies referred to
in the immediately preceding article. Accordingly, violations of a
Collective Bargaining Agreement, except those which are gross in
character, shall no longer be treated as unfair labor practice and shall be
resolved as grievances under the Collective Bargaining Agreement. For
purposes of this article, gross violations of Collective Bargaining
Agreement shall mean flagrant and/or malicious refusal to comply with
the economic provisions of such agreement.

The Commission, its Regional Offices and the Regional Directors of the
Department of Labor and Employment shall not entertain disputes,
grievances or matters under the exclusive and original jurisdiction of the
Voluntary Arbitrator or panel of Voluntary Arbitrators and shall
immediately dispose and refer the same to the Grievance Machinery or
Voluntary Arbitration provided in the Collective Bargaining Agreement.

ART. 262. Jurisdiction over other labor disputes. - The Voluntary

Arbitrator or panel of Voluntary Arbitrators, upon agreement of the
parties, shall also hear and decide all other labor disputes including
unfair labor practices and bargaining deadlocks.

The labor arbiter, the appellate court, and the NLRC differed in their rulings on the
matter of jurisdiction. The labor arbiter and the appellate court agreed
with Aysonand the unions position. The labor arbiter assumed jurisdiction and
emphasized that when the union met with Landtex on 8 July 1996, Ayson was no
longer an employee because Landtex terminated him effective 30 June 1996. The
manifestation of the unions desire to refer the matter to a third party in accordance
with law and the CBA does not deviate from the fact that Ayson was already
dismissed. On the other hand, the NLRC sustained Landtex and
William Gos position. The NLRC asserted that the determination of
whether Aysons dismissal constitutes a disciplinary action within the scope of the
CBA calls for an interpretation of the CBA. When the union called for a meeting
with Landtex, the union effectively initiated the grievance procedure.
Thus, Aysons case should have been subjected to voluntary arbitration.

We agree with Ayson and the union and affirm the rulings of the labor arbiter and
the appellate court.

Article 261 of the Labor Code provides that voluntary arbitrators shall have
original and exclusive jurisdiction to hear and decide all unresolved grievances
arising from the interpretation or implementation of the Collective Bargaining
Agreement and those arising from the interpretation or enforcement of company
personnel policies. On the other hand, a reading of Article 217 in conjunction with
Article 262 shows that termination disputes fall under the jurisdiction of the labor
arbiter unless the union and the company agree that termination disputes should be
submitted to voluntary arbitration. Such agreement should be clear and
unequivocal. Existing law is an intrinsic part of a valid contract without need for
the parties to expressly refer to it. Thus, the original and exclusive jurisdiction of
the labor arbiter over unfair labor practices, termination disputes, and claims for
damages cannot be arrogated into the powers of voluntary arbitrators in the
absence of an express agreement between the union and the company.[22]

In the present case, the CBA between Landtex and the union does not clearly state
that termination disputes, as opposed to mere disciplinary actions, are covered by
the CBA. The CBA defined a grievance as one that arises from the interpretation or
implementation of this Agreement, including disciplinary action imposed on any
covered employee. The CBA did not explicitly state that termination disputes
should be submitted to the grievance machinery.

In ruling that the present case should have been submitted to voluntary arbitration,
the NLRC relied on the unions act of meeting with Landtex. The unions letter
to Landtex, dated 8 July 1996, reads:
 We received your letter dated 19 June 1996 re: TERMINATION
LETTER of MR. SALVADOR AYSON who happened to be [a] union
officer of LANDTEX INDUSTRIES EMPLOYEES UNION.

In connection to [sic] this, we would like to request for a formal dialogue

regarding the above matter at a [sic] soonest possible time.

We are hoping that the management is with us in resolving this

termination of our officer.

May we have a continuous harmonious relationship.

Thank you.[23]

The CBAs provisions on grievance directly involving the union state that the
grievance shall be referred by the parties to the Management-Employee
Committee. The Management-Employee Committee shall be composed of three
representatives each from the union and Landtex. According to the minutes of the
meeting prepared by Landtexs counsel, when the union met with Landtex on 10
July 1996, there were seven union members and two Landtex representatives in
attendance. The minutes of the meeting read:

The mgt.s position is that it will no longer reconsider the termination of

Mr. Ayson. The union on the other hand opened discussion of other
possibilities in lieu of reinstatement.

The union requested for time to study possibilities. The mgt. will do
likewise.

Reset 16 July 96[,] 5 pm at factory.[24]

The next meeting proceeded with the same number of representatives from both
parties. The minutes of the meeting state that there was [n]o settlement. Union will
refer matter to third party in accordance with provision of law and CBA.[25]

We find nothing in the records which shows that the meetings between the union
and Landtex already constitute the grievance machinery as mandated by the
CBA. The meetings happened only after the effectivity of Aysons termination. The
meetings did not comply with the requisite number of participants. The CBA
mandated that there should be three representatives each from the union
and Landtex but there were seven union members and two Landtex representatives
who attended the meetings. More importantly, there was nothing in the minutes
that shows that the attendees constituted a Management-Employee Committee.

Finally, the appellate court is correct in stating that if Landtex really believed that
the labor arbiter did not have jurisdiction over the present case,
then Landtex should have filed a motion to dismiss in accordance with Section 15,
Rule V of The New Rules of Procedure of the NLRC.[26] Instead of filing a motion
to dismiss, Landtexparticipated in the proceedings before the labor
arbiter. Had Landtex immediately filed a motion to dismiss, the labor arbiter would
have determined the issue outright before proceeding with hearing the case. In the
present case, Landtex raised the issue of jurisdiction only after the labor arbiter
required the parties to submit their position papers.

Validity of Aysons Dismissal

The requisites for a valid dismissal are (1) the dismissal must be for any of the
causes expressed in Article 282 of the Labor Code, and (2) the opportunity to be
heard and to defend oneself.[27] Landtex and William Go assert
that Aysons termination was for a just cause as defined in Article 282[28] of the
Labor Code; hence, the two-notice rule[29] should be followed.

The contents of Landtexs first memorandum to Ayson, signed

by Landtexs counsel, read:

Ipinagbigay-alam sa amin ng pamahalaang Landtex Industries and

[sic] tungkol sa nangyaring insidente nuong ika-2 at 7 Marso 1996.

Ayon sa isang saksi, ikaw ay nagkakalat ng mga balitang nakakasira sa a

ming personal na buhay. Bukod pa dito nuong ika-
7 ng Marso ng ikaw ay hingan ng iyong ID
 pictures bilangisa sa mga regulasyon ng kompanya, ikaw ay sumungaw s
a harap pa mismo ng nagmamay-
ari ng kompanya na naging dahilan upang magkasagutan kayo.

Iyong nalalaman na ang ganitong gawain ay taliwas sa umiiral na pataka

ran ng kompanya. Bunga nito[,] ikaw ay hinihingan ng nakasulat na pali
wanag 24 oras mula sapagkakatanggap ng liham na ito. Ang hindi mo pa
gsunod ay nangangahulugan na maaari ng gumawa ng susunod na aksyo
ng pang-disiplina and [sic] kompanya laban sa iyo.[30]

Aysons handwritten response reads:

Ayon sa salaysay ng inyong saksi ako ay nagkakalat ng balitang nakakas

ira sa inyong personal na buhay.

Ipagpaumanhin po ninyo ang hindi ko pagtugon sa inyong sulat na nakas

aad na ako ay nagkakalat ng balitang nakakasira ng inyong personal na b
uhay sa dahilan na wala namanpong nakasaad sa sulat kung anong balita
na ipinagkakalat ko na nakakasira sa personal na buhay ninyo.

Noon po ika-7 ng Marso ako po ay hiningan ng ID

picture bilang isa sa mga regulasyon ng kompanya at nakasaad po sa sula
t na ako po ay sumungaw o sumigaw sa harap mismo ngmay-
ari ng kompanya. Hindi po ako sumigaw[,] ako po ay sumagot lamang sa
tanong nila. Kung ang pagkasagot ko man ay medyo napakalakas ito po
ay sa dahilan na nang mga oras na iyon ay may buhat-buhat akong tela
na aming inaakyat. Kung ito po ay minamasama ninyo, ay ihinihingi ko
na lamang ng paumanhin.[31]

Landtex then summoned Ayson on 26 April 1996 to a meeting to investigate the 2

and 7 March 1996 incidents. The minutes of the 26 April 1996 meeting read:

Mr. Ayson was apprised of the incident that happened on March 2 & 7
wherein it was alleged that he is spreading some rumors involving [the]
personal life of Mr. Go and his family.He was informed that there were
witnesses who can testify on this.

Mr. Ayson however requested that another investigaton be conducted

wherein the alleged witnesses be presented since he cannot answer
 whether what was reported was true or not.He further denies allegations
that he is spreading said rumors.

Mr. Ayson together with union officers requested that investigation be

conducted instead at Mauban, Quezon City since they are being
deducted everytime they attend investigations like this during office
hours.

Mr. Ayson & union to be notified when another investigation [will] be

scheduled.[32]

The next meeting was held on 5 June 1996. The minutes of the meeting read:

Mr. Ferdinand Samson, union Sgt. at Arms [and] Mr.

Salvador Ayson appeared but refused to sign attendance or participate in
[the] investigation. Accord. to them, they will consult FFW.[33]

Landtex informed Ayson of its decision to terminate his services in a letter

dated 19 June 1996. The letter, signed by Landtexs counsel, reads:

Ito ay hinggil sa insidenteng nangyari na kinasangkutan mo noong ika-2

at
7 ng Marso 1996. Hindi lingid sa iyong kaalaman na ikaw ay binigyan n
g pamunuan ng Landtex ng lahatng pagkakataon upang marinig ang iyon
g panig at maipagtanggol ang iyong sarili sa paraang naaayon sa batas ng
unit, ikaw ay hindi nakiisa o nakipagtulungan.

Sa katunayan, noong nakaraang 16 Marso 1996 ikaw [ay] pinadalhan ng

memo
kung saan nakasaad ang nasabing insidente at kasama ang paghingi ng iy
ong nakasulat na paliwanag.Noong nakaraang 02 Abril 1996 isang sulat
ang pinadala sa iyo kung saan ikaw ay inatasang dumalo sa isang pagsisi
yasat. Sa nasabing imbestigasyon, iminungkahi mo
at ng iyongmga kasama (mga opisyales ng unyon) na magsagawa ulit ng
isa pang imbestigasyon at nais ninyong ito ay isagawa sa inyong pagawa
an. Kayat ito ay muling inskedyul noon 06 Mayo
 1996 ngunit ikaw ay tumawag ng araw din yaon at sinabing kailangan m
ong umuwi ng maaga dahil walang magbabantay sa iyong anak.

Muli na naman nagtakda ng isa pang pagsisiyasat noong ika-

05 Hunyo 1996 ngunit, sa nasabing imbestigasyon ikaw ay tumangging
maimbestigahan at tumanggi ring pumirma saattendance. Ilang pagkakat
aon na iyong pinalampas kung saan sana ay naipadinig mo ang iyong pa
nig at naipagtanggol mo ang iyong sarili.

Kaugnay nito, ikinalulungkot na ipinababatid sa iyo ng pamunuan na bat

ay sa akusasyon sa iyo, sa pagpatunay ng testigo laban sa iyo ikaw ay tin
atanggal sa trabaho. Ang iyongpaglilingkod sa Landtex Industries
ay hanggang sa ika-30 ng Hunyo 1996 na lamang.[34]

Landtex and William Go, in their appeal before the NLRC, stated that paragraphs
(a) and (d) of Article 282[35] were applicable to Ayson. They added that the
employer, exercising management prerogative, has the right to protect its interest
by imposing the appropriate penalties on erring employees. However, upon reading
the records of the case, we cannot deduce any proof of Landtex and
William Gos accusations against Ayson. Moreover, the NLRC did not make any
pronouncement as to whether Ayson was dismissed for a just cause. The appellate
court and the labor arbiter were one in ruling that there was no just cause
in Aysons dismissal. We quote the labor arbiters factual findings with approval:

We have painstakingly read the records of this case and, sadly, this
Office finds no shred of evidence to show that indeed [Ayson] had been
spreading news and gossips or that he ever shouted at Mr. Go and
engaged Mr. Go in a heated argument.

No affidavit of either the security guard who claimed to be one of the

drinking group who heard the alleged malicious news or gossips or that
of Mr. and Mrs. Go who had been the subject of [Aysons] alleged
shouting has been presented if only to substantiate [Landtex and
William Gos] self-serving claims.[36]
Procedural due process in the dismissal of employees requires notice and
hearing. The employer must furnish the employee two written notices before
termination may be effected. The first notice apprises the employee of the
particular acts or omissions for which his dismissal is sought, while the second
notice informs the employee of the employers decision to dismiss him. [37] In the
present case, Landtex more than complied with the two-notice rule.

The requirement of a hearing, on the other hand, is complied with as long as there
was an opportunity to be heard, and not necessarily that an actual hearing was
conducted.[38] In the present case, Landtex scheduled three meetings before
terminating Ayson. However, Landtex failed to understand the laws purpose in
requiring the opportunity to be heard. Landtex scheduled meetings with Ayson but
these meetings were not free from arbitrariness. Ayson could not adequately
defend himself from Landtexs and William Gos accusations. No witness was ever
presented against Ayson, hence Ayson could not test the veracity of their claims.

Unsubstantiated suspicions, accusations, and conclusions of the employer are not

sufficient to justify an employees dismissal. The employer must prove by
substantial evidence the facts and incidents upon which the accusations are
made.[39] In Philippine Associated Smelting and Refining Corporation (PASAR) v.
NLRC,[40] we ruled that the mere conduct of an investigation and the statements of
the companys security guard are not enough to establish the validity of the charge
of wrongdoing against the dismissed employees. It is not enough for an employer
who wishes to dismiss an employee to charge him with wrongdoing. The validity
of the charge must be established in a manner consistent with due process. A
suspicion or belief no matter how sincerely felt cannot substitute for factual
findings carefully established through an orderly procedure.
Landtex and William Go failed to observe due process in terminating Ayson. They
likewise failed to establish that Aysons termination was for a just cause. Thus, we
rule that Landtex and William Go illegally dismissed Ayson.

WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 13

February 2001 and the Resolution dated 16 October 2001 of the Court of Appeals
in CA-G.R. SP No. 50060. Emilia P. Ayson, in representation of Salvador
M. Ayson, is entitled to receive the amounts due Salvador M. Ayson.
Costs against the petitioners.

SO ORDERED.