Republic of the Philippines

SUPREME COURT
Manila
G.R. No. L-66598 December 19, 1986
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, HONORABLE ARBITER TEODORICO L.
DOGELIO and RICARDO ORPIADA respondents.
Marcelino Lontok, Jr. for respondents.

FELICIANO, J.:
Petitioner Philippine Bank of Communications and the Corporate Executive Search Inc. (CESI)
entered into a letter agreement dated January 1976 under which (CESI) undertook to provide
"Tempo[rary] Services" to petitioner Consisting of the "temporary services" of eleven (11)
messengers. The contract period is described as being "from January 1976." The petitioner in
truth undertook to pay a "daily service rate of P18, " on a per person basis.
Attached to the letter agreement was a "List of Messengers assigned at Philippine Bank of
Communications" which list included, as item No. 5 thereof, the name of private respondent Ricardo
Orpiada.
Ricardo Orpiada was thus assigned to work with the petitioner bank. As such, he rendered services
to the bank, within the premises of the bank and alongside other people also rendering services to
the bank. There was some question as to when Ricardo Orpiada commenced rendering services to
the bank. As noted above, the letter agreement was dated January 1976. However, the position
paper submitted by (CESI) to the National Labor Relations Commission stated that (CESI) hired
Ricardo Orpiada on 25 June 1975 as a Tempo Service employee, and assigned him to work with the
petitioner bank "as evidenced by the appointment memo issued to him on 25 June 1975. " Be that as
it may, on or about October 1976, the petitioner requested (CESI) to withdraw Orpiada's assignment
because, in the allegation of the bank, Orpiada's services "were no longer needed."
On 29 October 1976, Orpiada instituted a complaint in the Department of Labor (now Ministry of
Labor and Employment) against the petitioner for illegal dismissal and failure to pay the 13th month
pay provided for in Presidential Decree No. 851. This complaint was docketed as Case No. R041010184-76-E. After investigation, the Office of the Regional Director, Regional Office No. IV of the
Department of Labor, issued an order dismissing Orpiada's complaint for failure of Mr. Orpiada to
show the existence of an employer-employee relationship between the bank and himself.
Despite the foregoing order, Orpiada succeeded in having his complaint certified for compulsory
arbitration in Case No. RB-IV-11187-77 entitled "Ricardo Orpiada, complaint vs. Philippine Bank of
Communications, respondent." During the compulsory arbitration proceedings, CE SI was brought
into the picture as an additional respondent by the bank. Both the bank and (CESI) stoutly
maintained that (CESI) (and not the bank) was the employer of Orpiada.

On 12 September 1977, respondent Labor Arbiter Dogelio rendered a decision in Case No. RB-IV11187-77, the dispositive portion of which read as follows:
WHEREFORE, premises considered, respondent bank is hereby ordered to reinstate
complainant to the same or equivalent position with full back wages and to pay the latter's
13th month pay for the year 1976.
On 26 October 1977, the bank appealed the decision of the Labor Arbiter to the respondent NLRC.
More than six years laterand the record is silent on why the proceeding in the NLRC should have
taken more than six years to resolve the NLRC promulgated its decision affirming the award of the
Labor Arbiter and stating as follows:
WHEREFORE, except for the modification reducing the complainant's back wages to two (2)
years without qualification, the Decision appealed from is hereby AFFIRMED in an other
respects.
Accordingly, on 2 April 1984, the bank filed the present petition for certiorari with this Court seeking
to annul and set aside (a) the decision of respondent Labor Arbiter Dogelio dated 12 September
1977 in Labor Case No. RB-IV-1118-77 and (b) the decision of the NLRC promulgated on 29
December 1983 affirming with some modifications the decision of the Labor Arbiter. This Court
granted a temporary restraining order on 11 April 1984. The main issue as litigated by the parties in
this case relates to whether or not an employer-employee relationship existed between the petitioner
bank and private respondent Ricardo Orpiada. The petitioner bank maintains that no employeremployee relationship was established between itself and Ricardo Orpiada and that Ricardo Orpiada
was an employee of (CESI) and not of the bank. The bank documents its position by pointing to the
following provisions of its letter agreement with CE SI
1. The individual/s you i.e. (CESI) will assign to us i.e. petitioner) will be subject to our
acceptance and will observe work-days, hours, and methods of work (sic); on the other
hand, they will not be asked to perform job (sic) not normally related to the position/s for
which Tempo Services were contracted.
2. Such individuals will nevertheless remain your own employees and you will therefore,
retain all liabilities arising from the new Labor Code as amended Social Security Act and
other applicable Governmental decrees, rules and regulations, provided that, on our part, we
shaIl
a. Require your employers assigned to us to properly accomplish your daily time
record, to faithfully reflect all hours worked in our behalf whether such work be within
or beyond eight hours of any day.
b. Notify you of any change in the work assignment or contract period affecting any
of your employers assigned to us within 24 hours, after such change is made.
(Emphasis supplied)
The above language of the agreement between the bank and CE SI is of course relevant and
important as manifesting an intent to refrain from constituting an employer-employee relationship
between the bank and the persons assigned or seconded to the bank by (CESI) That extent to which

the parties were successful in realizing their intent is another matter, one that is dependent upon
applicable law and not merely upon the terms of their contract.
In the case of Viana vs. AI-Lagdan and Pica, 99 Phil. 408 (1956), this Court listed certain factors to
be taken into account in determining the existence of an employer-employee relationship. These
factors are:
1) The selection and engagement of the putative employee;
2) The payment of wages;
3) The power of dismissal- and
4) The power to control the putative employees' conduct, although the latter is the most
important element. ... (99 Phil. at 411- 412; Emphasis supplied)
In the present case, Orpiada was not previously selected by the bank. Rather, Orpiada was assigned
to work in the bank by (CESI) Orpiada could not have found his way to the bank's offices had he not
been first hired by (CESI) and later assigned to work in the bank's offices. The selection of Orpiada
by (CESI) was, however, subject to the acceptance of the bank and the bank did accept him As will
be seen shortly, (CESI) had hired Orpiada from the outside world precisely for the purpose of
assigning or seconding him to the bank.
With respect to the payment of Orpiada's wages, the bank remitted to CE SI amounts corresponding
to the "daily service rate" of Orpiada and the others similarly assigned by (CESI) to the bank, and
(CESI) paid to Orpiada and the others the wages pertaining to to them. It is not clear from the record
whether the amounts remitted to (CESI) included some factor for CESIs fees; it seems safe to
assume that (CESI) had required some amount in excess of the wages paid by (CESI) to Orpiada
and the others to cover its own overhead expenses and provide some contribution to profit. The
bank alleged that Orpiada did not appear in its payroll and this allegation was not denied by Orpiada.
Indeed, the Labor Arbiter in Case No. R04-184-76-B found that Orpiada was listed in the payroll of
(CESI) with (CESI) deducting amounts representing his Medicare and Social Security System
premiums. A copy of the (CESI) payroll was presented, strangely enough, by Orpiada himself to
Regional Office No. IV.
In respect of the power of dismissal we note that the bank requested (CESI) to withdraw Orpiada's
assignment and that (CESI) did, in fact, withdraw such assignment. Upon such withdrawal from his
assignment with the bank, Orpiada was also terminated by (CESI) Indeed, it appears clear that
Orpiada was hired by (CESI) specifically for assignment with the bank and that upon his withdrawal
from such assignment upon request of the bank, Orpiada's employment with (CESI) was also
severed, until some other client of (CESI) showed up in the horizon to which Orpiada could once
more be assigned. In the position paper dated August 5, 1977 submitted by (CESI) before the
NLRC, (CESI) explained the relationship between itself and Orpiada in lucid terms:
5. That as Petitioner herein was very well aware of from the very beginning, he was hired by
Corporate Executive Search, Inc. as a temporary employee and as such, was being
assigned to work with the latter's client Respondent herein that the rationale behind his
hiring was the existence of a service contract between Corporate Executive Search Inc. and
its client-company, the Philippine Bank of Communications, the herein Respondent, and that

when this service contract was 0terminated, then the reason for his employment with
Corporate Executive Search, Inc., ceased to exist and that therefore Corporate Executive
Search Inc. had no alternative but to discontinue his employment until another opportune
time for his hiring would present itself;
6. That Petitioner was not given his 13th-month pay under P.D. 851, because Corporate
Executive Search Inc. gave the 13th month pay for 1976 to its employees in December
1976, and since the company had lost contact with the Petitioner by reason of his having
ceased to be connected with it as of 22 October 1976, he was not among those given the
13th-month pay. (Emphasis supplied)
Turning to the power to control Orpiada's conduct, it should be noted immediately that Orpiada
performed his sections within the bank's premises, and not within the office premises of (CESI) As
such, Orpiada must have been subject to at least the same control and supervision that the bank
exercises over any other person physically within its premises and rendering services to or for the
bank, in other words, any employee or staff member of the bank. It seems unreasonable to suppose
that the bank would have allowed Orpiada and the other persons assigned to the bank by CE SI to
remain within the bank's premises and there render services to the bank, without subjecting them to
a substantial measure of control and supervision, whether in respect of the manner in which they
discharged their functions, or in respect of the end results of their functions or activities, or both.
Application of the above factors in the specific context of this case appears to yield mixed results so
far as concerns the existence of an employer- employer relationship between the bank and Orpiada.
The second ("payment of wages") and third ("power of dismissal") factors suggest that the relevant
relationship was that subsisting between (CESI) and Orpiada, a relationship conceded by (CESI) to
be one between employer and employee. Upon the other hand, the first ("selection and
engagement") and fourth ("control of employee's conduct") factors indicate that some direct
relationship did exist between Orpiada and the bank and that such relationship may be assimilated
to employment. Perhaps the most important circumstance which emerges from an examination of
the facts of the tri-lateral relationship between the bank, (CESI) and Orpiada is that the employeremployee relationship between (CESI) and Orpiada was established precisely in anticipation of, and
for the very purpose of making possible, the secondment of Orpiada to the bank. It is therefore
necessary to confront the task of determining the appropriate characterization of the relationship
between the bank and (CESI) was that relationship one of employer and job (independent)
contractor or one of employer and "labor-only" contractor?
Articles 106 and 107 of the Labor Code of the Philippines (Presidential Decree No. 442, as
amended) provides as follows:
ART. 106. Contractor or sub-contractor.Whenever an employer enters into a contract with
another person for the performance of the former's work, the employees of the contractor
and of the latter's subcontractor, if any, shall be paid in accordance with the provisions in this
Code.
In the event that the contractor or sub-contractor fails to pay the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his
contractor or sub-contructor to such employees to the extent of the work performed under
the contract in the same manner and extent that he is liable to employees directly employed
by him

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting
out of labor to protect the rights of workers established under this Code. In so prohibiting or
restricting, he may make appropriate distinctions between labor-only contracting and job
contracting as well as differentiations within these types of contracting and determine who
among the parties involved shall be considered the employer for purposes of this Code, to
prevent any violation or circumvention of any provisions of this Code.
There is "labor-only" contracting where the person supplying workers to an employer does
not have substantial capital or investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed by such person are
performing activities which are directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered merely as an agent of the
employer who shall be responsible to the workers in the same manner and extent as if the
latter were directly employed by him.
ART. 107. Indirect employer. The provisions of the immediately preceding Article shall
likewise apply to any person, part, nership association or corporation which, not being an
employer, contracts with an independent contractor for the performance of any work, task,
job or project. (Emphasis supplied)
Under the general rule set out in the first and second paragraphs of Article 106, an employer who
enters into a contract with a contractor for the performance of work for the employer, does not
thereby create an employer-employes relationship between himself and the employees of the
contractor. Thus, the employees of the contractor remain the contractor's employees and his alone.
Nonetheless when a contractor fails to pay the wages of his employees in accordance with the Labor
Code, the employer who contracted out the job to the contractor becomes jointly and severally liable
with his contractor to the employees of the latter "to the extent of the work performed under the
contract" as such employer were the employer of the contractor's employees. The law itself, in other
words, establishes an employer-employee relationship between the employer and the job
contractor's employees for a limited purpose, i.e., in order to ensure that the latter get paid the
wages due to them.
A similar situation obtains where there is "labor only" contracting. The "labor-only" contractor-i.e "the
person or intermediary" is considered "merely as an agent of the employer. " The employer is made
by the statute responsible to the employees of the "labor only" contractor as if such employees had
been directly employed by the employer. Thus, where "labor only" contracting exists in a given case,
the statute itself implies or establishes an employer-employee relationship between the employer
(the owner of the project) and the employees of the "labor only" contractor, this time for
a comprehensive purpose: "employer for purposes of this Code, to prevent any violation or
circumvention of any provision of this Code. " The law in effect holds both the employer and the
"labor-only" contractor responsible to the latter's employees for the more effective safeguarding of
the employees' rights under the Labor Code.
Both the petitioner bank and (CESI) have insisted that (CESI) was not a "labor only" contractor.
Section 9 of Rule VIII of Book III entitled "Conditions of Employment," of the Omnibus Rules
Implementing the Labor Code provides as follows:
Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to an
employer shag be deemed to be engaged in labor-only contracting where such person:

(1) Does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises and other materials; and
(2) The workers recruited and placed by such person are performing activities which
are to the principal business or operations of the c workers are habitually employed,
(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as
contractor shall be considered merely as an agent or intermediary of the employer who shall
be responsible to the workers in the same manner and extent as if the latter were directly
employed by him
(c) For cases not file under this Article, the Secretary of Labor shall determine through
appropriate orders whether or not the contracting out of labor is permissible in the light of the
circumstances of each case and after considering the operating needs of the employer and
the rights of the workers involved. In such case, he may prescribe conditions and restrictions
to insure the protection and welfare of the workers. (Emphasis supplied)
In contrast, job contracting-contracting out a particular job to an independent contractor is defined by
the Implementing Rules as follows:
Sec. 8. Job contracting. There is job contracting permissible under the Code if the
following conditions are met:
(1) The contractor carries on an independent business and undertakes the contract work on
his own account under his own responsibility according to his own manner and method free
from the control and direction of his employer or principal in all matters connected with the
performance of the work except as to the results thereof; and
(2) The contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of his
business. (Emphasis supplied)
The bank and (CESI) urge that (CESI) is not properly regarded as a "labor-only" contractor upon n
the ground that (CESI) is possessed of substantial capital or investment in the form of office
equipment, tools and trained service personnel.
We are unable to agree with the bank and (CESI) on this score. The definition of "labor-only"
contracting in Rule VIII, Book III of the Implementing Rules must be read in conjunction with the
definition of job contracting given in Section 8 of the same Rules. The undertaking given by CESI in
favor of the bank was not the performance of a specific job for instance, the carriage and delivery
of documents and parcels to the addresses thereof. There appear to be many companies today
which perform this discrete service, companies with their own personnel who pick up documents and
packages from the offices of a client or customer, and who deliver such materials utilizing their own
delivery vans or motorcycles to the addresses. In the present case, the undertaking of (CESI) was
toprovide its client-thebank-with a certain number of persons able to carry out the work of
messengers. Such undertaking of CESI was complied with when the requisite number of persons
were assigned or seconded to the petitioner bank. Orpiada utilized the premises and office
equipment of the bank and not those of (CESI) Messengerial work-the delivery of documents to
designated persons whether within or without the bank premises is of course directly related to

the day-to-day operations of the bank. Section 9(2) quoted above does notrequire for its applicability
that the petitioner must be engaged in the delivery of items as a distinct and separate line of
business.
Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is a recruitment and
placement corporation placing bodies, as it were, in d ifferent client companies for longer or shorter
periods of time. It is this factor that, to our mind, distinguishes this case from American President v.
Clave et al, 114 SCRA 826 (1982) if indeed distinguishing way is needed.
The bank urged that the letter agreement entered into with CESI was designed to enable the bank to
obtain the temporary services of people necessary to enable the bank to cope with peak loads, to
replace temporary workers who were out on vacation or sick leave, and to handle specialized work.
There is, of course, nothing illegal about hiring persons to carry out "a specific project or undertaking
the completion or termination of which [was] determined at the time of the engagement of [the]
employee, or where the work or service to be performed is seasonal in nature and the employment
is for the duration of the season" (Article 281, Labor Code). The letter agreement itself, however,
merely required (CESI) to furnish the bank with eleven 11) messengers for " a contract period from
January 19, 1976 ." The eleven (11) messengers were thus supposed to render "temporary"
services for an indefinite or unstated period of time. Ricardo Orpiada himself was assigned to the
bank's offices from 25 June 1975 and rendered services to the bank until sometime in October 1976,
or a period of about sixteen months. Under the Labor Code, however, any employee who has
rendered at least one year of service, whether such service is continuous or not, shall be considered
a regular employee (Article 281, Second paragraph). Assuming, therefore, that Orpiada could
properly be regarded as a casual (as distinguished from a regular) employee of the bank, he
became entitled to be regarded as a regular employee of the bank as soon as he had completed one
year of service to the bank. Employers may not terminate the service of a regular employee except
for a just cause or when authorized under the Labor Code (Article 280, Labor Code). It is not difficult
to see that to uphold the contractual arrangement between the bank and (CESI) would in effect be to
permit employers to avoid the necessity of hiring regular or permanent employees and to enable
them to keep their employees indefinitely on a temporary or casual status, thus to deny them
security of tenure in their jobs. Article 106 of the Labor Code is precisely designed to prevent such a
result.
<re||an1w>

We hold that, in the circumstances 'instances of this case, (CESI) was engaged in "labor-only" or
attracting vis-a-vis the petitioner and in respect c Ricardo Orpiada, and that consequently, the
petitioner bank is liable to Orpiada as if Orpiada had been directly, employed not only by (CESI) but
also by the bank. It may well be that the bank may in turn proceed against (CESI) to obtain
reimbursement of, or some contribution to, the amounts which the bank will have to pay to Orpiada;
but this it is not necessary to determine here.
WHEREFORE, the petition for certiorari is DENIED and the decision promulgated on 29 December
1983 of the National Labor Relations Commission is AFFIRMED. The Temporary Restraining Order
issued by this Court on 11 April 1984 is hereby lifted. Costs against petitioner.
SO ORDERED.
Yap (Chairman), Narvasa, Melencio-Herrera and Cruz, JJ., concur.

FIRST DIVISION
[G.R. No. 122653. December 12, 1997]

PURE FOODS CORPORATON, petitioner, vs. NATIONAL LABOR

RELATIONS COMMISSION, RODOLFO CORDOVA, VIOLETA
CRUSIS, ET AL., respondents.
*

DECISION
DAVIDE, JR., J.:

The crux of this petition for certiorari is the issue of whether employees hired for a
definite period and whose services are necessary and desirable in the usual business or
trade of the employer are regular employees.
The private respondents (numbering 906) were hired by petitioner Pure Foods
Corporation to work for a fixed period of five months at its tuna cannery plant in Tambler,
General Santos City. After the expiration of their respective contracts of employment in
June and July 1991, their services were terminated. They forthwith executed a Release
and Quitclaim stating that they had no claim whatsoever against the petitioner.
On 29 July 1991, the private respondents filed before the National Labor Relations
Commission (NLRC) Sub-Regional Arbitration Branch No. XI, General Santos City, a
complaint for illegal dismissal against the petitioner and its plant manager, Marciano
Aganon. This case was docketed as RAB-11-08-50284-91.
[1]

On 23 December 1992, Labor Arbiter Arturo P. Aponesto handed down a

decision dismissing the complaint on the ground that the private respondents were
mere contractual workers, and not regular employees; hence, they could not avail of the
law on security of tenure. The termination of their services by reason of the expiration of
their contracts of employment was, therefore, justified. He pointed out that earlier he
had dismissed a case entitled Lakas ng Anak-Pawis- NOWM v. Pure Foods Corp. (Case
No. RAB-11-02-00088-88) because the complainants therein were not regular
employees of Pure Foods, as their contracts of employment were for a fixed period of
five months. Moreover, in another case involving the same contractual workers of Pure
Foods (Case No. R-196-ROXI- MED- UR-55-89), then Secretary of Labor Ruben Torres
held, in a Resolution dated 30 April 1990, that the said contractual workers were not
regular employees.
[2]

The Labor Arbiter also observed that an order for private respondents reinstatement
would result in the reemployment of more than 10,000 former contractual employees of
the petitioner. Besides, by executing a Release and Quitclaim, the private respondents
had waived and relinquished whatever right they might have against the petitioner.
The private respondents appealed from the decision to the National Labor Relations
Commission (NLRC), Fifth Division, in Cagayan de Oro City, which docketed the case
as NLRC CA No. M-001323-93.
On 28 October 1994, the NLRC affirmed the Labor Arbiter's decision. However, on
private respondents motion for reconsideration, the NLRC rendered another decision on
30 January 1995 vacating and setting aside its decision of 28 October 1994 and
holding that the private respondents and their co-complainants were regular
employees. It declared that the contract of employment for five months was a
clandestine scheme employed by [the petitioner] to stifle [private respondents] right to
security of tenure and should therefore be struck down and disregarded for being
contrary to law, public policy, and morals. Hence, their dismissal on account of the
expiration of their respective contracts was illegal.
[3]

[4]

Accordingly, the NLRC ordered the petitioner to reinstate the private respondents to
their former position without loss of seniority rights and other privileges, with full back
wages; and in case their reinstatement would no longer be feasible, the petitioner
should pay them separation pay equivalent to one-month pay or one-half-month pay for
every year of service, whichever is higher, with back wages and 10% of the monetary
award as attorneys fees.
Its motion for reconsideration having been denied, the petitioner came to this Court
contending that respondent NLRC committed grave abuse of discretion amounting to
lack of jurisdiction in reversing the decision of the Labor Arbiter.
[5]

The petitioner submits that the private respondents are now estopped from
questioning their separation from petitioners employ in view of their express conformity
with the five-month duration of their employment contracts. Besides, they fell within the
exception provided in Article 280 of the Labor Code which reads: [E]xcept where the
employment has been fixed for a specific project or undertaking the completion or
termination of which has been determined at the time of the engagement of the
employee.
Moreover, the first paragraph of the said article must be read and interpreted in
conjunction with the proviso in the second paragraph, which reads: Provided that any
employee who has rendered at least one year of service, whether such service is
continuous or broken, shall be considered a regular employee with respect to the
activity in which he is employed.... In the instant case, the private respondents were

employed for a period of five months only. In any event, private respondents' prayer for
reinstatement is well within the purview of the Release and Quitclaim they had executed
wherein they unconditionally released the petitioner from any and all other claims which
might have arisen from their past employment with the petitioner.
In its Comment, the Office of the Solicitor General (OSG) advances the argument
that the private respondents were regular employees, since they performed activities
necessary and desirable in the business or trade of the petitioner. The period of
employment stipulated in the contracts of employment was null and void for being
contrary to law and public policy, as its purpose was to circumvent the law on security of
tenure. The expiration of the contract did not, therefore, justify the termination of their
employment.
The OSG further maintains that the ruling of the then Secretary of Labor and
Employment in LAP-NOWM v. Pure Foods Corporation is not binding on this Court;
neither is that ruling controlling, as the said case involved certification election and not
the issue of the nature of private respondents employment. It also considers private
respondents quitclaim as ineffective to bar the enforcement for the full measure of their
legal rights.
The private respondents, on the other hand, argue that contracts with a specific
period of employment may be given legal effect provided, however, that they are not
intended to circumvent the constitutional guarantee on security of tenure. They submit
that the practice of the petitioner in hiring workers to work for a fixed duration of five
months only to replace them with other workers of the same employment duration was
apparently to prevent the regularization of these so-called casuals, which is a clear
circumvention of the law on security of tenure.
We find the petition devoid of merit.
Article 280 of the Labor Code defines regular and casual employment as follows:

ART. 280. Regular and Casual Employment.-- The provisions of written agreement to
the contrary notwithstanding and regardless of the oral argument of the parties, an
employment shall be deemed to be regular where the employee has been engaged to
perform activities which are usually necessary or desirable in the usual business or
trade of the employer, except where the employment has been fixed for a specific
project or undertaking the completion or termination of which has been determined at
the time of the engagement of the employee or where the work or services to be
performed is seasonal in nature and the employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding

paragraph; Provided, That, any employee who has rendered at least one year of
service, whether such service is continuous or broken, shall be considered a regular
employee with respect to the activity in which he is employed and his employment
shall continue while such activity exists.
Thus, the two kinds of regular employees are (1) those who are engaged to perform
activities which are necessary or desirable in the usual business or trade of the
employer; and (2) those casual employees who have rendered at least one year of
service, whether continuous or broken, with respect to the activity in which they are
employed.
[6]

In the instant case, the private respondents activities consisted in the receiving,
skinning, loining, packing, and casing-up of tuna fish which were then exported by the
petitioner.Indisputably, they were performing activities which were necessary and
desirable in petitioners business or trade.
Contrary to petitioner's submission, the private respondents could not be regarded
as having been hired for a specific project or undertaking. The term specific project or
undertaking under Article 280 of the Labor Code contemplates an activity which is not
commonly or habitually performed or such type of work which is not done on a daily
basis but only for a specific duration of time or until completion; the services employed
are then necessary and desirable in the employers usual business only for the period of
time it takes to complete the project.
[7]

The fact that the petitioner repeatedly and continuously hired workers to do the
same kind of work as that performed by those whose contracts had expired negates
petitioners contention that those workers were hired for a specific project or undertaking
only.
Now on the validity of private respondents' five-month contracts of employment. In
the leading case of Brent School, Inc. v. Zamora, which was reaffirmed in numerous
subsequent cases, this Court has upheld the legality of fixed-term employment. It ruled
that the decisive determinant in term employment should not be the activities that the
employee is called upon to perform but the day certain agreed upon by the parties for
the commencement and termination of their employment relationship. But, this Court
went on to say that where from the circumstances it is apparent that the periods have
been imposed to preclude acquisition of tenurial security by the employee, they should
be struck down or disregarded as contrary to public policy and morals.
[8]

[9]

Brent also laid down the criteria under which term employment cannot be said to be
in circumvention of the law on security of tenure:

1) The fixed period of employment was knowingly and voluntarily agreed upon by the
parties without any force, duress, or improper pressure being brought to bear upon the
employee and absent any other circumstances vitiating his consent; or
2) It satisfactorily appears that the employer and the employee dealt with each other
on more or less equal terms with no moral dominance exercised by the former or the
latter.
None of these criteria had been met in the present case. As pointed out by the private
respondents:

[I]t could not be supposed that private respondents and all other so-called casual
workers of [the petitioner] KNOWINGLY and VOLUNTARILY agreed to the 5month employment contract. Cannery workers are never on equal terms with their
employers. Almost always, they agree to any terms of an employment contract just to
get employed considering that it is difficult to find work given their ordinary
qualifications. Their freedom to contract is empty and hollow because theirs is the
freedom to starve if they refuse to work as casual or contractual workers. Indeed, to
the unemployed, security of tenure has no value. It could not then be said that
petitioner and private respondents "dealt with each other on more or less equal terms
with no moral dominance whatever being exercised by the former over the latter.
[10]

The petitioner does not deny or rebut private respondents' averments (1) that the
main bulk of its workforce consisted of its so-called casual employees; (2) that as of July
1991, casual workers numbered 1,835; and regular employees, 263; (3) that the
company hired casual every month for the duration of five months, after which their
services were terminated and they were replaced by other casual employees on the
same five-month duration; and (4) that these casual employees were actually doing
work that were necessary and desirable in petitioners usual business.
As a matter of fact, the petitioner even stated in its position paper submitted to the
Labor Arbiter that, according to its records, the previous employees of the company
hired on a five-month basis numbered about 10,000 as of July 1990. This confirms
private respondents allegation that it was really the practice of the company to hire
workers on a uniformly fixed contract basis and replace them upon the expiration of
their contracts with other workers on the same employment duration.
This scheme of the petitioner was apparently designed to prevent the private
respondents and the other casual employees from attaining the status of a regular
employee. It was a clear circumvention of the employees right to security of tenure and
to other benefits like minimum wage, cost-of-living allowance, sick leave, holiday pay,

and 13th month pay. Indeed, the petitioner succeeded in evading the application of
labor laws. Also, it saved itself from the trouble or burden of establishing a just cause for
terminating employees by the simple expedient of refusing to renew the employment
contracts.
[11]

The five-month period specified in private respondents employment contracts

having been imposed precisely to circumvent the constitutional guarantee on security of
tenure should, therefore, be struck down or disregarded as contrary to public policy or
morals. To uphold the contractual arrangement between the petitioner and the private
respondents would, in effect, permit the former to avoid hiring permanent or regular
employees by simply hiring them on a temporary or casual basis, thereby violating the
employees security of tenure in their jobs.
[12]

[13]

The execution by the private respondents of a Release and Quitclaim did not
preclude them from questioning the termination of their services. Generally, quitclaims
by laborers are frowned upon as contrary to public policy and are held to be ineffective
to bar recovery for the full measure of the workers rights. The reason for the rule is
that the employer and the employee do not stand on the same footing.
[14]

[15]

Notably, the private respondents lost no time in filing a complaint for illegal
dismissal. This act is hardly expected from employees who voluntarily and freely
consented to their dismissal.
[16]

The NLRC was, thus, correct in finding that the private respondents were regular
employees and that they were illegally dismissed from their jobs. Under Article 279 of
the Labor Code and the recent jurisprudence, the legal consequence of illegal
dismissal is reinstatement without loss of seniority rights and other privileges, with full
back wages computed from the time of dismissal up to the time of actual reinstatement,
without deducting the earnings derived elsewhere pending the resolution of the case.
[17]

However, since reinstatement is no longer possible because the petitioner's tuna

cannery plant had, admittedly, been closed in November 1994, the proper award is
separation pay equivalent to one month pay or one-half month pay for every year of
service, whichever is higher, to be computed from the commencement of their
employment up to the closure of the tuna cannery plant. The amount of back wages
must be computed from the time the private respondents were dismissed until the time
petitioner's cannery plant ceased operation.
[18]

[19]

WHEREFORE, for lack of merit, the instant petition is DISMISSED and the
challenged decision of 30 January 1995 of the National Labor Relations Commission in
NLRC CA No. M-001323-93 is hereby AFFIRMED subject to the above modification on
the computation of the separation pay and back wages.

SO ORDERED.
Bellosillo, Vitug, and Kapunan, JJ., concur.

Republic of the Philippines

Supreme Court
Manila

SECOND DIVISION

TIMOTEO H. SARONA,
Petitioner,

G.R. No. 185280

Present:

CARPIO, J.,
- versus -

Chairperson,
PEREZ,
SERENO,
REYES, and
BERNABE, JJ.

NATIONAL LABOR RELATIONS

COMMISSION, ROYALE SECURITY
Promulgated:

AGENCY (FORMERLY SCEPTRE

SECURITY AGENCY) and

January 18, 2012

CESAR S. TAN,
Respondents.

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

DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the May
29, 2008 Decision of the Twentieth Division of the Court of Appeals (CA) in CAG.R. SP No. 02127 entitled Timoteo H. Sarona v. National Labor Relations
Commission, Royale Security Agency (formerly Sceptre Security Agency) and Cesar
S. Tan (Assailed Decision), which affirmed the National Labor Relations
Commissions (NLRC) November 30, 2005 Decision and January 31, 2006
Resolution, finding the petitioner illegally dismissed but limiting the amount of his
backwages to three (3) monthly salaries. The CA likewise affirmed the NLRCs
finding that the petitioners separation pay should be computed only on the basis of
his length of service with respondent Royale Security Agency (Royale). The CA held
that absent any showing that Royale is a mere alter ego of Sceptre Security Agency
(Sceptre), Royale cannot be compelled to recognize the petitioners tenure with
Sceptre. The dispositive portion of the CAs Assailed Decision states:
1

WHEREFORE, in view of the foregoing, the instant petition

is PARTLY GRANTED, though piercing of the corporate veil is hereby
denied for lack of merit. Accordingly, the assailed Decision and
Resolution of the NLRC respectively dated November 30, 2005 and
January 31, 2006 are hereby AFFIRMED as to the monetary awards.

SO ORDERED.

Factual Antecedents

On June 20, 2003, the petitioner, who was hired by Sceptre as a security guard
sometime in April 1976, was asked by Karen Therese Tan (Karen), Sceptres
Operation Manager, to submit a resignation letter as the same was supposedly
required for applying for a position at Royale. The petitioner was also asked to fill up
Royales employment application form, which was handed to him by Royales
General Manager, respondent Cesar Antonio Tan II (Cesar).
3

After several weeks of being in floating status, Royales Security Officer,

Martin Gono (Martin), assigned the petitioner at Highlight Metal Craft, Inc.
(Highlight Metal) from July 29, 2003 to August 8, 2003. Thereafter, the petitioner was
transferred and assigned to Wide Wide World Express, Inc. (WWWE, Inc.). During
his assignment at Highlight Metal, the petitioner used the patches and agency cloths of
Sceptre and it was only
when he was posted at WWWE, Inc. that he started using those of Royale.
4

On September 17, 2003, the petitioner was informed that his assignment at
WWWE, Inc. had been withdrawn because Royale had allegedly been replaced by
another security agency. The petitioner, however, shortly discovered thereafter that
Royale was never replaced as WWWE, Inc.s security agency. When he placed a call
at WWWE, Inc., he learned that his fellow security guard was not relieved from his
post.
5

On September 21, 2003, the petitioner was once again assigned at Highlight
Metal, albeit for a short period from September 22, 2003 to September 30, 2003.
Subsequently, when the petitioner reported at Royales office on October 1, 2003,
Martin informed him that he would no longer be given any assignment per the
instructions of Aida Sabalones-Tan (Aida), general manager of Sceptre. This
prompted him to file a complaint for illegal dismissal on October 4, 2003.
6

In his May 11, 2005 Decision, Labor Arbiter Jose Gutierrez (LA Gutierrez)
ruled in the petitioners favor and found him illegally dismissed. For being
unsubstantiated, LA Gutierrez denied credence to the respondents claim that the
termination of the petitioners employment relationship with Royale was on his accord
following his alleged employment in another company. That the petitioner was no
longer interested in being an employee of Royale cannot be presumed from his
request for a certificate of employment, a claim which, to begin with, he vehemently
denies. Allegation of the petitioners abandonment is negated by his filing of a
complaint for illegal dismissal three (3) days after he was informed that he would no
longer be given any assignments. LA Gutierrez ruled:

In short, respondent wanted to impress before us that complainant

abandoned his employment. We are not however, convinced.

There is abandonment when there is a clear proof showing that one has
no more interest to return to work. In this instant case, the record has no
proof to such effect. In a long line of decisions, the Supreme Court ruled:

Abandonment of position is a matter of intention

expressed in clearly certain and unequivocal acts,
however, an interim employment does not mean
abandonment. (Jardine Davis, Inc. vs. NLRC, 225
SCRA 757).

In abandonment, there must be a concurrence of

the intention to abandon and some overt acts from which
an employee may be declared as having no more interest
to work. (C. Alcontin & Sons, Inc. vs. NLRC, 229 SCRA
109).

It is clear, deliberate and unjustified refusal to

severe employment and not mere absence that is required
to constitute abandonment. x x x (De Ysasi III vs.
NLRC, 231 SCRA 173).

Aside from lack of proof showing that complainant has

abandoned his employment, the record would show that immediate
action was taken in order to protest his dismissal from employment. He
filed a complaint [for] illegal dismissal on October 4, 2004 or three (3)
days after he was dismissed. This act, as declared by the Supreme Court
is inconsistent with abandonment, as held in the case of Pampanga Sugar
Development Co., Inc. vs. NLRC, 272 SCRA 737 where the Supreme
Court ruled:

The immediate filing of a complaint for [i]llegal

[d]ismissal by an employee is inconsistent with
abandonment.
7

The respondents were ordered to pay the petitioner backwages, which LA

Gutierrez computed from the day he was dismissed, or on October 1, 2003, up to the
promulgation of his Decision on May 11, 2005. In lieu of reinstatement, the
respondents were ordered to pay the petitioner separation pay equivalent to his one (1)
month salary in consideration of his tenure with Royale, which lasted for only one (1)
month and three (3) days. In this
regard, LA Gutierrez refused to pierce Royales corporate veil for purposes of
factoring the petitioners length of service with Sceptre in the computation of his
separation pay. LA Gutierrez ruled that Royales corporate personality, which is
separate and distinct from that of Sceptre, a sole proprietorship owned by the late
Roso Sabalones (Roso) and later, Aida, cannot be pierced absent clear and convincing
evidence that Sceptre and Royale share the same stockholders and incorporators and
that Sceptre has complete control and dominion over the finances and business affairs
of Royale. Specifically:

To support its prayer of piercing the veil of corporate entity of

respondent Royale, complainant avers that respondent Royal (sic) was
using the very same office of SCEPTRE in C. Padilla St., Cebu City. In
addition, all officers and staff of SCEPTRE are now the same officers
and staff of ROYALE, that all [the] properties of SCEPTRE are now
being owned by ROYALE and that ROYALE is now occupying the
property of SCEPTRE. We are not however, persuaded.

It should be pointed out at this juncture that SCEPTRE, is a single

proprietorship. Being so, it has no distinct and separate personality. It is
owned by the late Roso T. Sabalones. After the death of the owner, the
property is supposed to be divided by the heirs and any claim against the
sole proprietorship is a claim against Roso T. Sabalones. After his death,

the claims should be instituted against the estate of Roso T. Sabalones. In

short, the estate of the late Roso T. Sabalones should have been
impleaded as respondent of this case.

Complainant wanted to impress upon us that Sceptre was organized into

another entity now called Royale Security Agency. There is however, no
proof to this assertion. Likewise, there is no proof that Roso T.
Sabalones, organized his single proprietorship business into a
corporation, Royale Security Agency. On the contrary, the name of Roso
T. Sabalones does not appear in the Articles of Incorporation. The names
therein as incorporators are:

Bruno M. Kuizon [P]150,000.00

Wilfredo K. Tan 100,000.00
Karen Therese S. Tan 100,000.00
Cesar Antonio S. Tan 100,000.00
Gabeth Maria K. Tan 50,000.00

Complainant claims that two (2) of the incorporators are the

granddaughters of Roso T. Sabalones. This fact even give (sic) us further
reason to conclude that respondent Royal (sic) Security Agency is not an
alter ego or conduit of SCEPTRE. It is obvious that respondent Royal
(sic) Security Agency is not owned by the owner of SCEPTRE.

It may be true that the place where respondent Royale hold (sic)
office is the same office formerly used by SCEPTRE. Likewise, it may
be true that the same officers and staff now employed by respondent
Royale Security Agency were the same officers and staff employed by
SCEPTRE. We find, however, that these facts are not sufficient to
justify to require respondent Royale to answer for the liability of Sceptre,

which was owned solely by the late Roso T. Sabalones. As we have

stated above, the remedy is to address the claim on the estate of Roso T.
Sabalones.
8

The respondents appealed LA Gutierrezs May 11, 2005 Decision to the NLRC,
claiming that the finding of illegal dismissal was attended with grave abuse of
discretion. This appeal was, however, dismissed by the NLRC in its November 30,
2005 Decision, the dispositive portion of which states:
9

WHEREFORE, premises considered, the Decision of the Labor

Arbiter declaring the illegal dismissal of complainant is
hereby AFFIRMED.

However[,] We modify the monetary award by limiting the grant

of backwages to only three (3) months in view of complainants very
limited service which lasted only for one month and three days.

1. Backwages - [P]15,600.00
2. Separation Pay - 5,200.00
3. 13th Month Pay - 583.34
[P]21,383.34 Attorneys Fees- 2,138.33
Total [P]23,521.67

The appeal of respondent Royal (sic) Security Agency is

hereby DISMISSED for lack of merit.

SO ORDERED.

10

The NLRC partially affirmed LA Gutierrezs May 11, 2005 Decision. It

concurred with the latters finding that the petitioner was illegally dismissed and the
manner by which his separation pay was computed, but modified the monetary award
in the petitioners favor by reducing the amount of his backwages from P95,600.00
to P15,600.00. The NLRC determined the petitioners backwages as limited to three
(3) months of his last monthly salary, considering that his employment with Royale
was only for a period for one (1) month and three (3) days, thus:
11

On the other hand, while complainant is entitled to backwages, We are

aware that his stint with respondent Royal (sic) lasted only for one (1)
month and three (3) days such that it is Our considered view that his
backwages should be limited to only three (3) months.

Backwages:

[P]5,200.00 x 3 months = [P]15,600.00

12

The petitioner, on the other hand, did not appeal LA Gutierrezs May 11, 2005
Decision but opted to raise the validity of LA Gutierrezs adverse findings with
respect to piercing Royales corporate personality and computation of his separation
pay in his Reply to the respondents Memorandum of Appeal. As the filing of an
appeal is the prescribed remedy and no aspect of the decision can be overturned by a

mere reply, the NLRC dismissed the petitioners efforts to reverse LA Gutierrezs
disposition of these issues. Effectively, the petitioner had already waived his right to
question LA Gutierrezs Decision when he failed to file an appeal within the
reglementary period. The NLRC held:

On the other hand, in complainants Reply to Respondents Appeal

Memorandum he prayed that the doctrine of piercing the veil of
corporate fiction of respondent be applied so that his services with
Sceptre since 1976 [will not] be deleted. If complainant assails this
particular finding in the Labor Arbiters Decision, complainant should
have filed an appeal and not seek a relief by merely filing a Reply to
Respondents Appeal Memorandum.
13

Consequently, the petitioner elevated the NLRCs November 30, 2005 Decision to the
CA by way of a Petition for Certiorari under Rule 65 of the Rules of Court. On the
other hand, the respondents filed no appeal from the NLRCs finding that the
petitioner was illegally dismissed.

The CA, in consideration of substantial justice and the jurisprudential dictum

that an appealed case is thrown open for the appellate courts review, disagreed with
the NLRC and proceeded to review the evidence on record to determine if Royale is
Sceptres alter ego that would warrant the piercing of its corporate veil. According to
the CA, errors not assigned on appeal may be reviewed as technicalities should not
serve as bar to the full adjudication of cases. Thus:
14

In Cuyco v. Cuyco, which We find application in the instant case, the

Supreme Court held:

In their Reply, petitioners alleged that their petition only

raised the sole issue of interest on the interest due, thus, by
not filing their own petition for review, respondents waived
their privilege to bring matters for the Courts review that
[does] not deal with the sole issue raised.

Procedurally, the appellate court in deciding the case shall

consider only the assigned errors, however, it is equally
settled that the Court is clothed with ample authority to
review matters not assigned as errors in an appeal, if it
finds that their consideration is necessary to arrive at a just
disposition of the case.

Therefore, for full adjudication of the case, We have to primarily resolve

the issue of whether the doctrine of piercing the corporate veil be justly
applied in order to determine petitioners length of service with private
respondents. (citations omitted)
15

Nonetheless, the CA ruled against the petitioner and found the evidence he
submitted to support his allegation that Royale and Sceptre are one and the same
juridical entity to be wanting. The CA refused to pierce Royales corporate mask as
one of the probative factors that would justify the application of the doctrine of
piercing the corporate veil is stock ownership by one or common ownership of both
corporations and the petitioner failed to present clear and convincing proof that
Royale and Sceptre are commonly owned or controlled. The relevant portions of the
CAs Decision state:

In the instant case, We find no evidence to show that Royale

Security Agency, Inc. (hereinafter Royale), a corporation duly
registered with the Securities and Exchange Commission (SEC) and

Sceptre Security Agency (hereinafter Sceptre), a single proprietorship,

are one and the same entity.

Petitioner, who has been with Sceptre since 1976 and, as ruled by
both the Labor Arbiter and the NLRC, was illegally dismissed by Royale
on October 1, 2003, alleged that in order to circumvent labor laws,
especially to avoid payment of money claims and the consideration on
the length of service of its employees, Royale was established as an alter
ego or business conduit of Sceptre. To prove his claim, petitioner
declared that Royale is conducting business in the same office of
Sceptre, the latter being owned by the late retired Gen. Roso Sabalones,
and was managed by the latters daughter, Dr. Aida Sabalones-Tan; that
two of Royales incorporators are grandchildren [of] the late Gen. Roso
Sabalones; that all the properties of Sceptre are now owned by Royale,
and that the officers and staff of both business establishments are the
same; that the heirs of Gen. Sabalones should have applied for
dissolution of Sceptre before the SEC before forming a new corporation.

On the other hand, private respondents declared that Royale was

incorporated only on March 10, 2003 as evidenced by the Certificate of
Incorporation issued by the SEC on the same date; that Royales
incorporators are Bruino M. Kuizon, Wilfredo Gracia K. Tan, Karen
Therese S. Tan, Cesar Antonio S. Tan II and [Gabeth] Maria K. Tan.

Settled is the tenet that allegations in the complaint must be duly

proven by competent evidence and the burden of proof is on the party
making the allegation. Further, Section 1 of Rule 131 of the Revised
Rules of Court provides:

SECTION 1. Burden of proof. Burden of proof is

the duty of a party to present evidence on the facts in issue
necessary to establish his claim or defense by the amount
of evidence required by law.

We believe that petitioner did not discharge the required burden of

proof to establish his allegations. As We see it, petitioners claim that
Royale is an alter ego or business conduit of Sceptre is without basis
because aside from the fact that there is no common ownership of both
Royale and Sceptre, no evidence on record would prove that Sceptre,
much less the late retired Gen. Roso Sabalones or his heirs, has control
or complete domination of Royales finances and business transactions.
Absence of this first element, coupled by petitioners failure to present
clear and convincing evidence to substantiate his allegations, would
prevent piercing of the corporate veil. Allegations must be proven by
sufficient evidence. Simply stated, he who alleges a fact has the burden
of proving it; mere allegation is not evidence. (citations omitted)
16

By way of this Petition, the petitioner would like this Court to revisit the computation
of his backwages, claiming that the same should be computed from the time he was
illegally dismissed until the finality of this decision. The petitioner would likewise
have this Court review and examine anew the factual allegations and the supporting
evidence to determine if the CA erred in its refusal to pierce Royales corporate mask
and rule that it is but a mere continuation or successor of Sceptre. According to the
petitioner, the erroneous computation of his separation pay was due to the CAs
failure, as well as the NLRC and LA Gutierrez, to consider evidence conclusively
demonstrating that Royale and Sceptre are one and the same juridical entity. The
petitioner claims that since Royale is no more than Sceptres alter ego, it should
recognize and credit his length of service with Sceptre.
17

18

The petitioner claimed that Royale and Sceptre are not separate legal persons
for purposes of computing the amount of his separation pay and other benefits under
the Labor Code. The piercing of Royales corporate personality is justified by several
indicators that Royale was incorporated for the sole purpose of defeating his right to
security of tenure and circumvent payment of his benefits to which he is entitled under
the law: (i) Royale was holding office in the same property used by Sceptre as its

principal place of business; (ii) Sceptre and Royal have the same officers and
employees; (iii) on October 14, 1994, Roso, the sole proprietor of Sceptre, sold to
Aida, and her husband, Wilfredo Gracia K. Tan (Wilfredo), the property used by
Sceptre as its principal place of business; (iv) Wilfredo is one of the incorporators of
Royale; (v) on May 3, 1999, Roso ceded the license to operate Sceptre issued by the
Philippine National Police to Aida; (vi) on July 28, 1999, the business name Sceptre
Security & Detective Agency was registered with the Department of Trade and
Industry (DTI) under the name of Aida; (vii) Aida exercised control over the affairs
of Sceptre and Royale, as she was, in fact, the one who dismissed the petitioner from
employment; (viii) Karen, the daughter of Aida, was Sceptres Operation Manager
and is one of the incorporators of Royale; and (ix) Cesar Tan II, the son of Aida was
one of Sceptres officers and is one of the incorporators of Royale.
19

20

21

22

23

24

25

26

27

28

In their Comment, the respondents claim that the petitioner is barred from
questioning the manner by which his backwages and separation pay were computed.
Earlier, the petitioner moved for the execution of the NLRCs November 30, 2005
Decision and the respondents paid him the full amount of the monetary award
thereunder shortly after the writ of execution was issued. The respondents likewise
maintain that Royales separate and distinct corporate personality should be respected
considering that the evidence presented by the petitioner fell short of establishing that
Royale is a mere alter ego of Sceptre.
29

30

The petitioner does not deny that he has received the full amount of backwages
and separation pay as provided under the NLRCs November 30, 2005
Decision. However, he claims that this does not preclude this Court from modifying a
decision that is tainted with grave abuse of discretion or issued without jurisdiction.
31

32

ISSUES

Considering the conflicting submissions of the parties, a judicious

determination of their respective rights and obligations requires this Court to resolve
the following substantive issues:

a. Whether Royales corporate fiction should be pierced for the

purpose of compelling it to recognize the petitioners length of service
with Sceptre and for holding it liable for the benefits that have accrued to
him arising from his employment with Sceptre; and

b. Whether the petitioners backwages should be limited to his

salary for three (3) months.

OUR RULING

Because his receipt of the proceeds of the

award under the NLRCs November 30,
2005 Decision is qualified and without
prejudice to the CAs resolution of his
petition for certiorari, the petitioner is not
barred from exercising his right to elevate
the decision of the CA to this Court.

Before this Court proceeds to decide this Petition on its merits, it is imperative to
resolve the respondents contention that the full satisfaction of the award under the
NLRCs November 30, 2005 Decision bars the petitioner from questioning the
validity thereof. The respondents submit that they had paid the petitioner the amount

of P21,521.67 as directed by the NLRC and this constitutes a waiver of his right to file
an appeal to this Court.

The respondents fail to convince.

The petitioners receipt of the monetary award adjudicated by the NLRC is not
absolute, unconditional and unqualified. The petitioners May 3, 2007 Motion for
Release contains a reservation, stating in his prayer that: it is respectfully prayed that
the respondents and/or Great Domestic Insurance Co. be ordered to RELEASE/GIVE
the amount of P23,521.67 in favor of the complainant TIMOTEO H. SARONA
without prejudice to the outcome of the petition with the CA.
33

In Leonis Navigation Co., Inc., et al. v. Villamater, et al., this Court ruled that
the prevailing partys receipt of the full amount of the judgment award pursuant to a
writ of execution issued by the labor arbiter does not
close or terminate the case if such receipt is qualified as without prejudice to the
outcome of the petition for certiorari pending with the CA.
34

Simply put, the execution of the final and executory decision or

resolution of the NLRC shall proceed despite the pendency of a petition
for certiorari, unless it is restrained by the proper court. In the present
case, petitioners already paid Villamaters widow, Sonia, the amount
of P3,649,800.00, representing the total and permanent disability award
plus attorneys fees, pursuant to the Writ of Execution issued by the
Labor Arbiter. Thereafter, an Order was issued declaring the case as
"closed and terminated". However, although there was no motion for
reconsideration of this last Order, Sonia was, nonetheless, estopped from
claiming that the controversy had already reached its end with the
issuance of the Order closing and terminating the case. This is because
the Acknowledgment Receipt she signed when she received petitioners

payment was without prejudice to the final outcome of the petition

for certiorari pending before the CA.
35

The finality of the NLRCs decision does not preclude the filing of a petition
for certiorari under Rule 65 of the Rules of Court. That the NLRC issues an entry of
judgment after the lapse of ten (10) days from the parties receipt of its decision will
only give rise to the prevailing partys right to move for the execution thereof but will
not prevent the CA from taking cognizance of a petition for certiorari on
jurisdictional and due process considerations. In turn, the decision rendered by the
CA on a petition for certiorari may be appealed to this Court by way of a petition for
review on certiorari under Rule 45 of the Rules of Court. Under Section 5, Article
VIII of the Constitution, this Court has the power to review, revise, reverse, modify,
or affirm on appeal or certiorari as the law or the Rules of Court may provide, final
judgments and orders of lower courts in x x x all cases in which only an error or
question of law is involved. Consistent with this constitutional mandate, Rule 45 of
the Rules of Court provides the remedy of an appeal by certiorari from decisions,
final orders or resolutions of the CA in any case, i.e., regardless of the nature of the
action or proceedings
involved, which would be but a continuation of the appellate process over the original
case. Since an appeal to this Court is not an original and independent action but a
continuation of the proceedings before the CA, the filing of a petition for review
under Rule 45 cannot be barred by the finality of the NLRCs decision in the same
way that a petition for certiorariunder Rule 65 with the CA cannot.
36

37

38

Furthermore, if the NLRCs decision or resolution was reversed and set aside for
being issued with grave abuse of discretion by way of a petition for certiorari to the
CA or to this Court by way of an appeal from the decision of the CA, it is considered
void ab initio and, thus, had never become final and executory.
39

A Rule 45 Petition should be confined to

questions of law. Nevertheless, this Court
has the power to resolve a question of fact,
such as whether a corporation is a mere
alter ego of another entity or whether the
corporate fiction was invoked for
fraudulent or malevolent ends, if the
findings in assailed decision is not
supported by the evidence on record or
based on a misapprehension of facts.

The question of whether one corporation is merely an alter ego of another is

purely one of fact. So is the question of whether a corporation is a paper company, a
sham or subterfuge or whether the petitioner adduced the requisite quantum of
evidence warranting the piercing of the veil of the respondents corporate personality.

40

As a general rule, this Court is not a trier of facts and a petition for review
on certiorari under Rule 45 of the Rules of Court must exclusively raise questions of
law. Moreover, if factual findings of the NLRC and the LA have been affirmed by the
CA, this Court accords them the respect and finality they deserve. It is well-settled
and oft-repeated that findings of fact of administrative agencies and quasi-judicial
bodies, which have acquired expertise because their jurisdiction is confined to specific
matters, are generally accorded not only respect, but finality when affirmed by the
CA.
41

Nevertheless, this Court will not hesitate to deviate from what are clearly
procedural guidelines and disturb and strike down the findings of the CA and those of
the labor tribunals if there is a showing that they are unsupported by the evidence on
record or there was a patent misappreciation of facts. Indeed, that the impugned
decision of the CA is consistent with the findings of the labor tribunals does not per
se conclusively demonstrate the correctness thereof. By way of exception to the

general rule, this Court will scrutinize the facts if only to rectify the prejudice and
injustice resulting from an incorrect assessment of the evidence presented.

A resolution of an issue that has supposedly

become final and executory as the
petitioner only raised it in his reply to the
respondents appeal may be revisited by the
appellate court if such is necessary for a
just disposition of the case.

As above-stated, the NLRC refused to disturb LA Gutierrezs denial of the petitioners

plea to pierce Royales corporate veil as the petitioner did not appeal any portion of
LA Gutierrezs May 11, 2005 Decision.

In this respect, the NLRC cannot be accused of grave abuse of discretion. Under
Section 4(c), Rule VI of the NLRC Rules, the NLRC shall limit itself to reviewing
and deciding only the issues that were elevated on appeal. The NLRC, while not
totally bound by technical rules of procedure, is not licensed to disregard and violate
the implementing rules it implemented.
42

43

Nonetheless, technicalities should not be allowed to stand in the way of equitably and
completely resolving the rights and obligations of the parties. Technical rules are not
binding in labor cases and are not to be applied strictly if the result would be
detrimental to the working man. This Court may choose not to encumber itself with
technicalities and limitations consequent to procedural rules if such will only serve as
a hindrance to its duty to decide cases judiciously and in a manner that would put an
end with finality to all existing conflicts between the parties.
44

Royale is a continuation or successor of

Sceptre.

A corporation is an artificial being created by operation of law. It possesses the right

of succession and such powers, attributes, and properties expressly authorized by law
or incident to its existence. It has a personality separate and distinct from the persons
composing it, as well as from any other legal entity to which it may be related. This is
basic.
45

Equally well-settled is the principle that the corporate mask may be removed or
the corporate veil pierced when the corporation is just an alter ego of a person or of
another corporation. For reasons of public policy and in the interest of justice, the
corporate veil will justifiably be impaled only when it becomes a shield for fraud,
illegality or inequity committed against third persons.
46

Hence, any application of the doctrine of piercing the corporate veil should be
done with caution. A court should be mindful of the milieu where it is to be applied. It
must be certain that the corporate fiction was misused to such an extent that injustice,
fraud, or crime was committed against another, in disregard of rights. The wrongdoing
must be clearly and convincingly established; it cannot be presumed. Otherwise, an
injustice that was never unintended may result from an erroneous application.
47

Whether the separate personality of the corporation should be pierced hinges on

obtaining facts appropriately pleaded or proved. However, any piercing of the
corporate veil has to be done with caution, albeit the Court will not hesitate to
disregard the corporate veil when it is misused or when necessary in the interest of
justice. After all, the concept of corporate entity was not meant to promote unfair
objectives.
48

The doctrine of piercing the corporate veil applies only in three (3) basic areas,
namely: 1) defeat of public convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate
entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases,
where a corporation is merely a farce since it is a mere alter ego or business conduit of
a person, or where the
corporation is so organized and controlled and its affairs are so conducted as
to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.
49

In this regard, this Court finds cogent reason to reverse the CAs findings.
Evidence abound showing that Royale is a mere continuation or successor of Sceptre
and fraudulent objectives are behind Royales incorporation and the petitioners
subsequent employment therein. These are plainly suggested by events that the
respondents do not dispute and which the CA, the NLRC and LA Gutierrez accept as
fully substantiated but misappreciated as insufficient to warrant the use of the
equitable weapon of piercing.

As correctly pointed out by the petitioner, it was Aida who exercised control
and supervision over the affairs of both Sceptre and Royale. Contrary to the
submissions of the respondents that Roso had been the only one in sole control of
Sceptres finances and business affairs, Aida took over as early as 1999 when Roso
assigned his license to operate Sceptre on May 3, 1999. As further proof of Aidas
acquisition of the rights as Sceptres sole proprietor, she caused the registration of the
business name Sceptre Security & Detective Agency under her name with the DTI a
few months after Roso abdicated his rights to Sceptre in her favor. As far as Royale is
concerned, the respondents do not deny that she has a hand in its management and
operation and possesses control and supervision of its employees, including the
petitioner. As the petitioner correctly pointed out, that Aida was the one who decided
to stop giving any assignments to the petitioner and summarily dismiss him is an
eloquent testament of the power she wields insofar as Royales affairs are concerned.
50

51

The presence of actual common control coupled with the misuse of the corporate form
to perpetrate oppressive or manipulative conduct or evade performance of legal
obligations is patent; Royale cannot hide behind its corporate fiction.

Aidas control over Sceptre and Royale does not, by itself, call for a disregard
of the corporate fiction. There must be a showing that a fraudulent intent or illegal
purpose is behind the exercise of such control to warrant the piercing of the corporate
veil. However, the manner by which the petitioner was made to resign from Sceptre
and how he became an employee of Royale suggest the perverted use of the legal
fiction of the separate corporate personality. It is undisputed that the petitioner
tendered his resignation and that he applied at Royale at the instance of Karen and
Cesar and on the impression they created that these were necessary for his continued
employment. They orchestrated the petitioners resignation from Sceptre and
subsequent employment at Royale, taking advantage of their ascendancy over the
petitioner and the latters lack of knowledge of his rights and the consequences of his
actions. Furthermore, that the petitioner was made to resign from Sceptre and apply
with Royale only to be unceremoniously terminated shortly thereafter leads to the
ineluctable conclusion that there was intent to violate the petitioners rights as an
employee, particularly his right to security of tenure. The respondents scheme reeks
of bad faith and fraud and compassionate justice dictates that Royale and Sceptre be
merged as a single entity, compelling Royale to credit and recognize the petitioners
length of service with Sceptre. The respondents cannot use the legal fiction of a
separate corporate personality for ends subversive of the policy and purpose behind its
creation or which could not have been intended by law to which it owed its being.
52

53

54

For the piercing doctrine to apply, it is of no consequence if Sceptre is a sole

proprietorship. As ruled in Prince Transport, Inc., et al. v. Garcia, et al., it is the act
of hiding behind the separate and distinct personalities of juridical entities to
perpetuate fraud, commit illegal acts, evade ones obligations that the equitable
piercing doctrine was formulated to address and prevent:
55

A settled formulation of the doctrine of piercing the corporate veil is that

when two business enterprises are owned, conducted and controlled by
the same parties, both law and equity will, when necessary to protect the
rights of third parties, disregard the legal fiction that these two entities
are distinct and treat them as identical or as one and the same. In the
present case, it may be true that Lubas is a single proprietorship and not
a corporation. However, petitioners attempt to isolate themselves from
and hide behind the supposed separate and distinct personality of Lubas
so as to evade their liabilities is precisely what the classical doctrine of
piercing the veil of corporate entity seeks to prevent and remedy.
56

Also, Sceptre and Royale have the same principal place of business. As early as
October 14, 1994, Aida and Wilfredo became the owners of the property used by
Sceptre as its principal place of business by virtue of a Deed of Absolute Sale they
executed with Roso. Royale, shortly after its incorporation, started to hold office in
the same property. These, the respondents failed to dispute.
57

The respondents do not likewise deny that Royale and Sceptre share the same
officers and employees. Karen assumed the dual role of Sceptres Operation Manager
and incorporator of Royale. With respect to the petitioner, even if he has already
resigned from Sceptre and has been employed by Royale, he was still using the
patches and agency cloths of Sceptre during his assignment at Highlight Metal.

Royale also claimed a right to the cash bond which the petitioner posted when
he was still with Sceptre. If Sceptre and Royale are indeed separate entities, Sceptre
should have released the petitioners cash bond when he resigned and Royale would
have required the petitioner to post a new cash bond in its favor.

Taking the foregoing in conjunction with Aidas control over Sceptres and
Royales business affairs, it is patent that Royale was a mere subterfuge for Aida.
Since a sole proprietorship does not have a separate and distinct personality from that
of the owner of the enterprise, the latter is personally liable. This is what she sought to
avoid but cannot prosper.

Effectively, the petitioner cannot be deemed to have changed employers as

Royale and Sceptre are one and the same. His separation pay should, thus, be
computed from the date he was hired by Sceptre in April 1976 until the finality of this
decision. Based on this Courts ruling in Masagana Concrete Products, et al. v.
NLRC, et al., the intervening period between the day an employee was illegally
dismissed and the day the decision finding him illegally dismissed becomes final and
executory shall be considered in the computation of his separation pay as a period of
imputed or putative service:
58

Separation pay, equivalent to one month's salary for every year of

service, is awarded as an alternative to reinstatement when the latter is
no longer an option. Separation pay is computed from the
commencement of employment up to the time of termination, including
the imputed service for which the employee is entitled to backwages,
with the salary rate prevailing at the end of the period of putative service
being the basis for computation.
59

It is well-settled, even axiomatic, that if

reinstatement is not possible, the period
covered in the computation of backwages is
from the time the employee was unlawfully
terminated until the finality of the decision
finding illegal dismissal.

With respect to the petitioners backwages, this Court cannot subscribe to the view
that it should be limited to an amount equivalent to three (3) months of his salary.
Backwages is a remedy affording the employee a way to recover what he has lost by
reason of the unlawful dismissal. In awarding backwages, the primordial
consideration is the income that should have accrued to the employee from the time
that he was dismissed up to his reinstatement and the length of service prior to his
dismissal is definitely inconsequential.
60

61

As early as 1996, this Court, in Bustamante, et al. v. NLRC, et al., clarified in

no uncertain terms that if reinstatement is no longer possible, backwages should be
computed from the time the employee was terminated until the finality of the decision,
finding the dismissal unlawful.
62

Therefore, in accordance with R.A. No. 6715, petitioners are entitled on

their full backwages, inclusive of allowances and other benefits or their
monetary equivalent, from the time their actual compensation was
withheld on them up to the time of their actual reinstatement.

As to reinstatement of petitioners, this Court has already ruled that

reinstatement is no longer feasible, because the company would be
adjustly prejudiced by the continued employment of petitioners who at
present are overage, a separation pay equal to one-month salary granted
to them in the Labor Arbiter's decision was in order and, therefore,
affirmed on the Court's decision of 15 March 1996. Furthermore, since
reinstatement on this case is no longer feasible, the amount of
backwages shall be computed from the time of their illegal
termination on 25 June 1990 up to the time of finality of this
decision. (emphasis supplied)
63

A further clarification was made in Javellana, Jr. v. Belen:

64

Article 279 of the Labor Code, as amended by Section 34 of

Republic Act 6715 instructs:

Art. 279. Security of Tenure. - In cases of regular

employment, the employer shall not terminate the services
of an employee except for a just cause or when authorized
by this Title. An employee who is unjustly dismissed from
work shall be entitled to reinstatement without loss of
seniority rights and other privileges and to his full
backwages, inclusive of allowances, and to his other
benefits or their monetary equivalent computed from the
time his compensation was withheld from him up to the
time of his actual reinstatement.

Clearly, the law intends the award of backwages and similar benefits to
accumulate past the date of the Labor Arbiter's decision until the
dismissed employee is actually reinstated. But if, as in this case,
reinstatement is no longer possible, this Court has consistently ruled that
backwages shall be computed from the time of illegal dismissal until the
date the decision becomes final. (citation omitted)
65

In case separation pay is awarded and reinstatement is no longer feasible, backwages

shall be computed from the time of illegal dismissal up to the finality of the decision
should separation pay not be paid in the meantime. It is the employees actual receipt
of the full amount of his separation pay that will effectively terminate the employment
of an illegally dismissed employee. Otherwise, the employer-employee relationship
subsists and the illegally dismissed employee is entitled to backwages, taking into
account the increases and other benefits, including the 13 th month pay, that were
received by his co-employees who are not dismissed. It is the obligation of the
66

67

employer to pay an illegally dismissed employee or worker the whole amount of the
salaries or wages, plus all other benefits and
bonuses and general increases, to which he would have been normally entitled had he
not been dismissed and had not stopped working.
68

In fine, this Court holds Royale liable to pay the petitioner backwages to be
computed from his dismissal on October 1, 2003 until the finality of this decision.
Nonetheless, the amount received by the petitioner from the respondents in
satisfaction of the November 30, 2005 Decision shall be deducted accordingly.

Finally, moral damages and exemplary damages at P25,000.00 each as

indemnity for the petitioners dismissal, which was tainted by bad faith and fraud, are
in order. Moral damages may be recovered where the dismissal of the employee was
tainted by bad faith or fraud, or where it constituted an act oppressive to labor, and
done in a manner contrary to morals, good customs or public policy while exemplary
damages are recoverable only if the dismissal was done in a wanton, oppressive, or
malevolent manner.
69

WHEREFORE, premises considered, the Petition is hereby GRANTED.

We REVERSE and SET ASIDE the CAs May 29, 2008 Decision in C.A.-G.R. SP
No. 02127 and order the respondents to pay the petitioner the following minus the
amount of (P23,521.67) paid to the petitioner in satisfaction of the NLRCs November
30, 2005 Decision in NLRC Case No. V-000355-05:

a) full backwages and other benefits computed from October 1, 2003 (the date
Royale illegally dismissed the petitioner) until the finality of this decision;

b) separation pay computed from April 1976 until the finality of this decision at the
rate of one month pay per year of service;

c) ten percent (10%) attorneys fees based on the total amount of the awards
under (a) and (b) above;

d) moral damages of Twenty-Five Thousand Pesos (P25,000.00); and

5. exemplary damages of Twenty-Five Thousand Pesos (P25,000.00).

This case is REMANDED to the labor arbiter for computation of the separation pay,
backwages, and other monetary awards due the petitioner.

SO ORDERED.

Republic of the Philippines

Supreme Court
Manila
SECOND DIVISION

GOVERNMENT SERVICE INSURANCE

G.R. No. 180045
SYSTEM,
Petitioner,
- versus -

Present:
CARPIO, J.,

NATIONAL LABOR RELATIONS

COMMISSION (NLRC), DIONISIO
BANLASAN, ALFREDO T. TAFALLA,
TELESFORO D. RUBIA, ROGELIO A.
ALVAREZ, DOMINADOR A.
ESCOBAL, and ROSAURO PANIS,
Respondents.

Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.
Promulgated:

November 17, 2010

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

DECISION

NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the
Rules of Court, seeking to reverse and set aside the
Decision[1] and the Resolution[2] of the Court of Appeals (CA) dated
September 7, 2006 and September 27, 2007, respectively, in CAG.R. SP No. 50450.

The facts of the case are as follows:

Respondents Dionisio Banlasan, Alfredo T. Tafalla, Telesforo D.

Rubia, Rogelio A. Alvarez, Dominador A. Escobal, and Rosauro
Panis were employed as security guards by DNL Security Agency
(DNL Security). By virtue of the service contract entered into by
DNL Security and petitioner Government Service Insurance
System on May 1, 1978, respondents were assigned to
petitioners Tacloban City office, each receiving a monthly income
of P1,400.00. Sometime in July 1989, petitioner voluntarily
increased respondents monthly salary to P3,000.00.[3]

In February 1993, DNL Security informed respondents that its

service contract with petitioner was terminated. This
notwithstanding, DNL Security instructed respondents to continue
reporting for work to petitioner. Respondents worked as instructed
until April 20, 1993, but without receiving their wages; after
which, they were terminated from employment. [4]

On June 15, 1995, respondents filed with the National Labor

Relations Commission (NLRC), Regional Arbitration Branch No.
VIII, Tacloban City, a complaint against DNL Security and
petitioner for illegal dismissal, separation pay, salary differential,
13th month pay, and payment of unpaid salary.

On September 30, 1997, Labor Arbiter (LA) Benjamin S. Guimoc

rendered a decision[5] against DNL Security and petitioner, the
dispositive portion of which reads:

WHEREFORE, judgment
manner[,] to wit:

1.

is

hereby

rendered

in

this

Finding no illegal dismissal of complainants;

2.

Ordering respondent DNL Security Agency only

to pay complainants the amount of P176,130.00
representing
separation
pay; the
amount
of P42,666.40
representing
wages
of
complainants from February 1993 to April 20,
1993;

3.

Ordering as joint and solidary liability by the

respondents DNL Security Agency and GSIS the
amount
of P48,385.87
representing
salary
differential[;] the amount of P55,564.92 as
13th month pay; all in the aggregate sum of
THREE HUNDRED TWENTY-TWO THOUSAND
SEVEN HUNDRED FORTY-SEVEN & 19/100
(P322,747.19) to be paid by both or either of the
said respondent within ten (10) days from receipt
of this decision and to be deposited with the
cashier of this office for proper disposition.

SO ORDERED.[6]

The LA found that respondents were not illegally terminated from

employment because the employment of security guards is
dependent on the service contract between the security agency
and its client. However, considering that respondents had been
out of work for a long period, and consonant with the principle of
social justice, the LA awarded respondents with separation pay

equivalent to one (1) month salary for every year of service, to be

paid by DNL Security. Because DNL Security instructed
respondents to continue working for petitioner from February
1993 to April 20, 1993, DNL Security was also made to pay
respondents wages for the period. The LA further granted
respondents claim of salary differential, as they were paid wages
below the minimum wage, as well as 13 th month pay. For these
monetary awards, petitioner was made solidarily liable with DNL
Security, as the indirect employer of respondents. [7]

DNL Security filed a motion for reconsideration, while petitioner

appealed to the NLRC.[8]

In a resolution[9] dated December 9, 1997, the NLRC treated DNL

Securitys motion for reconsideration as an appeal, but dismissed
the same, as it was not legally perfected. It likewise dismissed
petitioners appeal, having been filed beyond the reglementary
period.

Undaunted, petitioner filed a petition for certiorari under Rule 65

of the Rules of Court before the CA. On September 7, 2006, the
CA rendered the assailed Decision [10]affirming the NLRC
ruling. Petitioners motion for reconsideration was denied by the
CA on September 27, 2007.

Hence, the present petition raising the following errors:

The Court of Appeals committed a reversible error
in finding that the public respondent NLRC did not
commit grave abuse of discretion amounting to
lack or excess of jurisdiction in dismissing the
appeal of the petitioner GSIS, considering that:

1. The Court of Appeals disregarded the facts and

circumstances evidencing the timeliness of the
petitioner GSIS appeal before the NLRC and
sacrificed substantial justice in the altar of dubious
technicalities; and

2. The Court of Appeals misapplied the law and

mistakenly affirmed the public respondent NLRCs
decision that the petitioner GSIS is jointly and
severally liable with DNL Security Agency for
payment of the unsubstantiated amounts of Salary
Differentials and the 13th Month Pay to the private
respondent security guards.[11]

Petitioner insists that its appeal before the NLRC was filed on
time, having been filed through registered mail on October 27,
1997, as evidenced by Registry Receipt No. 34581 countersigned
by the postmaster. It adds that, even assuming that the appeal
was indeed filed one day late, the NLRC should not have strictly
applied the Rules in order to effect substantial justice. Petitioner
also claims that although the body of the LA decision made DNL
Security solely liable for respondents wages from February 1993
to April 20, 1993, and for their separation pay, the dispositive
portion thereof made petitioner solidarily liable for said awards.
Petitioner further questions the award of monetary benefits for
lack of evidence to substantiate said claims. Lastly, petitioner
argues that the enforcement of the decision is impossible,
considering that petitioners charter unequivocally exempts it from
execution.[12]

We partly grant the petition.

The resolution of the petition before us involves the appreciation

and determination of factual matters, mainly on the issue of
whether petitioners appeal was seasonably filed before the NLRC.
Timeliness of an appeal is a factual issue. It requires a review or
evaluation of the evidence which would show when the appeal
was actually mailed to and received by the NLRC. [13] In this case,
to prove that it mailed the notice of appeal and appeal
memorandum on October 27, 1997, instead of October 28, 1997,
as shown by the stamped date on the envelope, petitioner
presented Registry Receipt No. 34581 bearing the earlier date.

Under Section 3, Rule 13 of the Rules of Court, where the filing of

pleadings, appearances, motions, notices, orders, judgments, and
all other papers with the court/tribunal is made by registered mail,
the date of mailing, as shown by the post office stamp on the
envelope or the registry receipt, shall be considered as the date
of filing.[14]

Thus, the date of filing is determinable from two sources: from the
post office stamp on the envelope or from the registry receipt,
either of which may suffice to prove the timeliness of the filing of
the pleadings. If the date stamped on one is earlier than the
other, the former may be accepted as the date of filing. This
presupposes, however, that the envelope or registry receipt and
the dates appearing thereon are duly authenticated before the
tribunal where they are presented.[15]

In any case, even if the appeal was filed one day late, the
same should have been entertained by the NLRC. Indeed, the
appeal must be perfected within the statutory or reglementary
period. This is not only mandatory, but also jurisdictional. Failure
to perfect the appeal on time renders the assailed decision final

and executory and deprives the appellate court or body of the

legal authority to alter the final judgment, much less entertain the
appeal. However, this Court has, time and again, ruled that, in
exceptional cases, a belated appeal may be given due course if
greater injustice will be visited upon the party should the appeal
be denied. The Court has allowed this extraordinary measure
even at the expense of sacrificing order and efficiency if only to
serve the greater principles of substantial justice and equity. [16]

Technicality should not be allowed to stand in the way of equitably

and completely resolving the rights and obligations of the parties.
We have consistently held that technical rules are not binding in
labor cases and are not to be applied strictly if the result would be
detrimental to the working man.[17]

The Court notes, however, that while the CA affirmed the

dismissal by the NLRC of petitioners appeal for being filed out of
time, it nonetheless delved into the merits of the case. This
notwithstanding, we do not entirely agree with the appellate
courts conclusion affirming in toto the LA decision.

In this case, the LAs discussion of the issues appears to be in

conflict with his final conclusion. This would have required a
measure of clarification. But instead of looking into the errors
allegedly committed by the LA, the NLRC dismissed the appeal on
a mere technicality. The CA likewise failed to correct the apparent
mistake in the LA decision. Thus, we are constrained to review the
merits of the case.
We need not discuss DNL Securitys responsibility as
respondents direct employer because DNL Securitys failure to
interpose an appeal from the LA decision has resulted in the

finality of the LA decision. The only issue that we should resolve is

the matter of petitioners liability as indirect employer.

The fact that there is no actual and direct employeremployee relationship between petitioner and respondents does
not absolve the former from liability for the latters monetary
claims. When petitioner contracted DNL Securitys services,
petitioner became an indirect employer of respondents, pursuant
to Article 107 of the Labor Code, which reads:

ART. 107. Indirect employer. The provisions of the

immediately preceding Article shall likewise apply to any
person, partnership, association or corporation which, not
being an employer, contracts with an independent
contractor for the performance of any work, task, job or
project.

After DNL Security failed to pay respondents the correct

wages and other monetary benefits, petitioner, as principal,
became jointly and severally liable, as provided in Articles 106
and 109 of the Labor Code, which state:
ART. 106. Contractor or subcontractor. Whenever an
employer enters into a contract with another person for
the performance of the formers work, the employees of
the contractor and of the latters subcontractor, if any,
shall be paid in accordance with the provisions of this
Code.

In the event that the contractor or subcontractor

fails to pay the wages of his employees in accordance
with this Code, the employer shall be jointly and severally
liable with his contractor or subcontractor to such
employees to the extent of the work performed under the
contract, in the same manner and extent that he is liable
to employees directly employed by him. x x x.

xxxx

ART. 109. Solidary liability. The provisions of existing

laws to the contrary notwithstanding, every employer or
indirect employer shall be held responsible with his
contractor or subcontractor for any violation of any
provision of this Code. For purposes of determining the
extent of their civil liability under this Chapter, they shall
be considered as direct employers.

This statutory scheme is designed to give the workers ample

protection, consonant with labor and social justice provisions of
the 1987 Constitution.[18]

This Courts pronouncement in Rosewood Processing, Inc. v.

NLRC[19] is noteworthy:
The joint and several liability of the employer or
principal was enacted to ensure compliance with the
provisions of the Code, principally those on statutory
minimum wage. The contractor or subcontractor is made
liable by virtue of his or her status as a direct employer,

and the principal as the indirect employer of the

contractors employees. This liability facilitates, if not
guarantees, payment of the workers compensation, thus,
giving the workers ample protection as mandated by the
1987 Constitution. This is not unduly burdensome to the
employer. Should the indirect employer be constrained to
pay the workers, it can recover whatever amount it had
paid in accordance with the terms of the service contract
between itself and the contractor.[20]

Petitioners liability covers the payment of respondents salary

differential and 13th month pay during the time they worked for
petitioner. In addition, petitioner is solidarily liable with DNL
Security for respondents unpaid wages from February 1993 until
April 20, 1993. While it is true that respondents continued working
for petitioner after the expiration of their contract, based on the
instruction of DNL Security, petitioner did not object to such
assignment and allowed respondents to render service. Thus,
petitioner impliedly approved the extension of respondents
services. Accordingly, petitioner is bound by the provisions of the
Labor Code on indirect employment. Petitioner cannot be allowed
to deny its obligation to respondents after it had benefited from
their services. So long as the work, task, job, or project has been
performed for petitioners benefit or on its behalf, the liability
accrues for such services. [21] The principal is made liable to its
indirect employees because, after all, it can protect itself from
irresponsible contractors by withholding payment of such sums
that are due the employees and by paying the employees
directly, or by requiring a bond from the contractor or
subcontractor for this purpose.[22]
Petitioners liability, however, cannot extend to the payment
of separation pay. An order to pay separation pay is invested with
a punitive character, such that an indirect employer should not be

made liable without a finding that it had conspired in the illegal

dismissal of the employees.[23]

It should be understood, though, that the solidary liability of

petitioner does not preclude the application of Article 1217 of the
Civil Code on the right of reimbursement from its co-debtor, viz.:
[24]

Art. 1217. Payment made by one of the solidary

debtors extinguishes the obligation. If two or more
solidary debtors offer to pay, the creditor may choose
which offer to accept.

He who made the payment may claim from his codebtors only the share which corresponds to each, with
the interest for the payment already made. If the
payment is made before the debt is due, no interest for
the intervening period may be demanded.

When one of the solidary debtors cannot, because of

his insolvency, reimburse his share to the debtor paying
the obligation, such share shall be borne by all his codebtors, in proportion to the debt of each.

Lastly, we do not agree with petitioner that the enforcement

of the decision is impossible because its charter unequivocally
exempts it from execution. As held inGovernment Service
Insurance System v. Regional Trial Court of Pasig City, Branch 71,
[25]
citing Rubia v. GSIS: [26]

The processual exemption of the GSIS funds and

properties under Section 39 of the GSIS Charter, in our
view, should be read consistently with its avowed
principal purpose: to maintain actuarial solvency of the
GSIS in the protection of assets which are to be used to
finance the retirement, disability and life insurance
benefits of its members. Clearly, the exemption should be
limited to the purposes and objects covered. Any
interpretation that would give it an expansive
construction to exempt all GSIS assets from legal
processes absolutely would be unwarranted.

Furthermore, the declared policy of the State in

Section 39 of the GSIS Charter granting GSIS an
exemption from tax, lien, attachment, levy, execution,
and other legal processes should be read together with
the grant of power to the GSIS to invest its excess funds
under Section 36 of the same Act. Under Section 36, the
GSIS is granted the ancillary power to invest in business
and other ventures for the benefit of the employees, by
using its excess funds for investment purposes. In the
exercise of such function and power, the GSIS is allowed
to assume a character similar to a private corporation.
Thus, it may sue and be sued, as also, explicitly granted
by its charter x x x.[27]

To be sure, petitioners charter should not be used to evade its

liabilities to its employees, even to its indirect employees, as
mandated by the Labor Code.

WHEREFORE,
premises
considered,
the
Court
of
Appeals Decision and Resolution dated September 7, 2006 and
September 27, 2007, respectively, in CA-G.R. SP No. 50450,
are AFFIRMED with MODIFICATION.
Petitioner
Government

Service Insurance System is declared solidarily liable with DNL

Security to PAY respondents their wage differentials, thirteenth
month pay, and unpaid wages from February 1993 to April 20,
1993, but is EXONERATED from the payment of respondents
separation pay.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 79004-08 October 4, 1991
FRANKLIN BAGUIO AND 15 OTHERS, BONIFACIO IGOT AND 6 OTHERS, ROY MAGALLANES
AND 4 OTHERS, CLAUDIO BONGO, EDUARDO ANDALES and 4 OTHERS, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (3rd DIVISION), GENERAL MILLING
CORPORATION and/or FELICIANO LUPO, respondents.
Public Attorney's Office for petitioners.
Joseph M. Baduel & Steve R. Siclot for private respondents.

MELENCIO-HERRERA, J.:
The liability of an employer in job contracting, vis-a-vis his contractor's employees, is the sole issue
brought to the fore in this labor dispute.
This Petition for certiorari seeks to set aside the Resolution, dated 27 February 1987, of public
respondent National Labor Relations Commission (NLRC), Third Division, which reversed the
Resolution of its First Division, dated 27 December 1985, and absolved private respondent General
Milling Corporation (GMC) from any and all liability to petitioners.
Sometime in 1983, private respondent Feliciano LUPO, a building contractor, entered into a contract
with GMC, a domestic corporation engaged in flour and feeds manufacturing, for the construction of

an annex building inside the latter's plant in Cebu City. In connection with the aforesaid contract,
LUPO hired herein petitioners either as carpenters, masons or laborers.
Subsequently, LUPO terminated petitioners' services, on different dates. As a result, petitioners filed
Complaints against LUPO and GMC before the NLRC Regional Arbitration Branch No. VII, Cebu
City, for unpaid wages, COLA differentials, bonus and overtime pay.
In a Decision, dated 21 November 1984, the Executive Labor Arbiter, Branch VII, found LUPO and
GMC jointly and severally liable to petitioners, premised on Article 109 of the Labor Code, infra, and
ordered them to pay the aggregate amount of P95,382.92. Elevated on appeal on 14 December
1984, the NLRC (First Division) denied the same for lack of merit in a Resolution, dated 27
December 1985.
Upon Motion for Reconsideration, filed on 27 February 1986, the case was reassigned to the Third
Division. In a Resolution of 27 February 1987, that Division absolved GMC from any liability. It
opined that petitioners were only hired by LUPO as workers in his construction contract with GMC
and were never meant to be employed by the latter.
Petitioners now assail that judgment in this Petition for Certiorari.
Petitioners contend that GMC is jointly and severally liable with LUPO for the latter's obligations to
them. They seek recovery from GMC based on Article 106 of the Labor Code, infra, which holds the
employer jointly and severally liable with his contractor for unpaid wages of employees of the latter.
In his "Manifestation in lieu of Comment," the Solicitor General recognizes the solidary liability of
GMC and LUPO but bases recovery on Article 108 of the Labor Code, infra, contending that
inasmuch as GMC failed to require them LUPO a bond to answer for the latter's obligations to his
employees, as required by said provision, GMC should, correspondingly, be deemed solidarily liable.
In their respective Comments, both GMC and the NLRC maintain that Article 106 finds no application
in the instant case because it is limited to situations where the work being performed by the
contractor's employees are directly related to the principal business of the employer. The NLRC
further opines that Article 109 on "Solidary Liability" finds no application either because GMC was
neither petitioners' employer nor indirect employer.
Upon the facts and circumstances, we uphold the solidary liability of GMC and LUPO for the latter's
liabilities in favor of employees whom he had earlier employed and dismissed.
Recovery, however, should not be based on Article 106 of the Labor Code. This provision treats
specifically of "labor-only" contracting, which is not the set-up between GMC and LUPO.
Article 106 provides:
Art. 106. Contractor or subcontractor. Whenever an employer enters into a
contract with another person for the performance of the former's work, the
employees of the contractor and of the latter's subcontractor, if any, shall be paid in
accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his
employees in accordance with this Code, the employer shall be jointly and severally
liable with his contractor or subcontractor to such employees to the extent of the

work performed under the contract, in the same manner and extent that he is liable to
employees directly employed by him.
xxx xxx xxx
There is "labor-only" contracting where the person supplying workers to an employer
does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and placed by
such persons are performing activities which are directly related to the principal
business of such employer. In such cases, the person or intermediary shall be
considered merely as an agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter were directly employed by him
(Emphasis supplied).
In other words, a person is deemed to be engaged in "labor only" contracting where (1) the person
supplying workers to an employer does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others; and (2) the workers recruited and
placed by such person are performing activities which are directly related to the principal business of
such employer (See Section 9, Rule VIII, Book III of the Omnibus Rules Implementing the Labor
Code; emphasis supplied).
Since the construction of an annex building inside the company plant has no relation whatsoever
with the employer's business of flour and feeds manufacturing, "labor-only" contracting does not
exist. Article 106 is thus inapplicable.
Instead, it is "job contracting," covered by Article 107, which is involved, reading:
Art. 107. Indirect Employer. The provisions of the immediately preceding Article
shall likewise apply to any person, partnership, association or corporation which, not
being an employer, contracts with an independent contractor for the performance of
any work, task, job or project. (Emphasis supplied).
Specifically, there is "job contracting" where (1) the contractor carries on an independent business
and undertakes the contract work on his own account under his own responsibility according to his
own manner and method, free from the control and direction of his employer or principal in all
matters connected with the performance of the work except as to the results thereof; and (2) the
contractor has substantial capital or investment in the form of tools, equipment, machineries, work
premises, and other materials which are necessary in the conduct of his business. It may be that
LUPO subsequently ran out of capital and was unable to satisfy the award to petitioners. That was
an after-the-fact development, however, and does not detract from his status as an independent
contractor.
Based on the foregoing, GMC qualifies as an "indirect employer." It entered into a contract with an
independent contractor, LUPO, for the construction of an annex building, a work, task, job or project
not directly related to GMC's business of flour and feeds manufacturing. Being an "indirect
employer," GMC is solidarily liable with LUPO for any violation of the Labor Code pursuant to Article
109 thereof, reading:
Art. 109. Solidary Liability. The provisions of existing laws to the contrary
notwithstanding, every employer or indirect employer shall be held responsible with a
contractor or subcontractor for any violation of any provision of this Code. For

purposes of determining the extent of their civil liability under this Chapter, they shall
be considered as direct employers.
The provision of existing law referred to is Article 1728 of the Civil Code, which states, among
others, that "the contractor is liable for all the claims of laborers and others employed by him ..."
The foregoing interpretation finds a precedent in the case o Deferia v. NLRC (G.R. No. 78713, 27
February 1991) per Sarmiento, J., where Articles 107 and 109 were applied as the statutory basis for
the joint and several liability of the employer with his contractor, in addition to Article 106, since the
situation in that case was clearly one of "labor-only" contracting.
The NLRC submission that Article 107 is not applicable in the instant case for the reason that the
coverage thereof is limited to one "not an employer" whereas GMC is such an employer as defined
in Article 97 (b) of the Labor Code, 1 is not well-taken. Under the peculiar set-up herein, GMC is, in fact, "not an employer" (in
the sense of not being a direct employer) as understood in Article 106 of the Labor Code, but qualifies as an "indirect employer" under Article
107 of said Code.

The distinction between Articles 106 and 107 was in the fact that Article 106 deals with "labor-only"
contracting. Here, by operation of law, the contractor is merely considered as an agent of the
employer, who is deemed "responsible to the workers to the same extent as if the latter were directly
employed by him." On the other hand, Article 107 deals with "job contracting." In the latter situation,
while the contractor himself is the direct employer of the employees, the employer is deemed, by
operation of law, as an indirect employer.
In other words, the phrase "not an employer" found in Article 107 must be read in conjunction with
Article 106. A contrary interpretation would render the provisions of Article 107 meaningless
considering that everytime an employer engages a contractor, the latter is always acting in the
interest of the former, whether directly or indirectly, in relation to his employees.
It should be recalled that a finding that a contractor is a "labor-only" contractor is equivalent to
declaring that there is an employer-employee relationship between the owner of the project and the
employees of the "labor-only" contractor (Associated Anglo-American Tobacco Corp. v. Clave, G.R.
No. 50915, 30 August 1990, 189 SCRA 127; Industrial Timber Corp. v. NLRC, G.R. No. 83616, 20
January 1989, 169 SCRA 341). This is evidently because, as heretofore stated, the "labor-only"
contractor is considered as a mere agent of an employer. In contrast, in "job contracting," no
employer-employee relationship exists between the owner and the employees of his contractor. The
owner of the project is not the direct employer but merely an indirect employer, by operation of law,
of his contractor's employees.
As an indirect employer, and for purposes of determining the extent of its civil liability, GMC is
deemed a "direct employee" of his contractor's employees pursuant to the last sentence of Article
109 of the Labor Code. As a consequence, GMC can not escape its joint and solidary liability to
petitioners.
Further, Article 108 of the Labor Code requires the posting of a bond to answer for wages that a
contractor fails to pay, thus:
Article 108. Posting of Bond. An employer or indirect employer may require the
contractor or subcontractor to furnish a bond equal to the cost of labor under
contract, on condition that the bond will answer for the wages due the employees
showed the contractor or subcontractor, as the case may be, fails to pay the same.

Having failed to require LUPO to post such a bond, GMC must answer for whatever liabilities LUPO
may have incurred to his employees. This is without prejudice to its seeking reimbursement from
LUPO for whatever amount it will have to pay petitioners.
WHEREFORE, the Petition for certiorari is GRANTED. The Resolution of respondent NLRC, Third
Division, dated 27 February 1987, is hereby SET ASIDE, and the Decision of the Labor Arbiter, dated
21 November 1984, is hereby REINSTATED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 108031 March 1, 1995

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and LEONOR A ANG, respondents.

BELLOSILLO, J.:
Is declaration of bankruptcy or judicial liquidation required before the worker's preference may be
invoked under Art. 110 of the Labor Code?
On 21 March 1977 private respondent Leonor A. Ang started employment as Executive Secretary
with Tropical Philippines Wood Industries, Inc. (TPWII), a corporation engaged in the manufacture
and sale of veneer, plywood and sawdust panel boards. In 1982 she was promoted to the position of
Personnel Officer.
In September 1983 petitioner Development Bank of the Philippines, as mortgagee of TPWII,
foreclosed its plant facilities and equipment. Nevertheless TPWII continued its business operations
interrupted only by brief shutdowns for the purpose of servicing its plant facilities and equipment. In
January 1986 petitioner took possession of the foreclosed properties. From then on the company
ceased its operations. As a consequence private respondent was on 15 April 1986 verbally
terminated from the service.

On 14 December 1987 aggrieved by the termination of her employment, private respondent filed
with the Labor Arbiter a complaint for separation pay, 13th month pay, vacation and sick leave pay,
salaries and allowances against TPWII, its General Manager, and petitioner.
After hearing the Labor Arbiter found TPWII primarily liable to private respondent but only for her
separation pay and vacation and sick leave pay because her claims for unpaid wages and 13th
month pay were later paid after the complaint was filed. 1 The General Manager was absolved of any
liability. But with respect to petitioner, it was held subsidiarily liable in the event the company failed to
satisfy the judgment. The Labor Arbiter rationalized that the right of an employee to be paid benefits due
him from the properties of his employer is superior to the right of the latter's mortgage, citing this Court's
resolution in PNB v. Delta Motor Workers Union. 2
On 16 November 1992 public respondent National Labor Relations Commission affirmed the ruling
of the Labor Arbiter. 3
The issue now before us is whether public respondent committed grave abuse of discretion in
holding that Art. 110 of the Labor Code, as amended, which refers to worker preference in case of
bankruptcy or liquidation of an employer's business is applicable to the present case notwithstanding
the absence of any formal declaration of bankruptcy or judicial liquidation of TPWII.
Petitioner argues that the decision of public respondent runs counter to the consistent rulings of this
Court in a long line of cases emphasizing that the application of Art. 110 of the Labor Code is
contingent upon the institution of bankruptcy or judicial liquidation proceedings against the employer.
We hold that public respondent gravely abused its discretion in affirming the decision of the Labor
Arbiter. Art. 110 should not be treated apart from other laws but applied in conjunction with the
pertinent provisions of the Civil Code and the Insolvency Law to the extent that piece-meal
distribution of the assets of the debtor is avoided. Art. 110, then prevailing, provides:
Art. 110. Worker preference in case of bankruptcy. In the event of bankruptcy or
liquidation of an employer's business, his workers shall enjoy first preference as
regards wages due them for services rendered during the period prior to the
bankruptcy or liquidation, any provision to the contrary notwithstanding. Unpaid
wages shall be paid in full before other creditors may establish any claim to a share
in the assets of the employer.
Complementing Art. 110, Sec. 10, Rule VIII, Book III, of the Revised Rules and Regulations
Implementing the Labor Code provides:
Sec. 10. Payment of wages in case of bankruptcy. Unpaid wages earned by the
employees before the declaration of bankruptcy or judicial liquidation of the
employer's business shall be given first preference and shall be paid in full before
other creditors may establish any claim to a share in the assets of the employer.
We interpreted this provision in Development Bank of the Philippines v. Santos 4 to mean that
. . . a declaration of bankruptcy or a judicial liquidation must be present before the
worker's preference may be enforced. Thus, Article 110 of the Labor Code and its
implementing rule cannot be invoked by the respondents in this case absent a formal
declaration of bankruptcy or a liquidation order . . . . (Emphasis supplied).

The rationale is that to hold Art. 110 to be applicable also to extrajudicial proceedings would
be putting the worker in a better position than the State which could only assert its own prior
preference in case of a judicial proceeding. 5 Art. 110, which was amended by R.A. 6715
effective 21 March 1989, now reads:
Art. 110. Worker preference in case of bankruptcy. In the event of bankruptcy or
liquidation of an employer's business, his workers shall enjoy first preference as
regards their unpaid wages and other monetary claims, any provision of law to the
contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in
full before the claims of the Government and other creditors may be paid.
Obviously, the amendment expanded the concept of "worker preference" to cover not only unpaid
wages but also other monetary claims to which even claims of the Government must be deemed
subordinate. The Rules and Regulations Implementing R.A. 6715, approved 24 May 1989, also
amended the corresponding implementing rule, and now reads:
Sec. 10. Payment of wages and other monetary claims in case of bankruptcy. In
case of bankruptcy or liquidation of the employer's business, the unpaid wages and
other monetary claims of the employees shall be given first preference and shall be
paid in full before the claims of government and other creditors may be paid.
Although the terms "declaration" (of bankruptcy) or "judicial" (liquidation) have been notably
eliminated, still inDevelopment Bank of the Philippines v. NLRC, 6 this Court did not alter its original
position that the right to preference given to workers under Art. 110 cannot exist in any effective way prior
to the time of its presentation in distribution proceedings. In effect, we reiterated our previous
interpretation in Development Bank of the Philippines v. Santos where we said:
It (worker preference) will find application when, in proceedings such as insolvency,
such unpaid wages shall be paid in full before the "claims of the Government and
other creditors" may be paid. But, for an orderly settlement of a debtor's assets, all
creditors must be convened, their claims ascertained and inventoried, and thereafter
the preferences determined. In the course of judicial proceedings which have for their
object the subjection of the property of the debtor to the payment of his debts or
other lawful obligations. Thereby, an orderly determination of preference of creditors'
claims is assured (Philippine Savings Bank vs. Lantin, No. L-33929, September 2,
1983, 124 SCRA 476); the adjudication made will be binding on all parties-in-interest
since those proceedings are proceedings in rem; and the legal scheme of
classification, concurrence and preference of credits in the Civil Code, the Insolvency
Law, and the Labor Code is preserved in harmony. 7
In ruling, as we did, in Development Bank of the Philippines v. Santos, we took into account the
following pronouncements:
In the event of insolvency, a principal objective should be to effect an equitable
distribution of the insolvents property among his creditors. To accomplish this there
must first be some proceeding where notice to all of the insolvent's creditors may be
given and where the claims of preferred creditors may be bindingly adjudicated. (De
Barreto v. Villanueva, No.
L-14938, December 29, 1962, 6 SCRA 928). The rationale therefore has been
expressed in the recent case of DBP v. Secretary of Labor (G.R. No. 79351, 28
November 1989), which we quote:

A preference of credit bestows upon the preferred creditor an

advantage of having his credit satisfied first ahead of other claims
which may be established against the debtor. Logically, it becomes
material only when the properties and assets of the debtors are
insufficient to pay his debts in full; for if the debtor is amply able to
pay his various creditors in full, how can the necessity exist to
determine which of his creditors shall be paid first or whether they
shall be paid out of the proceeds of the sale (of) the debtor's specific
property. Indubitably, the preferential right of credit attains
significance only after the properties of the debtor have been
inventoried and liquidated, and the claims held by his various
creditors have been established (Kuenzle & Sheriff (Ltd.) v.
Villanueva, 41 Phil. 611 [1916]; Barretto v. Villanueva, G.R. No.
14938, 29 December 1962, 6 SCRA 928; Philippine Savings Bank v.
Lantin, G.R. No. 33929, 2 September 1983, 124 SCRA 476).
In the present case, there is as yet no declaration of bankruptcy nor judicial liquidation of TPWII.
Hence, it would be premature to enforce the worker's preference.
The additional ratiocination of public respondent that "under Article 110 of the Labor Code
complainant enjoys a preference of credit over the properties of TPWII being held in possession by
DBP," is a dismal misconception of the nature of preference of credit, a subject matter which we
have already discussed in clear and simple terms and even distinguished from a lien
in Development Bank of the Philippines v. NLRC 8
. . . A preference applies only to claims which do not attach to specific properties. A
lien creates a charge on a particular property. The right of first preference as regards
unpaid wages recognized by Article 110 does not constitute a lien on the property of
the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a
preference in application. It is a method adopted to determine and specify the order
in which credits should be paid in the final distribution of the proceeds of the
insolvent's assets. It is a right to a first preference in the discharge of the funds of the
judgment debtor . . . In the words of Republic v. Peralta, supra: Article 110 of the
Labor Code does not purport to create a lien in favor of workers or employees for
unpaid wages either upon all of the properties or upon any particular property owned
by their employer. Claims for unpaid wages do not therefore fall at all within the
category of specially preferred claims established under Articles 2241 and 2242 of
the Civil Code, except to the extent that such claims for unpaid wages are already
covered by Article 2241, number 6: "claims for laborers: wages, on the goods
manufactured or the work done;" or by Article 2242, number 3, "claims of laborers
and other workers engaged in the construction reconstruction or repair of buildings,
canals and other works, upon said buildings, canals and other works . . . . To the
extent that claims for unpaid wages fall outside the scope of Article 2241, number 6,
and 22421 number 3, they would come within the ambit of the category of ordinary
preferred credits under Article 2244.
The DBP anchors its claim on a mortgage credit. A mortgage directly and
immediately subjects the property upon which it is imposed, whoever the possessor
may be, to the fulfillment of the obligation for whose security it was constituted
(Article 2176, Civil Code). It creates a real right which is enforceable against the
whole world. It is a lien on an identified immovable property, which a preference is
not. A recorded mortgage credit is a special preferred credit under Article 2242 (5) of

the Civil Code on classification of credits. The preference given by Article 1l0, when
not falling within Article 2241 (6) and Article 2242 (3), of the Civil Code and not
attached to any specific property, is all ordinary preferred credit although its impact is
to move it from second priority to first priority in the order of preference established
by Article 2244 of the Civil Code.
The present controversy could have been easily settled by public respondent had it referred to
ample jurisprudence which already provides the solution. Stare decisions et non quiet movere. Once
a case is decided by this Court as the final arbiter of any justifiable controversy one way, then
another case involving exactly the same point at issue should be decided in the same manner.
Public respondent had no choice on the matter. It could not have ruled any other way. This Court
having spoken in a string of cases against public respondent, its duty is simply to obey judicial
precedents. 9 Any further disregard, if not defiance, of our rulings will be considered a ground to hold
public respondent in contempt.
WHEREFORE, the petition is GRANTED. The decision of public respondent National Labor
Relations Commission affirming the decision of the Labor Arbiter insofar as it held petitioner
Development Bank of the Philippines liable for the monetary claims of private respondent Leonor A.
Ang is SET ASIDE. The temporary restraining order we issued on 8 February 1993 10 enjoining the
execution of the decision of public respondent against petitioner is made PERMANENT.
SO ORDERED.