G.R. No.

127639 December 3, 1999

SAN MIGUEL CORPORATION and BERNARDO NOEL in his capacity as Industrial Relations
Manager, petitioners,
vs.
ALFREDO ETCUBAN, BERNABE ETCUBAN, NORBERTO LABUCA, FELIPE ECHAVEZ,
BERNARDINO ENJAMBRE, ROGELIO ABELLANOSA, ROMULO CATALAN, PEDRO EBOT,
ANATOLIO GERALDIZO, JOSE ALFANTA, EDUARDO LOFRANCO, LECERIO PARBA,
RAFAEL AGUILAR, RICARDO LACUAREN, BENJAMIN ALESNA, ANTONIO BACUS, PRIMO
SOTEROL, JESUS JADORMEO, MANUEL MANKIKIS, APRONIANO ANG, RENATO
VILLALON, SAMUEL OUANO, JOSE DELA, JESUS BASILGO, CATALINO COLE, SR.,
ALFREDO GONZALES, RAMON FLORES, MARCOS VITO CRUZ, JACINTO DIVINAGRACIA,
ALAN ALINSUGAY and CLAUDIO AGAN, respondents.

KAPUNAN, J.:

Before the Court is a petition for review on certiorari of the Decision, dated 16 May 1996 of the
Court of Appeals in CA-G.R. CV No. 46554 and of its Resolution, dated November 1996
denying petitioners' motion for reconsideration of said decision. The Court of Appeals' decision
reversed and set aside the resolution of the Regional Trial Court of Cebu, Branch 19, in Civil
Case No. CEB-15310, dismissing for lack of jurisdiction respondents' complaint for damages
against petitioners for terminating their employment by fraudulently inducing them to accept
petitioners' "retrenchment program."

The antecedents of this case are as follows:

In 1981, San Miguel Corporation (SMC) informed its Mandaue City Brewery employees that it
was suffering from heavy losses and financial distress which could eventually lead to its total
closure. In several meetings convened by SMC with its employee, it was explained to them that
the distressed state of SMC was caused by its poor sales performance which, in order to
survive, called for a cutback in production and a corresponding reduction in the work force.
Because of this, SMC offered its "Retrenchment to Prevent Loss Program" to its employees.
The offering of the retrenchment program was coupled with an unsolicited advise from SMC that
it would be in the best interest of the affected employees to avail of the said program since, by
doing so, they would be able to obtain their retrenchment benefits and privileges with ease.
SMC admonished its employees that their failure to avail of the retrenchment program might
lead to difficulty in following-up and obtaining their separation pay from the SMC's main office in
Manila.

Convinced by the representations and importunings of SMC, respondents, who had been
employees of SMC since the 1960s, availed of the retrenchment program at various times in
1981, 1982 and 1983. After their inclusion in the retrenchment program, respondents were
given their termination letters and separation pay. In return, respondents executed "receipt and
release" documents in favor of SMC.

Sometime in May of 1986, respondents got hold of an SMC publication allegedly revealing that
SMC was never in financial distress during the time when they were being retrenched but was,
in fact, enjoying a growth in sales. Respondents also learned that, during their retrenchment,
SMC was engaged in hiring new employees. Thus, respondents concluded that SMC's financial

1
distress story and retrenchment program were merely schemes to rid itself of regular employees
and, thus, avoid the payment of their actual benefits.

On 17 October 1988, respondents filed a complaint before the Regional Arbitration Branch No.
VII of the National Labor Relations Commission (NLRC) for the declaration of nullity of the
retrenchment program. In their complaint, respondents alleged that they were former regular
employees of SMC who were deceived into severing their employment due to SMC's concocted
financial distress story and fraudulent retrenchment program. Respondents prayed for
reinstatement, backwages and damages. On 25 July 1989, the Labor Arbiter dismissed the
complaint on the ground of prescription, stating:

What is apparent from their allegations, however, is that complainants are contesting their
respective terminations pursuant to the Retrenchment Program effected by San Miguel
Corporation in 1981, 1982, and 1983. These then are claims for illegal dismissal which fall
within the ambit of Article 291 of the New Labor Code. It provides:

Art. 291. Money claims. — All money claims arising from employer-employee relations
accruing during the effectivity of this Code, shall be filed within three (3) years from the time the
cause of action accrued; otherwise they shall be forever barred. . . .

Under the aforequoted provision therefore, complainants' causes of action have already
prescribed.

Even if this Office were to apply the more liberal interpretation of the above provisions
enunciated by the Honorable Supreme Court in the case of Callanta vs. Carnation Phils., Inc.,
G.R. No. 70615, Nov. 3, 1986, an interpretation that views illegal dismissal as an injury upon the
rights of a person, hence, under Article 1146 of the Civil Code prescribes in 4 years, those who
were retrenched in 1983, at the very latest, had only until 1987 to institute a complaint against
SMC.

The records will show that all the above captioned cases were filed in 1988.

Clearly, therefore, complainants' causes of action have already prescribed. 1

Respondents then appealed to the NLRC which, on 20 December 1990, dismissed the appeal
and affirmed the decision of the labor arbiter.

On 14 December 1993, respondents, who were thirty-one (31) in number, again filed a
complaint 2 against SMC, but this time before the Regional Trial Court of Cebu City, Branch 19.
Although their complaint was captioned as an action for damages, respondents sought the
declaration of nullity of their so-called collective "contract of termination" with SMC.
Respondents theorized that SMC's offer of retrenchment and their acceptance of the same
resulted in the consummation of a collective "contract of termination" between themselves and
SMC. Respondents asserted that since the cause of their "contract of termination" was non-
existent, i.e., the claim of SMC that it was under financial distress, the said contract is null and
void. In this regard, respondents claimed that they were entitled to damages because of the
deception employed upon them by SMC which led to their separation from the company. They
further asseverated that their separation from employment resulted in the loss of earnings and
other benefits. Hence, they prayed that petitioners jointly and severally be ordered, among
others, to pay each of them the sum of P650,000.00 as actual and compensatory damages,

2
P100,000.00 as moral damages, P50,000.00 as exemplary damages, and 25% of whatever
may be awarded to them as attorney's fees.

Instead of filing an answer, SMC filed a motion to dismiss on the bases of lack of jurisdiction,
res judicata, payment, prescription and failure to state a cause of action. On 21 June 1994, the
RTC issued a resolution granting SMC's motion to dismiss on the grounds of lack of jurisdiction
and prescription. The pertinent portion of the resolution reads:

Although plaintiffs, among others, pray for the declaration of nullity of the contract of termination,
their main cause is for damages, actual, compensatory and moral damages in the "aggregate
amount of P650,000.00 each and P1,200,000.00 each" for plaintiffs Bernabe Etcuban and Jose
Dela. The alleged acts leading to their signing of the contract of termination are acts constituting
labor disputes. It is a case for damages resulting from illegal termination. Under Article 217 of
the Labor Code, such cases fall within the exclusive original jurisdiction of the Labor Arbiter and
the National Labor Relations Commission. In fact, in 1988, plaintiffs instituted the same case for
"implementation of Art. 217, par. 5, now (sic) Labor Code and Declaration of Nullity of
"Retrenchment" Program, and Damages" (see annex "A" to Motion to Dismiss) with the National
Labor Relations Commission. Their cases were dismissed, not because of lack of jurisdiction,
but because their cause of action already prescribed, the cases having been filed after the
three-year prescriptive period. Plaintiffs have already submitted to the jurisdiction of the NLRC
when they filed their cases with that agency. And they prayed for the declaration of nullity of the
retrenchment program of defendant corporation. It was only after the dismissal of those cases
that they instituted this present suit.

xxx xxx xxx

Moreover, the contract of termination which plaintiffs were allegedly induced to sign is not void
from the beginning. At most, such contract is voidable, plaintiffs' consent thereto being allegedly
vitiated by fraud and deceit.

Thus plaintiffs allege that "the brainwashing conducting (ted) on the affected employees through
briefings and pulong-pulongs relative to the actual economic condition of defendant corporation
finally led plaintiffs to believe that indeed said defendant was incurring losses and has opted to
reduce its production to arrest an immediate collapse of its operations. Thus, the corresponding
need to cut down on its work force;" (par. 11, complaint);" This distressed state of affairs of the
defendant corporation inculcated into their (sic) minds of defendants and the worry of non-
recovery of their benefits in the event defendant corporation closes down, induced plaintiffs to
accept the "offer of retrenchment". Thereupon, they were paid their so-called "separation pay".
Hence, the contract of termination evidenced by individual termination letters and benefits paid
to each plaintiff was consummated." (par. 12). But that "records, however, revealed that from
1973 up to 1983, inclusive, defendant corporation never suffered any business reverses or
losses in its operation."; (par. 13, complaint).

When the consent of one of the contracting parties is vitiated by fraud or deceit, the resulting
contract is only voidable or annulable, not void or inexistent. The action to annul the same
should be filed within four (4) years from discovery of the fraud or deceit. According to plaintiffs'
complaint, they "acquired knowledge of the actual business condition of defendant corporation
only in May 1986 when one of them got hold of a copy of the company's publication. That was
the time they discovered that indeed, defendants deceived them . . . . (par. 14, complaint.) From
May 1986 to January 14, 1993, more than six (6) years have already elapsed. Clearly, the
action, has already prescribed.

3
The rest of the grounds need not be discussed.

WHEREFORE, for want of jurisdiction, and on the further ground of prescription, the above-
entitled case is dismissed.

SO ORDERED. 3

Respondents seasonably appealed to the Court of Appeals (CA). In its Decision dated 16 May
1996, the CA reversed and set aside the lower court's order of dismissal and remanded the
case to the RTC for further proceedings. The pertinent portion of the decision reads:

A scrutiny of the allegations of the present complaint reveals that plaintiffs' cause of action is not
actually based on an employer-employee relationship between the plaintiffs and the defendants.
It primarily involves a civil dispute arising from the claim of plaintiffs that the cause for the
contract of termination of their services is inexistent rendering said contract as null and void
from the beginning. . . .

xxx xxx xxx

Guided thereby, we find that recourse by plaintiffs-appellants to the civil law on contracts by
raising the issue [of] whether or not the contract of termination of services entered into by
plaintiffs with defendants is void from the beginning due to inexistent cause of action under
Article 1409 of the Civil Code, places the case within the jurisdiction of the civil courts.

As refined by the Supreme Court, where the resolution of the dispute requires expertise, not in
labor management relations nor in wage structures and other terms and conditions of
employment, but rather in the application of the general civil law, such claim falls outside the
area of competence of expertise ordinarily ascribed to Labor Arbiters and the NLRC. Thus, the
trial court erred in finding that it has no jurisdiction over the case.

Secondly, the trial court erred in ruling that the complaint of plaintiffs-appellants has prescribed.
Article 1410 of the Civil Code, in relation to Article 1409 as herein before quoted, specifically
provides that the action for the declaration of the inexistence of a contract on ground (3) above
does not prescribe.

Thirdly, one of the requisites for the application of the principle of res judicata is that there must
be a judgment on the merits in the earlier case involving the same parties and the same issues.
Plaintiffs-appellants' complaint was dismissed by the NLRC on the ground that their cause of
action had prescribed; no trial has been held on the first complaint. Thus, the dismissal of the
first complaint is not a judgment on the merits and therefore not applicable to the present case.

xxx xxx xxx

WHEREFORE, the order of dismissal is reversed and set aside. Let the original records of Civil
Case No. CEB-15310, be remanded to the Regional Trial Court (Branch 19), Cebu City for
further proceedings. Costs against defendants-appellees.

SO ORDERED. 4

4
SMC filed a motion for reconsideration but was denied in the CA's Resolution dated 14
November 1996 5. Hence, this petition.

In its petition, SMC contends that the CA erred:

IN HOLDING THAT THE REGIONAL TRIAL COURT OF CEBU, BRANCH 19, HAS
JURISDICTION OVER THE INSTANT CASE AND THE CAUSE OF ACTION OF THE
RESPONDENTS ARE NOT ACTUALLY BASED ON AN EMPLOYER-EMPLOYEE
RELATIONSHIP WHEN THE COMPLAINT SHOWS THAT THE RESPONDENTS ARE
CLAIMING TO HAVE BEEN UNJUSTLY SEPARATED FROM THEIR REGULAR
EMPLOYMENTS (sic) BY THE PETITIONERS AND ARE DEMANDING TO BE PAID ACTUAL
AND COMPENSATORY DAMAGES CONSISTING OF "THEIR EXPECTED INCOME BY WAY
OF SALARIES AND OTHER FRINGE BENEFITS DUE THEM UNDER THE LAW FROM THE
TIME OF THEIR SEPARATION AND UNTIL THEIR RETIREMENT DUE TO AGE OR LENGTH
OF SERVICE . . . SOCIAL SECURITY SYSTEM BENEFITS . . . RETIREMENT BENEFITS.

II

IN RULING THAT THE COMPLAINT OF THE RESPONDENTS HAVE NOT YET

PRESCRIBED WHEN THE RESPONDENTS HAVE CLAIMED IN THEIR COMPLAINT THAT
THEY HAVE BEEN ALLEGEDLY BRAINWASHED BY THE PETITIONERS AND THEIR
COMPAINT (sic) WAS FILED ONLY AFTER MORE THAN SIX (6) YEARS HAVE LAPSED
FROM THE TIME THAT THE RESPONDENTS CLAIMED TO HAVE "DISCOVERED THAT
INDEED, DEFENDANTS (Petitioners) DECEIVED THEM INTO BELIEVING THAT THE
DEFENDANT CORPORATION WAS INCURRING LOSSES IN ITS OPERATION HENCE, THE
NECESSITY TO TRIM DOWN ITS WORK FORCE TO INDUCE THEM TO ACCEPT THE
"OFFER OF RETRENCHEMENT (sic)."

III

IN RULING THAT "THE DISMISSAL OF THE FIRST COMPLAINT IS NOT A JUDGMENT ON

THE MERITS AND THEREFORE NOT APPLICABLE TO THE PRESENT CASE" WHEN IT IS
THE SAID DIVISION'S OWN FINDING THAT: "THE COMPLAINT FILED BY HEREIN
PLAINTIFFS-APPELLANTS (Respondents) WITH THE REGIONAL ARBITRATION BRANCH
PRAYED FOR THE DECLARATION OF THE TERMINATION SCHEME ALLEGEDLY
DECEPTIVELY FORCED UPON THEM TO BE NULL AND VOID WITH THE SAME PRAYER
THAT THEY BE REINSTATED TO THEIR REGULAR EMPLOYMENT WITHOUT ANY LOSS
OF ANY RIGHTS (sic) AND BENEFITS (sic) AS WELL AS PAYMENT OF THEIR BACK
WAGES AND DAMAGES." 6

We find the petition impressed with merit.

The demarcation line between the jurisdiction of regular courts and labor courts over cases
involving workers and their employers has always been the subject of dispute. We have
recognized that not all claims involving such groups of litigants can be resolved solely by our
labor courts. 7 However, we have also admonished that the present trend is to refer worker-
employer controversies to labor courts, unless unmistakably provided by the law to be
otherwise. 8 Because of this trend, jurisprudence has developed the "reasonable causal
connection rule." Under this rule, if there is a reasonable causal connection between the claim

5
asserted and the employer-employee relations, then the case is within the jurisdiction of our
labor courts. 9 In the absence of such nexus, it is the regular courts that have jurisdiction. 10

The jurisdiction of labor courts is provided under Article 217 of the Labor Code, to wit:

Art. 217. Jurisdiction of Labor Arbiters and the Commission. — (a) Except as otherwise
provided under this Code the Labor Arbiter shall have original and exclusive jurisdiction to hear
and decide, within thirty (30) calendar days after the submission of the case by the parties for
decision without extension, even in the absence of stenographic notes, the following cases
involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file
involving wages, rates of pay, hours of work and other terms and conditions of employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from employer-
employee relations;

5. Cases arising from any violation of Article 264 of this Code including questions involving
the legality of strikes and lockouts; and

6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims, arising from employer-employee relations, including those of persons
in domestic or household service, involving an amount exceeding five thousand pesos
(P5,000.00) regardless of whether accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by
Labor Arbiters.

(c) Cases arising from the interpretation or implementation of collective bargaining

agreements and those arising from the interpretation or enforcement of company personnel
policies shall be disposed of by the Labor Arbiter by referring the same to the grievance
machinery and voluntary arbitration as may be provided in said agreements. 11

With regard to claims for damages under paragraph 4 of the above article, this Court has
observed that:

Jurisprudence has evolved the rule that claims for damages under paragraph 4 of Article 217, to
be cognizable by the Labor Arbiter, must have a reasonable causal connection with any of the
claims provided for in that article. Only if there is such a connection with the other claims can
the claim for damages be considered as arising from employer-employee relations. 12

In the present case, while respondents insist that their action is for the declaration of nullity of
their "contract of termination," what is inescapable is the fact that it is, in reality, an action for
damages emanating from employer-employee relations. First, their claim for damages is
grounded on their having been deceived into severing their employment due to SMC's
concocted financial distress and fraudulent retrenchment program — a clear case of illegal
dismissal. Second, a comparison of respondents' complaint for the declaration of nullity of the

6
retrenchment program before the labor arbiter and the complaint for the declaration of nullity of
their "contract of termination" before the RTC reveals that the allegations and prayer of the
former are almost identical with those of the latter except that the prayer for reinstatement was
no longer included and the claim for backwages and other benefits was replaced with a claim for
actual damages. These are telltale signs that respondents' claim for damages is intertwined with
their having been separated from their employment without just cause and, consequently, has a
reasonable causal connection with their employer-employee relations with SMC. Accordingly, it
cannot be denied that respondents' claim falls under the jurisdiction of the labor arbiter as
provided in paragraph 4 of Article 217.

Respondents' assertion that their action is for the declaration of nullity of their "contract of
termination" is merely an ingenious way of presenting their actual action, which is a claim for
damages grounded on their having been illegal terminated. However, it would seem that
respondents committed a Freudian slip when they captioned their claim against SMC as an
action for damages. 13 Even the term used for designating the contract, i.e. "contract of
termination," was formulated in a shrewd manner so as to avoid a semblance of employer-
employee relations. This observation is bolstered by the fact that if respondents' designation for
the contract were to be made complete and reflective of its nature, its proper designation would
be a "contract of termination of employment."

The Court is aware that the Civil Code provisions on contracts and damages may be used as
bases for addressing the claim of respondents. However, the fact remains that the present
action primarily involves an employer-employee relationship. The damages incurred by
respondents as a result of the alleged fraudulent retrenchment program and the allegedly
defective "contract of termination" are merely the civil aspect of the injury brought about by their
illegal dismissal. 14 The civil ramifications of their actual claim cannot alter the reality that it is
primordially a labor matter and, as such, is cognizable by labor courts. In Associated Citizens
Bank vs. Japson, 15 we held:

For the unlawful termination of employment, this Court in Primero v. Intermediate Appellate
Court, supra, ruled that the Labor Arbiter had the exclusive and original jurisdiction over claims
for moral and other forms of damages, so that the employee in the proceedings before the
Labor Arbiter should prosecute his claims not only for reliefs specified under the Labor Code but
also for damages under the Civil Code. This is because an illegally dismissed employee has
only a single cause of action although the act of dismissal may be a violation not only the Labor
Code but also of the Civil Code. For a single cause of action, the dismissed employee cannot
institute a separate action before the Labor Arbiter for backwages and reinstatement and
another action before the regular court for the recovery of moral and other forms of damages
because splitting a single cause of action is procedurally unsound and obnoxious to the orderly
administration of justice. (Primero v. Intermediate Appellate Court, supra, citing Gonzales v.
Province of Iloilo, 38 SCRA 209; Cyphil Employees Association-Natu v. Pharmaceutical
Industries, 77 SCRA 135; Calderon v. Court of Appeals, 100 SCRA 459, etc.) 16

Even assuming arguendo that the RTC has jurisdiction, it is obvious from respondents' own
pleadings that their action for the declaration of nullity of the "contract of termination" will not
prosper. Respondents allege that they were deceived by SMC into believing that it was under
financial distress which, thus, led them into concluding the "contract of termination" with the
latter. 17 Respondents then posit that since the cause of the contract, SMC's alleged financial
distress, was inexistent, the contract is null and void. The argument is flawed.

7
The fact that SMC was never in financial distress does not, in any way, affect the cause of their
"contract of termination." Rather, the fraudulent representations of SMC only affected the
consent of respondents in entering into the said contract. 18 If the consent of a contracting party
is vitiated by fraud, the contract is not void but, merely, voidable. 19 In Abando vs. Lozada, 20
we ruled:

As correctly pointed out by the appellate court, the strategem (sic), the deceit, the
misrepresentations employed by Cuevas and Pucan are facts constitutive of fraud which is
defined in Article 1338 of the Civil Code as that (sic) insidious words or machinations of one of
the contracting parties, by which the other is induced to enter into a contract which, without
them, he would not have agreed to. When fraud is employed to obtain the consent of the other
party to enter into a contract, the resulting contract is merely a voidable contract, that is, a valid
and subsisting contract until annulled or set aside by a competent court. . . . 21

An action to annul a voidable contract based on fraud should be brought within four (4) years
from the discovery of the same. 22 In the present case, respondents discovered SMC's fraud in
May 1986. However, the action to question the validity of the contract was only brought on 14
December 1993, or more than seven (7) years after the discovery of the fraud. Clearly,
respondents' action has already prescribed.

The issue of jurisdiction and prescription having been resolved, it is no longer necessary to
discuss the issue on res judicata raised in this petition.

WHEREFORE, premises considered, the Decision of the Court of Appeals dated 16 May 1996
and its Resolution dated 14 November 1996 are hereby REVERSED and SET ASIDE and the
Resolution dated 21 June 1994 of the Regional Trial Court of Cebu, Branch 19, in CEB-15310,
REINSTATED.

SO ORDERED.

Davide, Jr., C.J., Puno, Pardo and Ynares-Santiago, JJ., concur.

8
G.R. No. 163768 March 27, 2007

JULIUS KAWACHI and GAYLE KAWACHI, Petitioners,

vs.
DOMINIE DEL QUERO and HON. JUDGE MANUEL R. TARO, Metropolitan Trial Court, Branch
43, Quezon City, Respondents.

DECISION

TINGA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure, assailing
two resolutions of the Regional Trial Court (RTC), Branch 226, Quezon City which affirmed the
jurisdiction of the Metropolitan Trial Court (MeTC), Branch 42, Quezon City over private
respondent’s action for damages against petitioner.

The following factual antecedents are matters of record.1ªvvphi1.nét

In an Affidavit-Complaint dated 14 August 2002, private respondent Dominie Del Quero charged
A/J Raymundo Pawnshop, Inc., Virgilio Kawachi and petitioner Julius Kawachi with illegal
dismissal, non-execution of a contract of employment, violation of the minimum wage law, and
non-payment of overtime pay. The complaint was filed before the National Labor Relations
Commission (NLRC).1

The complaint essentially alleged that Virgilio Kawachi hired private respondent as a clerk of the
pawnshop and that on certain occasions, she worked beyond the regular working hours but was
not paid the corresponding overtime pay.

The complaint also narrated an incident on 10 August 2002, wherein petitioner Julius Kawachi
scolded private respondent in front of many people about the way she treated the customers of
the pawnshop and afterwards terminated private respondent’s employment without affording her
due process.

On 7 November 2002, private respondent Dominie Del Quero filed an action for damages
against petitioners Julius Kawachi and Gayle Kawachi before the MeTC of Quezon City.2 The
complaint, which was docketed as Civil Case No. 29522, alleged the following:

2. That the Plaintiff was employed as a clerk in the pawnshop business office of the Defendants
otherwise known as the A/J RAYMUNDO PAWNSHOP, INC. located (sic) and with principal
office address at Unit A Virka Bldg. Edsa Corner Roosevelt[,] Quezon City, from May 27, 2002
to August 10, 2002;

3. That on August 10, 2002 at or about 11:30 AM, the Plaintiff was admonished by the
Defendants Julius Kawachi and Gayle Kawachi who are acting as manager and assistant
manager respectively of the pawnshop business and alternately accused her of having
committed an act which she had not done and was scolded in a loud voice in front of many
employees and customers in their offices;

4. That further for no apparent reason the Plaintiff was ordered to get out and leave the
pawnshop office and was told to wait for her salary outside the office when she tried to explain

9
that she had no fault in the complaint of the customer, (sic) [H]owever[,] her explanation fell on
deaf ears;

5. That she was instantly dismissed from her job without due process;

6. That the incident happened in front of many people which caused the Plaintiff to suffer
serious embarrassment and shame so that she could not do anything but cry because of the
shameless way by which she was terminated from the service; x x x3

The complaint for damages specifically sought the recovery of moral damages, exemplary
damages and attorney’s fees.

Petitioners moved for the dismissal of the complaint on the grounds of lack of jurisdiction and
forum-shopping or splitting causes of action. At first, the MeTC granted petitioners’ motion and
ordered the dismissal of the complaint for lack of jurisdiction in an Order dated 2 January 2003.4
Upon private respondent’s motion, the MeTC reconsidered and set aside the order of dismissal
in an Order dated 3 March 2003.5 It ruled that no causal connection appeared between private
respondent’s cause of action and the employer-employee relations between the parties. The
MeTC also rejected petitioners’ motion for reconsideration in an Order dated 22 April 2003.6

Thus, petitioners elevated the MeTC’s aforesaid two orders to the RTC, Branch 226 of Quezon
City, via a Petition for Certiorari (With Prayer for Temporary Restraining Order and/or
Preliminary Injunction). After due hearing, the RTC declined petitioners’ prayer for a temporary
restraining order. For her part, private respondent filed a Motion to Dismiss Petition.

On 20 October 2003, the RTC issued the assailed Resolution, upholding the jurisdiction of the
MeTC over private respondent’s complaint for damages.7

The RTC held that private respondent’s action for damages was based on the alleged tortious
acts committed by her employers and did not seek any relief under the Labor Code. The RTC
cited the pronouncement in Medina, et al. v. Hon. Castro-Bartolome, etc., et al.8 where the
Court held that the employee’s action for damages based on the slanderous remarks uttered by
the employer was within the regular courts’ jurisdiction since the complaint did not allege any
unfair labor practice on the part of the employer.

On 29 March 2004, the RTC denied petitioners’ motion for reconsideration.9 Hence, the instant
petition for review on certiorari, raising the sole issue of jurisdiction over private respondent’s
complaint for damages.

Petitioners argue that the NLRC has jurisdiction over the action for damages because the
alleged injury is work-related. They also contend that private respondent should not be allowed
to split her causes of action by filing the action for damages separately from the labor case.

Private respondent maintains that there is no causal connection between her cause of action
and the employer-employee relations of the parties.

The petition is meritorious.

The jurisdictional controversy of the sort presented in this case has long been settled by this
Court.

10
Article 217(a) of the Labor Code, as amended, clearly bestows upon the Labor Arbiter original
and exclusive jurisdiction over claims for damages arising from employer-employee relations —
in other words, the Labor Arbiter has jurisdiction to award not only the reliefs provided by labor
laws, but also damages governed by the Civil Code.10

In the 1999 case of San Miguel Corporation v. Etcuban,11 the Court noted what was then the
current trend, and still is, to refer worker-employer controversies to labor courts, unless
unmistakably provided by the law to be otherwise. Because of the trend, the Court noted further,
jurisprudence has developed the "reasonable causal connection rule." Under this rule, if there is
a reasonable causal connection between the claim asserted and the employer-employee
relations, then the case is within the jurisdiction of our labor courts. In the absence of such
nexus, it is the regular courts that have jurisdiction.12

In San Miguel Corporation,13 the Court upheld the labor arbiter’s jurisdiction over the
employees’ separate action for damages, which also sought the nullification of the so-called
"contract of termination" and noted that the allegations in the complaint were so carefully
formulated as to avoid a semblance of employer-employee relations.

In said case, the employees of San Miguel Corporation (SMC) availed of the "Retrenchment to
Prevent Loss Program." After their inclusion in the retrenchment program, the employees were
given their termination letters and separation pay. In return, the employees executed "receipt
and release" documents in favor of the company. Subsequently, the employees learned that the
company was never in financial distress and was engaged in hiring new employees. Thus, they
filed a complaint

before the NLRC for the declaration of nullity of the retrenchment program and prayed for
reinstatement, backwages and damages. After the labor arbiter dismissed the complaint, the
employees filed an action for damages before the RTC, alleging the deception employed upon
them by SMC which led to their separation from the company. They sought the declaration of
nullity of their so-called collective "contract of termination" and the recovery of actual and
compensatory damages, moral damages, exemplary damages, and attorney’s fees.

The Court held that the employees’ claim for damages was intertwined with their having been
separated from their employment without just cause and, consequently, had a reasonable
causal connection with their employer-employee relations with petitioner. The Court explained in
this manner:

x x x First, their claim for damages is grounded on their having been deceived into serving their
employment due to SMC’s concocted financial distress and fraudulent retrenchment program—
a clear case of illegal dismissal. Second, a comparison of respondents’ complaint for the
declaration of nullity of the retrenchment program before the labor arbiter and the complaint for
the declaration of nullity of their "contract of termination" before the RTC reveals that the
allegations and prayer of the former are almost identical with those of the latter except that the
prayer for reinstatement was no longer included and the claim for backwages and other benefits
was replaced with a claim for actual damages. These are telltale signs that respondents’ claim
for damages is intertwined with their having been separated from their employment without just
cause and, consequently, has a reasonable causal connection with their employer-employee
relations with SMC. Accordingly, it cannot be denied that respondents’ claim falls under the
jurisdiction of the labor arbiter as provided in paragraph 4 of Article 217.14

11
The "reasonable causal connection rule" emerged in the 1987 case of Primero v. Intermediate
Appellate Court,15 where the Court recognized the jurisdiction of the labor arbiters over claims
for damages in connection with termination of employment, thus:

It is clear that the question of the legality of the act of dismissal is intimately related to the issue
of the legality of the manner by which that act of dismissal was performed. But while the Labor
Code treats of the nature of, and the remedy available as

regards the first – the employee’s separation from employment – it does not at all deal with the
second – the manner of that separation – which is governed exclusively by the Civil Code. In
addressing the first issue, the Labor Arbiter applies the Labor Code; in addressing the second,
the Civil Code. And this appears to be the plain and patent intendment of the law. For apart from
the reliefs expressly set out in the Labor Code flowing from illegal dismissal from employment,
no other damages may be awarded to an illegally dismissed employee other than those
specified by the Civil Code. Hence, the fact that the issue—of whether or not moral or other
damages were suffered by an employee and in the affirmative, the amount that should properly
be awarded to him in the circumstances—is determined under the provisions of the Civil Code
and not the Labor Code, obviously was not meant to create a cause of action independent of
that for illegal dismissal and thus place the matter beyond the Labor Arbiter’s jurisdiction.16

In the instant case, the allegations in private respondent’s complaint for damages show that her
injury was the offshoot of petitioners’ immediate harsh reaction as her administrative superiors
to the supposedly sloppy manner by which she had discharged her duties.

Petitioners’ reaction culminated in private respondent’s dismissal from work in the very same
incident. The incident on 10 August 2002 alleged in the complaint for damages was similarly
narrated in private respondent’s Affidavit-Complaint supporting her action for illegal dismissal
before the NLRC. Clearly, the alleged injury is directly related to the employer-employee
relations of the parties.

Where the employer-employee relationship is merely incidental and the cause of action
proceeds from a different source of obligation, the Court has not hesitated to uphold the
jurisdiction of the regular

courts. Where the damages claimed for were based on tort, malicious prosecution, or breach of
contract, as when the claimant seeks to recover a debt from a former employee or seeks
liquidated damages in the enforcement of a prior employment contract,17 the jurisdiction of
regular courts was upheld. The scenario that obtains in this case is obviously different. The
allegations in private respondent’s complaint unmistakably relate to the manner of her alleged
illegal dismissal.

For a single cause of action, the dismissed employee cannot be allowed to sue in two forums:
one, before the labor arbiter for reinstatement and recovery of back wages or for separation
pay, upon the theory that the dismissal was illegal; and two, before a court of justice for
recovery of moral and other damages, upon the theory that the

manner of dismissal was unduly injurious or tortious. Suing in the manner described is known as
"splitting a cause of action," a practice engendering multiplicity of actions. It is considered
procedurally unsound and obnoxious to the orderly administration of justice.18

12
In the instant case, the NLRC has jurisdiction over private respondent’s complaint for illegal
dismissal and damages arising therefrom. She cannot be allowed to file a separate or
independent civil action for damages where the alleged injury has a reasonable connection to
her termination from employment. Consequently, the action for damages filed before the MeTC
must be dismissed.

WHEREFORE, the petition for review on certiorari is GRANTED. The two Resolutions dated 20
October 2003 and 29 March 2004 of the Regional Trial Court, Branch 226, Quezon City are
REVERSED and SET ASIDE. Costs against private respondent.

SO ORDERED.

DANTE O. TINGA
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

ANTONIO T. CARPIO
Associate Justice CONCHITA CARPIO MORALES
Asscociate Justice
PRESBITERO J. VELASCO, JR.
Associate Justice

13
G.R. No. 152121 July 29, 2003

EDUARDO G. EVIOTA, Petitioner,

vs.
THE HON. COURT OF APPEALS, THE HON. JOSE BAUTISTA, Presiding Judge of Branch
136, Regional Trial Court of Makati, and STANDARD CHARTERED BANK, Respondents.

DECISION

CALLEJO, SR., J.:

Before us is a petition for review on certiorari under Rule 45 of the Revised Rules of Court, of
the Decision1 of the Court of Appeals in CA-G.R. SP No. 60141 denying the petition for
certiorari filed by the petitioner praying the nullification of the Order of the Regional Trial Court of
Makati, Branch 136.2

Sometime on January 26, 1998, the respondent Standard Chartered Bank and petitioner
Eduardo G. Eviota executed a contract of employment under which the petitioner was employed
by the respondent bank as Compensation and Benefits Manager, VP (M21). However, the
petitioner abruptly resigned from the respondent bank barely a month after his employment and
rejoined his former employer.

On June 19, 1998, the respondent bank filed a complaint against the petitioner with the RTC of
Makati City. The respondent bank alleged inter alia in its complaint that:

1. It is a foreign banking institution authorized to do business in the Philippines, with principal

offices at the 5th Floor, Bankmer Bldg., 6756 Ayala Avenue, Makati City.

2. Defendant Eduardo Eviota ("Eviota") is a former employee of the Bank, and may be served
with summons and other court processes at 8 Maple Street, Cottonwoods, Antipolo, Metro
Manila.

3. On December 22, 1997, Eviota began negotiating with the Bank on his possible employment
with the latter. Taken up during these negotiations were not only his compensation and benefit
package, but also the nature and demands of his prospective position. The Bank made sure that
Eviota was fully aware of all the terms and conditions of his possible job with the Bank.

4. On January 26, 1998, Eviota indicated his conformity with the Bank’s Offer of Employment by
signing a written copy of such offer dated January 22, 1998 (the "Employment Contract"). A
copy of the Employment Contract between Eviota and the Bank is hereto attached as Annex
"A."

5. Acting on the Employment Contract and on Eviota’s uninhibited display of interest in

assuming his position, the Bank promptly proceeded to carry out the terms of the Employment
Contract as well as to facilitate his integration into the workforce. Among others, the Bank: (a)
renovated and refurbished the room which was to serve as Eviota’s office; (b) purchased a 1998
Honda CR-V (Motor No. PEWED7P101101; Chassis No. PADRD 1830WV00108) for Eviota’s
use; (c) purchased a desktop IBM computer for Eviota’s use; (d) arranged the takeout of
Eviota’s loans with Eviota’s former employer; (e) released Eviota’s signing bonus in the net
amount of P300,000.00; (f) booked Eviota’s participation in a Singapore conference on Y2K

14
project scheduled on March 10 and 11, 1998; and (g) introduced Eviota to the local and regional
staff and officers of the Bank via personal introductions and electronic mail.

6. The various expenses incurred by the Bank in carrying out the above acts are itemized
below, as follows:

a. Signing Bonus P 300,000.00

b. 1 Honda CR-V 800,000.00

c. IBM Desktop Computer 89,995.00

d. Office Reconfiguration 29,815.00

e. 2-Drawer Lateral File

Cabinet 13,200.00

f. 1 Officer’s Chair 31,539.00

g. 1 Guest Chair 2,200.00

h. 1 Hanging Shelf 2,012.00

i. Staff Loan Processing

Title Verification 375.00

Cost of Appraisal –

Housing Loan 3,500.00

TOTAL P1,272,636.00

An itemized schedule of the above expenses incurred by the Bank is hereto attached as Annex
"B."

7. On February 25, 1998, Eviota assumed his position as Compensation and Benefits Manager
with the Bank and began to discharge his duties. At one Human Resources ("HR") Committee
meeting held on March 3, 1998, Eviota energetically presented to senior management his
projects for the year, thus raising the latter’s expectations. The same day, Eviota instructed the
Bank’s HR Administrator to book him a flight for Singapore, where he was scheduled to
participate in a Y2K project on March 10 and 11, 1998. Confident of Eviota’s professed
commitment to the Bank, the latter made the aforementioned airline booking for him. In addition,
the Bank allowed Eviota access to certain sensitive and confidential information and documents
concerning the Bank’s operations.

8. After leading the Bank to believe that he had come to stay, Eviota suddenly resigned his
employment with immediate effect to re-join his previous employer. His resignation, which did
not comply with the 30-day prior notice rule under the law and under the Employment Contract,
was so unexpected that it disrupted plans already in the pipeline (e.g., the development of a
salary/matrix grid and salary structure, and the processing of merit promotion

15
recommendations), aborted meetings previously scheduled among Bank officers, and forced the
Bank to hire the services of a third party to perform the job he was hired to do. For the services
of this third party, the Bank had to pay a total of P208,807.50. A copy of a receipt for the above
expenses is hereto attached as Annex "C" (See also, Annex "B").

9. Aside from causing no small degree of chaos within the Bank by reason of his sudden
resignation, Eviota made off with a computer diskette and other papers and documents
containing confidential information on employee compensation and other Bank matters, such as
the salary schedule of all Corporate and Institutional Banking officers and photocopies of
schedules of benefits provided expatriates being employed by the Bank.

10. With the benefit of hindsight, the Bank realizes that it was simply used by Eviota as a mere
leverage for his selfish efforts at negotiating better terms of employment with his previous
employer. Worse, there is evidence to show that in his attempts to justify his hasty departure
from the Bank and conceal the real reason for his move, Eviota has resorted to falsehoods
derogatory to the reputation of the Bank. In particular, he has been maliciously purveying the
canard that he had hurriedly left the Bank because it had failed to provide him support. His
untruthful remarks have falsely depicted the Bank as a contract violator and an undesirable
employer, thus damaging the Bank’s reputation and business standing in the highly competitive
banking community, and undermining its ability to recruit and retain the best personnel in the
labor market.

11. On March 16, 1998, the Bank made a written demand on Eviota to return the
aforementioned computer diskette and other confidential documents and papers, reimburse the
Bank for the various expenses incurred on his account as a result of his resignation (with legal
interest), and pay damages in the amount of at least P500,000.00 for the inconvenience and
work/program disruptions suffered by the Bank.

A copy of the Bank’s demand letter dated March 16, 1998 is hereto attached as Annex "D."

12. In partial compliance with said demand, Eviota made arrangements with his previous
employer to reimburse the Bank for the expenses incurred in connection with the Bank’s
purchase of the Honda CR-V for his use. The Bank informed Eviota that in addition to the
Honda CR-V’s purchase price of P848,000.00 (of which Eviota initially shouldered P48,000.00),
incidental costs in the form of Processing Fees (P1,000.00), FPD/MCAR/98-155684 (P1,232.53)
and Fund Transfer Price (P18,646.84) were incurred, bringing the total cost of the Honda CR-V
to P868,881.38. On April 29, 1998, the Bank received two manager’s checks in the aggregate
amount of P868,881.38, representing costs incurred in connection with the purchase of the
Honda CR-V, inclusive of processing fees and other incidental costs. Previously, Eviota had
returned his P300,000.00 signing bonus, less the P48,000.00 he had advanced for the Honda
CR-V’s purchase price.

13. Eviota never complied with the Bank’s demand that he reimburse the latter for the other
expenses incurred on his account, amounting to P360,562.12 (see, Annex "B").3

The respondent bank alleged, by way of its causes of action against the petitioner, the following:

First Cause of Action

14. Eviota’s actions constitute a clear violation of Articles 19, 20 and 21 of Republic Act No. 386,
as amended (the "Civil Code"). Assuming arguendo that Eviota had the right to terminate his

16
employment with the Bank for no reason, the manner in and circumstances under which he
exercised the same are clearly abusive and contrary to the rules governing human relations.

14.1. By his actions and representations, Eviota had induced the Bank to believe that he was
committed to fulfilling his obligations under the Employment Contract. As a result, the Bank
incurred expenses in carrying out its part of the contract (see Annexes "B" and "C"). Less
reimbursements received from Eviota, the Bank is entitled to actual damages of P360,562.12.
(See, Annex "C").

Second Cause of Action

15. Under Article 285 (a) of Presidential Decree No. 442, as amended (the Labor Code), an
employee may terminate without just cause the employer-employee relationship by serving
written notice on the employer at least one (1) month in advance. In addition, Section 13 of the
Employment Contract specifically provides that: "Your [i.e., Eviota’s] employment may be
terminated by either party giving notice of at least one month." (Annex "A," p. 5.)

15.1. Eviota’s failure to comply with the above requirement threw a monkey wrench into the
Bank’s operations – Eviota’s sudden resignation aborted meetings previously scheduled among
Bank officers and disrupted plans for a salary/merit review program and development of a salary
structure and merit grid already in the pipeline.

Hence, Eviota is liable to the Bank for damages in the amount of at least P100,000.00.

Third Cause of Action

16. Eviota’s false and derogatory statements that the Bank had failed to deliver what it had
purportedly promised have besmirched the Bank’s reputation and depicted it as a contract
violator and one which does not treat its employees properly. These derogatory statements
have injured the Bank’s business standing in the banking community, and have undermined the
Bank’s ability to recruit and retain the best personnel. Hence, plaintiff is entitled to moral
damages of at least P2,000,000.00.

17. By way of example or correction for the public good, and to deter other parties from
committing similar acts in the future, defendant should be held liable for exemplary damages of
at least P1,000,000.00

18. Eviota’s actions have compelled plaintiff to obtain the services of undersigned counsel for a
fee, in order to protect its interests. Hence, plaintiff is entitled to attorney’s fees of at least
P200,000.00.4

The respondent bank prayed, that after due proceedings, judgment be rendered in its favor as
follows:

WHEREFORE, it is respectfully prayed that judgment be rendered ordering the defendant to

pay the plaintiff:

1. As actual damages, the amount of P360,562.12, representing expenses referred to in items c

to i of par. 6 and the cost of the third-party services mentioned in par. 8;

17
2. For violating the 30-day notice requirement under the Labor Code and order (sic) the
Employment Contract, damages in the amount of at least P100,000.00;

3. As moral damages, the amount of P2,000,000.00;

4. As exemplary damages, the amount of P1,000,000.00;

5. As attorney’s fees, the amount of P200,000.00; and

6. Costs of the suit.

Other just and equitable reliefs are likewise prayed for.5

The respondent bank appended to its complaint a copy of the petitioner’s employment contract.

The petitioner filed a motion to dismiss the complaint on the ground that the action for damages
of the respondent bank was within the exclusive jurisdiction of the Labor Arbiter under
paragraph 4, Article 217 of the Labor Code of the Philippines, as amended. The petitioner
averred that the respondent bank’s claim for damages arose out of or were in connection with
his employer-employee relationship with the respondent bank or some aspect or incident of
such relationship. The respondent bank opposed the motion, claiming that its action for
damages was within the exclusive jurisdiction of the trial court. Although its claims for damages
incidentally involved an employer-employee relationship, the said claims are actually predicated
on the petitioner’s acts and omissions which are separately, specifically and distinctly governed
by the New Civil Code.

On November 29, 1999, the trial court issued an order denying the petitioner’s motion to
dismiss, ratiocinating that the primary relief prayed for by the respondent bank was grounded on
the tortious manner by which the petitioner terminated his employment with the latter, and as
such is governed by the New Civil Code:

The Court holds that here, since the primary relief prayed for by the plaintiff is for damages,
grounded on the tortious manner by which the defendant terminated his employment with the
company, the same are recoverable under the applicable provision of the Civil Code, the
present controversy is removed from the jurisdiction of the Labor Arbiter and brings in within the
purview of the regular courts.6

The petitioner filed a motion for reconsideration of the said order, but the court issued an order
denying the same. The petitioner filed a petition for certiorari with the Court of Appeals for the
nullification of the orders of the trial court, alleging that the court a quo committed grave abuse
of its discretion amounting to excess or lack of jurisdiction in issuing the said orders. The
petitioner further asserted that contrary to the ruling of the court, the respondent bank claimed
damages in its complaint against the petitioner based on his employment contract, and not on
tortious acts.

On November 15, 2001, the CA promulgated a decision dismissing the petition, holding that the
trial court and not the Labor Arbiter had exclusive jurisdiction over the action of the respondent
bank. It held that the latter’s claims for damages were grounded on the petitioner’s sudden and
unceremonious severance of his employment with the respondent bank barely a month after
assuming office.

18
With his motion for reconsideration of the decision having been denied by the CA, the petitioner
filed his petition with this Court contending that:

Suffice to state immediately that on the basis of the allegations in the complaint, it is the Labor
Arbiter, not the Regional Trial Court, which has jurisdiction of the subject matter of the complaint
in Civil Case No. 98-1397, the principal cause of action being the alleged omission of petitioner
in giving notice to the respondent Bank employer of termination of their relationship; whereas
the claims for other actual/moral/exemplary damages are well within the competence of the
Labor Arbiter.7

The petition is barren of merit.

Article 217 of the Labor Code of the Philippines, as amended by Rep. Act No. 6715 which took
effect on March 21, 1989 reads:

ART. 217. Jurisdiction of Labor Arbiters and the Commission.—(a) Except as otherwise
provided under this Code the Labor Arbiters shall have original and exclusive jurisdiction to hear
and decide within thirty (30) calendar days after the submission of the case by the parties for
decision without extension, even in the absence of stenographic notes, the following cases
involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involving
wages, rates of pay, hours of work and other terms and conditions of employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-
employee relations.

Case law has it that the nature of an action and the subject matter thereof, as well as which
court has jurisdiction over the same, are determined by the material allegations of the complaint
and the reliefs prayed for in relation to the law involved.

Not every controversy or money claim by an employee against the employer or vice-versa is
within the exclusive jurisdiction of the labor arbiter. A money claim by a worker against the
employer or vice-versa is within the exclusive jurisdiction of the labor arbiter only if there is a
"reasonable causal connection" between the claim asserted and employee-employer relation.
Absent such a link, the complaint will be cognizable by the regular courts of justice.8

Actions between employees and employer where the employer-employee relationship is merely
incidental and the cause of action precedes from a different source of obligation is within the
exclusive jurisdiction of the regular court.9 In Georg Grotjahn GMBH & Co. v. Isnani,10 we held
that the jurisdiction of the Labor Arbiter under Article 217 of the Labor Code, as amended, is
limited to disputes arising from an employer-employee relationship which can only be resolved
by reference to the Labor Code of the Philippines, other labor laws or their collective bargaining
agreements. In Singapore Airlines Limited v. Paño,11 the complaint of the employer against the
employee for damages for wanton justice and refusal without just cause to report for duty, and
for having maliciously and with bad faith violated the terms and conditions of their agreement for

19
a course of conversion training at the expense of the employer, we ruled that jurisdiction over
the action belongs to the civil court:

On appeal to this court, we held that jurisdiction over the controversy belongs to the civil courts.
We stated that the action was for breach of a contractual obligation, which is intrinsically a civil
dispute. We further stated that while seemingly the cause of action arose from employer-
employee relations, the employer’s claim for damages is grounded on "wanton failure and
refusal" without just cause to report to duty coupled with the averment that the employee
"maliciously and with bad faith" violated the terms and conditions of the contract to the damage
of the employer. Such averments removed the controversy from the coverage of the Labor
Code of the Philippines and brought it within the purview of the Civil Law.

Jurisprudence has evolved the rule that claims for damages under paragraph 4 of Article 217, to
be cognizable by the Labor Arbiter, must have a reasonable causal connection with any of the
claims provided for in that article. Only if there is such a connection with the other claims can
the claim for damages be considered as arising from employer-employee relations.12

The claims were the natural consequences flowing from a breach of an obligation, intrinsically
civil in nature.

In Medina v. Castro-Bartolome,13 we held that a complaint of an employee for damages against

the employer for slanderous remarks made against him was within the exclusive jurisdiction of
the regular courts of justice because the cause of action of the plaintiff was for damages for
tortious acts allegedly committed by the employer. The fact that there was between the parties
an employer-employee relationship does not negate the jurisdiction of the trial court.

In Singapore Airlines Ltd. v. Paño,14 we held that:

Stated differently, petitioner seeks protection under the civil laws and claims no benefits under
the Labor Code.1âwphi1 The primary relief sought is for liquidated damages for breach of a
contractual obligation. The other items demanded are not labor benefits demanded by workers
generally taken cognizance of in labor disputes, such as payment of wages, overtime
compensation or separation pay. The items claimed are the natural consequences flowing from
breach of an obligation, intrinsically a civil dispute.

In Dai-Chi Electronics Manufacturing Corporation v. Villarama, Jr.,15 the petitioner sued its
employee Adonis Limjuco for breach of contract which reads:

That for a period of two (2) years after termination of service from EMPLOYER, EMPLOYEE
shall not in any manner be connected, and/or employed, be a consultant and/or be an
informative body directly or indirectly, with any business firm, entity or undertaking engaged in a
business similar to or in competition with that of the EMPLOYER."16

The petitioner alleged in its complaint with the trial court that:

Petitioner claimed that private respondent became an employee of Angel Sound Philippines
Corporation, a corporation engaged in the same line of business as that of petitioner, within two
years from January 30, 1992, the date of private respondent’s resignation from petitioner’s
employ. Petitioner further alleged that private respondent is holding the position of Head of the
Material Management Control Department, the same position he held while in the employ of
petitioner.17

20
The trial court dismissed the case for lack of jurisdiction over the subject matter because the
cause of action for damages arose out of the parties’ employer-employee relationship. We
reversed the order of the trial court and held, thus:

Petitioner does not ask for any relief under the Labor Code of the Philippines. It seeks to
recover damages agreed upon in the contract as redress for private respondent’s breach of his
contractual obligation to its "damage and prejudice" (Rollo, p. 57). Such cause of action is within
the realm of Civil Law, and jurisdiction over the controversy belongs to the regular courts. More
so when we consider that the stipulation refers to the post-employment relations of the
parties.18

In this case, the private respondent’s first cause of action for damages is anchored on the
petitioner’s employment of deceit and of making the private respondent believe that he would
fulfill his obligation under the employment contract with assiduousness and earnestness. The
petitioner volte face when, without the requisite thirty-day notice under the contract and the
Labor Code of the Philippines, as amended, he abandoned his office and rejoined his former
employer; thus, forcing the private respondent to hire a replacement. The private respondent
was left in a lurch, and its corporate plans and program in jeopardy and disarray. Moreover, the
petitioner took off with the private respondent’s computer diskette, papers and documents
containing confidential information on employee compensation and other bank matters. On its
second cause of action, the petitioner simply walked away from his employment with the private
respondent sans any written notice, to the prejudice of the private respondent, its banking
operations and the conduct of its business. Anent its third cause of action, the petitioner made
false and derogatory statements that the private respondent reneged on its obligations under
their contract of employment; thus, depicting the private respondent as unworthy of trust.

It is evident that the causes of action of the private respondent against the petitioner do not
involve the provisions of the Labor Code of the Philippines and other labor laws but the New
Civil Code. Thus, the said causes of action are intrinsically civil. There is no causal relationship
between the causes of action of the private respondent’s causes of action against the petitioner
and their employer-employee relationship. The fact that the private respondent was the
erstwhile employer of the petitioner under an existing employment contract before the latter
abandoned his employment is merely incidental. In fact, the petitioner had already been
replaced by the private respondent before the action was filed against the petitioner.

IN LIGHT OF ALL THE FOREGOING, the Petition is DENIED. The Decision of the Court of
Appeals dismissing the petition of the petitioner is AFFIRMED.

SO ORDERED.

Bellosillo, (Chairman), Austria-Martinez, and Tinga, JJ., concur.

Quisumbing, J., on official leave.

21
G.R. No. 171212 August 4, 2014

INDOPHIL TEXTILE MILLS, INC., Petitioner,

vs.
ENGR. SALVADOR ADVIENTO, Respondents.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Revised Rules of
Court which seeks to review, reverse and set-aside the Decision1 of the Court of Appeals (CA),
dated May 30, 2005, and its Resolution2 dated January 10, 2006 in the case entitled Jndophil
Textile Mills, Inc. v. Hon. Rolando R. Velasco and Engr. Salvador Adviento, docketed as CA-
G.R. SP No. 83099.

The facts are not disputed.

Petitioner Indophil Textile Mills, Inc. is a domestic corporation engaged in the business of
manufacturing thread for weaving.3 On August 21, 1990, petitioner hired respondent Engr.
Salvador Adviento as Civil Engineer to maintain its facilities in Lambakin, Marilao, Bulacan.4 On
August 7, 2002, respondent consulted a physician due to recurring weakness and dizziness.5
Few days later, he was diagnosed with Chronic Poly Sinusitis, and thereafter, with moderate,
severe and persistent Allergic Rhinitis.6 Accordingly, respondent was advised by his doctor to
totally avoid house dust mite and textile dust as it will transmute into health problems.7

Distressed, respondent filed a complaint against petitioner with the National Labor Relations
Commission (NLRC), San Fernando, Pampanga, for alleged illegal dismissal and for the
payment of backwages, separation pay, actual damages and attorney’s fees. The said case,
docketed as NLRC Case No. RAB-III-05-5834-03, is still pending resolution with the NLRC at
the time the instant petition was filed.8

Subsequently, respondent filed another Complaint9 with the Regional Trial Court (RTC) of
Aparri, Cagayan, alleging that he contracted such occupational disease by reason of the gross
negligence of petitioner to provide him with a safe, healthy and workable environment.

In his Complaint, respondent alleged that as part of his job description, he conductsregular
maintenance check on petitioner’s facilities including its dye house area, which is very hot and
emits foul chemical odor with no adequate safety measures introduced by petitioner.10
According to respondent, the air washer dampers and all roof exhaust vests are blown into open
air, carrying dust thereto.11 Concerned, respondent recommended to management to place
roof insulation to minimize, if not, eradicate the health hazards attendant in the work place.12
However, said recommendation was turned down by management due to high cost.13
Respondent further suggested to petitioner’s management that the engineering office be
relocated because ofits dent prone location, such that even if the door of the office is sealed,
accumulated dust creeps in outside the office.14 This was further aggravated by the installation
of new filters fronting the office.15 However, no action was taken by management.16 According
to respondent, these healthhazards have been the persistent complaints of most, if not all,
workers of petitioner.17 Nevertheless, said complaints fell on deaf ears as petitioner callously
ignored the health problems of its workers and even tended to be apathetic to their plight,
including respondent.18

22
Respondent averred that, being the only breadwinner in the family, he made several attempts to
apply for a new job, but to his dismay and frustration, employers who knew ofhis present health
condition discriminated against him and turned down his application.19 By reason thereof,
respondent suffered intense moral suffering, mental anguish, serious anxiety and wounded
feelings, praying for the recovery of the following: (1) Five Million Pesos (₱5,000,000.00)
asmoral damages; (2) Two Million Pesos (₱2,000,000.00) as exemplary damages; and (3)
Seven Million Three Thousand and Eight Pesos (₱7,003,008.00) as compensatory damages.20
Claiming to be a pauper litigant, respondent was not required to pay any filing fee.21

In reply, petitioner filed a Motion to Dismiss22 on the ground that: (1) the RTC has no
jurisdiction over the subject matter of the complaint because the same falls under the original
and exclusive jurisdiction of the Labor Arbiter (LA) under Article 217(a)(4) of the Labor Code;
and (2) there is another action pending with the Regional Arbitration Branch III of the NLRC in
San Fernando City, Pampanga, involving the same parties for the same cause.

On December 29, 2003, the RTC issued a Resolution23 denying the aforesaid Motion and
sustaining its jurisdiction over the instant case. It held that petitioner’s alleged failure to provide
its employees with a safe, healthy and workable environment is an act of negligence, a case of
quasi-delict. As such, it is not within the jurisdiction of the LA under Article 217 of the Labor
Code. On the matter of dismissal based on lis pendencia, the RTC ruled that the complaint
before the NLRC has a different cause of action which is for illegal dismissal and prayer for
backwages, actual damages, attorney’s fees and separation pay due to illegal dismissal while in
the present case, the cause of action is for quasi-delict.24 The falloof the Resolution is quoted
below:

WHEREFORE, finding the motion to dismiss to be without merit, the Court deniesthe motion to
dismiss.

SO ORDERED.25

On February 9, 2004, petitioner filed a motion for reconsideration thereto, which was likewise
denied in an Order issued on even date.

Expectedly, petitioner then filed a Petition for Certiorariwith the CA on the ground that the RTC
committed grave abuse of discretion amounting to lack or excess of jurisdiction in upholding that
it has jurisdiction over the subject matter of the complaint despite the broad and clear terms of
Article 217 of the Labor Code, as amended.26

After the submission by the parties of their respective Memoranda, the CA rendered a
Decision27 dated May 30, 2005 dismissing petitioner’s Petition for lack of merit, the dispositive
portion of which states:

WHEREFORE, premises considered, petition for certiorari is hereby DISMISSEDfor lack of

merit. SO ORDERED.28

From the aforesaid Decision, petitioner filed a Motion for Reconsideration which was
nevertheless denied for lack of merit in the CA’s Resolution29 dated January 10, 2006. Hence,
petitioner interposed the instant petition upon the solitary ground that "THE HONORABLE
COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN
ACCORD WITH LAW AND WITH APPLICABLE DECISIONS OF THE HONORABLE

23
SUPREME COURT."30 Simply, the issue presented before us is whether or not the RTC has
jurisdiction over the subject matter of respondent’s complaint praying for moral
damages,exemplary damages, compensatory damages, anchored on petitioner’s alleged gross
negligence in failing to provide a safe and healthy working environment for respondent.

The delineation between the jurisdiction of regular courts and labor courts over cases involving
workers and their employers has always been a matter of dispute.31 It is up to the Courts to lay
the line after careful scrutiny of the factual milieu of each case. Here, we find that jurisdiction
rests on the regular courts.

In its attempt to overturn the assailed Decision and Resolution of the CA, petitioner argues that
respondent’sclaim for damages is anchored on the alleged gross negligence of petitioner as an
employer to provide its employees, including herein respondent, with a safe, healthy and
workable environment; hence, it arose from an employer-employee relationship.32 The fact of
respondent’s employment withpetitioner as a civil engineer is a necessary element of his cause
ofaction because without the same, respondent cannot claim to have a rightto a safe, healthy
and workable environment.33 Thus, exclusive jurisdiction over the same should be vested in the
Labor Arbiter and the NLRC pursuant to Article 217(a)(4) of the Labor Code of the Philippines
(Labor Code), as amended.34

We are not convinced.

The jurisdiction of the LA and the NLRC is outlined in Article 217 of the Labor Code, as
amended by Section 9 of Republic Act (R.A.) No. 6715, to wit:

ART. 217. Jurisdiction of Labor Arbiters and the Commission-- (a) Except as otherwise provided
under this Code the Labor Arbiter shall have original and exclusive jurisdiction to hear and
decide, within thirty (30) calendar days after the submission of the case by the parties for
decision without extension, even in the absence of stenographic notes, the following cases
involving all workers, whether agricultural or nonagricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file
involvingwages, rates of pay, hours of work and other terms and conditions of employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from employer-
employee relations;

5. Cases arising from any violation of Article 264 of this Code including questions involving the
legality of strikes and lockouts; and

6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims, arising from employer-employee relations, including those of persons
in domestic or household service,involving an amount exceeding five thousand pesos
(₱5,000.00) regardless of whether accompanied with a claim for reinstatement.

x x x.35

24
While we have upheld the present trend to refer worker-employer controversies to labor courts
in light of the aforequoted provision, we have also recognized that not all claims involving
employees can be resolved solely by our labor courts, specifically when the law provides
otherwise.36 For this reason, we have formulated the "reasonable causal connection rule,"
wherein if there is a reasonable causal connection between the claim asserted and the
employer-employee relations, then the case is within the jurisdiction of the labor courts; and in
the absence thereof, it is the regular courts that have jurisdiction.37 Such distinction is apt since
it cannot be presumed that money claims of workers which do not arise out of or in connection
with their employer-employee relationship, and which would therefore fall within the general
jurisdiction of the regular courts of justice, were intended by the legislative authority to be taken
away from the jurisdiction of the courts and lodged with Labor Arbiters on an exclusive basis.38

In fact, as early as Medina vs. Hon. Castro-Bartolome,39 in negating the jurisdiction of the LA,
although the parties involved were an employer and two employees, the Court succinctly held
that:

The pivotal question to Our mind iswhether or not the Labor Code has any relevance to the
reliefs sought by the plaintiffs. For if the Labor Code has no relevance, any discussion
concerning the statutes amending it and whether or not they have retroactive effect is
unnecessary.

It is obvious from the complaint that the plaintiffs have not alleged any unfair labor practice.
Theirs is a simple action for damages for tortious acts allegedly committed by the defendants.
Such being the case, the governing statute is the Civil Code and not the Labor Code. It results
that the orders under revieware based on a wrong premise.40

Similarly, we ruled in the recent case of Portillo v. Rudolf Lietz, Inc.41 that not all disputes
between an employer and his employees fall within the jurisdiction of the labor tribunals
suchthat when the claim for damages is grounded on the "wanton failure and refusal" without
just cause of an employee to report for duty despite repeated notices served upon him of the
disapproval of his application for leave ofabsence, the same falls within the purview of Civil Law,
to wit:

As early as Singapore Airlines Limited v. Paño, we established that not all disputes between an
employer and his employee(s) fall within the jurisdiction of the labor tribunals. We differentiated
between abandonment per seand the manner and consequent effects of such abandonment
and ruled that the first, is a labor case, while the second, is a civil law case.

Upon the facts and issues involved, jurisdiction over the present controversy must be held to
belong to the civil Courts. While seemingly petitioner's claim for damages arises from employer-
employee relations, and the latest amendment to Article 217 of the Labor Code under PD No.
1691 and BP Blg. 130 provides that all other claimsarising from employer-employee relationship
are cognizable by Labor Arbiters [citation omitted], in essence, petitioner's claim for damages is
grounded on the "wanton failure and refusal"without just cause of private respondent Cruz to
report for duty despite repeated notices served upon him of the disapproval of his application for
leave of absence without pay. This, coupled with the further averment that Cruz "maliciously and
with bad faith" violated the terms and conditions of the conversion training course agreement to
the damage of petitioner removes the present controversy from the coverage of the Labor Code
and brings it within the purview of Civil Law.

25
Clearly, the complaint was anchored not on the abandonment per seby private respondent Cruz
of his job—as the latter was not required in the Complaint to report back to work—but on the
manner and consequent effects of such abandonmentof work translated in terms of the
damages which petitioner had to suffer. x x x.42

Indeed, jurisprudence has evolved the rule that claims for damages under Article 217(a)(4) of
the Labor Code, to be cognizable by the LA, must have a reasonable causal connection withany
of the claims provided for in that article.43 Only if there is such a connection with the other
claims can a claim for damages be considered as arising from employer-employee relations.44

In the case at bench, we find that such connection is nil.

True, the maintenance of a safe and healthy workplace is ordinarily a subject of labor cases.
More, the acts complained of appear to constitute matters involving employee-employer
relations since respondent used to be the Civil Engineer of petitioner. However, it should be
stressed that respondent’s claim for damages is specifically grounded on petitioner’s gross
negligenceto provide a safe, healthy and workable environment for its employees −a case of
quasi-delict. This is easily ascertained from a plain and cursory reading of the Complaint,45
which enumerates the acts and/or omissions of petitioner relative to the conditions in the
workplace, to wit:

1. Petitioner’s textile mills have excessive flying textile dust and waste in its operations and no
effort was exerted by petitioner to minimize or totally eradicate it;

2. Petitioner failed to provide adequate and sufficient dust suction facilities;

3. Textile machines are cleaned with air compressors aggravating the dusty work place;

4. Petitioner has no physician specializing in respiratoryrelated illness considering it is a textile

company;

5. Petitioner has no device to detectthe presence or density of dust which is airborne;

6. The chemical and color room are not equipped with proper safety chemical nose mask; and

7. The power and boiler plant emit too much smoke with solid particles blown to the air from the
smoke stack of the power plant emitting a brown rust color which engulfs the entire
compound.46

In addition, respondent alleged that despite his earnest efforts to suggest to management to
place roof insulation to minimize, if not, eradicate the health hazards attendant in the workplace,
the same was not heeded.47

It is a basic tenet that jurisdiction over the subject matter is determined upon the allegations
made in the complaint, irrespective of whether or not the plaintiff is entitled to recover upon the
claim asserted therein, which is a matter resolved only after and as a result of a trial.48 Neither
can jurisdiction of a court bemade to depend upon the defenses made by a defendant in his
answer or motion to dismiss.49 In this case, a perusal of the complaint would reveal that the
subject matter is one of claim for damages arising from quasi-delict, which is within the ambit of
the regular court's jurisdiction.

26
The pertinent provision of Article 2176 of the Civil Code which governs quasi-delictprovides that:
Whoever by act or omissioncauses damageto another, there being fault or negligence, is
obliged to pay for the damagedone. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called quasi-delict.50

Thus, to sustain a claim liability under quasi-delict, the following requisites must concur: (a)
damages suffered by the plaintiff; (b) fault or negligence of the defendant, or someother person
for whose acts he must respond; and (c) the connection of causeand effect between the fault or
negligence of the defendant and the damages incurred by the plaintiff.51

In the case at bar, respondent alleges that due to the continued and prolonged exposure to
textile dust seriously inimical to his health, he suffered work-contracted disease which is now
irreversible and incurable, and deprived him of job opportunities.52 Clearly, injury and damages
were allegedly suffered by respondent, an element of quasi-delict. Secondly, the previous
contract of employment between petitioner and respondent cannot be used to counter the
element of "no pre-existing contractual relation" since petitioner’s alleged gross negligence in
maintaining a hazardous work environment cannot be considered a mere breach of such
contract of employment, but falls squarely within the elements of quasi-delictunder Article 2176
of the Civil Code since the negligence is direct, substantive and independent.53 Hence, we
ruled in Yusen Air and Sea Services Phils., Inc. v. Villamor54 that:

When, as here, the cause of action is based on a quasi-delictor tort, which has no reasonable
causal connection with any of the claims provided for in Article 217, jurisdiction over the action
is with the regular courts.55

It also bears stressing that respondent is not praying for any relief under the Labor Code of the
Philippines. He neither claims for reinstatement nor backwages or separation pay resulting from
an illegal termination. The cause of action herein pertains to the consequence of petitioner’s
omission which led to a work-related disease suffered by respondent, causing harm or damage
to his person. Such cause of action is within the realm of Civil Law, and jurisdiction over the
controversy belongs to the regular courts.56

Our ruling in Portillo, is instructive, thus:

There is no causal connection between private respondent’s claim for damages and the
respondent employers’ claim for damages for the alleged "Goodwill Clause" violation. Portillo’s
claim for unpaid salaries did not have anything to do with her alleged violation of the
employment contract as, in fact, her separation from employmentis not "rooted" in the alleged
contractual violation. She resigned from her employment. She was not dismissed. Portillo’s
entitlementto the unpaid salaries is not even contested. Indeed, Lietz Inc.’s argument about
legal compensation necessarily admits that it owesthe money claimed by Portillo.57

Further, it cannot be gainsaid that the claim for damages occurred afterthe employer-employee
relationship of petitioner and respondent has ceased. Given that respondent no longer demands
for any relief under the Labor Code as well as the rules and regulations pertinent thereto, Article
217(a)(4) of the Labor Code is inapplicable to the instant case, as emphatically held in Portillo,
to wit:

It is clear, therefore, that while Portillo’s claim for unpaid salaries is a money claim that arises
out ofor in connection with an employeremployee relationship, Lietz Inc.’s claim against Portillo
for violation of the goodwill clause is a money claim based on an act done after the cessation of

27
the employment relationship. And, while the jurisdiction over Portillo’s claim is vested in the
labor arbiter, the jurisdiction over Lietz Inc.’s claim rests on the regular courts. Thus:

As it is, petitioner does not ask for any relief under the Labor Code. It merely seeks to recover
damages based on the parties' contract of employment as redress for respondent's breach
thereof. Such cause of action is within the realm of Civil Law, and jurisdiction over the
controversy belongs to the regular courts. More so must this be in the present case, what with
the reality that the stipulation refers to the post-employment relations of the parties.58

Where the resolution of the dispute requires expertise, not in labor management relations nor in
wage structures and other terms and conditions of employment, but rather in the application of
the general civil law, such claim falls outside the area of competence of expertise ordinarily
ascribed to the LA and the NLRC.59

Guided by the aforequoted doctrines, we find no reason to reverse the findings of the
CA.1âwphi1 The RTC has jurisdiction over the subject matter of respondent's complaint praying
for moral damages, exemplary damages, compensatory damages, anchored on petitioner's
alleged gross negligence in failing to provide a safe and healthy working environment for
respondent. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals, dated
May 30, 2005, and its Resolution dated January 10, 2006 in CA-G.R. SP No. 83099 are hereby
AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

28
G.R. No. 87700 June 13, 1990

SAN MIGUEL CORPORATION EMPLOYEES UNION-PTGWO, DANIEL S.L. BORBON II,

HERMINIA REYES, MARCELA PURIFICACION, ET AL., petitioners,
vs.
HON. JESUS G. BERSAMIRA, IN HIS CAPACITY AS PRESIDING JUDGE OF BRANCH 166,
RTC, PASIG, and SAN MIGUEL CORPORATION, respondents.

Romeo C. Lagman for petitioners.

Jardeleza, Sobrevinas, Diaz, Mayudini & Bodegon for respondents.

MELENCIO-HERRERA, J.:

Respondent Judge of the Regional Trial Court of Pasig, Branch 166, is taken to task by
petitioners in this special civil action for certiorari and Prohibition for having issued the
challenged Writ of Preliminary Injunction on 29 March 1989 in Civil Case No. 57055 of his Court
entitled "San Miguel Corporation vs. SMCEU-PTGWO, et als."

Petitioners' plea is that said Writ was issued without or in excess of jurisdiction and with grave
abuse of discretion, a labor dispute being involved. Private respondent San Miguel Corporation
(SanMig. for short), for its part, defends the Writ on the ground of absence of any employer-
employee relationship between it and the contractual workers employed by the companies
Lipercon Services, Inc. (Lipercon) and D'Rite Service Enterprises (D'Rite), besides the fact that
the Union is bereft of personality to represent said workers for purposes of collective bargaining.
The Solicitor General agrees with the position of SanMig.

The antecedents of the controversy reveal that:

Sometime in 1983 and 1984, SanMig entered into contracts for merchandising services with
Lipercon and D'Rite (Annexes K and I, SanMig's Comment, respectively). These companies are
independent contractors duly licensed by the Department of Labor and Employment (DOLE).
SanMig entered into those contracts to maintain its competitive position and in keeping with the
imperatives of efficiency, business expansion and diversity of its operation. In said contracts, it
was expressly understood and agreed that the workers employed by the contractors were to be
paid by the latter and that none of them were to be deemed employees or agents of SanMig.
There was to be no employer-employee relation between the contractors and/or its workers, on
the one hand, and SanMig on the other.

Petitioner San Miguel Corporation Employees Union-PTWGO (the Union, for brevity) is the duly
authorized representative of the monthly paid rank-and-file employees of SanMig with whom the
latter executed a Collective Bargaining Agreement (CBA) effective 1 July 1986 to 30 June 1989
(Annex A, SanMig's Comment). Section 1 of their CBA specifically provides that "temporary,
probationary, or contract employees and workers are excluded from the bargaining unit and,
therefore, outside the scope of this Agreement."

In a letter, dated 20 November 1988 (Annex C, Petition), the Union advised SanMig that some
Lipercon and D'Rite workers had signed up for union membership and sought the regularization
of their employment with SMC. The Union alleged that this group of employees, while appearing
to be contractual workers supposedly independent contractors, have been continuously working

29
for SanMig for a period ranging from six (6) months to fifteen (15) years and that their work is
neither casual nor seasonal as they are performing work or activities necessary or desirable in
the usual business or trade of SanMig. Thus, it was contended that there exists a "labor-only"
contracting situation. It was then demanded that the employment status of these workers be
regularized.

On 12 January 1989 on the ground that it had failed to receive any favorable response from
SanMig, the Union filed a notice of strike for unfair labor practice, CBA violations, and union
busting (Annex D, Petition).

On 30 January 1989, the Union again filed a second notice of strike for unfair labor practice
(Annex F, Petition).

As in the first notice of strike. Conciliatory meetings were held on the second notice.
Subsequently, the two (2) notices of strike were consolidated and several conciliation
conferences were held to settle the dispute before the National Conciliation and Mediation
Board (NCMB) of DOLE (Annex G, Petition).

Beginning 14 February 1989 until 2 March 1989, series of pickets were staged by Lipercon and
D'Rite workers in various SMC plants and offices.

On 6 March 1989, SMC filed a verified Complaint for Injunction and Damages before
respondent Court to enjoin the Union from:

a. representing and/or acting for and in behalf of the employees of LIPERCON and/or
D'RITE for the purposes of collective bargaining;

b. calling for and holding a strike vote, to compel plaintiff to hire the employees or workers
of LIPERCON and D'RITE;

c. inciting, instigating and/or inducing the employees or workers of LIPERCON and D'RITE to
demonstrate and/or picket at the plants and offices of plaintiff within the bargaining unit referred
to in the CBA,...;

d. staging a strike to compel plaintiff to hire the employees or workers of LIPERCON and
D'RITE;

e. using the employees or workers of LIPERCON AND D'RITE to man the strike area
and/or picket lines and/or barricades which the defendants may set up at the plants and offices
of plaintiff within the bargaining unit referred to in the CBA ...;

f. intimidating, threatening with bodily harm and/or molesting the other employees and/or
contract workers of plaintiff, as well as those persons lawfully transacting business with plaintiff
at the work places within the bargaining unit referred to in the CBA, ..., to compel plaintiff to hire
the employees or workers of LIPERCON and D'RITE;

g. blocking, preventing, prohibiting, obstructing and/or impeding the free ingress to, and
egress from, the work places within the bargaining unit referred to in the CBA .., to compel
plaintiff to hire the employees or workers of LIPERCON and D'RITE;

30
h. preventing and/or disrupting the peaceful and normal operation of plaintiff at the work
places within the bargaining unit referred to in the CBA, Annex 'C' hereof, to compel plaintiff to
hire the employees or workers of LIPERCON and D'RITE. (Annex H, Petition)

Respondent Court found the Complaint sufficient in form and substance and issued a
Temporary Restraining Order for the purpose of maintaining the status quo, and set the
application for Injunction for hearing.

In the meantime, on 13 March 1989, the Union filed a Motion to Dismiss SanMig's Complaint on
the ground of lack of jurisdiction over the case/nature of the action, which motion was opposed
by SanMig. That Motion was denied by respondent Judge in an Order dated 11 April 1989.

After several hearings on SanMig's application for injunctive relief, where the parties presented
both testimonial and documentary evidence on 25 March 1989, respondent Court issued the
questioned Order (Annex A, Petition) granting the application and enjoining the Union from
Committing the acts complained of, supra. Accordingly, on 29 March 1989, respondent Court
issued the corresponding Writ of Preliminary Injunction after SanMig had posted the required
bond of P100,000.00 to answer for whatever damages petitioners may sustain by reason
thereof.

In issuing the Injunction, respondent Court rationalized:

The absence of employer-employee relationship negates the existence of labor dispute. Verily,
this court has jurisdiction to take cognizance of plaintiff's grievance.

The evidence so far presented indicates that plaintiff has contracts for services with Lipercon
and D'Rite. The application and contract for employment of the defendants' witnesses are either
with Lipercon or D'Rite. What could be discerned is that there is no employer-employee
relationship between plaintiff and the contractual workers employed by Lipercon and D'Rite.
This, however, does not mean that a final determination regarding the question of the existence
of employer-employee relationship has already been made. To finally resolve this dispute, the
court must extensively consider and delve into the manner of selection and engagement of the
putative employee; the mode of payment of wages; the presence or absence of a power of
dismissal; and the Presence or absence of a power to control the putative employee's conduct.
This necessitates a full-blown trial. If the acts complained of are not restrained, plaintiff would,
undoubtedly, suffer irreparable damages. Upon the other hand, a writ of injunction does not
necessarily expose defendants to irreparable damages.

Evidently, plaintiff has established its right to the relief demanded. (p. 21, Rollo)

Anchored on grave abuse of discretion, petitioners are now before us seeking nullification of the
challenged Writ. On 24 April 1989, we issued a Temporary Restraining Order enjoining the
implementation of the Injunction issued by respondent Court. The Union construed this to mean
that "we can now strike," which it superimposed on the Order and widely circulated to entice the
Union membership to go on strike. Upon being apprised thereof, in a Resolution of 24 May
1989, we required the parties to "RESTORE the status quo ante declaration of strike" (p. 2,62
Rollo).

In the meantime, however, or on 2 May 1989, the Union went on strike. Apparently, some of the
contractual workers of Lipercon and D'Rite had been laid off. The strike adversely affected
thirteen (13) of the latter's plants and offices.

31
On 3 May 1989, the National Conciliation and Mediation Board (NCMB) called the parties to
conciliation. The Union stated that it would lift the strike if the thirty (30) Lipercon and D'Rite
employees were recalled, and discussion on their other demands, such as wage distortion and
appointment of coordinators, were made. Effected eventually was a Memorandum of Agreement
between SanMig and the Union that "without prejudice to the outcome of G.R. No. 87700 (this
case) and Civil Case No. 57055 (the case below), the laid-off individuals ... shall be recalled
effective 8 May 1989 to their former jobs or equivalent positions under the same terms and
conditions prior to "lay-off" (Annex 15, SanMig Comment). In turn, the Union would immediately
lift the pickets and return to work.

After an exchange of pleadings, this Court, on 12 October 1989, gave due course to the Petition
and required the parties to submit their memoranda simultaneously, the last of which was filed
on 9 January 1990.

The focal issue for determination is whether or not respondent Court correctly assumed
jurisdiction over the present controversy and properly issued the Writ of Preliminary Injunction to
the resolution of that question, is the matter of whether, or not the case at bar involves, or is in
connection with, or relates to a labor dispute. An affirmative answer would bring the case within
the original and exclusive jurisdiction of labor tribunals to the exclusion of the regular Courts.

Petitioners take the position that 'it is beyond dispute that the controversy in the court a quo
involves or arose out of a labor dispute and is directly connected or interwoven with the cases
pending with the NCMB-DOLE, and is thus beyond the ambit of the public respondent's
jurisdiction. That the acts complained of (i.e., the mass concerted action of picketing and the
reliefs prayed for by the private respondent) are within the competence of labor tribunals, is
beyond question" (pp. 6-7, Petitioners' Memo).

On the other hand, SanMig denies the existence of any employer-employee relationship and
consequently of any labor dispute between itself and the Union. SanMig submits, in particular,
that "respondent Court is vested with jurisdiction and judicial competence to enjoin the specific
type of strike staged by petitioner union and its officers herein complained of," for the reasons
that:

A. The exclusive bargaining representative of an employer unit cannot strike to compel the
employer to hire and thereby create an employment relationship with contractual workers,
especially were the contractual workers were recognized by the union, under the governing
collective bargaining agreement, as excluded from, and therefore strangers to, the bargaining
unit.

B. A strike is a coercive economic weapon granted the bargaining representative only in the
event of a deadlock in a labor dispute over 'wages, hours of work and all other and of the
employment' of the employees in the unit. The union leaders cannot instigate a strike to compel
the employer, especially on the eve of certification elections, to hire strangers or workers
outside the unit, in the hope the latter will help re-elect them.

C. Civil courts have the jurisdiction to enjoin the above because this specie of strike does
not arise out of a labor dispute, is an abuse of right, and violates the employer's constitutional
liberty to hire or not to hire. (SanMig's Memorandum, pp. 475-476, Rollo).

We find the Petition of a meritorious character.

32
A "labor dispute" as defined in Article 212 (1) of the Labor Code includes "any controversy or
matter concerning terms and conditions of employment or the association or representation of
persons in negotiating, fixing, maintaining, changing, or arranging the terms and conditions of
employment, regardless of whether the disputants stand in the proximate relation of employer
and employee."

While it is SanMig's submission that no employer-employee relationship exists between itself,

on the one hand, and the contractual workers of Lipercon and D'Rite on the other, a labor
dispute can nevertheless exist "regardless of whether the disputants stand in the proximate
relationship of employer and employee" (Article 212 [1], Labor Code, supra) provided the
controversy concerns, among others, the terms and conditions of employment or a "change" or
"arrangement" thereof (ibid). Put differently, and as defined by law, the existence of a labor
dispute is not negative by the fact that the plaintiffs and defendants do not stand in the
proximate relation of employer and employee.

That a labor dispute, as defined by the law, does exist herein is evident. At bottom, what the
Union seeks is to regularize the status of the employees contracted by Lipercon and D'Rite in
effect, that they be absorbed into the working unit of SanMig. This matter definitely dwells on the
working relationship between said employees vis-a-vis SanMig. Terms, tenure and conditions of
their employment and the arrangement of those terms are thus involved bringing the matter
within the purview of a labor dispute. Further, the Union also seeks to represent those workers,
who have signed up for Union membership, for the purpose of collective bargaining. SanMig, for
its part, resists that Union demand on the ground that there is no employer-employee
relationship between it and those workers and because the demand violates the terms of their
CBA. Obvious then is that representation and association, for the purpose of negotiating the
conditions of employment are also involved. In fact, the injunction sought by SanMig was
precisely also to prevent such representation. Again, the matter of representation falls within the
scope of a labor dispute. Neither can it be denied that the controversy below is directly
connected with the labor dispute already taken cognizance of by the NCMB-DOLE (NCMB-
NCR- NS-01- 021-89; NCMB NCR NS-01-093-83).

Whether or not the Union demands are valid; whether or not SanMig's contracts with Lipercon
and D'Rite constitute "labor-only" contracting and, therefore, a regular employer-employee
relationship may, in fact, be said to exist; whether or not the Union can lawfully represent the
workers of Lipercon and D'Rite in their demands against SanMig in the light of the existing CBA;
whether or not the notice of strike was valid and the strike itself legal when it was allegedly
instigated to compel the employer to hire strangers outside the working unit; — those are issues
the resolution of which call for the application of labor laws, and SanMig's cause's of action in
the Court below are inextricably linked with those issues.

The precedent in Layno vs. de la Cruz (G.R. No. L-29636, 30 April 1965, 13 SCRA 738) relied
upon by SanMig is not controlling as in that case there was no controversy over terms, tenure or
conditions, of employment or the representation of employees that called for the application of
labor laws. In that case, what the petitioning union demanded was not a change in working
terms and conditions, or the representation of the employees, but that its members be hired as
stevedores in the place of the members of a rival union, which petitioners wanted discharged
notwithstanding the existing contract of the arrastre company with the latter union. Hence, the
ruling therein, on the basis of those facts unique to that case, that such a demand could hardly
be considered a labor dispute.

33
As the case is indisputably linked with a labor dispute, jurisdiction belongs to the labor tribunals.
As explicitly provided for in Article 217 of the Labor Code, prior to its amendment by R.A. No.
6715 on 21 March 1989, since the suit below was instituted on 6 March 1989, Labor Arbiters
have original and exclusive jurisdiction to hear and decide the following cases involving all
workers including "1. unfair labor practice cases; 2. those that workers may file involving wages,
hours of work and other terms and conditions of employment; ... and 5. cases arising from any
violation of Article 265 of this Code, including questions involving the legality of striker and
lockouts. ..." Article 217 lays down the plain command of the law.

The claim of SanMig that the action below is for damages under Articles 19, 20 and 21 of the
Civil Code would not suffice to keep the case within the jurisdictional boundaries of regular
Courts. That claim for damages is interwoven with a labor dispute existing between the parties
and would have to be ventilated before the administrative machinery established for the
expeditious settlement of those disputes. To allow the action filed below to prosper would bring
about "split jurisdiction" which is obnoxious to the orderly administration of justice (Philippine
Communications, Electronics and Electricity Workers Federation vs. Hon. Nolasco, L-24984, 29
July 1968, 24 SCRA 321).

We recognize the proprietary right of SanMig to exercise an inherent management prerogative

and its best business judgment to determine whether it should contract out the performance of
some of its work to independent contractors. However, the rights of all workers to self-
organization, collective bargaining and negotiations, and peaceful concerted activities, including
the right to strike in accordance with law (Section 3, Article XIII, 1987 Constitution) equally call
for recognition and protection. Those contending interests must be placed in proper perspective
and equilibrium.

WHEREFORE, the Writ of certiorari is GRANTED and the Orders of respondent Judge of 25
March 1989 and 29 March 1989 are SET ASIDE. The Writ of Prohibition is GRANTED and
respondent Judge is enjoined from taking any further action in Civil Case No. 57055 except for
the purpose of dismissing it. The status quo ante declaration of strike ordered by the Court on
24 May 1989 shall be observed pending the proceedings in the National Conciliation Mediation
Board-Department of Labor and Employment, docketed as NCMB-NCR-NS-01-02189 and
NCMB-NCR-NS-01-093-83. No costs.

SO ORDERED.

Paras and Regalado, JJ., concur.

Padilla, Sarmiento, JJ., took no part.

34
G.R. No. 108961 November 27, 1998

CITIBANK, N.A., petitioner,

vs.
COURT OF APPEALS (Third Division), and CITI-BANK INTEGRATED GUARDS LABOR
ALLIANCE (CIGLA) SEGA-TUPAS/FSM LOCAL CHAPTER No. 1394, respondents.

PARDO, J.:
The Case
The case before the Court is a petition for review on certiorari seeking to reverse and set aside
the decision of the Court of Appeals1 and its resolution denying reconsideration2, ruling that it is
the labor tribunal, not the regional trial court, that has jurisdiction over the complaint for
injunction and damages filed by petitioner with the regional trial court.

The Facts
In 1983, Citibank and El Toro Security Agency, Inc. (hereafter El Toro) entered into a contract
for the latter to provide security and protective services to safeguard and protect the bank's
premises, situated at 8741 Paseo de Roxas, Makati, Metro Manila. Under the contract, El Toro
obligated itself to provide the services of security guards to safeguard and protect the premises
and property of Citibank against theft, robbery or any other unlawful acts committed by any
person or persons, and assumed responsibility for losses and/or damages that may be incurred
by Citibank due to or as a result of the negligence of El Toro or any of its assigned personnel.4
Citibank renewed the security contract with El Toro yearly until 1990. On April 22, 1990, the
contract between Citibank and El Toro expired.
On June 7, 1990, respondent Citibank Integrated Guards Labor Alliance-SEGA-TUPAS/FSM
(hereafter CIGLA) filed with the National Conciliation and Mediation Board (NCMB) a request for
preventive mediation citing Citibank as respondent therein giving as issues for preventive
mediation the following:

a) Unfair labor practice;

b) Dismissal of union officers/members; and
c) Union bust.
On June 10, 1990, petitioner Citibank served on El Toro a written notice that the bank would not
renew anymore the service agreement with the latter. Simultaneously, Citibank hired another
security agency, the Golden Pyramid Security Agency, to render security services at Citibank's
premises.

On the same date, June 10, 1990, respondent CIGLA filed a manifestation with the NCMB that it
was converting its request for preventive mediation into a notice of strike for failure of the parties
to reach a mutually acceptable settlement of the issues, which it followed with a supplemental
notice of strike alleging as supplemental issue the mass dismissal of all union officers and
members.
On June 11, 1990, security guards of El Toro who were replaced by guards of the Golden
Pyramid Security Agency considered the non-renewal of El Toro's service agreement with
Citibank as constituting a lockout and/or a mass dismissal. They threatened to go on strike
against Citibank and picket its premises.
In fact, security guards formerly assigned to Citibank under the expired agreement loitered
around and near the Citibank premises in large groups of from twenty (20) and at times fifty (50)
persons.
On June 14, 1990, respondent CIGLA filed a notice of strike directed at the premises of the
Citibank main office.

35
Faced with the prospect of disruption of its business operations, on June 5, 1990, petitioner
Citibank filed with the Regional Trial Court Makati, a complaint for injunction and damages.5
The complaint sought to enjoin CIGLA and any person claiming membership therein from
striking or otherwise disrupting the operations of the bank.
On June 18, 1990, respondent CIGLA filed with the trial court a motion to dismiss the complaint.
The motion alleged that:

a) The Court had no jurisdiction, this being labor dispute.

b) The guards were employees of the bank.
c) There were pending cases/labor disputes between the guards and the bank at the
different agencies of the Department of Labor and Employment (DOLE).
d) The bank was guilty of forum shopping in filing the complaint with the Regional Trial
Court after submitting itself voluntarily to the jurisdiction of the different agencies of the DOLE.

By order dated August 19, 1990, the trial court denied respondent CIGLA's motion to dismiss.
The relevant portion of the order reads as follows:
Plaintiff in its Opposition alleged that jurisdiction of the court is determined by the allegations of
the complaints. In the plaintiff's complaint there are allegations, which negate any employer-
employee relationship between it and the CIGLA members; however the Court could not
dismiss the case and lift the restraining order without first threshing out the same at the trial of
the case.
The Court finding the grounds alleged in the defendant's motion well taken, the motion is hereby
denied.

SO ORDERED.

In due time, respondent CIGLA filed with the trial court a motion for reconsideration of the
above-mentioned order. On October 1, 1990, the trial court denied the motion.

Subsequently, respondent CIGLA filed with the trial court its answer to the complaint, and
averred as special and affirmative defense lack of jurisdiction of the court over the subject
matter of the case. Treating the averment as motion to dismiss, on April 27, 1991, the lower
court issued an order denying the motion. The lower court stated:

The Court noted in defendant's Memorandum of Authorities that they made no mention who
among the parties — the plaintiff bank or the defendants union — paid their wages or salaries
and who has the power to dismiss them.

Defendants also alleged that the complaint states no valid cause of action as plaintiffs
allegations are purely anchored on conjectures and conclusions and not based on ultimate
facts.

Plaintiff in its Opposition alleged that it is a well-settled rule, that in a motion to dismiss based on
the ground that the complaint fails to state a cause of action, the question submitted to the court
for determination is the sufficiency of the allegation in the complaint itself. Plaintiff also alleged
that the defendants disputed the jurisdiction of the court, the parties having employer-employee
relationship; this mere allegation did not serve to automatically deprive the court of its
jurisdiction duly conferred by the allegations of the complaint; in the opinion of the defendants, a
labor dispute exists, the court is duty bound to find out if such circumstances really exist.

36
The Court weighing the evidence and jurisprudence in support in support of the respective
contention of the parties, and finding that in the case at bar, plaintiff seeks to recover pecuniary
damages, the Court gives more credence to the decisions cited by the plaintiff, hence the
special and affirmative defenses alleged in the answer treated as a "Motion to Dismiss" is
hereby denied.

On May 24, 1991, respondent CIGLA filed with the Court of Appeals a petition for certiorari with
preliminary injunction6 assailing the validity of the proceedings had before the regional trial
court.

After due proceedings, on March 31, 1992, the Court of Appeals promulgated its decision in
CIGLA's favor, the dispositive portion of which states:

WHEREFORE, the Writ of Certiorari is GRANTED, and the proceedings before respondent
Judge more particularly the challenged orders are declared null and void and respondent Judge
is enjoined from taking any further action in Civil Case No. 90-1612 except for the purpose of
dismissing it. Following, however, the disposition in San Miguel Corporation Employees Union
vs. Bersamira, the status quo ante declaration of strike shall be observed pending the
proceedings in the National Conciliation and Mediation Board, Department of Labor and
Employment, National Capital Region (Annex A of Petition). No Costs.

SO ORDERED.

On April 29, 1992, petitioner Citibank filed a motion for reconsideration of the decision. On
February 12, 1993, the Court of Appeals denied the motion, finding that the arguments in the
motion for reconsideration are but a rehash, if not a repetition, of the arguments in its
comments, which had been considered by the Court in its decision.

Hence, the petitioner's recourse to this Court.

The Issue

The basic issue involved is whether it is the labor tribunal or the regional trial court that has
jurisdiction over the subject matter of the complaint filed by Citibank with the trial court.

Petitioner's Submission

Petitioner Citibank contends that there is no employer-employee relationship between Citibank

and the security guards represented by respondent CIGLA and that there is no "labor dispute" in
the subject controversy. The security guards were employees of El Toro security agency, not of
Citibank. Its service contract with Citibank had expired and not renewed.

The Court's Ruling

We sustain the petitioner's contention. This Court has held in many cases that "in determining
the existence of an employer-employee relationship, the following elements are generally
considered: 1) the selection and engagement of the employee; 2) the payment of wages; 3) the
power of dismissal; and 4) the employer's power to control the employee with respect to the
means and methods by which the work is to be accomplished".7 It has been decided also that
the Labor Arbiter has no jurisdiction over a claim filed where no employer-employee relationship
existed between a company and the security guards assigned to it by a security service

37
contractor.8 In this case, it was the security agency El Toro that recruited, hired and assigned
the watchmen to their place of work. It was the security agency that was answerable to Citibank
for the conduct of its guards.

The question arises. Is there a labor dispute between Citibank and the security guards,
members of respondent CIGLA, regardless of whether they stand in the relation of employer
and employees? Article 212, paragraph 1 of the Labor Code provides the definition of a "labor
dispute". It "includes any controversy or matter concerning terms or conditions of employment or
the association or representation of persons in negotiating, fixing, maintaining, changing or
arranging the terms and conditions of employment, regardless of whether the disputants stand
in the proximate relation of employer and employee.

If at all, the dispute between Citibank and El Toro security agency is one regarding the
termination or non-renewal of the contract of services. This is a civil dispute.9 El Toro was an
independent contractor. Thus, no employer-employee relationship existed between Citibank and
the security guard members of the union in the security agency who were assigned to secure
the bank's premises and property. Hence, there was no labor dispute and no right to strike
against the bank.

It is a basic rule of procedure that "jurisdiction of the court over the subject matter of the action
is determined by the allegations of the complaint, irrespective of whether or not the plaintiff is
entitled to recover upon all or some of the claims asserted therein. The jurisdiction of the court
can not be made to depend upon the defenses set up in the answer or upon the motion to
dismiss, for otherwise, the question of jurisdiction would almost entirely depend upon the
defendant."10 "What determines the jurisdiction of the court is the nature of the action pleaded
as appearing from the allegations in the complaint. The averments therein and the character of
the relief sought are the ones to be consulted."11

In the complaint filed with the trial court, petitioner alleged that in 1983, it entered into a contract
with El Toro, a security agency, for security and protection service. The parties renewed the
contract yearly until April 22, 1990. Petitioner further alleged that from June 11, 1990, until the
filing of the complaint, El Toro security guards formerly assigned to guard Citibank premises
loitered around the bank's premises in large groups and threatened to stage a strike, which
would hamper its operations and the normal conduct of its business and that the bank would
suffer damages should a strike push through.

On the basis of the allegations of the complaint, it is safe to conclude that the dispute involved is
a civil one, not a labor dispute.12 Consequently, we rule that jurisdiction over the subject matter
of the complaint lies with the regional trial court.

Relief

WHEREFORE, the Court hereby GRANTS the petition for review on certiorari. We REVERSE
and SET ASIDE the decision of the Court of Appeals and its resolution denying reconsideration
in CA-G. R. SP No. 25584, and REMAND the records of the case to the Regional Trial Court,
Makati, for further proceedings in line with the ruling herein that jurisdiction over the subject
matter of the complaint in Civil Case No. 90-1612, is vested therein.

No pronouncement as to costs.

SO ORDERED.

38
Narvasa, C.J., Romero, and Purisima, JJ., concur.

Kapunan, J., took no part.

39
G.R. No. 120567 March 20, 1998

PHILIPPINE AIRLINES, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, FERDINAND PINEDA and GOGFREDO
CABLING, respondents.

MARTINEZ, J.:

Can the National Labor Relations Commission (NLRC), even without a complaint for illegal
dismissal tiled before the labor arbiter, entertain an action for injunction and issue such writ
enjoining petitioner Philippine Airlines, inc. from enforcing its Orders of dismissal against private
respondents, and ordering petitioner to reinstate the private respondents to their previous
positions?

This is the pivotal issue presented before us in this petition for certiorari under Rule 65 of the
Revised Rules of Court which seeks the nullification of the injunctive writ dated April 3, 1995
issued by the NLRC and the Order denying petitioner's motion for reconsideration on the ground
that the said Orders were issued in excess of jurisdiction.

Private respondents are flight stewards of the petitioner. Both were dismissed from the service
for their alleged involvement in the April 3, 1993 currency smuggling in Hong Kong.

Aggrieved by said dismissal, private respondents filed with the NLRC a petition1 for injunction
praying that:

I. Upon filing of this Petition, a temporary restraining order be issued, prohibiting

respondents (petitioner herein) from effecting or enforcing the Decision dated Feb. 22, 1995, or
to reinstate petitioners temporarily while a hearing on the propriety of the issuance of a writ of
preliminary injunction is being undertaken;

II. After hearing, a writ of preliminary mandatory injunction be issued ordering respondent
to reinstate petitioners to their former positions pending the hearing of this case, or, prohibiting
respondent from enforcing its Decision dated February 22, 1995 while this case is pending
adjudication;

III. After hearing, that the writ of preliminary injunction as to the reliefs sought for be made
permanent, that petitioners be awarded full backwages, moral damages of PHP 500,000.00
each and exemplary damages of PHP 500,000.00 each, attorney's fees equivalent to ten
percent of whatever amount is awarded, and the costs of suit.

On April 3, 1995, the NLRC issued a temporary mandatory injunction 2 enjoining petitioner to
cease and desist from enforcing its February 22, 1995 Memorandum of dismissal. In granting
the writ, the NLRC considered the following facts, to wit:

. . . that almost two (2) years ago, i.e. on April 15, 1993, the petitioners were instructed to attend
an investigation by respondent's "Security and Fraud Prevention Sub-Department" regarding an
April 3, 1993 incident in Hongkong at which Joseph Abaca, respondent's Avionics Mechanic in
Hongkong "was intercepted by the Hongkong Airport Police at Gate 05 . . . the ramp area of the
Kai Tak International Airport while . . . about to exit said gate carrying a . . . bag said to contain

40
some 2.5 million pesos in Philippine Currencies. That at the Police Station. Mr. Abaca claimed
that he just found said plastic bag at the Skybed Section of the arrival flight PR300/03 April 93,"
where petitioners served as flight stewards of said flight PR300; . . the petitioners sought "a
more detailed account of what this HKG incident is all about"; but instead, the petitioners were
administratively charged, "a hearing" on which "did
not push through" until almost two (2) years after, i.e, "on January 20, 1995 . . . where a
confrontation between Mr. Abaca and petitioners herein was compulsorily arranged by the
respondent's disciplinary board" at which hearing, Abaca was made to identify petitioners as co-
conspirators; that despite the fact that the procedure of identification adopted by respondent's
Disciplinary Board was anomalous "as there was no one else in the line-up (which could not be
called one) but petitioners . . . Joseph Abaca still had difficulty in identifying petitioner Pineda as
his co-conspirator, and as to petitioner Cabling, he was implicated and pointed by Abaca only
after respondent's Atty. Cabatuando pressed the former to identify petitioner Cabling as co-
conspirator"; that with the hearing reset to January 25, 1995, "Mr. Joseph Abaca finally gave
exculpating statements to the board in that he cleared petitioners from any participation or from
being the owners of the currencies, and at which hearing Mr. Joseph Abaca volunteered the
information that the real owner of said money was one who frequented his headquarters in
Hongkong to which information, the Disciplinary Board Chairman, Mr. Ismael Khan," opined "for
the need for another hearing to go to the bottom of the incident"; that from said statement, it
appeared "that Mr. Joseph Abaca was the courier, and had another mechanic in Manila who hid
the currency at the plane's skybed for Abaca to retrieve in Hongkong, which findings of how the
money was found was previously confirmed by Mr. Joseph Abaca himself when he was first
investigated by the Hongkong authorities"; that just as petitioners "thought that they were
already fully cleared of the charges, as they no longer received any summons/notices on the
intended "additional hearings" mandated by the Disciplinary Board," they were surprised to
receive "on February 23, 1995. . . a Memorandum dated February 22, 1995" terminating their
services for alleged violation of respondent's Code of Discipline "effective immediately"; that
sometime . . . first week of March, 1995, petitioner Pineda received another Memorandum from
respondent Mr. Juan Paraiso, advising him of his termination effective February 3, 1995,
likewise for violation of respondent's Code of Discipline; . . .

In support of the issuance of the writ of temporary injunction, the NLRC adapted the view that:
(1) private respondents cannot be validly dismissed on the strength of petitioner's Code of
Discipline which was declared illegal by this Court in the ease at PAL, Inc. vs. NLRC, (G.R. No.
85985), promulgated August 13, 1993, for the reason that it was formulated by the petitioner
without the participation of its employees as required in R.A. 6715, amending Article 211 of the
Labor Code; (2) the whimsical, baseless and premature dismissals of private respondents which
"caused them grave and irreparable injury" is enjoinable as private respondents are left "with no
speedy and adequate remedy at law" except the issuance of a temporary mandatory injunction;
(3) the NLRC is empowered under Article 218 (e) of the Labor Code not only to restrain any
actual or threatened commission of any or all prohibited or unlawful acts but also to require the
performance of a particular act in any labor dispute, which, if not restrained or performed
forthwith, may cause grave or irreparable damage to any party; and (4) the temporary power of
the NLRC was recognized by this Court in the case of Chemo-Technische Mfg., Inc. Employees
Union, DFA, et. al. vs. Chemo-Technische Mfg., Inc. [G.R. No. 107031, January 25, 1993].

On May 4, 1995, petitioner moved for reconsideration3 arguing that the NLRC erred:

1. . . . in granting a temporary injunction order when it has no jurisdiction to issue an

injunction or restraining order since this may be issued only under Article 218 of the Labor Code
if the case involves or arises from labor disputes;

41
2. . . . in granting a temporary injunction order when the termination of private respondents
have long been carried out;

3. . . . in ordering the reinstatement of private respondents on the basis of their mere

allegations, in violation of PAL's right to due process:

4. . . . in arrogating unto itself management prerogative to discipline its employees and

divesting the labor arbiter of its original and exclusive jurisdiction over illegal dismissal cases;

5. . . . in suspending the effects of termination when such action is exclusively within the
jurisdiction of the Secretary of Labor;

6. . . . in issuing the temporary injunction in the absence of any irreparable or substantial

injury to both private respondents.

On May 31, 1995, the NLRC denied petitioner's motion for reconsideration, ruling:

"The respondent (now petitioner), for one, cannot validly claim that we cannot exercise our
injunctive power under Article 218 (e) of the Labor Code on the pretext that what we have here
is not a labor dispute as long as it concedes that as defined by law, a" (l) "Labor Dispute"
includes any controversy or matter concerning terms or conditions of employment." If security of
tenure, which has been breached by respondent and which, precisely, is sought to be protected
by our temporary mandatory injunction (the core of controversy in this case) is not a "term or
condition of employment", what then is?

xxx xxx xxx

Anent respondent's second argument . . . . Article 218 (e) of the Labor Code . . . empowered the
Commission not only to issue a prohibitory injunction, but a mandatory ("to require the
performance") one as well. Besides, as earlier discussed, we already exercised (on August 23,
1991) this temporary mandatory injunctive power in the case of "Chemo-Technische Mfg., Inc.
Employees Union-DFA et. al. vs. Chemo-Technische Mfg., Inc., et. al." (supra) and effectively
enjoined one (1) month old dismissals by Chemo-Technische and that our aforesaid mandatory
exercise of injunctive power, when questioned through a petition for certiorari, was sustained by
the Third Division of the Supreme court per its Resolution dated January 25, 1993.

xxx xxx xxx

Respondent's fourth argument that petitioner's remedy for their dismissals is "to file an illegal
dismissal case against PAL which cases are within the original and exclusive jurisdiction of the
Labor Arbiter' is ignorant. In requiring as a condition for the issuance of a "temporary or
permanent injunction" — "(4) That complainant has no adequate remedy at law;" Article 218 (e)
of the Labor Code clearly envisioned adequacy, and not plain availability of a remedy at law as
an alternative bar to the issuance of an injunction. An illegal dismissal suit (which takes, on its
expeditious side, three (3) years before it can be disposed of) while available as a remedy under
Article 217 (a) of the Labor Code, is certainly not an "adequate; remedy at law, Ergo, it cannot
as an alternative remedy, bar our exercise of that injunctive power given us by Article 218 (e) of
the Code.

xxx xxx xxx

42
Thus, Article 218 (e), as earlier discussed [which empowers this Commission "to require the
performance of a particular act" (such as our requiring respondent "to cease and desist from
enforcing" its whimsical memoranda of dismissals and "instead to reinstate petitioners to their
respective position held prior to their subject dismissals") in "any labor dispute which, if not . . .
performed forthwith, may cause grave and irreparable damage to any party"] stands as the sole
"adequate remedy at law" for petitioners here.

Finally, the respondent, in its sixth argument claims that even if its acts of dismissing petitioners
"may be great, still the same is capable of compensation", and that consequently, "injunction
need not be issued where adequate compensation at law could be obtained". Actually,
what respondent PAL argues here is that we need not interfere in its whimsical dismissals of
petitioners as, after all, it can pay the latter its backwages. . . .

But just the same, we have to stress that Article 279 does not speak alone of backwages as an
obtainable relief for illegal dismissal; that reinstatement as well is the concern of said law,
enforceable when necessary, through Article 218 (e) of the Labor Code (without need of an
illegal dismissal suit under Article 217 (a) of the Code) if such whimsical and capricious act of
illegal dismissal will "cause grave or irreparable injury to a party". . . . .4

Hence, the present recourse.

Generally, injunction is a preservative remedy for the protection of one's substantive rights or
interest. It is not a cause of action in itself but merely a provisional remedy, an adjunct to a main
suit. It is resorted to only when there is a pressing necessity to avoid injurious consequences
which cannot be remedied under any standard of compensation. The application of the
injunctive writ rests upon the existence of an emergency or of a special reason before the main
case be regularly heard. The essential conditions for granting such temporary injunctive relief
are that the complaint alleges facts which appear to be sufficient to constitute a proper basis for
injunction and that on the entire showing from the contending parties, the injunction is
reasonably necessary to protect the legal rights of the plaintiff pending the litigation.5 Injunction
is also a special equitable relief granted only in cases where there is no plain, adequate and
complete remedy at law.6

In labor cases, Article 218 of the Labor Code empowers the NLRC —

(e) To enjoin or restrain any actual or threatened commission of any or all prohibited or
unlawful acts or to require the performance of a particular act in any labor dispute which, if not
restrained or performed forthwith, may cause grave or irreparable damage to any party or
render ineffectual any decision in favor of such party; . . ." (Emphasis Ours)

Complementing the above-quoted provision, Sec. 1, Rule XI of the New Rules of Procedure of
the NLRC, pertinently provides as follows:

Sec. 1. Injunction in Ordinary Labor Dispute. — A preliminary injunction or a restraining order

may be granted by the Commission through its divisions pursuant to the provisions of paragraph
(e) of Article 218 of the Labor Code, as amended, when it is established on the bases of the
sworn allegations in the petition that the acts complained of, involving or arising from any labor
dispute before the Commission, which, if not restrained or performed forthwith, may cause
grave or irreparable damage to any party or render ineffectual any decision in favor of such
party.

43
xxx xxx xxx

The foregoing ancillary power may be exercised by the Labor Arbiters only as an incident to the
cases pending before them in order to preserve the rights of the parties during the pendency of
the case, but excluding labor disputes involving strikes or lockout. 7 (Emphasis Ours)

From the foregoing provisions of law, the power of the NLRC to issue an injunctive writ
originates from "any labor dispute" upon application by a party thereof, which application if not
granted "may cause grave or irreparable damage to any party or render ineffectual any decision
in favor of such party."

The term "labor dispute" is defined as "any controversy or matter concerning terms and
conditions of employment or the association or representation of persons in negotiating, fixing.
maintaining, changing, or arranging the terms and conditions of employment regardless of
whether or not the disputants stand in the proximate relation of employers and employees." 8

The term "controversy" is likewise defined as "a litigated question; adversary proceeding in a
court of law; a civil action or suit, either at law or in equity; a justiciable dispute."9

A "justiciable controversy" is "one involving an active antagonistic assertion of a legal right on

one side and a denial thereof on the other concerning a real, and not a mere theoretical
question or issue." 10

Taking into account the foregoing definitions, it is an essential requirement that there must first
be a labor dispute between the contending parties before the labor arbiter. In the present case,
there is no labor dispute between the petitioner and private respondents as there has yet been
no complaint for illegal dismissal filed with the labor arbiter by the private respondents against
the petitioner.

The petition for injunction directly filed before the NLRC is in reality an action for illegal
dismissal. This is clear from the allegations in the petition which prays for; reinstatement of
private respondents; award of full backwages, moral and exemplary damages; and attorney's
fees. As such, the petition should have been filed with the labor arbiter who has the original and
exclusive jurisdiction to hear and decide the following cases involving all workers, whether
agricultural or non-agricultural:

(1) Unfair labor practice;

(2) Termination disputes;

(3) If accompanied with a claim for reinstatement, those cases that workers may file
involving wages, rates of pay, hours of work and other terms and conditions of employment;

(4) Claims for actual, moral, exemplary and other forms of damages arising from the
employer-employee relations;

(5) Cases arising from any violation of Article 264 of this Code, including questions involving
the legality of strikes and lockouts; and

44
(6) Except claims for employees compensation, social security, medicare and maternity
benefits, all other claims arising from employer- employee relations, including those of persons
in domestic or household service, involving an amount exceeding five thousand pesos
(P5,000.00), whether or not accompanied with a claim for reinstatement. 11

The jurisdiction conferred by the foregoing legal provision to the labor arbiter is both original and
exclusive, meaning, no other officer or tribunal can take cognizance of, hear and decide any of
the cases therein enumerated. The only exceptions are where the Secretary of Labor and
Employment or the NLRC exercises the power of compulsory arbitration, or the parties agree to
submit the matter to voluntary arbitration pursuant to Article 263 (g) of the Labor Code, the
pertinent portions of which reads:

(g) When, in his opinion, there exists a labor dispute causing or likely to cause a strike or
lockout in an industry indispensable to the national interest, the Secretary of Labor and
Employment may assume jurisdiction over the dispute and decide it or certify the same to the
Commission for compulsory arbitration. Such assumption or certification shall have the effect of
automatically enjoining the intended or impending strike or lockout as specified in the
assumption or certification order. If one has already taken place at the time of assumption or
certification, all striking or locked out employees shall immediately resume operations and
readmit all workers under the same terms and conditions prevailing before the strike or lockout.
The Secretary of Labor and Employment or the Commission may seek the assistance of law
enforcement agencies to ensure compliance with this provision as well as with such orders as
he may issue to enforce the same.

On the other hand, the NLRC shall have exclusive appellate jurisdiction over all cases decided
by labor arbiters as provided in Article 217(b) of the Labor Code. In short, the jurisdiction of the
NLRC in illegal dismissal cases is appellate in nature and, therefore, it cannot entertain the
private respondents' petition for injunction which challenges the dismissal orders of petitioner.
Article 218(e) of the Labor Code does not provide blanket authority to the NLRC or any of its
divisions to issue writs of injunction, considering that Section 1 of Rule XI of the New Rules of
Procedure of the NLRC makes injunction only an ancillary remedy in ordinary labor disputes."
12

Thus, the NLRC exceeded its jurisdiction when it issued the assailed Order granting private
respondents' petition for injunction and ordering the petitioner to reinstate private respondents.

The argument of the NLRC in its assailed Order that to file an illegal dismissal suit with the labor
arbiter is not an "adequate" remedy since it takes three (3) years before it can be disposed of, is
patently erroneous. An "adequate" remedy at law has been defined as one "that affords relief
with reference to the matter in controversy, and which is appropriate to the particular
circumstances of the case." 13 It is a remedy which is equally, beneficial, speedy and sufficient
which will promptly relieve the petitioner from the injurious effects of the acts complained of. 14

Under the Labor Code, the ordinary and proper recourse of an illegally dismissed employee is to
file a complaint for illegal dismissal with the labor arbiter. 15 In the case at bar, private
respondents disregarded this rule and directly went to the NLRC through a petition for injunction
praying that petitioner be enjoined from enforcing its dismissal orders. In Lamb vs. Phipps, 16
we ruled that if the remedy is specifically provided by law, it is presumed to be adequate.
Moreover, the preliminary mandatory injunction prayed for by the private respondents in their
petition before the NLRC can also be entertained by the labor arbiter who, as shown earlier, has
the ancillary power to issue preliminary injunctions or restraining orders as an incident in the

45
cases pending before him in order to preserve the rights of the parties during the pendency of
the case. 17

Furthermore, an examination of private respondents' petition for injunction reveals that it has no
basis since there is no showing of any urgency or irreparable injury which the private
respondents might suffer. An injury is considered irreparable if it is of such constant and
frequent recurrence that no fair and reasonable redress can be had therefor in a court of law, 18
or where there is no standard by which their amount can be measured with reasonable
accuracy, that is, it is not susceptible of mathematical computation. It is considered irreparable
injury when it cannot be adequately compensated in damages due to the nature of the injury
itself or the nature of the right or property injured or when there exists no certain pecuniary
standard for the measurement of damages. 19

In the case at bar, the alleged injury which private respondents stand to suffer by reason of their
alleged illegal dismissal can be adequately compensated and therefore, there exists no
"irreparable injury," as defined above which would necessitate the issuance of the injunction
sought for. Article 279 of the Labor Code provides that an employee who is unjustly dismissed
from employment shall be entitled to reinstatement, without loss of seniority rights and other
privileges, and to the payment of full backwages, inclusive of allowances, and to other benefits
or their monetary equivalent computed from the time his compensation was withheld from him
up to the time of his actual reinstatement.

The ruling of the NLRC that the Supreme Court upheld its power to issue temporary mandatory
injunction orders in the case of Chemo-Technische Mfg., Inc. Employees Union-DFA, et. al. vs.
Chemo-Technische Mfg., Inc. et. al., docketed as G.R. No. 107031, is misleading. As correctly
argued by the petitioner, no such pronouncement was made by this Court in said case. On
January 25, 1993, we issued a Minute Resolution in the subject case stating as follows:

Considering the allegations contained, the issues raised and the arguments adduced in the
petition for certiorari, as well as the comments of both public and private respondents thereon,
and the reply of the petitioners to private respondent's motion to dismiss the petition, the Court
Resolved to DENY the same for being premature.

It is clear from the above resolution that we did not in anyway sustain the action of the NLRC in
issuing such temporary mandatory injunction but rather we dismissed the petition as the NLRC
had yet to rule upon the motion for reconsideration filed by petitioner. Thus, the minute
resolution denying the petition for being prematurely filed.

Finally, an injunction, as an extraordinary remedy, is not favored in labor law considering that it
generally has not proved to be an effective means of settling labor disputes. 20 It has been the
policy of the State to encourage the parties to use the non-judicial process of negotiation and
compromise, mediation and arbitration. 21 Thus, injunctions may be issued only in cases of
extreme necessity based on legal grounds clearly established, after due consultations or
hearing and when all efforts at conciliation are exhausted which factors, however, are clearly
absent in the present case.

WHEREFORE, the petition is hereby GRANTED. The assailed Orders dated April 3, 1995 and
May 31, 1995, issued by the National Labor Relations Commission (First Division), in NLRC
NCR IC No. 000563-95, are hereby REVERSED and SET ASIDE.

SO ORDERED.

46
Regalado, Melo, Puno and Mendoza, JJ., concur.

47
G.R. No. 116347 October 3, 1996

NATIVIDAD PONDOC, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION (Fifth Division, Cagayan de Oro City) and
EMILIO PONDOC, respondents.

DAVIDE, JR., J.:p

The novel issue that confronts us in this case is whether the Fifth Division of the National Labor
Relations Commission (NLRC) can validly defeat a final judgment of the Labor Arbiter in favor of
the complainant in a labor case by: (a) entertaining a petition for injunction and damages, and
an appeal from the Labor Arbiter's denial of a claim for set-off based on an alleged
indebtedness of the laborer and order of execution of the final judgment; and, (b) thereafter, by
receiving evidence and adjudging recovery on such indebtedness and authorizing it to offset the
Labor Arbiter's final award.

The petitioner takes the negative view. In its Manifestation and Motion in Lieu of Comment, 1
the Office of the Solicitor General joins her in her plea, hence we required the NLRC to file its
own comment.

We resolved to give due course to the petition after the filing by the NLRC and the private
respondent of their separate comments.

Petitioner Natividad Pondoc was the legitimate wife of Andres Pondoc. Atter her death on 5
December 1994, she was substituted by Hipolito Pondoc, her only legitimate son. 2

The Office of the Solicitor General summarized the factual antecedents of this case in its
Manifestation and Motion in Lieu of Comment:

Private respondent Eulalio Pondoc is the owner-proprietor of Melleonor General Merchandise

and Hardware Supply located at Poblacion, Sindangan, Zamboanga del Norte. Respondent is
engaged, among others, in the business of buying and selling copra, rice, corn, "binangkol,"
junk iron and empty bottles. He has in his employ more than twenty (20) regular workers
(Records, pp. 9-11)

Records disclose that Andres Pondoc was employed by Eulalio Pondoc as a laborer from
October 1990 up to December 1991, receiving a wage rate of P20.00 per day. He was required
to work twelve (12) hours a day from 7:00 AM to 8:00 PM, Monday to Sunday. Despite working
on his rest days and holidays, he was not paid his premium pay as required by law (Ibid).

Consequently, on May 14, 1992, Natividad Pondoc, on behalf of her husband, filed a complaint
for salary differential, overtime pay, 13th month pay, holiday pay and other money claims before
the Sub-Regional Arbitration Branch No. 9 of the NLRC, docketed as Sub-RAB Case No. 09-05-
10102-92 (Records, p.1).

In his position paper, private respondent questioned, among others, the existence of [an]
employer-employee relationship between them. He further averred that Melleonor General
Merchandise and Hardware Supply is a fictitious establishment (Records, pp. 64-68).

48
On June 17, 1993, Labor Arbiter Esteban Abecia rendered a Decision finding the existence of
[an] employer-employee relationship between the parties. The dispositive portion of the
Decision reads:

WHEREFORE, judgment is hereby rendered: (a) ordering respondent Eulalio Pondoc to pay
complainant the following claims:

(1) Salary differential for

reason of underpayment P35,776.00;
—————

(2) Regular holiday and

premium pay for holiday services 902.00;
————

(3) Premium pay for rest day

services 3,840.00;
————

(4) 13th month pay 3,600.00

————

or the total amount of FORTY-FOUR [sic] THOUSAND AND ONE HUNDRED EIGHTEEN
PESOS (P44,118.00).

Other claims are denied for lack of merit.

SO ORDERED (Records, pp. 323-324).

On his last day to perfect an appeal, private respondent filed a Manifestation before the Labor
Arbiter praying that his liabilities be set-off against petitioner's alleged indebtedness to him
(Records, pp. 325-327). The Labor Arbiter denied, however, the compensation, and, instead,
issued a writ of execution as prayed for by petitioner (Records, p. 328).

Before the execution order could be implemented, however, private respondent was able to
obtain a restraining order from the NLRC, where he filed a Petition for "Injunction and
Damages," docketed as NLRC Case No. ICM-000065.

On February 28, 1994, public respondent NLRC allowed compensation between petitioner's
monetary award and her alleged indebtedness to private respondent. It disposed:

WHEREFORE, the appealed order is hereby vacated and set aside. A new one is entered
declaring the setting-off of complainant's indebtedness which allegedly amounted to P41,051.35
against the complainant's monetary award in the amount of P44,118.00. The additional amount
of P5,000.00 which complainant allegedly got from respondent on 10 July 1993 could not be
credited in view of appellant's failure to submit evidence to prove that complainant was really
paid P5,000.00.

Accordingly, respondent Eulalio Pondoc is hereby directed to pay complainant Natividad

Pondoc the amount of P3,066.65.

49
The Temporary restraining order issued herein is hereby made permanent.

SO ORDERED (Annex "D" of Petition). 3

Her motion for reconsideration of the judgment having been denied by the NLRC, the petitioner
instituted this special civil action for certiorari under Rule 65 of the Rules of Court wherein she
prays this Court annul the challenged decision of the NLRC, Fifth Division (Cagayan de Oro
City), in NLRC Case No. IC No. M-000065, and direct the enforcement of the writ of execution in
NLRC Case No. SRAB-09-05-10102-92, on the ground that the NLRC, Fifth Division, acted
without or in excess of jurisdiction or with grave abuse of discretion when it proceeded to
determine the alleged indebtedness of the petitioner and set-off the same against the liabilities
of the private respondent. The petitioner asserts that the decision of the Labor Arbiter in NLRC
Case No. SRAB-09-05-10102-92 was already final and executory when the private respondent
tried to defeat the judgment by asserting an alleged indebtedness of Andres Pondoc as a set-
off, a claim not pleaded before the Labor Arbiter at any time before judgment, hence deemed
waived. Moreover the indebtedness "did not evolve out [sic] employer-employee relationship,
hence, purely civil in aspect."

The Office of the Solicitor General agreed with the petitioner and stressed further that the
asserted indebtedness was never proven to have arisen out of or in connection with the
employer-employee relationship between the private respondent and the late Andres Pondoc, or
to have any causal connection thereto. Accordingly, both the Labor Arbiter and the NLRC did
not have jurisdiction over the private respondent's claim.

As expected, the private respondent and the NLRC prayed for the dismissal of this case.

We rule for the petitioner.

The proceedings before the NLRC were fatally flawed.

In the first place, the NLRC should not have entertained the private respondent's separate or
independent petition for "Injunction and Damages" (NLRC IC No. M-000065). It was obvious
that the petition was a scheme to defeat or obstruct the enforcement of the judgment in NLRC
Case No. SRAB-09-05-10102-92 where, in fact, a writ of execution had been issued. Article
218(e) of the Labor Code does not provide blanket authority to the NLRC or any of its divisions
to issue writs of injunction, while Rule XI of the New Rules of Procedure of the NLRC makes
injunction only an ancillary remedy in ordinary labor disputes such as the one brought by the
petitioner in NLRC Case No. SRAB-09-05-10102-92. This is clear from Section 1 of the said
Rule which pertinently provides as follows:

Sec. 1. Injunction in Ordinary Labor Disputed. — A preliminary injunction or a restraining order

may be granted by the Commission through its divisions pursuant to the provisions of paragraph
(e) of Article 218 of the Labor Code, as amended, when it is established on the bases of the
sworn allegations in the petition that the acts complained of, involving or arising from any labor
dispute before the Commission, which, if not restrained or performed forthwith, may cause
grave or irreparable damage to any party or render ineffectual any decision in favor of such
party.

xxx xxx xxx

50
The foregoing ancillary power may be exercised by the Labor Arbiters only as an incident to the
cases pending before them in order to preserve the rights of the parties during the pendency of
the case, but excluding labor disputes involving strike or lockout. (emphasis supplied).

Hence, a petition or motion for preliminary injunction should have been filed in the appeal
interposed by the private respondent, i.e., in NLRC Case No. SRAB-09-05-10102-92. This
matter, however, became academic when the NLRC consolidated the two cases as shown by
the captions in its challenged decision of 28 February 1994 and resolution of 6 May 1994.

Secondly, the appeal of the private respondent in NLRC Case No. SRAB-09-05-10102-92 was
not from the decision therein, but from the order of the Labor Arbiter denying the set-off insisted
upon by the private respondent and directing the execution of the judgment. Therefore, the
private respondent admitted the final and executory character of the judgment.

The Labor Arbiter, in denying the set-off, reasoned "[i]t could have been considered if it was
presented before the decision of this case." 4 While this is correct, there are stronger reasons
why the set-off should, indeed, be denied. As correctly contended by the Office of the Solicitor
General, there is a complete want of evidence that the indebtedness asserted by the private
respondent against Andres Pondoc arose out of or was incurred in connection with the
employer-employee relationship between them. The Labor Arbiter did not then have jurisdiction
over the claim as under paragraph (a) of Article 217 of the Labor Code, Labor Arbiters have
exclusive and original jurisdiction only in the following cases:

1. Unfair labor practice cases;

2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases
that workers may file involving wages, rates of pay, hours of
work and other terms and conditions of employment;
4. Claim for actual, moral, exemplary and other forms of
damages arising from employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code,
including questions involving the legality of strikes and
lockouts; and
6. Except claims for Employees Compensation, Social
Security, Medicare and maternity benefits, all other claims,
arising from employer-employee relations, including those
of persons in domestic or household service, involving an
amount exceeding five thousand pesos (P5,000.00)
regardless of whether accompanies with a claim for
reinstatement.

On the other hand, under paragraph (b) thereof, the NLRC has exclusive appellate jurisdiction
over all cases decided by the Labor Arbiters. This simply means that the NLRC does not have
original jurisdiction over the cases enumerated in paragraph (a) and that if a claim does not fall
within the exclusive original jurisdiction of the Labor Arbiter, the NLRC cannot have appellate
jurisdiction thereon.

The conclusion then is inevitable that the NLRC was without jurisdiction, either original or
appellate, to receive evidence on the alleged indebtedness, render judgment thereon, and direct
that its award be set-off against the final judgment of the Labor Arbiter.

51
Finally, even assuming arguendo that the claim for the alleged indebtedness fell within the
exclusive original jurisdiction of the Labor Arbiter, it was deemed waived for not having been
pleaded as an affirmative defense or barred for not having been set up as a counterclaim before
the Labor Arbiter at any appropriate time prior to the rendition of the decision in NLRC Case No.
SRAB-09-05-10102-92. Under the Rules of Court, which is applicable in a suppletory character
in labor cases before the Labor Arbiters or the NLRC pursuant to Section 3, Rule I of the New
Rules of Procedure of the NLRC, defenses which are not raised either in a motion to dismiss or
in the answer are deemed waived 5 and counterclaims not set up in the answer are barred. 6
Set-off or compensation is one of the modes of extinguishing obligations 7 and extinguishment
is an affirmative defense and a ground for a motion to dismiss. 8

We do not then hesitate to rule that the NLRC acted without jurisdiction or with grave abuse of
discretion in entertaining an independent action for injunction and damages (NLRC IC No. M-
000065), in receiving evidence and rendering judgment on the alleged indebtedness of Andres
Pondoc, and in ordering such judgment to offset the final award of the Labor Arbiter in NLRC
Case No. SRAB-09-05-10102-92.

WHEREFORE, the instant petition is GRANTED and the challenged decision of 28 February
1994 and resolution of 6 May 1994 of the National Labor Relations Commission in NLRC Case
No. IC No. M-000065 and NLRC Case No. SRAB-09-05-10102-92 are ANNULLED and SET
ASIDE. The judgment of the Labor Arbiter in NLRC Case No. SRAB-09-05-10102-92 should
forthwith be enforced without any further delay, the award therein bearing interest at the rate of
twelve per centum (12%) per annum from the finality of such judgment until it shall have been
fully paid.

Costs against the private respondent.

SO ORDERED.

Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.

52
G.R. No. 165881 April 19, 2006

OSCAR VILLAMARIA, JR. Petitioner,

vs.
COURT OF APPEALS and JERRY V. BUSTAMANTE, Respondents

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 65 of the Revised Rules of Court
assailing the Decision1 and Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 78720
which set aside the Resolution3 of the National Labor Relations Commission (NLRC) in NCR-
30-08-03247-00, which in turn affirmed the Decision4 of the Labor Arbiter dismissing the
complaint filed by respondent Jerry V. Bustamante.

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

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

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

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

53
Bustamante continued driving the jeepney under the supervision and control of Villamaria. As
agreed upon, he made daily remittances of P550.00 in payment of the purchase price of the
vehicle. Bustamante failed to pay for the annual registration fees of the vehicle, but Villamaria
allowed him to continue driving the jeepney.

In 1999, Bustamante and other drivers who also had the same arrangement with Villamaria
Motors failed to pay their respective boundary-hulog. This prompted Villamaria to serve a
"Paalala,"6 reminding them that under the Kasunduan, failure to pay the daily boundary-hulog
for one week, would mean their respective jeepneys would be returned to him without any
complaints. He warned the drivers that the Kasunduan would henceforth be strictly enforced
and urged them to comply with their obligation to avoid litigation.

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

On August 15, 2000, Bustamante filed a Complaint7 for Illegal Dismissal against Villamaria and
his wife Teresita. In his Position Paper,8 Bustamante alleged that he was employed by
Villamaria in July 1996 under the boundary system, where he was required to remit P450.00 a
day. After one year of continuously working for them, the spouses Villamaria presented the
Kasunduan for his signature, with the assurance that he (Bustamante) would own the jeepney
by March 2001 after paying P550.00 in daily installments and that he would thereafter continue
driving the vehicle along the same route under the same franchise. He further narrated that in
July 2000, he informed the Villamaria spouses that the surplus engine of the jeepney needed to
be replaced, and was assured that it would be done. However, he was later arrested and his
driver’s license was confiscated because apparently, the replacement engine that was installed
was taken from a stolen vehicle. Due to negotiations with the apprehending authorities, the
jeepney was not impounded. The Villamaria spouses took the jeepney from him on July 24,
2000, and he was no longer allowed to drive the vehicle since then unless he paid them
P70,000.00.

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

WHEREFORE, in the light of the foregoing, it is most respectfully prayed that judgment be
rendered ordering the respondents, jointly and severally, the following:

1. Reinstate complainant to his former position without loss of seniority rights and execute a
Deed of Sale in favor of the complainant relative to the PUJ with Plate No. PVU-660;

2. Ordering the respondents to pay backwages in the amount of P400.00 a day and other
benefits computed from July 24, 2000 up to the time of his actual reinstatement;

3. Ordering respondents to return the amount of P10,000.00 and P180,000.00 for the expenses
incurred by the complainant in the repair and maintenance of the subject jeep;

4. Ordering the respondents to refund the amount of One Hundred (P100.00) Pesos per day
counted from August 7, 1997 up to June 2000 or a total of P91,200.00;

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

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

54
Other just and equitable reliefs under the premises are also being prayed for.9

In their Position Paper,10 the spouses Villamaria admitted the existence of the Kasunduan, but
alleged that Bustamante failed to pay the P10,000.00 downpayment and the vehicle’s annual
registration fees. They further alleged that Bustamante eventually failed to remit the requisite
boundary-hulog of P550.00 a day, which prompted them to issue the Paalaala. Instead of
complying with his obligations, Bustamante stopped making his remittances despite his daily
trips and even brought the jeepney to the province without permission. Worse, the jeepney
figured in an accident and its license plate was confiscated; Bustamante even abandoned the
vehicle in a gasoline station in Sucat, Parañaque City for two weeks. When the security guard at
the gasoline station requested that the vehicle be retrieved and Teresita Villamaria asked
Bustamante for the keys, Bustamante told her: "Di kunin ninyo." When the vehicle was finally
retrieved, the tires were worn, the alternator was gone, and the battery was no longer working.

Citing the cases of Cathedral School of Technology v. NLRC11 and Canlubang Security Agency
Corporation v. NLRC,12 the spouses Villamaria argued that Bustamante was not illegally
dismissed since the Kasunduan executed on August 7, 1997 transformed the employer-
employee relationship into that of vendor-vendee. Hence, the spouses concluded, there was no
legal basis to hold them liable for illegal dismissal. They prayed that the case be dismissed for
lack of jurisdiction and patent lack of merit.

In his Reply,13 Bustamante claimed that Villamaria exercised control and supervision over the
conduct of his employment. He maintained that the rulings of the Court in National Labor Union
v. Dinglasan,14 Magboo v. Bernardo,15 and Citizen's League of Free Workers v. Abbas16 are
germane to the issue as they define the nature of the owner/operator-driver relationship under
the boundary system. He further reiterated that it was the Villamaria spouses who presented the
Kasunduan to him and that he conformed thereto only upon their representation that he would
own the vehicle after four years. Moreover, it appeared that the Paalala was duly received by
him, as he, together with other drivers, was made to affix his signature on a blank piece of paper
purporting to be an "attendance sheet."

On March 15, 2002, the Labor Arbiter rendered judgment17 in favor of the spouses Villamaria
and ordered the complaint dismissed on the following ratiocination:

Respondents presented the contract of Boundary-Hulog, as well as the PAALALA, to prove their
claim that complainant violated the terms of their contract and afterwards abandoned the vehicle
assigned to him. As against the foregoing, [the] complaint’s (sic) mere allegations to the
contrary cannot prevail.

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

Bustamante appealed the decision to the NLRC,19 insisting that the Kasunduan did not
extinguish the employer-employee relationship between him and Villamaria. While he did not
receive fixed wages, he kept only the excess of the boundary-hulog which he was required to
remit daily to Villamaria under the agreement. Bustamante maintained that he remained an
employee because he was engaged to perform activities which were necessary or desirable to
Villamaria’s trade or business.

The NLRC rendered judgment20 dismissing the appeal for lack of merit, thus:

55
WHEREFORE, premises considered, complainant's appeal is hereby DISMISSED for reasons
not stated in the Labor Arbiter's decision but mainly on a jurisdictional issue, there being none
over the subject matter of the controversy.21

The NLRC ruled that under the Kasunduan, the juridical relationship between Bustamante and
Villamaria was that of vendor and vendee, hence, the Labor Arbiter had no jurisdiction over the
complaint. Bustamante filed a Motion for Reconsideration, which the NLRC resolved to deny on
May 30, 2003.22

Bustamante elevated the matter to the CA via Petition for Certiorari, alleging that the NLRC
erred

IN DISMISSING PETITIONER’S APPEAL "FOR REASON NOT STATED IN THE LABOR

ARBITER’S DECISION, BUT MAINLY ON JURISDICTIONAL ISSUE;"

II

IN DISREGARDING THE LAW AND PREVAILING JURISPRUDENCE WHEN IT DECLARED

THAT THE RELATIONSHIP WHICH WAS ESTABLISHED BETWEEN PETITIONER AND THE
PRIVATE RESPONDENT WAS DEFINITELY A MATTER WHICH IS BEYOND THE
PROTECTIVE MANTLE OF OUR LABOR LAWS.23

Bustamante insisted that despite the Kasunduan, the relationship between him and Villamaria
continued to be that of employer-employee and as such, the Labor Arbiter had jurisdiction over
his complaint. He further alleged that it is common knowledge that operators of passenger
jeepneys (including taxis) pay their drivers not on a regular monthly basis but on commission or
boundary basis, or even the boundary-hulog system. Bustamante asserted that he was
dismissed from employment without any lawful or just cause and without due notice.

For his part, Villamaria averred that Bustamante failed to adduce proof of their employer-
employee relationship. He further pointed out that the Dinglasan case pertains to the boundary
system and not the boundary-hulog system, hence inapplicable in the instant case. He argued
that upon the execution of the Kasunduan, the juridical tie between him and Bustamante was
transformed into a vendor-vendee relationship. Noting that he was engaged in the manufacture
and sale of jeepneys and not in the business of transporting passengers for consideration,
Villamaria contended that the daily fees which Bustmante paid were actually periodic
installments for the the vehicle and were not the same fees as understood in the boundary
system. He added that the boundary-hulog plan was basically a scheme to help the driver-buyer
earn money and eventually pay for the unit in full, and for the owner to profit not from the daily
earnings of the driver-buyer but from the purchase price of the unit sold. Villamaria further
asserted that the apparently restrictive conditions in the Kasunduan did not mean that the
means and method of driver-buyer’s conduct was controlled, but were mere ways to preserve
the vehicle for the benefit of both parties: Villamaria would be able to collect the agreed
purchase price, while Bustamante would be assured that the vehicle would still be in good
running condition even after four years. Moreover, the right of vendor to impose certain
conditions on the buyer should be respected until full ownership of the property is vested on the
latter. Villamaria insisted that the parallel circumstances obtaining in Singer Sewing Machine
Company v. Drilon24 has analogous application to the instant issue.

56
In its Decision25 dated August 30, 2004, the CA reversed and set aside the NLRC decision.
The fallo of the decision reads:

UPON THE VIEW WE TAKE IN THIS CASE, THUS, the impugned resolutions of the NLRC
must be, as they are hereby are, REVERSED AND SET ASIDE, and judgment entered in favor
of petitioner:

1. Sentencing private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante
separation pay computed from the time of his employment up to the time of termination based
on the prevailing minimum wage at the time of termination; and,

2. Condemning private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante back
wages computed from the time of his dismissal up to March 2001 based on the prevailing
minimum wage at the time of his dismissal.

Without Costs.

SO ORDERED.26

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

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

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

Villamaria received a copy of the decision on September 8, 2004, and filed, on September 17,
2004, a motion for reconsideration thereof. The CA denied the motion in a Resolution27 dated
November 2, 2004, and Villamaria received a copy thereof on November 8, 2004.

57
Villamaria, now petitioner, seeks relief from this Court via petition for review on certiorari under
Rule 65 of the Rules of Court, alleging that the CA committed grave abuse of its discretion
amounting to excess or lack of jurisdiction in reversing the decision of the Labor Arbiter and the
NLRC. He claims that the CA erred in ruling that the juridical relationship between him and
respondent under the Kasunduan was a combination of employer-employee and vendor-vendee
relationships. The terms and conditions of the Kasunduan clearly state that he and respondent
Bustamante had entered into a conditional deed of sale over the jeepney; as such, their
employer-employee relationship had been transformed into that of vendor-vendee. Petitioner
insists that he had the right to reserve his title on the jeepney until after the purchase price
thereof had been paid in full.

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

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

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

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

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

We agree that the remedy of the aggrieved party from a decision or final resolution of the CA is
to file a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, on
questions of facts or issues of law within fifteen days from notice of the said resolution.
Otherwise, the decision of the CA shall become final and executory. The remedy under Rule 45
of the Rules of Court is a mode of appeal to this Court from the decision of the CA. It is a
continuation of the appellate process over the original case. A review is not a matter of right but
is a matter of judicial discretion. The aggrieved party may, however, assail the decision of the
CA via a petition for certiorari under Rule 65 of the Rules of Court within sixty days from notice
of the decision of the CA or its resolution denying the motion for reconsideration of the same.
This is based on the premise that in issuing the assailed decision and resolution, the CA acted
with grave abuse of discretion, amounting to excess or lack of jurisdiction and there is no plain,
speedy and adequate remedy in the ordinary course of law. A remedy is considered plain,

58
speedy and adequate if it will promptly relieve the petitioner from the injurious effect of the
judgment and the acts of the lower court.

The aggrieved party is proscribed from filing a petition for certiorari if appeal is available, for the
remedies of appeal and certiorari are mutually exclusive and not alternative or successive. The
aggrieved party is, likewise, barred from filing a petition for certiorari if the remedy of appeal is
lost through his negligence. A petition for certiorari is an original action and does not interrupt
the course of the principal case unless a temporary restraining order or a writ of preliminary
injunction has been issued against the public respondent from further proceeding. A petition for
certiorari must be based on jurisdictional grounds because, as long as the respondent court
acted within its jurisdiction, any error committed by it will amount to nothing more than an error
of judgment which may be corrected or reviewed only by appeal.31

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

We resolve these issues in the affirmative.

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

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

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

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involving
wage, rates of pay, hours of work, and other terms and conditions of employment;

59
4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-
employee relations;

5. Cases arising from violation of Article 264 of this Code, including questions involving the
legality of strikes and lockouts; and

6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims, arising from employer-employee relationship, including those of
persons in domestic or household service, involving an amount exceeding five thousand pesos
(P5,000.00) regardless of whether accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor
Arbiters.

(c) Cases arising from the interpretation or implementation of collective bargaining agreements,
and those arising from the interpretation or enforcement of company personnel policies shall be
disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary
arbitration as may be provided in said agreements.

In the foregoing cases, an employer-employee relationship is an indispensable jurisdictional

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

We agree with the ruling of the CA that, under the boundary-hulog scheme incorporated in the
Kasunduan, a dual juridical relationship was created between petitioner and respondent: that of
employer-employee and vendor-vendee. The Kasunduan did not extinguish the employer-
employee relationship of the parties extant before the execution of said deed.

As early as 1956, the Court ruled in National Labor Union v. Dinglasan40 that the jeepney
owner/operator-driver relationship under the boundary system is that of employer-employee and
not lessor-lessee. This doctrine was affirmed, under similar factual settings, in Magboo v.
Bernardo41 and Lantaco, Sr. v. Llamas,42 and was analogously applied to govern the
relationships between auto-calesa owner/operator and driver,43 bus owner/operator and
conductor,44 and taxi owner/operator and driver.45

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

a common carrier to primarily govern the compensation of the driver, that is, the latter’s daily
earnings are remitted to the owner/operator less the excess of the boundary which represents
the driver’s compensation. Under this system, the owner/operator exercises control and
supervision over the driver. It is unlike in lease of chattels where the lessor loses complete
control over the chattel leased but the lessee is still ultimately responsible for the consequences
of its use. The management of the business is still in the hands of the owner/operator, who,
being the holder of the certificate of public convenience, must see to it that the driver follows the

60
route prescribed by the franchising and regulatory authority, and the rules promulgated with
regard to the business operations. The fact that the driver does not receive fixed wages but only
the excess of the "boundary" given to the owner/operator is not sufficient to change the
relationship between them. Indubitably, the driver performs activities which are usually
necessary or desirable in the usual business or trade of the owner/operator.46

Under the Kasunduan, respondent was required to remit P550.00 daily to petitioner, an amount
which represented the boundary of petitioner as well as respondent’s partial payment (hulog) of
the purchase price of the jeepney.

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

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

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

Ang mga patakaran, kaugnay ng bilihang ito sa pamamagitan ng boundary hulog ay ang mga
sumusunod:

1. Pangangalagaan at pag-iingatan ng TAUHAN NG IKALAWANG PANIG ang sasakyan

ipinagkatiwala sa kanya ng TAUHAN NG UNANG PANIG.

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

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

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

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

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

5. Na ang TAUHAN NG IKALAWANG PANIG ay kinakailangang maglagay ng ID Card sa harap

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

61
6. Na sasagutin ng TAUHAN NG IKALAWANG PANIG ang [halaga ng] multa kung sakaling
mahuli ang sasakyang ito na hindi nakakabit ang ID card sa wastong lugar o anuman kasalanan
o kapabayaan.

7. Na sasagutin din ng TAUHAN NG IKALAWANG PANIG ang materyales o piyesa na

papalitan ng nasira o nawala ito dahil sa kanyang kapabayaan.

8. Kailangan sa VILLAMARIA MOTORS pa rin ang garahe habang hinuhulugan pa rin ng

TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan.

9. Na kung magkaroon ng mabigat na kasiraan ang sasakyang ipinagkaloob ng TAUHAN NG

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

10. Na hindi pahihintulutan ng TAUHAN NG IKALAWANG PANIG sa panahon ng pamamasada

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

11. Na ang TAUHAN NG IKALAWANG PANIG o ang awtorisado niyang driver ay magpapakita
ng magandang asal sa mga pasaheros at hindi dapat magsasalita ng masama kung sakali man
may pasaherong pilosopo upang maiwasan ang anumang kaguluhan na maaaring
kasangkutan.

12. Na kung sakaling hindi makapagbigay ng BOUNDARY HULOG ang TAUHAN NG

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

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY

HULOG sa loob ng isang linggo ay nangangahulugan na ang kasunduang ito ay wala ng bisa at
kusang ibabalik ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG
UNANG PANIG.

14. Sasagutin ng TAUHAN NG IKALAWANG PANIG ang bayad sa rehistro, comprehensive

insurance taon-taon at kahit anong uri ng aksidente habang ito ay hinuhulugan pa sa TAUHAN
NG UNANG PANIG.

15. Na ang TAUHAN NG IKALAWANG PANIG ay obligadong dumalo sa pangkalahatang

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

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

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

17. Na ang TAUHAN NG IKALAWANG PANIG ay hindi magiging buwaya sa pasahero upang
hindi kainisan ng kapwa driver at maiwasan ang pagkakasangkot sa anumang gulo.

62
18. Ang nasabing sasakyan ay hindi kalilimutang siyasatin ang kalagayan lalo na sa umaga
bago pumasada, at sa hapon o gabi naman ay sisikapin mapanatili ang kalinisan nito.

19. Na kung sakaling ang nasabing sasakyan ay maaarkila at aabutin ng dalawa o higit pang
araw sa lalawigan ay dapat lamang na ipagbigay alam muna ito sa VILLAMARIA MOTORS
upang maiwasan ang mga anumang suliranin.

20. Na ang TAUHAN NG IKALAWANG PANIG ay iiwasan ang pakikipag-unahan sa

kaninumang sasakyan upang maiwasan ang aksidente.

21. Na kung ang TAUHAN NG IKALAWANG PANIG ay mayroon sasabihin sa VILLAMARIA

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

22. Ang mga nasasaad sa KASUNDUAN ito ay buong galang at puso kong sinasang-ayunan at
buong sikap na pangangalagaan ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan
at gagamitin lamang ito sa paghahanapbuhay at wala nang iba pa.51

The parties expressly agreed that petitioner, as vendor, and respondent, as vendee, entered
into a contract to sell the jeepney on a daily installment basis of P550.00 payable in four years
and that petitioner would thereafter become its owner. A contract is one of conditional sale,
oftentimes referred to as contract to sell, if the ownership or title over the

property sold is retained by the vendor, and is not passed to the vendee unless and until there is
full payment of the purchase price and/or upon faithful compliance with the other terms and
conditions that may lawfully be stipulated.52 Such payment or satisfaction of other
preconditions, as the case may be, is a positive suspensive condition, the failure of which is not
a breach of contract, casual or serious, but simply an event that would prevent the obligation of
the vendor to convey title from acquiring binding force.53 Stated differently, the efficacy or
obligatory force of the vendor's obligation to transfer title is subordinated to the happening of a
future and uncertain event so that if the suspensive condition does not take place, the parties
would stand as if the conditional obligation had never existed.54 The vendor may extrajudicially
terminate the operation of the contract, refuse conveyance, and retain the sums or installments
already received, where such rights are expressly provided for.55

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

The juridical relationship of employer-employee between petitioner and respondent was not
negated by the foregoing stipulation in the Kasunduan, considering that petitioner retained
control of respondent’s conduct as driver of the vehicle. As correctly ruled by the CA:

The exercise of control by private respondent over petitioner’s conduct in operating the jeepney
he was driving is inconsistent with private respondent’s claim that he is, or was, not engaged in
the transportation business; that, even if petitioner was allowed to let some other person drive

63
the unit, it was not shown that he did so; that the existence of an employment relation is not
dependent on how the worker is paid but on the presence or absence of control over the means
and method of the work; that the amount earned in excess of the "boundary hulog" is equivalent
to wages; and that the fact that the power of dismissal was not mentioned in the Kasunduan did
not mean that private respondent never exercised such power, or could not exercise such
power.

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

Neither is such juridical relationship negated by petitioner’s claim that the terms and conditions
in the Kasunduan relative to respondent’s behavior and deportment as driver was for his and
respondent’s benefit: to insure that respondent would be able to pay the requisite daily
installment of P550.00, and that the vehicle would still be in good condition despite the lapse of
four years. What is primordial is that petitioner retained control over the conduct of the
respondent as driver of the jeepney.

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

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

It is basic of course that termination of employment must be effected in accordance with law.
The just and authorized causes for termination of employment are enumerated under Articles
282, 283 and 284 of the Labor Code.

Parenthetically, given the peculiarity of the situation of the parties here, the default in the
remittance of the boundary hulog for one week or longer may be considered an additional cause
for termination of employment. The reason is because the Kasunduan would be of no force and
effect in the event that the purchaser failed to remit the boundary hulog for one week. The
Kasunduan in this case pertinently stipulates:

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY

HULOG sa loob ng isang linggo ay NANGANGAHULUGAN na ang kasunduang ito ay wala ng
bisa at kusang ibabalik ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa
TAUHAN NG UNANG PANIG na wala ng paghahabol pa.

64
Moreover, well-settled is the rule that, the employer has the burden of proving that the dismissal
of an employee is for a just cause. The failure of the employer to discharge this burden means
that the dismissal is not justified and that the employee is entitled to reinstatement and back
wages.

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

"Sa lahat ng mga kumukuha ng sasakyan

"Sa pamamagitan ng ‘BOUNDARY HULOG’

"Nais ko pong ipaalala sa inyo ang Kasunduan na inyong pinirmahan particular na ang
paragrapo 13 na nagsasaad na kung hindi kayo makapagbigay ng Boundary Hulog sa loob ng
isang linggo ay kusa ninyong ibabalik and nasabing sasakyan na inyong hinuhulugan ng wala
ng paghahabol pa.

"Mula po sa araw ng inyong pagkatanggap ng Paalala na ito ay akin na pong ipatutupad ang
nasabing Kasunduan kaya’t aking pinaaalala sa inyong lahat na tuparin natin ang nakalagay sa
kasunduan upang maiwasan natin ito.

"Hinihiling ko na sumunod kayo sa hinihingi ng paalalang ito upang hindi na tayo makaabot pa
sa korte kung sakaling hindi ninyo isasauli ang inyong sasakyan na hinuhulugan na ang mga
magagastos ay kayo pa ang magbabayad sapagkat ang hindi ninyo pagtupad sa kasunduan
ang naging dahilan ng pagsampa ng kaso.

"Sumasainyo

"Attendance: 8/27/99

"(The Signatures appearing herein

include (sic) that of petitioner’s) (Sgd.)

OSCAR VILLAMARIA, JR."

If it were true that petitioner did not remit the boundary hulog for one week or more, why did
private respondent not forthwith take steps to recover the unit, and why did he have to wait for
petitioner to abandon it?1avvphil.net

65
On another point, private respondent did not submit any police report to support his claim that
petitioner really figured in a vehicular mishap. Neither did he present the affidavit of the guard
from the gas station to substantiate his claim that petitioner abandoned the unit there.58

Petitioner’s claim that he opted not to terminate the employment of respondent because of
magnanimity is negated by his (petitioner’s) own evidence that he took the jeepney from the
respondent only on July 24, 2000.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the Court of
Appeals in CA-G.R. SP No. 78720 is AFFIRMED. Costs against petitioner.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice

66
G.R. No. 121227 August 17, 1998

VICENTE SAN JOSE, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and OCEAN TERMINAL SERVICES, INC.,
respondent.

PURISIMA, J.:

Before the Court is a Petition for Certiorari seeking to annul a Decision of the National Labor
Relations Commission dated April 20, 1995 in NLRC-NCR-CA-No. 00671-94 which reversed, on
jurisdictional ground, a Decision of the Labor Arbiter dated January 19, 1994 in NLRC-NCR
Case No. 00-03-02101-93 a case for a money claim — underpayment of retirement benefit.
Records do not show that petitioner presented a Motion for Reconsideration of subject Decision
of the National Labor Relations Commission, which motion is, generally required before the
filing of Petition for Certiorari.

While the rule prescribing the requisite motion for reconsideration is not absolute and
recognizes some exceptions, there is no showing that the case at bar constitutes an exception.
Nevertheless, we gave due course to the petition to enable the Court to reiterate and clarify the
jurisdictional boundaries between Labor Arbiters and Voluntary Arbitrator or Panel of Voluntary
Arbitrators over money claims, and to render substantial and speedy justice to subject aged
stevedore retiree who first presented his claim for retirement benefit in April 1991, or seven
years ago.

Labor law practitioners and all lawyers, for that matter, should be fully conversant with the
requirements for the institution of certiorari proceedings under Rule 65 of the Revised Rules of
Court. For instance, it is necessary that a Motion for Reconsideration of the Decision of the
National Labor Relations Commission must first be resorted to. The ruling in Corazon Jamer v.
National Labor Relations Commission, G.R. No. 112630, September 5, 1997, comes to the fore
and should be well understood and observed. An ordinary allegation — ". . . and there is no
appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law" (Rule 65,
Sec. 1, Revised Rules of Court) is not a foolproof substitute for a Motion for Reconsideration,
absence of which can be fatal to a Petition for Certiorari. Petitioner cannot and should not rely
on the liberality of the Court simply because he is a working man.

In the Jamer case, this court said:

. . . This premature action of petitioners constitutes a fatal infirmity as ruled in a long line of
decisions, most recently is the case of Building Care Corporation v. National Labor Relations
Commission —

The filing of such motion is intended to afford public respondent an opportunity to correct any
actual or fancied error attributed to it by way of a re-examination of the legal and factual aspects
of the case. Petitioner's inaction or negligence under the circumstances is tantamount to a
deprivation of the right and opportunity of the respondent commission to cleanse itself of an
error unwittingly committed or to vindicate itself of an act unfairly imputed. . . .

Likewise, a motion for reconsideration is an adequate remedy; hence certiorari proceedings, as

in this case, will not prosper.

67
As stated in the Decision of the Labor Arbiter in NLRC-NCR-Case No. 00-03-0201-93, dated
January 19, 1994, the facts of this case are undisputed. The Labor Arbiter reported, thus:

Complainant, in his position paper (Record, pages 11 to 14) states that he was hired sometime
in July 1980 as a stevedore continuously until he was advised in April 1991 to retire from service
considering that he already reached 65 years old (sic); that accordingly, he did apply for
retirement and was paid P3,156.39 for retirement pay . . . (Rollo, pp. 15, 26-27, 58-59).

Decision of the Labor Arbiter in NLRC-NCR-

Case No. 00-03-02101-93, January 9, 1994
(Rollo, pp. 15017, at pp. 16-17).

The Labor Arbiter decided the case solely on the merits of the complaint. Nowhere in the
Decision is made mention of or reference to the issue of jurisdiction of the Labor Arbiter (Rollo,
pp. 15-17). But the issue of jurisdiction is the bedrock of the Petition because, as earlier
intimated, the Decision of the National Labor Relations Commission, hereinbelow quoted,
reversed the Labor Arbiter's Decision on the issue of jurisdiction. Reads subject Decision of the
Labor Arbiter:

Respondents, in their Reply to complainant's position paper, allege (Record, pages 18 to 21)
that complainant's latest basic salary was P120.34 per day; that he only worked on rotation
basis and not seven days a week due to numerous stevedores who can not all be given
assignments at the same time; that all stevedores only for paid every time they were assigned
or actually performed stevedoring; that the computation used in arriving at the amount of
P3,156.30 was the same computation applied to the other stevedores; that the use of divisor
303 is not applicable because complainant performed stevedoring job only on call, so while he
was connected with the company for the past 11 years, he did not actually render 11 years of
service; that the burden of proving that complainant's latest salary was P200.00 rests upon him;
that he already voluntarily signed a waiver of quitclaim; that if indeed respondent took
advantage of his illiteracy into signing his quitclaim, he would have immediately filed this
complaint but nay, for it took him two (2) years to do so.

The issue therefore is whether or not complainant is entitled to the claimed differential of
separation pay.

We find for the complainant. He is entitled to differential.

We cannot sustain a computation of length of service based on the ECC contribution records.
Likewise, the allegation that complainant rendered service for only five days a month for the
past 11 years is statistically improbable, aside from the fact that the best evidence thereof are
complainant's daily time records which respondent are (sic) duty bound to keep and make
available anytime in case of this.

The late filing has no bearing. The prescription period is three years. It is suffice (sic) that the
filing falls within the period.

Whether or not complainant worked on rotation basis is a burden which lies upon the employer.
The presumption is that the normal working period is eight (8) hours a day and six (6) days a
week, or 26 days a month, unless proven otherwise.

68
Also, the burden of proving the amount of salaries paid to employees rests upon the employer
not on the employee. It can be easily proven by payrolls, vouchers, etc. which the employers
are likewise duty bound to keep and present. There being non, we have to sustain
complainant's assertion that his latest salary rate was P200 a day or P5,200 a month.
Therefore, his retrenchment pay differential is P25,443.70 broken down as follows:

P200 x 26 days = P5,200 x 11 years

= (P2,600 x 11 years) - P3,156.30

= P28,600 - P3,156.30

= P25,443.70

The Decision of the National Labor Relations

Commission in NLRC-NCR-CA No. 06701-94
April 20, 1995 (Rollo, pp. 18-21).

The National Labor Relations Commission reversed on jurisdictional ground the aforesaid
Decision of the Labor Arbiter; ruling, as follows:

. . . His claim for separation pay differential is based on the Collective Bargaining Agreement
(CBA) between his union and the respondent company, the pertinent portion of which reads:

. . . ANY UNION member shall be compulsory retired (sic) by the company upon reaching the
age of sixty (60) years, unless otherwise extended by the company for justifiable reason. He
shall be paid his retirement pay equivalent to one-half (1/2) month salary for every year of
service, a fraction of at least six months being considered as one (1) whole year.

. . . The company agrees that in case of casual employees and/or workers who work on rotation
basis the criterion for determining their retirement pay shall be 303 rotation calls or work days as
equivalent to one (1) year and shall be paid their retirement pay equivalent to one half (1/2)
month for every year of service.

xxx xxx xxx

Since the instant case arises from interpretation or implementation of a collective bargaining
agreement, the Labor Arbiter should have dismissed it for lack of jurisdiction in accordance with
Article 217 (c) of the Labor Code, which reads: (Emphasis supplied)

Art. 217. Jurisdiction of Labor Arbiter and the Commission.

xxx xxx xxx

(c) Cases arising from the interpretation or implementation of collective bargaining

agreement and those arising from the interpretation or enforcement of company
procedure/policies shall be disposed of by the Labor Arbiter by referring the same to the
grievance machinery and voluntary arbitrator as may be provided in said agreements.

69
Petitioner contends that:

I. THE PUBLIC RESPONDENT NLRC GRAVELY ABUSED ITS DISCRETION IN GIVING

DUE COURSE TO THE APPEAL DESPITE THE FACT 4 (SIC) THAT IT WAS FILED OUT OF
TIME AND THERE IS NO SHOWING THAT A SURETY BOND WAS POSTED.

II. THE PUBLIC RESPONDENT NLRC GRAVELY ABUSED ITS DISCRETION IN

SETTING ASIDE THE DECISION OF . . . DATED 19 JANUARY 1994 AND DISMISSING THE
CASE ON THE GROUND OF LACK OF JURISDICTION WHEN THE ISSUE DOES NOT
INVOLVE ANY PROVISION OF THE COLLECTIVE BARGAINING AGREEMENT. (Rollo, pp. 7-
8)

The Manifestation and Motion (In Lieu of Comment) sent in on December 6, 1995 by the Office
of the Solicitor General support the second issue, re: jurisdiction raised by the Petitioner (Rollo,
pp. 26-33, at pp. 38-32).

Labor Arbiter Decision

Labor Arbiters should exert all efforts to cite statutory provisions and/or judicial decision to
buttress their dispositions. An Arbiter cannot rely on simplistic statements, generalizations, and
assumptions. These are not substitutes for reasoned judgment. Had the Labor Arbiter exerted
more research efforts, support for the Decision could have been found in pertinent provisions of
the Labor Code, its implementing Rules, and germane decisions of the Supreme Court. As this
Court said in Juan Saballa, at al. v. NLRC, G.R. No. 102472-84, August 22, 1996:

. . . This Court has previously held that judges and arbiters should draw up their decisions and
resolutions with due care, and make certain that they truly and accurately reflect their
conclusions and their final dispositions. A decision should faithfully comply with Section 14,
Article VIII of the Constitution which provides that no decision shall be rendered by any court
without expressing therein clearly and distinctly the facts of the case and the law on which it is
based. If such decision had to be completely overturned or set aside, upon the modified
decision, such resolution or decision should likewise state the factual and legal foundation relied
upon. The reason for this is obvious: aside from being required by the Constitution, the court
should be able to justify such a sudden change of course; it must be able to convincingly explain
the taking back of its solemn conclusions and pronouncements in the earlier decision. The same
thing goes for the findings of fact made by the NLRC, as it is a settled rule that such findings are
entitled to great respect and even finality when supported by substantial evidence; otherwise,
they shall be struck down for being whimsical and capricious and arrived at with grave abuse of
discretion. It is a requirement of due process and fair play that the parties to a litigation be
informed of how it was decided, with an explanation of the factual and legal reasons that led to
the conclusions of the court. A decision that does not clearly and distinctly state the facts and
the law on which it is based leaves the parties in the dark as to how it was reached and is
especially prejudicial to the losing party, who is unable to pinpoint the possible errors of the
court for review by a higher tribunal. . . .

This is not an admonition but rather, advice and a critique to stress that both have obligations to
the Courts and students of the law. Decisions of the Labor Arbiters, the National Labor
Relations Commission, and the Supreme Court serve not only to adjudicate disputes, but also
as an educational tool to practitioners, executives, labor leaders and law students. They all have
a keen interest in methods of analysis and the reasoning processes employed in labor dispute

70
adjudication and resolution. In fact, decisions rise or fall on the basis of the analysis and
reasoning processes of decision makers or adjudicators.

On the issues raised by the Petitioner, we rule:

1. Timeliness of Appeal
And Filing of Appeal Bond

The Court rules that the appeal of the respondent corporation was interposed within the
reglementary period, in accordance with the Rules of the National Labor Relations Commission,
and an appeal bond was duly posted. We adopt the following Comment dated August 14, 1996,
submitted by the National Labor Relations Commission, to wit:

. . . While it is true that private respondent company received a copy of the decision dated
January 19, 1994 of the Labor Arbiter . . . and filed its appeal on February 14, 1994, it is
undisputed that the tenth day within which to file an appeal fell on a Saturday, the last day to
perfect an appeal shall be the next working day.

Thus, the amendments to the New Rules of Procedure of the NLRC, Resolution No. 11-01-91
which took effect on January 14, 1992, provides in part:

xxx xxx xxx

1. Rule VI, Sections 1 and 6 are hereby amended to read as follows:

Sec. 1. Period of Appeal — Decisions, awards or orders of the Labor Arbiter . . . shall be final
and executory unless appealed to the Commission by any or both parties within ten (10)
calendar days from receipt of such decisions, awards or orders of the Labor Arbiter . . . . . . If the
10th day . . . falls on a Saturday, Sunday or a Holiday, the last day to perfect the decision shall
be the next working day. (Emphasis supplied)

Hence, it is crystal clear that the appeal was filed within the prescriptive period to perfect an
appeal. Likewise, the petitioner's contention that private respondent did not post the required
surety bond, deserves scant consideration, for the simple reason that a surety bond was issued
by BF General Insurance Company, Inc., in the amount of P25,443.70 (Rollo, pp. 63-64).

2. Jurisdictional Issue

The jurisdiction of Labor Arbiters and Voluntary Arbitrator or Panel of Voluntary Arbitrators is
clearly defined and specifically delineated in the Labor Code. The pertinent provisions of the
Labor Code, read:

A. Jurisdiction of Labor Arbiters

Art. 217. Jurisdiction of Labor Arbiter and the Commission. — (a) Except as otherwise
provided under this Code the Labor Arbiter shall have original and exclusive jurisdiction to hear
and decide, within thirty (30) calendar days after the submission of the case by the parties for
decision without extension, even in the absence of stenographic notes, the following cases
involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

71
2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file
involving wages, rates of pay, hours of work and other terms and conditions of employment;

4. claims for actual, moral, exemplary and other forms of damages arising from the
employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions involving
the legality of strikes and lockouts; and,

6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims, arising from employer-employee relations, including those of persons
in domestic or household service, involving an amount exceeding five thousand pesos (P5,000)
regardless of whether accompanied with a claim for reinstatement.

xxx xxx xxx

(c) Cases arising from the interpretation or implementation of collective bargaining

agreement and those arising from the interpretation or enforcement of company
procedure/policies shall be disposed of by the Labor Arbiter by referring the same to the
grievance machinery and voluntary arbitrator so maybe provided in said agreement.

B. Jurisdiction of Voluntary Arbitrator or Panel of Voluntary Arbitrators

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

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

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

Art. 262. Jurisdiction over other labor disputes. — The Voluntary Arbitrator or panel of
Voluntary Arbitrators, upon agreement of the parties, shall also hear and decide all other labor
disputes including unfair labor practices and bargaining deadlocks.

The aforecited provisions of law cannot be read in isolation or separately. They must be read as
a whole and each Article of the Code reconciled one with the other. An analysis of the
provisions of Articles 217, 261, and 262 indicates, that:

72
1. The jurisdiction of the Labor Arbiter and Voluntary Arbitrator or Panel of Voluntary
Arbitrators over the cases enumerated in Articles 217, 261 and 262, can possibly include money
claims in one form or another.

2. The cases where the Labor Arbiters have original and exclusive jurisdiction are
enumerated in Article 217, and that of the Voluntary Arbitrator or Panel of Voluntary Arbitrators
in Article 261.

3. The original and exclusive jurisdiction of Labor Arbiters is qualified by an exception as

indicated in the introductory sentence of Article 217 (a), to wit:

Art. 217. Jurisdiction of Labor Arbiters . . . (a) Except as otherwise provided under this
Code the Labor Arbiter shall have original and exclusive jurisdiction to hear and decide . . . the
following cases involving all workers. . . .

The phrase "Except as otherwise provided under this Code" refers to the following exceptions:

A. Art. 217. Jurisdiction of Labor Arbiters . . .

xxx xxx xxx

(c) Cases arising from the interpretation or implementation of collective bargaining

agreement and those arising from the interpretation or enforcement of company
procedure/policies shall be disposed of by the Labor Arbiter by referring the same to the
grievance machinery and voluntary arbitrator as may be provided in said agreement.

B. Art. 262. Jurisdiction over other labor disputes. — The Voluntary Arbitrator or panel of
Voluntary Arbitrators, upon agreement of the parties, shall also hear and decide all other labor
disputes including unfair labor practices and bargaining deadlocks.

Parenthetically, the original and exclusive jurisdiction of the Labor Arbiter under Article 217 (c),
for money claims is limited only to those arising from statutes or contracts other than a
Collective Bargaining Agreement. The Voluntary Arbitrator or Panel of Voluntary Arbitrators will
have original and exclusive jurisdiction over money claims "arising from the interpretation or
implementation of the Collective Bargaining Agreement and, those arising from the
interpretation or enforcement of company personnel policies", under Article 261.

4. The jurisdiction of Voluntary Arbitrator or Panel of Voluntary Arbitrators is provided for in

Arts. 261 and 262 of the Labor Code as indicated above.

1. A close reading of Article 261 indicates that the original and exclusive jurisdiction of
Voluntary Arbitrator or Panel of Voluntary Arbitrators is limited only to:

. . . unresolved grievances arising from the interpretation or implementation of the Collective

Bargaining Agreement and those arising from the interpretation or enforcement of company
personnel policies . . . Accordingly, violations of a collective bargaining agreement, except those
which are gross in character, shall no longer be treated as unfair labor practice and shall be
resolved as grievances under the Collective Bargaining Agreement. . . . .

73
2. Voluntary Arbitrators or Panel of Voluntary Arbitrators, however, can exercise jurisdiction
over any and all disputes between an employer and a union and/or individual worker as
provided for in Article 262.

Art. 262. Jurisdiction over other labor disputes. — The voluntary arbitrator or panel of
voluntary arbitrators, upon agreement of the parties, shall also hear and decide all other labor
disputes including unfair labor practices and bargaining deadlocks.

It must be emphasized that the jurisdiction of the Voluntary Arbitrator or Panel of Voluntary
Arbitrators under Article 262 must be voluntarily conferred upon by both labor and management.
The labor disputes referred to in the same Article 262 can include all those disputes mentioned
in Article 217 over which the Labor Arbiter has original and exclusive jurisdiction.

As shown in the above contextual and wholistic analysis of Articles 217, 261, and 262 of the
Labor Code, the National Labor Relations Commission correctly ruled that the Labor Arbiter had
no jurisdiction to hear and decide petitioner's money-claim-underpayment of retirement benefits,
as the controversy between the parties involved an issue "arising from the interpretation or
implementation" of a provision of the collective bargaining agreement. The Voluntary Arbitrator
or Panel of Voluntary Arbitrators has original and exclusive jurisdiction over the controversy
under Article 261 of the Labor Code, and not the Labor Arbiter.

3. Merits of the Case

The Court will not remand the case to the Voluntary Arbitrator or Panel of Voluntary Arbitrators
for hearing. This case has dragged on far too long — eight (8) years. Any further delay would be
a denial of speedy justice to an aged retired stevedore. There is further the possibility that any
Decision by the Voluntary Arbitrator or Panel of Voluntary Arbitrators will be appealed to the
Court of Appeals, and finally to this Court. Hence, the Court will rule on the merits of the case.

We adopt as our own the retirement benefit computation formula of the Labor Arbiter, and the
reasons therefor as stated in the decision abovequoted.

The simple statement of the Labor Arbiter that "we cannot sustain a computation of length of
service based on ECC contribution records", was not amply explained by the Labor Arbiter;
however, there is legal and factual basis for the same. It is unrealistic to expect a lowly
stevedore to know what reports his employer submits to the Employee's Compensation
Commission under Book IV, Health, Safety and Welfare Benefits, Title II, Employees
Compensation and State Insurance Fund, of the Labor Code, simply because the insurance
fund is solely funded by the employer and the rate of employer's contribution varies according to
time and actuarial computations. (See Articles 183-184; Labor Code). The worker has no ready
access to this employer's record. In fact, it is farthest from his mind to inquire into the amount of
employer's contribution, much less whether the employer remits the contributions. The worker is
at all times entitled to benefits upon the occurrence of the defined contingency even when the
employer fails to remit the contributions. (See Article 196 (b), Labor Code).

All employers are likewise required to keep an employment record of all their employees,
namely: payrolls; and time records. (See Book III, Rule X, specifically Secs. 6, 7, 8, 1 and 12,
Omnibus Rules — Implementing the Labor Code).

The respondent-employer was afforded the opportunity to show proof of the petitioner's length
of service and pay records. In both instances, the respondent-employer failed. By its own folly, it

74
must therefore suffer the consequences of such failure. (South Motorists Enterprises v. Tosoc,
181 SCRA 386, [1990]) From the very beginning — by the provision of the retirement provision
of the Collective Bargaining Agreement, i.e., the length of service as requirement for retirement,
and salary as a basis for benefit computation — the employer was forewarned of the need for
accurate record keeping. This is precisely the basis of retirement, and the computation of
benefits based on years of service and monthly wage.

To recapitulate; the Court hereby rules —

1. That the National Labor Relations Commission correctly ruled that the Labor Arbiter had
no jurisdiction over the case, because the case involved an issue "arising from the interpretation
or implementation" of a Collective Bargaining Agreement;

2. That the appeal to the National Labor Relations Commission was filed within the
reglementary period and that the appeal bond was filed; and

3. That we adopt the computation formula for the retirement benefits by the Labor Arbiter,
and the basis thereof, The respondent must therefore pay the petitioner the additional amount of
Twenty-Five Thousand Four Hundred Forty-Three and Seventy Centavos P25,443.70) Pesos.

In view of the long delay in the disposition of the case, this decision is immediately executory.

SO ORDERED.

Narvasa, C.J., Romero and Kapunan, JJ., concur.

75
G.R. No. 158620 October 11, 2006

DEL MONTE PHILIPPINES, INC. and WARFREDO C. BALANDRA, petitioners,

vs.
MARIANO SALDIVAR, NENA TIMBAL, VIRGINIO VICERA, ALFREDO AMONCIO and
NAZARIO S. COLASTE, respondents.

DECISION

TINGA, J.:

The main issue for resolution herein is whether there was sufficient cause for the dismissal of a
rank-and-file employee effectuated through the enforcement of a closed-shop provision in the
Collective Bargaining Agreement (CBA) between the employer and the union.

The operative facts are uncomplicated.

The Associated Labor Union (ALU) is the exclusive bargaining agent of plantation workers of
petitioner Del Monte Philippines, Inc. (Del Monte) in Bukidnon. Respondent Nena Timbal
(Timbal), as a rank-and-file employee of Del Monte plantation in Bukidnon, is also a member of
ALU. Del Monte and ALU entered into a Collective Bargaining Agreement (CBA) with an
effective term of five (5) years from 1 September 1988 to 31 August 1993.1

Timbal, along with four other employees (collectively, co-employees), were charged by ALU for
disloyalty to the union, particularly for encouraging defections to a rival union, the National
Federation of Labor (NFL). The charge was contained in a Complaint dated 25 March 1993,
which specifically alleged, in relation to Timbal: "That on July 13, 1991 and the period prior or
after thereto, said Nena Timbal personally recruited other bonafide members of the ALU to
attend NFL seminars and has actually attended these seminars together with the other ALU
members."2 The matter was referred to a body within the ALU organization, ominously named
"Disloyalty Board."

The charge against Timbal was supported by an affidavit executed on 23 March 1993 by
Gemma Artajo (Artajo), also an employee of Del Monte. Artajo alleged that she was personally
informed by Timbal on 13 July 1991 that a seminar was to be conducted by the NFL on the
following day. When Artajo demurred from attending, Timbal assured her that she would be
given honorarium in the amount of P500.00 if she were to attend the NFL meeting and bring
new recruits. Artajo admitted having attended the NFL meeting together with her own recruits,
including Paz Piquero (Piquero). Artajo stated that after the meeting she was given P500.00 by
Timbal.3

Timbal filed an Answer before the Disloyalty Board, denying the allegations in the complaint and
the averments in Artajo's Affidavit. She further alleged that her husband, Modesto Timbal, had
filed a complaint against Artajo for collection of a sum of money on 17 March 1993, or just six
(6) days before Artajo executed her affidavit. She noted that the allegations against her were
purportedly committed nearly two (2) years earlier, and that Artajo's act was motivated by hate
and revenge owing to the filing of the aforementioned civil action.4

76
Nevertheless, the ALU Disloyalty Board concluded that Timbal was guilty of acts or conduct
inimical to the interests of ALU, through a Resolution dated 7 May 1993.5 It found that the acts
imputed to Timbal were partisan activities, prohibited since the "freedom period" had not yet
commenced as of that time. Thus, the Disloyalty Board recommended the expulsion of Timbal
from membership in ALU, and likewise her dismissal from Del Monte in accordance with the
Union Security Clause in the existing CBA between ALU and Del Monte. The Disloyalty Board
also reached the same conclusions as to the co-employees, expressed in separate resolutions
also recommending their expulsion from ALU.6

On 21 May 1993, the Regional Vice President of ALU adopted the recommendations of the
Disloyalty Board and expelled Timbal7 and her co-employees from ALU.8 The ALU National
President affirmed the expulsion.9 On 17 June 1993, Del Monte terminated Timbal and her co-
employees effective 19 June 1993, noting that the termination was "upon demand of [ALU]
pursuant to Sections 4 and 5 of Article III of the current Collective Bargaining Agreement."10

Timbal and her co-employees filed separate complaints against Del Monte and/or its Personnel
Manager Warfredo C. Balandra and ALU with the Regional Arbitration Branch (RAB) of the
National Labor Relations Commission (NLRC) for illegal dismissal, unfair labor practice and
damages.11 The complaints were consolidated and heard before Labor Arbiter Irving Pedilla.
The Labor Arbiter affirmed that all five (5) were illegally dismissed and ordered Del Monte to
reinstate complainants, including Timbal, to their former positions and to pay their full
backwages and other allowances, though the other claims and charges were dismissed for want
of basis.12

Only Del Monte interposed an appeal with the NLRC.13 The NLRC reversed the Labor Arbiter
and ruled that all the complainants were validly dismissed.14 On review, the Court of Appeals
ruled that only Timbal was illegally dismissed.15 At the same time, the appellate court found
that Del Monte had failed to observe procedural due process in dismissing the co-employees,
and thus ordered the company to pay P30,000.00 to each of the co-employees as penalties.
The co-employees sought to file a Petition for Review16 with this Court assailing the ruling of
the Court of Appeals affirming their dismissal, but the petition was denied because it was not
timely filed.17

On the other hand, Del Monte, through the instant petition, assails the Court of Appeals decision
insofar as it ruled that Timbal was illegally dismissed. Notably, Del Monte does not assail in this
petition the award of P30,000.00 to each of the co-employees, and the ruling of the Court of
Appeals in that regard should now be considered final.

The reason offered by the Court of Appeals in exculpating Timbal revolves around the
problematic relationship between her and Artajo, the complaining witness against her. As
explained by the appellate court:

However, the NLRC should have considered in a different light the situation of petitioner Nena
Timbal. Timbal asserted before the NLRC, and reiterates in this petition, that the statements of
Gemma Artajo, ALU's sole witness against her, should not be given weight because Artajo had
an ax[e] to grind at the time when she made the adverse statements against her. Respondents
never disputed the claim of Timbal that in the two (2) collection suits initiated by Timbal and her
husband, Artajo testified for the defendant in the first case and she was even the defendant in
the second case which was won by Timbal. We find it hard to believe that Timbal would so
willingly render herself vulnerable to expulsion from the Union by revealing to an estranged
colleague her desire to shift loyalty. The strained relationship between Timbal and Artajo

77
renders doubtful the charge against the former that she attempted to recruit Artajo to join a rival
union. Inasmuch as the respondents failed to justify the termination of Timbal's employment, We
hold that her reinstatement to her former position in accordance with the September 27, 1996
decision of the Labor Arbiter is appropriate.18

The Labor Arbiter, in his favorable ruling to the dismissed employees, had noted that
"complainant Timbal['s] x x x accuser has an axe to grind against her for an unpaid debt so that
her testimony cannot be given credit."19 The NLRC, in reversing the Labor Arbiter, did not see it
fit to mention the circumstances of the apparent feud between Timbal and Artajo, except in the
course of narrating Timbal's allegations.

However, in the present petition, Del Monte utilizes a new line of argument in justifying Timbal's
dismissal. While it does not refute the contemporaneous ill-will between Timbal and Artajo, it
nonetheless alleges that there was a second witness, Paz Piquero, who testified against Timbal
before the Disloyalty Board.20 Piquero had allegedly corroborated Artajo's allegations and
positively identified Timbal as among those present during the seminar of the NFL conducted on
14 July 1992 and as having given her transportation money after the seminar was finished. Del
Monte asserts that Piquero was a disinterested witness against Timbal.21

Del Monte also submits two (2) other grounds for review. It argues that the decision of the Labor
Arbiter, which awarded Timbal full backwages and other allowances, was inconsistent with
jurisprudence which held that an employer who acted in good faith in dismissing employees on
the basis of a closed-shop provision is not liable to pay full backwages.22 Finally, Del Monte
asserts that it had, from the incipience of these proceedings consistently prayed that in the
event that it were found with finality that the dismissal of Timbal and the others is illegal, ALU
should be made liable to Del Monte pursuant to the CBA. The Court of Appeals is faulted for
failing to rule upon such claim.

For her part, Timbal observes that Piquero's name was mentioned for the first time in Del
Monte's Motion for Partial Reconsideration of the decision of the Court of Appeals.23 She
claims that both Piquero and Artajo were not in good terms with her after she had won a civil
suit for the collection of a sum of money against their immediate superior, one Virgie
Condeza.24

The legality of Timbal's dismissal is obviously the key issue in this case. We are particularly
called upon to determine whether at this late stage, the Court may still give credence to the
purported testimony of Piquero and justify Timbal's dismissal based on such testimony.

It bears elaboration that Timbal's dismissal is not predicated on any of the just or authorized
causes for dismissal under Book Six, Title I of the Labor Code,25 but on the union security
clause in the CBA between Del Monte and ALU. Stipulations in the CBA authorizing the
dismissal of employees are of equal import as the statutory provisions on dismissal under the
Labor Code, since "[a] CBA is the law between the company and the union and compliance
therewith is mandated by the express policy to give protection to labor."26 The CBA, which
covers all regular hourly paid employees at the pineapple plantation in Bukidnon,27 stipulates
that all present and subsequent employees shall be required to become a member of ALU as a
condition of continued employment. Sections 4 and 5, Article II of the CBA further state:

ARTICLE II

78
Section 4. Loss of membership in the UNION shall not be a ground for dismissal by the
Company except where loss of membership is due to:

1. Voluntary resignation from [ALU] earlier than the expiry date of this [CBA];

2. Non-payment of duly approved and ratified union dues and fees; and

3. Disloyalty to [ALU] in accordance with its Constitution and By-Laws as duly registered with
the Department of Labor and Employment.

Section 5. Upon request of [ALU], [Del Monte] shall dismiss from its service in accordance with
law, any member of the bargaining unit who loses his membership in [ALU] pursuant to the
provisions of the preceding section. [ALU] assumes full responsibility for any such termination
and hereby agrees to hold [Del Monte] free from any liability by judgment of a competent
authority for claims arising out of dismissals made upon demand of [ALU], and [the] latter shall
reimburse the former of such sums as it shall have paid therefor. Such reimbursement shall be
deducted from union dues and agency fees until duly paid.28

The CBA obviously adopts a closed-shop policy which mandates, as a condition of employment,
membership in the exclusive bargaining agent. A "closed-shop" may be defined as an enterprise
in which, by agreement between the employer and his employees or their representatives, no
person may be employed in any or certain agreed departments of the enterprise unless he or
she is, becomes, and, for the duration of the agreement, remains a member in good standing of
a union entirely comprised of or of which the employees in interest are a part.29 A CBA
provision for a closed-shop is a valid form of union security and it is not a restriction on the right
or freedom of association guaranteed by the Constitution.30

Timbal's expulsion from ALU was premised on the ground of disloyalty to the union, which
under Section 4(3), Article II of the CBA, also stands as a ground for her dismissal from Del
Monte. Indeed, Section 5, Article II of the CBA enjoins Del Monte to dismiss from employment
those employees expelled from ALU for disloyalty, albeit with the qualification "in accordance
with law."

Article 279 of the Labor Code ordains that "in cases of regular employment, the employer shall
not terminate the services of an employee except for a just cause or when authorized by [Title I,
Book Six of the Labor Code]." Admittedly, the enforcement of a closed-shop or union security
provision in the CBA as a ground for termination finds no extension within any of the provisions
under Title I, Book Six of the Labor Code. Yet jurisprudence has consistently recognized, thus:
"It is State policy to promote unionism to enable workers to negotiate with management on an
even playing field and with more persuasiveness than if they were to individually and separately
bargain with the employer. For this reason, the law has allowed stipulations for 'union shop' and
'closed shop' as means of encouraging workers to join and support the union of their choice in
the protection of their rights and interests vis-a-vis the employer."31

It might be suggested that since Timbal was expelled from ALU on the ground of disloyalty, Del
Monte had no choice but to implement the CBA provisions and cause her dismissal. Similarly, it
might be posited that any tribunal reviewing such dismissal is precluded from looking beyond
the provisions of the CBA in ascertaining whether such dismissal was valid. Yet deciding the
problem from such a closed perspective would virtually guarantee unmitigated discretion on the
part of the union in terminating the employment status of an individual employee. What the
Constitution does recognize is that all workers, whether union members or not, are "entitled to

79
security of tenure."32 The guarantee of security of tenure itself is implemented through
legislation, which lays down the proper standards in determining whether such right was
violated.33

Agabon v. NLRC34 did qualify that constitutional due process or security of tenure did not shield
from dismissal an employee found guilty of a just cause for termination even if the employer
failed to render the statutory notice and hearing requirement. At the same time, it should be
understood that in the matter of determining whether cause exists for termination, whether
under Book Six, Title I of the Labor Code or under a valid CBA, substantive due process must
be observed as a means of ensuring that security of tenure is not infringed.

Agabon observed that due process under the Labor Code comprised of two aspects:
"substantive, i.e., the valid and authorized causes of employment termination under the Labor
Code; and procedural, i.e., the manner of dismissal."35 No serious dispute arose in Agabon
over the observance of substantive due process in that case, or with the conclusion that the
petitioners therein were guilty of abandonment of work, one of the just causes for dismissal
under the Labor Code. The controversy in Agabon centered on whether the failure to observe
procedural due process, through the non-observance of the two-notice rule, should lead to the
invalidation of the dismissals. The Court ruled, over the dissents of some Justices, that the
failure by the employer to observe procedural due process did not invalidate the dismissals for
just cause of the petitioners therein. However, Agabon did not do away with the requirement of
substantive due process, which is essentially the existence of just cause provided by law for a
valid dismissal. Thus, Agabon cannot be invoked to validate a dismissal wherein substantive
due process, or the proper determination of just cause, was not observed.

Even if the dismissal of an employee is conditioned not on the grounds for termination under the
Labor Code, but pursuant to the provisions of a CBA, it still is necessary to observe substantive
due process in order to validate the dismissal. As applied to the Labor Code, adherence to
substantive due process is a requisite for a valid determination that just or authorized causes
existed to justify the dismissal.36 As applied to the dismissals grounded on violations of the
CBA, observance of substantial due process is indispensable in establishing the presence of the
cause or causes for dismissal as provided for in the CBA.

Substantive due process, as it applies to all forms of dismissals, encompasses the proper
presentation and appreciation of evidence to establish that cause under law exists for the
dismissal of an employee. This holds true even if the dismissal is predicated on particular
causes for dismissal established not by the Labor Code, but by the CBA. Further, in order that
any CBA-mandated dismissal may receive the warrant of the courts and labor tribunals, the
causes for dismissal as provided for in the CBA must satisfy to the evidentiary threshold of the
NLRC and the courts.

It is necessary to emphasize these principles since the immutable truth under our constitutional
and labor laws is that no employee can be dismissed without cause. Agabon may have
tempered the procedural due process requirements if just cause for dismissal existed, but in no
way did it eliminate the existence of a legally prescribed cause as a requisite for any dismissal.
The fact that a CBA may provide for additional grounds for dismissal other than those
established under the Labor Code does not detract from the necessity to duly establish the
existence of such grounds before the dismissal may be validated. And even if the employer or,
in this case, the collective bargaining agent, is satisfied that cause has been established to
warrant the dismissal, such satisfaction will be of no consequence if, upon legal challenge, they
are unable to establish before the NLRC or the courts the presence of such causes.

80
In the matter at bar, the Labor Arbiter—the proximate trier of facts—and the Court of Appeals
both duly appreciated that the testimony of Artajo against Timbal could not be given credence,
especially in proving Timbal's disloyalty to ALU. This is due to the prior animosity between the
two engendered by the pending civil complaint filed by Timbal's husband against Artajo.
Considering that the civil complaint was filed just six (6) days prior to the execution of Artajo's
affidavit against Timbal, it would be plainly injudicious to presume that Artajo possessed an
unbiased state of mind as she executed that affidavit. Such circumstance was considered by the
Labor Arbiter, and especially the Court of Appeals, as they rendered a favorable ruling to
Timbal. The NLRC may have decided against Artajo, but in doing so, it failed to provide any
basis as to why Artajo's testimony should be believed, instead of disbelieved. No credible
disputation was offered by the NLRC to the claim that Artajo was biased against Timbal; hence,
we should adjudge the findings of the Labor Arbiter and the Court of Appeals as more cogent on
that point.

Before this Court, Del Monte does not even present any serious argument that Artajo's
testimony against Timbal was free from prejudice. Instead, it posits that Piquero's alleged
testimony against Timbal before the Disloyalty Board should be given credence, and that taken
with Artajo's testimony, should sufficiently establish the ground of disloyalty for which Timbal
should be dismissed.

The Court sees the danger to jurisprudence and the rights of workers in acceding to Del Monte's
position. The dismissal for cause of employees must be justified by substantial evidence, as
appreciated by an impartial trier of facts. None of the trier of facts below—the Labor Arbiter, the
NLRC and the Court of Appeals—saw fit to accord credence to Piquero's testimony, even
assuming that such testimony was properly contained in the record. Even the NLRC decision,
which was adverse to Timbal, made no reference at all to Piquero's alleged testimony.

Del Monte is able to point to only one instance wherein Piquero's name and testimony appears
on the record. It appears that among the several attachments to the position paper submitted by
the ALU before the NLRC-RAB was a copy of the raw stenographic notes transcribed,
apparently on 17 April 1993, during a hearing before the Disloyalty Board. The transcription is
not wholly legible, but there appears to be references therein to the name "Paz Piquero," and
her apparent testimony before the Disloyalty Board. We are unable to reproduce with accuracy,
based on the handwritten stenographic notes, the contents of this seeming testimony of
Piquero, although Del Monte claims before this Court that Piquero had corroborated Artajo's
claims during such testimony, "positively identified [Timbal's] presence in the NFL seminar on
14 July 1992," and "confirmed that Timbal gave Artajo P500.00 for recruiting participants in the
NFL seminar."37

There are evident problems on our part, at this late stage, in appreciating these raw
stenographic notes adverting to the purported testimony of Piquero, especially as a means of
definitively concluding that Timbal was guilty of disloyalty. Certainly, these notes cannot be
appreciated as entries in the official record, which are presumed prima facie evidence of the
facts therein stated,38 as such records can only be made by a public officer of the Philippines or
by a person in the performance of a duty specially enjoined by law. These transcripts were not
taken during a hearing conducted by any public office in the Philippines, but they were
committed in the course of an internal disciplinary mechanism devised by a privately organized
labor union. Unless the authenticity of these notes is duly proven before, and appreciated by the
triers of fact, we cannot accord them any presumptive or conclusive value.

81
Moreover, despite the fact that the apparent record of Piquero's testimony was appended to
ALU's position paper, the position paper itself does not make any reference to such testimony,
or even to Piquero's name for that matter. The position paper observes that "[t]his testimony of
[Artajo] was directly corroborated by her actual attendance on July 14, 1992 at the agreed
[venue]," but no mention is made that such testimony was also "directly corroborated" by
Piquero. Then again, it was only Artajo, and not Piquero, who executed an affidavit recounting
the allegations against Timbal.

Indeed, we are inclined to agree with Timbal's observation in her Comment on the present
petition that from the time the complaint was filed with the NLRC-RAB, Piquero's name and
testimony were invoked for the first time only in Del Monte's motion for reconsideration before
the Court of Appeals. Other than the handwritten reference made in the raw stenographic notes
attached to ALU's position paper before the NLRC-RAB, Piquero's name or testimony was not
mentioned either by ALU or Del Monte before any of the pleadings filed before the NLRC-RAB,
the NLRC, and even with those submitted to the Court of Appeals prior to that court's decision.

In order for the Court to be able to appreciate Piquero's testimony as basis for finding Timbal
guilty of disloyalty, it is necessary that the fact of such testimony must have been duly
established before the NLRC-RAB, the NLRC, or at the very least, even before the Court of
Appeals. It is only after the fact of such testimony has been established that the triers of fact can
come to any conclusion as to the veracity of the allegations in the testimony.

It should be mentioned that the Disloyalty Board, in its Resolution finding Timbal guilty of
disloyalty, did mention that Artajo's testimony "was corroborated by Paz Piquero who positively
identified and testified that Nena Timbal was engaged in recruitment of ALU members at [Del
Monte] to attend NFL seminars."39

The Disloyalty Board may have appreciated Piquero's testimony in its own finding that Timbal
was guilty, yet the said board cannot be considered as a wholly neutral or dispassionate tribunal
since it was constituted by the very organization that stood as the offended party in the
disloyalty charge. Without impugning the integrity of ALU and the mechanisms it has employed
for the internal discipline of its members, we nonetheless hold that in order that the dismissal of
an employee may be validated by this Court, it is necessary that the grounds for dismissal are
justified by substantial evidence as duly appreciated by an impartial trier of facts.40 The
existence of Piquero's testimony was appreciated only by the Disloyalty Board, but not by any of
the impartial tribunals which heard Timbal's case. The appreciation of such testimony by the
Disloyalty Board without any similar affirmation or concurrence by the NLRC-RAB, the NLRC, or
the Court of Appeals, cannot satisfy the substantive due process requirement as a means of
upholding Timbal's dismissal.

All told, we see no error on the part of the Court of Appeals when it held that Timbal was illegally
dismissed.

We now turn to the second issue raised, whether the Labor Arbiter correctly awarded full
backwages to Timbal.

Del Monte cites a jurisprudential rule that an employer who acted in good faith in dismissing
employees on the basis of a closed- shop provision may not be penalized even if the dismissal
were illegal. Such a doctrine is admittedly supported by the early case of National Labor Union
v. Zip Venetian Blind41 and the later decision in 1989 of Soriano v. Atienza,42 wherein the

82
Court affirmed the disallowance of backwages or "financial assistance" in dismissals under the
aforementioned circumstance.

However, the Court now recognizes that this doctrine is inconsistent with Article 279 of the
Labor Code, as amended by Republic Act No. 6715, which took effect just five (5) days after
Soriano was promulgated. It is now provided in the Labor Code that "[a]n 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." Thus, where reinstatement is adjudged, the award of
backwages and other benefits continues beyond the date of the labor arbiter's decision ordering
reinstatement and extends up to the time said order of reinstatement is actually carried out.43

Rep. Act No. 6715 effectively mitigated previous jurisprudence which had limited the extent to
which illegally dismissed employees could claim for backwages. We explained in Ferrer v.
NLRC:44

With the passage of Republic Act No. 6715 which took effect on March 21, 1989, Article 279 of
the Labor Code was amended to read as follows:

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.

and as implemented by Section 3, Rule 8 of the 1990 New Rules of Procedure of the National
Labor Relations Commission, it would seem that the Mercury Drug Rule (Mercury Drug Co., Inc.
vs. Court of Industrial Relations, 56 SCRA 694 [1974]) which limited the award of back wages of
illegally dismissed workers to three (3) years "without deduction or qualification" to obviate the
need for further proceedings in the course of execution, is no longer applicable.

A legally dismissed employee may now be paid his back wages, allowances, and other benefits
for the entire period he was out of work subject to the rule enunciated before the Mercury Drug
Rule, which is that the employer may, however, deduct any amount which the employee may
have earned during the period of his illegal termination (East Asiatic Company, Ltd. vs. Court of
Industrial Relations, 40 SCRA 521 [1971]). Computation of full back wages and presentation of
proof as to income earned elsewhere by the illegally dismissed employee after his termination
and before actual reinstatement should be ventilated in the execution proceedings before the
Labor Arbiter concordant with Section 3, Rule 8 of the 1990 New Rules of Procedure of the
National Labor Relations Commission.

Inasmuch as we have ascertained in the text of this discourse that the OFC whimsically
dismissed petitioners without proper hearing and has thus opened OFC to a charge of unfair
labor practice, it ineluctably follows that petitioners can receive their back wages computed from
the moment their compensation was withheld after their dismissal in 1989 up to the date of
actual reinstatement. In such a scenario, the award of back wages can extend beyond the 3-
year period fixed by the Mercury Drug Rule depending, of course, on when the employer will
reinstate the employees.

83
It may appear that Article 279 of the Labor Code, as amended by Republic Act No. 6715, has
made the employer bear a heavier burden than that pronounced in the Mercury Drug Rule, but
perhaps Republic Act No. 6715 was enacted precisely for the employer to realize that the
employee must be immediately restored to his former position, and to impress the idea that
immediate reinstatement is tantamount to a cost-saving measure in terms of overhead expense
plus incremental productivity to the company which lies in the hands of the employer.45

The Labor Arbiter's ruling, which entitled Timbal to claim full backwages and other allowances,
"without qualifications and diminutions, computed from the time [she was] illegally dismisse[d]
up to the time [she] will be actually reinstated," conforms to Article 279 of the Labor Code.
Hence, the Court of Appeals was correct in affirming the Labor Arbiter insofar as Timbal was
concerned.

Finally, we address the claim that the Court of Appeals erred when it did not rule on Del Monte's
claim for reimbursement against ALU. We do observe that Section 5 of the CBA stipulated that
"[ALU] assumes full responsibility of any such termination [of any member of the bargaining unit
who loses his membership in ALU] and hereby agrees to hold [Del Monte] free from any liability
by judgment of a competent authority for claims arising out of dismissals made upon demand of
[ALU], and latter shall reimburse the former of such sums as it shall have paid therefore."46

This stipulation does present a cause of action in Del Monte's favor should it be held financially
liable for the dismissal of an employee by reason of expulsion from ALU. Nothing in this
decision should preclude the operation of this provision in the CBA. At the same time, we are
unable to agree with Del Monte that the Court of Appeals, or this Court, can implement this
provision of the CBA and accordingly directly condemn ALU to answer for the financial
remuneration due Timbal.

Before the Labor Arbiter, Del Monte had presented its cross-claim against ALU for
reimbursement should it be made liable for illegal dismissal or unfair labor practice, pursuant to
the CBA. The Labor Arbiter had actually passed upon this claim for reimbursement, stating that
"[as] for the cross-claims of respondent DMPI and Tabusuares against the respondent ALU-
TUCP, this Branch cannot validly entertain the same in the absence of employer-employee
relationship between the former and the latter."47 We have examined Article 217 of the Labor
Code,48 which sets forth the original jurisdiction of the Labor Arbiters. Article 217(c) states:

Cases arising from the interpretation or implementation of collective bargaining agreements and
those arising from the interpretation or enforcement of company personnel policies shall be
disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary
arbitration as may be provided in said agreements. [Emphasis supplied.]

In contrast, Article 261 of the Labor Code indubitably vests on the Voluntary Arbitrator or panel
of Voluntary Arbitrators the "original and exclusive jurisdiction to hear and decide all unresolved
grievances arising from the interpretation or implementation of the Collective Bargaining
Agreement."49 Among those areas of conflict traditionally within the jurisdiction of Voluntary
Arbitrators are contract-interpretation and contract-implementation,50 the questions precisely
involved in Del Monte's claim seeking enforcement of the CBA provision mandating restitution
by ALU should the company be held financially liable for dismissals pursuant to the union
security clause.

In reconciling the grants of jurisdiction vested under Articles 261 and 217 of the Labor Code, the
Court has pronounced that "the original and exclusive jurisdiction of the Labor Arbiter under

84
Article 217(c) for money claims is limited only to those arising from statutes or contracts other
than a Collective Bargaining Agreement. The Voluntary Arbitrator or Panel of Voluntary
Arbitrators will have original and exclusive jurisdiction over money claims 'arising from the
interpretation or implementation of the Collective Bargaining Agreement and, those arising from
the interpretation or enforcement of company personnel policies', under Article 261."51

Our conclusion that the Labor Arbiter in the instant case could not properly pass judgment on
the cross-claim is further strengthened by the fact that Del Monte and ALU expressly recognized
the jurisdiction of Voluntary Arbitrators in the CBA. Section 2, Article XXXI of the CBA provides:

Section 2. In the event a dispute arises concerning the application of, or interpretation of this
Agreement which cannot be settled pursuant to the [grievance procedure set forth in the]
preceding Section, the dispute shall be submitted to an arbitrator agreed to by [Del Monte] and
[ALU].

Should the parties fail to agree on the arbitrator, the same shall be drawn by lottery from a list of
arbitrators furnished by the Bureau of Labor Relations of the Department of Labor and
Employment.

xxxx

Thus, as the law indubitably precludes the Labor Arbiter from enforcing money claims arising
from the implementation of the CBA, the CBA herein complementarily recognizes that it is the
Voluntary Arbitrators which have jurisdiction to hear the claim. The Labor Arbiter correctly
refused to exercise jurisdiction over Del Monte's cross-claim, and the Court of Appeals would
have no basis had it acted differently. At the same time, even as we affirm the award of
backwages against Del Monte, our ruling should not operate to prejudice in any way whatever
causes of action Del Monte may have against ALU, in accordance with the CBA.

WHEREFORE, the instant petition is DENIED. The assailed Decision of the Court of Appeals
dated 26 August 2002 is AFFIRMED. Costs against petitioner.

SO ORDERED.

Quisumbing, J., Chairperson, Carpio, Carpio Morales, and Velasco, Jr., JJ., concur.

85
G.R. No. 182295 June 26, 2013

7K CORPORATION, Petitioner,
vs.
EDDIE ALBARICO, Respondent.

DECISION

SERENO, CJ.:

This is a Petition for Review on Certiorari filed under Rule 45 of the Revised Rules of Court,
asking the Court to determine whether a voluntary arbitrator in a labor dispute exceeded his
jurisdiction in deciding issues not specified in the submission agreement of the parties. It assails
the Decision1 dated 18 September 2007 and the Resolution2 dated 17 March 2008 of the Court
of Appeals (CA).3

FACTS

When he was dismissed on 5 April 1993, respondent Eddie Albarico (Albarico) was a regular
employee of petitioner 7K Corporation, a company selling water purifiers. He started working for
the company in 1990 as a salesman.4 Because of his good performance, his employment was
regularized. He was also promoted several times: from salesman, he was promoted to senior
sales representative and then to acting team field supervisor. In 1992, he was awarded the
President’s Trophy for being one of the company’s top water purifier specialist distributors.

In April of 1993, the chief operating officer of petitioner 7K Corporation terminated Albarico’s
employment allegedly for his poor sales performance.5 Respondent had to stop reporting for
work, and he subsequently submitted his money claims against petitioner for arbitration before
the National Conciliation and Mediation Board (NCMB). The issue for voluntary arbitration
before the NCMB, according to the parties’ Submission Agreement dated 19 April 1993, was
whether respondent Albarico was entitled to the payment of separation pay and the sales
commission reserved for him by the corporation.6

While the NCMB arbitration case was pending, respondent Albarico filed a Complaint against
petitioner corporation with the Arbitration Branch of the National Labor Relations Commission
(NLRC) for illegal dismissal with money claims for overtime pay, holiday compensation,
commission, and food and travelling allowances.7 The Complaint was decided by the labor
arbiter in favor of respondent Albarico, who was awarded separation pay in lieu of
reinstatement, backwages and attorney’s fees.8

On appeal by petitioner, the labor arbiter’s Decision was vacated by the NLRC for forum
shopping on the part of respondent Albarico, because the NCMB arbitration case was still
pending.9 The NLRC Decision, which explicitly stated that the dismissal was without prejudice
to the pending NCMB arbitration case,10 became final after no appeal was taken.

On 17 September 1997, petitioner corporation filed its Position Paper in the NCMB arbitration
case.11 It denied that respondent was terminated from work, much less illegally dismissed. The
corporation claimed that he had voluntarily stopped reporting for work after receiving a verbal
reprimand for his sales performance; hence, it was he who was guilty of abandonment of
employment. Respondent made an oral manifestation that he was adopting the position paper

86
he submitted to the labor arbiter, a position paper in which the former claimed that he had been
illegally dismissed.12

On 12 January 2005, almost 12 years after the filing of the NCMB case, both parties appeared
in a hearing before the NCMB.13 Respondent manifested that he was willing to settle the case
amicably with petitioner based on the decision of the labor arbiter ordering the payment of
separation pay in lieu of reinstatement, backwages and attorney’s fees. On its part, petitioner
made a counter-manifestation that it was likewise amenable to settling the dispute. However, it
was willing to pay only the separation pay and the sales commission according to the
Submission Agreement dated 19 April 1993.14

The factual findings of the voluntary arbitrator, as well as of the CA, are not clear on what
happened afterwards. Even the records are bereft of sufficient information.

On 18 November 2005, the NCMB voluntary arbitrator rendered a Decision finding petitioner
corporation liable for illegal dismissal.15 The termination of respondent Albarico, by reason of
alleged poor performance, was found invalid.16 The arbitrator explained that the promotions,
increases in salary, and awards received by respondent belied the claim that the latter was
performing poorly.17 It was also found that Albarico could not have abandoned his job, as the
abandonment should have been clearly shown. Mere absence was not sufficient, according to
the arbitrator, but must have been accompanied by overt acts pointing to the fact that the
employee did not want to work anymore. It was noted that, in the present case, the immediate
filing of a complaint for illegal dismissal against the employer, with a prayer for reinstatement,
showed that the employee was not abandoning his work. The voluntary arbitrator also found
that Albarico was dismissed from his work without due process.

However, it was found that reinstatement was no longer possible because of the strained
relationship of the parties.18 Thus, in lieu of reinstatement, the voluntary arbitrator ordered the
corporation to pay separation pay for two years at ₱4,456 for each year, or a total amount of
₱8,912.

Additionally, in view of the finding that Albarico had been illegally dismissed, the voluntary
arbitrator also ruled that the former was entitled to backwages in the amount of ₱90,804.19
Finally, the arbitrator awarded attorney’s fees in respondent’s favor, because he had been
compelled to file an action for illegal dismissal.20

Petitioner corporation subsequently appealed to the CA, imputing to the voluntary arbitrator
grave abuse of discretion amounting to lack or excess of jurisdiction for awarding backwages
and attorney’s fees to respondent Albarico based on the former’s finding of illegal dismissal.21
The arbitrator contended that the issue of the legality of dismissal was not explicitly included in
the Submission Agreement dated 19 April 1993 filed for voluntary arbitration and resolution. It
prayed that the said awards be set aside, and that only separation pay of ₱8,912.00 and sales
commission of ₱4,787.60 be awarded.

The CA affirmed the Decision of the voluntary arbitrator, but eliminated the award of attorney’s
fees for having been made without factual, legal or equitable justification.22 Petitioner’s Motion
for Partial Reconsideration was denied as well.23

Hence, this Petition.

ISSUE

87
The issue before the Court is whether the CA committed reversible error in finding that the
voluntary arbitrator properly assumed jurisdiction to decide the issue of the legality of the
dismissal of respondent as well as the latter’s entitlement to backwages, even if neither the
legality nor the entitlement was expressedly claimed in the Submission Agreement of the
parties.

The Petition is denied for being devoid of merit.

DISCUSSION

Preliminarily, we address petitioner’s claim that under Article 217 of the Labor Code, original
and exclusive jurisdiction over termination disputes, such as the present case, is lodged only
with the labor arbiter of the NLRC.24

Petitioner overlooks the proviso in the said article, thus:

Art. 217. Jurisdiction of the Labor Arbiters and the Commission.

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

xxxx

2. Termination disputes;

xxxx

6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims arising from employer-employee relations, including those of persons
in domestic or household service, involving an amount exceeding five thousand pesos
(₱5,000.00) regardless of whether accompanied with a claim for reinstatement. (Emphases
supplied)

Thus, although the general rule under the Labor Code gives the labor arbiter exclusive and
original jurisdiction over termination disputes, it also recognizes exceptions. One of the
exceptions is provided in Article 262 of the Labor Code. In San Jose v. NLRC,25 we said:

The phrase "Except as otherwise provided under this Code" refers to the following exceptions:

A. Art. 217. Jurisdiction of Labor Arbiters . . .

xxxx

(c) Cases arising from the interpretation or implementation of collective bargaining agreement
and those arising from the interpretation or enforcement of company procedure/policies shall be
disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary
arbitrator as may be provided in said agreement.

88
B. Art. 262. Jurisdiction over other labor disputes. The Voluntary Arbitrator or panel of Voluntary
Arbitrators, upon agreement of the parties, shall also hear and decide all other labor disputes
including unfair labor practices and bargaining deadlocks. (Emphasis supplied)

We also said in the same case that "the labor disputes referred to in the same Article 262 of the
Labor Code can include all those disputes mentioned in Article 217 over which the Labor Arbiter
has original and exclusive jurisdiction."26

From the above discussion, it is clear that voluntary arbitrators may, by agreement of the
parties, assume jurisdiction over a termination dispute such as the present case, contrary to the
assertion of petitioner that they may not.

We now resolve the main issue. Petitioner argues that, assuming that the voluntary arbitrator
has jurisdiction over the present termination dispute, the latter should have limited his decision
to the issue contained in the Submission Agreement of the parties – the issue of whether
respondent Albarico was entitled to separation pay and to the sales commission the latter
earned before being terminated.27 Petitioner asserts that under Article 262 of the Labor Code,
the jurisdiction of a voluntary arbitrator is strictly limited to the issues that the parties agree to
submit. Thus, it contends that the voluntary arbitrator exceeded his jurisdiction when he
resolved the issues of the legality of the dismissal of respondent and the latter’s entitlement to
backwages on the basis of a finding of illegal dismissal.

According to petitioner, the CA wrongly concluded that the issue of respondent’s entitlement to
separation pay was necessarily based on his allegation of illegal dismissal, thereby making the
issue of the legality of his dismissal implicitly submitted to the voluntary arbitrator for
resolution.28 Petitioner argues that this was an erroneous conclusion, because separation pay
may in fact be awarded even in circumstances in which there is no illegal dismissal.

We rule that although petitioner correctly contends that separation pay may in fact be awarded
for reasons other than illegal dismissal, the circumstances of the instant case lead to no other
conclusion than that the claim of respondent Albarico for separation pay was premised on his
allegation of illegal dismissal. Thus, the voluntary arbitrator properly assumed jurisdiction over
the issue of the legality of his dismissal.

True, under the Labor Code, separation pay may be given not only when there is illegal
dismissal. In fact, it is also given to employees who are terminated for authorized causes, such
as redundancy, retrenchment or installation of labor-saving devices under Article 28329 of the
Labor Code. Additionally, jurisprudence holds that separation pay may also be awarded for
considerations of social justice, even if an employee has been terminated for a just cause other
than serious misconduct or an act reflecting on moral character.30 The Court has also ruled that
separation pay may be awarded if it has become an established practice of the company to pay
the said benefit to voluntarily resigning employees31 or to those validly dismissed for non-
membership in a union as required in a closed-shop agreement.32

The above circumstances, however, do not obtain in the present case.1âwphi1 There is no
claim that the issue of entitlement to separation pay is being resolved in the context of any
authorized cause of termination undertaken by petitioner corporation. Neither is there any
allegation that a consideration of social justice is being resolved here. In fact, even in instances
in which separation pay is awarded in consideration of social justice, the issue of the validity of
the dismissal still needs to be resolved first. Only when there is already a finding of a valid

89
dismissal for a just cause does the court then award separation pay for reason of social justice.
The other circumstances when separation pay may be awarded are not present in this case.

The foregoing findings indisputably prove that the issue of separation pay emanates solely from
respondent’s allegation of illegal dismissal. In fact, petitioner itself acknowledged the issue of
illegal dismissal in its position paper submitted to the NCMB.

Moreover, we note that even the NLRC was of the understanding that the NCMB arbitration
case sought to resolve the issue of the legality of the dismissal of the respondent. In fact, the
identity of the issue of the legality of his dismissal, which was previously submitted to the
NCMB, and later submitted to the NLRC, was the basis of the latter’s finding of forum shopping
and the consequent dismissal of the case before it. In fact, petitioner also implicitly
acknowledged this when it filed before the NLRC its Motion to Dismiss respondent’s Complaint
on the ground of forum shopping. Thus, it is now estopped from claiming that the issue before
the NCMB does not include the issue of the legality of the dismissal of respondent. Besides,
there has to be a reason for deciding the issue of respondent’s entitlement to separation pay. To
think otherwise would lead to absurdity, because the voluntary arbitrator would then be deciding
that issue in a vacuum. The arbitrator would have no basis whatsoever for saying that Albarico
was entitled to separation pay or not if the issue of the legality of respondent’s dismissal was not
resolve first.

Hence, the voluntary arbitrator correctly assumed that the core issue behind the issue of
separation pay is the legality of the dismissal of respondent. Moreover, we have ruled in Sime
Darby Pilipinas, Inc. v. Deputy Administrator Magsalin33 that a voluntary arbitrator has plenary
jurisdiction and authority to interpret an agreement to arbitrate and to determine the scope of his
own authority when the said agreement is vague — subject only, in a proper case, to the
certiorari jurisdiction of this Court.

Having established that the issue of the legality of dismissal of Albarico was in fact necessarily –
albeit not explicitly – included in the Submission Agreement signed by the parties, this Court
rules that the voluntary arbitrator rightly assumed jurisdiction to decide the said issue.

Consequently, we also rule that the voluntary arbitrator may award backwages upon a finding of
illegal dismissal, even though the issue of entitlement thereto is not explicitly claimed in the
Submission Agreement. Backwages, in general, are awarded on the ground of equity as a form
of relief that restores the income lost by the terminated employee by reason of his illegal
dismissal.34

In Sime Darby we ruled that although the specific issue presented by the parties to the voluntary
arbitrator was only "the issue of performance bonus," the latter had the authority to determine
not only the issue of whether or not a performance bonus was to be granted, but also the
related question of the amount of the bonus, were it to be granted. We explained that there was
no indication at all that the parties to the arbitration agreement had regarded "the issue of
performance bonus" as a two-tiered issue, of which only one aspect was being submitted to
arbitration. Thus, we held that the failure of the parties to limit the issues specifically to that
which was stated allowed the arbitrator to assume jurisdiction over the related issue.

Similarly, in the present case, there is no indication that the issue of illegal dismissal should be
treated. as a two-tiered issue whereupon entitlement to backwages must be determined
separately. Besides, "since arbitration is a final resort for the adjudication of disputes," the
voluntary arbitrator in the present case can assume that he has the necessary power to make a

90
final settlement.35 Thus, we rule that the voluntary arbitrator correctly assumed jurisdiction over
the issue of entitlement of respondent Albarico to backwages on the basis of the former's finding
of illegal dismissal.

WHEREFORE, premises considered, the instant Petition is DENIED. The 18 September 2007
Decision and 17 March 2008 Resolution of the Court of Appeals in CA-G.R. SP No. 92526, are
hereby AFFIRMED.

SO ORDERED.

MARIA LOURDES P. A. SERENO

Chief Justice, Chairperson

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G.R. No. 201595

ALLAN M. MENDOZA, Petitioner,

vs.
OFFICERS OF MANILA WATER EMPLOYEES UNION (MWEU), namely, EDUARDO B.
BORELA, BUENAVENTURA QUEBRAL, ELIZABETH COMETA, ALEJANDRO TORRES,
AMORSOLO TIERRA, SOLEDAD YEBAN, LUIS RENDON, VIRGINIA APILADO, TERESITA
BOLO, ROGELIO BARBERO, JOSE CASAÑAS, ALFREDO MAGA, EMILIO FERNANDEZ,
ROSITA BUENA VENTURA, ALMENIO CANCINO, ADELA IMANA, MARIO MANCENIDO,
WILFREDO MANDILAG, ROLANDO MANLAP AZ, EFREN MONTEMAYOR, NELSON
PAGULAYAN, CARLOS VILLA, RIC BRIONES, and CHITO BERNARDO, Respondents.

DECISION

DEL CASTILLO, J.:

This Petition for Review on Certiorari1 assails the April 24, 2012 Decision2 of the Court of
Appeals (CA) which dismissed the Petition for Certiorari3 in CA-G.R. SP No. 115639.

Factual Antecedents

Petitioner was a member of the Manila Water Employees Union (MWEU), a Department of
Labor and Employment (DOLE)-registered labor organization consisting of rank-and-file
employees within Manila Water Company (MWC). The respondents herein named – Eduardo B.
Borela (Borela), Buenaventura Quebral (Quebral), Elizabeth Cometa (Cometa), Alejandro
Torres (Torres), Amorsolo Tierra (Tierra), Soledad Yeban (Yeban), Luis Rendon (Rendon),
Virginia Apilado (Apilado), Teresita Bolo (Bolo), Rogelio Barbero (Barbero), Jose Casañas
(Casañas), Alfredo Maga (Maga), Emilio Fernandez (Fernandez), Rosita Buenaventura
(Buenaventura), Almenio Cancino (Cancino), Adela Imana, Mario Mancenido (Mancenido),
Wilfredo Mandilag (Mandilag), Rolando Manlapaz (Manlapaz), Efren Montemayor
(Montemayor), Nelson Pagulayan, Carlos Villa, Ric Briones, and Chito Bernardo – were MWEU
officers during the period material to this Petition, with Borela as President and Chairman of the
MWEU Executive Board, Quebral as First Vice-President and Treasurer, and Cometa as
Secretary.4

In an April 11, 2007 letter,5 MWEU through Cometa informed petitioner that the union was
unable to fully deduct the increased P200.00 union dues from his salary due to lack of the
required December 2006 check-off authorization from him. Petitioner was warned that his failure
to pay the union dues would result in sanctions upon him. Quebral informed Borela, through a
May 2, 2007 letter,6 that for such failure to pay the union dues, petitioner and several others
violated Section 1(g), Article IX of the MWEU’s Constitution and By-Laws.7 In turn, Borela
referred the charge to the MWEU grievance committee for investigation.

On May 21, 2007, a notice of hearing was sent to petitioner, who attended the scheduled
hearing. On June 6, 2007, the MWEU grievance committee recommended that petitioner be
suspended for 30 days.

In a June 20, 2007 letter,8 Borela informed petitioner and his corespondents of the MWEU
Executive Board’s "unanimous approval"9 of the grievance committee’s recommendation and
imposition upon them of a penalty of 30 days suspension, effective June 25, 2007.

92
In a June 26, 2007 letter10 to Borela, petitioner and his co-respondents took exception to the
imposition and indicated their intention to appeal the same to the General Membership
Assembly in accordance with Section 2(g), Article V of the union’s Constitution and By-Laws,11
which grants them the right to appeal any arbitrary resolution, policy and rule promulgated by
the Executive Board to the General Membership Assembly. In a June 28, 2007 reply,12 Borela
denied petitioner’s appeal, stating that the prescribed period for appeal had expired.

Petitioner and his co-respondents sent another letter13 on July 4, 2007, reiterating their
arguments and demanding that the General Membership Assembly be convened in order that
their appeal could be taken up. The letter was not acted upon.

Petitioner was once more charged with non-payment of union dues, and was required to attend
an August 3, 2007 hearing.14 Thereafter, petitioner was again penalized with a 30-day
suspension through an August 21, 2007 letter15 by Borela informing petitioner of the Executive
Board’s "unanimous approval"16 of the grievance committee recommendation to suspend him
effective August 24, 2007, to which he submitted a written reply,17 invoking his right to appeal
through the convening of the General Membership Assembly. However, the respondents did not
act on petitioner’s plea.

Meanwhile, MWEU scheduled an election of officers on September 14, 2007. Petitioner filed his
certificate of candidacy for Vice-President, but he was disqualified for not being a member in
good standing on account of his suspension.

On October 2, 2007, petitioner was charged with non-payment of union dues for the third time.
He did not attend the scheduled hearing. This time, he was meted the penalty of expulsion from
the union, per "unanimous approval"18 of the members of the Executive Board. His pleas for an
appeal to the General Membership Assembly were once more unheeded.19

In 2008, during the freedom period and negotiations for a new collective bargaining agreement
(CBA) with MWC, petitioner joined another union, the Workers Association for Transparency,
Empowerment and Reform, All-Filipino Workers Confederation (WATER-AFWC). He was
elected union President. Other MWEU members were inclined to join WATER-AFWC, but
MWEU director Torres threatened that they would not get benefits from the new CBA.20

The MWEU leadership submitted a proposed CBA which contained provisions to the effect that
in the event of retrenchment, non-MWEU members shall be removed first, and that upon the
signing of the CBA, only MWEU members shall receive a signing bonus.21

Ruling of the Labor Arbiter

On October 13, 2008, petitioner filed a Complaint22 against respondents for unfair labor
practices, damages, and attorney’s fees before the National Labor Relations Commission
(NLRC), Quezon City, docketed as NLRC Case No. NCR-10-14255-08. In his Position Paper
and other written submissions,23 petitioner accused the respondents of illegal termination from
MWEU in connection with the events relative to his non-payment of union dues; unlawful
interference, coercion, and violation of the rights of MWC employees to self-organization – in
connection with the proposed CBA submitted by MWEU leadership, which petitioner claims
contained provisions that discriminated against non-MWEU members. Petitioner prayed in his
Supplemental Position Paper that respondents be held guilty of unfair labor practices and
ordered to indemnify him moral damages in the amount of P100,000.00, exemplary damages
amounting to P50,000.00, and 10% attorney’s fees.

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In their joint Position Paper and other pleadings,24 respondents claimed that the Labor Arbiter
had no jurisdiction over the dispute, which is intra-union in nature; that the Bureau of Labor
Relations (BLR) was the proper venue, in accordance with Article 226 of the Labor Code25 and
Section 1, Rule XI of Department Order 40-03, series of 2003, of the DOLE;26 and that they
were not guilty of unfair labor practices, discrimination, coercion or restraint.

On May 29, 2009, Labor Arbiter Virginia T. Luyas-Azarraga issued her Decision27 which
decreed as follows:

Indeed the filing of the instant case is still premature. Section 5, Article X-Investigation
Procedures and Appeal Process of the Union Constitution and By-Laws provides that:

Section 5. Any dismissed and/or expelled member shall have the rights to appeal to the
Executive Board within seven (7) days from the date of notice of the said dismissal and/or
expulsion, which in [turn] shall be referred to the General Membership Assembly. In case of an
appeal, a simple majority of the decision of the Executive Board is imperative. The same shall
be approved/disapproved by a majority vote of the general membership assembly in a meeting
duly called for the purpose.

On the basis of the foregoing, the parties shall exhaust first all the administrative remedies
before resorting to compulsory arbitration. Thus, instant case is referred back to the Union for
the General Assembly to act or deliberate complainant’s appeal on the decision of the Executive
Board.

WHEREFORE PREMISES CONSIDERED, instant case is referred back to the Union level for
the General Assembly to act on complainant’s appeal.

SO ORDERED.28

Ruling of the National Labor Relations Commission

Petitioner appealed before the NLRC, where the case was docketed as NLRC LAC No. 07-
001913-09. On March 15, 2010, the NLRC issued its Decision,29 declaring as follows:

Complainant30 imputes serious error to the Labor Arbiter when she decided as follows:

a. Referring back the subject case to the Union level for the General Assembly to act on his
appeal.

b. Not ruling that respondents are guilty of ULP as charged.

c. Not granting to complainant moral and exemplary damages and attorney’s fees.

Complainant, in support of his charges, claims that respondents restrained or coerced him in the
exercise of his right as a union member in violation of paragraph "a", Article 249 of the Labor
Code,31 particularly, in denying him the explanation as to whether there was observance of the
proper procedure in the increase of the membership dues from P100.00 to P200.00 per month.
Further, complainant avers that he was denied the right to appeal his suspension and expulsion
in accordance with the provisions of the Union’s Constitution and By-Laws. In addition,

94
complainant claims that respondents attempted to cause the management to discriminate
against the members of WATER-AFWC thru the proposed CBA.

Pertinent to the issue then on hand, the Labor Arbiter ordered that the case be referred back to
the Union level for the General Assembly to act on complainant’s appeal. Hence, these appeals.

After a careful look at all the documents submitted and a meticulous review of the facts, We find
that this Commission lacks the jurisdictional competence to act on this case.

Article 217 of the Labor Code,32 as amended, specifically enumerates the cases over which the
Labor Arbiters and the Commission have original and exclusive jurisdiction. A perusal of the
record reveals that the causes of action invoked by complainant do not fall under any of the
enumerations therein. Clearly, We have no jurisdiction over the same.

Moreover, pursuant to Section 1, Rule XI, as amended, DOLE Department Order No. 40-03 in
particular, Item A, paragraphs (h) and (j) and Item B, paragraph (a)(3), respectively, provide:

"A. Inter-Intra-Union disputes shall include:

"(h) violation of or disagreements over any provision of the Constitution and By-Laws of a Union
or workers’ association.

"(j) violation of the rights and conditions of membership in a Union or workers’ association.

"B. Other Labor Relations disputes, not otherwise covered by Article 217 of the Labor Code,
shall include –

"3. a labor union and an individual who is not a member of said union."

Clearly, the above-mentioned disputes and conflict fall under the jurisdiction of the Bureau of
Labor Relations, as these are inter/intra-union disputes.

WHEREFORE, the decision of the Labor Arbiter a quo dated May 29, 2009 is hereby declared
NULL and VOID for being rendered without jurisdiction and the instant complaint is
DISMISSED.

SO ORDERED.33

Petitioner moved for reconsideration,34 but in a June 16, 2010 Resolution,35 the motion was
denied and the NLRC sustained its Decision.

Ruling of the Court of Appeals

In a Petition for Certiorari36 filed with the CA and docketed as CA-G.R. SP No. 115639,
petitioner sought to reverse the NLRC Decision and be awarded his claim for damages and
attorney’s fees on account of respondents’ unfair labor practices, arguing among others that his
charge of unfair labor practices is cognizable by the Labor Arbiter; that the fact that the dispute
is inter- or intra-union in nature cannot erase the fact that respondents were guilty of unfair labor
practices in interfering and restraining him in the exercise of his right to self-organization as
member of both MWEU and WATER-AFWC, and in discriminating against him and other
members through the provisions of the proposed 2008 CBA which they drafted; that his failure

95
to pay the increased union dues was proper since the approval of said increase was arrived at
without observing the prescribed voting procedure laid down in the Labor Code; that he is
entitled to an award of damages and attorney’s fees as a result of respondents’ illegal acts in
discriminating against him; and that in ruling the way it did, the NLRC committed grave abuse of
discretion.

On April 24, 2012, the CA issued the assailed Decision containing the following pronouncement:

The petition lacks merit.

Petitioner’s causes of action against MWEU are inter/intra-union disputes cognizable by the
BLR whose functions and jurisdiction are largely confined to union matters, collective bargaining
registry, and labor education. Section 1, Rule XI of Department Order (D.O.) No. 40-03, Series
of 2003, of the Department of Labor and Employment enumerates instances of inter/intra-union
disputes, viz:

Section 1. Coverage. – Inter/intra-union disputes shall include:

xxxx

(b) conduct of election of union and workers’ association officers/nullification of election of union
and workers’ association officers;

(c) audit/accounts examination of union or workers’ association funds;

xxxx

(g) validity/invalidity of impeachment/ expulsion of union and workers’ association officers and
members;

xxxx

(j) violations of or disagreements over any provision in a union or workers’ association

constitution and by-laws;

xxxx

(l) violations of the rights and conditions of union or workers’ association membership;

xxxx

(n) such other disputes or conflicts involving the rights to self-organization, union membership
and collective bargaining –

(1) between and among legitimate labor organizations;

(2) between and among members of a union or workers’ association.

In brief, "Inter-Union Dispute" refers to any conflict between and among legitimate labor unions
involving representation questions for purposes of collective bargaining or to any other conflict
or dispute between legitimate labor unions. "Intra-Union Dispute" refers to any conflict between

96
and among union members, including grievances arising from any violation of the rights and
conditions of membership, violation of or disagreement over any provision of the union’s
constitution and by-laws, or disputes arising from chartering or affiliation of union. On the other
hand, the circumstances of unfair labor practices (ULP) of a labor organization are stated in
Article 249 of the Labor Code, to wit:

Article 249. Unfair labor practices of labor organizations. It shall be unlawful for labor
organization, its officers, agents, or representatives to commit any of the following unfair labor
practices:

(a) To restrain or coerce employees in the exercise of their right to self-organization; Provided,
That the labor organization shall have the right to prescribe its own rules with respect to the
acquisition or retention of membership;

(b) To cause or attempt to cause an employer to discriminate against an employee, including

discrimination against an employee with respect to whom membership in such organization has
been denied or terminated on any ground other than the usual terms and conditions under
which membership or continuation of membership is made available to other members;

xxxx

Applying the aforementioned rules, We find that the issues arising from petitioner’s right to
information on the increased membership dues, right to appeal his suspension and expulsion
according to CBL provisions, and right to vote and be voted on are essentially intra-union
disputes; these involve violations of rights and conditions of union membership. But his claim
that a director of MWEU warned that non-MWEU members would not receive CBA benefits is
an inter-union dispute. It is more of an "interference" by a rival union to ensure the loyalty of its
members and to persuade non-members to join their union. This is not an actionable wrong
because interfering in the exercise of the right to organize is itself a function of self-
organizing.37 As long as it does not amount to restraint or coercion, a labor organization may
interfere in the employees’ right to self-organization.38 Consequently, a determination of validity
or illegality of the alleged acts necessarily touches on union matters, not ULPs, and are outside
the scope of the labor arbiter’s jurisdiction.

As regards petitioner’s other accusations, i.e., discrimination in terms of meting out the penalty
of expulsion against him alone, and attempt to cause the employer, MWC, to discriminate
against non-MWEU members in terms of retrenchment or reduction of personnel, and signing
bonus, while We may consider them as falling within the concept of ULP under Article 249(a)
and (b), still, petitioner’s complaint cannot prosper for lack of substantial evidence. Other than
his bare allegation, petitioner offered no proof that MWEU did not penalize some union
members who failed to pay the increased dues. On the proposed discriminatory CBA provisions,
petitioner merely attached the pages containing the questioned provisions without bothering to
reveal the MWEU representatives responsible for the said proposal. Article 249 mandates that
"x x x only the officers, members of the governing boards, representatives or agents or
members of labor associations or organizations who have actually participated in, authorized or
ratified unfair labor practices shall be held criminally liable." Plain accusations against all MWEU
officers, without specifying their actual participation, do not suffice. Thus, the ULP charges must
necessarily fail.

In administrative and quasi-judicial proceedings, only substantial evidence is necessary to

establish the case for or against a party. Substantial evidence is that amount of relevant

97
evidence which a reasonable mind might accept as adequate to justify a conclusion. Petitioner
failed to discharge the burden of proving, by substantial evidence, the allegations of ULP in his
complaint. The NLRC, therefore, properly dismissed the case.

FOR THESE REASONS, the petition is DISMISSED.

SO ORDERED.39

Thus, the instant Petition.

Issue

In an August 28, 2013 Resolution,40 this Court resolved to give due course to the Petition,
which claims that the CA erred:

A. IN DECLARING THAT THE PRESENCE OF INTER/INTRA-UNION CONFLICTS NEGATES

THE COMPLAINT FOR UNFAIR LABOR PRACTICES AGAINST A LABOR ORGANIZATION
AND ITS OFFICERS, AND IN AFFIRMING THAT THE NLRC PROPERLY DISMISSED THE
CASE FOR ALLEGED LACK OF JURISDICTION.

B. IN NOT RULING THAT RESPONDENTS ARE GUILTY OF UNFAIR LABOR PRACTICES

UNDER ARTICLE 249(a) AND (b) OF THE LABOR CODE.

C. IN DECLARING THAT THE THREATS MADE BY A UNION OFFICER AGAINST MEMBERS

OF A RIVAL UNION IS (sic) MERELY AN "INTERFERENCE" AND DO NOT AMOUNT TO
"RESTRAINT" OR "COERCION".

D. IN DECLARING THAT PETITIONER FAILED TO PRESENT SUBSTANTIAL EVIDENCE IN

PROVING RESPONDENTS’ SPECIFIC ACTS OF UNFAIR LABOR PRACTICES.

E. IN NOT RULING THAT RESPONDENTS ARE SOLIDARILY LIABLE TO PETITIONER FOR

MORAL AND EXEMPLARY DAMAGES, AND ATTORNEY’S FEES.41

Petitioner’s Arguments

Praying that the assailed CA dispositions be set aside and that respondents be declared guilty
of unfair labor practices under Article 249(a) and (b) and adjudged liable for damages and
attorney’s fees as prayed for in his complaint, petitioner maintains in his Petition and Reply42
that respondents are guilty of unfair labor practices which he clearly enumerated and laid out in
his pleadings below; that these unfair labor practices committed by respondents fall within the
jurisdiction of the Labor Arbiter; that the Labor Arbiter, the NLRC, and the CA failed to rule on
his accusation of unfair labor practices and simply dismissed his complaint on the ground that
his causes of action are intra- or inter-union in nature; that admittedly, some of his causes of
action involved intra- or inter-union disputes, but other acts of respondents constitute unfair
labor practices; that he presented substantial evidence to prove that respondents are guilty of
unfair labor practices by failing to observe the proper procedure in the imposition of the
increased monthly union dues, and in unduly imposing the penalties of suspension and
expulsion against him; that under the union’s constitution and by-laws, he is given the right to
appeal his suspension and expulsion to the general membership assembly; that in denying him
his rights as a union member and expelling him, respondents are guilty of malice and evident
bad faith; that respondents are equally guilty for violating and curtailing his rights to vote and be

98
voted to a position within the union, and for discriminating against non-MWEU members; and
that the totality of respondents’ conduct shows that they are guilty of unfair labor practices.

Respondent’s Arguments

In their joint Comment,43 respondents maintain that petitioner raises issues of fact which are
beyond the purview of a petition for review on certiorari; that the findings of fact of the CA are
final and conclusive; that the Labor Arbiter, NLRC, and CA are one in declaring that there is no
unfair labor practices committed against petitioner; that petitioner’s other allegations fall within
the jurisdiction of the BLR, as they refer to intra- or inter-union disputes between the parties;
that the issues arising from petitioner’s right to information on the increased dues, right to
appeal his suspension and expulsion, and right to vote and be voted upon are essentially intra-
union in nature; that his allegations regarding supposed coercion and restraint relative to
benefits in the proposed CBA do not constitute an actionable wrong; that all of the acts
questioned by petitioner are covered by Section 1, Rule XI of Department Order 40-03, series of
2003 as intra-/inter-union disputes which do not fall within the jurisdiction of the Labor Arbiter;
that in not paying his union dues, petitioner is guilty of insubordination and deserved the penalty
of expulsion; that petitioner failed to petition to convene the general assembly through the
required signature of 30% of the union membership in good standing pursuant to Article VI,
Section 2(a) of MWEU’s Constitution and By-Laws or by a petition of the majority of the general
membership in good standing under Article VI, Section 3; and that for his failure to resort to said
remedies, petitioner can no longer question his suspension or expulsion and avail of his right to
appeal.

Our Ruling

The Court partly grants the Petition.

In labor cases, issues of fact are for the labor tribunals and the CA to resolve, as this Court is
not a trier of facts. However, when the conclusion arrived at by them is erroneous in certain
respects, and would result in injustice as to the parties, this Court must intervene to correct the
error. While the Labor Arbiter, NLRC, and CA are one in their conclusion in this case, they erred
in failing to resolve petitioner’s charge of unfair labor practices against respondents.

It is true that some of petitioner’s causes of action constitute intra-union cases cognizable by the
BLR under Article 226 of the Labor Code.

An intra-union dispute refers to any conflict between and among union members, including
grievances arising from any violation of the rights and conditions of membership, violation of or
disagreement over any provision of the union’s constitution and by-laws, or disputes arising
from chartering or disaffiliation of the union. Sections 1 and 2, Rule XI of Department Order No.
40-03, Series of 2003 of the DOLE enumerate the following circumstances as inter/intra-union
disputes x x x.44

However, petitioner’s charge of unfair labor practices falls within the original and exclusive
jurisdiction of the Labor Arbiters, pursuant to Article 217 of the Labor Code. In addition, Article
247 of the same Code provides that "the civil aspects of all cases involving unfair labor
practices, which may include claims for actual, moral, exemplary and other forms of damages,
attorney’s fees and other affirmative relief, shall be under the jurisdiction of the Labor Arbiters."

99
Unfair labor practices may be committed both by the employer under Article 248 and by labor
organizations under Article 249 of the Labor Code,45 which provides as follows:

ART. 249. Unfair labor practices of labor organizations. - It shall be unfair labor practice for a
labor organization, its officers, agents or representatives:

(a) To restrain or coerce employees in the exercise of their right to self-organization. However, a
labor organization shall have the right to prescribe its own rules with respect to the acquisition or
retention of membership;

(b) To cause or attempt to cause an employer to discriminate against an employee, including

discrimination against an employee with respect to whom membership in such organization has
been denied or to terminate an employee on any ground other than the usual terms and
conditions under which membership or continuation of membership is made available to other
members;

(c) To violate the duty, or refuse to bargain collectively with the employer, provided it is the
representative of the employees;

(d) To cause or attempt to cause an employer to pay or deliver or agree to pay or deliver any
money or other things of value, in the nature of an exaction, for services which are not
performed or not to be performed, including the demand for fee for union negotiations;

(e) To ask for or accept negotiation or attorney’s fees from employers as part of the settlement
of any issue in collective bargaining or any other dispute; or

(f) To violate a collective bargaining agreement.

The provisions of the preceding paragraph notwithstanding, only the officers, members of
governing boards, representatives or agents or members of labor associations or organizations
who have actually participated in, authorized or ratified unfair labor practices shall be held
criminally liable. (As amended by Batas Pambansa Bilang 130, August 21, 1981).

Petitioner contends that respondents committed acts constituting unfair labor practices – which
charge was particularly laid out in his pleadings, but that the Labor Arbiter, the NLRC, and the
CA ignored it and simply dismissed his complaint on the ground that his causes of action were
intra- or inter-union in nature. Specifically, petitioner claims that he was suspended and expelled
from MWEU illegally as a result of the denial of his right to appeal his case to the general
membership assembly in accordance with the union’s constitution and by-laws. On the other
hand, respondents counter that such charge is intra-union in nature, and that petitioner lost his
right to appeal when he failed to petition to convene the general assembly through the required
signature of 30% of the union membership in good standing pursuant to Article VI, Section 2(a)
of MWEU’s Constitution and By-Laws or by a petition of the majority of the general membership
in good standing under Article VI, Section 3.

Under Article VI, Section 2(a) of MWEU’s Constitution and By-Laws, the general membership
assembly has the power to "review revise modify affirm or repeal [sic] resolution and decision of
the Executive Board and/or committees upon petition of thirty percent (30%) of the Union in
good standing,"46 and under Section 2(d), to "revise, modify, affirm or reverse all expulsion
cases."47 Under Section 3 of the same Article, "[t]he decision of the Executive Board may be
appealed to the General Membership which by a simple majority vote reverse the decision of

100
said body. If the general Assembly is not in session the decision of the Executive Board may be
reversed by a petition of the majority of the general membership in good standing."48 And, in
Article X, Section 5, "[a]ny dismissed and/or expelled member shall have the right to appeal to
the Executive Board within seven days from notice of said dismissal and/or expulsion which, in
[turn] shall be referred to the General membership assembly. In case of an appeal, a simple
majority of the decision of the Executive Board is imperative. The same shall be
approved/disapproved by a majority vote of the general membership assembly in a meeting duly
called for the purpose."49

In regard to suspension of a union member, MWEU’s Constitution and By-Laws provides under
Article X, Section 4 thereof that "[a]ny suspended member shall have the right to appeal within
three (3) working days from the date of notice of said suspension. In case of an appeal a simple
majority of vote of the Executive Board shall be necessary to nullify the suspension."

Thus, when an MWEU member is suspended, he is given the right to appeal such suspension
within three working days from the date of notice of said suspension, which appeal the MWEU
Executive Board is obligated to act upon by a simple majority vote. When the penalty imposed is
expulsion, the expelled member is given seven days from notice of said dismissal and/or
expulsion to appeal to the Executive Board, which is required to act by a simple majority vote of
its members. The Board’s decision shall then be approved/ disapproved by a majority vote of
the general membership assembly in a meeting duly called for the purpose.1avvphi1

The documentary evidence is clear that when petitioner received Borela’s August 21, 2007 letter
informing him of the Executive Board’s unanimous approval of the grievance committee
recommendation to suspend him for the second time effective August 24, 2007, he immediately
and timely filed a written appeal. However, the Executive Board – then consisting of
respondents Borela, Tierra, Bolo, Casañas, Fernandez, Rendon, Montemayor, Torres, Quebral,
Pagulayan, Cancino, Maga, Cometa, Mancenido, and two others who are not respondents
herein – did not act thereon. Then again, when petitioner was charged for the third time and
meted the penalty of expulsion from MWEU by the unanimous vote of the Executive Board, his
timely appeal was again not acted upon by said board – this time consisting of respondents
Borela, Quebral, Tierra, Imana, Rendon, Yeban, Cancino, Torres, Montemayor, Mancenido,
Mandilag, Fernandez, Buenaventura, Apilado, Maga, Barbero, Cometa, Bolo, and Manlapaz.

Thus, contrary to respondents’ argument that petitioner lost his right to appeal when he failed to
petition to convene the general assembly through the required signature of 30% of the union
membership in good standing pursuant to Article VI, Section 2(a) of MWEU’s Constitution and
By-Laws or by a petition of the majority of the general membership in good standing under
Article VI, Section 3, this Court finds that petitioner was illegally suspended for the second time
and thereafter unlawfully expelled from MWEU due to respondents’ failure to act on his written
appeals. The required petition to convene the general assembly through the required signature
of 30% (under Article VI, Section 2[a]) or majority (under Article VI, Section 3) of the union
membership does not apply in petitioner’s case; the Executive Board must first act on his two
appeals before the matter could properly be referred to the general membership. Because
respondents did not act on his two appeals, petitioner was unceremoniously suspended,
disqualified and deprived of his right to run for the position of MWEU Vice-President in the
September 14, 2007 election of officers, expelled from MWEU, and forced to join another union,
WATER-AFWC. For these, respondents are guilty of unfair labor practices under Article 249 (a)
and (b) – that is, violation of petitioner’s right to self-organization, unlawful discrimination, and
illegal termination of his union membership – which case falls within the original and exclusive
jurisdiction of the Labor Arbiters, in accordance with Article 217 of the Labor Code.

101
The primary concept of unfair labor practices is stated in Article 247 of the Labor Code, which
states:

Article 247. Concept of unfair labor practice and procedure for prosecution thereof. –– Unfair
labor practices violate the constitutional right of workers and employees to self-organization, are
inimical to the legitimate interests of both labor and management, including their right to bargain
collectively and otherwise deal with each other in an atmosphere of freedom and mutual
respect, disrupt industrial peace and hinder the promotion of healthy and stable labor-
management relations.

"In essence, [unfair labor practice] relates to the commission of acts that transgress the workers’
right to organize."50 "[A]ll the prohibited acts constituting unfair labor practice in essence relate
to the workers’ right to self-organization."51 "[T]he term unfair labor practice refers to that gamut
of offenses defined in the Labor Code which, at their core, violates the constitutional right of
workers and employees to self-organization."52

Guaranteed to all employees or workers is the ‘right to self-organization and to form, join, or
assist labor organizations of their own choosing for purposes of collective bargaining.’ This is
made plain by no less than three provisions of the Labor Code of the Philippines. Article 243 of
the Code provides as follows:

ART. 243. Coverage and employees’ right to self-organization. — All persons employed in
commercial, industrial and agricultural enterprises and in religious, charitable, medical, or
educational institutions whether operating for profit or not, shall have the right to self-
organization and to form, join, or assist labor organizations of their own choosing for purposes
or collective bargaining. Ambulant, intermittent and itinerant workers, self-employed people,
rural workers and those without any definite employers may form labor organizations for their
mutual aid and protection.

Article 248 (a) declares it to be an unfair labor practice for an employer, among others, to
‘interfere with, restrain or coerce employees in the exercise of their right to self-organization.’
Similarly, Article 249 (a) makes it an unfair labor practice for a labor organization to ‘restrain or
coerce employees in the exercise of their rights to self-organization . . .’

xxxx

The right of self-organization includes the right to organize or affiliate with a labor union or
determine which of two or more unions in an establishment to join, and to engage in concerted
activities with co-workers for purposes of collective bargaining through representatives of their
own choosing, or for their mutual aid and protection, i.e., the protection, promotion, or
enhancement of their rights and interests.53

As members of the governing board of MWEU, respondents are presumed to know, observe,
and apply the union’s constitution and by-laws. Thus, their repeated violations thereof and their
disregard of petitioner’s rights as a union member – their inaction on his two appeals which
resulted in his suspension, disqualification from running as MWEU officer, and subsequent
expulsion without being accorded the full benefits of due process – connote willfulness and bad
faith, a gross disregard of his rights thus causing untold suffering, oppression and, ultimately,
ostracism from MWEU. "Bad faith implies breach of faith and willful failure to respond to plain

102
and well understood obligation."54 This warrants an award of moral damages in the amount of
P100,000.00. Moreover, the Civil Code provides:

Art. 32. Any public officer or employee, or any private individual, who directly or indirectly
obstructs, defeats, violates or in any manner impedes or impairs any of the following rights and
liberties of another person shall be liable to the latter for damages:

xxxx

(12) The right to become a member of associations or societies for purposes not contrary to law;

In Vital-Gozon v. Court of Appeals,55 this Court declared, as follows:

Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury. They may be
recovered if they are the proximate result of the defendant’s wrongful act or omission. The
instances when moral damages may be recovered are, inter alia, ‘acts and actions referred to in
Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35 of the Civil Code,’ which, in turn, are found in the
Chapter on Human Relations of the Preliminary Title of the Civil Code. x x x

Under the circumstances, an award of exemplary damages in the amount of P50,000.00, as

prayed for, is likewise proper. "Exemplary damages are designed to permit the courts to mould
behavior that has socially deleterious consequences, and their imposition is required by public
policy to suppress the wanton acts of the offender."56 This should prevent respondents from
repeating their mistakes, which proved costly for petitioner.1âwphi1

Under Article 2229 of the Civil Code, ‘[e]xemplary or corrective damages are imposed, by way
of example or correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.’ As this court has stated in the past: ‘Exemplary damages are
designed by our civil law to permit the courts to reshape behaviour that is socially deleterious in
its consequence by creating negative incentives or deterrents against such behaviour.’57

Finally, petitioner is also entitled to attorney’s fees equivalent to 10 per cent (10%) of the total
award. The unjustified acts of respondents clearly compelled him to institute an action primarily
to vindicate his rights and protect his interest. Indeed, when an employee is forced to litigate
and incur expenses to protect his rights and interest, he is entitled to an award of attorney’s
fees.58

WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed April 24, 2012 Decision of
the Court of Appeals in CA-G.R. SP No. 115639 is hereby MODIFIED, in that all of the
respondents - except for Carlos Villa, Ric Briones, and Chito Bernardo - are declared guilty of
unfair labor practices and ORDERED TO INDEMNIFY petitioner Allan M. Mendoza the amounts
of Pl00,000.00 as and by way of moral damages, PS0,000.00 as exemplary damages, and
attorney's fees equivalent to 10 per cent (10%) of the total award.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

103
G.R. No. 142244 November 18, 2002

ATLAS FARMS, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION,
JAIME O. DELA PEÑA and MARCIAL I. ABION, respondents.

DECISION

QUISUMBING, J.:

Petitioner seeks the reversal of the decision1 dated January 10, 2000 of the Court of Appeals in
CA-G.R. SP No. 52780, dismissing its petition for certiorari against the NLRC, as well as the
resolution2 dated February 24, 2000, denying its motion for reconsideration.

The antecedent facts of the case, as found by the Court of Appeals,3 are as follows:

Private respondent Jaime O. dela Peña was employed as a veterinary aide by petitioner in
December 1975. He was among several employees terminated in July 1989. On July 8, 1989,
he was re-hired by petitioner and given the additional job of feedmill operator. He was instructed
to train selected workers to operate the feedmill.

On March 13, 1993,4 Peña was allegedly caught urinating and defecating on company
premises not intended for the purpose. The farm manager of petitioner issued a formal notice
directing him to explain within 24 hours why disciplinary action should not be taken against him
for violating company rules and regulations. Peña refused, however, to receive the formal
notice. He never bothered to explain, either verbally or in writing, according to petitioner. Thus,
on March 20, 1993, a notice of termination with payment of his monetary benefits was sent to
him. He duly acknowledged receipt of his separation pay of P13,918.67.

From the start of his employment on July 8, 1989, until his termination on March 20, 1993, Peña
had worked for seven days a week, including holidays, without overtime, holiday, rest day pay
and service incentive leave. At the time of his dismissal from employment, he was receiving
P180 pesos daily wage, or an average monthly salary of P5,402.

Co-respondent Marcial I. Abion5 was a carpenter/mason and a maintenance man whose

employment by petitioner commenced on October 8, 1990. Allegedly, he caused the clogging of
the fishpond drainage resulting in damages worth several hundred thousand pesos when he
improperly disposed of the cut grass and other waste materials into the pond’s drainage system.
Petitioner sent a written notice to Abion, requiring him to explain what happened, otherwise,
disciplinary action would be taken against him. He refused to receive the notice and give an
explanation, according to petitioner. Consequently, the company terminated his services on
October 27, 1992. He acknowledged receipt of a written notice of dismissal, with his separation
pay.

Like Peña, Abion worked seven days a week, including holidays, without holiday pay, rest day
pay, service incentive leave pay and night shift differential pay. When terminated on October 27,
1992, Abion was receiving a monthly salary of P4,500.

Peña and Abion filed separate complaints for illegal dismissal that were later consolidated. Both
claimed that their termination from service was due to petitioner’s suspicion that they were the

104
leaders in a plan to form a union to compete and replace the existing management-dominated
union.

On November 9, 1993, the labor arbiter dismissed their complaints on the ground that the
grievance machinery in the collective bargaining agreement (CBA) had not yet been exhausted.
Private respondents availed of the grievance process, but later on refiled the case before the
NLRC in Region IV. They alleged "lack of sympathy" on petitioner’s part to engage in
conciliation proceedings.

Their cases were consolidated in the NLRC. At the initial mandatory conference, petitioner filed
a motion to dismiss, on the ground of lack of jurisdiction, alleging private respondents
themselves admitted that they were members of the employees’ union with which petitioner had
an existing CBA. This being the case, according to petitioner, jurisdiction over the case
belonged to the grievance machinery and thereafter the voluntary arbitrator, as provided in the
CBA.

In a decision dated January 30, 1996, the labor arbiter dismissed the complaint for lack of merit,
finding that the case was one of illegal dismissal and did not involve the interpretation or
implementation of any CBA provision. He stated that Article 217 (c) of the Labor Code6 was
inapplicable to the case. Further, the labor arbiter found that although both complainants did not
substantiate their claims of illegal dismissal, there was proof that private respondents voluntarily
accepted their separation pay and petitioner’s financial assistance.

Thus, private respondents brought the case to the NLRC, which reversed the labor arbiter’s
decision. Dissatisfied with the NLRC ruling, petitioner went to the Court of Appeals by way of a
petition for review on certiorari under Rule 65, seeking reinstatement of the labor arbiter’s
decision. The appellate court denied the petition and affirmed the NLRC resolution with some
modifications, thus:

WHEREFORE, the petition is DENIED. The resolution in NLRC CA No. 010520-96 is

AFFIRMED with the following modifications:

1) The private respondents can not be reinstated, due to their acceptance of the separation pay
offered by the petitioner;

2) The private respondents are entitled to their full back wages; and,

3) The amount of the separation pay received by private respondents from petitioner shall not
be deducted from their full back wages.

Costs against petitioner.

SO ORDERED.7

Petitioner forthwith filed its motion for reconsideration, which was denied in a resolution dated
February 24, 2000, which reads:

Acting on the Motion for Reconsideration filed by petitioner[s] which drew an opposition from
private respondents, the Court resolved to DENY the aforesaid motion for reconsideration, as
the issues raised therein have been passed upon by the Court in its questioned decision and no
substantial arguments were presented to warrant its reversal, let alone modification.

105
SO ORDERED.8

In this petition now before us, petitioner alleges that the appellate court erred in:

I. … DENYING THE PETITION FOR CERTIORARI AND IN EFFECT AFFIRMING THE

RULINGS OF THE PUBLIC RESPONDENT NLRC THAT THE PRIVATE RESPONDENTS
WERE ILLEGALLY DISMISSED;

II. … RULING THAT THE PRIVATE RESPONDENTS ARE ENTITLED TO SEPARATION PAY
AND FULL BACKWAGES;

III. … RULING THAT PETITIONER IS LIABLE FOR COSTS OF SUIT.9

Petitioner contends that the dismissal of private respondents was for a just and valid cause,
pursuant to the provisions of the company’s rules and regulations. It also alleges lack of
jurisdiction on the part of the labor arbiter, claiming that the cases should have been resolved
through the grievance machinery, and eventually referred to voluntary arbitration, as prescribed
in the CBA.

For their part, private respondents contend that they were illegally dismissed from employment
because management discovered that they intended to form another union, and because they
were vocal in asserting their rights. In any case, according to private respondents, the petition
involves factual issues that cannot be properly raised in a petition for review on certiorari under
Rule 45 of the Revised Rules of Court.10

In fine, there are three issues to be resolved: 1) whether private respondents were legally and
validly dismissed; 2) whether the labor arbiter and the NLRC had jurisdiction to decide
complaints for illegal dismissal; and 3) whether petitioner is liable for costs of the suit.

The first issue primarily involves questions of fact, which can serve as basis for the conclusion
that private respondents were legally and validly dismissed. The burden of proving that the
dismissal of private respondents was legal and valid falls upon petitioner. The NLRC found that
petitioner failed to substantiate its claim that both private respondents committed certain acts
that violated company rules and regulations,11 hence we find no factual basis to say that private
respondents’ dismissal was in order. We see no compelling reason to deviate from the NLRC
ruling that their dismissal was illegal, absent a showing that it reached its conclusion
arbitrarily.12 Moreover, factual findings of agencies exercising quasi-judicial functions are
accorded not only respect but even finality, aside from the consideration here that this Court is
not a trier of facts. 13

Anent the second issue, Article 217 of the Labor Code provides that labor arbiters have original
and exclusive jurisdiction over termination disputes. A possible exception is provided in Article
261 of the Labor Code, which provides that-

The Voluntary Arbitrator or panel of voluntary arbitrators shall have original and exclusive
jurisdiction to hear and decide all unresolved grievances arising from the interpretation or
implementation of the Collective Bargaining Agreement and those arising from the interpretation
or enforcement of company personnel policies referred to in the immediately preceding article.
Accordingly, violations of a Collective Bargaining Agreement, except those which are gross in
character, shall no longer be treated as unfair labor practice and shall be resolved as

106
grievances under the Collective Bargaining Agreement. For purposes of this article, gross
violations of Collective Bargaining Agreement shall mean flagrant and or malicious refusal to
comply with the economic provisions of such agreement.

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

But as held in Vivero vs. CA,14 "petitioner cannot arrogate into the powers of Voluntary
Arbitrators the original and exclusive jurisdiction of Labor Arbiters over unfair labor practices,
termination disputes, and claims for damages, in the absence of an express agreement
between the parties in order for Article 262 of the Labor Code [Jurisdiction over other labor
disputes] to apply in the case at bar."

Moreover, per Justice Bellosillo:

It may be observed that under Policy Instruction No. 56 of the Secretary of Labor, dated 6 April
1993, "Clarifying the Jurisdiction Between Voluntary Arbitrators and Labor Arbiters Over
Termination Cases and Providing Guidelines for the Referral of Said Cases Originally Filed with
the NLRC to the NCMB," termination cases arising in or resulting from the interpretation and
implementation of collective bargaining agreements and interpretation and enforcement of
company personnel policies which were initially processed at the various steps of the plant-level
Grievance Procedures under the parties’ collective bargaining agreements fall within the original
and exclusive jurisdiction of the voluntary arbitrator pursuant to Art. 217 (c) and Art. 261 of the
Labor Code; and, if filed before the Labor Arbiter, these cases shall be dismissed by the Labor
Arbiter for lack of jurisdiction and referred to the concerned NCMB Regional Branch for
appropriate action towards and expeditious selection by the parties of a Voluntary Arbitrator or
Panel of Arbitrators based on the procedures agreed upon in the CBA.

As earlier stated, the instant case is a termination dispute falling under the original and
exclusive jurisdiction of the Labor Arbiter, and does not specifically involve the application,
implementation or enforcement of company personnel policies contemplated in Policy
Instruction No. 56. Consequently, Policy Instruction No. 56 does not apply in the case at bar.15
xxx

Records show, however, that private respondents sought without success to avail of the
grievance procedure in their CBA.16 On this point, petitioner maintains that by so doing, private
respondents recognized that their cases still fell under the grievance machinery. According to
petitioner, without having exhausted said machinery, the private respondents filed their action
before the NLRC, in a clear act of forum-shopping.17 However, it is worth pointing out that
private respondents went to the NLRC only after the labor arbiter dismissed their original
complaint for illegal dismissal. Under these circumstances private respondents had to find
another avenue for redress. We agree with the NLRC that it was petitioner who failed to show
proof that it took steps to convene the grievance machinery after the labor arbiter first dismissed
the complaints for illegal dismissal and directed the parties to avail of the grievance procedure
under Article VII of the existing CBA. They could not now be faulted for attempting to find an
impartial forum, after petitioner failed to listen to them and after the intercession of the labor
arbiter proved futile. The NLRC had aptly concluded in part that private respondents had

107
already exhausted the remedies under the grievance procedure.18 It erred only in finding that
their cause of action was ripe for arbitration.

In the case of Maneja vs. NLRC,19 we held that the dismissal case does not fall within the
phrase "grievances arising from the interpretation or implementation of the collective bargaining
agreement and those arising from the interpretation or enforcement of company personnel
policies." In Maneja, the hotel employee was dismissed without hearing. We ruled that her
dismissal was unjustified, and her right to due process was violated, absent the twin
requirements of notice and hearing. We also held that the labor arbiter had original and
exclusive jurisdiction over the termination case, and that it was error to give the voluntary
arbitrator jurisdiction over the illegal dismissal case.

In Vivero vs. CA,20 private respondents attempted to justify the jurisdiction of the voluntary
arbitrator over a termination dispute alleging that the issue involved the interpretation and
implementation of the grievance procedure in the CBA. There, we held that since what was
challenged was the legality of the employee’s dismissal for lack of cause and lack of due
process, the case was primarily a termination dispute. The issue of whether there was proper
interpretation and implementation of the CBA provisions came into play only because the
grievance procedure in the CBA was not observed, after he sought his union’s assistance.
Since the real issue then was whether there was a valid termination, there was no reason to
invoke the need to interpret nor question an implementation of any CBA provision.

One significant fact in the present petition also needs stressing. Pursuant to Article 26021 of the
Labor Code, the parties to a CBA shall name or designate their respective representatives to
the grievance machinery and if the grievance is unsettled in that level, it shall automatically be
referred to the voluntary arbitrators designated in advance by the parties to a CBA.
Consequently only disputes involving the union and the company shall be referred to the
grievance machinery or voluntary arbitrators. In these termination cases of private respondents,
the union had no participation, it having failed to object to the dismissal of the employees
concerned by the petitioner. It is obvious that arbitration without the union’s active participation
on behalf of the dismissed employees would be pointless, or even prejudicial to their cause.

Coming to the merits of the petition, the NLRC found that petitioner did not comply with the
requirements of a valid dismissal. For a dismissal to be valid, the employer must show that: (1)
the employee was accorded due process, and (2) the dismissal must be for any of the valid
causes provided for by law.22 No evidence was shown that private respondents refused, as
alleged, to receive the notices requiring them to show cause why no disciplinary action should
be taken against them. Without proof of notice, private respondents who were subsequently
dismissed without hearing were also deprived of a chance to air their side at the level of the
grievance machinery. Given the fact of dismissal, it can be said that the cases were effectively
removed from the jurisdiction of the voluntary arbitrator, thus placing them within the jurisdiction
of the labor arbiter. Where the dispute is just in the interpretation, implementation or
enforcement stage, it may be referred to the grievance machinery set up in the CBA, or brought
to voluntary arbitration. But, where there was already actual termination, with alleged violation of
the employee’s rights, it is already cognizable by the labor arbiter.23

In sum, we conclude that the labor arbiter and then the NLRC had jurisdiction over the cases
involving private respondents’ dismissal, and no error was committed by the appellate court in
upholding their assumption of jurisdiction.

108
However, we find that a modification of the monetary awards is in order. As a consequence of
their illegal dismissal, private respondents are entitled to reinstatement to their former positions.
But since reinstatement is no longer feasible because petitioner had already closed its shop,
separation pay in lieu of reinstatement shall be awarded.24 A terminated employee’s receipt of
his separation pay and other monetary benefits does not preclude reinstatement or full benefits
under the law, should reinstatement be no longer possible.25 As held in Cariño vs. ACCFA:26

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

Conformably, private respondents are entitled to separation pay equivalent to one month’s
salary for every year of service, in lieu of reinstatement.27 As regards the award of damages, in
order not to further delay the disposition of this case, we find it necessary to expressly set forth
the extent of the backwages as awarded by the appellate court. Pursuant to R.A. 6715, as
amended, private respondents shall be entitled to full backwages computed from the time of
their illegal dismissal up to the date of promulgation of this decision without qualification,
considering that reinstatement is no longer practicable under the circumstances.28

Having found private respondents’ dismissal to be illegal, and the labor arbiter and the NLRC
duly vested with jurisdiction to hear and decide their cases, we agree with the appellate court
that petitioner should pay the costs of suit.

WHEREFORE, the petition is DENIED for lack of merit. The decision of the Court of Appeals in
CA-G.R. SP No. 52780 is AFFIRMED with the MODIFICATION that petitioner is ordered to pay
private respondents (a) separation pay, in lieu of their reinstatement, equivalent to one month’s
salary for every year of service, (b) full backwages from the date of their dismissal up to the date
of the promulgation of this decision, together with (c) the costs of suit.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, and Callejo, Sr., JJ., concur.

Austria-Martinez, J., on leave.

109
G.R. No. 186557 August 25, 2010

NEGROS METAL CORPORATION, Petitioner,

vs.
ARMELO J. LAMAYO, Respondent.

DECISION

CARPIO MORALES, J.:

Armelo J. Lamayo (respondent) began working for Negros Metal Corporation (petitioner or the
company) in September 1999 as a machinist.

Sometime in May 2002, while respondent was at the company’s foundry grinding some tools he
was using, William Uy, Sr. (Uy), company manager, called his attention why he was using the
grinder there to which he replied that since the machine there was bigger, he would finish his
work faster.

Respondent’s explanation was found unsatisfactory, hence, he was, via memorandum, charged
of loitering and warned.1 Taking the warning as a three-day suspension as penalized under
company rules, respondent reported for work after three days, only to be meted with another 10-
day suspension2 ─ from May 30 to June 10, 2002, for allegedly failing to sign the memorandum
suspending him earlier.

After serving the second suspension, respondent reported for work on June 11, 2002 but was
informed by Uy that his services had been terminated and that he should draft his resignation
letter, drawing respondent to file on June 17, 2002 a complaint3 for illegal dismissal.

In lieu of a position paper, petitioner submitted a Manifestation4 contending that the complaint
should be dismissed because the Labor Arbiter had no jurisdiction over it since, under their
Collective Bargaining Agreement5 (CBA), such matters must first be brought before the
company’s grievance machinery.

By Decision6 of December 29, 2004, the Labor Arbiter, brushing aside petitioner’s position, held
that respondent was illegally dismissed. The dispositive portion of the said Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. DECLARING that complainant was illegally dismissed by respondents;

2. ORDERING respondent to pay complainant the total amount of ₱178,978.48 representing

payment for separation pay, back wages and 13th month pay, plus 10% thereof as attorney’s
fees in the amount of ₱17,897.85, or in the total amount of

ONE HUNDRED NINETY SIX THOUSAND EIGHTH HUNDRED SEVENTY SIX PESOS &
33/100 (₱196,876.33) the same to be deposited with the Cashier of this Office, within ten (10)
calendar days from receipt of this Decision.

On petitioner’s appeal, the National Labor Relations Commission (NLRC), by Resolution7 of

March 30, 2006, set aside the ruling of, and remanded the case to, the Labor Arbiter for
disposition based on the company’s grievance procedure. It held that based on a letter of the

110
company union president Arturo Ronquillo (Ronquillo), respondent invoked the CBA provision
on grievance procedure. Respondent’s Motion for Reconsideration was denied by the NLRC by
Resolution8 of June 27, 2006. He thereupon appealed to the Court of Appeals.

By Decision9 of March 25, 2008, the appellate court set aside the NLRC Resolutions and
reinstated the Labor Arbiter’s Decision. It held that the Labor Arbiter had jurisdiction to hear the
complaint; that as respondent’s dismissal did not proceed from the parties’ interpretation of or
implementation of the CBA, it is not covered by the grievance machinery procedure; that the
laws and rules governing illegal dismissal are not to be found in the parties’ CBA but in the labor
statutes, hence, the Labor Arbiter had jurisdiction; and that although the option to go through the
grievance machinery was stated in Ronquillo’s letter10 to petitioner, respondent denied having
made that option as he had ceased to be a member of the union, as evidenced by a March 20,
2001 Certification11 of the union’s past president Alex Sanio that he had resigned effective
March 18, 2001. The appellate court went on to hold that, at that point, it was too late to direct
the parties to go through the grievance machinery.

In holding that respondent was illegally dismissed, the appellate court noted that he was not
allowed to go back to work after serving two suspensions, without affording him the requisite
notice and hearing; and that respondent’s failure to seek reinstatement did not negate his claim
for illegal dismissal, there being nothing wrong in opting for separation pay in lieu of
reinstatement.

Petitioner’s motion for reconsideration having been denied by Resolution12 of January 21,
2009, it interposed the present petition for review on certiorari, maintaining that the grievance
machinery procedure should have been followed first before respondent’s complaint for illegal
dismissal could be given due course.

The petition fails.

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

Art. 217. Jurisdiction of the Labor Arbiters and the Commission. - (a) Except as otherwise
provided under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to
hear and decide, within thirty (30) calendar days after the submission of the case by the parties
for decision without extension, even in the absence of stenographic notes, the following cases
involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involving
wages, rates of pay, hours of work and other terms and conditions of employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-
employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions involving the
legality of strikes and lockouts; and

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6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims arising from employer-employee relations, including those of persons
in domestic or household service, involving an amount exceeding five thousand pesos
(₱5,000.00) regardless of whether accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor
Arbiters.

(c) Cases arising from the interpretation or implementation of collective bargaining agreements
and those arising from the interpretation or enforcement of company personnel policies shall be
disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary
arbitration as may be provided in said agreements. (emphasis and underscoring supplied)

xxxx

Art. 261. Jurisdiction of Voluntary Arbitrators or panel of Voluntary Arbitrators. - The Voluntary
Arbitrator or panel of Voluntary Arbitrators shall have original and exclusive jurisdiction to hear
and decide all unresolved grievances arising from the interpretation or implementation of the
Collective Bargaining Agreement and those arising from the interpretation or enforcement of
company personnel policies referred to in the immediately preceding article. Accordingly,
violations of a Collective Bargaining Agreement, except those which are gross in character,
shall no longer be treated as unfair labor practice and shall be resolved as grievances under the
Collective Bargaining Agreement. For purposes of this article, gross violations of Collective
Bargaining Agreement shall mean flagrant and/or malicious refusal to comply with the economic
provisions of such agreement.

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

ART. 262. Jurisdiction over other labor disputes. - The Voluntary Arbitrator or panel of Voluntary
Arbitrators, upon agreement of the parties, shall also hear and decide all other labor disputes
including unfair labor practices and bargaining deadlocks. (emphasis and underscoring
supplied)

Under Art. 217, it is clear that a labor arbiter has original and exclusive jurisdiction over
termination disputes. On the other hand, under Article 261, a voluntary arbitrator has original
and exclusive jurisdiction over grievances arising from the interpretation or enforcement of
company policies.

As a general rule then, termination disputes should be brought before a labor arbiter, except
when the parties, under Art. 262, unmistakably express that they agree to submit the same to
voluntary arbitration.13

In the present case, the CBA provision on grievance machinery being invoked by petitioner
does not expressly state that termination disputes are included in the ambit of what may be
brought before the company’s grievance machinery. Thus, the pertinent provision in the parties’
CBA reads:

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Article IV

GRIEVANCE MACHINERY

Section 1. The parties hereto agree on principle that all disputes between labor and
management may be settled through friendly negotiations that the parties have the same
interest in the continuity of work until all points in dispute shall have been discussed and settled.
x x x For this purpose, a grievance is defined as any disagreement between the UNION and the
EMPLOYER or between a worker or group of workers on one hand and the EMPLOYER on the
one hand as to the application and interpretation of any of the provisions of this contract. Other
matters subject of collective bargaining or regulated by existing labor laws shall not be
considered as grievances. (emphasis and underscoring supplied)

Even assuming, however, that the suspension of an employee may be considered as a

"disagreement" which bears on the "application and interpretation of any of the provisions" of
the CBA, respondent could not have bound himself to bring the matter of his suspension to
grievance procedure or voluntary arbitration in light of the documented fact that he had resigned
from the union more than a year before his suspension, not to mention the fact that he denied
having a hand in the preparation of the union president Ronquillo’s letter invoking the grievance
procedure.1avvphi1 In fine, the labor tribunal had original and exclusive jurisdiction over
respondent’s complaint for illegal dismissal.

On the merits, as did the appellate court, the Court sustains the Labor Arbiter’s ruling that
respondent was illegally dismissed absent a showing that he was accorded due process when
he was summarily terminated. The Court is not a trier of facts. It is not tasked to review the
evidence on record, documentary and testimonial, and reassess the probative weight thereof,
especially in view of the well-entrenched rule that findings of fact of administrative officials, such
as labor arbiters, who have acquired expertise on account of their specialized jurisdiction are
accorded by the courts not only respect but, most often, with finality, particularly when affirmed
on appeal.

WHEREFORE, the petition is DENIED.

SO ORDERED.

CONCHITA CARPIO MORALES

Associate Justice

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G.R. No. 138938 October 24, 2000

CELESTINO VIVIERO, petitioner,

vs.
COURT OF APPEALS, HAMMONIA MARINE SERVICES, and HANSEATIC SHIPPING CO.,
LTD. respondents.

DECISION

BELLOSILLO, J.:

CELESTINO VIVERO, in this petition for review, seeks the reversal of the Decision of the Court
of Appeals of 26 May 1999 setting aside the Decision of the National Labor Relations
Commission of 28 May 1998 as well as its Resolution of 23 July 1998 denying his motion for its
reconsideration, and reinstating the decision of the Labor Arbiter of 21 January 1997.

Petitioner Vivero, a licensed seaman, is a member of the Associated Marine Officers and
Seamen's Union of the Philippines (AMOSUP). The Collective Bargaining Agreement entered
into by AMOSUP and private respondents provides, among others -

ARTICLE XII

GRIEVANCE PROCEDURE

xxxx

Sec. 3. A dispute or grievance arising in connection with the terms and provisions of this
Agreement shall be adjusted in accordance with the following procedure:

1. Any seaman who feels that he has been unjustly treated or even subjected to an unfair
consideration shall endeavor to have said grievance adjusted by the designated representative
of the unlicensed department abroad the vessel in the following manner:

A. Presentation of the complaint to his immediate superior.

B. Appeal to the head of the department in which the seaman involved shall be employed.

C. Appeal directly to the Master.

Sec. 4. If the grievance cannnot be resolved under the provision of Section 3, the decision of the
Master shall govern at sea x x x x in foreign ports and until the vessel arrives at a port where the
Master shall refer such dispute to either the COMPANY or the UNION in order to resolve such
dispute. It is understood, however, if the dispute could not be resolved then both parties shall
avail of the grievance procedure.

Sec. 5. In furtherance of the foregoing principle, there is hereby created a GRIEVANCE

COMMITTEE to be composed of two COMPANY REPRESENTATIVES to be designated by the
COMPANY and two LABOR REPRESENTATIVES to be designated by the UNION.

Sec. 6. Any grievance, dispute or misunderstanding concerning any ruling, practice, wages or
working conditions in the COMPANY, or any breach of the Employment Contract, or any dispute

114
arising from the meaning or the application of the provision of this Agreement or a claim of
violation thereof or any complaint that any such crewmembers may have against the
COMPANY, as well as complaint which the COMPANY may have against such crewmembers
shall be brought to the attention of the GRIEVANCE COMMITTEE before either party takes any
action, legal or otherwise.

Sec. 7. The COMMITTEE shall resolve any dispute within seven (7) days from and after the
same is submitted to it for resolution and if the same cannot be settled by the COMMITTEE or if
the COMMITTEE fails to act on the dispute within the 7-day period herein provided, the same
shall be referred to a VOLUNTARY ARBITRATION COMMITTEE.

An "impartial arbitrator" will be appointed by mutual choice and consent of the UNION and the
COMPANY who shall hear and decide the dispute or issue presented to him and his decision
shall be final and unappealable x x x x1

As found by the Labor Arbiter -

Complainant was hired by respondent as Chief Officer of the vessel "M.V. Sunny Prince" on 10
June 1994 under the terms and conditions, to wit:

Duration of Contract - - - - 10 months

Basic Monthly Salary - - - - US $1,100.00

Hours of Work - - - - 44 hrs./week

Overtime - - - - 495 lump O.T.

Vacation leave with pay - - - - US $220.00/mo.

On grounds of very poor performance and conduct, refusal to perform his job, refusal to report
to the Captain or the vessel’s Engineers or cooperate with other ship officers about the problem
in cleaning the cargo holds or of the shipping pump and his dismal relations with the Captain of
the vessel, complainant was repatriated on 15 July 1994.

On 01 August 1994, complainant filed a complaint for illegal dismissal at Associated Marine
Officers’ and Seaman’s Union of the Philippines (AMOSUP) of which complainant was a
member. Pursuant to Article XII of the Collective Bargaining Agreement, grievance proceedings
were conducted; however, parties failed to reach and settle the dispute amicably, thus, on 28
November 1994, complainant filed [a] complaint with the Philippine Overseas Employment
Administration (POEA).2

The law in force at the time petitioner filed his Complaint with the POEA was EO No. 247.3

While the case was pending before the POEA, private respondents filed a Motion to Dismiss on
the ground that the POEA had no jurisdiction over the case considering petitioner Vivero's
failure to refer it to a Voluntary Arbitration Committee in accordance with the CBA between the
parties. Upon the enactment of RA 8042, the Migrant Workers and Overseas Filipinos Act of
1995, the case was transferred to the Adjudication Branch of the National Labor Relations
Commission.

115
On 21 January 1997 Labor Arbiter Jovencio Ll. Mayor Jr., on the basis of the pleadings and
documents available on record, rendered a decision dismissing the Complaint for want of
jurisdiction.4 According to the Labor Arbiter, since the CBA of the parties provided for the
referral to a Voluntary Arbitration Committee should the Grievance Committee fail to settle the
dispute, and considering the mandate of Art. 261 of the Labor Code on the original and
exclusive jurisdiction of Voluntary Arbitrators, the Labor Arbiter clearly had no jurisdiction over
the case.5

Petitioner (complainant before the Labor Arbiter) appealed the dismissal of his petition to the
NLRC. On 28 May 1998 the NLRC set aside the decision of the Labor Arbiter on the ground that
the record was clear that petitioner had exhausted his remedy by submitting his case to the
Grievance Committee of AMOSUP. Considering however that he could not obtain any
settlement he had to ventilate his case before the proper forum, i.e., the Philippine Overseas
Employment Administration.6 The NLRC further held that the contested portion in the CBA
providing for the intercession of a Voluntary Arbitrator was not binding upon petitioner since
both petitioner and private respondents had to agree voluntarily to submit the case before a
Voluntary Arbitrator or Panel of Voluntary Arbitrators. This would entail expenses as the
Voluntary Arbitrator chosen by the parties had to be paid. Inasmuch however as petitioner
chose to file his Complaint originally with POEA, then the Labor Arbiter to whom the case was
transferred would have to take cognizance of the case.7

The NLRC then remanded the case to the Labor Arbiter for further proceedings. On 3 July 1998
respondents filed a Motion for Reconsideration which was denied by the NLRC on 23 July 1998.

Thus, private respondents raised the case to the Court of Appeals contending that the provision
in the CBA requiring a dispute which remained unresolved by the Grievance Committee to be
referred to a Voluntary Arbitration Committee, was mandatory in character in view of the CBA
between the parties. They stressed that "since it is a policy of the state to promote voluntary
arbitration as a mode of settling labor disputes, it is clear that the public respondent gravely
abused its discretion in taking cognizance of a case which was still within the mantle of the
Voluntary Arbitration Commitee’s jurisdiction."8

On the other hand, petitioner argued -

(A)s strongly suggested by its very title, referral of cases of this nature to the Voluntary
Arbitration Committee is voluntary in nature. Otherwise, the committee would not have been
called Voluntary Arbitration Committee but rather, a Compulsory Arbitration Committee.
Moreover, if the referral of cases of similar nature to the Voluntary Arbitration Committee would
be deemed mandatory by virtue of the provisions in the CBA, the [NLRC] would then be
effectively deprived of its jurisdiction to try, hear and decide termination disputes, as provided
for under Article 217 of the Labor Code. Lastly, [respondents] ought to be deemed to have
waived their right to question the procedure followed by [petitioner], considering that they have
already filed their Position Paper before belatedly filing a Motion to Dismiss x x x x 9

But the Court of Appeals ruled in favor of private respondents. It held that the CBA "is the law
between the parties and compliance therewith is mandated by the express policy of the law."10
Hence, petitioner should have followed the provision in the CBA requiring the submission of the
dispute to the Voluntary Arbitration Committee once the Grievance Committee failed to settle
the controversy.11 According to the Court of Appeals, the parties did not have the choice to
"volunteer" to refer the dispute to the Voluntary Arbitrator or a Panel of Arbitrators when there
was already an agreement requiring them to do so. "Voluntary Arbitration" means that it is

116
binding because of a prior agreement or contract, while "Compulsory Arbitration" is when the
law declares the dispute subject to arbitration, regardless of the consent or desire of the
parties.12

The Court of Appeals further held that the Labor Code itself enumerates the original and
exclusive jurisdiction of the Voluntary Arbitrator or Panel of Voluntary Arbitrators, and prohibits
the NLRC and the Regional Directors of the Department of Labor and Employment (DOLE) from
entertaining cases falling under the same.13 Thus, the fact that private respondents filed their
Position Paper first before filing their Motion to Dismiss was immaterial and did not operate to
confer jurisdiction upon the Labor Arbiter, following the well-settled rule that jurisdiction is
determined by law and not by consent or agreement of the parties or by estoppel.14

Finally, the appellate court ruled that a case falling under the jurisdiction of the Labor Arbiter as
provided under Art. 217 of the Labor Code may be lodged instead with a Voluntary Arbitrator
because the law prefers, or gives primacy, to voluntary arbitration instead of compulsory
arbitration.15 Consequently, the contention that the NLRC would be deprived of its jurisdiction
to try, hear and decide termination disputes under Art. 217 of the Labor Code, should the instant
dispute be referred to the Voluntary Arbitration Committee, is clearly bereft of merit.16 Besides,
the Voluntary Arbitrator, whether acting solely or in a panel, enjoys in law the status of a quasi-
judicial agency independent of, and apart from, the NLRC since his decisions are not
appealable to the latter.17

Celestino Vivero, in his petition for review assailing the Decision of the Court of Appeals, alleges
that the appellate court committed grave abuse of discretion in holding that a Voluntary
Arbitrator or Panel of Voluntary Arbitrators, and not the Adjudication Branch of the NLRC, has
jurisdiction over his complaint for illegal dismissal. He claims that his complaint for illegal
dismissal was undeniably a termination dispute and did not, in any way, involve an
"interpretation or implementation of collective bargaining agreement" or "interpretation" or
"enforcement" of company personnel policies. Thus, it should fall within the original and
exclusive jurisdiction of the NLRC and its Labor Arbiter, and not with a Voluntary Arbitrator, in
accordance with Art. 217 of the Labor Code.

Private respondents, on the other hand, allege that the case is clearly one "involving the proper
interpretation and implementation of the Grievance Procedure found in the Collective Bargaining
Agreement (CBA) between the parties"18 because of petitioner’s allegation in his
claim/assistance request form submitted to the Union, to wit:

NATURE OF COMPLAINT

3. Illegal Dismissal - Reason: (1) That in this case it was the master of M.V. SUNNY PRINCE
Capt. Andersen who created the trouble with physical injury and stating false allegation; (2) That
there was no proper procedure of grievance; (3) No proper notice of dismissal.

Is there a Notice of dismissal? _x_ Yes or ____ No

What date? 11 July 1994

Is there a Grievance Procedure observed? ____ Yes or _x_ No19

Private respondents further allege that the fact that petitioner sought the assistance of his Union
evidently shows that he himself was convinced that his Complaint was within the ambit of the

117
jurisdiction of the grievance machinery and subsequently by a Panel of Voluntary Arbitrators as
provided for in their CBA, and as explicitly mandated by Art. 261 of the Labor Code.20

Thus, the issue is whether the NLRC is deprived of jurisdiction over illegal dismissal cases
whenever a CBA provides for grievance machinery and voluntary arbitration proceedings. Or,
phrased in another way, does the dismissal of an employee constitute a "grievance between the
parties," as defined under the provisions of the CBA, and consequently, within the exclusive
original jurisdiction of the Voluntary Arbitrators, thereby rendering the NLRC without jurisdiction
to decide the case?

On the original and exclusive jurisdiction of Labor Arbiters, Art. 217 of the Labor Code provides -

Art. 217. Jurisdiction of Labor Arbiters and the Commission. - (a) Except as otherwise provided
under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and
decide within thirty (30) calendar days after the submission of the case by the parties for
decision without extension, even in the absence of stenographic notes, the following cases
involving all workers, whether agricultural or non-agricultural: (1) Unfair labor practice cases; (2)
Termination disputes; (3) If accompanied with a claim for reinstatement, those cases that
workers may file involving wages, rates of pay, hours of work and other terms and conditions of
employment; (4) Claims for actual, moral, exemplary and other forms of damages arising from
the employer-employee relations; (5) Cases arising from any violation of Article 264 of this
Code, including questions involving the legality of strikes and lockouts; and, (6) Except claims
for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims
arising from employer-employee relations, including those of persons in domestic or household
service, involving an amount exceeding five thousand pesos (₱5,000.00) regardless of whether
accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor
Arbiters.

(c) Cases arising from the interpretation of collective bargaining agreements and those arising
from the interpretation or enforcement of company personnel policies shall be disposed of by
the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitration as
may be provided in said agreements (emphasis supplied).

However, any or all of these cases may, by agreement of the parties, be submitted to a
Voluntary Arbitrator or Panel of Voluntary Arbitrators for adjudication. Articles 261 and 262 of
the Labor Code provide -

Art. 261. Jurisdiction of Voluntary Arbitrators or Panel of Voluntary Arbitrators. - The Voluntary
Arbitrator or panel of Voluntary Arbitrators shall have original and exclusive jurisdiction to hear
and decide all unresolved grievances arising from the interpretation or implementation of the
Collective Bargaining Agreement and those arising from the interpretation or enforcement of
company personnel policies referred to in the immediately preceding article. Accordingly,
violations of a Collective Bargaining Agreement, except those which are gross in character,
shall no longer be treated as unfair labor practice and shall be resolved as grievances under the
Collective Bargaining Agreement. For purposes of this article, gross violations of Collective
Bargaining Agreement shall mean flagrant and/or malicious refusal to comply with the economic
provisions of such agreement.

118
The Commission, its Regional Offices and the Regional Directors of the Department of Labor
and Employment shall not entertain disputes, grievances or matters under the exclusive and
original jurisdiction of the Voluntary Arbitrator or panel of Voluntary Arbitrators and shall
immediately dispose and refer the same to the Grievance Machinery or Voluntary Arbitration
provided in the Collective Bargaining Agreement.

Art. 262. Jurisdiction Over Other Labor Disputes. - The Voluntary Arbitrator or panel of
Voluntary Arbitrators, upon agreement of the parties, shall also hear and decide all other labor
disputes including unfair labor practices and bargaining deadlocks (emphasis supplied).

Private respondents attempt to justify the conferment of jurisdiction over the case on the
Voluntary Arbitrator on the ground that the issue involves the proper interpretation and
implementation of the Grievance Procedure found in the CBA. They point out that when
petitioner sought the assistance of his Union to avail of the grievance machinery, he in effect
submitted himself to the procedure set forth in the CBA regarding submission of unresolved
grievances to a Voluntary Arbitrator.

The argument is untenable. The case is primarily a termination dispute. It is clear from the
claim/assistance request form submitted by petitioner to AMOSUP that he was challenging the
legality of his dismissal for lack of cause and lack of due process. The issue of whether there
was proper interpretation and implementation of the CBA provisions comes into play only
because the grievance procedure provided for in the CBA was not observed after he sought his
Union’s assistance in contesting his termination. Thus, the question to be resolved necessarily
springs from the primary issue of whether there was a valid termination; without this, then there
would be no reason to invoke the need to interpret and implement the CBA provisions properly.

In San Miguel Corp. v. National Labor Relations Commission21 this Court held that the phrase
"all other labor disputes" may include termination disputes provided that the agreement between
the Union and the Company states "in unequivocal language that [the parties] conform to the
submission of termination disputes and unfair labor practices to voluntary arbitration."22 Ergo, it
is not sufficient to merely say that parties to the CBA agree on the principle that "all disputes"
should first be submitted to a Voluntary Arbitrator. There is a need for an express stipulation in
the CBA that illegal termination disputes should be resolved by a Voluntary Arbitrator or Panel
of Voluntary Arbitrators, since the same fall within a special class of disputes that are generally
within the exclusive original jurisdiction of Labor Arbiters by express provision of law. Absent
such express stipulation, the phrase "all disputes" should be construed as limited to the areas of
conflict traditionally within the jurisdiction of Voluntary Arbitrators, i.e., disputes relating to
contract-interpretation, contract-implementation, or interpretation or enforcement of company
personnel policies. Illegal termination disputes - not falling within any of these categories -
should then be considered as a special area of interest governed by a specific provision of law.

In this case, however, while the parties did agree to make termination disputes the proper
subject of voluntary arbitration, such submission remains discretionary upon the parties. A
perusal of the CBA provisions shows that Sec. 6, Art. XII (Grievance Procedure) of the CBA is
the general agreement of the parties to refer grievances, disputes or misunderstandings to a
grievance committee, and henceforth, to a voluntary arbitration committee. The requirement of
specificity is fulfilled by Art. XVII (Job Security) where the parties agreed -

Sec. 1. Promotion, demotion, suspension, dismissal or disciplinary action of the seaman shall
be left to the discretion of the Master, upon consultation with the Company and notification to

119
the Union. This notwithstanding, any and all disciplinary action taken on board the vessel shall
be provided for in Appendix "B" of this Agreement x x x x 23

Sec. 4. x x x x Transfer, lay-off or discipline of seamen for incompetence, inefficiency, neglect of

work, bad behavior, perpetration of crime, drunkenness, insubordination, desertion, violation of
x x x regulations of any port touched by the Company’s vessel/s and other just and proper
causes shall be at Master’s discretion x x x in the high seas or foreign ports. The Master shall
refer the case/dispute upon reaching port and if not satisfactorily settled, the case/dispute may
be referred to the grievance machinery or procedure hereinafter provided (emphasis
supplied).24

The use of the word "may" shows the intention of the parties to reserve the right to submit the
illegal termination dispute to the jurisdiction of the Labor Arbiter, rather than to a Voluntary
Arbitrator. Petitioner validly exercised his option to submit his case to a Labor Arbiter when he
filed his Complaint before the proper government agency.

Private respondents invoke Navarro III v. Damasco25 wherein the Court held that "it is the
policy of the state to promote voluntary arbitration as a mode of settling disputes."26 It should
be noted, however, that in Navarro III all the parties voluntarily submitted to the jurisdiction of
the Voluntary Arbitrator when they filed their respective position papers and submitted
documentary evidence before him. Furthermore, they manifested during the initial conference
that they were not questioning the authority of the Voluntary Arbitrator.27 In the case at bar, the
dispute was never brought to a Voluntary Arbitrator for resolution; in fact, petitioner precisely
requested the Court to recognize the jurisdiction of the Labor Arbiter over the case. The Court
had held in San Miguel Corp. v. NLRC28 that neither officials nor tribunals can assume
jurisdiction in the absence of an express legal conferment. In the same manner, petitioner
cannot arrogate into the powers of Voluntary Arbitrators the original and exclusive jurisdiction of
Labor Arbiters over unfair labor practices, termination disputes, and claims for damages, in the
absence of an express agreement between the parties in order for Art. 262 of the Labor Code to
apply in the case at bar. In other words, the Court of Appeals is correct in holding that Voluntary
Arbitration is mandatory in character if there is a specific agreement between the parties to that
effect. It must be stressed however that, in the case at bar, the use of the word "may" shows the
intention of the parties to reserve the right of recourse to Labor Arbiters.

The CBA clarifies the proper procedure to be followed in situations where the parties expressly
stipulate to submit termination disputes to the jurisdiction of a Voluntary Arbitrator or Panel of
Voluntary Arbitrators. For when the parties have validly agreed on a procedure for resolving
grievances and to submit a dispute to voluntary arbitration then that procedure should be strictly
observed.1âwphi1 Non-compliance therewith cannot be excused, as petitioner suggests, by the
fact that he is not well-versed with the "fine prints" of the CBA. It was his responsibility to find
out, through his Union, what the provisions of the CBA were and how they could affect his
rights. As provided in Art. 241, par. (p), of the Labor Code -

(p) It shall be the duty of any labor organization and its officers to inform its members on the
provisions of its constitution and by-laws, collective bargaining agreement, the prevailing labor
relations system and all their rights and obligations under existing labor laws.

In fact, any violation of the rights and conditions of union membership is a "ground for
cancellation of union registration or expulsion of officer from office, whichever is appropriate. At
least thirty percent (30%) of all the members of a union or any member or members especially
concerned may report such violation to the Bureau [of Labor Relations] x x x x"29

120
It may be observed that under Policy Instruction No. 56 of the Secretary of Labor, dated 6 April
1993, "Clarifying the Jurisdiction Between Voluntary Arbitrators and Labor Arbiters Over
Termination Cases and Providing Guidelines for the Referral of Said Cases Originally Filed with
the NLRC to the NCMB," termination cases arising in or resulting from the interpretation and
implementation of collective bargaining agreements and interpretation and enforcement of
company personnel policies which were initially processed at the various steps of the plant-level
Grievance Procedures under the parties' collective bargaining agreements fall within the original
and exclusive jurisdiction of the voluntary arbitrator pursuant to Art. 217 (c) and Art. 261 of the
Labor Code; and, if filed before the Labor Arbiter, these cases shall be dismissed by the Labor
Arbiter for lack of jurisdiction and referred to the concerned NCMB Regional Branch for
appropriate action towards an expeditious selection by the parties of a Voluntary Arbitrator or
Panel of Arbitrators based on the procedures agreed upon in the CBA.

As earlier stated, the instant case is a termination dispute falling under the original and
exclusive jurisdiction of the Labor Arbiter, and does not specifically involve the application,
implementation or enforcement of company personnel policies contemplated in Policy
Instruction No. 56. Consequently, Policy Instruction No. 56 does not apply in the case at bar. In
any case, private respondents never invoked the application of Policy Instruction No. 56 in their
Position Papers, neither did they raise the question in their Motion to Dismiss which they filed
nine (9) months after the filing of their Position Papers. At this late stage of the proceedings, it
would not serve the ends of justice if this case is referred back to a Voluntary Arbitrator
considering that both the AMOSUP and private respondents have submitted to the jurisdiction of
the Labor Arbiter by filing their respective Position Papers and ignoring the grievance procedure
set forth in their CBA.

After the grievance proceedings have failed to bring about a resolution, AMOSUP, as agent of
petitioner, should have informed him of his option to settle the case through voluntary
arbitration. Private respondents, on their part, should have timely invoked the provision of their
CBA requiring the referral of their unresolved disputes to a Voluntary Arbitrator once it became
apparent that the grievance machinery failed to resolve it prior to the filing of the case before the
proper tribunal. The private respondents should not have waited for nine (9) months from the
filing of their Position Paper with the POEA before it moved to dismiss the case purportedly for
lack of jurisdiction. As it is, private respondents are deemed to have waived their right to
question the procedure followed by petitioner, assuming that they have the right to do so. Under
their CBA, both Union and respondent companies are responsible for selecting an impartial
arbitrator or for convening an arbitration committee;30 yet, it is apparent that neither made a
move towards this end. Consequently, petitioner should not be deprived of his legitimate
recourse because of the refusal of both Union and respondent companies to follow the
grievance procedure.

WHEREFORE, the Decision of the Court of Appeals is SET ASIDE and the case is remanded to
the Labor Arbiter to dispose of the case with dispatch until terminated considering the undue
delay already incurred.

SO ORDERED.

Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.

121
G.R. No. 181146 January 26, 2011

THE UNIVERSITY OF THE IMMACULATE CONCEPTION and MO. MARIA ASSUMPTA

DAVID, RVM, Petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and TEODORA AXALAN, Respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari1 of the 13 December 2007 Decision2 of the Court of
Appeals in CA-G.R. SP No. 00812 affirming the 15 August 2005 and the 24 October 2005
Resolutions3 of the National Labor Relations Commission in NLRC CA No. M-008333-2005,
which sustained the 11 October 2004 Decision4 of the Labor Arbiter in RAB-11-12-01187-03
ordering petitioner to reinstate private respondent to her former position without loss of seniority
rights and to pay her backwages, salary differentials, damages, and attorney’s fees.

The Facts

Petitioner University of the Immaculate Conception is a private educational institution located in

Davao City. Private respondent Teodora C. Axalan is a regular faculty member in the university
holding the position of Associate Professor II. Aside from being a regular faculty member,
Axalan is the elected president of the employees’ union.5

From 18 November to 22 November 2002, Axalan attended a seminar in Quezon City on

website development. Axalan then received a memorandum6 from Dean Maria Rosa Celestial
asking her to explain in writing why she should not be dismissed for having been absent without
official leave.

In her letter,7 Axalan claimed that she held online classes while attending the seminar. She
explained that she was under the impression that faculty members would not be marked absent
even if they were not physically present in the classroom as long as they conducted online
classes.

In reply,8 Dean Celestial relayed to Axalan the message of the university president that no
administrative charge would be filed if Axalan would admit having been absent without official
leave and write a letter of apology seeking forgiveness.

Convinced that she could not be deemed absent since she held online classes, Axalan opted
not to write the letter of admission and contrition the university president requested.9 The Dean
wrote Axalan that the university president had created an ad hoc grievance committee to
investigate the AWOL charge.10

From 28 January to 3 February 2003, Axalan attended a seminar in Baguio City on advanced
paralegal training. Dean Celestial wrote Axalan informing her that her participation in the
paralegal seminar in Baguio City was the subject of a second AWOL charge.11 The dean asked
Axalan to explain in writing why no disciplinary action should be taken against her.12

122
In her letter,13 Axalan explained that before going to Baguio City for the seminar, she sought
the approval of Vice-President for Academics Alicia Sayson. In a letter,14 VP Sayson denied
having approved Axalan’s application for official leave. The VP stated in her letter that it was the
university president, Maria Assumpta David, who must approve the application.

After conducting hearings and receiving evidence, the ad hoc grievance committee found
Axalan to have incurred AWOL on both instances and recommended that Axalan be suspended
without pay for six months on each AWOL charge.15 The university president approved the
committee’s recommendation.

The university president then wrote Axalan informing her that she incurred absences without
official leave when she attended the seminars on website development in Quezon City and on
advanced paralegal training in Baguio City on 18-22 November 2002 and on 28 January-3
February 2003, respectively. In the same letter, the university president informed Axalan that
the total penalty of one-year suspension without pay for both AWOL charges would be effective
immediately.16

On 1 December 2003, Axalan filed a complaint17 against the university for illegal suspension,
constructive dismissal, reinstatement with backwages, and unfair labor practice with prayer for
damages and attorney’s fees.

The university moved to dismiss the complaint on the ground that the Labor Arbiter had no
jurisdiction over the subject matter of the complaint. The university maintained that jurisdiction
lay in the voluntary arbitrator.18

In denying the university’s motion to dismiss, the Labor Arbiter held that there being no existing
collective bargaining agreement between the parties, no grievance machinery was constituted,
which barred resort to voluntary arbitration.19

Meanwhile, upon the expiration of the one-year suspension, Axalan promptly resumed teaching
at the university on 1 October 2004.1âwphi1

The Ruling of the Labor Arbiter

On 11 October 2004, the Labor Arbiter rendered a Decision holding that the suspension of
Axalan amounted to constructive dismissal entitling her to reinstatement and payment of
backwages, salary differentials, damages, and attorney’s fees, thus:

WHEREFORE, premises laid, judgment is hereby rendered declaring that the suspension of
complainant amounted to constructive dismissal, and as such, she is entitled to reinstatement
and payment of her full backwages reckoned from the time it was withheld from her up to the
time of reinstatement. Accordingly, Respondent University of the Immaculate Conception acting
through its President, Respondent Mo. Maria Assumpta David, RVM, is directed to reinstate the
complainant to her former position without loss of seniority rights and to pay her the sum of Five
Hundred Forty Three Thousand Four Hundred Fifty Two Pesos (₱543,452.00) representing her
backwages, salary differentials (diminution) and damages plus ten percent (10%) thereof as
attorney’s fees or the sum of ₱54,345.20.

The Respondent UIC and its President are hereby directed to inform this Office of the mode of
compliance it will avail itself by reason of the Order of reinstatement.

123
SO ORDERED.20

The university appealed the Labor Arbiter’s Decision to the National Labor Relations
Commission (NLRC). It challenged the jurisdiction of the Labor Arbiter insisting that the
voluntary arbitrator had jurisdiction over the labor dispute. The university pointed out that when
the Labor Arbiter rendered his Decision on 11 October 2004, Axalan had returned to work on 1
October 2004 upon the expiration of the one-year suspension.

The Ruling of the NLRC

The NLRC held that the Labor Arbiter, not the voluntary arbitrator, had jurisdiction as the
controversy did not pertain to a dispute involving the union and the university. In its 15 August
2005 Resolution, the NLRC ruled:

WHEREFORE, for want of merit, the instant appeal is hereby DISMISSED.

SO ORDERED.21

NLRC Commissioner Jovito C. Cagaanan, in his dissenting opinion,22 stressed that the parties
previously agreed to submit the dispute to voluntary arbitration, which cast doubt on the
jurisdiction of the Labor Arbiter.

The university moved for reconsideration of the NLRC Resolution. But the NLRC, in its 24
October 2005 Resolution,23 denied the motion for reconsideration for lack of merit. The
university challenged both Resolutions of the NLRC before the Court of Appeals via a petition
for certiorari.

The Ruling of the Court of Appeals

The Court of Appeals affirmed the findings of the Labor Arbiter and the NLRC. In its 13
December 2007 Decision, the Court of Appeals dismissed the university’s petition for certiorari,
thus:

We find no grave abuse of discretion amounting to lack or excess of jurisdiction on the part of
public respondent in affirming the Labor Arbiter. Respondent Commission’s ruling finds more
than ample support in statutory and case law. It cannot, therefore, be characterized as
whimsical, arbitrary, or oppressive.

WHEREFORE, the instant petition is hereby DISMISSED.

SO ORDERED.24

Dissatisfied, the university filed in this Court the instant petition for review on certiorari.

The Issues

The issues for resolution are (1) whether the voluntary arbitrator had jurisdiction over the labor
dispute; (2) whether Axalan was constructively dismissed; and (3) whether the Labor Arbiter’s
computation of backwages, damages, and attorney’s fees was correct.

The Court’s Ruling

124
The petition is impressed with merit.

The university contends that based on the transcript of stenographic notes from the ad hoc
grievance committee hearing held on 20 February 2003, the parties agreed that the voluntary
arbitrator would have jurisdiction over the labor dispute. The university maintains that Axalan’s
suspension does not constitute constructive dismissal and that the Labor Arbiter’s decision
treating it as such is an attempt to make it appear that the voluntary arbitrator has no
jurisdiction. The university points out that for constructive dismissal to exist, there must be
severance of employment by the employee because of unbearable act of discrimination,
insensibility, or disdain on the part of the employer leaving the employee with no choice but to
forego continued employment. The university claims that on the contrary, Axalan eagerly
reported for work as soon as the one-year suspension was over. The university further argues
that assuming Axalan is entitled to backwages, it should have been based on Axalan’s average
gross monthly income at the time she was suspended in SY2003-2004, which was ₱14,145.00,
not on her average gross monthly income in SY2002-2003, which was ₱18,502.00.

Private respondent Axalan counters that the university raises the same factual issues already
decided unanimously by the Labor Arbiter, the NLRC, and the Court of Appeals. On the issue of
jurisdiction, Axalan stresses that the present labor case, being a complaint for constructive
dismissal and unfair labor practice, is within the jurisdiction of the Labor Arbiter. On the finding
of constructive dismissal, Axalan points out that the Labor Arbiter’s factual finding of
constructive dismissal, when affirmed by the NLRC and the Court of Appeals, binds this Court.
Axalan claims that both AWOL charges against her were without basis and were only a form of
harassment amounting to unfair labor practice. As to the computation of the award of
backwages, Axalan points out that her average gross monthly income in SY2002-2003 was
reduced in SY2003-2004 precisely because she was not given an overload of two extra
assignments resulting in the diminution of her income. Axalan maintains that the award of
damages was just proper considering that her suspension was without basis and amounted to
unfair labor practice.

Well-settled is the rule that the jurisdiction of this Court in a petition for review on certiorari is
limited to reviewing only errors of law, not of fact, unless the factual findings being assailed are
not supported by the evidence on record or the impugned judgment is based on a
misapprehension of facts. Patently erroneous findings of the Labor Arbiter, even when affirmed
by the NLRC and the Court of Appeals, are not binding on this Court.25

As to the first issue, Article 217 of the Labor Code states that unfair labor practices and
termination disputes fall within the original and exclusive jurisdiction of the Labor Arbiter:

ART. 217. Jurisdiction of Labor Arbiters and the Commission. – (a) Except as otherwise
provided under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to
hear and decide x x x the following cases involving all workers, whether agricultural or non-
agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

x x x x (Emphasis supplied)

125
Article 262 of the same Code provides the exception:

ART. 262. Jurisdiction over other labor disputes. – The Voluntary Arbitrator or panel of
Voluntary Arbitrators, upon agreement of the parties, shall also hear and decide all other labor
disputes including unfair labor practices and bargaining deadlocks. (Emphasis supplied)

In San Miguel Corp. v. NLRC,26 the Court ruled that for the exception to apply, there must be
agreement between the parties clearly conferring jurisdiction to the voluntary arbitrator. Such
agreement may be stipulated in a collective bargaining agreement. However, in the absence of
a collective bargaining agreement, it is enough that there is evidence on record showing the
parties have agreed to resort to voluntary arbitration.27

As can be gleaned from the transcript of stenographic notes of the administrative hearing held
on 20 February 2003, the parties in this case clearly agreed to resort to voluntary arbitration. To
quote the exact words of the parties’ counsels:

Atty. Dante Sandiego: x x x So, are we to understand that the decision of the President shall be
without prejudice to the right of the employees to contest the validity or legality of his dismissal
or of the disciplinary action imposed upon him by asking for voluntary arbitration under the
Labor Code or when applicable availing himself of the grievance machinery under the Labor
Code which ends in voluntary arbitration. That will be the steps that we will have to follow.

Atty. Sabino Padilla, Jr.: Yes, agreed.28

Thus, the Labor Arbiter should have immediately disposed of the complaint and referred the
same to the voluntary arbitrator when the university moved to dismiss the complaint for lack of
jurisdiction.

No less than Section 3, Article XIII of the Constitution declares as state policy the preferential
use of voluntary modes in settling disputes, to wit:

Sec. 3. x x x x The State shall promote the principle of shared responsibility between workers
and employers and the preferential use of voluntary modes in settling disputes, including
conciliation, and shall enforce their mutual compliance therewith to foster industrial peace.
(Emphasis supplied)

As to the second issue, constructive dismissal occurs when there is cessation of work because
continued employment is rendered impossible, unreasonable, or unlikely as when there is a
demotion in rank or diminution in pay or when a clear discrimination, insensibility, or disdain by
an employer becomes unbearable to the employee leaving the latter with no other option but to
quit.29

In this case however, there was no cessation of employment relations between the
parties.1âwphi1 It is unrefuted that Axalan promptly resumed teaching at the university right
after the expiration of the suspension period. In other words, Axalan never quit. Hence, Axalan
cannot claim that she was left with no choice but to quit, a crucial element in a finding of
constructive dismissal. Thus, Axalan cannot be deemed to have been constructively dismissed.

Significantly, at the time the Labor Arbiter rendered his Decision on 11 October 2004, Axalan
had already returned to her teaching job at the university on 1 October 2004. The Labor

126
Arbiter’s Decision ordering the reinstatement of Axalan, who at the time had already returned to
work, is thus absurd.

There being no constructive dismissal, there is no legal basis for the Labor Arbiter’s order of
reinstatement as well as payment of backwages, salary differentials, damages, and attorney’s
fees.30 Thus, the third issue raised in the petition is now moot.

Note that on the first AWOL incident, the university even offered to drop the AWOL charge
against Axalan if she would only write a letter of contrition. But Axalan adamantly refused
knowing fully well that the administrative case would take its course leading to possible
sanctions. She cannot now be heard that the imposition of the penalty of six-month suspension
without pay for each AWOL charge is unreasonable. We are convinced that Axalan was validly
suspended for cause and in accord with procedural due process.

The Court recognizes the right of employers to discipline its employees for serious violations of
company rules after affording the latter due process and if the evidence warrants. The
university, after affording Axalan due process and finding her guilty of incurring AWOL on two
separate occasions, acted well within the bounds of labor laws in imposing the penalty of six-
month suspension without pay for each incidence of AWOL.

As a learning institution, the university cannot be expected to take lightly absences without
official leave among its employees, more so among its faculty members even if they happen to
be union officers. To do so would send the wrong signal to the studentry and the rest of its
teaching staff that irresponsibility is widely tolerated in the academe.

The law protects both the welfare of employees and the prerogatives of management.31 Courts
will not interfere with prerogatives of management on the discipline of employees, as long as
they do not violate labor laws, collective bargaining agreements if any, and general principles of
fairness and justice.32

WHEREFORE, we GRANT the petition. The 13 December 2007 Decision of the Court of
Appeals in CA-G.R. SP No. 00812 affirming the 15 August 2005 and the 24 October 2005
Resolutions of the National Labor Relations Commission in NLRC CA No. M-008333-2005,
which sustained the 11 October 2004 Decision of the Labor Arbiter in RAB-11-12-01187-03, is
SET ASIDE.

No pronouncement as to costs.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

127
G.R. No. 124382 August 16, 1999

PASTOR DIONISIO V. AUSTRIA, petitioner,

vs.
HON. NATIONAL LABOR RELATIONS COMMISSION (Fourth Division), CEBU CITY,
CENTRAL PHILIPPINE UNION MISSION CORPORATION OF THE SEVENTH-DAY
ADVENTISTS, ELDER HECTOR V. GAYARES, PASTORS REUBEN MORALDE, OSCAR L.
ALOLOR, WILLIAM U. DONATO, JOEL WALES, ELY SACAY, GIDEON BUHAT, ISACHAR
GARSULA, ELISEO DOBLE, PORFIRIO BALACY, DAVID RODRIGO, LORETO MAYPA, MR.
RUFO GASAPO, MR. EUFRONIO IBESATE, MRS. TESSIE BALACY, MR. ZOSIMO KARA-AN,
and MR. ELEUTERIO LOBITANA, respondents.

KAPUNAN, J.:

Subject of the instant petition for certiorari under Rule 65 of the Rules of Court is the
Resolution1 of public respondent National Labor Relations Commission (the "NLRC"), rendered
on 23 January 1996, in NLRC Case No. V-0120-93, entitled "Pastor Dionisio V. Austria vs.
Central Philippine Union Mission Corporation of Seventh Day Adventists, et al.," which
dismissed the case for illegal dismissal filed by the petitioner against private respondents for
lack of jurisdiction.1âwphi1.nêt

Private Respondent Central Philippine Union Mission Corporation of the Seventh-Day

Adventists (hereinafter referred to as the "SDA") is a religious corporation duly organized and
existing under Philippine law and is represented in this case by the other private respondents,
officers of the SDA. Petitioner, on the other hand, was a Pastor of the SDA until 31 October
1991, when his services were terminated.

The records show that petitioner Pastor Dionisio V. Austria worked with the SDA for twenty eight
(28) years from 1963 to 1991.2 He began his work with the SDA on 15 July 1963 as a literature
evangelist, selling literature of the SDA over the island of Negros. From then on, petitioner
worked his way up the ladder and got promoted several times. In January, 1968, petitioner
became the Assistant Publishing Director in the West Visayan Mission of the SDA. In July,
1972, he was elevated to the position of Pastor in the West Visayan Mission covering the island
of Panay, and the provinces of Romblon and Guimaras. Petitioner held the same position up to
1988. Finally, in 1989, petitioner was promoted as District Pastor of the Negros Mission of the
SDA and was assigned at Sagay, Balintawak and Toboso, Negros Occidental, with twelve (12)
churches under his jurisdiction. In January, 1991, petitioner was transferred to Bacolod City. He
held the position of district pastor until his services were terminated on 31 October 1991.

On various occasions from August up to October, 1991, petitioner received several

communications3 from Mr. Eufronio Ibesate, the treasurer of the Negros Mission asking him to
admit accountability and responsibility for the church tithes and offerings collected by his wife,
Mrs. Thelma Austria, in his district which amounted to P15,078.10, and to remit the same to the
Negros Mission.

In his written explanation dated 11 October 1991,4 petitioner reasoned out that he should not be
made accountable for the unremitted collections since it was private respondents Pastor Gideon
Buhat and Mr. Eufronio Ibesate who authorized his wife to collect the tithes and offerings since
he was very sick to do the collecting at that time.

128
Thereafter, on 16 October 1991, at around 7:30 a.m., petitioner went to the office of Pastor
Buhat, the president of the Negros Mission. During said call, petitioner tried to persuade Pastor
Buhat to convene the Executive Committee for the purpose of settling the dispute between him
and the private respondent, Pastor David Rodrigo. The dispute between Pastor Rodrigo and
petitioner arose from an incident in which petitioner assisted his friend, Danny Diamada, to
collect from Pastor Rodrigo the unpaid balance for the repair of the latter's motor vehicle which
he failed to pay to Diamada.5 Due to the assistance of petitioner in collecting Pastor Rodrigo's
debt, the latter harbored ill-feelings against petitioner. When news reached petitioner that Pastor
Rodrigo was about to file a complaint against him with the Negros Mission, he immediately
proceeded to the office of Pastor Buhat on the date abovementioned and asked the latter to
convene the Executive Committee. Pastor Buhat denied the request of petitioner since some
committee members were out of town and there was no quorum. Thereafter, the two exchanged
heated arguments. Petitioner then left the office of Pastor Buhat. While on his way out,
petitioner overheard Pastor Buhat saying, "Pastor daw inisog na ina iya (Pador you are talking
tough)."6 Irked by such remark, petitioner returned to the office of Pastor Buhat, and tried to
overturn the latter's table, though unsuccessfully, since it was heavy. Thereafter, petitioner
banged the attaché case of Pastor Buhat on the table, scattered the books in his office, and
threw the phone.7 Fortunately, private respondents Pastors Yonilo Leopoldo and Claudio
Montaño were around and they pacified both Pastor Buhat and petitioner.

On 17 October 1991, petitioner received a letter8 inviting him and his wife to attend the
Executive Committee meeting at the Negros Mission Conference Room on 21 October 1991, at
nine in the morning. To be discussed in the meeting were the non-remittance of church
collection and the events that transpired on 16 October 1991. A fact-finding committee was
created to investigate petitioner. For two (2) days, from October 21 and 22, the fact-finding
committee conducted an investigation of petitioner. Sensing that the result of the investigation
might be one-sided, petitioner immediately wrote Pastor Rueben Moralde, president of the SDA
and chairman of the fact-finding committee, requesting that certain members of the fact-finding
committee be excluded in the investigation and resolution of the case.9 Out of the six (6)
members requested to inhibit themselves from the investigation and decision-making, only two
(2) were actually excluded, namely: Pastor Buhat and Pastor Rodrigo. Subsequently, on 29
October 1991, petitioner received a letter of dismissal10 citing misappropriation of
denominational funds, willful breach of trust, serious misconduct, gross and habitual neglect of
duties, and commission of an offense against the person of employer's duly authorized
representative, as grounds for the termination of his services.

Reacting against the adverse decision of the SDA, petitioner filed a complaint11 on 14
November 1991, before the Labor Arbiter for illegal dismissal against the SDA and its officers
and prayed for reinstatement with backwages and benefits, moral and exemplary damages and
other labor law benefits.

On 15 February 1993, Labor Arbiter Cesar D. Sideño rendered a decision in favor of petitioner,
the dispositive portion of which reads thus:

WHEREFORE, PREMISES CONSIDERED, respondents CENTRAL PHILIPPINE UNION

MISSION CORPORATION OF THE SEVENTH-DAY ADVENTISTS (CPUMCSDA) and its
officers, respondents herein, are hereby ordered to immediately reinstate complainant Pastor
Dionisio Austria to his former position as Pastor of Brgy. Taculing, Progreso and Banago,
Bacolod City, without loss of seniority and other rights and backwages in the amount of ONE
HUNDRED FIFTEEN THOUSAND EIGHT HUNDRED THIRTY PESOS (P115,830.00) without
deductions and qualificatioons.

129
Respondent CPUMCSDA is further ordered to pay complainant the following:

A. 13th month pay — P 21,060.00

B. Allowance — P 4,770.83

C. Service Incentive

Leave Pay — P 3,461.85

D. Moral Damages — P 50,000.00

E. Exemplary

Damages — P 25,000.00

F. Attorney's Fee — P 22,012.27

SO ORDERED.12

The SDA, through its officers, appealed the decision of the Labor Arbiter to the National Labor
Labor Relations Commission, Fourth Division, Cebu City. In a decision, dated 26 August 1994,
the NLRC vacated the findings of the Labor Arbiter. The decretal portion of the NLRC decision
states:

WHEREFORE, the Decision appealed from is hereby VACATED and a new one ENTERED
dismissing this case for want of merit.

SO ORDERED.13

Petitioner filed a motion for reconsideration of the above-named decision. On 18 July 1995, the
NLRC issued a Resolution reversing its original decision. The dispositive portion of the
resolution reads:

WHEREFORE, premises considered, Our decision dated August 26, 1994 is VACATED and the
decision of the Labor Arbiter dated February 15, 1993 is REINSTATED.

SO ORDERED.14

In view of the reversal of the original decision of the NLRC, the SDA filed a motion for
reconsideration of the above resolution. Notable in the motion for reconsideration filed by private
respondents is their invocation, for the first time on appeal, that the Labor Arbiter has no
jurisdiction over the complaint filed by petitioner due to the constitutional provision on the
separation of church and state since the case allegedly involved an ecclesiastical affair to which
the State cannot interfere.

The NLRC, without ruling on the merits of the case, reversed itself once again, sustained the
argument posed by private respondents and, accordingly, dismissed the complaint of petitioner.
The dispositive portion of the NLRC resolution dated 23 January 1996, subject of the present
petition, is as follows:

130
WHEREFORE, in view of all the foregoing, the instant motion for reconsideration is hereby
granted. Accordingly, this case is hereby DISMISSED for lack of jurisdiction.

SO ORDERED.15

Hence, the recourse to this Court by petitioner.

After the filing of the petition, the Court ordered the Office of the Solicitor General (the "OSG") to
file its comment on behalf of public respondent NLRC. Interestingly, the OSG filed a
manifestation and motion in lieu of comment16 setting forth its stand that it cannot sustain the
resolution of the NLRC. In its manifestation, the OSG submits that the termination of petitioner
from his employment may be questioned before the NLRC as the same is secular in nature, not
ecclesiastical. After the submission of memoranda of all the parties, the case was submitted for
decision.

The issues to be resolved in this petition are:

1) Whether or not the Labor Arbiter/NLRC has jurisdiction to try and decide the complaint
filed by petitioner against the SDA;

2) Whether or not the termination of the services of petitioner is an ecclesiastical affair,

and, as such, involves the separation of church and state; and

3) Whether or not such termination is valid.

The first two issues shall be resolved jointly, since they are related.

Private respondents contend that by virtue of the doctrine of separation of church and state, the
Labor Arbiter and the NLRC have no jurisdiction to entertain the complaint filed by petitioner.
Since the matter at bar allegedly involves the discipline of a religious minister, it is to be
considered a purely ecclesiastical affair to which the State has no right to interfere.

The contention of private respondents deserves scant consideration. The principle of separation
of church and state finds no application in this case.

The rationale of the principle of the separation of church and state is summed up in the familiar
saying, "Strong fences make good-neighbors."17 The idea advocated by this principle is to
delineate the boundaries between the two institutions and thus avoid encroachments by one
against the other because of a misunderstanding of the limits of their respective exclusive
jurisdictions.18 The demarcation line calls on the entities to "render therefore unto Ceasar the
things that are Ceasar's and unto God the things that are God's."19 While the state is prohibited
from interfering in purely ecclesiastical affairs, the Church is likewise barred from meddling in
purely secular matters.20

The case at bar does not concern an ecclesiastical or purely religious affair as to bar the State
from taking cognizance of the same. An ecclesiastical affair is "one that concerns doctrine,
creed, or form of worship of the church, or the adoption and enforcement within a religious
association of needful laws and regulations for the government of the membership, and the
power of excluding from such associations those deemed unworthy of membership.21 Based on
this definition, an ecclesiastical affair involves the relationship between the church and its

131
members and relate to matters of faith, religious doctrines, worship and governance of the
congregation. To be concrete, examples of this so-called ecclesiastical affairs to which the State
cannot meddle are proceedings for excommunication, ordinations of religious ministers,
administration of sacraments and other activities with attached religious significance. The case
at bar does not even remotely concern any of the abovecited examples. While the matter at
hand relates to the church and its religious minister it does not ipso facto give the case a
religious significance. Simply stated, what is involved here is the relationship of the church as an
employer and the minister as an employee. It is purely secular and has no relation whatsoever
with the practice of faith, worship or doctrines of the church. In this case, petitioner was not ex-
communicated or expelled from the membership of the SDA but was terminated from
employment. Indeed, the matter of terminating an employee, which is purely secular in nature, is
different from the ecclesiastical act of expelling a member from the religious congregation.

As pointed out by the OSG in its memorandum, the grounds invoked for petitioner's dismissal,
namely: misappropriation of denominational funds, willful breach of trust, serious misconduct,
gross and habitual neglect of duties and commission of an offense against the person of his
employer's duly authorized representative, are all based on Article 282 of the Labor Code which
enumerates the just causes for termination of employment.22 By this alone, it is palpable that
the reason for petitioner's dismissal from the service is not religious in nature. Coupled with this
is the act of the SDA in furnishing NLRC with a copy of petitioner's letter of termination. As aptly
stated by the OSG, this again is an eloquent admission by private respondents that NLRC has
jurisdiction over the case. Aside from these, SDA admitted in a certification23 issued by its
officer, Mr. Ibesate, that petitioner has been its employee for twenty-eight (28) years. SDA even
registered petitioner with the Social Security System (SSS) as its employee. As a matter of fact,
the worker's records of petitioner have been submitted by private respondents as part of their
exhibits. From all of these it is clear that when the SDA terminated the services of petitioner, it
was merely exercising its management prerogative to fire an employee which it believes to be
unfit for the job. As such, the State, through the Labor Arbiter and the NLRC, has the right to
take cognizance of the case and to determine whether the SDA, as employer, rightfully
exercised its management prerogative to dismiss an employee. This is in consonance with the
mandate of the Constitution to afford full protection to labor.

Under the Labor Code, the provision which governs the dismissal of employees, is
comprehensive enough to include religious corporations, such as the SDA, in its coverage.
Article 278 of the Labor Code on post-employment states that "the provisions of this Title shall
apply to all establishments or undertakings, whether for profit or not." Obviously, the cited article
does not make any exception in favor of a religious corporation. This is made more evident by
the fact that the Rules Implementing the Labor Code, particularly, Section 1, Rule 1, Book VI on
the Termination of Employment and Retirement, categorically includes religious institutions in
the coverage of the law, to wit:

Sec. 1. Coverage. — This Rule shall apply to all establishments and undertakings, whether
operated for profit or not, including educational, medical, charitable and religious institutions and
organizations, in cases of regular employment with the exception of the Government and its
political subdivisions including government-owned or controlled corporations.24

With this clear mandate, the SDA cannot hide behind the mantle of protection of the doctrine of
separation of church and state to avoid its responsibilities as an employer under the Labor
Code.

132
Finally, as correctly pointed out by petitioner, private respondents are estopped from raising the
issue of lack of jurisdiction for the first time on appeal. It is already too late in the day for private
respondents to question the jurisdiction of the NLRC and the Labor Arbiter since the SDA had
fully participated in the trials and hearings of the case from start to finish. The Court has already
ruled that the active participation of a party against whom the action war brought, coupled with
his failure to object to the jurisdiction of the court or quasi-judicial body where the action is
pending, is tantamount to an invocation of that jurisdiction and a willingness to abide by the
resolution of the case and will bar said party from later on impugning the court or body's
jurisdiction.25 Thus, the active participation of private respondents in the proceedings before the
Labor Arbiter and the NLRC mooted the question on jurisdiction.

The jurisdictional question now settled, we shall now proceed to determine whether the
dismissal of petitioner was valid.

At the outset, we note that as a general rule, findings of fact of administrative bodies like the
NLRC are binding upon this Court. A review of such findings is justified, however, in instances
when the findings of the NLRC differ from those of the labor arbiter, as in this case.26 When the
findings of NLRC do not agree with those of the Labor Arbiter, this Court must of necessity
review the records to determine which findings should be preferred as more comfortable to the
evidentiary facts.27

We turn now to the crux of the matter. In termination cases, the settled rule is that the burden of
proving that the termination was for a valid or authorized cause rests on the employer.28 Thus,
private respondents must not merely rely on the weaknesses of petitioner's evidence but must
stand on the merits of their own defense.

The issue being the legality of petitioner's dismissal, the same must be measured against the
requisites for a valid dismissal, namely: (a) the employee must be afforded due process, i.e., he
must be given an opportunity to be heard and to defend himself, and; (b) the dismissal must be
for a valid cause as provided in Article 282 of the Labor Code.29 Without the concurrence of this
twin requirements, the termination would, in the eyes of the law, be illegal.30

Before the services of an employee can be validly terminated, Article 277 (b) of the Labor Code
and Section 2, Rule XXIII, Book V of the Rules Implementing the Labor Code further require the
employer to furnish the employee with two (2) written notices, to wit: (a) a written notice served
on the employee specifying the ground or grounds for termination, and giving to said employee
reasonable opportunity within which to explain his side; and, (b) a written notice of termination
served on the employee indicating that upon due consideration of all the circumstances,
grounds have been established to justify his termination.

The first notice, which may be considered as the proper charge, serves to apprise the employee
of the particular acts or omissions for which his dismissal is sought.31 The second notice on the
other hand seeks to inform the employee of the employer's decision to dismiss him.32 This
decision, however, must come only after the employee is given a reasonable period from receipt
of the first notice within which to answer the charge and ample opportunity to be heard and
defend himself with the assistance of a representative, if he so desires.33 This is in consonance
with the express provision of the law on the protection to labor and the broader dictates of
procedural due process.34 Non-compliance therewith is fatal because these requirements are
conditions sine qua non before dismissal may be validly effected.35

133
Private respondent failed to substantially comply with the above requirements. With regard to
the first notice, the letter,36 dated 17 October 1991, which notified petitioner and his wife to
attend the meeting on 21 October 1991, cannot be construed as the written charge required by
law. A perusal of the said letter reveals that it never categorically stated the particular acts or
omissions on which petitioner's impending termination was grounded. In fact, the letter never
even mentioned that petitioner would be subject to investigation. The letter merely mentioned
that petitioner and his wife were invited to a meeting wherein what would be discussed were the
alleged unremitted church tithes and the events that transpired on 16 October 1991. Thus,
petitioner was surprised to find out that the alleged meeting turned out to be an investigation.
From the tenor of the letter, it cannot be presumed that petitioner was actually on the verge of
dismissal. The alleged grounds for the dismissal of petitioner from the service were only
revealed to him when the actual letter of dismissal was finally issued. For this reason, it cannot
be said that petitioner was given enough opportunity to properly prepare for his defense. While
admittedly, private respondents complied with the second requirement, the notice of termination,
this does not cure the initial defect of lack of the proper written charge required by law.

In the letter of termination,37 dated 29 October 1991, private respondents enumerated the
following as grounds for the dismissal of petitioner, namely: misappropriation of denominational
funds, willful breach of trust, serious misconduct, gross and habitual neglect of duties, and
commission of an offense against the person of employer's duly authorized representative.
Breach of trust and misappropriation of denominational funds refer to the alleged failure of
petitioner to remit to the treasurer of the Negros Mission tithes, collections and offerings
amounting to P15,078.10 which were collected by his wife, Mrs. Thelma Austria, in the churches
under his jurisdiction. On the other hand, serious misconduct and commission of an offense
against the person of the employer's duly authorized representative pertain to the 16 October
1991 incident wherein petitioner allegedly committed an act of violence in the office of Pastor
Gideon Buhat. The final ground invoked by private respondents is gross and habitual neglect of
duties allegedly committed by petitioner.

We cannot sustain the validity of dismissal based on the ground of breach of trust. Private
respondents allege that they have lost their confidence in petitioner for his failure, despite
demands, to remit the tithes and offerings amounting to P15,078.10, which were collected in his
district. A careful study of the voluminous records of the case reveals that there is simply no
basis for the alleged loss of confidence and breach of trust. Settled is the rule that under Article
282 (c) of the Labor Code, the breach of trust must be willful. A breach is willful if it is done
intentionally, knowingly and purposely, without justifiable excuse, as distinguished from an act
done carelessly, thoughtlessly, heedlessly or inadvertently.38 It must rest on substantial
grounds and not on the employer's arbitrariness, whims, caprices or suspicion; otherwise the
employee would eternally remain at the mercy of the employer.39 It should be genuine and not
simulated.40 This ground has never been intended to afford an occasion for abuse, because of
its subjective nature. The records show that there were only six (6) instances when petitioner
personally collected and received from the church treasurers the tithes, collections, and
donations for the church.41 The stenographic notes on the testimony of Naomi Geniebla, the
Negros Mission Church Auditor and a witness for private respondents, show that Pastor Austria
was able to remit all his collections to the treasurer of the Negros Mission.42

Though private respondents were able to establish that petitioner collected and received tithes
and donations several times, they were notable to establish that petitioner failed to remit the
same to the Negros Mission, and that he pocketed the amount and used it for his personal
purpose. In fact, as admitted by their own witness, Naomi Geniebla, petitioner remitted the
amounts which he collected to the Negros Mission for which corresponding receipts were issued

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to him. Thus, the allegations of private respondents that petitioner breached their trust have no
leg to stand on.

In a vain attempt to support their claim of breach of trust, private respondents try to pin on
petitioner the alleged non-remittance of the tithes collected by his wife. This argument deserves
little consideration. First of all, as proven by convincing and substantial evidence consisting of
the testimonies of the witnesses for private respondents who are church treasurers, it was Mrs.
Thelma Austria who actually collected the tithes and donations from them, and, who failed to
remit the same to the treasurer of the Negros Mission. The testimony of these church treasurers
were corroborated and confirmed by Ms. Geniebla and Mr. Ibesate, officers of the SDA. Hence,
in the absence of conspiracy and collusion, which private respondents failed to demonstrate,
between petitioner and his wife, petitioner cannot be made accountable for the alleged infraction
committed by his wife. After all, they still have separate and distinct personalities. For this
reason, the Labor Arbiter found it difficult to see the basis for the alleged loss of confidence and
breach of trust. The Court does not find any cogent reason, therefore, to digress from the
findings of the Labor Arbiter which is fully supported by the evidence on record.

With respect to the grounds of serious misconduct and commission of an offense against the
person of the employer's duly authorized representative, we find the same unmeritorious and,
as such, do not warrant petitioner's dismissal from the service.

Misconduct has been defined as improper or wrong conduct. It is the transgression of some
established and definite rule of action, a forbidden act, a dereliction of duty, willful in character,
and implies wrongful intent and not mere error in judgment.43 For misconduct to be considered
serious it must be of such grave and aggravated character and not merely trivial or
unimportant.44 Based on this standard, we believe that the act of petitioner in banging the
attaché case on the table, throwing the telephone and scattering the books in the office of
Pastor Buhat, although improper, cannot be considered as grave enough to be considered as
serious misconduct. After all, as correctly observed by the Labor Arbiter, though petitioner
committed damage to property, he did not physically assault Pastor Buhat or any other pastor
present during the incident of 16 October 1991. In fact, the alleged offense committed upon the
person of the employer's representatives was never really established or proven by private
respondents. Hence, there is no basis for the allegation that petitioner's act constituted serious
misconduct or that the same was an offense against the person of the employer's duly
authorized representative. As such, the cited actuation of petitioner does not justify the ultimate
penalty of dismissal from employment. While the Constitution does condone wrongdoing by the
employee, it nevertheless urges a moderation of the sanctions that may be applied to him in
light of the many disadvantages that weigh heavily on him like an albatross on his neck.45
Where a penalty less punitive would suffice, whatever missteps may have been committed by
the worker ought not be visited with a consequence so severe such as dismissal from
employment.46 For the foregoing reasons, we believe that the minor infraction committed by
petitioner does not merit the ultimate penalty of dismissal.

The final ground alleged by private respondents in terminating petitioner, gross and habitual
neglect of duties, does not require an exhaustive discussion. Suffice it to say that all private
respondents had were allegations but not proof. Aside from merely citing the said ground,
private respondents failed to prove culpability on the part of petitioner. In fact, the evidence on
record shows otherwise. Petitioner's rise from the ranks disclose that he was actually a hard-
worker. Private respondents' evidence,47 which consisted of petitioner's Worker's Reports,
revealed how petitioner travelled to different churches to attend to the faithful under his care.

135
Indeed, he labored hard for the SDA, but, in return, he was rewarded with a dismissal from the
service for a non-existent cause.

In view of the foregoing, we sustain the finding of the Labor Arbiter that petitioner was
terminated from service without just or lawful cause. Having been illegally dismissed, petitioner
is entitled to reinstatement to his former position without loss of seniority right48 and the
payment of full backwages without any deduction corresponding to the period from his illegal
dismissal up to actual reinstatement.46

WHEREFORE, the petition for certiorari is GRANTED. The challenged Resolution of public
respondent National Labor Relations Commission, rendered on 23 January 1996, is NULLIFIED
and SET ASIDE. The Decision of the Labor Arbiter, dated 15 February 1993, is REINSTATED
and hereby AFFIRMED.1âwphi1.nêt

SO ORDERED.

Davide, Jr., C.J., Puno, Pardo and Ynares-Santiago, JJ., concur.

136
G.R. No. 165744 August 11, 2008

OSCAR C. REYES, petitioner,

vs.
HON. REGIONAL TRIAL COURT OF MAKATI, Branch 142, ZENITH INSURANCE
CORPORATION, and RODRIGO C. REYES, respondents.

DECISION

BRION, J.:

This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the
Decision of the Court of Appeals (CA)1 promulgated on May 26, 2004 in CA-G.R. SP No.
74970. The CA Decision affirmed the Order of the Regional Trial Court (RTC), Branch 142,
Makati City dated November 29, 20022 in Civil Case No. 00-1553 (entitled "Accounting of All
Corporate Funds and Assets, and Damages") which denied petitioner Oscar C. Reyes’ (Oscar)
Motion to Declare Complaint as Nuisance or Harassment Suit.

BACKGROUND FACTS

Oscar and private respondent Rodrigo C. Reyes (Rodrigo) are two of the four children of the
spouses Pedro and Anastacia Reyes. Pedro, Anastacia, Oscar, and Rodrigo each owned
shares of stock of Zenith Insurance Corporation (Zenith), a domestic corporation established by
their family. Pedro died in 1964, while Anastacia died in 1993. Although Pedro’s estate was
judicially partitioned among his heirs sometime in the 1970s, no similar settlement and partition
appear to have been made with Anastacia’s estate, which included her shareholdings in Zenith.
As of June 30, 1990, Anastacia owned 136,598 shares of Zenith; Oscar and Rodrigo owned
8,715,637 and 4,250 shares, respectively.3

On May 9, 2000, Zenith and Rodrigo filed a complaint4 with the Securities and Exchange
Commission (SEC) against Oscar, docketed as SEC Case No. 05-00-6615. The complaint
stated that it is "a derivative suit initiated and filed by the complainant Rodrigo C. Reyes to
obtain an accounting of the funds and assets of ZENITH INSURANCE CORPORATION which
are now or formerly in the control, custody, and/or possession of respondent [herein petitioner
Oscar] and to determine the shares of stock of deceased spouses Pedro and Anastacia Reyes
that were arbitrarily and fraudulently appropriated [by Oscar] for himself [and] which were not
collated and taken into account in the partition, distribution, and/or settlement of the estate of
the deceased spouses, for which he should be ordered to account for all the income from the
time he took these shares of stock, and should now deliver to his brothers and sisters their just
and respective shares."5 [Emphasis supplied.]

In his Answer with Counterclaim,6 Oscar denied the charge that he illegally acquired the shares
of Anastacia Reyes. He asserted, as a defense, that he purchased the subject shares with his
own funds from the unissued stocks of Zenith, and that the suit is not a bona fide derivative suit
because the requisites therefor have not been complied with. He thus questioned the SEC’s
jurisdiction to entertain the complaint because it pertains to the settlement of the estate of
Anastacia Reyes.

When Republic Act (R.A.) No. 87997 took effect, the SEC’s exclusive and original jurisdiction
over cases enumerated in Section 5 of Presidential Decree (P.D.) No. 902-A was transferred to

137
the RTC designated as a special commercial court.8 The records of Rodrigo’s SEC case were
thus turned over to the RTC, Branch 142, Makati, and docketed as Civil Case No. 00-1553.

On October 22, 2002, Oscar filed a Motion to Declare Complaint as Nuisance or Harassment
Suit.9 He claimed that the complaint is a mere nuisance or harassment suit and should,
according to the Interim Rules of Procedure for Intra-Corporate Controversies, be dismissed;
and that it is not a bona fide derivative suit as it partakes of the nature of a petition for the
settlement of estate of the deceased Anastacia that is outside the jurisdiction of a special
commercial court. The RTC, in its Order dated November 29, 2002 (RTC Order), denied the
motion in part and declared:

A close reading of the Complaint disclosed the presence of two (2) causes of action, namely: a)
a derivative suit for accounting of the funds and assets of the corporation which are in the
control, custody, and/or possession of the respondent [herein petitioner Oscar] with prayer to
appoint a management committee; and b) an action for determination of the shares of stock of
deceased spouses Pedro and Anastacia Reyes allegedly taken by respondent, its accounting
and the corresponding delivery of these shares to the parties’ brothers and sisters. The latter is
not a derivative suit and should properly be threshed out in a petition for settlement of estate.

Accordingly, the motion is denied. However, only the derivative suit consisting of the first cause
of action will be taken cognizance of by this Court.10

Oscar thereupon went to the CA on a petition for certiorari, prohibition, and mandamus11 and
prayed that the RTC Order be annulled and set aside and that the trial court be prohibited from
continuing with the proceedings. The appellate court affirmed the RTC Order and denied the
petition in its Decision dated May 26, 2004. It likewise denied Oscar’s motion for reconsideration
in a Resolution dated October 21, 2004.

Petitioner now comes before us on appeal through a petition for review on certiorari under Rule
45 of the Rules of Court.

ASSIGNMENT OF ERRORS

Petitioner Oscar presents the following points as conclusions the CA should have made:

1. that the complaint is a mere nuisance or harassment suit that should be dismissed under the
Interim Rules of Procedure of Intra-Corporate Controversies; and

2. that the complaint is not a bona fide derivative suit but is in fact in the nature of a petition for
settlement of estate; hence, it is outside the jurisdiction of the RTC acting as a special
commercial court.

Accordingly, he prays for the setting aside and annulment of the CA decision and resolution,
and the dismissal of Rodrigo’s complaint before the RTC.

THE COURT’S RULING

We find the petition meritorious.

The core question for our determination is whether the trial court, sitting as a special commercial
court, has jurisdiction over the subject matter of Rodrigo’s complaint. To resolve it, we rely on

138
the judicial principle that "jurisdiction over the subject matter of a case is conferred by law and is
determined by the allegations of the complaint, irrespective of whether the plaintiff is entitled to
all or some of the claims asserted therein."12

JURISDICTION OF SPECIAL COMMERCIAL COURTS

P.D. No. 902-A enumerates the cases over which the SEC (now the RTC acting as a special
commercial court) exercises exclusive jurisdiction:

SECTION 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnership, and other forms of associations
registered with it as expressly granted under existing laws and decrees, it shall have original
and exclusive jurisdiction to hear and decide cases involving:

a) Devices or schemes employed by or any acts of the board of directors, business associates,
its officers or partners, amounting to fraud and misrepresentation which may be detrimental to
the interest of the public and/or of the stockholders, partners, members of associations or
organizations registered with the Commission.

b) Controversies arising out of intra-corporate or partnership relations, between and among

stockholders, members, or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members, or associates, respectively;
and between such corporation, partnership or association and the State insofar as it concerns
their individual franchise or right to exist as such entity; and

c) Controversies in the election or appointment of directors, trustees, officers, or managers of

such corporations, partnerships, or associations.

The allegations set forth in Rodrigo’s complaint principally invoke Section 5, paragraphs (a) and
(b) above as basis for the exercise of the RTC’s special court jurisdiction. Our focus in
examining the allegations of the complaint shall therefore be on these two provisions.

Fraudulent Devices and Schemes

The rule is that a complaint must contain a plain, concise, and direct statement of the ultimate
facts constituting the plaintiff’s cause of action and must specify the relief sought.13 Section 5,
Rule 8 of the Revised Rules of Court provides that in all averments of fraud or mistake, the
circumstances constituting fraud or mistake must be stated with particularity.14 These rules find
specific application to Section 5(a) of P.D. No. 902-A which speaks of corporate devices or
schemes that amount to fraud or misrepresentation detrimental to the public and/or to the
stockholders.

In an attempt to hold Oscar responsible for corporate fraud, Rodrigo alleged in the complaint the
following:

3. This is a complaint…to determine the shares of stock of the deceased spouses Pedro and
Anastacia Reyes that were arbitrarily and fraudulently appropriated for himself [herein petitioner
Oscar] which were not collated and taken into account in the partition, distribution, and/or
settlement of the estate of the deceased Spouses Pedro and Anastacia Reyes, for which he
should be ordered to account for all the income from the time he took these shares of stock, and
should now deliver to his brothers and sisters their just and respective shares with the

139
corresponding equivalent amount of P7,099,934.82 plus interest thereon from 1978
representing his obligations to the Associated Citizens’ Bank that was paid for his account by
his late mother, Anastacia C. Reyes. This amount was not collated or taken into account in the
partition or distribution of the estate of their late mother, Anastacia C. Reyes.

3.1. Respondent Oscar C. Reyes, through other schemes of fraud including misrepresentation,
unilaterally, and for his own benefit, capriciously transferred and took possession and control of
the management of Zenith Insurance Corporation which is considered as a family corporation,
and other properties and businesses belonging to Spouses Pedro and Anastacia Reyes.

xxxx

4.1. During the increase of capitalization of Zenith Insurance Corporation, sometime in 1968, the
property covered by TCT No. 225324 was illegally and fraudulently used by respondent as a
collateral.

xxxx

5. The complainant Rodrigo C. Reyes discovered that by some manipulative scheme, the
shareholdings of their deceased mother, Doña Anastacia C. Reyes, shares of stocks and [sic]
valued in the corporate books at P7,699,934.28, more or less, excluding interest and/or
dividends, had been transferred solely in the name of respondent. By such fraudulent
manipulations and misrepresentation, the shareholdings of said respondent Oscar C. Reyes
abruptly increased to P8,715,637.00 [sic] and becomes [sic] the majority stockholder of Zenith
Insurance Corporation, which portion of said shares must be distributed equally amongst the
brothers and sisters of the respondent Oscar C. Reyes including the complainant herein.

xxxx

9.1 The shareholdings of deceased Spouses Pedro Reyes and Anastacia C. Reyes valued at
P7,099,934.28 were illegally and fraudulently transferred solely to the respondent’s [herein
petitioner Oscar] name and installed himself as a majority stockholder of Zenith Insurance
Corporation [and] thereby deprived his brothers and sisters of their respective equal shares
thereof including complainant hereto.

xxxx

10.1 By refusal of the respondent to account of his [sic] shareholdings in the company, he
illegally and fraudulently transferred solely in his name wherein [sic] the shares of stock of the
deceased Anastacia C. Reyes [which] must be properly collated and/or distributed equally
amongst the children, including the complainant Rodrigo C. Reyes herein, to their damage and
prejudice.

xxxx

11.1 By continuous refusal of the respondent to account of his [sic] shareholding with Zenith
Insurance Corporation[,] particularly the number of shares of stocks illegally and fraudulently
transferred to him from their deceased parents Sps. Pedro and Anastacia Reyes[,] which are all
subject for collation and/or partition in equal shares among their children. [Emphasis supplied.]

140
Allegations of deceit, machination, false pretenses, misrepresentation, and threats are largely
conclusions of law that, without supporting statements of the facts to which the allegations of
fraud refer, do not sufficiently state an effective cause of action.15 The late Justice Jose Feria, a
noted authority in Remedial Law, declared that fraud and mistake are required to be averred
with particularity in order to enable the opposing party to controvert the particular facts allegedly
constituting such fraud or mistake.16

Tested against these standards, we find that the charges of fraud against Oscar were not
properly supported by the required factual allegations. While the complaint contained allegations
of fraud purportedly committed by him, these allegations are not particular enough to bring the
controversy within the special commercial court’s jurisdiction; they are not statements of
ultimate facts, but are mere conclusions of law: how and why the alleged appropriation of
shares can be characterized as "illegal and fraudulent" were not explained nor elaborated on.

Not every allegation of fraud done in a corporate setting or perpetrated by corporate officers will
bring the case within the special commercial court’s jurisdiction. To fall within this jurisdiction,
there must be sufficient nexus showing that the corporation’s nature, structure, or powers were
used to facilitate the fraudulent device or scheme. Contrary to this concept, the complaint
presented a reverse situation. No corporate power or office was alleged to have facilitated the
transfer of the shares; rather, Oscar, as an individual and without reference to his corporate
personality, was alleged to have transferred the shares of Anastacia to his name, allowing him
to become the majority and controlling stockholder of Zenith, and eventually, the corporation’s
President. This is the essence of the complaint read as a whole and is particularly demonstrated
under the following allegations:

5. The complainant Rodrigo C. Reyes discovered that by some manipulative scheme, the
shareholdings of their deceased mother, Doña Anastacia C. Reyes, shares of stocks and [sic]
valued in the corporate books at P7,699,934.28, more or less, excluding interest and/or
dividends, had been transferred solely in the name of respondent. By such fraudulent
manipulations and misrepresentation, the shareholdings of said respondent Oscar C. Reyes
abruptly increased to P8,715,637.00 [sic] and becomes [sic] the majority stockholder of Zenith
Insurance Corporation, which portion of said shares must be distributed equally amongst the
brothers and sisters of the respondent Oscar C. Reyes including the complainant herein.

xxxx

9.1 The shareholdings of deceased Spouses Pedro Reyes and Anastacia C. Reyes valued at
P7,099,934.28 were illegally and fraudulently transferred solely to the respondent’s [herein
petitioner Oscar] name and installed himself as a majority stockholder of Zenith Insurance
Corporation [and] thereby deprived his brothers and sisters of their respective equal shares
thereof including complainant hereto. [Emphasis supplied.]

In ordinary cases, the failure to specifically allege the fraudulent acts does not constitute a
ground for dismissal since such defect can be cured by a bill of particulars. In cases governed
by the Interim Rules of Procedure on Intra-Corporate Controversies, however, a bill of
particulars is a prohibited pleading.17 It is essential, therefore, for the complaint to show on its
face what are claimed to be the fraudulent corporate acts if the complainant wishes to invoke
the court’s special commercial jurisdiction.

We note that twice in the course of this case, Rodrigo had been given the opportunity to study
the propriety of amending or withdrawing the complaint, but he consistently refused. The court’s

141
function in resolving issues of jurisdiction is limited to the review of the allegations of the
complaint and, on the basis of these allegations, to the determination of whether they are of
such nature and subject that they fall within the terms of the law defining the court’s jurisdiction.
Regretfully, we cannot read into the complaint any specifically alleged corporate fraud that will
call for the exercise of the court’s special commercial jurisdiction. Thus, we cannot affirm the
RTC’s assumption of jurisdiction over Rodrigo’s complaint on the basis of Section 5(a) of P.D.
No. 902-A.18

Intra-Corporate Controversy

A review of relevant jurisprudence shows a development in the Court’s approach in classifying

what constitutes an intra-corporate controversy. Initially, the main consideration in determining
whether a dispute constitutes an intra-corporate controversy was limited to a consideration of
the intra-corporate relationship existing between or among the parties.19 The types of
relationships embraced under Section 5(b), as declared in the case of Union Glass & Container
Corp. v. SEC,20 were as follows:

a) between the corporation, partnership, or association and the public;

b) between the corporation, partnership, or association and its stockholders, partners, members,
or officers;

c) between the corporation, partnership, or association and the State as far as its franchise,
permit or license to operate is concerned; and

d) among the stockholders, partners, or associates themselves. [Emphasis supplied.]

The existence of any of the above intra-corporate relations was sufficient to confer jurisdiction to
the SEC, regardless of the subject matter of the dispute. This came to be known as the
relationship test.

However, in the 1984 case of DMRC Enterprises v. Esta del Sol Mountain Reserve, Inc.,21 the
Court introduced the nature of the controversy test. We declared in this case that it is not the
mere existence of an intra-corporate relationship that gives rise to an intra-corporate
controversy; to rely on the relationship test alone will divest the regular courts of their jurisdiction
for the sole reason that the dispute involves a corporation, its directors, officers, or stockholders.
We saw that there is no legal sense in disregarding or minimizing the value of the nature of the
transactions which gives rise to the dispute.

Under the nature of the controversy test, the incidents of that relationship must also be
considered for the purpose of ascertaining whether the controversy itself is intra-corporate.22
The controversy must not only be rooted in the existence of an intra-corporate relationship, but
must as well pertain to the enforcement of the parties’ correlative rights and obligations under
the Corporation Code and the internal and intra-corporate regulatory rules of the corporation. If
the relationship and its incidents are merely incidental to the controversy or if there will still be
conflict even if the relationship does not exist, then no intra-corporate controversy exists.

The Court then combined the two tests and declared that jurisdiction should be determined by
considering not only the status or relationship of the parties, but also the nature of the question
under controversy.23 This two-tier test was adopted in the recent case of Speed Distribution,
Inc. v. Court of Appeals:24

142
To determine whether a case involves an intra-corporate controversy, and is to be heard and
decided by the branches of the RTC specifically designated by the Court to try and decide such
cases, two elements must concur: (a) the status or relationship of the parties; and (2) the nature
of the question that is the subject of their controversy.

The first element requires that the controversy must arise out of intra-corporate or partnership
relations between any or all of the parties and the corporation, partnership, or association of
which they are stockholders, members or associates; between any or all of them and the
corporation, partnership, or association of which they are stockholders, members, or associates,
respectively; and between such corporation, partnership, or association and the State insofar as
it concerns their individual franchises. The second element requires that the dispute among the
parties be intrinsically connected with the regulation of the corporation. If the nature of the
controversy involves matters that are purely civil in character, necessarily, the case does not
involve an intra-corporate controversy.

Given these standards, we now tackle the question posed for our determination under the
specific circumstances of this case:

Application of the Relationship Test

Is there an intra-corporate relationship between the parties that would characterize the case as
an intra-corporate dispute?

We point out at the outset that while Rodrigo holds shares of stock in Zenith, he holds them in
two capacities: in his own right with respect to the 4,250 shares registered in his name, and as
one of the heirs of Anastacia Reyes with respect to the 136,598 shares registered in her name.
What is material in resolving the issues of this case under the allegations of the complaint is
Rodrigo’s interest as an heir since the subject matter of the present controversy centers on the
shares of stocks belonging to Anastacia, not on Rodrigo’s personally-owned shares nor on his
personality as shareholder owning these shares. In this light, all reference to shares of stocks in
this case shall pertain to the shareholdings of the deceased Anastacia and the parties’ interest
therein as her heirs.

Article 777 of the Civil Code declares that the successional rights are transmitted from the
moment of death of the decedent. Accordingly, upon Anastacia’s death, her children acquired
legal title to her estate (which title includes her shareholdings in Zenith), and they are, prior to
the estate’s partition, deemed co-owners thereof.25 This status as co-owners, however, does
not immediately and necessarily make them stockholders of the corporation. Unless and until
there is compliance with Section 63 of the Corporation Code on the manner of transferring
shares, the heirs do not become registered stockholders of the corporation. Section 63
provides:

Section 63. Certificate of stock and transfer of shares. – The capital stock of stock corporations
shall be divided into shares for which certificates signed by the president or vice-president,
countersigned by the secretary or assistant secretary, and sealed with the seal of the
corporation shall be issued in accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the certificate or certificates indorsed by
the owner or his attorney-in-fact or other person legally authorized to make the transfer. No
transfer, however, shall be valid, except as between the parties, until the transfer is recorded in
the books of the corporation so as to show the names of the parties to the transaction, the date

143
of the transfer, the number of the certificate or certificates, and the number of shares
transferred. [Emphasis supplied.]

No shares of stock against which the corporation holds any unpaid claim shall be transferable in
the books of the corporation.

Simply stated, the transfer of title by means of succession, though effective and valid between
the parties involved (i.e., between the decedent’s estate and her heirs), does not bind the
corporation and third parties. The transfer must be registered in the books of the corporation to
make the transferee-heir a stockholder entitled to recognition as such both by the corporation
and by third parties.26

We note, in relation with the above statement, that in Abejo v. Dela Cruz27 and TCL Sales
Corporation v. Court of Appeals28 we did not require the registration of the transfer before
considering the transferee a stockholder of the corporation (in effect upholding the existence of
an intra-corporate relation between the parties and bringing the case within the jurisdiction of
the SEC as an intra-corporate controversy). A marked difference, however, exists between
these cases and the present one.

In Abejo and TCL Sales, the transferees held definite and uncontested titles to a specific
number of shares of the corporation; after the transferee had established prima facie ownership
over the shares of stocks in question, registration became a mere formality in confirming their
status as stockholders. In the present case, each of Anastacia’s heirs holds only an undivided
interest in the shares. This interest, at this point, is still inchoate and subject to the outcome of a
settlement proceeding; the right of the heirs to specific, distributive shares of inheritance will not
be determined until all the debts of the estate of the decedent are paid. In short, the heirs are
only entitled to what remains after payment of the decedent’s debts;29 whether there will be
residue remains to be seen. Justice Jurado aptly puts it as follows:

No succession shall be declared unless and until a liquidation of the assets and debts left by the
decedent shall have been made and all his creditors are fully paid. Until a final liquidation is
made and all the debts are paid, the right of the heirs to inherit remains inchoate. This is so
because under our rules of procedure, liquidation is necessary in order to determine whether or
not the decedent has left any liquid assets which may be transmitted to his heirs.30 [Emphasis
supplied.]

Rodrigo must, therefore, hurdle two obstacles before he can be considered a stockholder of
Zenith with respect to the shareholdings originally belonging to Anastacia. First, he must prove
that there are shareholdings that will be left to him and his co-heirs, and this can be determined
only in a settlement of the decedent’s estate. No such proceeding has been commenced to
date. Second, he must register the transfer of the shares allotted to him to make it binding
against the corporation. He cannot demand that this be done unless and until he has
established his specific allotment (and prima facie ownership) of the shares. Without the
settlement of Anastacia’s estate, there can be no definite partition and distribution of the estate
to the heirs. Without the partition and distribution, there can be no registration of the transfer.
And without the registration, we cannot consider the transferee-heir a stockholder who may
invoke the existence of an intra-corporate relationship as premise for an intra-corporate
controversy within the jurisdiction of a special commercial court.

In sum, we find that – insofar as the subject shares of stock (i.e., Anastacia’s shares) are
concerned – Rodrigo cannot be considered a stockholder of Zenith. Consequently, we cannot

144
declare that an intra-corporate relationship exists that would serve as basis to bring this case
within the special commercial court’s jurisdiction under Section 5(b) of PD 902-A, as amended.
Rodrigo’s complaint, therefore, fails the relationship test.

Application of the Nature of Controversy Test

The body rather than the title of the complaint determines the nature of an action.31 Our
examination of the complaint yields the conclusion that, more than anything else, the complaint
is about the protection and enforcement of successional rights. The controversy it presents is
purely civil rather than corporate, although it is denominated as a "complaint for accounting of all
corporate funds and assets."

Contrary to the findings of both the trial and appellate courts, we read only one cause of action
alleged in the complaint. The "derivative suit for accounting of the funds and assets of the
corporation which are in the control, custody, and/or possession of the respondent [herein
petitioner Oscar]" does not constitute a separate cause of action but is, as correctly claimed by
Oscar, only an incident to the "action for determination of the shares of stock of deceased
spouses Pedro and Anastacia Reyes allegedly taken by respondent, its accounting and the
corresponding delivery of these shares to the parties’ brothers and sisters." There can be no
mistake of the relationship between the "accounting" mentioned in the complaint and the
objective of partition and distribution when Rodrigo claimed in paragraph 10.1 of the complaint
that:

10.1 By refusal of the respondent to account of [sic] his shareholdings in the company, he
illegally and fraudulently transferred solely in his name wherein [sic] the shares of stock of the
deceased Anastacia C. Reyes [which] must be properly collated and/or distributed equally
amongst the children including the complainant Rodrigo C. Reyes herein to their damage and
prejudice.

We particularly note that the complaint contained no sufficient allegation that justified the need
for an accounting other than to determine the extent of Anastacia’s shareholdings for purposes
of distribution.

Another significant indicator that points us to the real nature of the complaint are Rodrigo’s
repeated claims of illegal and fraudulent transfers of Anastacia’s shares by Oscar to the
prejudice of the other heirs of the decedent; he cited these allegedly fraudulent acts as basis for
his demand for the collation and distribution of Anastacia’s shares to the heirs. These claims tell
us unequivocally that the present controversy arose from the parties’ relationship as heirs of
Anastacia and not as shareholders of Zenith. Rodrigo, in filing the complaint, is enforcing his
rights as a co-heir and not as a stockholder of Zenith. The injury he seeks to remedy is one
suffered by an heir (for the impairment of his successional rights) and not by the corporation nor
by Rodrigo as a shareholder on record.

More than the matters of injury and redress, what Rodrigo clearly aims to accomplish through
his allegations of illegal acquisition by Oscar is the distribution of Anastacia’s shareholdings
without a prior settlement of her estate – an objective that, by law and established
jurisprudence, cannot be done. The RTC of Makati, acting as a special commercial court, has
no jurisdiction to settle, partition, and distribute the estate of a deceased. A relevant provision –
Section 2 of Rule 90 of the Revised Rules of Court – that contemplates properties of the
decedent held by one of the heirs declares:

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Questions as to advancement made or alleged to have been made by the deceased to any heir
may be heard and determined by the court having jurisdiction of the estate proceedings; and the
final order of the court thereon shall be binding on the person raising the questions and on the
heir. [Emphasis supplied.]

Worth noting are this Court’s statements in the case of Natcher v. Court of Appeals:32

Matters which involve settlement and distribution of the estate of the decedent fall within the
exclusive province of the probate court in the exercise of its limited jurisdiction.

xxxx

It is clear that trial courts trying an ordinary action cannot resolve to perform acts pertaining to a
special proceeding because it is subject to specific prescribed rules. [Emphasis supplied.]

That an accounting of the funds and assets of Zenith to determine the extent and value of
Anastacia’s shareholdings will be undertaken by a probate court and not by a special
commercial court is completely consistent with the probate court’s limited jurisdiction. It has the
power to enforce an accounting as a necessary means to its authority to determine the
properties included in the inventory of the estate to be administered, divided up, and distributed.
Beyond this, the determination of title or ownership over the subject shares (whether belonging
to Anastacia or Oscar) may be conclusively settled by the probate court as a question of
collation or advancement. We had occasion to recognize the court’s authority to act on
questions of title or ownership in a collation or advancement situation in Coca v. Pangilinan33
where we ruled:

It should be clarified that whether a particular matter should be resolved by the Court of First
Instance in the exercise of its general jurisdiction or of its limited probate jurisdiction is in reality
not a jurisdictional question. In essence, it is a procedural question involving a mode of practice
"which may be waived."

As a general rule, the question as to title to property should not be passed upon in the testate or
intestate proceeding. That question should be ventilated in a separate action. That general rule
has qualifications or exceptions justified by expediency and convenience.

Thus, the probate court may provisionally pass upon in an intestate or testate proceeding the
question of inclusion in, or exclusion from, the inventory of a piece of property without prejudice
to its final determination in a separate action.

Although generally, a probate court may not decide a question of title or ownership, yet if the
interested parties are all heirs, or the question is one of collation or advancement, or the parties
consent to the assumption of jurisdiction by the probate court and the rights of third parties are
not impaired, the probate court is competent to decide the question of ownership. [Citations
omitted. Emphasis supplied.]

In sum, we hold that the nature of the present controversy is not one which may be classified as
an intra-corporate dispute and is beyond the jurisdiction of the special commercial court to
resolve. In short, Rodrigo’s complaint also fails the nature of the controversy test.

DERIVATIVE SUIT

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Rodrigo’s bare claim that the complaint is a derivative suit will not suffice to confer jurisdiction
on the RTC (as a special commercial court) if he cannot comply with the requisites for the
existence of a derivative suit. These requisites are:

a. the party bringing suit should be a shareholder during the time of the act or transaction
complained of, the number of shares not being material;

b. the party has tried to exhaust intra-corporate remedies, i.e., has made a demand on the
board of directors for the appropriate relief, but the latter has failed or refused to heed his plea;
and

c. the cause of action actually devolves on the corporation; the wrongdoing or harm having been
or being caused to the corporation and not to the particular stockholder bringing the suit.34

Based on these standards, we hold that the allegations of the present complaint do not amount
to a derivative suit.

First, as already discussed above, Rodrigo is not a shareholder with respect to the
shareholdings originally belonging to Anastacia; he only stands as a transferee-heir whose
rights to the share are inchoate and unrecorded. With respect to his own individually-held
shareholdings, Rodrigo has not alleged any individual cause or basis as a shareholder on
record to proceed against Oscar.

Second, in order that a stockholder may show a right to sue on behalf of the corporation, he
must allege with some particularity in his complaint that he has exhausted his remedies within
the corporation by making a sufficient demand upon the directors or other officers for
appropriate relief with the expressed intent to sue if relief is denied.35 Paragraph 8 of the
complaint hardly satisfies this requirement since what the rule contemplates is the exhaustion of
remedies within the corporate setting:

8. As members of the same family, complainant Rodrigo C. Reyes has resorted [to] and
exhausted all legal means of resolving the dispute with the end view of amicably settling the
case, but the dispute between them ensued.

Lastly, we find no injury, actual or threatened, alleged to have been done to the corporation due
to Oscar’s acts. If indeed he illegally and fraudulently transferred Anastacia’s shares in his own
name, then the damage is not to the corporation but to his co-heirs; the wrongful transfer did not
affect the capital stock or the assets of Zenith. As already mentioned, neither has Rodrigo
alleged any particular cause or wrongdoing against the corporation that he can champion in his
capacity as a shareholder on record.36

In summary, whether as an individual or as a derivative suit, the RTC – sitting as special

commercial court – has no jurisdiction to hear Rodrigo’s complaint since what is involved is the
determination and distribution of successional rights to the shareholdings of Anastacia Reyes.
Rodrigo’s proper remedy, under the circumstances, is to institute a special proceeding for the
settlement of the estate of the deceased Anastacia Reyes, a move that is not foreclosed by the
dismissal of his present complaint.

WHEREFORE, we hereby GRANT the petition and REVERSE the decision of the Court of
Appeals dated May 26, 2004 in CA-G.R. SP No. 74970. The complaint before the Regional Trial

147
Court, Branch 142, Makati, docketed as Civil Case No. 00-1553, is ordered DISMISSED for lack
of jurisdiction.

SO ORDERED.

148
G.R. No. 185567 October 20, 2010

ARSENIO Z. LOCSIN, Petitioner,

vs.
NISSAN LEASE PHILS. INC. and LUIS BANSON, Respondents.

DECISION

BRION, J.:

Through a petition for review on certiorari,1 petitioner Arsenio Z. Locsin (Locsin) seeks the
reversal of the Decision2 of the Court of Appeals (CA) dated August 28, 2008,3 in "Arsenio Z.
Locsin v. Nissan Car Lease Phils., Inc. and Luis Banson," docketed as CA-G.R. SP No. 103720
and the Resolution dated December 9, 2008,4 denying Locsin’s Motion for Reconsideration.
The assailed ruling of the CA reversed and set aside the Decision5 of the Hon. Labor Arbiter
Thelma Concepcion (Labor Arbiter Concepcion) which denied Nissan Lease Phils. Inc.’s
(NCLPI) and Luis T. Banson’s (Banson) Motion to Dismiss.

THE FACTUAL ANTECEDENTS

On January 1, 1992, Locsin was elected Executive Vice President and Treasurer
(EVP/Treasurer) of NCLPI. As EVP/Treasurer, his duties and responsibilities included: (1) the
management of the finances of the company; (2) carrying out the directions of the President
and/or the Board of Directors regarding financial management; and (3) the preparation of
financial reports to advise the officers and directors of the financial condition of NCLPI.6 Locsin
held this position for 13 years, having been re-elected every year since 1992, until January 21,
2005, when he was nominated and elected Chairman of NCLPI’s Board of Directors.7

On August 5, 2005, a little over seven (7) months after his election as Chairman of the Board,
the NCLPI Board held a special meeting at the Manila Polo Club. One of the items of the
agenda was the election of a new set of officers. Unfortunately, Locsin was neither re-elected
Chairman nor reinstated to his previous position as EVP/Treasurer.8

Aggrieved, on June 19, 2007, Locsin filed a complaint for illegal dismissal with prayer for
reinstatement, payment of backwages, damages and attorney’s fees before the Labor Arbiter
against NCLPI and Banson, who was then President of NCLPI.9

The Compulsory Arbitration Proceedings before the Labor Arbiter.

On July 11, 2007, instead of filing their position paper, NCLPI and Banson filed a Motion to
Dismiss,10 on the ground that the Labor Arbiter did not have jurisdiction over the case since the
issue of Locsin’s removal as EVP/Treasurer involves an intra-corporate dispute.

On August 16, 2007, Locsin submitted his opposition to the motion to dismiss, maintaining his
position that he is an employee of NCLPI.

On March 10, 2008, Labor Arbiter Concepcion issued an Order denying the Motion to Dismiss,
holding that her office acquired "jurisdiction to arbitrate and/or decide the instant complaint
finding extant in the case an employer-employee relationship."11

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NCLPI, on June 3, 2008, elevated the case to the CA through a Petition for Certiorari under
Rule 65 of the Rules of Court.12 NCLPI raised the issue on whether the Labor Arbiter
committed grave abuse of discretion by denying the Motion to Dismiss and holding that her
office had jurisdiction over the dispute.

The CA Decision - Locsin was a corporate officer; the issue of his removal as EVP/Treasurer is
an intra-corporate dispute under the RTC’s jurisdiction.

On August 28, 2008,13 the CA reversed and set aside the Labor Arbiter’s Order denying the
Motion to Dismiss and ruled that Locsin was a corporate officer.

Citing PD 902-A, the CA defined "corporate officers as those officers of a corporation who are
given that character either by the Corporation Code or by the corporations’ by-laws." In this
regard, the CA held:

Scrutinizing the records, We hold that petitioners successfully discharged their onus of
establishing that private respondent was a corporate officer who held the position of Executive
Vice-President/Treasurer as provided in the by-laws of petitioner corporation and that he held
such position by virtue of election by the Board of Directors.

That private respondent is a corporate officer cannot be disputed. The position of Executive
Vice-President/Treasurer is specifically included in the roster of officers provided for by the
(Amended) By-Laws of petitioner corporation, his duties and responsibilities, as well as
compensation as such officer are likewise set forth therein.14

Article 280 of the Labor Code, the receipt of salaries by Locsin, SSS deductions on that salary,
and the element of control in the performance of work duties – indicia used by the Labor Arbiter
to conclude that Locsin was a regular employee – were held inapplicable by the CA.15 The CA
noted the Labor Arbiter’s failure to address the fact that the position of EVP/Treasurer is
specifically enumerated as an "office" in the corporation’s by-laws.16

Further, the CA pointed out Locsin’s failure to "state any circumstance by which NCLPI engaged
his services as a corporate officer that would make him an employee." The CA found, in this
regard, that Locsin’s assumption and retention as EVP/Treasurer was based on his election and
subsequent re-elections from 1992 until 2005. Further, he performed only those functions that
were "specifically set forth in the By-Laws or required of him by the Board of Directors.17"

With respect to the suit Locsin filed with the Labor Arbiter, the CA held that:

Private respondent, in belatedly filing this suit before the Labor Arbiter, questioned the legality of
his "dismissal" but in essence, he raises the issue of whether or not the Board of Directors had
the authority to remove him from the corporate office to which he was elected pursuant to the
By-Laws of the petitioner corporation. Indeed, had private respondent been an ordinary
employee, an election conducted by the Board of Directors would not have been necessary to
remove him as Executive Vice-President/Treasurer. However, in an obvious attempt to preclude
the application of settled jurisprudence that corporate officers whose position is provided in the
by-laws, their election, removal or dismissal is subject to Section 5 of P.D. No. 902-A (now R.A.
No. 8799), private respondent would even claim in his Position Paper, that since his
responsibilities were akin to that of the company’s Executive Vice-President/Treasurer, he was
"hired under the pretext that he was being ‘elected’ into said post.18 [Emphasis supplied.]

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As a consequence, the CA concluded that Locsin does not have any recourse with the Labor
Arbiter or the NLRC since the removal of a corporate officer, whether elected or appointed, is an
intra-corporate controversy over which the NLRC has no jurisdiction.19 Instead, according to
the CA, Locsin’s complaint for "illegal dismissal" should have been filed in the Regional Trial
Court (RTC), pursuant to Rule 6 of the Interim Rules of Procedure Governing Intra-Corporate
Controversies.20

Finally, the CA addressed Locsin’s invocation of Article 4 of the Labor Code. Dismissing the
application of the provision, the CA cited Dean Cesar Villanueva of the Ateneo School of Law,
as follows:

x x x the non-coverage of corporate officers from the security of tenure clause under the
Constitution is now well-established principle by numerous decisions upholding such doctrine
under the aegis of the 1987 Constitution in the face of contemporary decisions of the same
Supreme Court likewise confirming that security of tenure covers all employees or workers
including managerial employees.21

THE PETITIONER’S ARGUMENTS

Failing to obtain a reconsideration of the CA’s decision, Locsin filed the present petition on
January 28, 2009, raising the following procedural and substantive issues:

(1) Whether the CA has original jurisdiction to review decision of the Labor Arbiter under Rule
65?

(2) Whether he is a regular employee of NCLPI under the definition of Article 280 of the Labor
Code? and

(3) Whether Locsin’s position as Executive Vice-President/Treasurer makes him a corporate

officer thereby excluding him from the coverage of the Labor Code?

Procedurally, Locsin essentially submits that NCLPI wrongfully filed a petition for certiorari
before the CA, as the latter’s remedy is to proceed with the arbitration, and to appeal to the
NLRC after the Labor Arbiter shall have ruled on the merits of the case. Locsin cites, in this
regard, Rule V, Section 6 of the Revised Rules of the National Labor Relations Commission
(NLRC Rules), which provides that a denial of a motion to dismiss by the Labor Arbiter is not
subject to an appeal. Locsin also argues that even if the Labor Arbiter committed grave abuse of
discretion in denying the NCLPI motion, a special civil action for certiorari, filed with the CA was
not the appropriate remedy, since this was a breach of the doctrine of exhaustion of
administrative remedies.

Substantively, Locsin submits that he is a regular employee of NCLPI since - as he argued

before the Labor Arbiter and the CA - his relationship with the company meets the "four-fold
test."

First, Locsin contends that NCLPI had the power to engage his services as EVP/Treasurer.
Second, he received regular wages from NCLPI, from which his SSS and Philhealth
contributions, as well as his withholding taxes were deducted. Third, NCLPI had the power to
terminate his employment.22 Lastly, Nissan had control over the manner of the performance of
his functions as EVP/Treasurer, as shown by the 13 years of faithful execution of his job, which
he carried out in accordance with the standards and expectations set by NCLPI.23 Further,

151
Locsin maintains that even after his election as Chairman, he essentially performed the
functions of EVP/Treasurer – handling the financial and administrative operations of the
Corporation – thus making him a regular employee.24

Under these claimed facts, Locsin concludes that the Labor Arbiter and the NLRC – not the
RTC (as NCLPI posits) – has jurisdiction to decide the controversy. Parenthetically, Locsin
clarifies that he does not dispute the validity of his election as Chairman of the Board on
January 1, 2005. Instead, he theorizes that he never lost his position as EVP/Treasurer having
continuously performed the functions appurtenant thereto.25 Thus, he questions his
"unceremonious removal" as EVP/Treasurer during the August 5, 2005 special Board meeting.

THE RESPONDENT’S ARGUMENTS

It its April 17, 2009 Comment,26 Nissan prays for the denial of the petition for lack of merit.
Nissan submits that the CA correctly ruled that the Labor Arbiter does not have jurisdiction over
Locsin’s complaint for illegal dismissal. In support, Nissan maintains that Locsin is a corporate
officer and not an employee. In addressing the procedural defect Locsin raised, Nissan brushes
the issue aside, stating that (1) this issue was belatedly raised in the Motion for
Reconsideration, and that (2) in any case, Rule VI, Section 2(1) of the NLRC does not apply
since only appealable decisions, resolutions and orders are covered under the rule.

THE COURT’S RULING

We resolve to deny the petition for lack of merit.

At the outset, we stress that there are two (2) important considerations in the final determination
of this case. On the one hand, Locsin raises a procedural issue that, if proven correct, will
require the Court to dismiss the instant petition for using an improper remedy. On the other
hand, there is the substantive issue that will be disregarded if a strict implementation of the rules
of procedure is upheld.

Prefatorily, we agree with Locsin’s submission that the NCLPI incorrectly elevated the Labor
Arbiter’s denial of the Motion to Dismiss to the CA. Locsin is correct in positing that the denial of
a motion to dismiss is unappealable. As a general rule, an aggrieved party’s proper recourse to
the denial is to file his position paper, interpose the grounds relied upon in the motion to dismiss
before the labor arbiter, and actively participate in the proceedings. Thereafter, the labor
arbiter’s decision can be appealed to the NLRC, not to the CA.

As a rule, we strictly adhere to the rules of procedure and do everything we can, to the point of
penalizing violators, to encourage respect for these rules. We take exception to this general
rule, however, when a strict implementation of these rules would cause substantial injustice to
the parties.

We see it appropriate to apply the exception to this case for the reasons discussed below;
hence, we are compelled to go beyond procedure and rule on the merits of the case. In the
context of this case, we see sufficient justification to rule on the employer-employee relationship
issue raised by NCLPI, even though the Labor Arbiter’s interlocutory order was incorrectly
brought to the CA under Rule 65.

The NLRC Rules are clear: the denial by the labor arbiter of the motion to dismiss is not
appealable because the denial is merely an interlocutory order.

152
In Metro Drug v. Metro Drug Employees,27 we definitively stated that the denial of a motion to
dismiss by a labor arbiter is not immediately appealable.28

We similarly ruled in Texon Manufacturing v. Millena,29 in Sime Darby Employees Association

v. National Labor Relations Commission30 and in Westmont Pharmaceuticals v. Samaniego.31
In Texon, we specifically said:

The Order of the Labor Arbiter denying petitioners’ motion to dismiss is interlocutory. It is well-
settled that a denial of a motion to dismiss a complaint is an interlocutory order and hence,
cannot be appealed, until a final judgment on the merits of the case is rendered. [Emphasis
supplied.]32

and indicated the appropriate recourse in Metro Drug, as follows:33

x x x The NLRC rule proscribing appeal from a denial of a motion to dismiss is similar to the
general rule observed in civil procedure that an order denying a motion to dismiss is
interlocutory and, hence, not appealable until final judgment or order is rendered [1 Feria and
Noche, Civil Procedure Annotated 453 (2001 ed.)]. The remedy of the aggrieved party in case of
denial of the motion to dismiss is to file an answer and interpose, as a defense or defenses, the
ground or grounds relied upon in the motion to dismiss, proceed to trial and, in case of adverse
judgment, to elevate the entire case by appeal in due course [Mendoza v. Court of Appeals,
G.R. No. 81909, September 5, 1991, 201 SCRA 343]. In order to avail of the extraordinary writ
of certiorari, it is incumbent upon petitioner to establish that the denial of the motion to dismiss
was tainted with grave abuse of discretion. [Macawiwili Gold Mining and Development Co., Inc.
v. Court of Appeals, G.R. No. 115104, October 12, 1998, 297 SCRA 602]

In so citing Feria and Noche, the Court was referring to Sec. 1 (b), Rule 41 of the Rules of
Court, which specifically enumerates interlocutory orders as one of the court actions that cannot
be appealed. In the same rule, as amended by A.M. No. 07-7-12-SC, the aggrieved party is
allowed to file an appropriate special civil action under Rule 65. The latter rule, however, also
contains limitations for its application, clearly outlined in its Section 1 which provides:

Section 1. Petition for certiorari.

When any tribunal, board or officer exercising judicial or quasi-judicial functions has acted
without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack
or excess of jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in
the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper
court, alleging the facts with certainty and praying that judgment be rendered annulling or
modifying the proceedings of such tribunal, board or officer, and granting such incidental reliefs
as law and justice may require.

In the labor law setting, a plain, speedy and adequate remedy is still open to the aggrieved party
when a labor arbiter denies a motion to dismiss. This is Article 223 of Presidential Decree No.
442, as amended (Labor Code), 34 which states:

ART. 223. APPEAL

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Decisions, awards, or orders of the Labor Arbiter are final and executory unless appealed to the
Commission by any or both parties within ten (10) calendar days from receipt of such decisions,
awards, or orders. Such appeal may be entertained only on any of the following grounds:

(a) If there is prima facie evidence of abuse of discretion on the part of the Labor Arbiter; x x x
[Emphasis supplied.]

Pursuant to this Article, we held in Metro Drug (citing Air Services Cooperative, et al. v. Court of
Appeals35) that the NLRC is clothed with sufficient authority to correct any claimed "erroneous
assumption of jurisdiction" by labor arbiters:

In Air Services Cooperative, et al. v. The Court of Appeals, et al., a case where the jurisdiction
of the labor arbiter was put in issue and was assailed through a petition for certiorari, prohibition
and annulment of judgment before a regional trial court, this Court had the opportunity to
expound on the nature of appeal as embodied in Article 223 of the Labor Code, thus:

x x x Also, while the title of the Article 223 seems to provide only for the remedy of appeal as
that term is understood in procedural law and as distinguished from the office of certiorari,
nonetheless, a closer reading thereof reveals that it is not as limited as understood by the
petitioners x x x.

Abuse of discretion is admittedly within the ambit of certiorari and its grant of review thereof to
the NLRC indicates the lawmakers’ intention to broaden the meaning of appeal as that term is
used in the Code. For this reason, petitioners cannot argue now that the NLRC is devoid of any
corrective power to rectify a supposed erroneous assumption of jurisdiction by the Labor Arbiter
x x x. [Air Services Cooperative, et al. v. The Court of Appeals, et al. G.R. No. 118693, 23 July
1998, 293 SCRA 101]

Since the legislature had clothed the NLRC with the appellate authority to correct a claimed
"erroneous assumption of jurisdiction" on the part of the labor arbiter – a case of grave abuse of
discretion - the remedy availed of by petitioner in this case is patently erroneous as recourse in
this case is lodged, under the law, with the NLRC.

In Metro Drug, as in the present case, the defect imputed through the NLCPI Motion to Dismiss
is the labor arbiter’s lack of jurisdiction since Locsin is alleged to be a corporate officer, not an
employee. Parallelisms between the two cases is undeniable, as they are similar on the
following points: (1) in Metro Drug, as in this case, the Labor Arbiter issued an Order denying
the Motion to Dismiss by one of the parties; (2) the basis of the Motion to Dismiss is also the
alleged lack of jurisdiction by the Labor Arbiter to settle the dispute; and (3) dissatisfied with the
Order of the Labor Arbiter, the aggrieved party likewise elevated the case to the CA via Rule 65.

The similarities end there, however. Unlike in the present case, the CA denied the petition for
certiorari and the subsequent Motion for Reconsideration in Metro Drug; the CA correctly found
that the proper appellate mechanism was an appeal to the NLRC and not a petition for certiorari
under Rule 65. In the present case, the CA took a different position despite our clear ruling in
Metro Drug, and allowed, not only the use of Rule 65, but also ruled on the merits.

From this perspective, the CA clearly erred in the application of the procedural rules by
disregarding the relevant provisions of the NLRC Rules, as well as the requirements for a
petition for certiorari under the Rules of Court. To reiterate, the proper action of an aggrieved
party faced with the labor arbiter’s denial of his motion to dismiss is to submit his position paper

154
and raise therein the supposed lack of jurisdiction. The aggrieved party cannot immediately
appeal the denial since it is an interlocutory order; the appropriate remedial recourse is the
procedure outlined in Article 223 of the Labor Code, not a petition for certiorari under Rule 65.

A strict implementation of the NLRC Rules and the Rules of Court would cause injustice to the
parties because the Labor Arbiter clearly has no jurisdiction over the present intra-corporate
dispute.

Our ruling in Mejillano v. Lucillo36 stands for the proposition that we should strictly apply the
rules of procedure. We said:

Time and again, we have ruled that procedural rules do not exist for the convenience of the
litigants. Rules of Procedure exist for a purpose, and to disregard such rules in the guise of
liberal construction would be to defeat such purpose. Procedural rules were established
primarily to provide order to and enhance the efficiency of our judicial system. [Emphasis
supplied.]

An exception to this rule is our ruling in Lazaro v. Court of Appeals37 where we held that the
strict enforcement of the rules of procedure may be relaxed in exceptionally meritorious cases:

x x x Procedural rules are not to be belittled or dismissed simply because their non-observance
may have resulted in prejudice to a party's substantive rights. Like all rules, they are required to
be followed except only for the most persuasive of reasons when they may be relaxed to relieve
a litigant of an injustice not commensurate with the degree of his thoughtlessness in not
complying with the procedure prescribed. The Court reiterates that rules of procedure,
especially those prescribing the time within which certain acts must be done, "have oft been
held as absolutely indispensable to the prevention of needless delays and to the orderly and
speedy discharge of business. x x x The reason for rules of this nature is because the dispatch
of business by courts would be impossible, and intolerable delays would result, without rules
governing practice x x x. Such rules are a necessary incident to the proper, efficient and orderly
discharge of judicial functions." Indeed, in no uncertain terms, the Court held that the said rules
may be relaxed only in exceptionally meritorious cases. [Emphasis supplied.]

Whether a case involves an exceptionally meritorious circumstance can be tested under the
guidelines we established in Sanchez v. Court of Appeals,38 as follows:

Aside from matters of life, liberty, honor or property which would warrant the suspension of the
Rules of the most mandatory character and an examination and review by the appellate court of
the lower court’s findings of fact, the other elements that should be considered are the following:
(a) the existence of special or compelling circumstances, (b) the merits of the case, (c) a cause
not entirely attributable to the fault or negligence of the party favored by the suspension of the
rules, (d) a lack of any showing that the review sought is merely frivolous and dilatory, and (e)
the other party will not be unjustly prejudiced thereby. [Emphasis supplied.]

Under these standards, we hold that exceptional circumstances exist in the present case to
merit the relaxation of the applicable rules of procedure.

Due to existing exceptional circumstances, the ruling on the merits that Locsin is an officer and
not an employee of Nissan must take precedence over procedural considerations.

155
We arrived at the conclusion that we should go beyond the procedural rules and immediately
take a look at the intrinsic merits of the case based on several considerations.

First, the parties have sufficiently ventilated their positions on the disputed employer-employee
relationship and have, in fact, submitted the matter for the CA’s consideration.

Second, the CA correctly ruled that no employer-employee relationship exists between Locsin
and Nissan.

Locsin was undeniably Chairman and President, and was elected to these positions by the
Nissan board pursuant to its By-laws.39 As such, he was a corporate officer, not an employee.
The CA reached this conclusion by relying on the submitted facts and on Presidential Decree
902-A, which defines corporate officers as "those officers of a corporation who are given that
character either by the Corporation Code or by the corporation’s by-laws." Likewise, Section 25
of Batas Pambansa Blg. 69, or the Corporation Code of the Philippines (Corporation Code)
provides that corporate officers are the president, secretary, treasurer and such other officers as
may be provided for in the by-laws.

Third. Even as Executive Vice-President/Treasurer, Locsin already acted as a corporate officer

because the position of Executive Vice-President/Treasurer is provided for in Nissan’s By-Laws.
Article IV, Section 4 of these By-Laws specifically provides for this position, as follows:

ARTICLE IV
Officers

Section 1. Election and Appointment – The Board of Directors at their first meeting, annually
thereafter, shall elect as officers of the Corporation a Chairman of the Board, a President, an
Executive Vice-President/Treasurer, a Vice-President/General Manager and a Corporate
Secretary. The other Senior Operating Officers of the Corporation shall be appointed by the
Board upon the recommendation of the President.

xxxx

Section 4. Executive Vice-President/Treasurer – The Executive Vice-President/Treasurer shall

have such powers and perform such duties as are prescribed by these By-Laws, and as may be
required of him by the Board of Directors. As the concurrent Treasurer of the Corporation, he
shall have the charge of the funds, securities, receipts, and disbursements of the Corporation.
He shall deposit, or cause to be deposited, the credit of the Corporation in such banks or trust
companies, or with such banks of other depositories, as the Board of Directors may from time to
time designate. He shall tender to the President or to the Board of Directors whenever required
an account of the financial condition of the corporation and of all his transactions as Treasurer.
As soon as practicable after the close of each fiscal year, he shall make and submit to the
Board of Directors a like report of such fiscal year. He shall keep correct books of account of all
the business and transactions of the Corporation.

In Okol v. Slimmers World International,40 citing Tabang v. National Labor Relations

Commission,41 we held that –

x x x an "office" is created by the charter of the corporation and the officer is elected by the
directors or stockholders. On the other hand, an "employee" usually occupies no office and
generally is employed not by action of the directors or stockholders but by the managing officer

156
of the corporation who also determines the compensation to be paid to such employee.
[Emphasis supplied.]

In this case, Locsin was elected by the NCLPI Board, in accordance with the Amended By-Laws
of the corporation. The following factual determination by the CA is elucidating:

More important, private respondent failed to state any such "circumstance" by which the
petitioner corporation "engaged his services" as corporate officer that would make him an
employee. In the first place, the Vice-President/Treasurer was elected on an annual basis as
provided in the By-Laws, and no duties and responsibilities were stated by private respondent
which he discharged while occupying said position other than those specifically set forth in the
By-Laws or required of him by the Board of Directors. The unrebutted fact remains that private
respondent held the position of Executive Vice-President/Treasurer of petitioner corporation, a
position provided for in the latter’s by-laws, by virtue of election by the Board of Directors, and
has functioned as such Executive Vice-President/Treasurer pursuant to the provisions of the
said By-Laws. Private respondent knew very well that he was simply not re-elected to the said
position during the August 5, 2005 board meeting, but he had objected to the election of a new
set of officers held at the time upon the advice of his lawyer that he cannot be "terminated" or
replaced as Executive Vice-President/Treasurer as he had attained tenurial security.42

We fully agree with this factual determination which we find to be sufficiently supported by
evidence. We likewise rule, based on law and established jurisprudence, that Locsin, at the time
of his severance from NCLPI, was the latter’s corporate officer.

a. The Question of Jurisdiction

Given Locsin’s status as a corporate officer, the RTC, not the Labor Arbiter or the NLRC, has
jurisdiction to hear the legality of the termination of his relationship with Nissan. As we also held
in Okol, a corporate officer’s dismissal from service is an intra-corporate dispute:

In a number of cases [Estrada v. National Labor Relations Commission, G.R. No. 106722, 4
October 1996, 262 SCRA 709; Lozon v. National Labor Relations Commission, 310 Phil. 1
(1995); Espino v. National Labor Relations Commission, 310 Phil. 61 (1995); Fortune Cement
Corporation v. National Labor Relations Commission, G.R. No. 79762, 24 January 1991, 193
SCRA 258], we have held that a corporate officer’s dismissal is always a corporate act, or an
intra-corporate controversy which arises between a stockholder and a corporation.43 [Emphasis
supplied.]

so that the RTC should exercise jurisdiction based on the following legal reasoning:

Prior to its amendment, Section 5(c) of Presidential Decree No. 902-A (PD 902-A) provided that
intra-corporate disputes fall within the jurisdiction of the Securities and Exchange Commission
(SEC):

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other forms of associations registered with it
as expressly granted under existing laws and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving:

xxxx

157
c) Controversies in the election or appointments of directors, trustees, officers or managers of
such corporations, partnerships or associations.

Subsection 5.2, Section 5 of Republic Act No. 8799, which took effect on 8 August 2000,
transferred to regional trial courts the SEC’s jurisdiction over all cases listed in Section 5 of PD
902-A:

5.2. The Commission’s jurisdiction over all cases enumerated under Section 5 of Presidential
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court. [Emphasis supplied.]

b. Precedence of Substantive Merits;

Primacy of Element of Jurisdiction

Based on the above jurisdictional considerations, we would be forced to remand the case to the
Labor Arbiter for further proceedings if we were to dismiss the petition outright due to the
wrongful use of Rule 65.44 We cannot close our eyes, however, to the factual and legal reality,
established by evidence already on record, that Locsin is a corporate officer whose termination
of relationship is outside a labor arbiter’s jurisdiction to rule upon.

Under these circumstances, we have to give precedence to the merits of the case, and primacy
to the element of jurisdiction. Jurisdiction is the power to hear and rule on a case and is the
threshold element that must exist before any quasi-judicial officer can act. In the context of the
present case, the Labor Arbiter does not have jurisdiction over the termination dispute Locsin
brought, and should not be allowed to continue to act on the case after the absence of
jurisdiction has become obvious, based on the records and the law. In more practical terms, a
contrary ruling will only cause substantial delay and inconvenience as well as unnecessary
expenses, to the point of injustice, to the parties. This conclusion, of course, does not go into
the merits of termination of relationship and is without prejudice to the filing of an intra-corporate
dispute on this point before the appropriate RTC.

WHEREFORE, we DISMISS the petitioner’s petition for review on certiorari, and AFFIRM the
Decision of the Court of Appeals, in CA-G.R. SP No. 103720, promulgated on August 28, 2008,
as well as its Resolution of December 9, 2008, which reversed and set aside the March 10,
2008 Order of Labor Arbiter Concepcion in NLRC NCR Case No. 00-06-06165-07. This
Decision is without prejudice to petitioner Locsin’s available recourse for relief through the
appropriate remedy in the proper forum.

No pronouncement as to costs.

SO ORDERED.

ARTURO D. BRION***
Associate Justice

158
G.R. No. 212774

WESLEYAN UNIVERSITY-PHILIPPINES, Petitioner

vs.
GUILLERMO T. MAGLAYA, SR., Respondent

DECISION

PERALTA, J.:

For this Court's resolution is a petition for review on certiorari filed by petitioner Wesleyan
University-Philippines (WUP) assailing the Resolution1 dated January 20, 2014 of the Court of
Appeals (CA) which denied its petition for certiorari.

The facts are as follows:

WUP is a non-stock, non-profit, non-sectarian educational corporation duly organized and

existing under the Philippine laws on April 28, 1948.2

Respondent Atty. Guillermo T. Maglaya, Sr. (Maglaya) was appointed as a corporate member
on January 1, 2004, and was elected as a member of the Board of Trustees (Board) on January
9, 2004 - both for a period of five (5) years. On May 25, 2005, he was elected as President of
the University for a five-year term. He was re-elected as a trustee on May 25, 2007. 3

In a Memorandum dated November 28, 2008, the incumbent Bishops of the United Methodist
Church (Bishops) apprised all the corporate members of the expiration of their tenns on
December 31, 2008, unless renewed by the former. 4 The said members, including Maglaya,
sought the renewal of their membership in the WUP's Board, and signified their willingness to
serve the corporation. 5

On January 10, 2009, Dr. Dominador Cabasal, Chairman of the Board, informed the Bishops of
the cessation of corporate terms of some of the members and/or trustees since the by-laws
provided that the vacancy shall only be filled by the Bishops upon the recommendation of the
Board. 6

On March 25, 2009, Maglaya learned that the Bishops created an Ad Hoc Committee to plan
the efficient and orderly turnover of the administration of the WUP in view of the alleged
"gentleman's agreement" reached in December 2008, and that the Bishops have appointed the
incoming corporate members and trustees. 7 He clarified that there was no agreement and any
discussion of the turnover because the corporate members still have valid and existing
corporate terms.8

On April 24, 2009, the Bishops, through a formal notice to all the officers, deans, staff, and
employees of WUP, introduced the new corporate members, trustees, and officers. In the said
notice, it was indicated that the new Board met, organized, and elected the new set of officers
on April 20, 2009.9 Manuel Palomo (Palomo), the new Chairman of the Board, informed
Maglaya of the termination of his services and authority as the President of the University on
April 27, 2009. 10

Thereafter, Maglaya and other fonner members of the Board (Plaintiffs) filed a Complaint for
Injunction and Damages before the Regional Trial Court (RTC) of Cabanatuan City, Branch 28.

159
11 In a Resolution12 dated August 19, 2009, the RTC dismissed the case declaring the same
as a nuisance or harassment suit prohibited under Section l(b), 13 Rule 1 of the Interim Rules
for Intra-Corporate Controversies. 14 The RTC observed that it is clear from the by-laws of
WUP that insofar as membership in the corporation is concerned, which can only be given by
the College of Bishops of the United Methodist Church, it is a precondition to a seat in the WUP
Board. 15 Consequently, the expiration of the terms of the plaintiffs, including Maglaya, as
corporate members carried with it their termination as members of the Board. 16 Moreover, their
continued stay in their office beyond their terms was only in hold-over capacities, which ceased
when the Bishops appointed new members of the corporation and the Board. 17

The CA, in a Decision18 dated .March 15, 2011, affirmed the decision of the RTC, and
dismissed the petition for certiorari filed by the plaintiffs for being the improper remedy. The CA
held that their status as corporate members of WUP which expired on December 31, 2008 was
undisputed. The CA agreed with the RTC that the plaintiffs had no legal standing to question the
Bishops' alleged irregular appointment of the new members in their Complaint on May 18, 2009
as the termination of their membership in the corporation necessarily resulted in the conclusion
of their positions as members of the Board pursuant to the WUP by-laws. 19

Thereafter, Maglaya filed on March 22, 2011 the present illegal dismissal case against WUP,
Palomo, Bishop Lito C. Tangonan (Tangonan), and Bishop Leo A. Soriano (Soriano ).20
Maglaya claimed that he was unceremoniously dismissed in a wanton, reckless, oppressive and
malevolent manner on the eve of April 27, 2009.21 Tangonan and Soriano acted in evident bad
faith when they disregarded his five-year term of office and delegated their protege Palomo as
the new university president.22 Maglaya alleged that he faithfully discharged his necessary and
desirable functions as President, and received ₱75,000.00 as basic salary, Pl0,000.00 as cost
of living allowance, and ₱10,000.00 as representation allowance. He was also entitled to other
benefits such as: the use of university vehicles; the use of a post paid mobile cellular phone in
his official transactions; the residence in the University Executive House located at Inday Street,
Magsaysay Sur, Cabanatuan City, with free water, electricity, and services of a household
helper; and receipt of 13th month pay, vacation leave pay, retirement pay, and shares in related
learning experience.23 On May 31, 2006, his basic salary was increased to P95,000.00 due to
his additional duty in overseeing the operations of the WUP Cardiovascular and Medical Center.

Maglaya presented the following pieces of evidence: copies of his appointment as President, his
Identification Card, the WUP Administration and Personnel Policy Manual which specified the
retirement of the university president, and the check disbursement in his favor evidencing his
salary, to substantiate his claim that he was a mere employee.24

WUP, on the other hand, asseverated that the dismissal or removal of Maglaya, being a
corporate officer and not a regular employee, is a corporate act or intra-corporate controversy
under the jurisdiction of the RTC. 25 WUP also maintained that since Maglaya's appointment
was not renewed, he ceased to be a member of the corporation and of the Board; thus, his term
for presidency has also been tenninated. 26

Meanwhile, this Court, in a Resolution dated June 13, 2011, denied the petition for review on
certiorari filed by Maglaya and the other former members of the Board for failure to show any
reversible error in the decision of the CA. The same became final and executory on August 24,
2011.27

In a Decision28 dated September 20, 2011, the Labor Arbiter (LA) ruled in favor of WUP. The
LA held that the action between employers and employees where the employer-employee

160
relationship is merely incidental is within the exclusive and original jurisdiction of the regular
courts.29 Since he was appointed as President of the University by the Board, Maglaya was a
corporate officer and not a mere employee. The instant case involves intra-corporate dispute
which was definitely beyond the jurisdiction of the labor tribunal.30 The dispositive portion of the
decision reads:

WHEREFORE, premises considered, the instant complaint is hereby dismissed for lack of
jurisdiction.

SO ORDERED.31

In a Decision32 dated April 25, 2012, the National Labor Relations Commission (NLRC) in·
NLRC-LAC No. 01-000470-12, reversed and set aside the Decision of the LA ruling that the
illegal dismissal case falls within the jurisdiction of the labor tribunals. Since the reasons for his
termination cited by WUP were not among the just causes provided under Article 28233 (now
Article 297) of the Labor Code, Maglaya was illegally dismissed. The NLRC observed that the
Board did not elect Maglaya, but merely appointed him. Maglaya was appointed for a fixed
period of five (5) years from May 7, 2005 to May 6, 2010, while the period of his appointment as
member of the corporation was five (5) years from January 2004.34 The decretal portion of the
decision reads:

WHEREFORE, premises considered, the appealed decision is hereby REVERSED and SET
ASIDE, declaring:

(a) jurisdiction over this case by virtue of the employer-employee relation of the parties

(b) the illegality of the dismissal of [respondent] by [petitioner] [Petitioner] therefore [is] hereby
ordered to pay [respondent]:

1. separation pay - ₱375,000.00

2. full backwages - 1,252,462.50
3. retirement pay - 500,000.00
4. moral damages - 100,000.00
5. exemplary damages - 50,000.00
6. 10% of the above as attorney's fees - 227,746.25
TOTAL AWARDS - [₱]2,505,208.75
Based on the attached computation of this Commission’s Computation Unit.

SO ORDERED.35

Ruling in favor of Maglaya, the NLRC explicated that although the position of the President of
the University is a corporate office, the manner of Maglaya' s appointment, and his duties,
salaries, and allowances point to his being an employee and subordinate. 36 The control test is
the most important indicator of the presence of employer-employee relationship. Such was
present in the instant case as Maglaya had the duty to report to the Board, and it was the Board
which terminated or dismissed him even before his term ends.37

Thereafter, the NLRC denied the motion for reconsideration filed by WUP in a Resolution38
dated February 11, 2013.

161
In a Resolution, the CA dismissed the petition for certiorari filed by WUP. The CA noted that the
decision and resolution of the NLRC became final and executory on March 16, 2013.39 WUP's
attempt to resurrect its lost remedy through filing the petition would not prosper since final and
executory judgment becomes unalterable and may no longer be modified in any respect.40
Thus:

WHEREFORE, the petition is DENIED for lack of merit.

SO ORDERED.41

Upon denial of his Motion for Reconsideration, WUP elevated the case before this Court raising
the issue:

The Court of Appeals committed an error of law when it summarily dismissed the special civil
action for certiorari raising lack of jurisdiction of the NLRC filed by [WUP] where it was very clear
that the NLRC had no jurisdiction over the case involving a corporate officer and where the
nature of the controversy is an intra-corporate dispute.

We find the instant petition impressed with merit.

WUP alleges that while the NLRC decision became final and executory on March 16, 2013, it
did not mean that the said decision had become immutable and unalterable as the CA ruled.
WUP maintains that the remedy of the aggrieved party against a final and executory decision of
the NLRC is the filing of the petition for certiorari under Rule 65 of the Rules of Court. As such, it
was able to meet the conditions set forth in filing the said remedy before the CA.

Settled is the rule that while the decision of the NLRC becomes final and executory after the
lapse of ten calendar days from receipt thereof by the parties under Article 22342 (now Article
229) of the Labor Code, the adverse party is not precluded from assailing it via Petition for
Certiorari under Rule 65 before the CA and then to this Court via a Petition for Review under
Rule 45.43

This Court has explained and clarified the power of the CA to review NLRC decisions, viz. :

The power of the Court of Appeals to review NLRC decisions via Rule 65 or Petition for
Certiorari has been settled as early as in our decision in St. Martin Funeral Home v. National
Labor Relations Commission. This Court held that the proper vehicle for such review was a
Special Civil Action for Certiorari under Rule 65 of the Rules of Court, and that this action should
be filed in the Court of Appeals in strict observance of the doctrine of the hierarchy of courts.
Moreover, it is already settled that under Section 9 of Batas Pambansa Blg. 129, as amended
by Republic Act No. 7902[10] (An Act Expanding the Jurisdiction of the Court of Appeals,
amending for the purpose of Section Nine of Batas Pambansa Blg. 129 as amended, known as
the Judiciary Reorganization Act of 1980), the Court of Appeals - pursuant to the exercise of its
original jurisdiction over Petitions for Certiorari – is specifically given the power to pass upon the
evidence, if and hwen necessary, to resolve factual issues.44

Consequently, the remedy of the aggrieved party is to timely file a motion for reconsideration as
a precondition for any further or subsequent remedy, and then seasonably avail of the special
civil action of certiorari under Rule 65, for a period of sixty (60) days from notice of the
decision.45

162
Records reveal that WUP received the decision of the NLRC on May 12, 2012, and filed its
motion for reconsideration on May 24, 2012.46 WUP received the Resolution dated February
11, 2013 denying its motion on March 12, 2013.47 Thereafter, it filed its petition for certiorari
before the CA on March 26, 2013.48

We find that the application of the doctrine of immutability of judgment in the case at bar is
misplaced.1âwphi1 To reiterate, although the 10-day period for finality of the decision of the
NLRC may already have lapsed as contemplated in the Labor Code, this Court may still take
cognizance of the petition for certiorari on jurisdictional and due process considerations if filed
within the reglementary period under Rule 65.49 From the abovementioned, WUP was able to
discharge the necessary conditions in availing its remedy against the final and executory
decision of the NLRC.

There is an underlying power of the courts to scrutinize the acts of such agencies on questions
of law and jurisdiction even though no right of review is given by statute.50 Furthermore, the
purpose of judicial review is to keep the administrative agency within its jurisdiction and protect
the substantial rights of the parties.51

Now on the issue of whether or not the NLRC has jurisdiction over the illegal dismissal case
filed by Maglaya.

The said issue revolves around the question on whether Maglaya is a corporate officer or a
mere employee. For purposes of identifying an intracorporate controversy, We have defined
corporate officers, thus:

"Corporate officers" in the context of Presidential Decree No. 902- A are those officers of the
corporation who are given that character by the Corporation Code or by the corporation's by-
laws. There are three specific officers whom a corporation must have under Section 25 of the
Corporation Code. These are the president, secretary and the treasurer. The number of officers
is not limited to these three. A corporation may have such other officers as may be provided for
by its by-laws like, but not limited to, the vice-president, cashier, auditor or general manager.
The number of corporate officers is thus limited by law and by the corporation's by-laws.52

The president, vice-president, secretary and treasurer are commonly regarded as the principal
or executive officers of a corporation, and they are usually designated as the officers of the
corporation. However, other officers are sometimes created by the charter or by-laws of a
corporation, or the board of directors may be empowered under the by-laws of a corporation to
create additional offices as may be necessary. This Court expounded that an "office" is created
by the charter of the corporation and the officer is elected by the directors or stockholders, while
an "employee" usually occupies no office and generally is employed not by action of the
directors or stockholders but by the managing officer of the corporation who also determines the
compensation to be paid to such employee. 53

From the foregoing, that the creation of the position is under the corporation's charter or by-
laws, and that the election of the officer is by the directors or stockholders must concur in order
for an individual to be considered a corporate officer, as against an ordinary employee or officer.
It is only when the officer claiming to have been illegally dismissed is classified as such
corporate officer that the issue is deemed an intracorporate dispute which falls within the
jurisdiction of the trial courts. 54 In its position paper before the LA, WUP presented its
amended ByLaws55 dated November 28, 1988 submitted to the SEC to prove that Maglaya, as
the University President, was a corporate officer whose rights do not fall within the jurisdiction of

163
the labor tribunal. It also presented the Resolution dated. August 19, 2009 of the RTC, and the
Decision dated March 15, 2011 of the CA to show that the earlier case was filed by Maglaya
and others, as members of the Board, questioning the Bishops' appointment of the new
members without their recommendation.

The relevant portions of the amended By-Laws provide:

ARTICLE VI. BOARD OF TRUSTEES

xxxx

Section 2. Membership - (a) The Board of Trustees shall be composed of Ten (10) members of
the corporation from among themselves provided, that six (6) shall come from the Ministry and
Laity of the United Methodist [C]hurch in the Philippines, tlu·ee (3) shall be non-Methodist,
friends and sympathizers of the Wesleyan UniversityPhilippines and of the United Methodist
Church, and one (1) representative of the Wesleyan Alumni Association, as provided in section
1 (c), Aiiicle IV hereof, and (b) provided further that the incumbent area bishop and the
President of the Wesleyan University-Philippines shall be honorary members of the Board.

x x x x56

ARTICLE VIII. OFFICERS

Section 1. Officers -The officers of the Board of Trustees shall be:

(a) Chairman

(b) Vice-Chairman

(c) Secretary

(d) Treasurer

xxxx

Section 6. The President of Wesleyan University-Philippines -The President of the University,

who must be an active member of the United Methodist Church in the Philippines at the time of
his election shall be incharge of and be responsible for the administration of the University and
other institutions of learning that [ m]ay hereafter be established by the corporation, and

(a) May, with the Board of Trustees;

(1) Organize and/or reorganize the administrative set up of the Wesleyan University-Philippines
to effect efficiency and upgrade institutional administration and supervision;

(2) Employ, suspend, dismiss, transfer or replace personnel and prescribe and enforce rules
and regulations for their proper conduct in the discharge of their duties;

(3) Shall make reports during the different ammal conference of the United Methodist Church
and to such agencies as may be deemed necessary on the operations of the university and
related matters;

164
(4) Shall prescribe and enforce rules and regulations for the promotion and maintenance of
discipline in the proper conduct and discharge of the functions and duties of subordinate
administrative officers, professors, teachers, employees and students and other personnel.

(b) Shall make reports and recommendations to the Board of Trustees or to the Chairman of the
Board of Trustees on matters pertaining to the institution as he may find necessary;

(c) Shall countersign all checks drawn by the Treasurer from the depository of the University,
and

(d) Shall exercise, perform and discharge all such other powers, functions and duties as are
interest in the office of the President.

x x x57

It is apparent from the By-laws of WUP that the president was one of the officers of the
corporation, and was an honorary member of the Board. He was appointed by the Board and
not by a managing officer of the corporation. We held that one who is included in the by-laws of
a corporation in its roster of corporate officers is an officer of said corporation and not a mere
employee58

The alleged "appointment" of Maglaya instead of "election" as provided by the by-laws neither
convert the president of university as a mere employee, nor amend its nature as a corporate
officer. With the office specifically mentioned in the by-laws, the NLRC erred in taking
cognizance of the case, and in concluding that Maglaya was a mere employee and subordinate
official because of the manner of his appointment, his duties and responsibilities, salaries and
allowances, and considering the Identification Card, the Administration and Personnel Policy
Manual which specified the retirement of the university president, and the check disbursement
as pieces of evidence supporting such finding.

A corporate officer's dismissal is always a corporate act, or an intracorporate controversy which

arises between a stockholder and a corporation, and the nature is not altered by the reason or
wisdom with which the Board of Directors may have in taking such action.59 The issue of the
alleged termination involving a corporate officer, not a mere employee, is not a simple labor
problem but a matter that comes within the area of corporate affairs and management and is a
corporate controversy in contemplation of the Corporation Code.60

The long-established rule is that the jurisdiction over a subject matter is conferred by law.61
Perforce, Section 5 (c) of PD 902-A, as amended by Subsection 5.2, Section 5 of Republic Act
No. 8799, which provides that the regional trial courts exercise exclusive jurisdiction over all
controversies in the election or appointment of directors, trustees, officers or managers of
corporations, partnerships or associations, applies in the case at bar.62

To emphasize, the determination of the rights of a corporate officer dismissed from his
employment, as well as the corresponding liability of a corporation, if any, is an intra-corporate
dispute subject to the jurisdiction of the regular courts.63

As held in Leonor v. Court of Appeals,64 a void judgment for want of jurisdiction is no judgment
at all. It cannot be the source of any right nor the creator of any obligation. All acts perfonned

165
pursuant to it and all claims emanating from it have no legal effect. Hence, it can never become
final and any writ of execution based on it is void. 65

Since this Court is now reversing the challenged decision of the CA and affirming the decision of
the LA in dismissing the case for want of jurisdiction, Maglaya is not entitled to collect the
amount of ₱2,505,208.75 awarded from the time the NLRC decision became final and
executory up to the time the CA dismissed WUP's petition for certiorari.

In sum, this Court finds that the NLRC eITed in assuming jurisdiction over, and thereafter in
failing to dismiss, Maglaya's complaint for illegal dismissal against WUP, since the subject
matter of the instant case is an intra-corporate controversy which the NLRC has no jurisdiction.

WHEREFORE, the petition for review on certiorari filed by petitioner Wesleyan University-
Philippines is hereby GRANTED. The assailed Resolution dated January 20, 2014 of the Court
of Appeals in CAG.R. SP No. 129196 is hereby REVERSED and SET ASIDE. Respondent Atty.
Guillermo T. Maglaya, Sr. is hereby ORDERED to REIMBURSE the petitioner the amount of
₱2,505,208.75 awarded by the National Labor Relations Commission.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

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G.R. No. 202974

NORMA D. CACHO and NORTH STAR INTERNATIONAL TRAVEL, INC., Petitioners

vs.
VIRGINIA D. BALAGTAS, Respondent

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, as
amended, seeking to reverse and set aside the Decision1 dated November 9, 2011 and
Resolution2 dated August 6, 2012 of the Court of Appeals in CA-G.R. SP No. 111637, which
affirmed the Labor Arbiter's Decision3 dated March 28, 2005.

This case stemmed from a Complaint4 for constructive dismissal filed by respondent Virginia D.
Balagtas (Balagtas) against petitioners North Star International Travel, Inc. (North Star) and its
President Norma D. Cacho (Cacho) before the Labor Arbiter docketed as NLRC-NCR Case No.
04- 04736-04.

The facts as narrated by the Court of Appeals are as follows:

In her Position Paper submitted before the Labor Arbiter, petitioner [Balagtas] alleged that she
was a former employee of respondent TQ3 Travel Solutions/North Star International Travel,
Inc., a corporation duly registered with the Securities and Exchange Commission (SEC) on
February 12, 1990. She also alleged that she was one of the original incorporators-directors of
the said corporation and, when it started its operations in 1990, she was the General Manager
and later became the Executive Vice President/Chief Executive Officer.

On March 19, 2004 or after 14 years of service in the said corporation, petitioner was placed
under 30 days preventive suspension pursuant to a Board Resolution passed by the Board of
Directors of the respondent Corporation due to her alleged questionable transactions. On March
20, 2004, she was notified by private respondent Norma Cacho of her suspension and ordered
to explain in writing to the Board of Directors her alleged fraudulent transactions within 5 days
from said notice. Petitioner promptly heeded the order on March 29, 2004.

On April 5, 2004, while under preventive suspension, petitioner wrote a letter to private
respondent Norma Cacho informing the latter that she was assuming her position as Executive
Vice-President/Chief Executive Officer effective on that date; however, she was prevented from
re-assuming her position. Petitioner also wrote a letter dated April 12, 2004 to the Audit
Manager inquiring about the status of the examination of the financial statement of respondent
corporation for the year 2003, which request was, however, ignored. Consequently, petitioner
filed a complaint claiming that she was constructively and illegally dismissed effective on April
12, 2004.

In their defense, respondents averred that, on March 19, 2004, the majority of the Board of
Directors of respondent corporation decided to suspend petitioner for 30 days due to the
questionable documents and transactions she entered into without authority. The preventive
suspension was meant to prevent petitioner from influencing potential witnesses and to protect
the respondent corporation's property. Subsequently, the Board of Directors constituted an
investigation committee tasked with the duty to impartially assess the charges against petitioner.

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Respondents alleged that petitioner violated her suspension when, on several occasions, she
went to the respondent corporation's office and insisted on working despite respondent Norma
Cacho's protestation. Respondents also alleged that the complaint for constructive dismissal
was groundless. They asserted that petitioner was not illegally dismissed but was merely placed
under preventive suspension.5

The Decision of the Labor Arbiter

In his Decision dated March 28, 2005, the Labor Arbiter found that respondent Balagtas was
illegally dismissed from North Star, viz.:

WHEREFORE, judgment is hereby made finding the complainant to have been illegally
dismissed from employment on July 15, 2004 and concomitantly ordering the respondent North
Star International Travel, Inc., to pay her a separation pay computed at thirty (30) days pay for
every year of service with backwages, plus commissions and such other benefits which she
should have received had she not been dismissed at all.

The respondent North Star International Travel, Inc. is further ordered to pay complainant three
(3) million pesos as moral damages and two (2) million pesos as exemplary damages plus ten
(10%) percent attorney's fees.6

Subsequently, petitioners appealed the case to the National Labor Relations Commission
(NLRC). In their Notice of Appeal,7 they prayed that Balagtas's Complaint be dismissed for lack
of jurisdiction. While they maintained that Balagtas was never dismissed, they also alleged that
she was a corporate officer, incorporator, and member of the North Star's Board of Directors
(The Board). Thus, the NLRC cannot take cognizance of her illegal dismissal case, the same
being an intra-corporate controversy, which properly falls within the original and exclusive
jurisdiction of the ordinary courts.

The Ruling of the NLRC

In its Resolution8 dated September 30, 2008, the NLRC ruled in favor of petitioners, viz.:

WHEREFORE, the questioned Decision of the Labor Arbiter is REVERSED and SET ASIDE
and the complaint is DISMISSED for lack of jurisdiction.9

The NLRC's findings are as follows: First, through a Board resolution passed on March 31,
2003, Balagtas was elected as North Star's Executive Vice President and Chief Executive
Officer, as evidenced by a Secretary's Certificate dated April 22, 2003. Second, in her Counter
Affidavit executed sometime in 2004 in relation to the criminal charges against her, respondent
Balagtas had in fact admitted occupying these positions, apart from being one of North Star's
incorporators. And, third, the position of "Vice President" is a corporate office provided in North
Star's by-laws.10

Based on these findings, the NLRC ruled that respondent Balagtas was a corporate officer of
North Star at the time of her dismissal and not a mere employee. A corporate officer's dismissal
is always an intra-corporate controversy,11 a subject matter falling within the Regional Trial
Court's (RTC) jurisdiction.12 Thus, the Labor Arbiter and the NLRC do not have jurisdiction over
Balagtas's Complaint.

168
The NLRC also held that petitioners North Star and Cacho were not estopped from raising the
issue of lack of jurisdiction. Citing Dy v. National Labor Relations Commission,13 the NLRC
explained that the Labor Arbiter heard and decided the case upon the theory that he had
jurisdiction over the Complaint. Thus, the Labor Arbiter's jurisdiction may be raised as an issue
on appeal.

Aggrieved, respondent Balagtas moved for reconsideration but was denied. Thus, she elevated
the case to the Court of Appeals via a petition for certiorari.

The Ruling of the Court of Appeals

In its assailed Decision, the Court of Appeals found merit in Balagtas's petition, viz.:

WHEREFORE, the petition is hereby GRANTED. The assailed Resolution, dated September
30, 2008 of the National Labor Relations Commission dismissing the petitioner's complaint for
lack of jurisdiction, is hereby REVERSED and SET ASIDE. The Decision, dated March 28, 2005
of the Labor Arbiter is AFFIRMED and this case is ordered REMANDED to the NLRC for the re-
computation of petitioner's backwages and attorney's fees in accordance with this Decision.14

In ruling that the present case does not involve an intra-corporate controversy, the Court of
Appeals applied a two-tier test, viz.: (a) the relationship test, and (b) the nature of controversy
test.

Applying the relationship test, the Court of Appeals explained that no intra-corporate relationship
existed between respondent Balagtas and North Star. While respondent Balagtas was North
Star's Chief Executive Officer and Executive Vice President, petitioners North Star and Cacho
failed to establish that occupying these positions made her a corporate officer. First, respondent
Balagtas held the Chief Executive Officer position as a mere corporate title for the purpose of
enlarging North Star's corporate image. According to North Star's by-laws, the company
President shall assume the position of Chief Executive Officer. Thus, respondent Balagtas was
not empowered to exercise the functions of a corporate officer, which was lawfully delegated to
North Star's President, petitioner Cacho.15 And, second, petitioner North Star's By-laws only
enumerate the position of Vice President as one of its corporate officers. The NLRC should not
have assumed that the Vice President position is the same as the Executive Vice President
position that respondent Balagtas admittedly occupied. Following Matling Industrial and
Commercial Corporation v. Caras,16 the appellate court reminded that "a position must be
expressly mentioned in the by-laws in order to be considered a corporate office."17

On the other hand, the Court of Appeals elucidated that based on the allegations in herein
respondent Balagtas's complaint filed before the Labor Arbiter, the present case involved labor
issues. Thus, even using the nature of controversy test, it cannot be regarded as an intra-
corporate dispute.18

The subsequent motions for reconsideration were denied.19

Hence, the present petition.

The Issues

Petitioners North Star and Cacho come before this Court raising the following issues:

169
A.

WHETHER RESPONDENT BALAGTAS IS A CORPORA TE OFFICER AS DEFINED BY THE

CORPORATION CODE, CASE LAW, AND NORTH STAR'S BY-LAWS

B.

WHETHER THE APPELLATE COURT'S DECISION REVERSING THE NLRC'S FINDING

THAT BALAGTAS WAS A CORPORATE OFFICER FOR WHICH HER ACTION FOR ILLEGAL
DISMISSAL WAS INAPPROPRIATE FOR IT TO RESOLVE, WAS CORRECT ESPECIALLY
BECAUSE NO DISCUSSION OF THAT CONCLUSION WAS MADE BY THE APPELLATE
COURT IN ITS DECISION

C.

WHETHER THE AWARD BY THE APPELLATE COURT OF SEPARATION PAY,

BACKWAGES, DAMAGES, AND LAWYER'S FEES TO BALAGTAS WAS APPROPRIATE20

Petitioners Cacho and North Star insist that the present case's subject matter is an intra-
corporate controversy. They maintain that respondent Balagtas, as petitioner North Star's
Executive Vice President and Chief Executive Officer, was its corporate officer. Particularly, they
argue that: first, under petitioner North Star's by-laws, vice-presidents are listed as corporate
officers. Thus, the NLRC erred when it differentiated between: (a) "vice president" as a
corporate office provided in petitioner North Star's by-laws, and (b) "Executive Vice President,"
the position occupied by respondent Balagtas. Its interpretation unduly supplanted the Board's
wisdom and authority in handling its corporate affairs. Her appointment as one of petitioner
North Star's vice presidents is evidenced by the Secretary's Certificate dated April 22, 2003. As
held in Matting, if the position or office is created by the by-laws and the appointing authority is
the board of directors, then it is a corporate office. Second, she had already been a corporate
officer of petitioner North Star for quite some time, having been appointed as General Manager
through a Board Resolution in 1997 and, subsequently, as Executive Vice President and
General Manager in 2001, as evidenced by the Secretary's Certificate dated March 23, 2001.
And third, respondent Balagtas has openly admitted her appointments to these positions. She
even acknowledged being a member of the Board and at the same time petitioner North Star's
Executive Vice President and General Manager.21

Considering all these in applying the relationship test, petitioners Cacho and North Star assert
that respondent Balagtas is not petitioner North Star's mere employee but a corporate officer
thereof whose dismissal is categorized as an intra-corporate matter.22

Petitioners Cacho and North Star further cite Espino v. National Labor Relations Commission23
where the Court held that a corporate officer's dismissal is always a corporate act. It cannot be
considered as a simple labor case. Thus, under the nature of the controversy test, the present
case is an intra-corporate dispute because the primary subject matter herein is the dismissal of
a corporate officer.

In refuting petitioners Cacho and North Star's allegations, respondent Balagtas avers that: first,
she was not a corporate officer of petitioner North Star. The Board Resolution and Secretary's
Certificates that purportedly support petitioners Cacho and North Star's claims were falsified,
forged, and invalid. Petitioners Cacho and North Star failed to show that the Executive Vice
President position she had occupied was a corporate office. Said position was a mere

170
nomenclature as she was never empowered to exercise the functions of a corporate officer. In
fact, in the 2003 General Information Sheet (GIS) of petitioner North Star, the field "corporate
position" opposite respondent Balagtas's name was filled out as "not applicable." Second, she
was no longer a stockholder and director of petitioner North Star. Third, she was merely an
employee. Petitioner Cacho was the one who hired her, determined her compensation, directed
and controlled the manner she performed her work, and ultimately, dismissed her from
employment. Fourth, the issue of whether or not she was a corporate officer is irrelevant
because her claim for back wages, commissions, and other monies is clearly categorized as a
labor dispute, not an intra-corporate controversy.24 And fifth, petitioners Cacho and North Star
are already estopped from questioning the jurisdiction of the Labor Arbiter. They actively
participated in the proceedings before the Labor Arbiter and cannot assail the validity of such
proceedings only after obtaining an unfavorable judgment.25

The Ruling of the Court

The petition is meritorious.

The sole issue before the Court is whether or not the present case is an intra-corporate
controversy within the jurisdiction of the regular courts or an ordinary labor dispute that the
Labor Arbiter may properly take cognizance of.

Respondent Balagtas's dismissal is

an intra-corporate controversy

At the onset, We agree with the appellate court's ruling that a two-tier test must be employed to
determine whether an intra-corporate controversy exists in the present case, viz.: (a) the
relationship test, and (b) the nature of the controversy test. This is consistent with the Court's
rulings in Reyes v. Regional Trial Court of Makati, Branch 142,26 Speed Distributing
Corporation v. Court of Appeals,27 and Real v. Sangu Philippines, Inc.28

A. Relationship Test

A dispute is considered an intra-corporate controversy under the relationship test when the
relationship between or among the disagreeing parties is any one of the following: (a) between
the corporation, partnership, or association and the public; (b) between the corporation,
partnership, or association and its stockholders, partners, members, or officers; (c) between the
corporation, partnership, or association and the State as far as its franchise, permit or license to
operate is concerned; and (d) among the stockholders, partners, or associates themselves.29

In the present case, petitioners Cacho and North Star allege that respondent Balagtas, as
petitioner North Star's Executive Vice President, was its corporate officer. On the other hand,
while respondent Balagtas admits to have occupied said position, she argues she was
Executive Vice President merely by name and she did not discharge any of the responsibilities
lodged in a corporate officer.

Given the parties' conflicting views, We must now determine whether or not the Executive Vice
President position is a corporate office so as to establish the intra-corporate relationship
between the parties.

In Easycall Communications Phils., Inc. v. King,30 the Court ruled that a corporate office is
created by the charter of the corporation and the officer is elected thereto by the directors or

171
stockholders. In other words, one shall be considered a corporate officer only if two conditions
are met, viz.: (1) the position occupied was created by charter/by-laws, and (2) the officer was
elected (or appointed) by the corporation's board of directors to occupy said position.

1. The Executive Vice President

position is one of the corporate
offices provided in petitioner
North Star's By-laws

The rule is that corporate officers are those officers of a corporation who are given that
character either by the Corporation Code or by the corporation's by-laws.31

Section 25 of the Corporation Code32 explicitly provides for the election of the corporation's
president, treasurer, secretary, and such other officers as may be provided for in the by-laws. In
interpreting this provision, the Court has ruled that if the position is other than the corporate
president, treasurer, or secretary, it must be expressly mentioned in the bylaws in order to be
considered as a corporate office.33

In this regard, petitioner North Star's by-laws34 provides the following:

ARTICLE IV
OFFICERS

Section 1. Election/ Appointment - Immediately after their election, the Board of Directors shall
formally organize by electing the Chairman, the President, one or more Vice-President (sic), the
Treasurer, and the Secretary, at said meeting.

The Board may, from time to time, appoint such other officers as it may determine to be
necessary or proper.

Any two (2) or more positions may be held concurrently by the same person, except that no one
shall act as President and Treasurer or Secretary at the same time.

Clearly, there may be one or more vice president positions in petitioner North Star and, by virtue
of its by-laws, all such positions shall be corporate offices.1âшphi1

Consequently, the next question that begs to be asked is whether or not the phrase "one or
more vice president" in the above-cited provision of the by-laws includes the Executive Vice
President position held by respondent Balagtas.

In ruling that respondent Balagtas was not a corporate officer of petitioner North Star, the Court
of Appeals pointed out that the NLRC should not have assumed that the "Vice President"
position is the same as the "Executive Vice President" position that Balagtas admittedly
occupied. In other words, that the exact and complete name of the position must appear in the
by-laws, otherwise it is an ordinary office whose occupant shall be regarded as a regular
employee rather than a corporate officer.

The appellate court's interpretation of the phrase "one or more vice president" unduly restricts
one of petitioner North Star's inherent corporate powers, viz.: to adopt its own by-laws, provided
that it is not contrary to law, morals, or public policy35 for its internal affairs, to regulate the

172
conduct and prescribe the rights and duties of its members towards itself and among
themselves in reference to the management of its affairs.36

The use of the phrase "one or more" in relation to the establishment of vice president positions
without particular exception indicates an intention to give petitioner North Star's Board ample
freedom to make several vice-president positions available as it may deem fit and in
consonance with sound business practice.

To require that particular designation/variation of each vice-president (i.e., executive vice

president) be specified and enumerated is to invalidate the by-laws' true intention and to
encroach upon petitioner North Star's inherent right and authority to adopt its own set of rules
and regulations to govern its internal affairs. Whether the creation of several vice-president
positions in a company is reasonable is a question of policy that courts of law should not
interfere with. Where the reasonableness of a by-law is a mere matter of judgment, and one
upon which reasonable minds must necessarily differ, a court would not be warranted in
substituting its judgment instead of the judgment of those who are authorized to make bylaws
and who have exercised their authority.37

Thus, by name, the Executive Vice President position is embraced by the phrase "one or more
vice president" in North Star's by-laws.

2. Respondent Balagtas was

appointed by the Board as
petitioner North Star's
Executive Vice President

While a corporate office is created by an express provision either in the Corporation Code or the
By-laws, what makes one a corporate officer is his election or appointment thereto by the board
of directors. Thus, there must be documentary evidence to prove that the person alleged to be a
corporate officer was appointed by action or with approval of the board.38

In the present case, petitioners Cacho and North Star assert that respondent Balagtas was
elected as Executive Vice President by the Board as evidenced by the Secretary's Certificate
dated April 22, 2003, which provides:

I, MOLINA A. CABA, of legal age, Filipino citizen, x x x after being duly sworn to in accordance
with law, depose and state: That-

1. I am the duly appointed Corporate Secretary of North Star International Travel, Inc. x x x.

2. As such Corporate Secretary of the Corporation, I hereby certify that at the Regular/Special
meeting of the Board of Directors and Stockholders of the Corporation which was held on March
31, 2003 during which meeting a quorum was present and majority of the stockholders were in
attendance, the following resolutions were unanimously passed and adopted:

"RESOLVED, AS IT IS HEREBY RESOLVED, that during a meeting of the Board of Directors

held last March 31, 2003, the following members of the Board were elected to the corporate
position opposite their names:"

NAME POSITION

173
NORMA D. CACHO
VIRGINIA D. BALAGTAS

Chairman
Executive Vice President39

(Emphasis supplied)

On the other hand, respondent Balagtas assails the validity of the above-cited Secretary's
Certificate for being forged and fabricated. However, aside from these bare allegations, the
NLRC observed that she did not present other competent proof to support her claim. To the
contrary, respondent Balagtas even admitted that she was elected by the Board as petitioner
North Star's Executive Vice President and argued that she could not be removed as such
without another valid board resolution to that effect. To support this claim, respondent Balagtas
submitted the very same Secretary's Certificate as an attachment to her Position Paper before
the Labor Arbiter.40 That she is now casting doubt over a document she herself has previously
relied on belies her own claim that the Secretary's Certificate is a fake.

Thus, the above-cited Secretary's Certificate overcomes respondent Balagtas's contention that
she was merely the Executive Vice President by name and was never empowered to exercise
the functions of a corporate officer. Notably, she did not offer any proof to show that her duties,
functions, and compensation were all determined by petitioner Cacho as petitioner North Star's
President.

In any case, that the Executive Vice President's duties and responsibilities are determined by
the President instead of the Board is irrelevant. In determining whether a position is a corporate
office, the board of directors' appointment or election thereto is controlling. Article IV, Section 4
of North Star's By-laws provides:

Section 4. The Vice-President(s) - If one or more Vice-Presidents are appointed, he/they shall
have such powers and shall perform such duties as may from time to time be assigned to
him/them by the Board of Directors or by the President. [Emphasis supplied.]

When Article IV, Section 4 is read together with Section 1 thereof, it is clear that while petitioner
North Star may have one or more vice presidents and the President is authorized to determine
each one's scope of work, their appointment or election still devolves upon the Board.

At this point, it is best to emphasize that the manner of creation (i.e., under the express
provisions of the Corporation Code or by-laws) and the manner by which it is filled (i.e., by
election or appointment of the board of directors) are sufficient in vesting a position the
character of a corporate office.

Respondent Balagtas also denies her status as one of petitioner North Star's corporate officers
because she was not listed as such in petitioner North Star's 2003 General Information Sheet
(GIS).

This is of no moment.

The GIS neither governs nor establishes whether or not a position is an ordinary or corporate
office. At best, if one is listed in the GIS as an officer of a corporation, his/her position as

174
indicated therein could only be deemed a regular office, and not a corporate office as it is
defined under the Corporation Code.41

Based on the above discussion, as Executive Vice President, respondent Balagtas was one of
petitioner North Star's corporate officers. Thus, there is an intra-corporate relationship existing
between the parties.

B. Nature of the Controversy Test

The existence of an intra-corporate controversy does not wholly rely on the relationship of the
parties. The incidents of their relationship must also be considered. Thus, under the nature of
the controversy test, the disagreement must not only be rooted in the existence of an intra-
corporate relationship, but must as well pertain to the enforcement of the parties' correlative
rights and obligations under the Corporation Code and the internal and intra-corporate
regulatory rules of the corporation. If the relationship and its incidents are merely incidental to
the controversy or if there will still be conflict even if the relationship does not exist, then no
intra-corporate controversy exists.42

Verily, in a long line of cases,43 the Court consistently ruled that a corporate officer's dismissal
is always a corporate act, or an intra-corporate controversy which arises between a stockholder
and a corporation. However, a closer look at these cases will reveal that the intra-corporate
nature of the disputes therein did not hinge solely on the fact that the subject of the dismissal
was a corporate officer.

In Philippine School of Business Administration v. Leano,44 the complainant questioned the

validity of his dismissal after his position was declared vacant and he was not re-elected thereto.
The cases of Fortune Cement Corporation v. National Labor Relations Commission45 and
Locsin v. Nissan Lease Phils. Inc.46 also share similar factual milieu.

On the other hand, the complainant in Espino v. National Labor Relations Commission47 also
contested the failure of the board of directors to re-elect him as a corporate officer. The Court
found that the board of directors deferred his re-election in light of previous administrative
charges filed against the complainant. Later on, the board of directors deemed him resigned
from service and his position was subsequently abolished.

Finally, in Pearson and George, (S.E. Asia), Inc. v. National Labor Relations Commission,48 the
complainant lost his corporate office primarily because he was not re-elected as a member of
the corporation's board of directors. The Court found that the corporate office in question-
required the occupant to be at the same time a director. Thus, he should lose his position as a
corporate officer because he ceased to be a director for any reason (e.g., he was not re-elected
as such), such loss is not dismissal but failure to qualify or to maintain a prerequisite for that
position.

The dismissals in these cases were all considered intra-corporate controversies not only
because the complainants were corporate officers, but also, and more importantly, because
they were not re-elected to their respective corporate offices and, thus, terminated from the
corporation. "The matter of whom to elect is a prerogative that belongs to the Board, and
involves the exercise of deliberate choice and the faculty of discriminative selection. Generally
speaking, the relationship of a person to a corporation, whether as officer or as agent or
employee, is not determined by the nature of the services performed, but by the incidents of the
relationship as they actually exist."49

175
In other words, the dismissal must relate to any of the circumstances and incidents surrounding
the parties' intra-corporate relationship. To be considered an intra-corporate controversy, the
dismissal of a corporate officer must have something to do with the duties and responsibilities
attached to his/her corporate office or performed in his/her official capacity.50

In respondent Balagtas's Position Paper filed before the Labor Arbiter she alleged as follows:
(a) petitioner Cacho informed her, through a letter, that she had been preventively suspended
by the Board; (b) she opposed the .suspension, was unduly prevented from re-assuming her
position as Executive Vice President,51 and thereafter constructively dismissed; (c) the Board
did not authorize either her suspension and removal from office; and (d) as a result of her illegal
dismissal, she is entitled to separation pay in lieu of her reinstatement to her previous positions,
plus back wages, allowances, and other benefits.52

The foregoing allegations mainly relate to incidents involving her capacity as Executive Vice
President, a position above-declared as a corporate office, viz.: first, respondent Balagtas's
claim of dismissal without prior authority from the Board reveals her understanding that the
appointment and removal of a corporate officer like the Executive Vice President could only be
had through an official act by the Board. And, second, she sought separation pay in lieu of
reinstatement to her former positions, one of which was as Executive Vice President. Even her
prayer for full back wages, allowances, commissions, and other monetary benefits all relate to
her corporate office.53

On the other hand, petitioners Cacho and North Star terminated respondent Balagtas for the
following reasons: (a) for allegedly appropriating company funds for her personal gain; (b) for
abandonment of work; (c) violation of a lawful order of the corporation; and (d) loss of trust and
confidence.54 In their Position Paper, petitioners Cacho and North Star described in detail the
latter's fund disbursement process,55 emphasizing respondent Balagtas's role as the one who
approves payment vouchers and the signatory on issued checks-responsibilities specifically
devolved upon her as the vice president. And as the vice president, respondent Balagtas
actively participated in the whole process, if not controlled it altogether. As a result, petitioners
Cacho and North Star accused respondent Balagtas of gravely abusing the confidence the
Board has reposed in her as vice president and misappropriating company funds for her own
personal gain.

From these, it is clear that the termination complained of is intimately and inevitably linked to
respondent Balagtas's role as petitioner North Star's Executive Vice President: first, the alleged
misappropriations were committed by respondent Balagtas in her capacity as vice president,
one of the officers responsible for approving the disbursements and signing the checks. And,
second, these alleged misappropriations breached petitioners Cacho's and North Star's trust
and confidence specifically reposed m respondent Balagtas as vice president.

That all these incidents are adjuncts of her corporate office lead the Court to conclude that
respondent Balagtas's dismissal is an intra-corporate controversy, not a mere labor dispute.

Petitioners Cacho and North Star not

estopped from questioning
jurisdiction

Respondent Balagtas insists that petitioners belatedly raised the issue of the Labor Arbiter's
lack of jurisdiction before the NLRC. Relying on Tijam v. Sibonghanoy,56 she avers that

176
petitioners, after actively participating in the proceedings before the Labor Arbiter and obtaining
an unfavorable judgment, are barred by laches from attacking the latter's jurisdiction.

We disagree with respondent Balagtas.

The Court has already held that the ruling in Tijam v. Sibonghanoy remains only as an
exception to the general rule. Estoppel by laches will only bar a litigant from raising the issue of
lack of jurisdiction in exceptional cases similar to the factual milieu of Tijam v. Sibonghanoy. To
recall, the Court in Tijam v. Sibonghanoy ruled that the plea of lack of jurisdiction may no longer
be raised for being barred by laches because it was raised for the first time in a motion to
dismiss filed almost 15 years after the questioned ruling had been rendered.57

These exceptional circumstances are not present in this case. Thus, the general rule must
apply: that the issue of jurisdiction may be raised at any stage of the proceedings, even on
appeal, and is not lost by waiver or by estoppel. In Espino v. National Labor Relations
Commission,58 We ruled:

The principle of estoppel cannot be invoked to prevent this Court from taking up the question,
which has been apparent on the face of the pleadings since the start of the litigation before the
Labor Arbiter. In the case of Dy v. NLRC, supra, the Court, citing the case of Calimlim v.
Ramirez, reiterated that the decision of a tribunal not vested with appropriate jurisdiction is null
and void. Again, the Court in Southeast Asian Fisheries Development Center-Aquaculture
Department v. NLRC restated the rule that the invocation of estoppel with respect to the issue of
jurisdiction is unavailing because estoppel does not apply to confer jurisdiction upon a tribunal
that has none over the cause of action. The instant case does not provide an exception to the
said rule.59 (Emphasis supplied.)

All told, the issue in the present case is an intra-corporate controversy, a matter outside the
Labor Arbiter's jurisdiction.

WHEREFORE, the petition is hereby GRANTED. The Decision dated November 9, 2011 and
Resolution dated August 6, 2012 of the Court of Appeals in CA-G.R. SP No. 111637 are SET
ASIDE. NLRC-NCR Case No. 04-04736-04 is dismissed for lack of jurisdiction, without
prejudice to the filing of an appropriate case before the proper tribunal.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

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