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Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 164856 August 29, 2007

JUANITO A. GARCIA and ALBERTO J. DUMAGO, Petitioners,

vs.
PHILIPPINE AIRLINES, INC., Respondent.

DECISION

QUISUMBING, J.:

This petition for review assails both the Decision1 dated December 5, 2003 and the Resolution 2 dated April 16, 2004
of the Court of Appeals in CA-G.R. SP No. 69540, which had annulled the Resolutions 3 dated November 26, 2001
and January 28, 2002 of the National Labor Relations Commission (NLRC) in NLRC Injunction Case No. 0001038-
01, and also denied the motion for reconsideration, respectively.

The antecedent facts of the case are as follows:

Petitioners Alberto J. Dumago and Juanito A. Garcia were employed by respondent Philippine Airlines, Inc. (PAL) as
Aircraft Furnishers Master "C" and Aircraft Inspector, respectively. They were assigned in the PAL Technical Center.

On July 24, 1995, a combined team of the PAL Security and National Bureau of Investigation (NBI) Narcotics
Operatives raided the Toolroom Section – Plant Equipment Maintenance Division (PEMD) of the PAL Technical
Center. They found petitioners, with four others, near the said section at that time. When the PAL Security searched
the section, they found shabu paraphernalia inside the company-issued locker of Ronaldo Broas who was also
within the vicinity. The six employees were later brought to the NBI for booking and proper investigation.

On July 26, 1995, a Notice of Administrative Charge 4 was served on petitioners. They were allegedly "caught in the
act of sniffing shabu inside the Toolroom Section," then placed under preventive suspension and required to submit
their written explanation within ten days from receipt of the notice.

Petitioners vehemently denied the allegations and challenged PAL to show proof that they were indeed "caught in
the act of sniffing shabu." Dumago claimed that he was in the Toolroom Section to request for an allen wrench to fix
the needles of the sewing and zigzagger machines. Garcia averred he was in the Toolroom Section to inquire where
he could take the Trackster’s tire for vulcanizing.

On October 9, 1995, petitioners were dismissed for violation of Chapter II, Section 6, Article 46 (Violation of
Law/Government Regulations) and Chapter II, Section 6, Article 48 (Prohibited Drugs) of the PAL Code of
Discipline.5 Both simultaneously filed a case for illegal dismissal and damages.

In the meantime, the Securities and Exchange Commission (SEC) placed PAL under an Interim Rehabilitation
Receiver due to severe financial losses.

On January 11, 1999, the Labor Arbiter rendered a decision 6 in petitioners’ favor:

WHEREFORE, conformably with the foregoing, judgment is hereby rendered finding the respondents guilty of illegal
suspension and illegal dismissal and ordering them to reinstate complainants to their former position without loss of
seniority rights and other privileges. Respondents are hereby further ordered to pay jointly and severally unto the
complainants the following:

Alberto J. Dumago - P409,500.00 backwages as of 1/10/99

34,125.00 for 13th month pay

Juanito A. Garcia - P1,290,744.00 backwages as of 1/10/99

107,562.00 for 13th month pay

The amounts of P100,000.00 and P50,000.00 to each complainant as and by way of moral and exemplary
damages; and

The sum equivalent to ten percent (10%) of the total award as and for attorneys fees.

Respondents are directed to immediately comply with the reinstatement aspect of this Decision. However, in the
event that reinstatement is no longer feasible, respondent[s] are hereby ordered, in lieu thereof, to pay unto the
complainants their separation pay computed at one month for [e]very year of service.

SO ORDERED.7

Meanwhile, the SEC replaced the Interim Rehabilitation Receiver with a Permanent Rehabilitation Receiver.

On appeal, the NLRC reversed the Labor Arbiter’s decision and dismissed the case for lack of merit.8

Reconsideration having been denied, an Entry of Judgment9 was issued on July 13, 2000.

On October 5, 2000, the Labor Arbiter issued a Writ of Execution 10 commanding the sheriff to proceed:

xxxx

1. To the Office of respondent PAL Building I, Legaspi St., Legaspi Village, Makati City or to any of its Offices
in the Philippines and cause reinstatement of complainants to their former position and to cause the collection
of the amount of [₱]549,309.60 from respondent PAL representing the backwages of said complainants on
 of the amount of [₱]549,309.60 from respondent PAL representing the backwages of said complainants on
the reinstatement aspect;

2. In case you cannot collect from respondent PAL for any reason, you shall levy on the office equipment and
other movables and garnish its deposits with any bank in the Philippines, subject to the limitation that
equivalent amount of such levied movables and/or the amount garnished in your own judgment, shall be
equivalent to [₱]549,309.60. If still insufficient, levy against immovable properties of PAL not otherwise
exempt from execution.

x x x x11

Although PAL filed an Urgent Motion to Quash Writ of Execution, the Labor Arbiter issued a Notice of
Garnishment12 addressed to the President/Manager of the Allied Bank Head Office in Makati City for the amount of
₱549,309.60.

PAL moved to lift the Notice of Garnishment while petitioners moved for the release of the garnished amount. PAL
opposed petitioners’ motion. It also filed an Urgent Petition for Injunction which the NLRC resolved as follows:

WHEREFORE, premises considered, the Petition is partially GRANTED. Accordingly, the Writ of Execution dated
October 5, 2000 and related [N]otice of Garnishment [dated October 25, 2000] are DECLARED valid. However, the
instant action is SUSPENDED and REFERRED to the Receiver of Petitioner PAL for appropriate action.

SO ORDERED.13

PAL appealed to the Court of Appeals on the grounds that: (1) by declaring the writ of execution and the notice of
garnishment valid, the NLRC gave petitioners undue advantage and preference over PAL’s other creditors and
hampered the task of the Permanent Rehabilitation Receiver; and (2) there was no longer any legal or factual basis
to reinstate petitioners as a result of the reversal by the NLRC of the Labor Arbiter’s decision.

The appellate court ruled that the Labor Arbiter issued the writ of execution and the notice of garnishment without
jurisdiction. Hence, the NLRC erred in upholding its validity. Since PAL was under receivership, it could not have
possibly reinstated petitioners due to retrenchment and cash-flow constraints. The appellate court declared that a
stay of execution may be warranted by the fact that PAL was under rehabilitation receivership. The dispositive
portion of the decision reads:

WHEREFORE, premises considered and in view of the foregoing, the instant petition is hereby GIVEN DUE
COURSE. The assailed November 26, 2001 Resolution, as well as the January 28, 2002 Resolution of public
respondent National Labor Relations Commission is hereby ANNULLED and SET ASIDE for having been issued
with grave abuse of discretion amounting to lack or excess of jurisdiction. Consequently, the Writ of Execution and
the Notice of Garnishment issued by the Labor Arbiter are hereby likewise ANNULLED and SET ASIDE.

SO ORDERED.14

Hence, the instant petition raising a single issue as follows:

WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS ARE
ENTITLED TO THEIR ACCRUED WAGES DURING THE PENDENCY OF PAL’S APPEAL. 15

Simply put, however, there are really two issues for our consideration: (1) Are petitioners entitled to their wages
during the pendency of PAL’s appeal to the NLRC? and (2) In the light of new developments concerning PAL’s
rehabilitation, are petitioners entitled to execution of the Labor Arbiter’s order of reinstatement even if PAL is under
receivership?

We shall first resolve the issue of whether the execution of the Labor Arbiter’s order is legally possible even if PAL is
under receivership.

We note that during the pendency of this case, PAL was placed by the SEC first, under an Interim Rehabilitation
Receiver and finally, under a Permanent Rehabilitation Receiver. The pertinent law on this matter, Section 5(d) of
Presidential Decree (P.D.) No. 902-A, as amended, provides that:

SECTION 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

d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in

cases where the corporation, partnership or association possesses property to cover all of its debts but foresees the
impossibility of meeting them when they respectively fall due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities, but is under the [management of a rehabilitation receiver
or] Management Committee created pursuant to this Decree.

The same P.D., in Section 6(c) provides that:

SECTION 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:

xxxx

c) To appoint one or more receivers of the property, real or personal, which is the subject of the action pending
before the Commission in accordance with the pertinent provisions of the Rules of Court in such other cases
whenever necessary in order to preserve the rights of the parties-litigants and/or protect the interest of the investing
public and creditors:…Provided, finally, That upon appointment of a management committee, rehabilitation receiver,
board or body, pursuant to this Decree, all actions for claims against corporations, partnerships or associations
under management or receivership pending before any court, tribunal, board or body shall be suspended
accordingly.

xxxx

Worth stressing, upon appointment by the SEC of a rehabilitation receiver, all actions for claims against the
corporation pending before any court, tribunal or board shall ipso jure be suspended. The purpose of the automatic
stay of all pending actions for claims is to enable the rehabilitation receiver to effectively exercise its/his powers free
from any judicial or extra-judicial interference that might unduly hinder or prevent the rescue of the corporation.16

More importantly, the suspension of all actions for claims against the corporation embraces all phases of the suit, be
it before the trial court or any tribunal or before this Court.17 No other action may be taken, including the rendition of
judgment during the state of suspension. It must be stressed that what are automatically stayed or suspended are
judgment during the state of suspension. It must be stressed that what are automatically stayed or suspended are
the proceedings of a suit and not just the payment of claims during the execution stage after the case had become
final and executory.18

Furthermore, the actions that are suspended cover all claims against the corporation whether for damages founded
on a breach of contract of carriage, labor cases, collection suits or any other claims of a pecuniary nature.19 No
exception in favor of labor claims is mentioned in the law.201avvphi1

This Court’s adherence to the above-stated rule has been resolute and steadfast as evidenced by its oft-repeated
application in a plethora of cases involving PAL, the most recent of which is Philippine Airlines, Inc. v. Zamora.21

Since petitioners’ claim against PAL is a money claim for their wages during the pendency of PAL’s appeal to the
NLRC, the same should have been suspended pending the rehabilitation proceedings. The Labor Arbiter, the NLRC,
as well as the Court of Appeals should have abstained from resolving petitioners’ case for illegal dismissal and
should instead have directed them to lodge their claim before PAL’s receiver.22

However, to still require petitioners at this time to re-file their labor claim against PAL under the peculiar
circumstances of the case – that their dismissal was eventually held valid with only the matter of reinstatement
pending appeal being the issue – this Court deems it legally expedient to suspend the proceedings in this case.

WHEREFORE, the instant petition is PARTIALLY GRANTED in that the instant proceedings herein are
SUSPENDED until further notice from this Court. Accordingly, respondent Philippine Airlines, Inc. is hereby
DIRECTED to quarterly update the Court as to the status of its ongoing rehabilitation. No costs.

SO ORDERED.

LEONARDO A. QUISUMBING
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice

CONCHITA CARPIO MORALES DANTE O. TINGA

Associate Justice Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

Footnotes

1 Rollo, pp. 38-48. Penned by Associate Justice Sergio L. Pestaño, with Associate Justices Marina L. Buzon
and Jose C. Mendoza concurring.

2 Id. at 49.

3 CA rollo, pp. 15-21 and 24-26.

4 Records, Vol. I, pp. 30-31.

5 Id. at 32-33.

6 Id. at 160-167.

7 Id. at 167.

8 Id. at 174-186.

9 Id. at 209-210.

10 CA rollo, pp. 57-61.

11 Id. at 60-61.

12 Id. at 71.

13 Id. at 21.

14 Rollo, pp. 47-48.

15 Id. at 219.

16 Rubberworld (Phils.), Inc. v. NLRC, G.R. No. 126773, April 14, 1999, 305 SCRA 721, 728.