G.R. No.

163269 April 19, 2006

ROLANDO C. RIVERA, Petitioner,

vs.
SOLIDBANK CORPORATION, Respondent.

DECISION

CALLEJO, SR., J.:

Assailed in this Petition for Review on Certiorari is the Decision1 of the Court of Appeals (CA) in CA-
G.R. CV No. 52235 as well as its Resolution2 denying the Motion for Partial Reconsideration of
petitioner Rolando C. Rivera.

Petitioner had been working for Solidbank Corporation since July 1, 1977. 3 He was initially employed
as an Audit Clerk, then as Credit Investigator, Senior Clerk, Assistant Accountant, and Assistant
Manager. Prior to his retirement, he became the Manager of the Credit Investigation and Appraisal
Division of the Consumer’s Banking Group. In the meantime, Rivera and his brother-in-law put up a
poultry business in Cavite.

In December 1994, Solidbank offered two retirement programs to its employees: (a) the Ordinary
Retirement Program (ORP), under which an employee would receive 85% of his monthly basic salary
multiplied by the number of years in service; and (b) the Special Retirement Program (SRP), under
which a retiring employee would receive 250% of the gross monthly salary multiplied by the number
of years in service.4 Since Rivera was only 45 years old, he was not qualified for retirement under the
ORP. Under the SRP, he was entitled to receive P1,045,258.95 by way of benefits.5

Deciding to devote his time and attention to his poultry business in Cavite, Rivera applied for retirement
under the SRP. Solidbank approved the application and Rivera was entitled to receive the net amount
of P963,619.28. This amount included his performance incentive award (PIA), and his unearned
medical, dental and optical allowances in the amount of P1,666.67, minus his total accountabilities to
Solidbank amounting to P106,973.00.6 Rivera received the amount and confirmed his separation from
Solidbank on February 25, 1995.7

Subsequently, Solidbank required Rivera to sign an undated Release, Waiver and Quitclaim, which
was notarized on March 1, 1995.8 Rivera acknowledged receipt of the net proceeds of his separation
and retirement benefits and promised that "[he] would not, at any time, in any manner whatsoever,
directly or indirectly engage in any unlawful activity prejudicial to the interest of Solidbank, its parent,
affiliate or subsidiary companies, their stockholders, officers, directors, agents or employees, and their
successors-in-interest and will not disclose any information concerning the business of Solidbank, its
manner or operation, its plans, processes, or data of any kind." 9

Aside from acknowledging that he had no cause of action against Solidbank or its affiliate companies,
Rivera agreed that the bank may bring any action to seek an award for damages resulting from his
breach of the Release, Waiver and Quitclaim, and that such award would include the return of
whatever sums paid to him by virtue of his retirement under the SRP.10 Rivera was likewise required
to sign an undated Undertaking as a supplement to the Release, Waiver and Quitclaim in favor of
Solidbank in which he declared that he received in full his entitlement under the law (salaries, benefits,
bonuses and other emoluments), including his separation pay in accordance with the SRP. In this
Undertaking, he promised that "[he] will not seek employment with a competitor bank or financial
institution within one (1) year from February 28, 1995, and that any breach of the Undertaking or the
provisions of the Release, Waiver and Quitclaim would entitle Solidbank to a cause of action against
him before the appropriate courts of law.11 Unlike the Release, Waiver and Quitclaim, the Undertaking
was not notarized.

On May 1, 1995, the Equitable Banking Corporation (Equitable) employed Rivera as Manager of its
Credit Investigation and Appraisal Division of its Consumers’ Banking Group. 12 Upon discovering this,
Solidbank First Vice-President for Human Resources Division (HRD) Celia J.L. Villarosa wrote a letter
dated May 18, 1995, informing Rivera that he had violated the Undertaking. She likewise demanded
the return of all the monetary benefits he received in consideration of the SRP within five (5) days from
receipt; otherwise, appropriate legal action would be taken against him. 13

When Rivera refused to return the amount demanded within the given period, Solidbank filed a
complaint for Sum of Money with Prayer for Writ of Preliminary Attachment 14 before the Regional Trial
Court (RTC) of Manila on June 26, 1995. Solidbank, as plaintiff, alleged therein that in accepting
employment with a competitor bank for the same position he held in Solidbank before his retirement,
Rivera violated his Undertaking under the SRP. Considering that Rivera accepted employment with
Equitable barely three months after executing the Undertaking, it was clear that he had no intention of
honoring his commitment under said deed.

Solidbank prayed that Rivera be ordered to return the net amount of P963,619.28 plus interests
therein, and attorney’s fees, thus:

WHEREFORE, it is respectfully prayed that:

1. At the commencement of this action and upon the filing of a bond in such amount as this
Honorable Court may fix, a writ of preliminary attachment be forthwith issued against the
properties of the defendant as satisfaction of any judgment that plaintiff may secure;

2. After trial, judgment be rendered ordering defendant to pay plaintiff the following sums: NINE
HUNDRED SIXTY-THREE THOUSAND SIX HUNDRED NINETEEN AND 28/100 ONLY
(P963,619.28) PESOS, Philippine Currency, as of 23 May 1995, plus legal interest of 12% per
annum until fully paid;

3. Such sum equivalent to 10% of plaintiff’s claims plus P2,000.00 for every appearance by
way of attorney’s fees; and

4. Costs of suit.

PLAINTIFF prays for other reliefs just and equitable under the premises. 15

Solidbank appended the Affidavit of HRD First Vice-President Celia Villarosa and a copy of the
Release, Waiver and Quitclaim and Undertaking which Rivera executed. 16

In an Order dated July 6, 1995, the trial court issued a Writ of Preliminary Attachment17 ordering Deputy
Sheriff Eduardo Centeno to attach all of Rivera’s properties not exempt from execution. Thus, the
Sheriff levied on a parcel of land owned by Rivera.

In his Answer with Affirmative Defenses and Counterclaim, Rivera admitted that he received the net
amount of P963,619.28 as separation pay. However, the employment ban provision in the Undertaking
was never conveyed to him until he was made to sign it on February 28, 1995. He emphasized that,
prior to said date, Solidbank never disclosed any condition to the retirement scheme, nor did it impose
such employment ban on the bank officers and employees who had previously availed of the SRP. He
alleged that the undertaking not to "seek employment with any competitor bank or financial institution
within one (1) year from February 28, 1995" was void for being contrary to the Constitution, the law
and public policy, that it was unreasonable, arbitrary, oppressive, discriminatory, cruel, unjust,
inhuman, and violative of his human rights. He further claimed that the Undertaking was a contract of
adhesion because it was prepared solely by Solidbank without his participation; considering his moral
and economic disadvantage, it must be liberally construed in his favor and strictly against the bank.

On August 15, 1995, Solidbank filed a Verified Motion for Summary Judgment, alleging therein that
Rivera raised no genuine issue as to any material fact in his Answer except as to the amount of
damages. It prayed that the RTC render summary judgment against Rivera. Solidbank alleged that
whether or not the employment ban provision contained in the Undertaking is unreasonable, arbitrary,
or oppressive is a question of law. It insisted that Rivera signed the Undertaking voluntarily and for
valuable consideration; and under the Release, Waiver and Quitclaim, he was obliged to return
the P963,619.28 upon accepting employment from a competitor bank within the one-year proscribed
period. Solidbank appended to its motion the Affidavit of Villarosa, where she declared that Rivera
was employed by Equitable on May 1, 1995 for the same position he held before his retirement from
Solidbank.

Rivera opposed the motion contending that, as gleaned from the pleadings of the parties as well as
Villarosa’s Affidavit, there are genuine issues as to material facts which call for the presentation of
evidence. He averred that there was a need for the parties to adduce evidence to prove that he did
not sign the Undertaking voluntarily. He claimed that he would not have been allowed to avail of the
SRP if he had not signed it, and consequently, his retirement benefits would not have been paid. This
was what Ed Nallas, Solidbank Assistant Vice-President for HRD and Personnel, told him when he
received his check on February 28, 1995. Senior Vice-President Henry Valdez, his superior in the
Consumers’ Banking Group, also did not mention that he would have to sign such Undertaking which
contained the assailed provision. Thus, he had no choice but to sign it. He insisted that the question
of whether he violated the Undertaking is a genuine issue of fact which called for the presentation of
evidence during the hearing on the merits of the case. He also asserted that he could not cause injury
or prejudice to Solidbank’s interest since he never acquired any sensitive or delicate information which
could prejudice the bank’s interest if disclosed.

Rivera averred that he had the right to adduce evidence to prove that he had been faithful to the
provisions of the Release, Waiver and Quitclaim, and the Undertaking, and had not committed any act
or done or said anything to cause injury to Solidbank. 18

Rivera appended to his Opposition his Counter-Affidavit in which he reiterated that he had to sign the
Undertaking containing the employment ban provision, otherwise his availment of the SRP would not
push through. There was no truth to the bank’s allegation that, "in exchange for receiving the larger
amount of P1,045,258.95 under the SRP, instead of the very much smaller amount of P224,875.81
under the ORP, he agreed that he will not seek employment in a competitor bank or financial institution
within one year from February 28, 1995." It was the bank which conceived the SRP to streamline its
organization and all he did was accept it. He stressed that the decision whether to allow him to avail
of the SRP belonged solely to Solidbank. He also pointed out that the employment ban provision in
the Undertaking was not a consideration for his availment of the SRP, and that if he did not avail of
the retirement program, he would have continued working for Solidbank for at least 15 more years,
earning more than what he received under the SRP. He alleged that he intended to go full time into
the poultry business, but after about two months, found out that, contrary to his expectations, the
business did not provide income sufficient to support his family. Being the breadwinner, he was then
forced to look for a job, and considering his training and experience as a former bank employee, the
job with Equitable was all he could find. He insisted that he had remained faithful to Solidbank and
would continue to do so despite the case against him, the attachment of his family home, and the
resulting mental anguish, torture and expense it has caused them. 19
In his Supplemental Opposition, Rivera stressed that, being a former bank employee, it was the only
kind of work he knew. The ban was, in fact, practically absolute since it applied to all financial
institutions for one year from February 28, 1995. He pointed out that he could not work in any other
company because he did not have the qualifications, especially considering his age. Moreover, after
one year from February 28, 1995, he would no longer have any marketable skill, because by then, it
would have been rendered obsolete by non-use and rapid technological advances. He insisted that
the ban was not necessary to protect the interest of Solidbank, as, in the first place, he had no access
to any "secret" information which, if revealed would be prejudicial to Solidbank’s interest. In any case,
he was not one to reveal whatever knowledge or information he may have acquired during his
employment with said bank.20

In its Reply, Solidbank averred that the wisdom of requiring the Undertaking from the 1995 SRP is
purely a management prerogative. It was not for Rivera to question and decry the bank’s policy to
protect itself from unfair competition and disclosure of its trade secrets. The substantial monetary
windfall given the retiring officers was meant to tide them over the one-year period of hiatus, and did
not prevent them from engaging in any kind of business or bar them from being employed except with
competitor banks/financial institutions. 21

On December 18, 1995, the trial court issued an Order of Summary Judgment. 22 The fallo of the
decision reads:

WHEREFORE, SUMMARY JUDGMENT is hereby rendered in favor of plaintiff and against defendant
ordering the latter to pay to plaintiff bank the amount of NINE HUNDRED SIXTY-THREE THOUSAND
SIX HUNDRED NINETEEN AND 28/100 (P963,619.28) PESOS, Philippine Currency, as of May 23,
1995, plus legal interest at 12% per annum until fully paid, and the costs of the suit.

FURTHER, NEVERTHELESS, both parties are hereby encouraged as they are directed to meet again
and sit down to find out how they can finally end this rift and litigation, all in the name of equity, for
after all, defendant had worked for the bank for some 18 years. 23

The trial court declared that there was no genuine issue as to a matter of fact in the case since Rivera
voluntarily executed the Release, Waiver and Quitclaim, and the Undertaking. He had a choice not to
retire, but opted to do so under the SRP, and, in fact, received the benefits under it.

According to the RTC, the prohibition incorporated in the Undertaking was not unreasonable. To allow
Rivera to be excused from his undertakings in said deed and, at the same time, benefit therefrom
would be to allow him to enrich himself at the expense of Solidbank. The RTC ruled that Rivera had
to return the P963,619.28 he received from Solidbank, plus interest of 12% per annum from May 23,
1998 until fully paid.

Aggrieved, Rivera appealed the ruling to the CA which rendered judgment on June 14, 2002 partially
granting the appeal. The fallo of the decision reads:

WHEREFORE, the appeal is PARTIALLY GRANTED. The decision appealed from is AFFIRMED with
the modification that the attachment and levy upon the family home covered by TCT No. 51621 of the
Register of Deeds, Las Piñas, Metro Manila, is hereby SET ASIDE and DISCHARGED.

SO ORDERED.24

The CA declared that there was no genuine issue regarding any material fact except as to the amount
of damages. It ratiocinated that the agreement between Rivera and Solidbank was the law between
them, and that the interpretation of the stipulations therein could not be left upon the whims of Rivera.
According to the CA, Rivera never denied signing the Release, Waiver, and Quitclaim, including the
Undertaking regarding the employment prohibition. He even admitted joining Equitable as an
employee within the proscribed one-year period. The alleged defenses of Rivera, the CA declared,
could not prevail over the admissions in his pleadings. Moreover, Rivera’s justification for taking the
1avvphil.net

job with Equitable, "dire necessity," was not an acceptable ground for annulling the Undertaking since
there were no earmarks of coercion, undue influence, or fraud in its execution. Having executed the
said deed and thereafter receiving the benefits under the SRP, he is deemed to have waived the right

to assail the same, hence, is estopped from insisting or retaining the said amount of P963,619.28.

However, the CA ruled that the attachment made upon Rivera’s family home was void, and, pursuant
to the mandate of Article 155, in relation to Article 153 of the Family Code, must be discharged.

Hence, this recourse to the Court.

Petitioner avers that –

I.

THE COURT OF APPEALS ERRED IN UPHOLDING THE PROPRIETY OF THE SUMMARY

JUDGMENT RENDERED BY THE TRIAL COURT CONSIDERING THE EXISTENCE OF GENUINE
ISSUES AS TO MATERIAL FACTS WHICH CALL FOR THE PRESENTATION OF EVIDENCE IN A
TRIAL ON THE MERITS.

II.

THE COURT OF APPEALS ERRED IN NOT DECLARING THE ONE-YEAR EMPLOYMENT BAN
IMPOSED BY RESPONDENT SOLIDBANK UPON HEREIN PETITIONER NULL AND VOID FOR
BEING UNREASONABLE AND OPPRESSIVE AND FOR CONSTITUTING RESTRAINT OF TRADE
WHICH VIOLATES PUBLIC POLICY AS ENUNCIATED IN OUR CONSTITUTION AND LAWS.

III.

THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT’S DECISION ORDERING
HEREIN RESPONDENT TO PAY SOLIDBANK THE AMOUNT OF P963,619.28 AS OF MAY 23,
1995, PLUS LEGAL INTEREST OF 12% PER ANNUM UNTIL FULLY PAID.

IV.

MORE SPECIFICALLY, THE COURT OF APPEALS ERRED IN AFFIRMING THE PORTION OF THE
SUMMARY JUDGMENT ORDERING PETITIONER TO PAY SOLIDBANK LEGAL INTEREST OF
12% PER ANNUM UNTIL FULLY PAID ON THE AFOREMENTIONED SUM [OF] P963,619.28.25

The issues for resolution are: (1) whether the parties raised a genuine issue in their pleadings,
affidavits, and documents, that is, whether the employment ban incorporated in the Undertaking which
petitioner executed upon his retirement is unreasonable, oppressive, hence, contrary to public policy;
and (2) whether petitioner is liable to respondent for the restitution of P963,619.28 representing his
retirement benefits, and interest thereon at 12% per annum as of May 23, 1995 until payment of the
full amount.
On the first issue, petitioner claims that, based on the pleadings of the parties, and the documents and
affidavits appended thereto, genuine issues as to matters of fact were raised therein. He insists that
the resolution of the issue of whether the employment ban is unreasonable requires the presentation
of evidence on the circumstances which led to respondent bank’s offer of the SRP and ORP, and
petitioner’s eventual acceptance and signing of the Undertaking on March 1, 1995. There is likewise
a need to adduce evidence on whether the employment ban is necessary to protect respondent’s
interest, and whether it is an undue restraint on petitioner’s constitutional right to earn a living to
support his family. He further insists that respondent is burdened to prove that it sustained damage or
injury by reason of his alleged breach of the employment ban since neither the Release, Waiver and
Quitclaim, and Undertaking he executed contain any provision that respondent is automatically entitled
to the restitution of the P963,619.28. Petitioner points out that all the deeds provide is that, in case of
breach thereof, respondent is entitled to protection before the appropriate courts of law.

On the second issue, petitioner avers that the prohibition incorporated in the Release, Waiver and
Quitclaim barring him as retiree from engaging directly or indirectly in any unlawful activity and
disclosing any information concerning the business of respondent bank, as well as the employment
ban contained in the Undertaking he executed, are oppressive, unreasonable, cruel and inhuman
because of its overbreath. He reiterates that it is against public policy, an unreasonable restraint of
trade, because it prohibits him to work for one year in the Philippines, ultimately preventing him from
supporting his family. He points out that a breadwinner in a family of four minor daughters who are all
studying, with a wife who does not work, one would have a very difficult time meeting the financial
obligations even with a steady, regular-paying job. He insists that the Undertaking deprives him of the
means to support his family, and ultimately, his children’s chance for a good education and future. He
reiterates that the returns in his poultry business fell short of his expectations, and unfortunately, the
business was totally destroyed by typhoon "Rosing" in November 1995.

Petitioner further maintains that respondent’s management prerogative does not give it a license to
entice its employees to retire at a very young age and prohibit them from seeking employment in a so-
called competitor bank or financial institution, thus prevent them from working and supporting their
families (considering that banking is the only kind of work they know). Petitioner avers that
"management’s prerogative must be without abuse of discretion. A line must be drawn between
management prerogative regarding business operations per se and those which affect the rights of
the employees. In treating its employees, management should see to it that its employees are at least
properly informed of its decision or modes of action."

On the last issue, petitioner alleges that the P1,045,258.95 he received was his retirement benefit
which he earned after serving the bank for 18 years. It was not a mere gift or gratuity given by
respondent bank, without the latter giving up something of value in return. On the contrary, respondent
bank received "valuable consideration," that is, petitioner quit his job at the relatively young age of 45,
thus enabling respondent to effect its reorganization plan and forego the salary, benefits, bonuses,
and promotions he would have received had he not retired early.

Petitioner avers that, under the Undertaking, respondent would be entitled to a cause of action against
him before the appropriate courts of law if he had violated the employment ban. He avers that
respondent must prove its entitlement to the P963,619.28. The Undertaking contains no provision that
he would have to return the amount he received under the SRP; much less does it provide that he
would have to pay 12% interest per annum on said amount. On the other hand, the Release, Waiver
and Quitclaim does not contain the provision prohibiting him from being employed with any competitor
bank or financial institution within one year from February 28, 1995. Petitioner insists that he acted in
good faith when he received his retirement benefits; hence, he cannot be punished by being ordered
to return the sum of P963,619.28 which was given to him for and in consideration of his early
retirement.
Neither can petitioner be subjected to the penalty of paying 12% interest per annum on his retirement
pay of P963,619.28 from May 23, 1995, as it is improper and oppressive to him and his family. As of
July 3, 2002, the interest alone would amount to P822,609.67, thus doubling the amount to be returned
to respondent bank under the decision of the RTC and the CA. The imposition of interest has no basis
because the Release, Waiver and Quitclaim, and the Undertaking do not provide for payment of
interest. The deeds only state that breach thereof would entitle respondent to bring an action to seek
damages, to include the return of the amount that may have been paid to petitioner by virtue thereof.
On the other hand, any breach of the Undertaking or the Release, Waiver and Quitclaim would only
entitle respondent to a cause of action before the appropriate courts of law. Besides, the amount
received by petitioner was not a loan and, therefore, should not earn interest pursuant to Article 1956
of the Civil Code.

Finally, petitioner insists that he acted in good faith in seeking employment with another bank within
one year from February 28, 1995 because he needed to earn a living to support his family and finance
his children’s education. Hence, the imposition of interest, which is a penalty, is unwarranted.

By way of Comment on the petition, respondent avers that the Undertaking is the law between it and
petitioner. As such, the latter could not assail the deed after receiving the retirement benefit under the
SRP. As gleaned from the averments in his petition, petitioner admitted that he executed the
Undertaking after having been informed of the nature and consequences of his refusal to sign the
same, i.e., he would not be able to receive the retirement benefit under the SRP.

Respondent maintains that courts have no power to relieve parties of obligations voluntarily entered
into simply because their contracts turned out to be disastrous deeds. Citing the ruling of this Court in
Eastern Shipping Lines, Inc. v. Court of Appeals, 26 respondent avers that petitioner is obliged to pay
12% per annum interest of the P963,619.28 from judicial or extrajudicial demand.

In reply, petitioner asserts that respondent failed to prove that it sustained damages, including the
amount thereof, and that neither the Release, Waiver and Quitclaim nor the Undertaking obliged him
to pay interest to respondent.

The petition is meritorious.

Sections 1 and 3, Rule 34 of the Revised Rules of Civil Procedure provide:

Section 1. Summary judgment for claimant. – A party seeking to recover upon a claim, counterclaim,
or cross-claim or to obtain a declaratory relief may, at any time after the pleading in answer thereto
has been served, move with supporting affidavits, depositions or admissions for a summary judgment
in his favor upon all or any part thereof.

xxxx

Sec. 3. Motion and proceedings thereon. – The motion shall be served at least ten (10) days before
the time specified for the hearing. The adverse party may serve opposing affidavits, depositions, or
admissions at least three (3) days before the hearing. After the hearing, the judgment sought shall be
rendered forthwith if the pleadings, supporting affidavits, depositions, and admissions on file, show
that, except as to the amount of damages, there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law.

For a summary judgment to be proper, the movant must establish two requisites: (a) there must be no
genuine issue as to any material fact, except for the amount of damages; and (b) the party presenting
the motion for summary judgment must be entitled to a judgment as a matter of law. 27 Where, on the
basis of the pleadings of a moving party, including documents appended thereto, no genuine issue as
to a material fact exists, the burden to produce a genuine issue shifts to the opposing party. If the
opposing party fails, the moving party is entitled to a summary judgment.28

A genuine issue is an issue of fact which requires the presentation of evidence as distinguished from
an issue which is a sham, fictitious, contrived or a false claim. The trial court can determine a genuine
issue on the basis of the pleadings, admissions, documents, affidavits or counteraffidavits submitted
by the parties. When the facts as pleaded appear uncontested or undisputed, then there is no real or
genuine issue or question as to any fact and summary judgment called for. On the other hand, where
the facts pleaded by the parties are disputed or contested, proceedings for a summary judgment
cannot take the place of a trial.29 The evidence on record must be viewed in light most favorable to the
party opposing the motion who must be given the benefit of all favorable inferences as can reasonably
be drawn from the evidence.30

Courts must be critical of the papers presented by the moving party and not of the papers/documents
in opposition thereto.31 Conclusory assertions are insufficient to raise an issue of material fact. 32 A
party cannot create a genuine dispute of material fact through mere speculations or compilation of
differences.33 He may not create an issue of fact through bald assertions, unsupported contentions
and conclusory statements.34 He must do more than rely upon allegations but must come forward with
specific facts in support of a claim. Where the factual context makes his claim implausible, he must
come forward with more persuasive evidence demonstrating a genuine issue for trial. 35

Where there are no disputed material facts, the determination of whether a party breached a contract
is a question of law and is appropriate for summary judgment. 36 When interpreting an ambiguous
contract with extrinsic evidence, summary judgment is proper so long as the extrinsic evidence
presented to the court supports only one of the conflicting interpretations. 37 Where reasonable men
could differ as to the contentions shown from the evidence, summary judgment might be denied.

In United Rentals (North America), Inc. v. Keizer,38 the U.S. Circuit Court of Appeals resolved the issue
of whether a summary judgment is proper in a breach of contract action involving the interpretation of
such contract, and ruled that:

[A] contract can be interpreted by the court on summary judgment if (a) the contract’s terms are clear,
or (b) the evidence supports only one construction of the controverted provision, notwithstanding some
ambiguity. x x x If the court finds no ambiguity, it should proceed to interpret the contract – and it may
do so at the summary judgment stage. If, however, the court discerns an ambiguity, the next step –
involving an examination of extrinsic evidence – becomes essential. x x x Summary judgment may be
appropriate even if ambiguity lurks as long as the extrinsic evidence presented to the court supports
only one of the conflicting interpretations. 39

In this case, there is no dispute between the parties that, in consideration for his availment of the SRP,
petitioner executed the Release, Waiver and Quitclaim, and the Undertaking as supplement thereto,
and that he received retirement pay amounting to P963,619.28 from respondent. On May 1, 1995,
within the one-year ban and without prior knowledge of respondent, petitioner was employed by
Equitable as Manager of its Credit Investigation and Appraisal Division, Consumers’ Banking Group.
Despite demands, petitioner failed to return the P963,619.28 to respondent on the latter’s allegation
that he had breached the one-year ban by accepting employment from Equitable, which according to
respondent was a competitor bank.

We agree with petitioner’s contention that the issue as to whether the post-retirement competitive
employment ban incorporated in the Undertaking is against public policy is a genuine issue of fact,
requiring the parties to present evidence to support their respective claims.
As gleaned from the records, petitioner made two undertakings. The first is incorporated in the
Release, Waiver and Quitclaim that he signed, to wit:

4. I will not, at any time, in any manner whatsoever, directly or indirectly engage in any unlawful activity
prejudicial to the interest of the BANK, its parent, affiliate or subsidiary companies, their stockholders,
officers, directors, agents or employees, and their successors-in-interest and will not disclose any
information concerning the business of the BANK, its manner or operation, its plans, processes or
data of any kind.40

The second undertaking is incorporated in the Undertaking following petitioner’s execution of the
Release, Waiver and Quitclaim which reads:

4. That as a supplement to the Release and Quitclaim, I executed in favor of Solidbank on FEBRUARY
28, 1995, I hereby expressly undertake that I will not seek employment with any competitor bank or
financial institution within one (1) year from February 28, 1995. 41

In the Release, Waiver and Quitclaim, petitioner declared that respondent may bring "an action for
damages which may include, but not limited to the return of whatever sums he may have received
from respondent under said deed if he breaks his undertaking therein." 42 On the other hand, petitioner
declared in the Undertaking that "any breach on his part of said Undertaking or the terms and
conditions of the Release, Waiver and Quitclaim will entitle respondent to a cause of action against
[petitioner] for protection before the appropriate courts of law." 43

Article 1306 of the New Civil Code provides that the contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public policy. The freedom of contract is both a
constitutional and statutory right.44 A contract is the law between the parties and courts have no choice
but to enforce such contract as long as it is not contrary to law, morals, good customs and against
public policy.

The well-entrenched doctrine is that the law does not relieve a party from the effects of an unwise,
foolish or disastrous contract, entered into with full awareness of what he was doing and entered into
and carried out in good faith. Such a contract will not be discarded even if there was a mistake of law
or fact. Courts have no jurisdiction to look into the wisdom of the contract entered into by and between
the parties or to render a decision different therefrom. They have no power to relieve parties from
obligation voluntarily assailed, simply because their contracts turned out to be disastrous deals. 45

On the other hand, retirement plans, in light of the constitutional mandate of affording full protection to
labor, must be liberally construed in favor of the employee, it being the general rule that pension or
retirement plans formulated by the employer are to be construed against it. 46 Retirement benefits, after
all, are intended to help the employee enjoy the remaining years of his life, releasing him from the
burden of worrying for his financial support, and are a form of reward for being loyal to the employer. 47

In Ferrazzini v. Gsell,48 the Court defined public policy in civil law countries and in the United States
and the Philippines:

By "public policy," as defined by the courts in the United States and England, is intended that principle
of the law which holds that no subject or citizen can lawfully do that which has a tendency to be
injurious to the public or against the public good, which may be termed the "policy of the law," or "public
policy in relation to the administration of the law." (Words & Phrases Judicially Defined, vol. 6, p. 5813,
and cases cited.) Public policy is the principle under which freedom of contract or private dealing is
restricted by law for the good of the public. (Id., Id.) In determining whether a contract is contrary to
public policy the nature of the subject matter determines the source from which such question is to be
solved. (Hartford Fire Ins. Co. v. Chicago, M. & St. P. Ry. Co., 62 Fed. 904, 906.)

The foregoing is sufficient to show that there is no difference in principle between the public policy
(orden publico) in the two jurisdictions (the United States and the Philippine Islands) as determined by
the Constitution, laws, and judicial decisions.49

The Court proceeded to define "trade" as follows:

x x x In the broader sense, it is any occupation or business carried on for subsistence or profit.
Anderson’s Dictionary of Law gives the following definition: "Generally equivalent to occupation,
employment, or business, whether manual or mercantile; any occupation, employment or business
carried on for profit, gain, or livelihood, not in the liberal arts or in the learned professions." In Abbott’s
Law Dictionary, the word is defined as "an occupation, employment or business carried on for gain or
profit." Among the definitions given in the Encyclopaedic Dictionary is the following: "The business
which a person has learnt, and which he carries on for subsistence or profit; occupation; particularly
employment, whether manual or mercantile, as distinguished from the liberal arts or the learned
professions and agriculture." Bouvier limits the meaning to commerce and traffic, and the handicraft
of mechanics. (In re Pinkney, 47 Kan., 89.) We are inclined to adopt and apply the broader meaning
given by the lexicographers.50

In the present case, the trial court ruled that the prohibition against petitioner accepting employment
with a competitor bank or financial institution within one year from February 28, 1995 is not
unreasonable. The appellate court held that petitioner was estopped from assailing the post-retirement
competitive employment ban because of his admission that he signed the Undertaking and had
already received benefits under the SRP.

The rulings of the trial court and the appellate court are incorrect.

There is no factual basis for the trial court’s ruling, for the simple reason that it rendered summary
judgment and thereby foreclosed the presentation of evidence by the parties to prove whether the
restrictive covenant is reasonable or not. Moreover, on the face of the Undertaking, the post-retirement
competitive employment ban is unreasonable because it has no geographical limits; respondent is
barred from accepting any kind of employment in any competitive bank within the proscribed period.
Although the period of one year may appear reasonable, the matter of whether the restriction is
reasonable or unreasonable cannot be ascertained with finality solely from the terms and conditions
of the Undertaking, or even in tandem with the Release, Waiver and Quitclaim.

Undeniably, petitioner retired under the SRP and received P963,619.28 from respondent. However,
petitioner is not proscribed, by waiver or estoppel, from assailing the post-retirement competitive
employment ban since under Article 1409 of the New Civil Code, those contracts whose cause, object
or purpose is contrary to law, morals, good customs, public order or public policy are inexistent or void
from the beginning. Estoppel cannot give validity to an act that is prohibited by law or one that is
against public policy.51

Respondent, as employer, is burdened to establish that a restrictive covenant barring an employee

from accepting a competitive employment after retirement or resignation is not an unreasonable or
oppressive, or in undue or unreasonable restraint of trade, thus, unenforceable for being repugnant to
public policy. As the Court stated in Ferrazzini v. Gsell, 52 cases involving contracts in restraint of trade
are to be judged according to their circumstances, to wit:
x x x There are two principal grounds on which the doctrine is founded that a contract in restraint of
trade is void as against public policy. One is, the injury to the public by being deprived of the restricted
party’s industry; and the other is, the injury to the party himself by being precluded from pursuing his
occupation, and thus being prevented from supporting himself and his family.

And in Gibbs vs. Consolidated Gas Co. of Baltimore, supra, the court stated the rule thus:

Public welfare is first considered, and if it be not involved, and the restraint upon one party is not
greater than protection to the other party requires, the contract may be sustained. The question is,
whether, under the particular circumstances of the case and the nature of the particular contract
involved in it, the contract is, or is not, unreasonable. 53

In cases where an employee assails a contract containing a provision prohibiting him or her from
accepting competitive employment as against public policy, the employer has to adduce evidence to
prove that the restriction is reasonable and not greater than necessary to protect the employer’s
legitimate business interests.54 The restraint may not be unduly harsh or oppressive in curtailing the
employee’s legitimate efforts to earn a livelihood and must be reasonable in light of sound public
policy.55

Courts should carefully scrutinize all contracts limiting a man’s natural right to follow any trade or
profession anywhere he pleases and in any lawful manner. But it is just as important to protect the
enjoyment of an establishment in trade or profession, which its employer has built up by his own honest
application to every day duty and the faithful performance of the tasks which every day imposes upon
the ordinary man. What one creates by his own labor is his. Public policy does not intend that another
than the producer shall reap the fruits of labor; rather, it gives to him who labors the right by every
legitimate means to protect the fruits of his labor and secure the enjoyment of them to
himself.56 Freedom to contract must not be unreasonably abridged. Neither must the right to protect
by reasonable restrictions that which a man by industry, skill and good judgment has built up, be
denied.57

The Court reiterates that the determination of reasonableness is made on the particular facts and
circumstances of each case.58 In Esmerson Electric Co. v. Rogers,59 it was held that the question of
reasonableness of a restraint requires a thorough consideration of surrounding circumstances,
including the subject matter of the contract, the purpose to be served, the determination of the parties,
the extent of the restraint and the specialization of the business of the employer. The court has to
consider whether its enforcement will be injurious to the public or cause undue hardships to the
employee, and whether the restraint imposed is greater than necessary to protect the employer. Thus,
the court must have before it evidence relating to the legitimate interests of the employer which might
be protected in terms of time, space and the types of activity proscribed. 60

Consideration must be given to the employee’s right to earn a living and to his ability to determine with
certainty the area within which his employment ban is restituted. A provision on territorial limitation is
necessary to guide an employee of what constitutes as violation of a restrictive covenant and whether
the geographic scope is co-extensive with that in which the employer is doing business. In considering
a territorial restriction, the facts and circumstances surrounding the case must be considered. 61

Thus, in determining whether the contract is reasonable or not, the trial court should consider the
following factors: (a) whether the covenant protects a legitimate business interest of the employer; (b)
whether the covenant creates an undue burden on the employee; (c) whether the covenant is injurious
to the public welfare; (d) whether the time and territorial limitations contained in the covenant are
reasonable; and (e) whether the restraint is reasonable from the standpoint of public policy. 62
Not to be ignored is the fact that the banking business is so impressed with public interest where the
trust and interest of the public in general is of paramount importance such that the appropriate
standard of diligence must be very high, if not the highest degree of diligence. 63

We are not impervious of the distinction between restrictive covenants barring an employee to accept
a post-employment competitive employment or restraint on trade in employment contracts and
restraints on post-retirement competitive employment in pension and retirement plans either
incorporated in employment contracts or in collective bargaining agreements between the employer
and the union of employees, or separate from said contracts or collective bargaining agreements which
provide that an employee who accepts post retirement competitive employment will forfeit retirement
and other benefits or will be obliged to restitute the same to the employer. The strong weight of
authority is that forfeitures for engaging in subsequent competitive employment included in pension
and retirement plans are valid even though unrestricted in time or geography. The raison d’etre is
explained by the United States Circuit Court of Appeals in Rochester Corporation v. W.L. Rochester,
Jr.:64

x x x The authorities, though, generally draw a clear and obvious distinction between restraints on
competitive employment in employment contracts and in pension plans. The strong weight of authority
holds that forfeitures for engaging in subsequent competitive employment, included in pension
retirement plans, are valid, even though unrestricted in time or geography. The reasoning behind this
conclusion is that the forfeiture, unlike the restraint included in the employment contract, is not a
prohibition on the employee’s engaging in competitive work but is merely a denial of the right to
participate in the retirement plan if he does so engage. A leading case on this point is Van Pelt v.
Berefco, Inc., supra, 208 N.E.2d at p. 865, where, in passing on a forfeiture provision similar to that
here, the Court said:

"A restriction in the contract which does not preclude the employee from engaging in competitive
activity, but simply provides for the loss of rights or privileges if he does so is not in restraint of trade."
(emphasis added)65

A post-retirement competitive employment restriction is designed to protect the employer against

competition by former employees who may retire and obtain retirement or pension benefits and, at the
same time, engage in competitive employment. 66

We have reviewed the Undertaking which respondent impelled petitioner to sign, and find that in case
of failure to comply with the promise not to accept competitive employment within one year from
February 28, 1995, respondent will have a cause of action against petitioner for "protection in the
courts of law." The words "cause of action for protection in the courts of law" are so broad and
comprehensive, that they may also include a cause of action for prohibitory and mandatory injunction
against petitioner, specific performance plus damages, or a damage suit (for actual, moral and/or
exemplary damages), all inclusive of the restitution of the P963,619.28 which petitioner received from
respondent. The Undertaking and the Release, Waiver and Quitclaim do not provide for the automatic
forfeiture of the benefits petitioner received under the SRP upon his breach of said deeds. Thus, the
post-retirement competitive employment ban incorporated in the Undertaking of respondent does not,
on its face, appear to be of the same class or genre as that contemplated in Rochester.

It is settled that actual damages or compensatory damages may be awarded for breach of contracts.
Actual damages are primarily intended to simply make good or replace the loss covered by said
breach.67 They cannot be presumed. Even if petitioner had admitted to having breached the
Undertaking, respondent must still prove that it suffered damages and the amount thereof. 68 In
determining the amount of actual damages, the Court cannot rely on mere assertions, speculations,
conjectures or guesswork but must depend on competent proof and on the best evidence obtainable
regarding the actual amount of losses.69 The benefit to be derived from a contract which one of the
parties has absolutely failed to perform is of necessity to some extent a matter of speculation of the
injured party.

On the assumption that the competitive employment ban in the Undertaking is valid, petitioner is not
automatically entitled to return the P963,619.28 he received from respondent. To reiterate, the terms
of the Undertaking clearly state that any breach by petitioner of his promise would entitle respondent
to a cause of action for protection in the courts of law; as such, restitution of the P963,619.28 will not
follow as a matter of course. Respondent is still burdened to prove its entitlement to the aforesaid
amount by producing the best evidence of which its case is susceptible. 70

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals
in CA-G.R. CV No. 52235 is SET ASIDE. Let this case be REMANDED to the Regional Trial Court of
Manila for further proceedings conformably with this decision of the Court.

SO ORDERED.
G.R. No. 196539 : October 10, 2012

MARIETTA N. PORTILLO, Petitioner, v. RUDOLF LIETZ, INC., RUDOLF LIETZ and

COURT OF APPEALS Respondents.

DECISION

PEREZ, J.:

Before us is a petition for certiorari assailing the Resolution 1 dated 14 October 2010 of
ςrνll

the Court of Appeals in CA-G.R. SP No. I 065g I which modified its Decision 2 dated 31ςrνll

March 2009, thus allowing the legal compensation or petitioner Marietta N. Portillo's
(Portillo) monetary claims against respondent corporation Rudolf Lietz, Inc.'s (Lietz
Inc.)3 claim for liquidated damages arising from Portillos alleged violation of the
ςrνll

"Goodwill Clause" in the employment contract executed by the parties.

The facts are not in dispute.

In a letter agreement dated 3 May 1991, signed by individual respondent Rudolf Lietz
(Rudolf) and conformed to by Portillo, the latter was hired by the former under the
following terms and conditions: chanroblesvirtuallaw libra ry

A copy of [Lietz Inc.s] work rules and policies on personnel is enclosed and an inherent
part of the terms and conditions of employment.

We acknowledge your proposal in your application specifically to the effect that you will
not engage in any other gainful employment by yourself or with any other company either
directly or indirectly without written consent of [Lietz Inc.], and we hereby accept and
henceforth consider your proposal an undertaking on your part, a breach of which will
render you liable to [Lietz Inc.] for liquidated damages.

If you are in agreement with these terms and conditions of employment, please signify
your conformity below.4 ςrνll

On her tenth (10th) year with Lietz Inc., specifically on 1 February 2002, Portillo was
promoted to Sales Representative and received a corresponding increase in basic monthly
salary and sales quota. In this regard, Portillo signed another letter agreement containing
a "Goodwill Clause:"

It remains understood and you agreed that, on the termination of your employment by
act of either you or [Lietz Inc.], and for a period of three (3) years thereafter, you shall
not engage directly or indirectly as employee, manager, proprietor, or solicitor for
yourself or others in a similar or competitive business or the same character of work
which you were employed by [Lietz Inc.] to do and perform. Should you breach this good
will clause of this Contract, you shall pay [Lietz Inc.] as liquidated damages the amount
of 100% of your gross compensation over the last 12 months, it being agreed that this
sum is reasonable and just.5 ςrνll
Three (3) years thereafter, on 6 June 2005, Portillo resigned from Lietz Inc. During her
exit interview, Portillo declared that she intended to engage in businessa rice dealership,
selling rice in wholesale.

On 15 June 2005, Lietz Inc. accepted Portillos resignation and reminded her of the
"Goodwill Clause" in the last letter agreement she had signed. Upon receipt thereof,
Portillo jotted a note thereon that the latest contract she had signed in February 2004
did not contain any "Goodwill Clause" referred to by Lietz Inc. In response thereto, Lietz
Inc. categorically wrote:chanroblesvirtuallaw library

Please be informed that the standard prescription of prohibiting employees from engaging
in business or seeking employment with organizations that directly or indirectly compete
against [Lietz Inc.] for three (3) years after resignation remains in effect.

The documentation you pertain to is an internal memorandum of your salary increase,

not an employment contract. The absence of the three-year prohibition clause in this
document (or any document for that matter) does not cancel the prohibition itself. We
did not, have not, and will not issue any cancellation of such in the foreseeable future[.]
[T]hus[,] regretfully, it is erroneous of you to believe otherwise.6 ςrνll

In a subsequent letter dated 21 June 2005, Lietz Inc. wrote Portillo and supposed that
the exchange of correspondence between them regarding the "Goodwill Clause" in the
employment contract was a moot exercise since Portillos articulated intention to go into
business, selling rice, will not compete with Lietz Inc.s products.

Subsequently, Lietz Inc. learned that Portillo had been hired by Ed Keller Philippines,
Limited to head its Pharma Raw Material Department. Ed Keller Limited is purportedly a
direct competitor of Lietz Inc.

Meanwhile, Portillos demands from Lietz Inc. for the payment of her remaining salaries
and commissions went unheeded. Lietz Inc. gave Portillo the run around, on the pretext
that her salaries and commissions were still being computed.

On 14 September 2005, Portillo filed a complaint with the National Labor Relations
Commission (NLRC) for non-payment of 1 months salary, two (2) months commission,
13th month pay, plus moral, exemplary and actual damages and attorneys fees.

In its position paper, Lietz Inc. admitted liability for Portillos money claims in the total
amount of P110,662.16. However, Lietz Inc. raised the defense of legal compensation:
Portillos money claims should be offset against her liability to Lietz Inc. for liquidated
damages in the amount of ₱869,633.097 for Portillos alleged breach of the "Goodwill
ςrνll

Clause" in the employment contract when she became employed with Ed Keller
Philippines, Limited.

On 25 May 2007, Labor Arbiter Daniel J. Cajilig granted Portillos complaint: chanroblesvirtualla wlibrary

WHEREFORE, judgment is hereby rendered ordering respondents Rudolf Lietz, Inc. to pay
complainant Marietta N. Portillo the amount of Php110,662.16, representing her salary
and commissions, including 13th month pay.8 ςrνll
On appeal by respondents, the NLRC, through its Second Division, affirmed the ruling of
Labor Arbiter Daniel J. Cajilig. On motion for reconsideration, the NLRC stood pat on its
ruling.

Expectedly, respondents filed a petition for certiorari before the Court of Appeals, alleging
grave abuse of discretion in the labor tribunals rulings.

As earlier adverted to, the appellate court initially affirmed the labor tribunals: chanroblesvirtuallaw library

WHEREFORE, considering the foregoing premises, judgment is hereby rendered by

us DENYING the petition filed in this case. The Resolution of the National Labor Relations
Commission (NLRC), Second Division, in the labor case docketed as NLRC NCR Case No.
00-09- 08113-2005 [NLRC LAC No. 07-001965-07(5)] is hereby AFFIRMED.9 ςrνl l

The disposition was disturbed. The Court of Appeals, on motion for reconsideration,
modified its previous decision, thus: chanroblesvirtuallawl ibrar y

WHEREFORE, in view of the foregoing premises, we hereby MODIFY the decision

promulgated on March 31, 2009 in that, while we uphold the monetary award in favor of
the [petitioner] in the aggregate sum of ₱110,662.16 representing the unpaid salary,
commission and 13th month pay due to her, we hereby allow legal compensation or set-
off of such award of monetary claims by her liability to [respondents] for liquidated
damages arising from her violation of the "Goodwill Clause" in her employment contract
with them.10 ςrνll

Portillos motion for reconsideration was denied.

Hence, this petition for certiorari listing the following acts as grave abuse of discretion of
the Court of Appeals: chanroblesvirtuallawl ibrary

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION BY EVADING TO

RECOGNIZE (sic) THAT THE RESPONDENTS EARLIER PETITION IS FATALLY DEFECTIVE;

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION BY OVERSTEPPING

THE BOUNDS OF APPELLATE JURISDICTION[;]

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION BY MODIFYING

ITS PREVIOUS DECISION BASED ON AN ISSUE THAT WAS RAISED ONLY ON THE FIRST
INSTANCE AS AN APPEAL BUT WAS NEVER AT THE TRIAL COURT AMOUNTING TO DENIAL
OF DUE PROCESS[;]

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION BY EVADING THE
POSITIVE DUTY TO UPHOLD THE RELEVANT LAWS[.]11 ςrνll

Simply, the issue is whether Portillos money claims for unpaid salaries may be offset
against respondents claim for liquidated damages.

Before anything else, we address the procedural error committed by Portillo, i.e., filing a
petition for certiorari, a special civil action under Rule 65 of the Rules of Court, instead
of a petition for review on certiorari, a mode of appeal, under Rule 45 thereof. On this
score alone, the petition should have been dismissed outright.

Section 1, Rule 45 of the Rules of Court expressly provides that a party desiring to appeal
by certiorari from a judgment or final order or resolution of the Court of Appeals may file
a verified petition for review on certiorari. Considering that, in this case, appeal
by certiorari was available to Portillo, that available recourse foreclosed her right to resort
to a special civil action for certiorari, a limited form of review and a remedy of last
recourse, which lies only where there is no appeal or plain, speedy and adequate remedy
in the ordinary course of law.12 ςrνll

A petition for review on certiorari under Rule 45 and a petition for certiorari under Rule
65 are mutually exclusive remedies. Certiorari cannot co-exist with an appeal or any
other adequate remedy.13 If a petition for review is available, even prescribed, the nature
ςrνll

of the questions of law intended to be raised on appeal is of no consequence. It may well

be that those questions of law will treat exclusively of whether or not the judgment or
final order was rendered without or in excess of jurisdiction, or with grave abuse of
discretion. This is immaterial. The remedy is appeal, not certiorari as a special civil
action.14ςrνll

Be that as it may, on more than one occasion, to serve the ultimate purpose of all rules
of proceduresattaining substantial justice as expeditiously as possible15 we have ςrν ll

accepted procedurally incorrect petitions and decided them on the merits. We do the
same here.

The Court of Appeals anchors its modified ruling on the ostensible causal connection
between Portillos money claims and Lietz Inc.s claim for liquidated damages, both claims
apparently arising from the same employment relations. Thus, did it say: chanroblesvirtuallawli brary

x x x This Court will have to take cognizance of and consider the "Goodwill Clause"
contained [in] the employment contract signed by and between [respondents and
Portillo]. There is no gainsaying the fact that such "Goodwill Clause" is part and parcel of
the employment contract extended to [Portillo], and such clause is not contrary to law,
morals and public policy. There is thus a causal connection between [Portillos] monetary
claims against [respondents] and the latters claim for liquidated damages against the
former. Consequently, we should allow legal compensation or set-off to take place.
[Respondents and Portillo] are both bound principally and, at the same time, are creditors
of each other. [Portillo] is a creditor of [respondents] in the sum of ₱110,662.16 in
connection with her monetary claims against the latter. At the same time, [respondents]
are creditors of [Portillo] insofar as their claims for liquidated damages in the sum of
₱980,295.2516 against the latter is concerned.17
ςrνll ςrνll

We are not convinced.

Paragraph 4 of Article 217 of the Labor Code appears to have caused the reliance by the
Court of Appeals on the "causal connection between [Portillos] monetary claims against
[respondents] and the latters claim from liquidated damages against the former."

Art. 217. Jurisdiction of Labor Arbiters and the Commission. (a) Except as
otherwise provided under this code, the 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 case involving all workers, whether agricultural or
nonagricultural:chanroblesvirtuallawl ibrary

xxxx

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

Evidently, the Court of Appeals is convinced that the claim for liquidated damages
emanates from the "Goodwill Clause of the employment contract and, therefore, is a
claim for damages arising from the employeremployee relations."

As early as Singapore Airlines Limited v. Pa,18 we established that not all disputes
ςrνll

between an employer and his employee(s) fall within the jurisdiction of the labor
tribunals. We differentiated between abandonment per se and 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 claims arising 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.

Clearly, the complaint was anchored not on the abandonment per se by private
respondent Cruz of his jobas the latter was not required in the Complaint to report back
to workbut on the manner and consequent effects of such abandonment of work
translated in terms of the damages which petitioner had to suffer.

Squarely in point is the ruling enunciated in the case of Quisaba vs. Sta. Ines Melale
Veneer & Plywood, Inc. [citation omitted], the pertinent portion of which reads: chanroblesvirtuallawlib rary

"Although the acts complained of seemingly appear to constitute 'matter involving

employee-employer' relations as Quisaba's dismissal was the severance of a pre-existing
employee-employer relations, his complaint is grounded not on his dismissal per se, as
in fact he does not ask for reinstatement or backwages, but on the manner of his dismissal
and the consequent effects of such dismissal.
"Civil law consists of that 'mass of precepts that determine or regulate the relations . . .
that exist between members of a society for the protection of private interest (1 Sanchez
Roman 3).

"The 'right' of the respondents to dismiss Quisaba should not be confused with the
manner in which the right was exercised and the effects flowing therefrom. If the
dismissal was done anti-socially or oppressively as the complaint alleges, then the
respondents violated Article 1701 of the Civil Code which prohibits acts of oppression by
either capital or labor against the other, and Article 21, which makes a person liable for
damages if he wilfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy, the sanction for which, by way of moral damages,
is provided in article 2219, No. 10. [citation omitted]"

Stated differently, petitioner seeks protection under the civil laws and claims no
benefits under the Labor Code. 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.19 (Emphasis supplied) ςrνll

Subsequent rulings amplified the teaching in Singapore Airlines. The reasonable causal
connection rule was discussed. Thus, in San Miguel Corporation v. National Labor
Relations Commission,20 we held:
ςrνll chanroblesvirtuallaw library

While paragraph 3 above refers to "all money claims of workers," it is not necessary to
suppose that the entire universe of money claims that might be asserted by workers
against their employers has been absorbed into the original and exclusive jurisdiction of
Labor Arbiters. In the first place, paragraph 3 should be read not in isolation from but
rather within the context formed by paragraph 1 (relating to unfair labor practices),
paragraph 2 (relating to claims concerning terms and conditions of employment),
paragraph 4 (claims relating to household services, a particular species of employer-
employee relations), and paragraph 5 (relating to certain activities prohibited to
employees or to employers). It is evident that there is a unifying element which runs
through paragraph 1 to 5 and that is, that they all refer to cases or disputes arising out
of or in connection with an employer-employee relationship. This is, in other words, a
situation where the rule of noscitur a sociis may be usefully invoked in clarifying the scope
of paragraph 3, and any other paragraph of Article 217 of the Labor Code, as amended.
We reach the above conclusion from an examination of the terms themselves of Article
217, as last amended by B.P. Blg. 227, and even though earlier versions of Article 217
of the Labor Code expressly brought within the jurisdiction of the Labor Arbiters and the
NLRC "cases arising from employer-employee relations, [citation omitted]" which clause
was not expressly carried over, in printer's ink, in Article 217 as it exists today. For 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 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. The Court, therefore, believes and so holds that the
"money claims of workers" referred to in paragraph 3 of Article 217 embraces
money claims which arise out of or in connection with the employer-employee
relationship, or some aspect or incident of such relationship. Put a little
differently, that money claims of workers which now fall within the original and
exclusive jurisdiction of Labor Arbiters are those money claims which have
some reasonable causal connection with the employer-employee
relationship.21 (Emphasis supplied)
ςrνl l

We thereafter ruled that the "reasonable causal connection with the employer-employee
relationship" is a requirement not only in employees money claims against the employer
but is, likewise, a condition when the claimant is the employer.

In Dai-Chi Electronics Manufacturing Corporation v. Villarama, Jr.,22 which reiterated

ςrνll

the San Miguel ruling and allied jurisprudence, we pronounced that a non-compete
clause, as in the "Goodwill Clause" referred to in the present case, with a stipulation that
a violation thereof makes the employee liable to his former employer for liquidated
damages, refers to post-employment relations of the parties.

In Dai-Chi, the trial court dismissed the civil complaint filed by the employer to recover
damages from its employee for the latters breach of his contractual obligation. We
reversed the ruling of the trial court as we found that the employer did not ask for any
relief under the Labor Code but sought to recover damages agreed upon in the contract
as redress for its employees breach of contractual obligation to its "damage and
prejudice." We iterated that Article 217, paragraph 4 does not automatically cover all
disputes between an employer and its employee(s). We noted that the cause of action
was within the realm of Civil Law, thus, jurisdiction over the controversy belongs to the
regular courts. At bottom, we considered that the stipulation referred to post-
employment relations of the parties.

That the "Goodwill Clause" in this case is likewise a postemployment issue should brook
no argument. There is no dispute as to the cessation of Portillos employment with Lietz
Inc.23 She simply claims her unpaid salaries and commissions, which Lietz Inc. does not
ςrνll

contest. At that juncture, Portillo was no longer an employee of Lietz Inc.24 The "Goodwill
ςrνll

Clause" or the "Non-Compete Clause" is a contractual undertaking effective after the

cessation of the employment relationship between the parties. In accordance with
jurisprudence, breach of the undertaking is a civil law dispute, not a labor law case.

It is clear, therefore, that while Portillos claim for unpaid salaries is a money claim that
arises out of or in connection with an employer-employee 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 the employment relationship. And, while the jurisdiction over
Portillos claim is vested in the labor arbiter, the jurisdiction over Lietz Inc.s claim rests
on the regular courts. Thus: chanroblesvirtuallawlib rary

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 postemployment
relations of the parties.
For sure, a plain and cursory reading of the complaint will readily reveal that the subject
matter is one of claim for damages arising from a breach of contract, which is within the
ambit of the regular court's jurisdiction. [citation omitted]

It is basic 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. Neither can jurisdiction of a court be made to depend upon the defenses made by
a defendant in his answer or motion to dismiss. If such were the rule, the question of
jurisdiction would depend almost entirely upon the defendant.25 [citation omitted]
ςrνll

xxxx

Whereas this Court in a number of occasions had applied the jurisdictional provisions of
Article 217 to claims for damages filed by employees [citation omitted], we hold that by
the designating clause "arising from the employer-employee relations" Article 217 should
apply with equal force to the claim of an employer for actual damages against its
dismissed employee, where the basis for the claim arises from or is necessarily connected
with the fact of termination, and should be entered as a counterclaim in the illegal
dismissal case.26ςrνll

xxxx

This is, of course, to distinguish from cases of actions for damages where the
employer-employee relationship is merely incidental and the cause of action
proceeds from a different source of obligation. Thus, the jurisdiction of regular
courts was upheld where the damages, claimed for were based on tort [citation
omitted], malicious prosecution [citation omitted], or breach of contract, as when
the claimant seeks to recover a debt from a former employee [citation omitted] or
seeks liquidated damages in enforcement of a prior employment
contract. [citation omitted]

Neither can we uphold the reasoning of respondent court that because the resolution of
the issues presented by the complaint does not entail application of the Labor Code or
other labor laws, the dispute is intrinsically civil. 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.27 (Emphasis supplied)
ςrνll

In the case at bar, the difference in the nature of the credits that one has against the
other, conversely, the nature of the debt one owes another, which difference in turn
results in the difference of the forum where the different credits can be enforced, prevents
the application of compensation. Simply, the labor tribunal in an employees claim for
unpaid wages is without authority to allow the compensation of such claims against the
post employment claim of the former employer for breach of a post employment
condition. The labor tribunal does not have jurisdiction over the civil case of breach of
contract.

We are aware that in Baz v. Hon. Valdevilla, we mentioned that: chanroblesvirtuallawl ibrary
Whereas this Court in a number of occasions had applied the jurisdictional provisions of
Article 217 to claims for damages filed by employees [citation omitted], we hold that by
the designating clause "arising from the employer-employee relations" Article 217 should
apply with equal force to the claim of an employer for actual damages against its
dismissed employee, where the basis for the claim arises from or is necessarily connected
with the fact of termination, and should be entered as a counterclaim in the illegal
dismissal case.28 ςrνll

While on the surface, Baz supports the decision of the Court of Appeals, the facts beneath
premise an opposite conclusion. There, the salesman-employee obtained from the NLRC
a final favorable judgment of illegal dismissal. Afterwards, the employer filed with the
trial court a complaint for damages for alleged nefarious activities causing damage to the
employer. Explaining further why the claims for damages should be entered as a
counterclaim in the illegal dismissal case, we said: chanroblesvirtuallaw library

Even under Republic Act No. 875 (the Industrial Peace Act, now completely superseded
by the Labor Code), jurisprudence was settled that where the plaintiffs cause of action
for damages arose out of, or was necessarily intertwined with, an alleged unfair labor
practice committed by the union, the jurisdiction is exclusively with the (now defunct)
Court of Industrial Relations, and the assumption of jurisdiction of regular courts over
the same is a nullity. To allow otherwise would be "to sanction split jurisdiction, which is
prejudicial to the orderly administration of justice." Thus, even after the enactment of
the Labor Code, where the damages separately claimed by the employer were allegedly
incurred as a consequence of strike or picketing of the union, such complaint for damages
is deeply rooted from the labor dispute between the parties, and should be dismissed by
ordinary courts for lack of jurisdiction. As held by this Court in National Federation of
Labor vs. Eisma, 127 SCRA 419: chanroblesvirtuallawl ibrary

Certainly, the present Labor Code is even more committed to the view that on policy
grounds, and equally so in the interest of greater promptness in the disposition of labor
matters, a court is spared the often onerous task of determining what essentially is a
factual matter, namely, the damages that may be incurred by either labor or
management as a result of disputes or controversies arising from employer-employee
relations.29
ςrνll

Evidently, the ruling of the appellate court is modeled after the basis used in Baz which
is the "intertwined" facts of the claims of the employer and the employee or that the
"complaint for damages is deeply rooted from the labor dispute between the parties."
Thus, did the appellate court say that: chanroblesvirtual lawl ibrary

There is no gainsaying the fact that such "Goodwill Clause" is part and parcel of the
employment contract extended to [Portillo], and such clause is not contrary to law, morals
and public policy. There is thus a causal connection between [Portillos] monetary claims
against [respondents] and the latters claim for liquidated damages against the former.
Consequently, we should allow legal compensation or set-off to take place.30 ςrνl l

The Court of Appeals was misguided. Its conclusion was incorrect.

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

The alleged contractual violation did not arise during the existence of the employer-
employee relationship. It was a post-employment matter, a post-employment violation.
Reminders are apt. That is provided by the fairly recent case of Yusen Air and Sea
Services Phils., Inc. v. Villamor,31 which harked back to the previous rulings on the
ςrνll

necessity of "reasonable causal connection" between the tortious damage and the
damage arising from the employer-employee relationship. Yusen proceeded to
pronounce that the absence of the connection results in the absence of jurisdiction of the
labor arbiter. Importantly, such absence of jurisdiction cannot be remedied by raising
before the labor tribunal the tortious damage as a defense. Thus: chanroblesvirtuallawlib rary

When, as here, the cause of action is based on a quasi-delict or 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. [citation omitted]

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 respondents
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 postemployment relations of the
parties.

For sure, a plain and cursory reading of the complaint will readily reveal that the subject
matter is one of claim for damages arising from a breach of contract, which is within the
ambit of the regular courts jurisdiction. [citation omitted]

It is basic 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. Neither can jurisdiction of a court be made to depend upon the defenses made by
a defendant in his answer or motion to dismiss. If such were the rule, the question of
jurisdiction would depend almost entirely upon the defendant.32 (Underscoring supplied).
ςrνll

The error of the appellate court in its Resolution of 14 October 2010 is basic. The original
decision, the right ruling, should not have been reconsidered.

Indeed, the application of compensation in this case is effectively barred by Article 113
of the Labor Code which prohibits wage deductions except in three circumstances: chanroblesvirtuallaw library

ART. 113. Wage Deduction. No employer, in his own behalf or in behalf of any person,
shall make any deduction from wages of his employees, except: chanroblesvirtuallawl ibrary
(a) In cases where the worker is insured with his consent by the employer, and the
deduction is to recompense the employer for the amount paid by him as premium on the
insurance;

(b) For union dues, in cases where the right of the worker or his union to check-off has
been recognized by the employer or authorized in writing by the individual worker
concerned; and

(c) In cases where the employer is authorized by law or regulations issued by the
Secretary of Labor.

WHEREFORE, the petition is GRANTED. The Resolution of the Court of Appeals in CA-
G.R. SP No. I 06581 dated 14 October 20 I 0 is SET ASIDE. The Decision of the Court of
Appeals in CA-G.R. SP No. I 06581 dated 3 I March :2009 is REINSTATED. No costs. ςrαlαωlιbrαr

SO ORDERED.