Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 79025. December 29, 1989.
BENGUET ELECTRIC COOPERATIVE, INC., petitioner,
vs.
HON. PURA FERRER-CALLEJA, Director of the Bureau of Labor
Relations, and BENECO EMPLOYEES LABOR UNION, respondents.
E.L. Gayo & Associates for petitioner.
CORTES, J.:
On June 21, 1985 Beneco Worker's Labor Union-Association of Democratic
Labor Organizations (hereinafter referred to as BWLU- ADLO) filed a petition for
direct certification as the sole and exclusive bargaining representative of all the
rank and file employees of Benguet Electric Cooperative, Inc. (hereinafter
referred to as BENECO) at Alapang, La Trinidad, Benguet alleging, inter alia,
that BENECO has in its employ two hundred and fourteen (214) rank and file
employees; that one hundred and ninety-eight (198) or 92.5% of these
employees have supported the filing of the petition; that no certification
election has been conducted for the last 12 months; that there is no existing
collective bargaining representative of the rank and file employees sought to
represented by BWLU- ADLO; and, that there is no collective bargaining
agreement in the cooperative.
An opposition to the petition was filed by the Beneco Employees Labor Union
(hereinafter referred to as BELU) contending that it was certified as the sole and
exclusive bargaining representative of the subject workers pursuant to an order
issued by the med-arbiter on October 20,1980; that pending resolution by the
National Labor Relations Commission are two cases it filed against BENECO
involving bargaining deadlock and unfair labor practice; and, that the pendency
of these cases bars any representation question.
BENECO, on the other hand, filed a motion to dismiss the petition claiming that
it is a non-profit electric cooperative engaged in providing electric services to
its members and patron-consumers in the City of Baguio and Benguet Province;
and, that the employees sought to be represented by BWLU-ADLO are not
eligible to form, join or assist labor organizations of their own choosing because
they are members and joint owners of the cooperative.
On September 2, 1985 the med-arbiter issued an order giving due course to the
petition for certification election. However, the med-arbiter limited the election
among the rank and file employees of petitioner who are non-members thereof
and without any involvement in the actual ownership of the cooperative. Based
on the evidence during the hearing the med-arbiter found that there are thirtyseven (37) employees who are not members and without any involvement in
the actual ownership of the cooperative. The dispositive portion of the medarbiter's order is as follows:
WHEREFORE, premises considered, a certification election should be as it is
hereby ordered to be conducted at the premises of Benguet, Electric
Cooperative, Inc., at Alapang, La Trinidad, Benguet within twenty (20) days
from receipt hereof among all the rank and file employees (nonmembers/consumers and without any involvement in the actual ownership of
the cooperative) with the following choices:
1. BENECO WORKERS LABOR UNION-ADLO
2. BENECO EMPLOYEES LABOR UNION

3. NO UNION
The payroll for the month of June 1985 shall be the basis in determining the
qualified voters who may participate in the certification election to be
conducted.SO ORDERED. [Rollo, pp. 22-23.]
BELU and BENECO appealed from this order but the same was dismissed for
lack of merit on March 25,1986. Whereupon BENECO filed with this Court a
petition for certiorari with prayer for preliminary injunction and /or restraining
order, docketed as G.R. No. 74209, which the Supreme Court dismissed for lack
of merit in a minute resolution dated April 28, 1986.
The ordered certification election was held on October 1, 1986. Prior to the
conduct thereof BENECO's counsel verbally manifested that "the cooperative is
protesting that employees who are members-consumers are being allowed to
vote when . . . they are not eligible to be members of any labor union for
purposes of collective bargaining; much less, to vote in this certification
election." [Rollo, p. 28]. Petitioner submitted a certification showing that only
four (4) employees are not members of BENECO and insisted that only these
employees are eligible to vote in the certification election. Canvass of the votes
showed that BELU garnered forty-nine (49) of the eighty-three (83) "valid" votes
cast.
Thereafter BENECO formalized its verbal manifestation by filing a Protest.
Finding, among others, that the issue as to whether or not member-consumers
who are employees of BENECO could form, assist or join a labor union has been
answered in the affirmative by the Supreme Court in G.R. No. 74209, the medarbiter dismissed the protest on February 17, 1987. On June 23, 1987, Bureau
of Labor Relations (BLR) director Pura Ferrer-Calleja affirmed the med-arbiter's
order and certified BELU as the sole and exclusive bargaining agent of all the
rank and file employees of BENECO.
Alleging that the BLR director committed grave abuse of discretion amounting
to lack or excess of jurisdiction BENECO filed the instant petition for certiorari.
In his Comment the Solicitor General agreed with BENECO's stance and prayed
that the petition be given due course. In view of this respondent director herself
was required by the Court to file a Comment. On April 19, 1989 the Court gave
due course to the petition and required the parties to submit their respective
memoranda.
The main issue in this case is whether or not respondent director committed
grave abuse of discretion in certifying respondent BELU as the sole and
exclusive bargaining representtative of the rank and file employees of BENECO.
Under Article 256 of the Labor Code [Pres. Decree 442] to have a valid
certification election, "at least a majority of all eligible voters in the unit must
have cast their votes. The labor union receiving the majority of the valid votes
cast shall be certified as the exclusive bargaining agent of all workers in the
unit." Petitioner BENECO asserts that the certification election held on October
1, 1986 was null and void since members-employees of petitioner cooperative
who are not eligible to form and join a labor union for purposes of collective
bargaining were allowed to vote therein.
Respondent director and private respondent BELU on the other hand submit
that members of a cooperative who are also rank and file employees are
eligible to form, assist or join a labor union [Comment of Respondent Director,
p. 4; Rollo, p. 125; Comment of BELU, pp. 9-10; Rollo pp. 99-100].
The Court finds the present petition meritorious.
The issue of whether or not employees of a cooperative are qualified to form or
join a labor organization for purposes of collective bargaining has already been

resolved and clarified in the case of Cooperative Rural Bank of Davao City, Inc.
vs. Ferrer Calleja, et al. [G.R. No. 7795, September 26,1988] and reiterated in
the cases ofBatangas-Electric Cooperative Labor Union v. Young, et al. [G.R.
Nos. 62386, 70880 and 74560 November 9, 1988] and San Jose City Electric
Service Cooperative, Inc. v. Ministry of Labor and Employment, et al. [G.R. No.
77231, May 31, 1989] wherein the Court had stated that the right to collective
bargaining is not available to an employee of a cooperative who at the same
time is a member and co-owner thereof. With respect, however, to employees
who are neither members nor co-owners of the cooperative they are entitled to
exercise the rights to self-organization, collective bargaining and negotiation as
mandated by the 1987 Constitution and applicable statutes.
Respondent director argues that to deny the members of petitioner cooperative
the right to form, assist or join a labor union of their own choice for purposes of
collective bargaining would amount to a patent violation of their right to selforganization. She points out that:
Albeit a person assumes a dual capacity as rank and file employee and as
member of a certain cooperative does not militate, as in the instant case,
against his/her exercise of the right to self-organization and to collective
bargaining guaranteed by the Constitution and Labor Code because, while so
doing, he/she is acting in his/her capacity as rank and file employee thereof. It
may be added that while the employees concerned became members of
petitioner cooperative, their status employment as rank and filers who are
hired for fixed compensation had not changed. They still do not actually
participate in the management of the cooperative as said function is entrusted
to the Board of Directors and to the elected or appointed officers thereof. They
are not vested with the powers and prerogatives to lay down and execute
managerial policies; to hire, transfer, suspend, lay-off, recall, discharge, assign
or discipline employees; and/or to effectively recommend such managerial
functions [Comment of Respondent Director, p. 4; Rollo, p. 125.]
Private respondent BELU concurs with the above contention of respondent
director and, additionally, claims that since membership in petitioner
cooperative is only nominal, the rank and file employees who are members
thereof should not be deprived of their right to self-organization.
The above contentions are untenable. Contrary to respondents' claim, the fact
that the members-employees of petitioner do not participate in the actual
management of the cooperative does not make them eligible to form, assist or
join a labor organization for the purpose of collective bargaining with petitioner.
The Court's ruling in the Davao City case that members of cooperative cannot
join a labor union for purposes of collective bargaining was based on the fact
that as members of the cooperative they are co-owners thereof. As such, they
cannot invoke the right to collective bargaining for "certainly an owner cannot
bargain with himself or his co-owners." [Cooperative Rural Bank of Davao City,
Inc. v. Ferrer-Calleja, et al., supra]. It is the fact of ownership of the cooperative,
and not involvement in the management thereof, which disqualifies a member
from joining any labor organization within the cooperative. Thus, irrespective of
the degree of their participation in the actual management of the cooperative,
all members thereof cannot form, assist or join a labor organization for the
purpose of collective bargaining.
Respondent union further claims that if nominal ownership in a cooperative is
"enough to take away the constitutional protections afforded to labor, then
there would be no hindrance for employers to grant, on a scheme of generous
profit sharing, stock bonuses to their employees and thereafter claim that since
their employees are not stockholders [of the corporation], albeit in a minimal
and involuntary manner, they are now also co-owners and thus disqualified to

form unions." To allow this, BELU argues, would be "to allow the floodgates of
destruction to be opened upon the rights of labor which the Constitution
endeavors to protect and which welfare it promises to promote." [Comment of
BELU, p. 10; Rollo, p. 100].
The above contention of respondent union is based on the erroneous
presumption that membership in a cooperative is the same as ownership of
stocks in ordinary corporations. While cooperatives may exercise some of the
rights and privileges given to ordinary corporations provided under existing
laws, such cooperatives enjoy other privileges not granted to the latter [See
Sections 4, 5, 6, and 8, Pres. Decree No. 175; Cooperative Rural Bank of Davao
City v. Ferrer-Calleja, supra]. Similarly, members of cooperatives have rights
and obligations different from those of stockholders of ordinary corporations. It
was precisely because of the special nature of cooperatives, that the Court held
in the Davao City case that members-employees thereof cannot form or join a
labor union for purposes of collective bargaining. The Court held that:
A cooperative ... is by its nature different from an ordinary business concern
being run either by persons, partnerships, or corporations. Its owners and/or
members are the ones who run and operate the business while the others are
its employees. As above stated, irrespective of the number of shares owned by
each member they are entitled to cast one vote each in deciding upon the
affairs of the cooperative. Their share capital earn limited interest. They enjoy
special privileges as-exemption from income tax and sales taxes, preferential
right to supply their products to State agencies and even exemption from the
minimum wage laws.
An employee therefore of such a cooperative who is a member and co-owner
thereof cannot invoke the right to collective bargaining for certainly an owner
cannot bargain with himself or his co-owners.
It is important to note that, in her order dated September 2, 1985, med-arbiter
Elnora V. Balleras made a specific finding that there are only thirty-seven (37)
employees of petitioner who are not members of the cooperative and who are,
therefore, the only employees of petitioner cooperative eligible to form or join a
labor union for purposes of collective bargaining [Annex "A" of the Petition, p.
12; Rollo, p. 22]. However, the minutes of the certification election [Annex "C"
of the Petition: Rollo, p. 28] show that a total of eighty-three (83) employees
were allowed to vote and of these, forty-nine (49) voted for respondent union.
Thus, even if We agree with respondent union's contention that the thirty seven
(37) employees who were originally non-members of the cooperative can still
vote in the certification election since they were only "forced and compelled to
join the cooperative on pain of disciplinary action," the certification election
held on October 1, 1986 is still null and void since even those who were already
members of the cooperative at the time of the issuance of the med-arbiter's
order, and therefore cannot claim that they were forced to join the union were
allowed to vote in the election.
Article 256 of the Labor Code provides, among others, that:
To have a valid, election, at least a majority of all eligible voters in the unit
must have cast their votes. The labor union receiving the majority of the valid
votes cast shall be certified as the exclusive bargaining agent of all workers in
the unit . . . [Italics supplied.]
In this case it cannot be determined whether or not respondent union was duly
elected by the eligible voters of the bargaining unit since even employees who
are ineligible to join a labor union within the cooperative because of their
membership therein were allowed to vote in the certification election.
Considering the foregoing, the Court finds that respondent director committed
grave abuse of discretion in certifying respondent union as the sole and

exclusive bargaining representative of the rank and file employees of petitioner

cooperative.
WHEREFORE, the petition is hereby GRANTED and the assailed resolution of
respondent director is ANNULLED. The certification election conducted on
October 1, 1986, is SET ASIDE. The Regional Office No. 1 of San Fernando, La
Union is hereby directed to immediately conduct new certification election
proceedings among the rank and file employees of the petitioner who are not
members of the cooperative.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 82914 June 20, 1988
KAPATIRAN SA MEAT AND CANNING DIVISION (TUPAS Local Chapter No.
1027), petitioner,
vs.
THE HONORABLE BLR DIRECTOR PURA FERRER CALLEJA, MEAT AND
CANNING DIVISION UNIVERSAL ROBINA CORPORATION and MEAT AND
CANNING DIVISION NEW EMPLOYEES AND WORKERS UNITED LABOR
ORGANIZATION, respondents.
Alar, Comia, Manalo and Associates for petitioner.
Danilo Bolos for respondent Robina Corporation.
RESOLUTION
GRIO-AQUINO, J.:
The petitioner, Kapatiran sa Meat and Canning Division TUPAS Local Chapter
No. 1027) hereinafter referred to as "TUPAS," seeks a review of the resolution
dated January 27, 1988 (Annex D) of public respondent Pura Ferrer-Calleja,
Director of the Bureau of Labor Relations, dismissing its appeal from the Order
dated November 17, 1987 (Annex C) of the Med-Arbiter Rasidali C. Abdullah
ordering a certification election to be conducted among the regular daily paid
rank and file employees/workers of Universal Robina Corporation-Meat and
Canning Division to determine which of the contending unions:
a) Kapatiran sa Meat and Canning Division TUPAS Local Chapter No. 1027 (or
"TUPAS" for brevity);
b) Meat and Canning Division New Employees and Workers United Labor
Organization (or "NEW ULO" for brevity);
c) No union.
shall be the bargaining unit of the daily wage rank and file employees in the
Meat and Canning Division of the company.
From 1984 to 1987 TUPAS was the sole and exclusive collective bargaining
representative of the workers in the Meat and Canning Division of the Universal
Robina Corporation, with a 3-year collective bargaining agreement (CBA) which
was to expire on November 15, 1987.
Within the freedom period of 60 days prior to the expiration of its CBA, TUPAS
filed an amended notice of strike on September 28, 1987 as a means of
pressuring the company to extend, renew, or negotiate a new CBA with it.
On October 8, 1987, the NEW ULO, composed mostly of workers belonging to
the IGLESIA NI KRISTO sect, registered as a labor union.
On October 12, 1987, the TUPAS staged a strike. ROBINA obtained an injunction
against the strike, resulting in an agreement to return to work and for the
parties to negotiate a new CBA.
The next day, October 13, 1987, NEW ULO, claiming that it has "the majority of
the daily wage rank and file employees numbering 191," filed a petition for a
certification election at the Bureau of Labor Relations (Annex A).
TUPAS moved to dismiss the petition for being defective in form and that the
members of the NEW ULO were mostly members of the Iglesia ni Kristo sect
which three (3) years previous refused to affiliate with any labor union. It also
accused the company of using the NEW ULO to defeat TUPAS' bargaining rights
(Annex B).
On November 17, 1987, the Med-Arbiter ordered the holding of a certification
election within 20 days (Annex C).

TUPAS appealed to the Bureau of Labor Relations BLR. In the meantime, it was
able to negotiate a new 3-year CBA with ROBINA, which was signed on
December 3, 1987 and to expire on November 15, 1990.
On January 27, 1988, respondent BLR Director Calleja dismissed the appeal
(Annex D).
TUPAS' motion for reconsideration (Annex E) was denied on March 17, 1988
(Annex F). On April 30, 1988, it filed this petition alleging that the public
respondent acted in excess of her jurisdiction and with grave abuse of
discretion in affirming the Med-Arbiter's order for a certification election.
After deliberating on the petition and the documents annexed thereto, We find
no merit in the Petition. The public respondent did not err in dismissing the
petitioner's appeal in BLR Case No. A-12-389-87. This Court's decision
inVictoriano vs. Elizalde Rope Workers' Union, 59 SCRA 54, upholding the right
of members of the IGLESIA NI KRISTO sect not to join a labor union for being
contrary to their religious beliefs, does not bar the members of that sect from
forming their own union. The public respondent correctly observed that the
"recognition of the tenets of the sect ... should not infringe on the basic right of
self-organization granted by the constitution to workers, regardless of religious
affiliation."
The fact that TUPAS was able to negotiate a new CBA with ROBINA within the
60-day freedom period of the existing CBA, does not foreclose the right of the
rival union, NEW ULO, to challenge TUPAS' claim to majority status, by filing a
timely petition for certification election on October 13, 1987 before TUPAS' old
CBA expired on November 15, 1987 and before it signed a new CBA with the
company on December 3, 1987. As pointed out by Med-Arbiter Abdullah, a
"certification election is the best forum in ascertaining the majority status of
the contending unions wherein the workers themselves can freely choose their
bargaining representative thru secret ballot." Since it has not been shown that
this order is tainted with unfairness, this Court will not thwart the holding of a
certification election (Associated Trade Unions [ATU] vs. Noriel, 88 SCRA 96).
WHEREFORE, the petition for certiorari is denied, with costs against the
petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 80887 September 30, 1994
BLISS DEVELOPMENT CORPORATION EMPLOYEES UNION (BDCEU)SENTRO NG DEMOKRATIKONG MANGGAGAWA (SDM), petitioner,
vs.
HON. PURA FERRER CALLEJA and BLISS DEVELOPMENT
CORPORATION, respondents.
Capulong, Magpantay, Ladrido, Canilao and Malabanan for private respondent.
KAPUNAN, J.:
The focal issue in the case at bench is whether or not Bliss Development
Corporation (BDC) is a government-owned controlled corporation subject to
Civil Service Laws, rules and regulations. Corollary to this issue is the question
of whether or not petitioner is covered by Executive Order No. 180 and must
register under Section 7 thereof as a precondition for filing a petition for
certification election.
The antecedents of the case are:
On October 10, 1986, petitioner, a duly registered labor union, filed with the
Department of Labor, National Capital Region, a petition for certification
election of private respondent Bliss Development Corporation (BDC).
Based on the position papers submitted by the parties, Med-Arbiter Napoleon V.
Fernando, in an order dated January 26, 1987, dismissed the petition for lack of
jurisdiction stating that the majority of BDC's stocks is owned by the Human
Settlement Development Corporation (HSDC), a wholly-owned government
corporation. Therefore, BDC is subject to Civil Service law, rules and
regulations. The pertinent portion of said Order reads:
It may not be amised (sic) to further state that the Supreme Court in its
Decision in the case of National Housing Corporation versus Benjamin Juco and
the National Labor Relations Commission G-R 63313 promulgated on January
17, 1985 has pronounced that:
There should no longer be any question at this time that employees of
government owned or controlled corporations are governed by the Civil Service
Rules and Regulations.
Corollary to the issue of whether or not employees of BDC may form or join
labor organizations therefore is the issue of whether or not BDC is a
government owned corporation.
The pertinent law on the matter is P.D. No. 2029 which provides that:
Section 2 Definition A government-owned or controlled corporation is a
stock or non-stock corporation whether performing government or proprietary
functions, which is directly chartered by special law or if organized under the
general corporation law is owned or controlled by the government or subsidiary
corporation, to the extent of at least a majority of its outstanding capital stock
or of its outstanding voting stock.
In the case at bar, it is not disputed that majority of the stocks of BDC are
owned by Human Settlement Development Corporation, a wholly government
owned corporation, hence, this Office cannot, but otherwise conclude that Bliss
Development Corporation is a government owned corporation whose
employees are governed not by the Labor Code but by the Civil Service law,
rules, and regulations. Its employees therefore, are prohibited to join or form

labor organization. Further, this Office is without authority to entertain the

present petition for obvious lack of jurisdiction.
Indeed, Opinion No. 94, series of 1985, the Minister of Justice has declared:
In determining whether a corporation created under the Corporation Code is
government owned or controlled or not, this ministry has consistently applied
the ownership testwhereby a corporation will be deemed owned by the
government if the majority of its voting stocks are owned by the government.
It appearing that Human Settlement Development Corporation (HSDC), which is
a wholly-owned government corporation, owns a majority of the stocks of Bliss
Development Corporation (BDC), our conclusion is that BDC is a governmentowned corporation subject to the coverage of the Civil Service law, rules and
regulations as pronounced by the Supreme Court in the case of NHA versus
Juco. 1
Petitioner then filed an appeal with the Bureau of Labor Relations.
In the meantime, or on June 1, 1987 Executive Order No. 180 was issued the
then President Corazon C. Aquino extending to government employees the
right to organize and bargain collectively. Sections 1 and 7 of said Order
provide:
Sec. 1. This Executive Order applies to all employees of all branches,
subdivisions, instrumentalities, and agencies of the government, including
government-owned or controlled corporations with original charters. . . .
(Emphasis supplied)
Sec. 7. Government employees' organizations shall register with the Civil
Service Commission and the Department of Labor and Employment. The
application shall be filed with the Bureau of Labor Relations of the Department
which shall process the same in accordance with the provisions of the Labor
Code of the Philippines, as amended. Applications may also be filed with the
Regional Offices of the Department of Labor and Employment which shall
immediately transmit the said applications to the Bureau of Labor Relations
within three (3) days from receipt hereof.
On August 7, 1987, Director Pura Ferrer-Calleja of the Bureau of Labor Relations
issued an Order dismissing the appeal. Said Order is reproduced hereunder:
For disposition is an appeal of the Bliss Development Corporation Employees
Union Sentro ng Demokratikong Manggagawa (BDCEU-SDM) from the Order of
the Med-Arbiter dismissing its petition for direct certification/certification
election dated January 26, 1987.
On January 26, 1987, the Med-Arbiter issued an Order dismissing the petition
filed by BDCEU-SDM. He ruled that the Bliss Development Corporation which is
under the then Ministry of Human Settlement, is a government Corporation
where the workers are prohibited from organizing and joining labor unions. The
Med-Arbiter cited Opinion No. 94 series of 1985, of the Minister of Justice which
is hereunder quoted as follows:
In determining whether a corporation created under the Corporation Code is
government-owned or a controlled or not, this Ministry has consistently applied
the ownership test whereby a corporation will be deemed owned by the
government if all or a majority of its stocks are owned by the government, and
it will be deemed controlled by the government, if the majority of its voting
stocks are owned by the government.
It appearing that HSDC, which is a wholly-owned government corporation, owns
a majority of the stocks of BDC, our conclusion is that BDC is a governmentowned corporation subject to the coverage of the Civil Service Law and rules as
pronounced by the Supreme Court in the case of NHA vs. Juco.
But circumstances have changed. With the issuance of Executive Order No. 180
dated June 1, 1987, government employees are now given the right to organize

and bargain collectively. This, therefore, renders academic the order subject of
the appeal.
xxx xxx xxx
Consequently, this Bureau hereby enjoins the Petitioner to register in
accordance with the aforecited provision. Meantime, the petition is dismissed
without prejudice to its refiling after petitioner is granted registration to avoid
legal complications.
WHEREFORE, in view of the foregoing, the case is hereby dismissed without
prejudice.
SO ORDERED. 2
Taking exception to the Director's Order, petitioner brought the instant petition
to annul the same on the following grounds:
I
THE DIRECTOR GRAVELY ABUSED HER DISCRETION AMOUNTING TO LACK OF
JURISDICTION WHEN SHE ORDERED PETITIONER TO REGISTER UNDER SECTION
7 OF EXECUTIVE ORDER NO. 180 WHICH DOES NOT COVER PETITIONER;
II
THE DIRECTOR GRAVELY ABUSED HER DISCRETION WHEN SHE INSISTED ON
ENFORCING AN OPINION OF THE MINISTER OF JUSTICE WHICH RESPONDENT
BDC ITSELF HAS CONSISTENTLY IGNORED AND CONTINUES TO IGNORE AND
WHICH THE ENTIRE GOVERNMENT DOES NOT CARE TO ENFORCE. 3
In a resolution dated May 29, 1989 the Court gave due course to the petition
and required the parties to file their respective memoranda which was
complied with. The Solicitor General begged leave to be relieved from filing a
comment on the petition and a memorandum, averring that he could not
sustain the position of respondent Director.
The petition is impressed with merit.
Section 1 of Executive Order No. 180 expressly limits its application to only
government-owned or controlled corporations with original charters. Hence,
public respondent's order dated August 7, 1987 requiring petitioner to register
in accordance with Section 7 of executive Order No. 180 is without legal basis.
Without categorically saying so, public respondent sustained the Med-Arbiter's
invocation of the case of National Housing Corporation v. Juco, 4 which rules
that the inclusion of "government-owned or controlled corporations" within the
embrace of the civil service shows a deliberate effort of the framers of the 1973
Constitution to plug an earlier loophole which allowed government-owned or
controlled corporations to avoid the full consequences of the all encompassing
coverage of the civil service system. In said case, we stressed that:
Section 1 of Article XII-B, Constitution uses the word "every" to modify the
phrase "government-owned or controlled corporation."
Every means each one of a group, without exception. It means all possible and
all, taken one by one. Of course, our decision in this case refers to a corporation
created as a government-owned or controlled
entity. . . . . 5
However, our ruling in NHC v. Juco 6 case, which was decided under the 1973
Constitution, lost its applicability with the advent of the 1987 Constitution.
Thus, in National Service Corporation v. NLRC, 7 we held that:
. . . (I)n the matter of coverage by the civil service of government-owned or
controlled corporations, the 1987 Constitution starkly varies from the 1973
Constitution, upon which National Housing Corporation vs. Juco is based. Under
the 1973 Constitution, it was provided that:
The civil service embraces every branch, agency, subdivision, and
instrumentality of the Government, including every government-owned or
controlled corporation. . . . [Constitution, 1973, Art. II-B, Sec. I(1)]

On the other hand, the 1987 Constitution provides that:

The civil service embraces all branches, subdivisions, instrumentalities, and
agencies of the Government, including government-owned or controlled
corporations with original charter. (Emphasis supplied) [Constitution (1987),
Art. IX-B, Sec. 2(1).
Thus the situations sought to be avoided by the 1973 Constitution and
expressed by the Court in theNational Housing Corporation case in the
following manner
The infirmity of the respondents' position lies in its permitting a circumvention
or emasculation of Section 1, Article XII-B of the Constitution. It would be
possible for a regulate ministry of government to create a host of subsidiary
corporations under the Corporation Code funded by a willing legislature. A
government-owned corporation could create several subsidiary corporations.
These subsidiary corporations would enjoy the best of two worlds. Their officials
and employees would be privileged individuals, free from the strict
accountability required by the Civil Service Decree and the regulations of the
Commission on Audit. Their incomes would not be subject to the competitive
restrains of the open market nor to the terms and conditions of civil service
employment. Conceivably, all government-owned or controlled corporations
could be created, no longer by special charters, but through incorporations
under the general law. The Constitutional amendment including such
corporations in the embrace of the civil service would cease to have
application. Certainly, such a situation cannot be allowed to exist. [134 SCRA
182-183]
appear relegated to relative insignificance by the 1987 Constitutional provision
that the Civil Service embraces government-owned or controlled corporations
with original charter; and, therefore, by clear implication, the Civil Service does
not include government-owned or controlled corporations which are organized
as subsidiaries of government-owned or controlled corporations under the
general corporation law. 8
A corporation is created by operation of law. It acquires a judicial personality
either by special law or a general law. The general law under which a private
corporation may be formed or organized is the Corporation Code, the
requirements of which must be complied with by those wishing to incorporate.
Only upon such compliance will the corporation come into being and acquire a
juridical personality, thus giving rise to is right to exist and act as a legal entity.
On the other hand, a government corporation is normally created by special
law, referred to often as a charter. 9
BDC is a government-owned corporation created under the Corporation Law. It
is without a charter, governed by the Labor Code and not by the Civil Service
Law hence, Executive Order No. 180 does not apply to it.
Consequently, public respondent committed grave abuse of discretion in
ordering petition to register under Section 7, of Executive Order No. 180 as a
precondition for filing a petition for certification election.
WHEREFORE, the instant petition is hereby GRANTED. The order of public
respondent dated August 7, 1987 is SET ASIDE and the Director of Labor
Relations is hereby directed to give due course of petitioner's application for
certification election.
SO ORDERED.
Cruz, Davide, Jr., Bellosillo and Quiason, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 124540 November 14, 1997
MERLINDA JACINTO, ADELINA AGUSTIN, SUSAN AGUSTIN, EVELYN
ATIENZA, NIDA BALANE, ANICIA CARLOS, CELEDONIA CARLOS,
LIWANAG CASTILLO, JOSEFINA DE GUZMAN, MINERVA GARCIA, MARIA
GATDULA, ALICIA GUNDA, AURORA LOPEZ, CARMENCITA MANANSALA,
ERLINDA MARTINEZ, LOLITA NAVARRETE, GUADALUPE PANERGO, MARIA
PULGA, PAZ SERRA and VIRGINIA ZAMORA, petitioners,
vs.
HON. COURT OF APPEALS; THE CIVIL SERVICE COMMISSION; and THE
SECRETARY OF EDUCATION, CULTURE AND SPORTS, respondents.
PANGANIBAN, J.:
While we recognize and appreciate the toil and hardship of our public
schoolteachers in fulfilling the state's responsibility of educating our children,
and realize their inadequately addressed plight as compared to other
professionals, we have the equal task of promoting the larger public interest
which withholds from them and other similarly situated government workers
the right to engage in mass actions resulting in work stoppages for any
purpose. Although the Constitution vests in them the right to organize, to
assemble peaceably and to petition the government for a redress of
grievances, there is no like express provision granting them the right to strike.
Rather, the constitutional grant of the right to strike is restrained by the proviso
that its exercise shall be done in accordance with law.
The Case
Before us is a petition for review under Rule 45 of the Rules of Court seeking to
set aside the November 27, 1995 Decision 1 of the Court of Appeals 2 in CA-G.R.
SP No. 37596, which found no grave abuse of discretion on the part of the Civil
Service Commission (CSC) in issuing its resolutions 3 disposing of the separate
appeals and motions for reconsideration of herein petitioners. The dispositive
portions of most of the CSC resolutions, with the exception of the name of the
appellant concerned, uniformly read:
WHEREFORE, foregoing premises considered, the Commission hereby resolves
to find Susan Agustin guilty of Conduct Prejudicial to the Best Interest of the
Service. She is meted out the penalty of six (6) months suspension without pay.
Agustin is now automatically reinstated in the service without payment of back
salaries. 4
As regards Petitioner Merlinda Jacinto, the decretal portion of the resolution
pertaining to her case reads:
WHEREFORE, foregoing premises considered, the Commission hereby resolves
to find Merlinda Jacinto guilty of Violation of Reasonable Office Rules and
Regulations. She is hereby meted out the penalty of reprimand. She is
automatically reinstated in the service without payment of back salaries. 5
In a Resolution 6 dated March 29, 1996, Respondent Court of Appeals denied
the petitioners' motion for reconsideration.
The Facts
The following are the antecedents of the case as narrated by the Court of
Appeals, which we find substantiated by the records:
Petitioners are public school teachers from various schools in Metropolitan
Manila. Between the period September 17 to 21, 1990, they incurred

unauthorized absences in connection with the mass actions then staged; and
on September 17, 1990, DECS Secretary Isidro Cario immediately issued a
return-to-work order worded as follows:
TO: ALL PUBLIC SCHOOL TEACHERS AND
OTHER DECS PERSONNEL
SUBJECT: RETURN TO WORK ORDER
Under Civil service law and rules, strikes, unauthorized mass leaves and other
forms of mass actions by civil servants which disrupt public services are strictly
prohibited.
Those of you who are engaged in the above-mentioned prohibited acts are
therefore ordered, in the interest of public service, to return to work within 24
hours from your walkout otherwise dismissal proceedings shall be instituted
against you. (Emphasis supplied).
The directive was ignored by petitioners. Consequently, on separate dates,
Secretary Cario issued formal charges and preventive suspension orders
against them. They were administratively charged with gross misconduct; gross
neglect of duty, etc. for joining unauthorized mass actions; ignoring report-towork directives; unjustified abandonment of teaching posts; non-observance of
Civil Service law, rules and regulations; non-compliance with reasonable office
rules and regulations; and incurring unauthorized absences without leave, etc.
An investigation committee was then created by Sec. Cario to look into the
matter. However, during the investigation, petitioners did not file their answers
or controvert the charges against them. As a consequence, Sec. Cario, in his
decisions found them guilty as charged and imposed the penalty of dismissal,
except with respect to petitioners Merlinda Jacinto and Adelina Agustin who
were meted only six (6) months suspension.
The decisions were appealed to the Merit Systems Protection Board (MSPB)
which dismissed the appeals for lack of merit and then to the Civil Service
Commission which set aside the Orders of the MSPB in the contested
resolutions. The Civil Service Commission, in separate resolutions, found the
petitioners (except Merlinda Jacinto) guilty of Conduct Prejudicial to the Best
Interest of the Service; imposed upon them the penalty of six (6) months
suspension without pay; and automatically reinstated them to the service
without payment of back salaries . . . In the case of Petitioner Merlinda Jacinto,
the CSC found her guilty of Violation of Reasonable Office Rules and
Regulations; imposed upon her the penalty of reprimand; and automatically
reinstated her in the service without payment of back salaries . . .
Acting on the motions for reconsideration, the CSC rendered the assailed
resolutions denying the motions for lack of merit. 7
Petitioners initially questioned the CSC resolutions directly before this Court in
petitions docketed as G.R. Nos. 118252 to 118271. In accordance with Revised
Administrative Circular 1-95, we referred them to the Court of Appeals.
Respondent Court found that the "petitioners absented themselves from their
classes in furtherance of or in connection with the 'mass action' for the purpose
of pressuring the government to grant their demands." Citing the resolution of
this Court in MPSTA vs. Laguio 8 that the mass actions staged by the public
school teachers from September 17 to September 19, 1990, were "to all intents
and purposes a strike," it denied the petition, since the right to strike did not
extend to civil service employees. In the case of Merlinda Jacinto, Respondent
Court found no error on the part of the CSC in finding her guilty of violation of
reasonable office rules and regulations. Neither did it find the petitioners
entitled to backwages for the period of their preventive suspension, as they
were "not exonerated of the charges against them."
Hence, this petition. 9

Issues
Petitioners raise the following grounds for their appeal:
I. The Respondent Court of Appeals committed grave abuse of discretion when
it upheld the resolutions of the Civil Service Commission that penalized all the
petitioners whose only "offense" (except Jacinto) was to exercise their
constitutional right peaceably to assemble and petition the government for
redress of grievances.
II. The Respondent Court of Appeals committed grave abuse of discretion when
it upheld the resolutions of the Civil Service Commission that penalized
Petitioner Jacinto for an alleged offense which has no basis whatsoever thereby
violating her right to security of tenure.
III. The Respondent Court of Appeals committed grave abuse of discretion when
it upheld the resolutions of the Civil Service Commission that denied petitioners
their right to backwages covering the period when they were illegally not
allowed to teach. 10
Preliminarily, we note that the remedy resorted to by petitioners is a petition
for review under Rule 45 of the Rules of Court which, however, allows "only
questions of law." 11 Jurisprudence has extended this remedy to questions of
fact in exceptional cases. 12 Where the issues raised involve lack of jurisdiction
or grave abuse of discretion as in this case, the Rules provide for a different
remedy Rule 65. In the interest of substantial justice, however, we hereby
decide to deal with this petition as one filed under Rule 45, as denominated in
its prefatory paragraph, and treat the "grave abuse of discretion" on the part of
Respondent Court of Appeals as allegations of "reversible errors."
The Court's Ruling
The petition, which fails to convince us, merits only dismissal.
First Issue: Improper Exercise of the Right to
Peaceful Assembly and to Petition for a Redress of Grievances
There is no question as to the petitioners' rights to peaceful assembly to
petition the government for a redress of grievances and, for that matter, to
organize or form associations for purposes not contrary to law, as well as to
engage in peaceful concerted activities. These rights are guaranteed by no less
than the Constitution, particularly Sections 4 13 and 8 14 of the Bill of Rights,
Section 2(5) 15 of Article IX, and Section 3 16 of Article XIII. Jurisprudence
abounds with hallowed pronouncements defending and promoting the people's
exercise of these rights. As early as the onset of this century, this Court,
in U.S. vs. Apurado, 17 already upheld the right to assembly and petition and
even went as far as to acknowledge:
It is rather to be expected that more or less disorder will mark the public
assembly of the people to protest against grievances whether real or
imaginary, because on such occasions feeling is always wrought to a high pitch
of excitement, and the greater the grievance and the more intense the feeling,
the less perfect, as a rule, will be the disciplinary control of the leaders over
their irresponsible followers. But if the prosecution be permitted to seize upon
every instance of such disorderly conduct by individual members of a crowd as
an excuse to characterize the assembly as a seditious and tumultuous rising
against the authorities, then the right to assemble and to petition for redress of
grievances would become a delusion and a snare and the attempt to exercise it
on the most righteous occasion and in the most peaceable manner would
expose all those who took part therein to the severest and most unmerited
punishment, if the purposes which they sought to attain did not happen to be
pleasing to the prosecuting authorities. If instances of disorderly conduct occur
on such occasions, the guilty individuals should be sought out and punished
therefor, but the utmost discretion must be exercised in drawing the line

between disorderly and seditious conduct and between an essentially

peaceable assembly and a tumultuous uprising. 18
Primicias vs. Fugoso 19 further sustained the supremacy of the freedoms of
speech and of assembly over comfort and convenience in the use of streets or
parks. Although the Court opined that the exercise of the rights of free speech
and of peaceful assembly to petition the government for redress of grievances
"is not absolute for it may be so regulated that it shall not be injurious to the
equal enjoyment of others having equal rights, nor injurious to the rights of the
community or society," regulation was limited to the mayor's reasonable
discretion in issuing a permit to determine or specify only the streets or public
places to be used for the purpose and to provide adequate and proper policing
to minimize the risk of disorder. Quoting Justice Brandeis in his concurring
opinion inWhitney vs. California, the Court said: 20
Fear of serious injury cannot alone justify suppression of free speech and
assembly. . . . To justify suppression of free speech there must be reasonable
ground to fear that serious evil will result if free speech is practiced. There must
be reasonable ground to believe that the danger apprehended is imminent.
There must be reasonable ground to believe that the evil to be prevented is a
serious one . . .
xxx xxx xxx
. . . The fact that speech is likely to result in some violence or in destruction of
property is not enough to justify its suppression. There must be the probability
of serious injury to the state. . . .
This limitation was strictly applied in Reyes vs. Bagatsing, 21 in which "the Court
[was] called upon to protect the exercise of the cognate rights to free speech
and peaceful assembly, arising from the denial of a permit." In that case,
retired Justice J.B.L. Reyes, on behalf of the Anti-Bases Coalition, sought a
permit from the mayor of Manila to hold a march and a rally starting from
Luneta, proceeding through Roxas Boulevard to the gates of the U.S. Embassy,
to be attended by local and foreign participants to the International Conference
for General Disarmament, World Peace and the Removal of All Foreign Military
Bases. The Manila mayor denied them the permit "due to police intelligence
reports which strongly militate against the advisability of issuing such permit at
this time and at the place applied for." In reversing the mayor, this Court stated
that to justify limitations on freedom of assembly, there must be proof of
sufficient weight to satisfy the "clear and present danger" 22 test. Thereafter,
the Court proceeded to summarize the rules on assembly and
petition, 23 making the clear-and-present danger rule the standard for refusing
or modifying the grant of a permit. But it stressed that "the presumption must
be to incline the weight of the scales of justice on the side of such rights [of
free speech and peaceable assembly], enjoying as they do precedence and
primacy."
Philippine Blooming Mills Employees Organization vs. Philippine Blooming Mills
Co., Inc., 24 which was promulgated after the proclamation of martial law,
further underscored the supremacy of these basic constitutional rights, this
time over property rights. Speaking through Mr. Justice Makasiar, the Court
explained:
. . . the primacy of human rights freedom of expression, of peaceful
assembly and of petition for redress of grievances over property rights has
been sustained. Emphatic reiteration of this basic tenet as a coveted boon at
once the shield and armor of the dignity and worth of the human personality,
the all-consuming ideal of our enlightened civilization becomes [o]ur duty, if
freedom and social justice have any meaning at all for him who toils so that
capital can produce economic goods that can generate happiness for all. To

regard the demonstration against police officers, not against the employer, as
evidence of bad faith in collective bargaining and hence a violation of the
collective bargaining agreement and a cause for the dismissal from
employment of the demonstrating employees, stretches unduly the compass of
the collective bargaining agreement, is "a potent means of inhibiting speech"
and therefore inflicts a moral as well as mortal wound on the constitutional
guarantees of free expression, of peaceful assembly and of petition. 25
Specifically, the right of civil servants to organize themselves was positively
recognized in Association of Court of Appeals Employees (ACAE) vs. FerrerCalleja. 26 But, as in the exercise of the rights of free expression and of
assembly, there are standards for allowable limitations such as the legitimacy
of the purposes of the association,27 the overriding considerations of national
security and the preservation of democratic institutions. 28
As regards the right to strike, the Constitution itself qualifies its exercise with
the proviso "in accordance with law." This is a clear manifestation that the state
may, by law, regulate the use of this right, or even deny certain sectors such
right. Executive Order 180 29 which provides guidelines for the exercise of the
right of government workers to organize, for instance, implicitly endorsed an
earlier CSC circular which "enjoins under pain of administrative sanctions, all
government officers and employees from staging strikes, demonstrations, mass
leaves, walkouts and other forms of mass action which will result in temporary
stoppage or disruption of public service," 30 by stating that the Civil Service law
and rules governing concerted activities and strikes in the government service
shall be observed. 31
It is also settled in jurisprudence that, in general, workers in the public sector
do not enjoy the right to strike.Alliance of Government Workers vs. Minister of
Labor and Employment 32 rationalized the proscription thus:
The general rule in the past and up to the present is that the "terms and
conditions of employment in the Government, including any political
subdivision or instrumentality thereof are governed by law." . . . Since the terms
and conditions of government employment are fixed by law, government
workers cannot use the same weapons employed by the workers in the private
sector to secure concessions from their employers. The principle behind labor
unionism in private industry is that industrial peace cannot be secured through
compulsion by law. Relations between private employers and their employees
rest on an essentially voluntary basis. Subject to the minimum requirements of
wage laws and other labor and welfare legislation, the terms and conditions of
employment in the unionized private sector are settled through the process of
collective bargaining. In government employment, however, it is the legislature
and, where properly given delegated power, the administrative heads of
government which fix the terms and conditions of employment. And this is
effected through statutes or administrative circulars, rules, and regulations, not
through collective bargaining agreements. 33
After delving into the intent of the framers of the Constitution, the Court
affirmed the above rule in Social Security System Employees Association
(SSSEA) vs. Court of Appeals 34 and explained:
Government employees may, therefore, through their unions or associations,
either petition the Congress for the betterment of the terms and conditions of
employment which are within the ambit of legislation or negotiate with the
appropriate government agencies for the improvement of those which are not
fixed by law. If there be any unresolved grievances, the dispute may be referred
to the Public Sector Labor-Management Council for appropriate action. But
employees in the civil service may not resort to strikes, walkouts and other
temporary work stoppages, like workers in the private sector, to pressure the

Government to accede to their demands. As now provided under Sec. 4, Rule III
of the Rules and Regulations to Govern the Exercise of the Right of Government
Employees to Self-Organization, which took effect after the instant dispute
arose, "[t]he terms and conditions of employment in the government, including
any political subdivision or instrumentality thereof and government-owned and
controlled corporations with original charters are governed by law and
employees therein shall not strike for the purpose of securing changes
[thereto]. 35
We now come to the case before us. Petitioners, who are public schoolteachers
and thus government employees, do not seek to establish that they have a
right to strike. Rather, they tenaciously insist that their absences during certain
dates in September 1990 were a valid exercise of their constitutional right to
engage in peaceful assembly to petition the government for a redress of
grievances. They claim that their gathering was not a strike; therefore, their
participation therein did not constitute any offense. MPSTA
vs. Laguio 36 and ACT vs. Cario, 37 in which this Court declared that "these
'mass actions' were to all intents and purposes a strike; they constituted a
concerted and unauthorized stoppage of, or absence from, work which it was
the teachers' duty to perform, undertaken for essentially economic reasons,"
should not principally resolve the present case, as the underlying facts are
allegedly not identical.
Strike, as defined by law, means any temporary stoppage of work by the
concerted action of employees as a result of an industrial or labor dispute. 38 A
labor dispute includes any controversy or matter concerning terms and
conditions of employment; or the association or representation of persons in
negotiating, fixing, maintaining, changing or arranging the terms and
conditions of employment, regardless of whether the disputants stand in the
proximate relation of employers and employees. 39 With these premises, we
now evaluate the circumstances of the instant petition.
It cannot be denied that the mass action or assembly staged by the petitioners
resulted in the non-holding of classes in several public schools during the
corresponding period. Petitioners do not dispute that the grievances for which
they sought redress concerned the alleged failure of public authorities
essentially, their "employers" to fully and justly implement certain laws and
measures intended to benefit them materially, such as:
1. Immediate release of P680 million Secondary Education Fund (SEF) fringe
benefits of teachers under Section 17 of Republic Act 6758.
2. Clothing allowance at P500 to P1,000 per teachers [sic] under the General
Appropriations Act of 1990
3. DMB Circular 904
4. Increase in minimum wage to P5,000 for teachers. 40
And probably to clothe their action with permissible character, 41 they also
raised national issues such as the removal of the U.S. bases and the
repudiation of foreign debt. In Balingasan vs. Court of Appeals, 42however, this
Court said that the fact that the conventional term "strike" was not used by the
participants to describe their common course of action was insignificant, since
the substance of the situation, and not its appearance, was deemed
controlling. 43
Moreover, the petitioners here, except Merlinda Jacinto, were not penalized for
the exercise of their right to assemble peacefully and to petition the
government for a redress of grievances. Rather, the Civil Service Commission
found them guilty of conduct prejudicial to the best interest of the service for
having absented themselves without proper authority, from their schools during
regular school days, in order to participate in the mass protest, their absence

ineluctably resulting in the non-holding of classes and in the deprivation of

students of education, for which they were responsible. Had petitioners availed
themselves of their free time recess, after classes, weekends or holidays
to dramatize their grievances and to dialogue with the proper authorities within
the bounds of law, no one not the DECS, the CSC or even this Court could
have held them liable for the valid exercise of their constitutionally guaranteed
rights. As it was, the temporary stoppage of classes resulting from their activity
necessarily disrupted public services, the very evil sought to be forestalled by
the prohibition against strikes by government workers. Their act by its nature
was enjoined by the Civil Service law, rules and regulations, for which they
must, therefore, be made answerable.
Second Issue: Violation by Petitioner Jacinto
of Reasonable Office Rules and Regulations
Petitioner Jacinto, for her part, pleads for exoneration. She asks the Court to
reexamine and give due weight to the certification 44 issued by her school
principal that she met her class on September 20, 1990 but failed to sign in the
attendance logbook. Stated elsewise, Jacinto wants us to scrutinize firsthand a
document already ruled upon by the Civil Service Commission and the Court of
Appeals to be of doubtful credibility. Time and again, we have held that findings
of administrative agencies, which have acquired expertise because their
jurisdiction is confined to specific matters, are accorded not only respect but
even finality 45 particularly when affirmed by the appellate tribunal. It is not a
function of this Court to examine and evaluate the probative value of the
evidence proffered in the concerned forum, which formed the basis of the
latter's impugned decision, resolution or order, 46 absent a dear showing of
arbitrariness and want of any rational basis therefor. 47 In the instant case, we
find no sufficient reason to reverse the findings of the CSC.
In any event, as observed by the Commission, said certification, dated
December 19, 1990, was belatedly submitted by Petitioner Jacinto only with her
motion for reconsideration of the CSC resolution promulgated September 21,
1993; thus, it was correctly rejected as a newly discovered evidence.
Additionally, the Commission explained:
. . . such certification contradicts the allegation that she filed an application for
leave. If she was really present on September 20, 1990, there would have been
no need for her to file an application for leave. Apparently, this is a vain effort
to present documents of doubtful credibility just to have Jacinto exonerated of
the charges against her. 48
The futility of the tactics of Petitioner Jacinto to evade culpability is further
exemplified by her contradictory assertions. In a sworn explanation submitted
to Secretary Cario, she claimed that she left the school premises on the day in
question, because she "was emotionally and mentally depressed," and went to
see a physician. 49 In her motion for reconsideration before the CSC, she
submitted the above certification to the effect that she was not absent. Now, in
assailing the Commission's decision to reprimand her for violation of reasonable
office rules and regulations in not filing an application for leave of absence, she
invokes Sec. 15, Rule XVI of the Civil Service rules, which provides:
Sec. 15. Applications for vacation leave of absence for one full day or more
shall be submitted on the prescribed form for action by the proper chief of
agency in advance, whenever possible, of the effective date of such leave.
She contends that the filing of an application for vacation leave need not
always be in advance of the effective date thereof. 50 Clearly, her present
stance is diametric to her "illness" justification before the DECS. In the latter
case, it is Section 16 of said rules that is pertinent:

Sec. 16. All applications for sick leaves of absence for one full day or more shall
be on the prescribed form and shall be filed immediately upon the employee's
return from such leave. Notice of absence, however, should be sent to the
immediate supervisor and/or to the office head. . . .
The regulation requires (1) the filing of the application for sick leave on the
prescribed form immediately upon the employee's return from sick leave and
(2) a notice of absence to be sent to the immediate supervisor and/or office
head. But the Commission found that "the records are bereft of any showing
that Jacinto asked permission from school authorities to go out of school
premises and seek medical attention outside nor did she file an application for
sick leave . . ." 51 Hence, its conclusion that petitioner violated reasonable office
rules and regulations.
The totality of the evidence on record sustains the findings and conclusions of
the Commission, as affirmed by the Court of Appeals. We have no reason to
reverse them. The Civil Service rules clearly provide that violation of
reasonable office rules and regulations, on first offense, carries the penalty of
reprimand. 52
Third Issue: No Right to Backwages
Petitioners anchor their claim for backwages on the supposed illegality of (1)
their preventive suspension upon the filing of the charges against them and (2)
the immediate execution of the DECS Secretary's decisions ordering their
dismissal.
The charges against petitioners consisted of the following: (1) grave
misconduct; (2) gross neglect of duty; (3) gross violation of Civil Service law,
rules and regulations and reasonable office regulations; (4) refusal to perform
official duty; (5) gross insubordination; (6) conduct prejudicial to the best
interest of the service; and (7) absence without approved leave. These were
based on their alleged unauthorized participation in the mass actions in
September 1990, disregard of report-to-work directives, unjustified
abandonment of teaching posts, unauthorized absences without leave, and
other similar violations reported to the DECS Secretary by their respective
school supervisors. 53
We find that the charges filed against petitioners warranted their preventive
suspension from the service, as provided under Section 51, Chapter 7 (on
Discipline) of the Administrative Code, which reads:
Sec. 51. Preventive Suspension. The proper disciplining authority may
preventively suspend any subordinate officer or employee under his authority
pending an investigation, if the charge against such officer or employee
involves dishonesty, oppression or grave misconduct, or neglect in the
performance of duty, or if there are reasons to believe that the respondent is
guilty of charges which would warrant his removal from the service.
The petitioners' alleged lapses, initially found substantiated by the DECS,
qualify as grave misconduct or neglect in the performance of duty under the
above rule. Thus, former Education Secretary Cario had the legal authority to
suspend them pending further investigation.
The Secretary's immediate execution of his decisions imposing the penalty of
dismissal finds legal basis in Sec. 47 (2) of the Civil Service law 54 which
provides:
Sec. 47. Disciplinary Jurisdiction. . . .
(2) The Secretaries and heads of agencies and instrumentalities, provinces,
cities and municipalities shall have jurisdiction to investigate and decide
matters involving disciplinary action against officers and employees under their
jurisdiction. Their decisions shall be final in case the penalty imposed is
suspension for not more than thirty days or fine in an amount not exceeding

thirty days' salary. In case the decision rendered by a bureau or office head is
appealable to the Commission, the same may be initially appealed to the
department and finally to the Commission and pending appeal, the same shall
be executory except when the penalty is removal, in which case the same shall
be executory only after confirmation by the Secretary concerned.
As can be gleaned from the above, the department secretary's decision
confirming the removal of an officer or employee under his jurisdiction is
executory in character, i.e. such decision may be immediately executed even
pending further remedy, such as an appeal, 55 by the dismissed officer or
employee. In the case at bar, it was already the final judgments of Secretary
Cario which were forthwith carried out. The aforequoted statutory provision
rules out the alleged illegality of the actions of the DECS Secretary.
In any event, the rule is settled that backwages may be granted only to those
who have been illegally dismissed and thenceforth ordered reinstated, or to
those acquitted of the charge against them. 56 Even a pardoned convicted
employee is not automatically entitled to backpay. Monsanto vs. Factoran
Jr. 57 established the general rule that while pardon has been commonly
regarded as eliminating the existence of guilt so that in the eyes of the law the
offender is as innocent as though he never committed the offense such
exoneration does not operate for all purposes. It does not erase the fact of the
commission of the offense and the conviction therefor. It frees the convict from
all penalties and legal disabilities and restores to him all his civil rights; but
unless expressly grounded on the person's innocence, it does not ipso
facto restore him to public office necessarily relinquished or forfeited by reason
of the conviction. Pardon does not generally result in automatic reinstatement
because the offender has to apply for reappointment; neither is he entitled to
backpay. 58
Thus, in Sabello vs. DECS, 59 although we reinstated the petitioner-pardonee to
his previous position in the interest of "justice and equity," we did not grant him
backwages since he "was lawfully separated from the government service upon
his conviction for an offense." We reiterated that the right to backwages was
afforded only to those who were illegally dismissed but thereafter ordered
reinstated, or to those otherwise acquitted of the charge against them.
Again, in City Mayor of Zamboanga vs. Court of Appeals, 60 we said that "back
salaries may be ordered paid to an officer or employee only if he is exonerated
of the charge against him and his suspension or dismissal is found and declared
to be illegal." Hence, in Garcia vs. Chairman, Commission on Audit, 61 we said
that "if the pardon is based on the innocence of the individual, it affirms this
innocence and makes him a new man and as innocent as if he had not been
found guilty of the offense charged." 62 In that case, Garcia was found
administratively liable for dishonesty. He was, however, acquitted by the trial
court of the complaint for qualified theft based on the very same acts. The
acquittal was founded not on lack of proof beyond reasonable doubt but on the
fact that he did not commit the offense imputed to him. This Court said that
after having been declared innocent of the criminal complaint, which had the
same basis as the administrative charge, for all legal purposes the petitioner
should not be considered to have left his office, so that he was entitled to all
the rights and privileges that accrued to him by virtue of the office held,
including backwages. He was restored to his office ipso facto upon the issuance
of the clemency. The grant of backwages was justified "to afford relief to [the]
petitioner who [was] innocent from the start and to make reparation for what
he [had] suffered as a result of his unjust dismissal from the service." 63
However, in Balingasan, finding that petitioners therein indeed participated in
the unlawful mass actions for which they were similarly meted suspension, the

Court opined that they were not completely exonerated of the charges against
them. They were denied back salaries because they had given ground for their
suspension. This means that being found liable for a lesser offense is not
equivalent to exoneration from the original complaint against the concerned
public officer or employee. Balingasan referred to the earlier case of Yacia
vs. City of Baguio, 64 in which this Court denied the claim of an employee for
backwages for the period during which he was not allowed to work because of
the execution of the CSC decision dismissing him for dishonesty, even though,
on appeal, his penalty was reduced to a fine equivalent to six months' pay.
Based on the above premises, petitioners' demand for backwages cannot be
granted, for they had given cause for their suspension their unjustified
abandonment of classes to the prejudice of their students. Although they were
eventually found guilty only of conduct prejudicial to the best interest of the
service, and not grave misconduct or other offense warranting their dismissal
from the service, they were not fully innocent of the charges against them.
We find the case of Petitioner Jacinto different, however. The Civil Service
Commission found her culpable only of violation of reasonable office rules and
regulations, for not having asked permission from school authorities to leave
the school premises and seek medical attention and for not filing an application
for sick leave for approval by the school authorities. There was no proof that
she joined the mass actions which caused prejudice to the school system.
In Balingasan, this Court, after finding that Rodolfo Mariano was not involved in
the mass actions but was absent because he attended the wake and burial of
his grandmother in Ilocos Sur without however the benefit of an approved leave
of absence, held that "[t]o deny petitioner Mariano his back wages during his
suspension would be tantamount to punishing him after his exoneration from
the charges which caused his dismissal from the service," i.e. participation in
the unlawful mass actions. Therefore, in line with Balingasan, we likewise grant
back salaries to Petitioner Jacinto who did not join the illegal activity.
WHEREFORE, in view of the foregoing, the petition is hereby DENIED and the
assailed Decision of the Court of Appeals is hereby AFFIRMED with the
modification that Petitioner Merlinda Jacinto is granted backwages, without
deduction or qualification, from the time she was suspended until her actual
reinstatement, the total of which, consistent with prevailing
jurisprudence, 65 should not exceed five years.
Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza
and Francisco, JJ., concur.
Narvasa, C.J., is on leave.
11 Second paragraph of Sec. 2 which states, "Only questions of law may be
raised in the petition and must be distinctly set forth. . . ."
12 In Fuentes vs. Court of Appeals, G.R. No. 109849, February 26, 1997, we
enumerated such instances as follows:
"(1) when the factual findings of the Court of Appeals and the trial court are
contradictory;
(2) when the findings are grounded entirely on speculation, surmises, or
conjectures;
(3) when the inference made by the Court of Appeals from its findings of fact is
manifestly mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the appellate court, in making its findings, goes beyond the issues of
the case, and such findings are contrary to the admissions of both appellant
and appellee;
(6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts;

(7) when the Court of Appeals fails to notice certain relevant facts which, if
properly considered, will justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the specific
evidence on which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on the
absence of evidence but such findings are goes are contradicted by the
evidence on record."
13 "Sec. 4[, Article III]. No law shall be passed abridging the freedom of speech,
of expression, or of the press, or the right of the people peaceably to assemble
and petition the government for redress of grievances."
14 "Sec. 8[, Article III]. The right of the people, including those employed in the
public and private sectors, to form unions, associations, or societies for
purposes not contrary to law shall not be abridged."
15 "Sec. 2. . . .
(5) The right to self-organization shall not be denied to government
employees."
16 "Sec. 3. . . .
[The State] shall guarantee the rights of all workers to self-organization,
collective bargaining and negotiations, and peaceful concerted activities,
including the right to strike in accordance with law. . . ."
17 7 Phil. 422, February 7, 1907, per Carson, J., which involved a gathering
near the municipal building of about five hundred residents of San Carlos,
Occidental Negros, to demand the ouster of certain municipal officials.
18 Ibid., p. 426.
19 80 Phil. 71, January 27, 1948 per Feria, J., where Manila Mayor Fugoso was
sought to be compelled to issue a permit for the holding of a rally at the Plaza
Miranda intended as a protest against alleged fraud in the elections.
20 71 U.S. (Law ed.), 1105-1107.
21 125 SCRA 553, November 9, 1983, per Fernando, CJ.
22 Cabansag vs. Fernandez, 102 Phil. 152, 161, October 18, 1957, per Bautista
Angelo, J., explained this rule to mean, "as interpreted in a number of
cases, . . . that the evil consequence of the comment or utterance must be
'extremely serious and the degree of imminence extremely high' before the
utterance can be punished. The danger to be guarded against is the
'substantive evil' sought to be prevented. And this evil is primarily the
'disorderly and unfair administration of justice.'"
The Court continued, "The question in every case, according to Justice Holmes
[in Schenck vs. U.S., 249 U.S. 47], is whether the words used are used in such
circumstances and are of such a nature as to create a clear and present danger
that they will bring about the substantive evils that [C]ongress has a right to
prevent. It is a question of proximity and degree."
23 ". . . The applicants for a permit to hold an assembly should inform the
licensing authority of the date, the public place where and the time when it will
take place. If it were a private place, only the consent of the owner or the one
entitled to its legal possession is required. Such application should be filed well
ahead in time to enable the public official concerned to appraise whether there
may be valid objections to the grant of the permit or to its grant but at another
public place. It is an indispensable condition to such refusal or modification that
the clear and present danger test be the standard for the decision reached. If
he is of the view that there is such an imminent and grave danger of a
substantive evil, the applicants must be heard on the matter. Thereafter, his
decision, whether favorable or adverse, must be transmitted to them at the

earliest opportunity. Thus if so minded, they can have recourse to the proper
judicial authority."
24 51 SCRA 189, June 5, 1973, where the petitioner labor union, against the
wishes of the management, did not report for work in order to be able to stage
a mass demonstration against alleged abuses of local police.
25 Ibid., p. 205, citing Marsh vs. Alabama, 326 U.S. 501; Tucker vs. Texas, 326
U.S. 517; and Pickering vs. Board of Education, 391 U.S. 563, 574 (1968).
26 203 SCRA 596, November 15, 1991, per Gutierrez Jr., J.
27 Ibid., p. 600. Sec. 8, Art. III, Constitution.
28 People vs. Ferrer, 48 SCRA 382, December 27, 1972 per Castro J. where the
Court, while upholding the validity of the Anti-Subversion Act which outlawed
the Communist Party of the Philippines and other "subversive" organizations,
clarified, "Whatever interest in freedom of speech and freedom of association is
infringed by the prohibition against knowing membership in the Communist
Party of the Philippines, is so indirect and so insubstantial as to be clearly and
heavily outweighed by the overriding considerations of national security and
the preservation of democratic institutions in this country." It cautioned,
though, that "the need for prudence and circumspection [cannot be
overemphasized] in the [the law's] enforcement, operating as it does in the
sensitive area of freedom of expression and belief."
29 Issued by former President Corazon C. Aquino on June 1, 1987.
30 CSC Memorandum Circular No. 6, s. 1987, dated April 21, 1987.
31 Section 14.
32 124 SCRA 1, August 3, 1983, also per Gutierrez Jr., J.
33 Ibid., p. 13.
34 175 SCRA 686, July 28, 1989, per Cortes, J.
35 Ibid., p. 698.
36 Supra, per Narvasa, J., now CJ.
37 Ibid.
38 Art. 212 (o) of the Labor Code; Lapanday Workers Union vs. National Labor
Relations Commission, 248 SCRA 95, September 7, 1995.
39 Gold City Integrated Port Service, Inc. vs. National Labor Relations
Commission, 245 SCRA 627, July 6, 1995.
40 Petition, p. 14; rollo, p. 25.
41 In justifying their mass actions, petitioners liken their activity to the probases rally led by former President Corazon C. Aquino on September 10, 1991,
participated in, as well, by public school teachers who consequently absented
themselves from their classes. No administrative charges were allegedly
instituted against any of the participants. (Petition, p. 15)
42 G.R. No. 124678, July 31, 1997, per Regalado, J.
43 Ibid., p. 6, citing Board of Education v. New Jersey Education Association, 53
NJ 29, 247 A2d 867 (1968).
44 Rollo, p. 99.
45 Cocofed vs. Trajano, 241 SCRA 363, February 15, 1995; Maya Farms
Employees Organization vs. NLRC, 239 SCRA 508, December 28, 1994.
46 Acebedo Optical Co. vs. Court of Appeals, 250 SCRA 409, November 29,
1995.
47 Magnolia Corp. vs. NLRC, 250 SCRA 332, November 24, 1995; TUCP vs.
Laguesma, 236 SCRA 586, September 21, 1994.
48 CSC Resolution No. 94-5973, dated November 3, 1994; rollo, pp. 100-101.
49 CSC Resolution No. 93-4090, dated September 21, 1993; rollo, pp. 93-94.
50 Petition, pp. 27-28; rollo, pp. 38-39.
51 CSC Resolution No. 93-4090, supra.

52 Sec. 21, par. 4 (c) of the Rules implementing the Administrative Code and
other pertinent civil service laws.
53 Petition, p. 32; rollo, p. 43.
54 Subtitle A, Title I, Book V of E.O. 292, which took effect

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 85750 September 28, 1990
INTERNATIONAL CATHOLIC IMMIGRATION COMMISSION, petitioner
vs
HON. PURA CALLEJA IN HER CAPACITY AS DIRECTOR OF THE BUREAU
OF LABOR RELATIONS AND TRADE UNIONS OF THE PHILIPPINES AND
ALLIED SERVICES (TUPAS) WFTU respondents.
G.R. No. 89331 September 28, 1990
KAPISANAN NG MANGGAGAWA AT TAC SA IRRI-ORGANIZED LABOR
ASSOCIATION IN LINE INDUSTRIES AND AGRICULTURE, petitioner,
vs
SECRETARY OF LABOR AND EMPLOYMENT AND INTERNATIONAL RICE
RESEARCH INSTITUTE, INC.,respondents.
Araullo, Zambrano, Gruba, Chua Law Firm for petitioner in 85750.
Dominguez, Armamento, Cabana & Associates for petitioner in G.R. No. 89331.
Jimenez & Associates for IRRI.
Alfredo L. Bentulan for private respondent in 85750.
MELENCIO-HERRERA, J.:
Consolidated on 11 December 1989, these two cases involve the validity of the
claim of immunity by the International Catholic Migration Commission (ICMC)
and the International Rice Research Institute, Inc. (IRRI) from the application of
Philippine labor laws.
I
Facts and Issues
A. G.R. No. 85750 the International Catholic Migration Commission (ICMC)
Case.
As an aftermath of the Vietnam War, the plight of Vietnamese refugees fleeing
from South Vietnam's communist rule confronted the international community.
In response to this crisis, on 23 February 1981, an Agreement was forged
between the Philippine Government and the United Nations High Commissioner
for Refugees whereby an operating center for processing Indo-Chinese refugees
for eventual resettlement to other countries was to be established in Bataan
(Annex "A", Rollo, pp. 22-32).
ICMC was one of those accredited by the Philippine Government to operate the
refugee processing center in Morong, Bataan. It was incorporated in New York,
USA, at the request of the Holy See, as a non-profit agency involved in
international humanitarian and voluntary work. It is duly registered with the
United Nations Economic and Social Council (ECOSOC) and enjoys Consultative
Status, Category II. As an international organization rendering voluntary and
humanitarian services in the Philippines, its activities are parallel to those of
the International Committee for Migration (ICM) and the International
Committee of the Red Cross (ICRC) [DOLE Records of BLR Case No. A-2-6287, ICMC v. Calleja, Vol. 1].
On 14 July 1986, Trade Unions of the Philippines and Allied Services (TUPAS)
filed with the then Ministry of Labor and Employment a Petition for Certification
Election among the rank and file members employed by ICMC The latter
opposed the petition on the ground that it is an international organization
registered with the United Nations and, hence, enjoys diplomatic immunity.

On 5 February 1987, Med-Arbiter Anastacio L. Bactin sustained ICMC and

dismissed the petition for lack of jurisdiction.
On appeal by TUPAS, Director Pura Calleja of the Bureau of Labor Relations
(BLR), reversed the Med-Arbiter's Decision and ordered the immediate conduct
of a certification election. At that time, ICMC's request for recognition as a
specialized agency was still pending with the Department of Foreign Affairs
(DEFORAF).
Subsequently, however, on 15 July 1988, the Philippine Government, through
the DEFORAF, granted ICMC the status of a specialized agency with
corresponding diplomatic privileges and immunities, as evidenced by a
Memorandum of Agreement between the Government and ICMC (Annex "E",
Petition, Rollo, pp. 41-43), infra.
ICMC then sought the immediate dismissal of the TUPAS Petition for
Certification Election invoking the immunity expressly granted but the same
was denied by respondent BLR Director who, again, ordered the immediate
conduct of a pre-election conference. ICMC's two Motions for Reconsideration
were denied despite an opinion rendered by DEFORAF on 17 October 1988 that
said BLR Order violated ICMC's diplomatic immunity.
Thus, on 24 November 1988, ICMC filed the present Petition for Certiorari with
Preliminary Injunction assailing the BLR Order.
On 28 November 1988, the Court issued a Temporary Restraining Order
enjoining the holding of the certification election.
On 10 January 1989, the DEFORAF, through its Legal Adviser, retired Justice
Jorge C. Coquia of the Court of Appeals, filed a Motion for Intervention alleging
that, as the highest executive department with the competence and authority
to act on matters involving diplomatic immunity and privileges, and tasked with
the conduct of Philippine diplomatic and consular relations with foreign
governments and UN organizations, it has a legal interest in the outcome of this
case.
Over the opposition of the Solicitor General, the Court allowed DEFORAF
intervention.
On 12 July 1989, the Second Division gave due course to the ICMC Petition and
required the submittal of memoranda by the parties, which has been complied
with.
As initially stated, the issue is whether or not the grant of diplomatic privileges
and immunites to ICMC extends to immunity from the application of Philippine
labor laws.
ICMC sustains the affirmative of the proposition citing (1) its Memorandum of
Agreement with the Philippine Government giving it the status of a specialized
agency, (infra); (2) the Convention on the Privileges and Immunities of
Specialized Agencies, adopted by the UN General Assembly on 21 November
1947 and concurred in by the Philippine Senate through Resolution No. 91 on
17 May 1949 (the Philippine Instrument of Ratification was signed by the
President on 30 August 1949 and deposited with the UN on 20 March
1950) infra; and (3) Article II, Section 2 of the 1987 Constitution, which declares
that the Philippines adopts the generally accepted principles of international
law as part of the law of the land.
Intervenor DEFORAF upholds ICMC'S claim of diplomatic immunity and seeks an
affirmance of the DEFORAF determination that the BLR Order for a certification
election among the ICMC employees is violative of the diplomatic immunity of
said organization.
Respondent BLR Director, on the other hand, with whom the Solicitor General
agrees, cites State policy and Philippine labor laws to justify its assailed Order,
particularly, Article II, Section 18 and Article III, Section 8 of the 1987

Constitution, infra; and Articles 243 and 246 of the Labor Code, as amended,
ibid. In addition, she contends that a certification election is not a litigation but
a mere investigation of a non-adversary, fact-finding character. It is not a suit
against ICMC its property, funds or assets, but is the sole concern of the
workers themselves.
B. G.R. No. 89331 (The International Rice Research Institute [IRRI] Case).
Before a Decision could be rendered in the ICMC Case, the Third Division, on 11
December 1989, resolved to consolidate G.R. No. 89331 pending before it with
G.R. No. 85750, the lower-numbered case pending with the Second Division,
upon manifestation by the Solicitor General that both cases involve similar
issues.
The facts disclose that on 9 December 1959, the Philippine Government and
the Ford and Rockefeller Foundations signed a Memorandum of Understanding
establishing the International Rice Research Institute (IRRI) at Los Baos,
Laguna. It was intended to be an autonomous, philanthropic, tax-free, nonprofit, non-stock organization designed to carry out the principal objective of
conducting "basic research on the rice plant, on all phases of rice production,
management, distribution and utilization with a view to attaining nutritive and
economic advantage or benefit for the people of Asia and other major ricegrowing areas through improvement in quality and quantity of rice."
Initially, IRRI was organized and registered with the Securities and Exchange
Commission as a private corporation subject to all laws and regulations.
However, by virtue of Pres. Decree No. 1620, promulgated on 19 April 1979,
IRRI was granted the status, prerogatives, privileges and immunities of an
international organization.
The Organized Labor Association in Line Industries and Agriculture (OLALIA), is
a legitimate labor organization with an existing local union, the Kapisanan ng
Manggagawa at TAC sa IRRI (Kapisanan, for short) in respondent IRRI.
On 20 April 1987, the Kapisanan filed a Petition for Direct Certification Election
with Region IV, Regional Office of the Department of Labor and Employment
(DOLE).
IRRI opposed the petition invoking Pres. Decree No. 1620 conferring upon it the
status of an international organization and granting it immunity from all civil,
criminal and administrative proceedings under Philippine laws.
On 7 July 1987, Med-Arbiter Leonardo M. Garcia, upheld the opposition on the
basis of Pres. Decree No. 1620 and dismissed the Petition for Direct
Certification.
On appeal, the BLR Director, who is the public respondent in the ICMC Case, set
aside the Med-Arbiter's Order and authorized the calling of a certification
election among the rank-and-file employees of IRRI. Said Director relied on
Article 243 of the Labor Code, as amended, infra and Article XIII, Section 3 of
the 1987 Constitution, 1and held that "the immunities and privileges granted to
IRRI do not include exemption from coverage of our Labor Laws."
Reconsideration sought by IRRI was denied.
On appeal, the Secretary of Labor, in a Resolution of 5 July 1989, set aside the
BLR Director's Order, dismissed the Petition for Certification Election, and held
that the grant of specialized agency status by the Philippine Government to the
IRRI bars DOLE from assuming and exercising jurisdiction over IRRI Said
Resolution reads in part as follows:
Presidential Decree No. 1620 which grants to the IRRI the status, prerogatives,
privileges and immunities of an international organization is clear and explicit.
It provides in categorical terms that:
Art. 3 The Institute shall enjoy immunity from any penal, civil and
administrative proceedings, except insofar as immunity has been expressly

waived by the Director-General of the Institution or his authorized

representative.
Verily, unless and until the Institute expressly waives its immunity, no
summons, subpoena, orders, decisions or proceedings ordered by any court or
administrative or quasi-judicial agency are enforceable as against the Institute.
In the case at bar there was no such waiver made by the Director-General of
the Institute. Indeed, the Institute, at the very first opportunity already
vehemently questioned the jurisdiction of this Department by filing an ex-parte
motion to dismiss the case.
Hence, the present Petition for Certiorari filed by Kapisanan alleging grave
abuse of discretion by respondent Secretary of Labor in upholding IRRI's
diplomatic immunity.
The Third Division, to which the case was originally assigned, required the
respondents to comment on the petition. In a Manifestation filed on 4 August
1990, the Secretary of Labor declared that it was "not adopting as his own" the
decision of the BLR Director in the ICMC Case as well as the Comment of the
Solicitor General sustaining said Director. The last pleading was filed by IRRI on
14 August 1990.
Instead of a Comment, the Solicitor General filed a Manifestation and Motion
praying that he be excused from filing a comment "it appearing that in the
earlier case of International Catholic Migration Commission v. Hon. Pura Calleja,
G.R. No. 85750. the Office of the Solicitor General had sustained the stand of
Director Calleja on the very same issue now before it, which position has been
superseded by respondent Secretary of Labor in G.R. No. 89331," the present
case. The Court acceded to the Solicitor General's prayer.
The Court is now asked to rule upon whether or not the Secretary of Labor
committed grave abuse of discretion in dismissing the Petition for Certification
Election filed by Kapisanan.
Kapisanan contends that Article 3 of Pres. Decree No. 1620 granting IRRI the
status, privileges, prerogatives and immunities of an international organization,
invoked by the Secretary of Labor, is unconstitutional in so far as it deprives the
Filipino workers of their fundamental and constitutional right to form trade
unions for the purpose of collective bargaining as enshrined in the 1987
Constitution.
A procedural issue is also raised. Kapisanan faults respondent Secretary of
Labor for entertaining IRRI'S appeal from the Order of the Director of the
Bureau of Labor Relations directing the holding of a certification election.
Kapisanan contends that pursuant to Sections 7, 8, 9 and 10 of Rule V 2 of the
Omnibus Rules Implementing the Labor Code, the Order of the BLR Director had
become final and unappeable and that, therefore, the Secretary of Labor had
no more jurisdiction over the said appeal.
On the other hand, in entertaining the appeal, the Secretary of Labor relied on
Section 25 of Rep. Act. No. 6715, which took effect on 21 March 1989, providing
for the direct filing of appeal from the Med-Arbiter to the Office of the Secretary
of Labor and Employment instead of to the Director of the Bureau of Labor
Relations in cases involving certification election orders.
III
Findings in Both Cases.
There can be no question that diplomatic immunity has, in fact, been granted
ICMC and IRRI.
Article II of the Memorandum of Agreement between the Philippine Government
and ICMC provides that ICMC shall have a status "similar to that of a specialized
agency." Article III, Sections 4 and 5 of the Convention on the Privileges and
Immunities of Specialized Agencies, adopted by the UN General Assembly on

21 November 1947 and concurred in by the Philippine Senate through

Resolution No. 19 on 17 May 1949, explicitly provides:
Art. III, Section 4. The specialized agencies, their property and assets, wherever
located and by whomsoever held, shall enjoy immunity from every form of
legal process except insofar as in any particular case they have expressly
waived their immunity. It is, however, understood that no waiver of immunity
shall extend to any measure of execution.
Sec. 5. The premises of the specialized agencies shall be inviolable. The
property and assets of the specialized agencies, wherever located and by
whomsoever held shall be immune from search, requisition, confiscation,
expropriation and any other form of interference, whether by executive,
administrative, judicial or legislative action. (Emphasis supplied).
IRRI is similarly situated, Pres. Decree No. 1620, Article 3, is explicit in its grant
of immunity, thus:
Art. 3. Immunity from Legal Process. The Institute shall enjoy immunity from
any penal, civil and administrative proceedings, except insofar as that
immunity has been expressly waived by the Director-General of the Institute or
his authorized representatives.
Thus it is that the DEFORAF, through its Legal Adviser, sustained ICMC'S
invocation of immunity when in a Memorandum, dated 17 October 1988, it
expressed the view that "the Order of the Director of the Bureau of Labor
Relations dated 21 September 1988 for the conduct of Certification Election
within ICMC violates the diplomatic immunity of the organization." Similarly, in
respect of IRRI, the DEFORAF speaking through The Acting Secretary of Foreign
Affairs, Jose D. Ingles, in a letter, dated 17 June 1987, to the Secretary of Labor,
maintained that "IRRI enjoys immunity from the jurisdiction of DOLE in this
particular instance."
The foregoing opinions constitute a categorical recognition by the Executive
Branch of the Government that ICMC and IRRI enjoy immunities accorded to
international organizations, which determination has been held to be a political
question conclusive upon the Courts in order not to embarrass a political
department of Government.
It is a recognized principle of international law and under our system of
separation of powers that diplomatic immunity is essentially a political question
and courts should refuse to look beyond a determination by the executive
branch of the government, and where the plea of diplomatic immunity is
recognized and affirmed by the executive branch of the government as in the
case at bar, it is then the duty of the courts to accept the claim of immunity
upon appropriate suggestion by the principal law officer of the government . . .
or other officer acting under his direction. Hence, in adherence to the settled
principle that courts may not so exercise their jurisdiction . . . as to embarrass
the executive arm of the government in conducting foreign relations, it is
accepted doctrine that in such cases the judicial department of (this)
government follows the action of the political branch and will not embarrass the
latter by assuming an antagonistic jurisdiction. 3
A brief look into the nature of international organizations and specialized
agencies is in order. The term "international organization" is generally used to
describe an organization set up by agreement between two or more
states. 4 Under contemporary international law, such organizations are
endowed with some degree of international legal personality 5 such that they
are capable of exercising specific rights, duties and powers. 6 They are
organized mainly as a means for conducting general international business in
which the member states have an interest. 7 The United Nations, for instance, is
an international organization dedicated to the propagation of world peace.

"Specialized agencies" are international organizations having functions in

particular fields. The term appears in Articles 57 8 and 63 9 of the Charter of the
United Nations:
The Charter, while it invests the United Nations with the general task of
promoting progress and international cooperation in economic, social, health,
cultural, educational and related matters, contemplates that these tasks will be
mainly fulfilled not by organs of the United Nations itself but by autonomous
international organizations established by inter-governmental agreements
outside the United Nations. There are now many such international agencies
having functions in many different fields, e.g. in posts, telecommunications,
railways, canals, rivers, sea transport, civil aviation, meteorology, atomic
energy, finance, trade, education and culture, health and refugees. Some are
virtually world-wide in their membership, some are regional or otherwise
limited in their membership. The Charter provides that those agencies which
have "wide international responsibilities" are to be brought into relationship
with the United Nations by agreements entered into between them and the
Economic and Social Council, are then to be known as "specialized agencies." 10
The rapid growth of international organizations under contemporary
international law has paved the way for the development of the concept of
international immunities.
It is now usual for the constitutions of international organizations to contain
provisions conferring certain immunities on the organizations themselves,
representatives of their member states and persons acting on behalf of the
organizations. A series of conventions, agreements and protocols defining the
immunities of various international organizations in relation to their members
generally are now widely in force; . . . 11
There are basically three propositions underlying the grant of international
immunities to international organizations. These principles, contained in the ILO
Memorandum are stated thus: 1) international institutions should have a status
which protects them against control or interference by any one government in
the performance of functions for the effective discharge of which they are
responsible to democratically constituted international bodies in which all the
nations concerned are represented; 2) no country should derive any national
financial advantage by levying fiscal charges on common international funds;
and 3) the international organization should, as a collectivity of States
members, be accorded the facilities for the conduct of its official business
customarily extended to each other by its individual member States. 12 The
theory behind all three propositions is said to be essentially institutional in
character. "It is not concerned with the status, dignity or privileges of
individuals, but with the elements of functional independence necessary to free
international institutions from national control and to enable them to discharge
their responsibilities impartially on behalf of all their members. 13The raison
d'etre for these immunities is the assurance of unimpeded performance of their
functions by the agencies concerned.
The grant of immunity from local jurisdiction to ICMC and IRRI is clearly
necessitated by their international character and respective purposes. The
objective is to avoid the danger of partiality and interference by the host
country in their internal workings. The exercise of jurisdiction by the
Department of Labor in these instances would defeat the very purpose of
immunity, which is to shield the affairs of international organizations, in
accordance with international practice, from political pressure or control by the
host country to the prejudice of member States of the organization, and to
ensure the unhampered performance of their functions.

ICMC's and IRRI's immunity from local jurisdiction by no means deprives labor
of its basic rights, which are guaranteed by Article II, Section 18, 14 Article III,
Section 8, 15 and Article XIII, Section 3 (supra), of the 1987 Constitution; and
implemented by Articles 243 and 246 of the Labor Code, 16 relied on by the BLR
Director and by Kapisanan.
For, ICMC employees are not without recourse whenever there are disputes to
be settled. Section 31 of the Convention on the Privileges and Immunities of the
Specialized Agencies of the United Nations 17 provides that "each specialized
agency shall make provision for appropriate modes of settlement of: (a)
disputes arising out of contracts or other disputes of private character to which
the specialized agency is a party." Moreover, pursuant to Article IV of the
Memorandum of Agreement between ICMC the the Philippine Government,
whenever there is any abuse of privilege by ICMC, the Government is free to
withdraw the privileges and immunities accorded. Thus:
Art. IV. Cooperation with Government Authorities. 1. The Commission shall
cooperate at all times with the appropriate authorities of the Government to
ensure the observance of Philippine laws, rules and regulations, facilitate the
proper administration of justice and prevent the occurrences of any abuse of
the privileges and immunities granted its officials and alien employees in
Article III of this Agreement to the Commission.
2. In the event that the Government determines that there has been an abuse
of the privileges and immunities granted under this Agreement, consultations
shall be held between the Government and the Commission to determine
whether any such abuse has occurred and, if so, the Government shall
withdraw the privileges and immunities granted the Commission and its
officials.
Neither are the employees of IRRI without remedy in case of dispute with
management as, in fact, there had been organized a forum for better
management-employee relationship as evidenced by the formation of the
Council of IRRI Employees and Management (CIEM) wherein "both management
and employees were and still are represented for purposes of maintaining
mutual and beneficial cooperation between IRRI and its employees." The
existence of this Union factually and tellingly belies the argument that Pres.
Decree No. 1620, which grants to IRRI the status, privileges and immunities of
an international organization, deprives its employees of the right to selforganization.
The immunity granted being "from every form of legal process except in so far
as in any particular case they have expressly waived their immunity," it is
inaccurate to state that a certification election is beyond the scope of that
immunity for the reason that it is not a suit against ICMC. A certification
election cannot be viewed as an independent or isolated process. It could
tugger off a series of events in the collective bargaining process together with
related incidents and/or concerted activities, which could inevitably involve
ICMC in the "legal process," which includes "any penal, civil and administrative
proceedings." The eventuality of Court litigation is neither remote and from
which international organizations are precisely shielded to safeguard them from
the disruption of their functions. Clauses on jurisdictional immunity are said to
be standard provisions in the constitutions of international Organizations. "The
immunity covers the organization concerned, its property and its assets. It is
equally applicable to proceedings in personam and proceedings in rem." 18
We take note of a Manifestation, dated 28 September 1989, in the ICMC Case
(p. 161, Rollo), wherein TUPAS calls attention to the case entitled "International
Catholic Migration Commission v. NLRC, et als., (G.R. No. 72222, 30 January
1989, 169 SCRA 606), and claims that, having taken cognizance of that dispute

(on the issue of payment of salary for the unexpired portion of a six-month
probationary employment), the Court is now estopped from passing upon the
question of DOLE jurisdiction petition over ICMC.
We find no merit to said submission. Not only did the facts of said controversy
occur between 1983-1985, or before the grant to ICMC on 15 July 1988 of the
status of a specialized agency with corresponding immunities, but also because
ICMC in that case did not invoke its immunity and, therefore, may be deemed
to have waived it, assuming that during that period (1983-1985) it was tacitly
recognized as enjoying such immunity.
Anent the procedural issue raised in the IRRI Case, suffice it to state that the
Decision of the BLR Director, dated 15 February 1989, had not become final
because of a Motion for Reconsideration filed by IRRI Said Motion was acted
upon only on 30 March 1989 when Rep. Act No. 6715, which provides for direct
appeals from the Orders of the Med-Arbiter to the Secretary of Labor in
certification election cases either from the order or the results of the election
itself, was already in effect, specifically since 21 March 1989. Hence, no grave
abuse of discretion may be imputed to respondent Secretary of Labor in his
assumption of appellate jurisdiction, contrary to Kapisanan's allegations. The
pertinent portion of that law provides:
Art. 259. Any party to an election may appeal the order or results of the
election as determined by the Med-Arbiter directly to the Secretary of Labor
and Employment on the ground that the rules and regulations or parts thereof
established by the Secretary of Labor and Employment for the conduct of the
election have been violated. Such appeal shall be decided within 15 calendar
days (Emphasis supplied).
En passant, the Court is gratified to note that the heretofore antagonistic
positions assumed by two departments of the executive branch of government
have been rectified and the resultant embarrassment to the Philippine
Government in the eyes of the international community now, hopefully,
effaced.
WHEREFORE, in G.R. No. 85750 (the ICMC Case), the Petition is GRANTED, the
Order of the Bureau of Labor Relations for certification election is SET ASIDE,
and the Temporary Restraining Order earlier issued is made PERMANENT.
In G.R. No. 89331 (the IRRI Case), the Petition is Dismissed, no grave abuse of
discretion having been committed by the Secretary of Labor and Employment
in dismissing the Petition for Certification Election.
No pronouncement as to costs.
SO ORDERED.
Padilla, Sarmiento and Regalado, JJ., concur.
Paras, J., is on leave.
Footnotes
1 Article XIII, Section 3. The State shall afford full protection to labor, local and
overseas, organized and unorganized, and promote full employment
opportunities for all. It shall guarantee the rights of all workers to selforganization, collective bargaining and negotiations and peaceful concerted
activities including the right to strike in accordance with law. They shall be
entitled to security of tenure, humane conditions of work and a living wage.
They shall also participate in policy and decision-making processes affecting
their rights and benefits as may be provided by law.
2 RULE V. Section 7. Appeal Any aggrieved party may appeal the order of the
Med-Arbiter to the Bureau only on the following grounds: a) grave abuse of
discretion and b) gross incompetence. The appeal shall specifically state the
grounds relied upon by the appellant with supporting memorandum.

Section 8. Where to file appeal appellant shall file his appeal which shall be
under oath, in the Regional Office where the case originated, copy furnished
the appellee.
Section 9. Period to Appeal. The appeal shall be filed within ten (10) working
days from receipt of the Order by the appellant. Likewise, the appellee shall file
his answer thereto within ten (10) working days from receipt of the appeal. The
Regional Director shall immediately forward the entire records of the case to
the Bureau.
Section 10. Decision of the Bureau is final and unappealable. The Bureau
shall have twenty (20) working days within which to decide the appeal from
receipt of the records of the case. The decision of the Bureau in all cases shall
be final and unappealable.
3 World Health Organization and Dr. Leonce Verstuyft v. Hon. Benjamin
Aquino, et al., L-35131, 29 November 1972, 48 SCRA 242.
4 MICHAEL AKEHURST A MODERN INTRODUCTION TO INTERNATIONAL LAW
(1984) at 69.
5 The leading judicial authority on the personality of international organizations
is the advisory opinion even by the ICJ in the Reparation for Injuries Suffered in
the Service of the United Nations Case ([1949] I.C.J. Rep 174) where the Court
recognized the UNs international personality.
6 M. AKEHURST supra, at 70.
7 J.L. BRIERLY, THE LAW OF NATIONS (1963) at 95.
8 Article 57. 1. The various specialized-agencies, established by intergovernmental agreement and having wide international responsibilities, as
defined in their basic instruments, in economic, social, cultural, educational,
health, and related fields, shall be brought into relationship with the United
Nations in accordance with the provisions of Article 63.
2. Such agencies thus brought into relationship with the United Nations are
hereinafter referred to as specialized agencies.
9 Article 63. 1. The Economic and Social Council may enter into agreements
with any of the agencies referred to in Article 57, defining the terms on which
the agency concerned shall be brought into relationship with the United
Nations. Such agreements shall be subject to approval by the General
Assembly.
2. It may co-ordinate the activities of the specialized agencies through
consultation with and recommendations to such agencies and through
recommendations to the General Assembly and to the Members of the United
Nations.
10 BRIERLY, supra, at 121-122.
11 C. WILFRED JENKS, INTERNATIONAL IMMUNITIES (1961) at 2-3.
12 Ibid., at 17.
13 Ibid.
14 Article II, Section 18. The State affirms labor as a primary social economic
force. It shall protect the rights of workers and promote their welfare.
15 Article III, Section 8. The right of the people, including those employed in the
public and private sectors, to form unions, associations, or societies for
purposes not contrary to law shall not be abridged.
16 Article 243. Coverage and Employees' Right to Self- Organization. All
persons employed in commercial, industrial and agricultural enterprises and in
religious, charitable, medical or educational institutions whether operating for
profit or not, shall have the right to self-organization and to form, join or assist
labor organizations of their own choosing for purposes of collective bargaining.
Ambulant, intermittent and itinerant workers, self- employed people, rural

workers and those without any definite employees may form labor
organizations for their mutual aid and protection.
Article 246. Non-abridgement of Right to Self-organization. It shall be
unlawful for any person to restrain, coerce, discriminate against or unduly
interfere with employees and workers in their exercise of the right to selforganization. Such right shall include the rignt to form, join, or assist labor
organizations for the purpose of collective bargaining through representatives
of their own choosing and to engage in lawful concerted activities for the same
purpose or for their mutual aid and protection, subject to the provisions of
Article 264 of this Code.
17 This Convention, adopted by the U.N. General Assembly on November 21,
1947, was concurred in by the Philippine Senate under Senate Resolution No.
21, dated 17 May 1949. The Philippine Instrument of Ratification was signed by
the Philippine President on 21 February 1959. (Vol. 1, Phil. Treaty Series, p.
621).
18 JENKS, supra at 38.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 142000
January 22, 2003
TAGAYTAY HIGHLANDS INTERNATIONAL GOLF CLUB
INCORPORATED, petitioner,
vs.
TAGAYTAY HIGHLANDS EMPLOYEES UNION-PGTWO, respondent.
CARPIO-MORALES, J.:
Before this Court on certiorari under Rule 45 is the petition of the Tagaytay
Highlands International Golf Club Incorporated (THIGCI) assailing the February
15, 2002 decision of the Court of Appeals denying its petition to annul the
Department of Labor and Employment (DOLE) Resolutions of November 12,
1998 and December 29, 1998.
On October 16, 1997, the Tagaytay Highlands Employees Union (THEU)
Philippine Transport and General Workers Organization (PTGWO), Local Chapter
No. 776, a legitimate labor organization said to represent majority of the rankand-file employees of THIGCI, filed a petition for certification election before the
DOLE Mediation-Arbitration Unit, Regional Branch No. IV.
THIGCI, in its Comment1 filed on November 27, 1997, opposed THEUs petition
for certification election on the ground that the list of union members
submitted by it was defective and fatally flawed as it included the names and
signatures of supervisors, resigned, terminated and absent without leave
(AWOL) employees, as well as employees of The Country Club, Inc., a
corporation distinct and separate from THIGCI; and that out of the 192
signatories to the petition, only 71 were actual rank-and-file employees of
THIGCI.
THIGCI thus submitted a list of the names of its 71 actual rank-and-file
employees which it annexed2 to its Comment to the petition for certification
election. And it therein incorporated the following tabulation 3 showing the
number of signatories to said petition whose membership in the union was
being questioned as disqualified and the reasons for disqualification:
# of
Reasons for Disqualification
Signatures

the handwritten denial and withdrawal of some of its employees from

participating in the petition.4Replying to THIGCIs Comment, THEU asserted that
it had complied with all the requirements for valid affiliation and inclusion in the
roster of legitimate labor organizations pursuant to DOLE Department Order No.
9, series of 1997,5 on account of which it was duly granted a Certification of
Affiliation by DOLE on October 10, 1997;6 and that Section 5, Rule V of said
Department Order provides that the legitimacy of its registration cannot be
subject to collateral attack, and for as long as there is no final order of
cancellation, it continues to enjoy the rights accorded to a legitimate
organization.
THEU thus concluded in its Reply7 that under the circumstances, the MedArbiter should, pursuant to Article 257 of the Labor Code and Section 11, Rule
XI of DOLE Department Order No. 09, automatically order the conduct of a
certification election.
By Order of January 28, 1998, 8 DOLE Med-Arbiter Anastacio Bactin ordered the
holding of a certification election among the rank-and-file employees of THIGCI
in this wise, quoted verbatim:
We evaluated carefully this instant petition and we are of the opinion that it is
complete in form and substance. In addition thereto, the accompanying
documents show that indeed petitioner union is a legitimate labor
federation and its local/chapter was duly reported to this Office as one
of its affiliate local/chapter. Its due reporting through the submission of all
the requirements for registration of a local/chapter is a clear showing that it
was already included in the roster of legitimate labor organizations in this Office
pursuant to Department Order No. 9 Series of 1997 with all the legal right and
personality to institute this instant petition. Pursuant therefore to the provisions
of Article 257 of the Labor Code, as amended, and its Implementing Rules as
amended by Department Order No. 9, since the respondents establishment is
unorganized, the holding of a certification election is mandatory for it was
clearly established that petitioner is a legitimate labor organization. Giving due
course to this petition is therefore proper and appropriate. 9 (Emphasis supplied)
Passing on THIGCIs allegation that some of the union members are
supervisory, resigned and AWOL employees or employees of a separate and
distinct corporation, the Med-Arbiter held that the same should be properly
raised in the exclusion-inclusion proceedings at the pre-election conference. As
for the allegation that some of the signatures were secured through fraudulent
13
Supervisors of THIGCI
and deceitful means, he held that it should be coursed through an independent
petition for cancellation of union registration which is within the jurisdiction of
6
Resigned employees of THIGCI
the DOLE Regional Director. In any event, the Med-Arbiter held that THIGCI
2
AWOL employees of THIGCI
failed to submit the job descriptions of the questioned employees and
other
supporting documents to bolster its claim that they are
53
Rank-and-file employees of The Country Club at Tagaytay Highlands,
Inc.
disqualified from joining THEU.
14
Supervisors of The Country Club at Tagaytay Highlands, Inc.
THIGCI appealed to the Office of the DOLE Secretary which, by Resolution of
6
Resigned employees of The Country Club at Tagaytay Highlands,June
Inc. 4, 1998, set aside the said Med-Arbiters Order and accordingly dismissed
the petition for certification election on the ground that there is a "clear
3
Terminated employees of The Country Club at Tagaytay Highlands,
Inc. of community or mutuality of interests," it finding that THEU sought to
absence
represent
two separate bargaining units (supervisory employees and rank-and1
AWOL employees of The Country Club at Tagaytay Highlands, Inc.
file employees) as well as employees of two separate and distinct corporate
4
Signatures that cannot be deciphered
entities.
Upon Motion for Reconsideration by THEU, DOLE Undersecretary Rosalinda
16
Names in list that were erased
Dimalipis-Baldoz, by authority of the DOLE Secretary, issued DOLE Resolution of
2
Names with first names only
November 12, 199810 setting aside the June 4, 1998 Resolution dismissing the
THIGCI also alleged that some of the signatures in the list of union members
petition for certification election. In the November 12, 1998 Resolution,
were secured through fraudulent and deceitful means, and submitted copies of
Undersecretary Dimapilis-Baldoz held that since THEU is a local chapter, the

twenty percent (20%) membership requirement is not necessary for it to

acquire legitimate status, hence, "the alleged retraction and withdrawal of
support by 45 of the 70 remaining rank-and-file members . . . cannot negate
the legitimacy it has already acquired before the petition;" that rather than
disregard the legitimate status already conferred on THEU by the Bureau of
Labor Relations, the names of alleged disqualified supervisory employees and
employees of the Country Club, Inc., a separate and distinct corporation, should
simply be removed from the THEUs roster of membership; and that regarding
the participation of alleged resigned and AWOL employees and those whose
signatures are illegible, the issue can be resolved during the inclusion-exclusion
proceedings at the pre-election stage.
The records of the case were thus ordered remanded to the Office of the MedArbiter for the conduct of certification election.
THIGCIs Motion for Reconsideration of the November 12, 1998 Resolution
having been denied by the DOLE Undersecretary by Resolution of December
29, 1998,11 it filed a petition for certiorari before this Court which, by Resolution
of April 14, 1999,12 referred it to the Court of Appeals in line with its
pronouncement in National Federation of Labor (NFL) v. Hon. Bienvenido E.
Laguesma, et al.,13 and in strict observance of the hierarchy of courts, as
emphasized in the case of St. Martin Funeral Home v. National Labor Relations
Commission.14
By Decision of February 15, 2000,15 the Court of Appeals denied THIGCIs
Petition for Certiorari and affirmed the DOLE Resolution dated November 12,
1998. It held that while a petition for certification election is an exception to the
innocent bystander rule, hence, the employer may pray for the dismissal of
such petition on the basis of lack of mutuality of interests of the members of
the union as well as lack of employer-employee relationship following this
Courts ruling in Toyota Motor Philippines Corporation v. Toyota Motor
Philippines Corporation Labor Union et al.16 and Dunlop Slazenger [Phils.] v.
Hon. Secretary of Labor and Employment et al,17 petitioner failed to adduce
substantial evidence to support its allegations.
Hence, the present petition for certiorari, raising the following
"ISSUES/ASSIGNMENT OF ERRORS:
THE COURT OF APPEALS GRIEVOUSLY ERRED IN AFFIRMING THE RESOLUTION
DATED 12 NOVEMER 1998 HOLDING THAT SUPERVISORY EMPLOYEES AND NONEMPLOYEES COULD SIMPLY BE REMOVED FROM APPELLEES ROSTER OF RANKAND-FILE MEMBERSHIP INSTEAD OF RESOLVING THE LEGITIMACY OF
RESPONDENT UNIONS STATUS
THE COURT OF APPEALS GRIEVOUSLY ERRED IN AFFIRMING THE RESOLUTION
DATED 12 NOVEMBER 1998 HOLDING THAT THE DISQUALIFIED EMPLOYEES
STATUS COULD READILY BE RESOLVED DURING THE INCLUSION AND EXCLUSION
PROCEEDINGS
THE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT HOLDING THAT THE
ALLEGATIONS OF PETITIONER HAD BEEN DULY PROVEN BY FAILURE OF
RESPONDENT UNION TO DENY THE SAME AND BY THE SHEER WEIGHT OF
EVIDENCE INTRODUCED BY PETITIONER AND CONTAINED IN THE RECORDS OF
THE CASE"18
The statutory authority for the exclusion of supervisory employees in a rankand-file union, and vice-versa, is Article 245 of the Labor Code, to wit:
Article 245. Ineligibility of managerial employees to join any labor organization;
right of supervisory employees. Managerial employees are not eligible to
join, assist or form any labor organization. Supervisory employees shall not be
eligible for membership in a labor organization of the rank-and-file employees
but may join, assist or form separate labor organizations of their own.

While above-quoted Article 245 expressly prohibits supervisory employees from

joining a rank-and-file union, it does not provide what would be the effect if a
rank-and-file union counts supervisory employees among its members, or viceversa.
Citing Toyota19 which held that "a labor organization composed of both rankand-file and supervisory employees is no labor organization at all," and the
subsequent case of Progressive Development Corp. Pizza Hut v.
Ledesma20 which held that:
"The Labor Code requires that in organized and unorganized establishments, a
petition for certification election must be filed by a legitimate labor
organization. The acquisition of rights by any union or labor organization,
particularly the right to file a petition for certification election, first and
foremost, dependson whether or not the labor organization has attained the
status of a legitimate labor organization.
In the case before us, the Med-Arbiter summarily disregarded the petitioners
prayer that the former look into the legitimacy of the respondent Union by a
sweeping declaration that the union was in the possession of a charter
certificate so that for all intents and purposes, Sumasaklaw sa Manggagawa sa
Pizza Hut (was) a legitimate organization," 21 (Underscoring and emphasis
supplied),
petitioner contends that, quoting Toyota, "[i]t becomes necessary . . ., anterior
to the granting of an order allowing a certification election, to inquire into the
composition of any labor organization whenever the status of the labor
organization is challenged on the basis of Article 245 of the Labor Code." 22
Continuing, petitioner argues that without resolving the status of THEU, the
DOLE Undersecretary "conveniently deferred the resolution on the serious
infirmity in the membership of [THEU] and ordered the holding of the
certification election" which is frowned upon as the following ruling of this Court
shows:
We also do not agree with the ruling of the respondent Secretary of Labor that
the infirmity in the membership of the respondent union can be remedied in
"the pre-election conference thru the exclusion-inclusion proceedings
wherein those employees who are occupying rank-and-file positions will be
excluded from the list of eligible voters." Public respondent gravely
misappreciated the basic antipathy between the interest of supervisors and the
interest of rank-and-file employees. Due to the irreconcilability of their interest
we held in Toyota Motor Philippines v. Toyota Motors Philippines Corporation
Labor Union,viz:
x x x
"Clearly, based on this provision [Article 245], a labor organization composed of
both rank-and-file and supervisory employees is no labor organization at all. It
cannot, for any guise or purpose, be a legitimate labor organization. Not being
one, an organization which carries a mixture of rank-and-file and supervisory
employees cannot posses any of the rights of a legitimate labor organization,
including the right to file a petition for certification election for the purpose of
collective bargaining. It becomes necessary, therefore, anterior to the granting
of an order allowing a certification election, to inquire into the composition of
any labor organization whenever the status of the labor organization is
challenged on the basis of Article 245 of the Labor Code." (Emphasis by
petitioner) (Dunlop Slazenger (Phils.), v. Secretary of Labor, 300 SCRA 120
[1998]; Underscoring and emphasis supplied by petitioner.)
The petition fails. After a certificate of registration is issued to a union, its legal
personality cannot be subject to collateral attack. It may be questioned only in
an independent petition for cancellation in accordance with Section 5 of Rule V,

Book IV of the "Rules to Implement the Labor Code" (Implementing Rules)

which section reads:
Sec. 5. Effect of registration. The labor organization or workers association
shall be deemed registered and vested with legal personality on the date of
issuance of its certificate of registration. Such legal personality cannot
thereafter be subject to collateral attack, but may be questioned only in an
independent petition for cancellation in accordance with these Rules.
(Emphasis supplied)
The grounds for cancellation of union registration are provided for under Article
239 of the Labor Code, as follows:
Art. 239. Grounds for cancellation of union registration. The following shall
constitute grounds for cancellation of union registration:
(a) Misrepresentation, false statement or fraud in connection with the adoption
or ratification of the constitution and by-laws or amendments thereto, the
minutes of ratification, and the list of members who took part in the ratification;
(b) Failure to submit the documents mentioned in the preceding paragraph
within thirty (30) days from adoption or ratification of the constitution and bylaws or amendments thereto;
(c) Misrepresentation, false statements or fraud in connection with the election
of officers, minutes of the election of officers, the list of voters, or failure to
subject these documents together with the list of the newly elected/appointed
officers and their postal addresses within thirty (30) days from election;
(d) Failure to submit the annual financial report to the Bureau within thirty (30)
days after the losing of every fiscal year and misrepresentation, false entries or
fraud in the preparation of the financial report itself;
(e) Acting as a labor contractor or engaging in the "cabo" system, or otherwise
engaging in any activity prohibited by law;
(f) Entering into collective bargaining agreements which provide terms and
conditions of employment below minimum standards established by law;
(g) Asking for or accepting attorneys fees or negotiation fees from employers;
(h) Other than for mandatory activities under this Code, checking off special
assessments or any other fees without duly signed individual written
authorizations of the members;
(i) Failure to submit list of individual members to the Bureau once a year or
whenever required by the Bureau; and
(j) Failure to comply with the requirements under Articles 237 and 238,
(Emphasis supplied),
while the procedure for cancellation of registration is provided for in Rule VIII,
Book V of the Implementing Rules.
The inclusion in a union of disqualified employees is not among the grounds for
cancellation, unless such inclusion is due to misrepresentation, false statement
or fraud under the circumstances enumerated in Sections (a) and (c) of
Article 239 of above-quoted Article 239 of the Labor Code.
THEU, having been validly issued a certificate of registration, should be
considered to have already acquired juridical personality which may not be
assailed collaterally.
As for petitioners allegation that some of the signatures in the petition for
certification election were obtained through fraud, false statement and
misrepresentation, the proper procedure is, as reflected above, for it to file a
petition for cancellation of the certificate of registration, and not to intervene in
a petition for certification election.
Regarding the alleged withdrawal of union members from participating in the
certification election, this Courts following ruling is instructive:

"[T]he best forum for determining whether there were indeed retractions from
some of the laborers is in thecertification election itself wherein the workers
can freely express their choice in a secret ballot. Suffice it to say that the will
of the rank-and-file employees should in every possible instance be determined
by secret ballot rather than by administrative or quasi-judicial inquiry. Such
representation and certification election cases are not to be taken as
contentious litigations for suits but as mere investigations of a non-adversary,
fact-finding character as to which of the competing unions represents the
genuine choice of the workers to be their sole and exclusive collective
bargaining representative with their employer."23
As for the lack of mutuality of interest argument of petitioner, it, at all events,
does not lie given, as found by the court a quo, its failure to present substantial
evidence that the assailed employees are actually occupying supervisory
positions.
While petitioner submitted a list of its employees with their corresponding job
titles and ranks,24 there is nothing mentioned about the supervisors respective
duties, powers and prerogatives that would show that they can effectively
recommend managerial actions which require the use of independent
judgment.25
As this Court put it in Pepsi-Cola Products Philippines, Inc. v. Secretary of
Labor:26
Designation should be reconciled with the actual job description of subject
employees x x x The mere fact that an employee is designated manager does
not necessarily make him one. Otherwise, there would be an absurd situation
where one can be given the title just to be deprived of the right to be a
member of a union. In the case of National Steel Corporation vs. Laguesma (G.
R. No. 103743, January 29, 1996), it was stressed that:
What is essential is the nature of the employees function and not the
nomenclature or titlegiven to the job which determines whether the
employee has rank-and-file or managerial status or whether he is a supervisory
employee. (Emphasis supplied).27
WHEREFORE, the petition is hereby DENIED. Let the records of the case be
remanded to the office of origin, the Mediation-Arbitration Unit, Regional
Branch No. IV, for the immediate conduct of a certification election subject to
the usual pre-election conference.
SO ORDERED.
Puno, Panganiban, Sandoval-Gutierrez and Corona, JJ., concur.

SECOND DIVISION
[G.R. No. 125038. November 6, 1997]
THE HONGKONG AND SHANGHAI BANKING CORPORATION EMPLOYEES
UNION, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION AND
THE HONGKONG AND SHANGHAI BANKING CORPORATION,
LTD., respondents.
DECISION
REGALADO, J.:
In an Order dated November 27, 1995,[1] respondent National Labor Relations
Commission (NLRC) reversed and set aside the order issued by Labor Arbiter
Felipe T. Garduque II which dismissed and remanded for further proceedings
the case for unfair labor practice filed by private respondent Hongkong and
Shanghai Banking Corporation, Ltd. (the Bank) against petitioner Hongkong
and Shanghai Banking Corporation Employees Union (the Union), the
recognized bargaining representative of the Banks regular rank and file
employees. This petition for certiorariimpugns the aforesaid Order of
respondent commission.
The case at bar arose from the issuance of a non-executive job evaluation
program (JEP) lowering the starting salaries of future employees, resulting from
the changes made in the job grades and structures, which was unilaterally
implemented by the Bank retroactive to January 1, 1993. The program in
question was announced by the Bank on January 18, 1993.
In a letter dated January 20, 1993,[2] the Union, through its President, Peter Paul
Gamelo, reiterated its previous verbal objections to the Banks unilateral
decision to devise and put into effect the said program because it allegedly was
in violation of the existing collective bargaining agreement (CBA) between the
parties and thus constituted unfair labor practice. The Union demanded the
suspension of the implementation of the JEP and proposed that the same be
instead taken up or included in their upcoming CBA negotiations.
The Bank replied in a letter dated January 25, 1993[3] that the JEP was issued in
compliance with its obligation under the CBA, apparently referring to Article III,
Section 18 thereof which provides that:
Within the lifetime of this Agreement the BANK shall conduct a job evaluation
of employee positions. The implementation timetable of the said exercise shall
be furnished the UNION by the BANK within two (2) months from the signing of
this Agreement.
This prompted the Union to undertake concerted activities to protest the
implementation of the JEP, such as whistle blowing during office hours starting
on March 15, 1993 up to the 23rd day, and writing to clients of the Bank
allegedly to inform them of the real situation then obtaining and of an
imminent disastrous showdown between the Bank and the Union.
The Union engaged in said activities despite the fact that as early as February
11, 1993,[4] it had already initiated the renegotiation of the nonrepresentational provisions of the CBA by submitting their proposal to the Bank,
to which the latter submitted a reply. As a matter of fact, negotiations on the
CBA commenced on March 5, 1993 and continued through March 24, 1993
when the Bank was forced to declare a recess to last for as long as the Union
kept up with its concerted activities. The Union refused to concede to the
demand of the Bank unless the latter agreed to suspend the implementation of
the JEP.
Instead of acquiescing thereto, the Bank filed on April 5, 1993 [5] with the
Arbitration Branch of the NLRC a complaint for unfair labor practice against the
Union allegedly for engaging in the contrived activities against the ongoing CBA
negotiations between the Bank and the Union in an attempt to unduly coerce

and pressure the Bank into agreeing to the Unions demand for the suspension
of the implementation of the JEP. It averred that such concerted activities,
despite the ongoing CBA negotiations, constitute unfair labor practice (ULP)
and a violation of the Unions duty to bargain collectively under Articles 249 (c)
and 252 of the Labor Code.
The Union filed a Motion to Dismiss[6] on the ground that the complaint states
no cause of action. It alleged that its united activities were actually being
waged to protest the Banks arbitrary imposition of a job evaluation program
and its unjustifiable refusal to suspend the implementation thereof. It further
claimed that the unilateral implementation of the JEP was in violation of Article
I, Section 3 of the CBA which prohibits a diminution of existing rights, privileges
and benefits already granted and enjoyed by the employees. To be sure, so the
Union contended, the object of the Bank in downgrading existing CBA salary
scales, despite its sanctimonious claim that the reduced rates will apply only to
future employees, is to torpedo the salary structure built by the Union through
three long decades of periodic hard bargaining with the Bank and to thereafter
replace the relatively higher-paid unionized employees with cheap newly hired
personnel. In light of these circumstances, the Union insists that the right to
engage in these concerted activities is protected under Article 246 of the Labor
Code regarding non-abridgment of the right to self-organization and, hence, is
not actionable in law.
In its Opposition,[7] the Bank stated that the Union was actually challenging
merely that portion of the JEP providing for a lower rate of salaries for future
employees. Contrary to the Unions allegations in its motion to dismiss that the
JEP had resulted in diminution of existing rights, privileges and benefits, the
program has actually granted salary increases to, and in fact is already being
availed of by, the rank and file staff. The Unions objections are premised on
the erroneous belief that the salary rates for future employees is a matter
which must be subject of collective bargaining negotiation. The Bank believes
that the implementation of the JEP and the resultant lowering of the starting
salaries of future employees, as long as there is no diminution of existing
benefits and privileges being accorded to existing rank and file staff, is entirely
a management prerogative.
In an Order dated July 29, 1993,[8] the labor arbiter dismissed the complaint
with prejudice and ordered the parties to continue with the collective
bargaining negotiations, there having been no showing that the Union acted
with criminal intent in refusing to comply with its duty to bargain but was
motivated by the refusal of management to suspend the implementation of its
job evaluation program, and that it is not evident that the concerted activities
caused damage to the Bank. It concluded that, at any rate, the Bank is not left
without recourse, in case more aggressive and serious acts be committed in the
future by the Union, since it could institute a petition to declare illegal such acts
which may constitute a strike or picketing.
On appeal, respondent NLRC declared that based on the facts obtaining in this
case, it becomes necessary to resolve whether or not the Unions objections to
the implementation of the JEP are valid and, if it is without basis, whether or not
the concerted activities conducted by the Union constitute unfair labor
practice. It held that the labor arbiter exceeded his authority when he ordered
the parties to return to the bargaining table and continue with CBA
negotiations, considering that his jurisdiction is limited only to labor disputes
arising from those cases provided for under Article 217 of the Labor Code, and
that the labor arbiters participation in this instance only begins when the
appropriate complaint for unfair labor practice due to a partys refusal to
bargain collectively is filed. Consequently, the case was ordered remanded to

the arbitration branch of origin for further proceedings in accordance with the
guidelines provided for therein.
Hence, this petition.
The Union asserts that respondent NLRC committed grave abuse of discretion
in failing to decide that it is not guilty of unfair labor practice considering that
the concerted activities were actually directed against the implementation of
the JEP and not at the ongoing CBA negotiations since the same were launched
even before the start of negotiations. Hence, it cannot be deemed to have
engaged in bad-faith bargaining. It claims that respondent NLRC gravely erred
in remanding the case for further proceedings to determine whether the
objections raised by the Union against the implementation of the JEP are valid
or not, for the simple reason that such is not the issue involved in the complaint
for ULP filed by the Bank but rather whether the Union is guilty of bargaining in
bad faith in violation of the Labor Code. It is likewise averred that Labor Arbiter
Garduque cannot be considered to have exceeded his authority in ordering the
parties to proceed with the CBA negotiations because it was precisely a
complaint for ULP which the Bank filed against the Union.
We find no merit in the petition.
The main issue involved in the present case is whether or not the labor arbiter
correctly ordered the dismissal with prejudice of the complaint for unfair labor
practice on the bases merely of the Complaint, the Motion to Dismiss as well as
the Opposition thereto, filed by the parties. We agree with respondent NLRC
that there are several questions that need to be threshed out before there can
be an intelligent and complete determination of the propriety of the charges
made by the Bank against the Union.
A perusal of the allegations and arguments raised by the parties in the Motion
to Dismiss and the Opposition thereto will readily reveal that there are several
issues that must preliminarily be resolved and which will require the
presentation of evidence other than the bare allegations in the pleadings which
have been filed, in order to ascertain the propriety or impropriety of the ULP
charge against the Union.
Foremost among the issues requiring resolution are:
1. Whether or not the unilateral implementation of the JEP constitutes a
violation of the CBA provisions requiring the Bank to furnish the Union with the
job evaluation implementation timetable within two months from the signing of
the CBA on July 30, 1990,[9] and prohibiting the diminution of existing rights,
privileges and benefits already granted and enjoyed by the employees; [10]
2. Whether or not the concerted acts committed by the Union were done with
just cause and in good faith in the lawful exercise of their alleged right under
Article 246 of the Labor Code on non-abridgment of the right to selforganization; and
3. Whether or not the fixing of salaries of future employees pursuant to a job
evaluation program is an exclusive management prerogative or should be
subject of collective bargaining negotiation.
It does not fare petitioner any better that it had, wittingly or unwittingly,
alleged in its Consolidated Reply[11] that the concerted actions began on January
22, 1993 even before the commencement of CBA negotiations which started in
March, 1993. Apparently that was an attempt on the part of the Union to
rectify the incriminating pronouncement of the labor arbiter in his questioned
order to the effect that the challenged activities occurred from March 15 to 23,
1993 during the CBA negotiations. This seemingly conflicting factual
allegations are crucial in resolving the issue of whether or not the concerted
activities were committed in violation of the Unions duty to bargain collectively
and would therefore constitute unfair labor practice.

Likewise, the labor arbiter, in finding that the Union was not motivated by any
criminal intent in resorting to said concerted activities, merely gave a sweeping
statement without bothering to explain the factual and evidentiary bases
therefor. The declaration that there was no damage caused to the Bank by
reason of such Union activities remains unsubstantiated. Nowhere is there any
showing in the labor arbiters order of dismissal from which it can be fairly
inferred that such a statement is supported by even a preponderance of
evidence. What purportedly is an adjudication on the merits is in truth and in
fact a short discourse devoid of evidentiary value but very liberal with
generalities and hasty conclusions.
The fact that there is an alternative remedy available to the Bank, as the labor
arbiter would suggest, will not justify an otherwise erroneous order. It bears
emphasizing that by the very nature of an unfair labor practice, it is not only a
violation of the civil rights of both labor and management but is also a criminal
offense against the State which is subject to prosecution and punishment.
[12]
Essentially, a complaint for unfair labor practice is no ordinary labor dispute
and therefore requires a more thorough analysis, evaluation and appreciation of
the factual and legal issues involved.
One further point. The need for a more than cursory disposition on the unfair
labor practice issue is made doubly exigent in view of the Banks allegation in
its Comment[13] that a strike has been launched by the Union specifically to
protest the implementation of the JEP. Although the strike incident is not an
issue in this case, this supervening event bespeaks the worsening situation
between the parties that calls for a more circumspect assessment of the actual
issues herein involved.
Necessarily, a determination of the validity of the Banks unilateral
implementation of the JEP or the Unions act of engaging in concerted activities
involves an appraisal of their motives. In cases of this nature, motivations are
seldom expressly avowed, and avowals are not always candid. There must
thus be a measure of reliance on the administrative agency. It was incumbent
upon the labor arbiter, in the first instance, to weigh such expressed motives in
determining the effect of an otherwise equivocal act. The Labor Code does not
undertake the impossible task of specifying in precise and unmistakable
language each incident which constitutes an unfair labor practice. Rather, it
leaves to the court the work of applying the laws general prohibitory language
in light of infinite combinations of events which may be charged as violative of
its terms.[14]
It has been held that the crucial question whether or not a party has met his
statutory duty to bargain in good faith typically turns on the facts of the
individual case. There is no per se test of good faith in bargaining. Good faith
or bad faith is an inference to be drawn from the facts. To some degree, the
question of good faith may be a question of credibility. The effect of an
employers or a unions actions individually is not the test of good-faith
bargaining, but the impact of all such occasions or actions, considered as a
whole, and the inferences fairly drawn therefrom collectively may offer a basis
for the finding of the NLRC.[15]
This, the court or the quasi-judicial agency concerned can do only after it has
made a comprehensive review of the allegations made in the pleadings filed
and the evidence presented in support thereof by the parties, but definitely not
where, as in the present case, the accusation of unfair labor practice was
negated and subsequently discharged on a mere motion to dismiss.
It is a well-settled rule that labor laws do not authorize interference with the
employers judgment in the conduct of his business. The Labor Code and its
implementing rules do not vest in the labor arbiters nor in the different

divisions of the NLRC nor in the courts managerial authority. [16] The hiring,
firing, transfer, demotion, and promotion of employees has been traditionally
identified as a management prerogative subject to limitations found in the law,
a collective bargaining agreement, or in general principles of fair play and
justice. This is a function associated with the employers inherent right to
control and manage effectively its enterprise. Even as the law is solicitous of
the welfare of employees, it must also protect the right of an employer to
exercise what are clearly management prerogatives. The free will of
management to conduct its own business affairs to achieve its purpose cannot
be denied.[17]
Accordingly, this Court, in a number of cases, has recognized and affirmed the
prerogative of management to implement a job evaluation program or a
reorganization for as long as it is not contrary to law, morals or public policy.
Thus, in Batongbacal vs. Associated Bank, et al.,[18] involving the dismissal of an
assistant vice-president for refusing to tender his courtesy resignation which
the bank required in line with its reorganization plan, the Court held, among
others, that it is not prepared to preempt the employers prerogative to grant
salary increases to its employees by virtue of the implementation of the
reorganization plan which thereby caused a distortion in salaries,
notwithstanding that there is a semblance of discrimination in this aspect of the
banks organizational setup.
In the case of National Sugar Refineries Corporation vs. National Labor
Relations Commission, et al.,[19] the petitioner implemented a job evaluation
program affecting all employees, from rank and file to department heads. The
JEP was designed to rationalize the duties and functions of all positions,
reestablish levels of responsibility, and reorganize both wage and operational
structures. Jobs were ranked according to effort, responsibility, training and
working conditions and relative worth of the job. As a result, all positions were
re-evaluated, and all employees were granted salary adjustments and
increases in benefits commensurate to their actual duties and functions. With
the JEP, the supervisory employees, who were members of the respondent
Union therein and were formerly treated in the same manner as rank and file
employees, were considered no longer entitled to overtime, rest day and
holiday pay but their basic salaries increased by 50%. The respondents therein
sued for recovery of those benefits.
In upholding managements prerogative to implement the JEP, the Court held
therein that:
In the case at bar, private respondent union has miserably failed to convince
this Court that the petitioner acted in bad faith in implementing the JE
Program. There is no showing that the JE Program was intended to circumvent
the law and deprive the members of respondent union of the benefits they
used to receive.
x x x It is the prerogative of management to regulate, according to its
discretion and judgment, all aspects of employment. This flows from the
established rule that labor law does not authorize the substitution of the
judgment of the employer in the conduct of its business. Such management
prerogative may be availed of without fear of any liability so long as it is
exercised in good faith for the advancement of the employers interest and not
for the purpose of defeating or circumventing the rights of employees under
special laws or valid agreement and are not exercised in a malicious, harsh,
oppressive, vindictive or wanton manner or out of malice or spite.
Just recently, this Court had the occasion to reiterate and uphold the
established and unequivocal right of an employer to implement a
reorganization in the valid exercise of its management prerogative, thus:

Being a regular employee, petitioner is of the view that she had already
acquired a vested right to the position of Executive Secretary, together with its
corresponding grade, rank and salary, which cannot be impaired by the 1991
reorganization of CENECO.
x
x
x
In Aurelio vs. National Labor Relations Commission, et al., we upheld the power
of the board of directors of a corporation to implement a reorganization,
including the abolition of various positions, as implied or incidental to its power
to conduct the regular business affairs of the corporation. In recognition of the
right of management to conduct its own business affairs in achieving its
purpose, we declared that management is at liberty, absent any malice on its
part, to abolish positions which it deems no longer necessary.
This Court, absent any finding of bad faith on the part of management, will not
deny it the right to such initiative simply to protect the person holding that
office. In other words, where there is nothing that would indicate that an
employees position was abolished to ease him out of employment, the deletion
of that position should be accepted as a valid exercise of management
prerogative.
x
x
x
No ill will can be ascribed to private respondents as all the positions specified in
the old plantilla were abolished and all other employees were given new
appointments. In short, petitioner was not singled out. She was not the only
employee affected by the reorganization. The reorganization was fair to
petitioner, if not to all of the employees of CENECO.
It should be remembered that petitioners new appointment was made as a
result of valid organizational changes. A thorough review of both the
indispensable and the unessential positions was undertaken by a committee,
specifically formed for this purpose, before the Board of Directors abolished all
the positions. Based on the qualifications and aptitude of petitioner, the
committee and, subsequently, private respondents, deemed it best to appoint
petitioner as Secretary of the Engineering Department. We cannot meddle in
such a decision lest we interfere with the private respondents right to
independently control and manage their operations absent any unfair or
inequitable acts.
If the purpose of a reorganization is to be achieved, changes in positions and
ranking of employees should be expected. To insist on ones old position and
ranking after a reorganization would render such endeavor ineffectual. Here, to
compel private respondents to give petitioner her old ranking would deprive
them of their right to adopt changes in the cooperatives personnel structure as
proposed by the Steering Committee.
x
x
x
x x x As we have held, security of tenure, while constitutionally guaranteed,
cannot be used to deprive an employer of its prerogatives under the law. Even
if the law is solicitous of the welfare of the employees, it must also protect the
right of an employer to exercise what are clearly management prerogatives. [20]
Notwithstanding the relevance of the foregoing disquisition, considering
however the factual antecedents in this case, or the lack of a complete
presentation thereof, we are constrained to refrain from ruling outright in favor
of the Bank. While it would appear that remanding the case would mean a
further delay in its disposition, we are not inclined to sacrifice equity and justice
for procedural technicalities or expediency. The order dismissing the complaint
for ULP with prejudice, to say the least, leaves much to be desired.
Anent the question on whether or not the labor arbiter has jurisdiction to order
the parties to return to and continue with the collective bargaining

negotiations, there is a commentary to the effect that, as one of the reliefs

which may be granted in ULP cases, the Court may, in addition to the usual
cease and desist orders, issue an affirmative order to the employer to bargain
with the bargaining agent, as the exclusive representative of its employees,
with respect to the rate of pay, hours of work, and other conditions of
employment.[21] On this aspect, respondent NLRC stands to be
reversed. Nevertheless, its directive on this point is deemed vacated and
ineffectual by our decision to remand the case for further proceedings.
WHEREFORE, subject to the foregoing observation, the challenged disposition
of respondent National Labor Relations Commission is hereby AFFIRMED.
SO ORDERED.
Puno, and Mendoza, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-87672 October 13, 1989
WISE AND CO., INC., petitioner,
vs.
WISE & CO., INC. EMPLOYEES UNION-NATU AND HONORABLE
BIENVENIDO G. LAGUESMA, in his capacity as voluntary
Arbitrator, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
GANCAYCO, J.:
The center of controversy in this petition is whether the grant by management
of profit sharing benefits to its non-union member employees is discriminatory
against its workers who are union members.
The facts are undisputed. On April 3,1987 the management issued a
memorandum circular introducing a profit sharing scheme for its managers and
supervisors the initial distribution of which was to take effect March 31, 1988.
On July 3,1987 the respondent union wrote petitioner through its president
asking for participation in this scheme. This was denied by petitioner on the
ground that it had to adhere strictly to the Collective Bargaining Agreement
(CBA).
In the meantime, talks were underway for early negotiation by the parties of
the CBA which was due to expire on April 30, 1988. The negotiation thus begun
earlier than the freedom period. On November 11, 1987 petitioner wrote
respondent union advising the latter that they were prepared to consider
including the employees covered by the CBA in the profit sharing scheme
beginning the year 1987 provided that the ongoing negotiations were
concluded prior to December 1987. However, the collective bargaining
negotiations reached a deadlock on the issue of the scope of the bargaining
unit. Conciliation efforts to settle the dispute on 29 March 1988 were made but
no settlement was reached.
On March 30, 1988, petitioner distributed the profit sharing benefit not only to
managers and supervisors but also to all other rank and file employees not
covered by the CBA. This caused the respondent union to file a notice of strike
alleging that petitioner was guilty of unfair labor practice because the union
members were discriminated against in the grant of the profit sharing benefits.
Consequently, management refused to proceed with the CBA negotiations
unless the last notice of strike was first resolved. The union agreed to postpone
discussions on the profit sharing demand until a new CBA was concluded. After
a series of conciliation conferences, the parties agreed to settle the dispute
through voluntary arbitration. After the parties submitted their position papers,
a rejoinder and reply, on March 20,1989 the voluntary arbitrator issued an
award ordering petitioner to likewise extend the benefits of the 1987 profit
sharing scheme to the members of respondent union. 1 Hence, this petition
wherein petitioner alleged the following grounds in support thereof
I
THE HONORABLE VOLUNTARY ARBITRATOR ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN HE
ORDERED THE EXTENSION OF PROFIT SHARING BENEFITS TO THOSE
EMPLOYEES COVERED BY THE CBA DESPITE PATENT LACK OF FACTUAL AND
LEGAL BASIS THEREFOR IN THAT-

1. DISCRIMINATION PER SE IS NOT UNLAWFUL ESPECIALLY WHEN THE

EMPLOYEES ARE NOT SIMILARLY SITUATED.
2. THE TERMS AND CONDITIONS STIPULATED IN THE CBA HAVE THE FORCE AND
EFFECT OF A LAW BETWEEN THE PARTIES. PRIVATE RESPONDENT, THEREFORE
CANNOT DEMAND, AS A MATTER OF RIGHT, WHAT IS NOT STIPULATED IN THE
CBA.
3. THE ACT OF THE UNION IN NEGOTIATING FOR THE INCLUSION OF THE PROFIT
SHARING BENEFIT IN THE PRESENT CBA IS AN IMPLIED ADMISSION THAT THEY
WERE NOT ENTITLED TO IT IN 1987.
II
THE HONORABLE VOLUNTARY ARBITRATOR COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN HE
MADE THE CLEARLY BASELESS CONCLUSION THAT THE PETITIONER WAS
MOTIVATED BY ITS DESIRE TO DEFEAT OR OTHERWISE PREJUDICE THE BASIC
RIGHTS OF ITS EMPLOYEES. 2
The petition is impressed with merit.
Under the CBA between the parties that was in force and effect from May 1,
1985 to April 30,1988 it was agreed that the "bargaining unit" covered by the
CBA "consists of all regular or permanent employees, below the rank of
assistant supervisor, 3 Also expressly excluded from the term "appropriate
bargaining unit" are all regular rank and file employees in the office of the
president, vice-president, and the other offices of the company personnel
office, security office, corporate affairs office, accounting and treasurer
department . 4
It is to this class of employees who were excluded in the "bargaining unit" and
who do not derive benefits from the CBA that the profit sharing privilege was
extended by petitioner.
There can be no discrimination committed by petitioner thereby as the
situation of the union employees are different and distinct from the non-union
employees. 5 Indeed, discrimination per se is not unlawful. There can be no
discrimination where the employees concerned are not similarly situated.
Respondent union can not claim that there is grave abuse of discretion by the
petitioner in extending the benefits of profit sharing to the non-union
employees as they are two (2) groups not similarly situated. These non-union
employees are not covered by the CBA. They do not derive and enjoy the
benefits under the CBA.
The contention of the respondent union that the grant to the non-union
employees of the profit sharing benefits was made at a time when there was a
deadlock in the CBA negotiation so that apparently the motive thereby was to
discourage such non-union employees from joining the union is not borne by
the record. Petitioner denies this accusation and instead points out that inspite
of this benefit extended to them, some non-union workers actually joined the
respondent union thereafter.
Respondent union also decries that no less than the president of the petitioner
agreed to include its members in the coverage of the 1987 profit sharing
benefit provided that they would agree to an earlier negotiation for the renewal
of the CBA which expired in 1988. Be this as it may, since there was actually a
deadlock in the negotiation and it was not resolved and consummated on the
period expected, private respondent can not now claim that petitioner has a
duty to extend the profit sharing benefit to the union members.
The Court holds that it is the prerogative of management to regulate, according
to its discretion and judgment, all aspects of employment. This flows from the
established rule that labor law does not authorize the of the employer in the
conduct of its business. 6 such management prerogative may be availed of

without fear of any liability so long as it is exercised in good faith for the
advancement of the employers' interest and not for the purpose of defeating or
circumventing the rights of employees under special laws or valid agreement
and are not exercised in a malicious, harsh, oppressive, vindictive or wanton
manner or out of malice or spite. 7
The grant by petitioner of profit sharing benefits to the employees outside the
"bargaining unit" falls under the ambit of its managerial prerogative. It appears
to have been done in good faith and without ulterior motive. More so when as
in this case there is a clause in the CBA where the employees are classified into
those who are members of the union and those who are not. In the case of the
union members, they derive their benefits from the terms and conditions of the
CBA contract which constitute the law between the contracting parties. 8 Both
the employer and the union members are bound by such agreement.
However, the court serves notice that it will not hesitate to strike down any act
of the employer that tends to be discriminatory against union members. It is
only because of the peculiar circumstances of this case showing there is no
such intention that this court ruled otherwise.
WHEREFORE, the petition is GRANTED and the award of respondent Voluntary
Arbitrator dated March 20,1989 is hereby REVERSED AND SET ASIDE being null
and void, without pronouncement as to costs.
SO ORDERED.

FIRST DIVISION
[G.R. No. 141471. September 18, 2000]
COLEGIO DE SAN JUAN DE LETRAN, petitioner, vs. ASSOCIATION OF
EMPLOYEES AND FACULTY OF LETRAN and ELEONOR
AMBAS,respondents.
DECISION
KAPUNAN, J.:
This is a petition for review on certiorari seeking the reversal of the Decision of
the Court of Appeals, promulgated on 9 August 1999, dismissing the petition
filed by Colegio de San Juan de Letran (hereinafter, "petitioner") and affirming
the Order of the Secretary of Labor, dated December 2, 1996, finding the
petitioner guilty of unfair labor practice on two (2) counts.
The facts, as found by the Secretary of Labor and affirmed by the Court of
Appeals, are as follows:
"On December 1992, Salvador Abtria, then President of respondent union,
Association of Employees and Faculty of Letran, initiated the renegotiation of its
Collective Bargaining Agreement with petitioner Colegio de San Juan de Letran
for the last two (2) years of the CBA's five (5) year lifetime from 1989-1994. On
the same year, the union elected a new set of officers wherein private
respondent Eleanor Ambas emerged as the newly elected President (Secretary
of Labor and Employment's Order dated December 2, 1996, p. 12).
Ambas wanted to continue the renegotiation of the CBA but petitioner, through
Fr. Edwin Lao, claimed that the CBA was already prepared for signing by the
parties. The parties submitted the disputed CBA to a referendum by the union
members, who eventually rejected the said CBA (Ibid, p. 2).
Petitioner accused the union officers of bargaining in bad faith before the
National Labor Relations Commission (NLRC). Labor Arbiter Edgardo M.
Madriaga decided in favor of petitioner. However, the Labor Arbiter's decision
was reversed on appeal before the NLRC (Ibid, p. 2).
On January 1996, the union notified the National Conciliation and Mediation
Board (NCMB) of its intention to strike on the grounds (sic) of petitioner's: noncompliance with the NLRC (1) order to delete the name of Atty. Federico Leynes
as the union's legal counsel; and (2) refusal to bargain (Ibid, p. 1).
On January 18, 1996, the parties agreed to disregard the unsigned CBA and to
start negotiation on a new five-year CBA starting 1994-1999. On February 7,
1996, the union submitted its proposals to petitioner, which notified the union
six days later or on February 13, 1996 that the same had been submitted to its
Board of Trustees. In the meantime, Ambas was informed through a letter dated
February 15, 1996 from her superior that her work schedule was being changed
from Monday to Friday to Tuesday to Saturday. Ambas protested and requested
management to submit the issue to a grievance machinery under the old CBA
(Ibid, p. 2-3).
Due to petitioner's inaction, the union filed a notice of strike on March 13, 1996.
The parties met on March 27, 1996 before the NCMB to discuss the ground
rules for the negotiation. On March 29, 1996, the union received petitioner's
letter dismissing Ambas for alleged insubordination. Hence, the union amended
its notice of strike to include Ambas' dismissal. (Ibid, p. 2-3).
On April 20, 1996, both parties again discussed the ground rules for the CBA
renegotiation. However, petitioner stopped the negotiations after it purportedly
received information that a new group of employees had filed a petition for
certification election (Ibid, p. 3).
On June 18, 1996, the union finally struck. On July 2, 1996, public respondent
the Secretary of Labor and Employment assumed jurisdiction and ordered all
striking employees including the union president to return to work and for

petitioner to accept them back under the same terms and conditions before the
actual strike. Petitioner readmitted the striking members except Ambas. The
parties then submitted their pleadings including their position papers which
were filed on July 17, 1996 ( Ibid, pp. 2-3).
On December 2, 1996, public respondent issued an order declaring petitioner
guilty of unfair labor practice on two counts and directing the reinstatement of
private respondent Ambas with backwages. Petitioner filed a motion for
reconsideration which was denied in an Order dated May 29, 1997 (Petition, pp.
8-9)."[1]
Having been denied its motion for reconsideration, petitioner sought a review
of the order of the Secretary of Labor and Employment before the Court of
Appeals. The appellate court dismissed the petition and affirmed the findings of
the Secretary of Labor and Employment. The dispositive portion of the decision
of the Court of Appeals sets forth:
WHEREFORE, foregoing premises considered, this Petition is DISMISSED, for
being without merit in fact and in law.
With cost to petitioner.
SO ORDERED.[2]
Hence, petitioner comes to this Court for redress.
Petitioner ascribes the following errors to the Court of Appeals:
I
THE HONORABLE COURT OF APPEALS ERRED AND ACTED WITH GRAVE ABUSE
OF DISCRETION IN AFFIRMING THE RULING OF THE SECRETARY OF LABOR AND
EMPLOYMENT WHICH DECLARES PETITIONER LETRAN GUILTY OF REFUSAL TO
BARGAIN (UNFAIR LABOR PRACTICE) FOR SUSPENDING THE COLLECTIVE
BARGAINING NEGOTIATIONS WITH RESPONDENT AEFL, DESPITE THE FACT THAT
THE SUSPENSION OF THE NEGOTIATIONS WAS BROUGHT ABOUT BY THE FILING
OF A PETITION FOR CERTIFICATION ELECTION BY A RIVAL UNION WHO CLAIMED
TO COMMAND THE MAJORITY OF THE EMPLOYEES WITHIN THE BARGAINING
UNIT.
II
THE HONORABLE COURT OF APPEALS ERRED AND ACTED WITH GRAVE ABUSE
OF DISCRETION IN AFFIRMING THE RULING OF THE SECRETARY OF LABOR AND
EMPLOYMENT WHICH DECLARES PETITIONER LETRAN GUILTY OF UNFAIR LABOR
PRACTICE FOR DISMISSING RESPONDENT AMBAS, DESPITE THE FACT THAT HER
DISMISSAL WAS CAUSED BY HER INSUBORDINATE ATTITUDE, SPECIFICALLY, HER
REFUSAL TO FOLLOW THE PRESCRIBED WORK SCHEDULE.[3]
The twin questions of law before this Court are the following: (1) whether
petitioner is guilty of unfair labor practice by refusing to bargain with the union
when it unilaterally suspended the ongoing negotiations for a new Collective
Bargaining Agreement (CBA) upon mere information that a petition for
certification has been filed by another legitimate labor organization? (2)
whether the termination of the union president amounts to an interference of
the employees' right to self-organization?
The petition is without merit.
After a thorough review of the records of the case, this Court finds that
petitioner has not shown any compelling reason sufficient to overturn the ruling
of the Court of Appeals affirming the findings of the Secretary of Labor and
Employment. It is axiomatic that the findings of fact of the Court of Appeals are
conclusive and binding on the Supreme Court and will not be reviewed or
disturbed on appeal. In this case, the petitioner failed to show any
extraordinary circumstance justifying a departure from this established
doctrine.

As regards the first issue, Article 252 of the Labor Code defines the meaning of
the phrase "duty to bargain collectively," as follows:
Art. 252. Meaning of duty to bargain collectively. - The duty to bargain
collectively means the performance of a mutual obligation to meet and
convene promptly and expeditiously in good faith for the purpose of negotiating
an agreement with respect to wages, hours of work and all other terms and
conditions of employment including proposals for adjusting any grievances or
questions arising under such agreement and executing a contract incorporating
such agreements if requested by either party but such duty does not compel
any party to agree to a proposal or to make any concession.
Noteworthy in the above definition is the requirement on both parties of the
performance of the mutual obligation to meet and convene promptly and
expeditiously in good faith for the purpose of negotiating an
agreement. Undoubtedly, respondent Association of Employees and Faculty of
Letran (AEFL) (hereinafter, "union") lived up to this requisite when it presented
its proposals for the CBA to petitioner on February 7, 1996. On the other hand,
petitioner devised ways and means in order to prevent the negotiation.
Petitioner's utter lack of interest in bargaining with the union is obvious in its
failure to make a timely reply to the proposals presented by the latter. More
than a month after the proposals were submitted by the union, petitioner still
had not made any counter-proposals. This inaction on the part of petitioner
prompted the union to file its second notice of strike on March 13,
1996.Petitioner could only offer a feeble explanation that the Board of Trustees
had not yet convened to discuss the matter as its excuse for failing to file its
reply. This is a clear violation of Article 250 of the Labor Code governing the
procedure in collective bargaining, to wit:
Art. 250. Procedure in collective bargaining. - The following procedures shall be
observed in collective bargaining:
(a) When a party desires to negotiate an agreement, it shall serve a written
notice upon the other party with a statement of its proposals. The other party
shall make a reply thereto not later than ten (10) calendar days from receipt of
such notice.[4]
xxx
As we have held in the case of Kiok Loy vs. NLRC,[5] the company's refusal to
make counter-proposal to the union's proposed CBA is an indication of its bad
faith. Where the employer did not even bother to submit an answer to the
bargaining proposals of the union, there is a clear evasion of the duty to
bargain collectively.[6] In the case at bar, petitioner's actuation show a lack of
sincere desire to negotiate rendering it guilty of unfair labor practice.
Moreover, the series of events that transpired after the filing of the first notice
of strike in January 1996 show petitioner's resort to delaying tactics to ensure
that negotiation would not push through. Thus, on February 15, 1996, or barely
a few days after the union proposals for the new CBA were submitted, the
union president was informed by her superior that her work schedule was being
changed from Mondays to Fridays to Tuesdays to Saturdays. A request from the
union president that the issue be submitted to a grievance machinery was
subsequently denied. Thereafter, the petitioner and the union met on March 27,
1996 to discuss the ground rules for negotiation. However, just two days later,
or on March 29, 1996, petitioner dismissed the union president for alleged
insubordination. In its final attempt to thwart the bargaining process, petitioner
suspended the negotiation on the ground that it allegedly received information
that a new group of employees called the Association of Concerned Employees
of Colegio (ACEC) had filed a petition for certification election. Clearly,
petitioner tried to evade its duty to bargain collectively.

Petitioner, however, argues that since it has already submitted the union's
proposals to the Board of Trustees and that a series of conferences had already
been undertaken to discuss the ground rules for negotiation such should
already be considered as acts indicative of its intention to bargain. As pointed
out earlier, the evidence on record belie the assertions of petitioner.
Petitioner, likewise, claims that the suspension of negotiation was proper since
by the filing of the petition for certification election the issue on majority
representation of the employees has arose. According to petitioner, the
authority of the union to negotiate on behalf of the employees was challenged
when a rival union filed a petition for certification election. Citing the case
of Lakas Ng Manggagawang Makabayan v. Marcelo Enterprises,[7] petitioner
asserts that in view of the pendency of the petition for certification election, it
had no duty to bargain collectively with the union.
We disagree. In order to allow the employer to validly suspend the bargaining
process there must be a valid petition for certification election raising a
legitimate representation issue. Hence, the mere filing of a petition for
certification election does not ipso facto justify the suspension of negotiation by
the employer. The petition must first comply with the provisions of the Labor
Code and its Implementing Rules. Foremost is that a petition for certification
election must be filed during the sixty-day freedom period. The "Contract Bar
Rule" under Section 3, Rule XI, Book V, of the Omnibus Rules Implementing the
Labor Code, provides that: " . If a collective bargaining agreement has been
duly registered in accordance with Article 231 of the Code, a petition for
certification election or a motion for intervention can only be entertained within
sixty (60) days prior to the expiry date of such agreement." The rule is based
on Article 232,[8] in relation to Articles 253, 253-A and 256 of the Labor
Code. No petition for certification election for any representation issue may be
filed after the lapse of the sixty-day freedom period. The old CBA is extended
until a new one is signed. The rule is that despite the lapse of the formal
effectivity of the CBA the law still considers the same as continuing in force and
effect until a new CBA shall have been validly executed.[9] Hence, the contract
bar rule still applies.[10] The purpose is to ensure stability in the relationship of
the workers and the company by preventing frequent modifications of any CBA
earlier entered into by them in good faith and for the stipulated original period.
[11]

In the case at bar, the lifetime of the previous CBA was from 1989-1994. The
petition for certification election by ACEC, allegedly a legitimate labor
organization, was filed with the Department of Labor and Employment (DOLE)
only on May 26, 1996. Clearly, the petition was filed outside the sixty-day
freedom period. Hence, the filing thereof was barred by the existence of a valid
and existing collective bargaining agreement. Consequently, there is no
legitimate representation issue and, as such, the filing of the petition for
certification election did not constitute a bar to the ongoing
negotiation. Reliance, therefore, by petitioner of the ruling in Lakas Ng
Manggagawang Makabayan v. Marcelo Enterprises[12] is misplaced since that
case involved a legitimate representation issue which is not present in the case
at bar.
Significantly, the same petition for certification election was dismissed by the
Secretary of Labor on October 25, 1996. The dismissal was upheld by this Court
in a Resolution, dated April 21, 1997.[13]
In view of the above, there is no doubt that petitioner is guilty of unfair labor
practice by its stern refusal to bargain in good faith with respondent union.

Concerning the issue on the validity of the termination of the union president,
we hold that the dismissal was effected in violation of the employees' right to
self-organization.
To justify the dismissal, petitioner asserts that the union president was
terminated for cause, allegedly for insubordination for her failure to comply
with the new working schedule assigned to her, and pursuant to its managerial
prerogative to discipline and/or dismiss its employees. While we recognize the
right of the employer to terminate the services of an employee for a just or
authorized cause, nevertheless, the dismissal of employees must be made
within the parameters of law and pursuant to the tenets of equity and fair play.
[14]
The employer's right to terminate the services of an employee for just or
authorized cause must be exercised in good faith.[15] More importantly, it must
not amount to interfering with, restraining or coercing employees in the
exercise of their right to self-organization because it would amount to, as in this
case, unlawful labor practice under Article 248 of the Labor Code.
The factual backdrop of the termination of Ms. Ambas leads us to no other
conclusion that she was dismissed in order to strip the union of a leader who
would fight for the right of her co-workers at the bargaining table. Ms. Ambas,
at the time of her dismissal, had been working for the petitioner for ten (10)
years already. In fact, she was a recipient of a loyalty award. Moreover, for the
past ten (10) years her working schedule was from Monday to Friday. However,
things began to change when she was elected as union president and when she
started negotiating for a new CBA. Thus, it was when she was the union
president and during the period of tense and difficult negotiations when her
work schedule was altered from Mondays to Fridays to Tuesdays to Saturdays.
When she did not budge, although her schedule was changed, she was
outrightly dismissed for alleged insubordination.[16] We quote with approval the
following findings of the Secretary of Labor on this matter, to wit:
"Assuming arguendo that Ms. Ambas was guilty, such disobedience was not,
however, a valid ground to teminate her employment. The disputed
management action was directly connected with Ms. Ambas' determination to
change the complexion of the CBA. As a matter of fact, Ms. Ambas' unflinching
position in faithfully and truthfully carrying out her duties and responsibilities to
her Union and its members in getting a fair share of the fruits of their collective
endeavors was the proximate cause for her dismissal, the charge of
insubordination being merely a ploy to give a color of legality to the
contemplated management action to dismiss her. Thus, the dismissal of Ms.
Ambas was heavily tainted with and evidently done in bad faith. Manifestly, it
was designed to interfere with the members' right to self-organization.
Admittedly, management has the prerogative to discipline its employees for
insubordination. But when the exercise of such management right tends to
interfere with the employees' right to self-organization, it amounts to unionbusting and is therefore a prohibited act. The dismissal of Ms. Ambas was
clearly designed to frustrate the Union in its desire to forge a new CBA with the
College that is reflective of the true wishes and aspirations of the Union
members. Her dismissal was merely a subterfuge to get rid of her, which
smacks of a pre-conceived plan to oust her from the premises of the College. It
has the effect of busting the Union, stripping it of its strong-willed leadership.
When management refused to treat the charge of insubordination as a
grievance within the scope of the Grievance Machinery, the action of the
College in finally dismissing her from the service became arbitrary, capricious
and whimsical, and therefore violated Ms. Ambas' right to due process." [17]
In this regard, we find no cogent reason to disturb the findings of the Court of
Appeals affirming the findings of the Secretary of Labor and Employment. The

right to self-organization of employees must not be interfered with by the

employer on the pretext of exercising management prerogative of disciplining
its employees. In this case, the totality of conduct of the employer shows an
evident attempt to restrain the employees from fully exercising their rights
under the law. This cannot be done under the Labor Code.
WHEREFORE, premises considered, the petition is DENIED for lack of merit.
SO ORDERED.

THIRD DIVISION
[G.R. No. 146650. January 13, 2003]
DOLE PHILIPPINES, INC., petitioner, vs. PAWIS NG MAKABAYANG
OBRERO (PAMAO-NFL), respondent.
DECISION
CORONA, J.:
Before us is a petition for review filed under Rule 45 of the 1997 Rules of Civil
Procedure, assailing the January 9, 2001 resolution of the Court of Appeals
which denied petitioners motion for reconsideration of its September 22, 2000
decision[1] which in turn upheld the Order issued by the voluntary
arbitrator[2] dated 12 October 1998, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
complainant. Respondent is hereby directed to extend the free meal benefit
as provided for in Article XVIII, Section 3 of the collective bargaining agreement
to those employees who have actually performed overtime works even for
exactly three (3) hours only.
SO ORDERED. [3]
The core of the present controversy is the interpretation of the provision for
free meals under Section 3 of Article XVIII of the 1996-2001 Collective
Bargaining Agreement (CBA) between petitioner Dole Philippines, Inc. and
private respondent labor union PAMAO-NFL. Simply put, how many hours of
overtime work must a Dole employee render to be entitled to the free meal
under Section 3 of Article XVIII of the 1996-2001 CBA? Is it when he has
rendered (a) exactly, or no less than, three hours of actual overtime work or (b)
more than three hours of actual overtime work?
The antecedents are as follows:
On February 22, 1996, a new five-year Collective Bargaining Agreement for the
period starting February 1996 up to February 2001, was executed by petitioner
Dole Philippines, Inc., and private respondent Pawis Ng Makabayang ObreroNFL (PAMAO-NFL). Among the provisions of the new CBA is the disputed
section on meal allowance under Section 3 of Article XVIII on Bonuses and
Allowances, which reads:
Section 3. MEAL ALLOWANCE. The COMPANY agrees to grant a MEAL
ALLOWANCE of TEN PESOS (P10.00) to all employees who render at least TWO
(2) hours or more of actual overtime work on a workday, and FREE MEALS, as
presently practiced, not exceeding TWENTY FIVE PESOS (P25.00) after THREE
(3) hours of actual overtime work.[4]
Pursuant to the above provision of the CBA, some departments of Dole
reverted to the previous practice of granting free meals after exactly three
hours of actual overtime work. However, other departments continued the
practice of granting free meals only after more than three hours of overtime
work. Thus, private respondent filed a complaint before the National
Conciliation and Mediation Board alleging that petitioner Dole refused to
comply with the provisions of the 1996-2001 CBA because it granted free meals
only to those who rendered overtime work for more than three hours and not to
those who rendered exactly three hours overtime work.
The parties agreed to submit the dispute to voluntary arbitration. Thereafter,
the voluntary arbitrator, deciding in favor of the respondent, issued an order
directing petitioner Dole to extend the free meal benefit to those employees
who actually did overtime work even for exactly three hours only.
Petitioner sought a reconsideration of the above order but the same was
denied. Hence, petitioner elevated the matter to the Court of Appeals by way
of a petition for review on certiorari.

On September 22, 2000, the Court of Appeals rendered its decision upholding
the assailed order.
Thus, the instant petition.
Petitioner Dole asserts that the phrase after three hours of actual overtime
work should be interpreted to mean after more than three hours of actual
overtime work.
On the other hand, private respondent union and the voluntary arbitrator see it
as meaning after exactly three hours of actual overtime work.
The meal allowance provision in the 1996-2001 CBA is not new. It was also in
the 1985-1988 CBA and the 1990-1995 CBA. The 1990-1995 CBA provision on
meal allowance was amended by the parties in the 1993-1995 CBA
Supplement. The clear changes in each CBA provision on meal allowance were
in the amount of the meal allowance and free meals, and the use of the words
after and after more than to qualify the amount of overtime work to be
performed by an employee to entitle him to the free meal.
To arrive at a correct interpretation of the disputed provision of the CBA, a
review of the pertinent section of past CBAs is in order.
The CBA covering the period 21 September 1985 to 20 September 1988
provided:
Section 3. MEAL ALLOWANCE. The COMPANY agrees to grant a MEAL
ALLOWANCE of FOUR (P4.00) PESOS to all employees who render at least TWO
(2) hours or more of actual overtime work on a workday, and FREE MEALS, as
presently practiced, after THREE (3) hours of actual overtime work. [5]
The CBA for 14 January 1990 to 13 January 1995 likewise provided:
Section 3. MEAL ALLOWANCE. The COMPANY agrees to grant a MEAL
ALLOWANCE of EIGHT PESOS (P8.00) to all employees who render at least TWO
(2) hours or more of actual overtime work on a workday, and FREE MEALS, as
presently practiced, not exceeding SIXTEEN PESOS (P16.00) after THREE (3)
hours of actual overtime work.[6]
The provision above was later amended when the parties renegotiated the
economic provisions of the CBA pursuant to Article 253-A of the Labor
Code. Section 3 of Article XVIII of the 14 January 1993 to 13 January 1995
Supplement to the 1990-1995 CBA reads:
Section 3. MEAL ALLOWANCE. The COMPANY agrees to grant a MEAL SUBSIDY
of NINE PESOS (P9.00) to all employees who render at least TWO (2) hours or
more of actual overtime work on a workday, and FREE MEALS, as presently
practiced, not exceeding TWENTY ONE PESOS (P21.00) after more than THREE
(3) hours of actual overtime work (Section 3, as amended). [7]
We note that the phrase more than was neither in the 1985-1988 CBA nor in
the original 1990-1995 CBA. It was inserted only in the 1993-1995 CBA
Supplement. But said phrase is again absent in Section 3 of Article XVIII of the
1996-2001 CBA, which reverted to the phrase after three (3) hours.
Petitioner asserts that the phrase after three (3) hours of actual overtime
work does not mean after exactly three hours of actual overtime work; it
means after more than three hours of actual overtime work. Petitioner insists
that this has been the interpretation and practice of Dole for the past thirteen
years.
Respondent, on the other hand, maintains that after three (3) hours of actual
overtime work simply means after rendering exactly, or no less than, three
hours of actual overtime work.
The Court finds logic in private respondents interpretation.
The omission of the phrase more than between after and three hours in
the present CBA spells a big difference.

No amount of legal semantics can convince the Court that after more than
means the same as after.
Petitioner asserts that the more than in the 1993-1995 CBA Supplement was
mere surplusage because, regardless of the absence of said phrase in all the
past CBAs, it had always been the policy of petitioner corporation to give the
meal allowance only after more than 3 hours of overtime work. However, if this
were true, why was it included only in the 1993-1995 CBA Supplement and the
parties had to negotiate its deletion in the 1996-2001 CBA?
Clearly then, the reversion to the wording of previous CBAs can only mean that
the parties intended that free meals be given to employees after exactly, or no
less than, three hours of actual overtime work.
The disputed provision of the CBA is clear and unambiguous. The terms are
explicit and the language of the CBA is not susceptible to any other
interpretation. Hence, the literal meaning of free meals after three (3) hours
of overtime work shall prevail, which is simply that an employee shall be
entitled to a free meal if he has rendered exactly, or no less than, three hours
of overtime work, not after more than or in excess of three hours overtime
work.
Petitioner also invokes the well-entrenched principle of management
prerogative that the power to grant benefits over and beyond the minimum
standards of law, or the Labor Code for that matter, belongs to the employer x
x x. According to this principle, even if the law is solicitous of the welfare of
the employees, it must also protect the right of the employer to exercise what
clearly are management prerogatives.[8] Petitioner claims that, being the
employer, it has the right to determine whether it will grant a free meal
benefit to its employees and, if so, under what conditions. To see it otherwise
would amount to an impairment of its rights as an employer.
We do not think so.
The exercise of management prerogative is not unlimited. It is subject to the
limitations found in law, a collective bargaining agreement or the general
principles of fair play and justice.[9] This situation constitutes one of the
limitations. The CBA is the norm of conduct between petitioner and private
respondent and compliance therewith is mandated by the express policy of the
law.[10]
Petitioner Dole cannot assail the voluntary arbitrators interpretation of the CBA
for the supposed impairment of its management prerogatives just because the
same interpretation is contrary to its own.
WHEREFORE, petition is hereby denied.
SO ORDERED.
Puno, (Chairman), Panganiban, Sandoval-Gutierrez, and Carpio-Morales,
JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 111262 September 19, 1996
SAN MIGUEL CORPORATION EMPLOYEES UNION-PTGWO, represented
by its President RAYMUNDO HIPOLITO, JR., petitioner,
vs.
HON. MA. NIEVES D. CONFESOR, Secretary of Labor, Dept. of Labor &
Employment, SAN MIGUEL CORPORATION, MAGNOLIA CORPORATION

(Formerly, Magnolia Plant) and SAN MIGUEL FOODS, INC. (Formerly, BMeg Plant), respondents.
KAPUNAN, J.:
This is a petition for certiorari assailing the Order of the Secretary of Labor
rendered on February 15, 1993 involving a labor dispute at San Miguel
Corporation.
The facts are as follows:
On June 28, 1990, petitioner-union San Miguel Corporation Employees Union
PTGWO entered into a Collective Bargaining Agreement (CBA) with private
respondent San Miguel Corporation (SMC) to take effect upon the expiration of
the previous CBA or on June 30, 1989.
This CBA provided, among others, that:
ARTICLE XIV
DURATION OF AGREEMENT
Sec. 1. This Agreement which shall be binding upon the parties hereto and
their respective successors-in-interest, shall become effective and shall remain
in force and effect until June 30, 1992.
Sec. 2. In accordance with Article 253-A of the Labor Code as amended, the
term of this Agreement insofar as the representation aspect is concerned, shall
be for five (5) years from July 1, 1989 to June 30, 1994. Hence, the freedom
period for purposes of such representation shall be sixty (60) days prior to June
30, 1994.
Sec. 3. Sixty (60) days prior to June 30, 1992 either party may initiate
negotiations of all provisions of this Agreement, except insofar as the
representation aspect is concerned. If no agreement is reached in such
negotiations, this Agreement shall nevertheless remain in force up to the time
a subsequent agreement is reached by the parties. 1
In keeping with their vision and long term strategy for business expansion, SMC
management informed its employees in a letter dated August 13, 1991 2 that
the company which was composed of four operating divisions namely: (1) Beer,
(2) Packaging, (3) Feeds and Livestocks, (4) Magnolia and Agri-business would
undergo a restructuring. 3
Effective October 1, 1991, Magnolia and Feeds and Livestock Division were
spun-off and became two separate and distinct corporations: Magnolia
Corporation (Magnolia) and San Miguel Foods, Inc. (SMFI). Notwithstanding the
spin-offs, the CBA remained in force and effect.
After June 30, 1992, the CBA was renegotiated in accordance with the terms of
the CBA and Article 253-A of the Labor Code. Negotiations started sometime in
July, 1992 with the two parties submitting their respective proposals and
counterproposals.
During the negotiations, the petitioner-union insisted that the bargaining unit of
SMC should still include the employees of the spun-off corporations: Magnolia
and SMFI; and that the renegotiated terms of the CBA shall be effective only for
the remaining period of two years or until June 30, 1994.
SMC, on the other hand, contended that the members/employees who had
moved to Magnolia and SMFI, automatically ceased to be part of the bargaining
unit at the SMC. Furthermore, the CBA should be effective for three years in
accordance with Art. 253-A of the Labor Code.
Unable to agree on these issues with respect to the bargaining unit and
duration of the CBA, petitioner-union declared a deadlock on September 29,
1990.
On October 2, 1992, a Notice of Strike was filed against SMC.

In order to avert a strike, SMC requested the National Conciliation and

Mediation Board (NCMB) to conduct preventive mediation. No settlement was
arrived at despite several meetings held between the parties.
On November 3, 1992, a strike vote was conducted which resulted in a "yes
vote" in favor of a strike.
On November 4, 1992, private respondents SMC, Magnolia and SMFI filed a
petition with the Secretary of Labor praying that the latter assume jurisdiction
over the labor dispute in a vital industry.
As prayed for, the Secretary of Labor assumed jurisdiction over the labor
dispute on November 10, 1992. 4Several conciliation meetings were held but
still no agreement/settlement was arrived at by both parties.
After the parties submitted their respective position papers, the Secretary of
Labor issued the assailed Order on February 15, 1993 directing, among others,
that the renegotiated terms of the CBA shall be effective for the period of three
(3) years from June 30, 1992; and that such CBA shall cover only the
employees of SMC and not of Magnolia and SMFI.
Dissatisfied, petitioner-union now comes to this Court questioning this Order of
the Secretary of Labor.
Subsequently, on March 30, 1995, 5 petitioner-union filed a Motion for Issuance
of a Temporary Restraining Order or Writ of Preliminary Injunction to enjoin the
holding of the certification elections in the different companies, maintaining
that the employees of Magnolia and SMFI fall within the bargaining unit of SMC.
On March 29, 1995, the Court issued a resolution granting the temporary
restraining order prayed for. 6
Meanwhile, an urgent motion for leave to intervene 7 in the case was filed by
the Samahan ng Malayang Manggagawa-San Miguel Corporation-Federation of
Free Workers (SMM-SMC-FFW) through its authorized representative, Elmer S.
Armando, alleging that it is one of the contending parties adversely affected by
the temporary restraining order.
The Intervenor cited the case of Daniel S.L. Borbon v. Hon. Bienvenido
B. Laguesma, 8 G.R. No. 101766, March 5, 1993, where the Court recognized
the separation of the employees of Magnolia from the SMC bargaining unit. It
then prayed for the lifting of the temporary restraining order.
Likewise, Efren Carreon, Acting President of the SMCEU-PTGWO, filed a petition
for the withdrawal/dismissal of the petition considering that the temporary
restraining order jeopardized the employees' right to conclude a new CBA. At
the same time, he challenged the legal personality of Mr. Raymundo Hipolito, Jr.
to represent the Union as its president when the latter was already officially
dismissed from the company on October 4, 1994.
Amidst all these pleadings, the following primordial issues arise:
1) Whether or not the duration of the renegotiated terms of the CBA is to be
effective for three years of for only two years; and
2) Whether or not the bargaining unit of SMC includes also the employees of
the Magnolia and SMFI.
Petitioner-union contends that the duration for the non-representation
provisions of the CBA should be coterminous with the term of the bargaining
agency which in effect shall be for the remaining two years of the current CBA,
citing a previous decision of the Secretary of Labor on December 14, 1992 in
the matter of the labor dispute at Philippine Refining Company.
However, the Secretary of Labor, in her questioned Order of February 15, 1993
ruled that the renegotiated terms of the CBA at SMC should run for a period of
three (3) years.
We agree with the Secretary of Labor.

Pertinent to the first issue is Art. 253-A of the Labor Code as amended which
reads:
Art. 253-A. Terms of a Collective Bargaining Agreement. Any Collective
Bargaining Agreement that the parties may enter into shall, insofar as the
representation aspect is concerned, be for a term of five (5) years. No petition
questioning the majority status of the incumbent bargaining agent shall be
entertained and no certification election shall be conducted by the Department
of Labor and Employment outside of the sixty-day period immediately before
the date of expiry of such five year term of the Collective Bargaining
Agreement. All other provisions of the Collective Bargaining Agreement shall be
renegotiated not later than three (3) years after its execution. Any agreement
on such other provisions of the Collective Bargaining Agreement entered into
within six (6) months from the date of expiry of the term of such other
provisions as fixed in such Collective Bargaining Agreement, shall retroact to
the day immediately following such date. If any such agreement is entered into
beyond six months, the parties shall agree on the duration of retroactivity
thereof. In case of a deadlock in the renegotiation of the collective bargaining
agreement, the parties may exercise their rights under this Code. (Emphasis
supplied.)
Article 253-A is a new provision. This was incorporated by Section 21 of
Republic Act No. 6715 (the Herrera-Veloso Law) which took effect on March 21,
1989. This new provision states that the CBA has a term of five (5) years
instead of three years, before the amendment of the law as far as the
representation aspect is concerned. All other provisions of the CBA shall be
negotiated not later than three (3) years after its execution. The
"representation aspect" refers to the identity and majority status of the union
that negotiated the CBA as the exclusive bargaining representative of the
appropriate bargaining unit concerned. "All other provisions" simply refers to
the rest of the CBA, economic as well as non-economic provisions, except
representation. 10
As the Secretary of Labor herself observed in the instant case, the law is clear
and definite on the duration of the CBA insofar as the representation aspect is
concerned, but is quite ambiguous with the terms of the other provisions of the
CBA. It is a cardinal principle of statutory construction that the Court must
ascertain the legislative intent for the purpose of giving effect to any statute.
The history of the times and state of the things existing when the act was
framed or adopted must be followed and the conditions of the things at the
time of the enactment of the law should be considered to determine the
legislative intent. 11 We look into the discussions leading to the passage of the
law:
THE CHAIRMAN (REP. VELASCO): . . .the CBA, insofar as the economic
provisions are concerned . . .
THE CHAIRMAN (SEN. HERRERA): Maximum of three years?
THE CHAIRMAN (SEN. VELOSO): Maximum of three years.
THE CHAIRMAN (SEN. HERRERA): Present practice?
THE CHAIRMAN (REP. VELOSO): In other words, after three years pwede nang
magnegotiate in the CBA for the remaining two years.
THE CHAIRMAN (REP. HERRERA): You can negotiate for one year, two years or
three years but assuming three years which, I think, that's the likelihood. . .
THE CHAIRMAN (REP. VELOSO): Yes.
THE CHAIRMAN (SEN. HERRERA): Three years, the new union, assuming there
will be a change of agent, at least he has one year to administer and to adjust,
to develop rapport with the management. Yan ang importante.

You know, for us na nagne-negotiate, ang hazard talaga sa negotiation, when

we negotiate with somebody na hindi natin kilala, then, we are governed by our
biases na ito ay destroyer ng Labor; ang mga employer, ito bayaran ko lang ito
okay na.
'Yan ang nangyayari, but let us give that allowance for the one year to let them
know.
Actually, ang thrust natin ay industrial peace, and there can be no industrial
peace if you encourage union to fight each other. 'Yan ang problema. 12
xxx xxx xxx
HON. ISIDRO: Madali iyan, kasi these two periods that are mentioned in the CBA
seem to provide some doubts later on in the implementation. Sabi kasi rito,
insofar as representation issue is concerned, seven years and lifetime. . .
HON. CHAIRMAN HERRERA: Five years.
HON. ISIDRO: Five years, all the others three years.
HON. CHAIRMAN HERRERA: No. Ang three years duon sa terms and conditions,
not later than three years.
HON. ISIDRO: Not later than three years, so within three years you have to
make a new CBA.
HON. CHAIRMAN HERRERA: Yes.
HON. ISIDRO: That is again for purposes of renewing the terms, three years na
naman iyan then, seven years. . .
HON. CHAIRMAN HERRERA: Not later than three years.
HON. ISIDRO: Assuming that they usually follow the period three years nang
three years, but under this law with respect to representation five years,
ano? Now, after three years, nagkaroon ng bagong terms, tapos na iyong term,
renewed na iyong terms, ang karapatan noon sa representation issue mayroon
pang two years left.
HON. CHAIRMAN HERRERA: One year na lang because six years nang lahat,
three plus three.
HON. ISIDRO: Hindi, two years pa rin ang natitira, eh. Three years pa lang ang
natatapos. So, another CBA was formed and this CBA mayroon na naman
siyang bagong five years with respect to representation issue.
HON. CHAIRMAN HERRERA: Hindi. Hindi na. Ganito iyan. Iyong terms and
conditions for three years.
HON. ISIDRO: Yes.
HON. CHAIRMAN HERRERA: One the third year you can start negotiating to
change the terms and conditions.
HON. ISIDRO: Yes.
HON. CHAIRMAN HERRERA: Assuming you will follow the practice . . .
HON. ISIDRO: Oo.
HON. CHAIRMAN HERRERA: But on the fifth year, ang representation status now
can be questioned, so baka puwedeng magkaroon ng certification election. If
the incumbent union loses, then the new union administers the contract for one
year to give him time to know his counterpart the employer, before he can
negotiate for a new term. Iyan ang advantage.
HON. ISIDRO: Kasi, when the CBA has only a three-year lifetime with respect to
the terms and conditions and then, so you have to renew that in three years
you renew for another three years, mayroon na naman another five years iyong
ano . . .
HON. ANIAG: Hindi, ang natitira duon sa representation two years na lang.
HON. CHAIRMAN HERRERA: Two years na lang sa representation.
HON. ANIAG: So that if they changed the union, iyong last year . . .
HON. CHAIRMAN HERRERA: Iyon lang, that you have to administer the contract.
Then, voluntary arbitration na kayo and then mayroon ka nang probisyon

"retroact on the date of the expiry date". Pagnatalo ang incumbent unyon,
mag-aassume ang new union, administer the contract. As far as the term and
condition, for one year, and that will give him time and the employer to know
each other.
HON. JABAR: Boy, let us be realistic. I think if a new union wins a certification
election, it would not want to administer a CBA which has not been negotiated
by the union itself.
HON. CHAIRMAN HERRERA: That is not true, Hon. This is true because what is
happening now in the country is that the term ng contract natin, duon din
mage-expire ang representation. Iyon ang nangyari. That is where you have the
gulo. Ganoon ang nangyari. So, ang nangyari diyan, pag-mayroon certification
election, expire ang contract, ano ang usual issue company union. I can you
(sic) give you more what the incumbent union is giving. So ang mangyayari
diyan, pag-negotiate mo hardline na agad.
HON. CHAIRMAN VELOSO : Mon, for four years?
HON. ISIDRO: Ang tingin ko lang dito, iyong distinction between the terms and
the representation aspect why do we have to distinguish between three and
five? What's wrong with having a uniform expiration period?
HON. CHAIRMAN HERRERA: Five years.
HON. ISIDRO: Puro three years.
HON. CHAIRMAN HERRERA: That is what we are trying to avoid because ang
reality diyan, Mart, pagpasok mo sa kumpanya, mag-ne-negotiate ka ng six
months, that's the average, aabot pa minsan ng one year. Pagktapos ng
negotiation mo, signing kayo. There will be an allowed period of one year. Third
year na, uumpisahan naman ang organizations, papasok na ang ibang unyon
because the reality in Trade Union committee, they organize, we organize. So,
actually, you have only industrial peace for one year, effective industrial peace.
That is what we are trying to change. Otherwise, we will continue to discourage
the investors and the union will never grow because every other year it has to
use its money for the certification election. Ang grabe pang practice diyan,
mag-a-advance ang federation for three years union dues para panggastos lang
sa certification election. That is what we are trying to avoid.
HON. JABAR: Although there are unions which really get advances.
HON. CHAIRMAN HERRERA: Pag nag-survey tayo sa mga unyon, ganoon ang
mangyayari. And I think our responsibility here is to create a legal framework
to promote industrial peace and to develop responsible and fair labor
movement.
HON. CHAIRMAN VELOSO: In other words, the longer the period of the
effectivity . . .
xxx xxx xxx
HON CHAIRMAN VELOSO. (continuing) . . . in other words, the longer the period
of effectivity of the CBA, the better for industrial peace.
HON. CHAIRMAN HERRERA: representation status.
HON. CHAIRMAN VELOSO: Only on
HON. CHAIRMAN HERRERA: the representations.
HON. CHAIRMAN VELOSO: But on the economic issues.
HON. CHAIRMAN HERRERA: You have to review that. The parties will have to
review that.
HON. CHAIRMAN VELOSO: At least on second year.
HON. CHAIRMAN HERRERA: Not later than 3 years, ang karamihan ng mga magnegotiate when the companyis (interrupted) 13
From the aforesaid discussions, the legislators were more inclined to have the
period of effectivity for three (3) years insofar as the economic as well as noneconomic provisions are concerned, except representation.

Obviously, the framers of the law wanted to maintain industrial peace and
stability by having both management and labor work harmoniously together
without any disturbance. Thus, no outside union can enter the establishment
within five (5) years and challenge the status of the incumbent union as the
exclusive bargaining agent. Likewise, the terms and conditions of employment
(economic and non-economic) can not be questioned by the employers or
employees during the period of effectivity of the CBA. The CBA is a contract
between the parties and the parties must respect the terms and conditions of
the agreement. 14 Notably, the framers of the law did not give a fixed term as
to the effectivity of the terms and conditions of employment. It can be gleaned
from their discussions that it was left to the parties to fix the period.
In the instant case, it is not difficult to determine the period of effectivity for the
non-representation provisions of the CBA. Taking it from the history of their
CBAs, SMC intended to have the terms of the CBA effective for three (3) years
reckoned from the expiration of the old or previous CBA which was on June 30,
1989, as it provides:
Sec. 1. This Agreement which shall be binding upon the parties hereto and their
respective successors-in-interest, shall become effective and shall remain in
force and effect until June 30, 1992.
The argument that the PRC case is applicable is indeed misplaced. We quote
with favor the Order of the Secretary of Labor in the light of SMC's peculiar
situation as compared with PRC's company situation.
It is true that in the Philippine Refining Company case (OS-AJ-0031-91) (sic),
Labor Dispute at Philippine Refining Company), we ruled that the term of the
renegotiated provisions of the CBA should coincide with the remaining term of
the agency. In doing so, we placed premium on the fact that PRC has only two
(2) unions and no other union had yet executed a renewed term of 3 years.
Nonetheless, in ruling for a shortened term, we were guided by our considered
perception that the said term would improve, rather than ruin, the general
welfare of both the workers and the company. It is equally true that once the
economic provisions of the CBA expire, the residual representative status of the
union is effective for only 2 more years. However, if circumstances warrant that
the contract duration which it is soliciting from the company for the benefit of
the workers, shall be a little bit longer than its lifespan, then this Office cannot
stand in the way of a more ideal situation. We must not lose sight of the fact
that the primordial purpose of a collective contract is to promote industrial
harmony and stability in the terms and conditions of employment. To our mind,
this objective cannot be achieved without giving due consideration to the
peculiarities and unique characteristics of the employer. In the case at bar,
there is no dispute that the mother corporation (SMC) spun-off two of its
divisions and thereby gave birth to two (2) other entities now known as
Magnolia Corporation and San Miguel Foods, Inc. In order to effect a smooth
transition, the companies concerned continued to recognize the existing unions
as the bargaining agents of their respective bargaining units. In the meantime,
the other unions in these companies eventually concluded their CBA
negotiations on the remaining term and all of them agreed on a 3-year cycle.
Notably, the following CBAs were forged incorporating a term of 3-years on the
renegotiated provisions, to wit:
1. SMC daily-paid employees union (IBM)
2. SMFI monthly-paid employees and daily-paid employees at the Cabuyao
Plant.
There is a direct link between the voluntary recognition by the company of the
continuing representative status of the unions after the aforementioned spinoffs and the stand of the company for a 3-year renegotiated cycle when the

economic provisions of the existing CBAs expired, i.e., the maintain stability
and avoid confusion when the umbilical cord of the two divisions were severed
from their parent. These two cannot be considered independently of each other
for they were intended to reinforce one another. Precisely, the company
conceded to face the same union notwithstanding the spin-offs in order to
preserve industrial peace during the infancy of the two corporations. If the
union would insist on a shorter renegotiated term, then all the advantages
gained by both parties in this regard, would have gone to naught. With this in
mind, this office feels that it will betray its mandate should we order the parties
to execute a 2-year renegotiated term for then chaos and confusion, rather
than tranquillity, would be the order of the day. Worse, there is a strong
likelihood that such a ruling might spawn discontent and possible mass actions
against the company coming from the other unions who had already agreed to
a 3-year renegotiated terms. If this happens, the purpose of this Office's
intervention into the parties' controversy would have been defeated. 15
The issue as to the term of the non-representation provisions of the CBA need
not belabored especially when we take note of the Memorandum of the
Secretary of Labor dated February 24, 1994 which was mentioned in the
Resolution of Undersecretary Bienvenido Laguesma on January 16, 1995 in the
certification election case involving the SMC employees. 16 In said
memorandum, the Secretary of Labor had occasion to clarify the term of the
renegotiated terms of the CBA vis-a-vis the term of the bargaining agent, to
wit:
As a matter of policy the parties are encourages (sic) to enter into a
renegotiated CBA with a term which would coincide (sic) with the aforesaid five
(5) year term of the bargaining representative.
In the event however, that the parties, by mutual agreement, enter into a
renegotiated contract with a term of three (3) years or one which does not
coincide with the said 5-year term, and said agreement is ratified by majority of
the members in the bargaining unit, the subject contract is valid and legal and
therefore, binds the contracting parties. The same will however not adversely
affect the right of another union to challenge the majority status of the
incumbent bargaining agent within sixty (60) days before the lapse of the
original five (5) year term of the CBA.
Thus, we do not find any grave abuse of discretion on the part of the Secretary
of Labor in ruling that the effectivity of the renegotiated terms of the CBA shall
be for three (3) years.
With respect to the second issue, there is, likewise, no merit in petitionerunion's assertion that the employees of Magnolia and SMFI should still be
considered part of the bargaining unit of SMC.
Magnolia and SMFI were spun-off to operate as distinct companies on October
1, 1991. Management saw the need for these transformations in keeping with
its vision and long term strategy as it explained in its letter addressed to the
employees dated August 13, 1991:
. . . As early as 1986, we announced the decentralization program and spoke of
the need for structures that can react fast to competition, a changing
environment, shorter product life cycles and shifts in consumer preference. We
further stated in the 1987 Annual Report to Stockholders that San Miguel's
businesses will be more autonomous and self sufficient so as to better acquire
and master new technologies, cope with a labor force with different expertises
and expectations, and master and satisfy the changing needs of our customers
and end-consumers. As subsidiaries, Magnolia and FLD will gain better industry
focus and flexibility, greater awareness of operating results, and speedier, more
responsive decision making.

xxx xxx xxx

We only have to look at the experience of Coca-Cola Bottlers Philippines, Inc.,
since this company was organized about ten years ago, to see the benefits that
arise from restructuring a division of San Miguel into a more competitive
organization. As a stand-alone enterprise, CCBPI engineered a dramatic
turnaround and has sustained its sales and market share leadership ever since.
We are confident that history will repeat itself, and the transformation of
Magnolia and FLD will be successful as that of CCBPI. 17
Undeniably, the transformation of the companies was a management
prerogative and business judgment which the courts can not look into unless it
is contrary to law, public policy or morals. Neither can we impute any bad faith
on the part of SMC so as to justify the application of the doctrine of piercing the
corporate veil.18 Ever mindful of the employees' interests, management has
assured the concerned employees that they will be absorbed by the new
corporations without loss of tenure and retaining their present pay and benefits
according to the existing CBAs. 19 They were advised that upon the expiration
of the CBAs, new agreements will be negotiated between the management of
the new corporations and the bargaining representatives of the employees
concerned. As a result of the spin-offs:
1. Each of the companies are run by, supervised and controlled by different
management teams including separate human resource/personnel managers.
2. Each Company enforces its own administrative and operational rules and
policies and are not dependent on each other in their operations.
3. Each entity maintains separate financial statements and are audited
separately from each other. 20
Indubitably, therefore, Magnolia and SMFI became distinct entities with
separate juridical personalities. Thus, they can not belong to a single
bargaining unit as held in the case of Diatagon Labor Federation Local 110 of
the ULGWP v. Ople. 21 We elucidate:
The fact that their businesses are related and that the 236 employees of the
Georgia Pacific International Corporation were originally employees of Lianga
Bay Logging Co., Inc. is not a justification for disregarding their separate
personalities. Hence, the 236 employees, who are now attached to Georgia
Pacific International Corporation, should not be allowed to vote in the
certification election at the Lianga Bay Logging Co., Inc. They should vote at a
separate certification election to determine the collective bargaining
representative of the employees of Georgia Pacific International Corporation.
Petition-union's attempt to include the employees of Magnolia and SMFI in the
SMC bargaining unit so as to have a bigger mass base of employees has,
therefore, no more valid ground.
Moreover, in determining an appropriate bargaining unit, the test of grouping is
mutuality or commonality of interests. The employees sought to be represented
by the collective bargaining agent must have substantial mutual interests in
terms of employment and working conditions as evinced by the type of work
they performed. 22 Considering the spin-offs, the companies would
consequently have their respective and distinctive concerns in terms of the
nature of work, wages, hours of work and other conditions of employment.
Interests of employees in the different companies perforce differ. SMC is
engaged in the business of the beer manufacturing. Magnolia is involved in the
manufacturing and processing of diary products 23 while SMFI is involved in the
production of feeds and the processing of chicken. 24 The nature of their
products and scales of business may require different skills which must
necessarily be commensurated by different compensation packages. The
different companies may have different volumes of work and different working

conditions. For such reason, the employees of the different companies see the
need to group themselves together and organize themselves into distinctive
and different groups. It would then be best to have separate bargaining units
for the different companies where the employees can bargain separately
according to their needs and according to their own working conditions.
We reiterate what we have explained in the case of University of the Philippines
v. Ferrer-Calleja 25 that:
[T]here are various factors which must be satisfied and considered in
determining the proper constituency of a bargaining unit. No one particular
factor is itself decisive of the determination. The weight accorded to any
particular factor varies in accordance with the particular question or questions
that may arise in a given case. What are these factors? Rothenberg mentions a
good number, but the most pertinent to our case are: (1) will of the employees
(Globe Doctrine); (2) affinity and unit of employees' interest, such as
substantial similarity of work and duties, or similarity of compensation and
working conditions; (3) prior collective bargaining history; and (4) employment
status, such as temporary, seasonal and probationary employees. . . .
xxx xxx xxx
An enlightening appraisal of the problem of defining an appropriate bargaining
unit is given in the 10th Annual Report of the National Labor Relations Board
wherein it is emphasized that the factors which said board may consider and
weigh in fixing appropriate units are: the history, extent and type of
organization of employees; the history of their collective bargaining; the
history, extent and type of organization of employees in other plants of the
same employer, or other employers in the same industry; the skill, wages,
work, and working conditions of the employees; the desires of the employees;
the eligibility of the employees for membership in the union or unions involved;
and the relationship between the unit or units proposed and the employer's
organization, management, and operation . . .
. . . In said report, it is likewise emphasized that the basic test in determining
the appropriate bargaining unit is that a unit, to be appropriate, must affect a
grouping of employees who have substantial, mutual interests in wages, hours,
working conditions and other subjects of collective bargaining (citing Smith on
Labor Laws, 316-317; Francisco, Labor Laws, 162). . .
Finally, we take note of the fact that the separate interests of the employees of
Magnolia and SMFI from those of SMC has been recognized in the case
of Daniel Borbon v. Laguesma. 26 We quote:
Even assuming in gratia argumenti that at the time of the election they were
regular employees of San Miguel, nonetheless, these workers are no longer
connected with San Miguel Corporation in any manner because Magnolia has
ceased to be a division of San Miguel Corporation and has been formed into a
separate corporation with a personality of its own (p. 305, Rollo). This
development, which was brought to our attention by private respondents,
necessarily renders moot and academic any further discourse on the propriety
of the elections which petitioners impugn via the recourse (p. 319, Rollo).
In view of all the foregoing, we do not find any grave abuse of discretion on the
part of the Secretary of Labor in rendering the assailed Order.
WHEREFORE, the petition is DISMISSED for lack of merit. The Temporary
Restraining Order issued on March 29, 1995 is lifted.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 100485 September 21, 1994
SAN MIGUEL CORPORATION, petitioner,
vs.
THE HONORABLE BIENVENIDO E. LAGUESMA and NORTH LUZON
MAGNOLIA SALES LABOR UNION-INDEPENDENT, respondents.
Siguion Reyna, Montecillo & Ongsiako for petitioner.
E.N.A. Cruz & Associates for private respondent.
PUNO, J.:
Petitioner San Miguel Corporation (SMC) prays that the Resolution dated March
19, 1991 and the Order dated April 12, 1991 of public respondent
Undersecretary Bienvenido E. Laguesma declaring respondent union as the sole
and exclusive bargaining agent of all the Magnolia sales personnel in northern
Luzon be set aside for having been issued in excess of jurisdiction and/or with
grave abuse of discretion.
On June 4, 1990, the North Luzon Magnolia Sales Labor Union (respondent
union for brevity) filed with the Department of Labor a petition for certification
election among all the regular sales personnel of Magnolia Dairy Products in the
North Luzon Sales Area. 1
Petitioner opposed the petition and questioned the appropriateness of the
bargaining unit sought to be represented by respondent union. It claimed that
its bargaining history in its sales offices, plants and warehouses is to have
a separate bargaining unit for each sales office.
The petition was heard on November 9, 1990 with petitioner
being represented by Atty. Alvin C. Batalla of the Siguion Reyna law office. Atty.
Batalla withdrew petitioner's opposition to a certification election and agreed to
consider all the sales offices in northern Luzon as one bargaining unit. At the
pre-election conference, the parties agreed inter alia, on the date, time and
place of the consent election. Respondent union won the election held on
November 24, 1990. In an Order dated December 3, 1990, 2 Mediator-Arbiter
Benalfre J. Galang certified respondent union as the sole and exclusive
bargaining agent for all the regular sales personnel in all the sales offices of
Magnolia Dairy Products in the North Luzon Sales Area.
Petitioner appealed to the Secretary of Labor. It claimed that
Atty. Batalla was only authorized to agree to the holding of certification
elections subject to the following conditions: (1) there would only be one
general election; (2) in this general election, the individual sales offices shall
still comprise separate bargaining units. 3
In a Resolution dated March 19, 1991, 4 public respondent, by authority of the
Secretary of Labor, denied SMC's appeal and affirmed the Order of the MedArbiter.
Hence this petition for certiorari.
Petitioner claims that:
THE HONORABLE UNDERSECRETARY LAGUESMA ACTED WITH GRAVE ABUSE OF
DISCRETION WHEN HE IGNORED AND TOTALLY DISREGARDED PETITIONER'S
VALID AND JUSTIFIABLE GROUNDS WHY THE ERROR MADE IN GOOD FAITH BY
PETITIONER'S COUNSEL BE CORRECTED, AND INSTEAD RULED:
A

THAT PRIVATE RESPONDENT IS "THE SOLE AND EXCLUSIVE BARGAINING AGENT

FOR ALL THE REGULAR SALES OFFICES OF MAGNOLIA DAIRY PRODUCTS,
NORTH LUZON SALES AREA", COMPLETELY IGNORING THE ESTABLISHED
BARGAINING HISTORY OF PETITIONER SMC.
B
THAT PETITIONER IS ESTOPPED FROM QUESTIONING THE "AGREEMENT"
ENTERED INTO AT THE HEARING ON
9 NOVEMBER 1990, IN CONTRAVENTION OF THE ESTABLISHED FACTS OF THE
CASE AND THE APPLICABLE LAW ON THE MATTER.
We find no merit in the petition.
The issues for resolution are: (1) whether or not respondent union represents
an appropriate bargaining unit, and (2) whether or not petitioner is bound by its
lawyer's act of agreeing to consider the sales personnel in the north Luzon
sales area as one bargaining unit.
Petitioner claims that in issuing the impugned Orders, public respondent
disregarded its collective bargaining history which is to have a separate
bargaining unit for each sales office. It insists that its prior collective bargaining
history is the most persuasive criterion in determining the appropriateness of
the collective bargaining unit.
There is no merit in the contention.
A bargaining unit is a "group of employees of a given employer, comprised of
all or less than all of the entire body of employees, consistent with equity to the
employer, indicate to be the best suited to serve the reciprocal rights and
duties of the parties under the collective bargaining provisions of the law." 5
The fundamental factors in determining the appropriate collective bargaining
unit are: (1) the will of the employees (Globe Doctrine); 6 (2) affinity and unity
of the employees' interest, such as substantial similarity of work and duties, or
similarity of compensation and working conditions (Substantial Mutual Interests
Rule); (3) prior collective bargaining history; and (4) similarity of employment
status. 7
Contrary to petitioner's assertion, this Court has categorically ruled that the
existence of a prior collective bargaining history is neither decisive nor
conclusive in the determination of what constitutes an appropriate bargaining
unit. 8
Indeed, the test of grouping is mutuality or commonality of interests. The
employees sought to be represented by the collective bargaining agent must
have substantial mutual interests in terms of employment and working
conditions as evinced by the type of work they perform.
In the case at bench, respondent union sought to represent the sales personnel
in the various Magnolia sales offices in northern Luzon. There is similarity of
employment status for only the regular sales personnel in the north Luzon area
are covered. They have the same duties and responsibilities and substantially
similar compensation and working conditions. The commonality of interest
among he sales personnel in the north Luzon sales area cannot be gainsaid. In
fact, in the certification election held on November 24, 1990, the employees
concerned accepted respondent union as their exclusive bargaining agent.
Clearly, they have expressed their desire to be one.
Petitioner cannot insist that each of the sales office of Magnolia should
constitute only one bargaining unit. What greatly militates against this position
is the meager number of sales personnel in each of the Magnolia sales office in
northern Luzon. Even the bargaining unit sought to be represented by
respondent union in the entire north Luzon sales area consists only of
approximately
fifty-five (55) employees. 9 Surely, it would not be for the best interest of these

employees if they would further be fractionalized. The adage "there is strength

in number" is the very rationale underlying the formation of a labor union.
Anent the second issue, petitioner claims that Atty. Batalla was merely a
substitute lawyer for Atty. Christine Ona, who got stranded in Legaspi City. Atty.
Batalla was allegedly unfamiliar with the collective bargaining history of its
establishment. Petitioner claims it should not be bound by the mistake
committed by its substitute lawyer.
We are not persuaded. As discussed earlier, the collective bargaining history of
a company is not decisive of what should comprise the collective bargaining
unit. Insofar as the alleged "mistake" of the substitute lawyer is concerned, we
find that this mistake was the direct result of the negligence of petitioner's
lawyers. It will be noted that Atty. Ona was under the supervision of two (2)
other lawyers, Attys. Jacinto de la Rosa, Jr. and George C. Nograles. There is
nothing in the records to show that these two (2) counsels were likewise
unavailable at that time. Instead of deferring the hearing, petitioner's counsels
chose to proceed therewith. Indeed, prudence dictates that, in such case, the
lawyers allegedly actively involved in SMC's labor case should have adequately
and sufficiently briefed the substitute lawyer with respect to the matters
involved in the case and the specific limits of his authority. Unfortunately, this
was not done in this case. The negligence of its lawyers binds petitioner. As
held by this Court in the case of Villa Rhecar Bus v. De la Cruz: 10
. . . As a general rule, a client is bound by the mistakes of his counsel. Only
when the application of the general rule would result in serious injustice should
an exception thereto be called for.
In the case at bench, petitioner insists that each of the sales offices in northern
Luzon should be considered as a separate bargaining unit for negotiations
would be more expeditious. Petitioner obviously chooses to follow the path of
least resistance. It is not, however, the convenience of the employer that
constitutes the determinative factor in forming an appropriate bargaining unit.
Equally, if not more important, is the interest of the employees. In choosing and
crafting an appropriate bargaining unit, extreme care should be taken to
prevent an employer from having any undue advantage over the employees'
bargaining representative. Our workers are weak enough and it is not our social
policy to further debilitate their bargaining representative.
In sum, we find that no arbitrariness or grave abuse of discretion can be
attributed to public respondents certification of respondent union as the sole
and exclusive bargaining agent of all the regular Magnolia sales personnel of
the north Luzon sales area.
WHEREFORE, premises considered, the challenged Resolution and Order of
public respondent are hereby AFFIRMED in toto, there being no showing of
grave abuse of discretion or lack of jurisdiction.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 102130 July 26, 1994
GOLDEN FARMS, INC., petitioner,
vs.
THE HONORABLE SECRETARY OF LABOR and THE PROGRESSIVE
FEDERATION OF LABOR, respondents.
J.V. Yap Law Office for petitioner.

PUNO, J.:
The sole issue for resolution in this Petition for Certiorari with prayer for the
issuance of preliminary injunction and/or restraining order is whether or not
petitioner's monthly paid rank-and file employees can constitute a bargaining
unit separate from the existing bargaining unit of its daily paid rank-and-file
employees.
Petitioner Golden Farms, Inc., is a corporation engaged in the production and
marketing of bananas for export. On February 27, 1992, private respondent
Progressive Federation of Labor (PFL) filed a petition before the Med-Arbiter
praying for the holding of a certification election among the monthly paid office
and technical rank-and-file employees of petitioner Golden Farms.
Petitioner moved to dismiss the petition on three (3) grounds. First, respondent
PFL failed to show that it was organized as a chapter within petitioner's
establishment. Second, there was already an existing collective bargaining
agreement between the rank-and-file employees represented by the National
Federation of Labor (NFL) and petitioner. And third, the employees represented
by PFL had allegedly been disqualified by this Court from bargaining with
management in Golden Farms, Inc., vs. Honorable Director Pura Ferrer-Calleja,
G.R. No. 78755, July 19, 1989. 1
Respondent PFL opposed petitioner's Motion to Dismiss. It countered that the
monthly paid office and technical employees should be allowed to form a
separate bargaining unit because they were expressly excluded from coverage
in the Collecting Bargaining Agreement (CBA) between petitioner and NFL. It
also contended that the case invoked by petitioner was inapplicable to the
present case.
In its reply, petitioner argued that the monthly paid office and technical
employees should have joined the existing collective bargaining unit of the
rank-and-file employees if they are not manegerial employees.
On April 18, 1991, the Med-Arbiter granted the petition and ordered that a
certification election be conducted, viz:
WHEREFORE, premises considered, the present petition filed by the Progressive
Federation of Labor, for certification election among the office and technical
employees of Golden Farms, Inc., is, as it is hereby, GRANTED with the following
choices:
1. Progressive Federation of Labor (PFL);
2. No. union.
The designated representation officer is hereby directed to call the parties to a
pre-election conference to thresh out the mechanics of the election and to
conduct and supervise the same within twenty (20) days from receipt by the
parties of this Order. The "Masterlist of Office and Technical Employees" shall be
the basis in determining the employees qualified to vote during the certification
election.
SO ORDERED. 2
Petitioner seasonably appealed to public respondent Secretary of Labor. On
August 6, 1991, respondent Secretary of Labor issued the assailed Decision
denying the appeal for lack of merit. 3 Petitioner filed a Motion for
Reconsideration but the same was also denied on September 13, 1991.
Thus, this petition for certiorari interposing two (2) issues.
I
THE CREATION OF AN ADDITIONAL BARGAINING UNIT FOR CERTAIN RANK AND
FILE EMPLOYEES WILL NOT ONLY SPLIT THE EXISTING ONE BUT WILL ALSO
NEGATE THE PRINCIPLE OF RES JUDICATA.
II

THE PROGRESSIVE FEDERATION OF LABOR BEING THE EXCLUSIVE BARGAINING

AGENT OF THE SUPERVISORY EMPLOYEES IS DISQUALIFIED FROM
REPRESENTING THE OFFICE AND TECHNICAL EMPLOYEES.
The petition is devoid of merit.
The monthly paid office and technical rank-and-file employees of petitioner
Golden Farms enjoy the constitutional right to self-organization and collective
bargaining. 4 A "bargaining unit" has been defined as a group of employees of a
given employer, comprised of all or less than all of the entire body of
employees, which the collective interest of all the employees, consistent with
equity to the employer, indicate to be the best suited to serve the reciprocal
rights and duties of the parties under the collective bargaining provisions of the
law. 5 The community or mutuality of interest is therefore the essential criterion
in the grouping. "And this is so because 'the basic test of an asserted
bargaining unit's acceptability is whether or not it is fundamentally the
combination which will best assure to all employees the exercise of their
collective bargaining rights.' 6
In the case at bench, the evidence established that the monthly paid rank-andfile employees of petitioner primarily perform administrative or clerical work. In
contradistinction, the petitioner's daily paid rank-and-file employees mainly
work in the cultivation of bananas in the fields. It is crystal clear the monthly
paid rank-and-file employees of petitioner have very little in common with its
daily paid rank-and-file employees in terms of duties and obligations, working
conditions, salary rates, and skills. To be sure, the said monthly paid rank-andfile employees have even been excluded from the bargaining unit of the daily
paid rank-and-file employees. This dissimilarity of interests warrants the
formation of a separate and distinct bargaining unit for the monthly paid rankand-file employees of the petitioner. To rule otherwise would deny this distinct
class of employees the right to self-organization for purposes of collective
bargaining. Without the shield of an organization, it will also expose them to the
exploitations of management. So we held in University of the Philippines vs.
Ferrer-Calleja, 7 where we sanctioned the formation of two (2) separate
bargaining units within the establishment, viz:
[T]he dichotomy of interests, the dissimilarity in the nature of the work and
duties as well as in the compensation and working conditions of the academic
and non-academic personnel dictate the separation of these two categories of
employees for purposes of collective bargaining. The formation of two separate
bargaining units, the first consisting of the rank-and-file non-academic
employees, and the second, of the rank-and-file academic employees, is the
set-up that will best assure to all the employees the exercise of their collective
bargaining rights.
Petitioner next contends that these monthly paid office and technical
employees are managerial employees. They allegedly include those in the
accounting and personnel department, cashier, and other employees holding
positions with access to classified information.
We are not persuaded. Article 212, paragraph (m) of the Labor Code, as
amended, defines as managerial employee as follows:
"Managerial employee" is one who is vested with power or prerogatives to lay
down and execute management policies and/or to hire, transfer, suspend, layoff, recall, discharge, assign or discipline employees. Supervisory employees
are those who, in the interest of the employer, effectively recommend such
managerial actions if the exercise of such authority is not merely routinary or
clerical in nature but requires the use of independent judgment. All employees
not falling within any of the above definitions are considered rank-and-file
employees for purposes of this Book.

Given this definition, the monthly paid office and technical employees,
accountants, and cashiers of the petitioner are not managerial employees for
they do not participate in policy-making but are given cut out policies to
execute and standard practices to observe. 8 In the main, the discharge of their
duties does not involve the use of independent judgment. As factually found by
the Med-Arbiter, to wit:
A perusal of the list of the office and technical employees sought to be
represented in the instant case, with their corresponding designation does not
show that said Office and Technical employees exercises supervisory or
managerial functions.
The office believes and so hold that the employees whose names appear in the
"Masterlist of Office and Technical Employees" submitted during the hearing are
eligible to join/form a labor organization of their own choice. 9
Our decision in Golden Farms, Inc., vs. Honorable Pura Ferrer-Calleja, op.
cit., does not pose any obstacle in holding a certification election among
petitioner's monthly paid rank-and-file employees. The issue brought to fore in
that case was totally different, i.e., whether or not petitioner's confidential
employees, considering the nature of their work, should be included in the
bargaining unit of the daily paid rank-and-file employees. In the case at bench,
the monthly paid rank-and-file employees of petitioner are being separated as
a bargaining unit from its daily paid rank-and-file employees, on the ground
that they have different interest to protect. The principle of res
judicata is, therefore, inapplicable.
The second assigned error which was not raised in the proceedings below must
necessarily fail. The alleged error involves a question of fact which this Court
cannot resolve. Petitioner submitted this contention only in its Memorandum
dated February 12, 1993. 10 In this Memorandum, petitioner cited LRD Case No.
OXI-UR-70 for Direct Recognition/Certification Election. But even a side glance
of the cited case will reveal that it involves a petition for direct certification
among the rank-and-file office and technical employees of the Golden Farms
Inc., (not supervisory employees) under the House of Investment, Ladislawa
Village, Buhaning, Davao City filed by the National Federation of Labor (not the
respondent Progressive Federation of Labor). The averment of petitioner is
baseless and its recklessness borders the contemptuous.
Finally, we note that it was petitioner company that filed the motion to dismiss
the petition for election. The general rule is that an employer has no standing
to question a certification election since this is the sole concern of the
workers. 11 Law and policy demand that employers take a strick, hands-off
stance in certification elections. The bargaining representative of employees
should be chosen free from any extraneous influence of management. A labor
bargaining representative, to be effective, must owe its loyalty to the
employees alone and to no other.
WHEREFORE, the petition is DISMISSED for lack of merit. With costs against
petitioner.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Mendoza, JJ. concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
DECISION
November 29, 1960
G.R. No. L-14656
PHILIPPINE LAND-AIR-SEA LABOR UNION (PLASLU), petitioner,
vs.
COURT OF INDUSTRIAL RELATIONS, ET AL., respondents.
Emilio Lumontad for petitioner. Simeon S. Andres for respondent CIR. Severino,
Ferrer, Revira and Benigno for respondent AWA. Hilado and Hilado for
respondent San Carlos Milling Co.
GUTIERREZ DAVID, J.:
This is a petition to review on certiorari an order of the Court of Industrial
Relations in Case No. 38 MC-Cebu certifying the Allied Workers' Association of
the Philippines, San Carlos Chapter, as the sole collective bargaining
representative of the employees of the San Carlos Milling Co., Inc.
The record shows that in said Case No. 38 MC-Cebu the Industrial Court on May
25, 1956 ordered the holding of a certification election to determine which of
the two contending labor unions therein, herein petitioner Philippine Land-AirSea Labor Union (PLASLU)or respondent Allied Workers' Association of the
Philippines (AWA), shall be the sole collective bargaining agent to the
employees of the San Carlos Milling Co. The pertinent portions of the court's
order read as follows:
Considering the history of bargaining relations in this case where there has only
been one bargaining unit, and for purposes of effectuating the policies of the
Act, the same should be maintained. In other words, the appropriate bargaining
unit is the Employer unit composed of 602 employees including some 200
piece work (pakiao) workers and stevedores appearing in the Employer's
payrolls during the milling and off the seasonminus the alleged laborers and
operators of farm tractors who are hired and paid by the sugar cane planters.
(Emphasis supplied.)
All the foregoing considered, the Court hereby directs the Department of Labor
to conduct a certification election in the premises of the San Carlos Milling
Company, Ltd. at San Carlos, Negros Occidental for the purpose of determining,
under existing rules and regulations on the matter, which of the two (2)
contending labor unions herein, the PLASLU or the AWA shall be the sole
collective bargaining agent in accordance with the provisions of the Act. The
Employer is hereby ordered to submit a list of employees appearing in its
payroll during milling season for the year 1955 to the Department of Labor
which, together with the "Exhibit X-Court" now part of the records of this case
shall be used as the list of eligible voters minus employees who are performing
functions of supervisors and security guards who are excluded from
participating in said election. (Emphasis supplied.)
SO ORDERED.
Prior to the holding of the election, respondent AWA filed an urgent motion to
exclude 144 employees from participating in the election. The motion,
however, was denied, the Industrial Court holding that the workers sought to be
excluded were eligible to vote since they were actual employees of good
standing of the respondent company during the milling season of 1955 and
were included in the company's payroll as of that date.
On September 21, 1956, the certification election was held in the premises of
the San Carlos Milling Co., PLASLU receiving 88 votes while AWA garnered 149,

with 390 ballots recorded as challenged, 242 of them by the petitioner PLASLU
and 148 by the respondent AWA filed with the Industrial Court a petition
contesting the election on the ground of the ineligibility of the voters cast the
148 ballots is challenged by PLASLU were cast by legitimate employee of the
company, as they were the votes of "piece work (pakiao) workers and
stevedores appearing in the employer's payroll during the milling and offseason" of 1955. PLSLU, on the other hand, in an urgent motion filed on
October 4, 1956, questioned the validity of the 242 ballots cast by stevedores
and piece workers. The motion was opposed by AWA on the ground that as a
protest of the election it was filed late. The Industrial Court, however,
considered the same as an answer to AWA'S petition, and on September 4,
1957, after hearing the arguments of the parties, ordered that all the 390
challenged ballots were opened. After the canvass, 148 votes challenged by
AWA were counted in favor of PLASLU. Of the 242 votes challenged by PLASLU,
3 were counted in its favor, 228 credited in favor of AWA, and 11 declared
either for no union or spoiled ballots. Adding the votes to the results of the
certification election, the final count showed that respondent AWA garnered a
total of 377 votes as against 239 for PLASLU. Accordingly, said respondent was
certified by the Industrial Court in its order dated March 12, 1958 as the sole
collective bargaining agent of the employees of the San Carlos Milling Co. As its
motion for reconsideration of the order was denied by the court en banc - with
Judge Feliciano Tabigne dissenting -- the petitioner PLASLU filed the present
petition for review, contending that Industrial Court erred in not excluding the
242 votes challenged by it from the total number of votes credited to
respondent AWA.
We find petitioner's contention to be meritorious.
In order of May 25, 1956 authorizing the certification election, the trial judge of
the Industrial Court directed the "list of employees appearing in its payroll
during milling season for the year 1955 ... together with the Exhibit "X-Court"
now part of the records of this case shall be used as the list of eligible voters
minus employees who are performing functions of supervisors and security
guards who are excluded from participating in said election." It being
undisputed that the challenged votes were cast by casual employees consisting
of stevedores and piece workers who - as stated by Judge Tabigne in his dissent
- "were not included in the list of employees appearing in the payroll of the
company during the milling season for the year 1955 nor did they appear in the
Exhibit "X-Court" which formed portion of the list of personnel allowed to vote
in this certification election", the said challenged votes should have been
excluded. Citing that the appropriate bargaining unit is the employer's unit
composed of 602 employees, including the piece workers and stevedores
whose votes were challenged by PLASLU, the respondent AWA argues that the
challenged votes were cast by employees eligible to vote. It will be noted,
however, that these employees whose votes were challenged were hired on
temporary or casual basis and had work of a different nature from those of the
laborers permitted to vote in the certification election. In the case of
Democratic Labor Union vs. Cebu Stevedoring Co., Inc., et al. (G.R. No. L-10321,
February 28, 1958) this Court had occasion to rule that in the determination of
the proper constituency of a collective bargaining unit, certain factors must be
considered, among them, the employment status of the employees to be
affected, that is to say, the positions and categories of work to which they
belong, and the unity of the employees' interest. And this is so because the
basic test of a bargaining unit's acceptability is whether it will best assure to all
employees is whether it will be assure to all employees the exercise of their
collective bargaining rights. (See also Alhambra Cigar & Cigarette

Manufacturing Co. vs. Alhambra Employee's Association, 107 Phil. 23.) It

appearing that the 242 stevedores and piece workers, whose votes have been
challenged, were employed on casual or day to day basis and have no
reasonable basis for continued or renewed employment for any appreciable
substantial time - not to mention the nature of work they perform - they cannot
be considered to have such mutuality of interest as to justify their inclusion in a
bargaining unit composed of permanent or regular employees.
There is nothing to the contention that the order complained of is merely
complementary to the order of the Industrial Court dated September 4, 1957,
which has become final and executory the same not having been appealed. It
will be observed that the said order of September 4, 1957, merely ordered the
opening and canvassing of the challenged ballots. Any appeal taken from said
order would therefore have been premature.
Disregarding the votes cast by stevedores and piece workers which were
counted in favor of the respondent AWA, the final results of the certification
election show that the petitioner PLASLU garnered a majority of the votes cast
by eligible voters. Consequently, said petitioner should be certified as the sole
collective bargaining representative of the employees of the San Carlos Milling
Co.
Wherefore, the order complained of is reversed and the petitioner PLASLU is
hereby certified as the collective bargaining agent of the employees of the San
Carlos Milling Company. Without costs.
Paras, C.J., Bengzon, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,
Paredes, and Dizon, JJ., concur.

THIRD DIVISION
[G.R. No. 131235. November 16, 1999]
UST FACULTY UNION (USTFU), GIL Y. GAMILLA, CORAZON QUI, NORMA
CALAGUAS, IRMA POTENCIANO, LUZ DE GUZMAN, REMEDIOS GARCIA,
RENE ARNEJO, EDITHA OCAMPO, CESAR REYES, CELSO NIERRA,
GLICERIA BALDRES, MA. LOURDES MEDINA, HIDELITA GABO, MAFEL
YSRAEL, LAURA ABARA, NATIVIDAD SANTOS, FERDINAND LIMOS,
CARMELITA ESPINA, ZENAIDA FAMORCA, PHILIP AGUINALDO,
BENEDICTA ALAVA and LEONCIO CASAL, petitioners vs. Dir. BENEDICTO
ERNESTO R. BITONIO JR. of the Bureau of Labor Relations, Med-Arbiter
TOMAS F. FALCONITIN of The National Capital Region, Department of
Labor and Employment (DOLE), EDUARDO J. MARIO JR., MA. MELVYN
ALAMIS, NORMA COLLANTES, URBANO ALABAGIA, RONALDO
ASUNCION, ZENAIDA BURGOS, ANTHONY CURA, FULVIO M. GUERRERO,
MYRNA HILARIO, TERESITA MEER, FERNANDO PEDROSA, NILDA
REDOBLADO, RENE SISON, EVELYN TIROL and ROSIE
ALCANTARA, respondents.
DECISION
PANGANIBAN, J.:
There is a right way to do the right thing at the right time for the right reasons,
[1]
and in the present case, in the right forum by the right parties. While
grievances against union leaders constitute legitimate complaints deserving
appropriate redress, action thereon should be made in the proper forum at the
proper time and after observance of proper procedures. Similarly, the election
of union officers should be conducted in accordance with the provisions of the
unions constitution and bylaws, as well as the Philippine Constitution and the
Labor Code. Specifically, while all legitimate faculty members of the University
of Santo Tomas (UST) belonging to a collective bargaining unit may take part in
a duly convened certification election, only bona fide members of the UST
Faculty Union (USTFU) may participate and vote in a legally called election for
union officers. Mob hysteria, however well-intentioned, is not a substitute for
the rule of law.
The Case

The Petition for Certiorari before us assails the August 15, 1997 Resolution[2] of
Director Benedicto Ernesto R. Bitonio Jr. of the Bureau of Labor Relations (BLR)
in BLR Case No. A-8-49-97, which affirmed the February 11, 1997 Decision of
Med-Arbiter Tomas F. Falconitin. The med-arbiters Decision disposed as
follows:
WHEREFORE, premises considered, judgment is hereby rendered declaring the
election of USTFU officers conducted on October 4, 1996 and its election results
as null and void ab initio.
Accordingly, respondents Gil Gamilla, et al are hereby ordered to cease and
desist from acting and performing the duties and functions of the legitimate
officers of [the] University of Santo Tomas Faculty Union (USTFU) pursuant to
[the] unions constitution and by-laws (CBL).
The Temporary Restraining Order (TRO ) issued by this Office on December 11,
1996 in connection with the instant petition, is hereby made and declared
permanent.[3]
Likewise challenged is the October 30, 1997 Resolution [4]of Director Bitonio,
which denied petitioners Motion for Reconsideration.
The Facts

The factual antecedents of the case are summarized in the assailed Resolution
as follows:

Petitioners-appellees [herein Private Respondents] Marino, et. al. (appellees)

are duly elected officers of the UST Faculty Union (USTFU). The union has a
subsisting five-year Collective Bargaining Agreement with its employer, the
University of Santo Tomas (UST). The CBA was registered with the Industrial
Relations Division, DOLE-NCR, on 20 February 1995. It is set to expire on 31
May 1998.
On 21 September 1996, appellee Collantes, in her capacity as Secretary
General of USTFU, posted a notice addressed to all USTFU members
announcing a general assembly to be held on 05 October 1996. Among others,
the general assembly was called to elect USTFUs next set of officers. Through
the notice, the members were also informed of the constitution of a Committee
on Elections (COMELEC) to oversee the elections. (Annex B, petition)
On 01 October 1996, some of herein appellants filed a separate petition with
the Med-Arbiter, DOLE-NCR, directed against herein appellees and the
members of the COMELEC. Docketed as Case No. NCR-OD-M-9610-001, the
petition alleged that the COMELEC was not constituted in accordance with
USTFUs constitution and by-laws (CBL) and that no rules had been issued to
govern the conduct of the 05 October 1996 election.
On 02 October 1996, the secretary general of UST, upon the request of the
various UST faculty club presidents (See paragraph VI, Respondents Comment
and Motion to Dismiss), issued notices allowing all faculty members to hold a
convocation on 04 October 1996 (See Annex C Petition; Annexes 4 to 10,
Appeal). Denominated as [a] general faculty assembly, the convocation was
supposed to discuss the state of the unratified UST-USTFU CBA and status
and election of USTFU officers (Annex 11, Appeal)
On 04 October 1996, the med-arbiter in Case No. NCR-OD-M-9610-001 issued
a temporary restraining order against herein appellees enjoining them from
conducting the election scheduled on 05 October 1996.
Also on 04 October 1996, and as earlier announced by the UST secretary
general, the general faculty assembly was held as scheduled. The general
assembly was attended by members of the USTFU and, as admitted by the
appellants, also by 'non-USTFU members [who] are members in good standing
of the UST Academic Community Collective Bargaining Unit' (See paragraph XI,
Respondents Comment and Motion to Dismiss). On this occasion, appellants
were elected as USTFUs new set of officers by acclamation and clapping of
hands (See paragraphs 40 to 50, Annex '12', Appeal).
The election of the appellants came about upon a motion of one Atty. Lopez,
admittedly not a member of USTFU, that the USTFU CBL and 'the rules of the
election be suspended and that the election be held [on] that day' (See
--paragraph 39, Idem.)
On 11 October 1996, appellees filed the instant petition seeking injunctive
reliefs and the nullification of the results of the 04 October 1996
election. Appellees alleged that the holding of the same violated the
temporary restraining order issued in Case No. NCR-OD-M-9610-001. Accusing
appellants of usurpation, appellees characterized the election as spurious for
being violative of USTFUs CBL, specifically because the general assembly
resulting in the election of appellants was not called by the Board of Officers of
the USTFU; there was no compliance with the ten-day notice rule required by
Section 1, Article VIII of the CBL; the supposed elections were conducted
without a COMELEC being constituted by the Board of Officers in accordance
with Section 1, Article IX of the CBL; the elections were not by secret balloting
as required by Section 1, Article V and Section 6, Article IX of the CBL, and, the
general assembly was convened by faculty members some of whom were not

members of USTFU, so much so that non-USTFU members were allowed to vote

in violation of Section 1, Article V of the CBL.
On 24 October 1996, appellees filed another urgent ex-parte motion for a
temporary restraining order, this time alleging that appellants had served the
former a notice to vacate the union office. For their part, appellants moved to
dismiss the original petition and the subsequent motion on jurisdictional
grounds. Both the petition and the motion were captioned to be for
Prohibition, Injunction with Prayer for Preliminary Injunction and Temporary
Restraining Order. According to the appellants, the med-arbiter has no
jurisdiction over petitions for prohibition, 'including the ancillary remedies of
restraining order and/or preliminary injunction, which are merely incidental to
the main petition for PROHIBITION' (Paragraph XVIII3, Respondents Comment
and Motion to Dismiss). Appellants also averred that they now constituted the
new set of union officers having been elected in accordance with law after the
term of office of appellees had expired. They further maintained that
appellees scheduling of the 5 October 1996 elections was illegal because no
rules and regulations governing the elections were promulgated as required by
USTFUs CBL and that one of the members of the COMELEC was not a
registered member of USTFU. Appellants likewise noted that the elections
called by the appellees should have been postponed to allow the promulgation
of rules and regulations and to 'insure a free, clean, honest and orderly
elections and to afford at the same time the greater majority of the general
membership to participate' (See paragraph V, Idem). Finally, appellants
contended that the holding of the general faculty assembly on 04 October 1996
was under the control of the Council of College/Faculty Club Presidents in
cooperation with the USTFU Reformist Alliance and that they received the
Temporary Restraining Order issued in Case No. NCR-OD-M-9610-001 only on
07 October 1996 and were not aware of the same on 04 October 1996.
On 03 December 1996, appellants and UST allegedly entered into another CBA
covering the period from 01 June 1996 to 31 May 2001 (Annex 11, appellants
Rejoinder to the Reply and Opposition).
Consequently, appellees again moved for the issuance of a temporary
restraining order to prevent appellants from making further representations
that [they] had entered into a new agreement with UST. Appellees also
reiterated their earlier stand that appellants were usurping the formers duties
and functions and should be stopped from continuing such acts.
On 11 December 1996, over appellants insistence that the issue of jurisdiction
should first be resolved, the med-arbiter issued a temporary restraining order
directing the respondents to cease and desist from performing any and all acts
pertaining to the duties and functions of the officers and directors of USTFU.
In the meantime, appellants claimed that the new CBA was purportedly
ratified by an overwhelming majority of USTs academic community on 12
December 1996 (Annexes 1 to 10, Idem). For this reason, appellants moved for
the dismissal of what it denominated as appellees petition for prohibition on
the ground that this had become moot and academic. [5]
Petitioners appealed the med-arbiters Decision to the labor secretary, [6] who
transmitted the records of the case to the Bureau of Labor Relations which,
under Department Order No. 9, was authorized to resolve appeals of intra-union
cases, consistent with the last paragraph of Article 241 of the Labor Code. [7]

organization. He ruled that the CBL, which constituted the covenant between
the union and its members, could not be suspended during the October 4, 1996
general assembly of all faculty members, since that assembly had not been
convened or authorized by the USTFU.
Director Bitonio likewise held that the October 4, 1996 election could not be
legitimized by the recognition of the newly elected set of officers by UST or
by the alleged ratification of the new CBA by the general membership of the
USTFU. Ruled Respondent Bitonio:
"This submission is flawed. The issue at hand is not collective bargaining
representation but union leadership, a matter that should concern only the
members of USTFU. As pointed out by the appellees, the privilege of
determining who the union officers will be belongs exclusively to the members
of the union. Said privilege is exercised in an election proceeding in
accordance with the union's CBL and applicable law.
To accept appellants' claim to legitimacy on the foregoing grounds is to invest
in appellants the position, duties, responsibilities, rights and privileges of
USTFU officers without the benefit of a lawful electoral exercise as defined in
USTFU's CBL and Article 241(c) of the Labor Code. Not to mention the fact that
labor laws prohibit the employer from interfering with the employees in the
latter' exercise of their right to self-organization. To allow appellants to become
USTFU officers on the strength of management's recognition of them is to
concede to the employer the power of determining who should be USTFU's
leaders. This is a clear case of interference in the exercise by USTFU members
of their right to self-organization.[8]
Hence, this Petition.[9]

Agreeing with the med-arbiter that the USTFU officers purported election held
on October 4, 1994 was void for having been conducted in violation of the
unions Constitution and Bylaws (CBL), Public Respondent Bitonio rejected
petitioners contention that it was a legitimate exercise of their right to self-

At the outset, the Court stresses that National Federation of Labor (NFL) v.
Laguesma[11] has held that challenges against rulings of the labor secretary and
those acting on his behalf, like the director of labor relations, shall be acted
upon by the Court of Appeals, which has concurrent jurisdiction with this Court

The Assailed Ruling

The Issues

The main issue in this case is whether the public respondent committed grave
abuse of discretion in refusing to recognize the officers elected during the
October 4, 1996 general assembly. Specifically, petitioners in their
Memorandum urge the Court to resolve the following questions: [10]
(1) Whether the Collective Bargaining Unit of all the faculty members in that
General Faculty Assembly had the right in that General Faculty Assembly to
suspend the provisions of the Constitution and By-Laws of the USTFU regarding
the elections of officers of the union[.]
(2) Whether the suspension of the provisions of the Constitution and By-Laws
of the USTFU in that General Faculty Assembly is valid pursuant to the
constitutional right of the Collective Bargaining Unit to engage in peaceful
concerted activities for the purpose of ousting the corrupt regime of the
private respondents[.]
(3) Whether the overwhelming ratification of the Collective Bargaining
Agreement executed by the petitioners in behalf of the USTFU with the
University of Santo Tomas has rendered moot and academic the issue as to the
validity of the suspension of the Constitution and By-Laws and the elections of
October 4, 1996 in the General Faculty Assembly[.]
The Courts Ruling

The petition is not meritorious. Petitioners fail to convince this Court that
Director Bitonio gravely abused his discretion in affirming the med-arbiter and
in refusing to recognize the binding effect of the October 4, 1996 general
assembly called by the UST administration.
First Issue: Right to Self-Organization and Union Membership

over petitions for certiorari. However, inasmuch as the memoranda in the

instant case have been filed prior to the promulgation and finality of our
Decision in NFL, we deem it proper to resolve the present controversy directly,
instead of remanding it to the Court of Appeals. Having disposed of the
foregoing procedural matter, we now tackle the issues in the present
case seriatim.
Self-organization is a fundamental right guaranteed by the Philippine
Constitution and the Labor Code. Employees have the right to form, join or
assist labor organizations for the purpose of collective bargaining or for their
mutual aid and protection.[12] Whether employed for a definite period or not,
any employee shall be considered as such, beginning on his first day of service,
for purposes of membership in a labor union.[13]
Corollary to this right is the prerogative not to join, affiliate with or assist a
labor union.[14] Therefore, to become a union member, an employee must, as a
rule, not only signify the intent to become one, but also take some positive
steps to realize that intent. The procedure for union membership is usually
embodied in the unions constitution and bylaws.[15] An employee who becomes
a union member acquires the rights and the concomitant obligations that go
with this new status and becomes bound by the unions rules and regulations.
When a man joins a labor union (or almost any other democratically controlled
group), necessarily a portion of his individual freedom is surrendered for the
benefit of all members. He accepts the will of the majority of the members in
order that he may derive the advantages to be gained from the concerted
action of all. Just as the enactments of the legislature bind all of us, to the
constitution and by-laws of the union (unless contrary to good morals or public
policy, or otherwise illegal), which are duly enacted through democratic
processes, bind all of the members. If a member of a union dislikes the
provisions of the by-laws, he may seek to have them amended or may
withdraw from the union; otherwise, he must abide by them. It is not the
function of courts to decide the wisdom or propriety of legitimate by-laws of a
trade union.
On joining a labor union, the constitution and by-laws become a part of the
members contract of membership under which he agrees to become bound by
the constitution and governing rules of the union so far as it is not inconsistent
with controlling principles of law. The constitution and by-laws of an
unincorporated trade union express the terms of a contract, which define the
privileges and rights secured to, and duties assumed by, those who have
become members. The agreement of a member on joining a union to abide by
its laws and comply with the will of the lawfully constituted majority does not
require a member to submit to the determination of the union any question
involving his personal rights.[16]
Petitioners claim that the numerous anomalies allegedly committed by the
private respondents during the latters incumbency impelled the October 4,
1996 election of the new set of USTFU officers. They assert that such exercise
was pursuant to their right to self-organization.
Petitioners frustration over the performance of private respondents, as well as
their fears of a fraudulent election to be held under the latters supervision,
could not justify the method they chose to impose their will on the
union. Director Bitonio aptly elucidated:[17]
The constitutional right to self-organization is better understood in the context
of ILO Convention No. 87 (Freedom of Association and Protection of Right to
Organize), to which the Philippines is signatory. Article 3 of the Convention
provides that workers organizations shall have the right to draw up their
constitution and rules and to elect their representatives in full freedom, free

from any interference from public authorities. The freedom conferred by the
provision is expansive; the responsibility imposed on union members to respect
the constitution and rules they themselves draw up equally so. The point to be
stressed is that the unions CBL is the fundamental law that governs the
relationship between and among the members of the union. It is where the
rights, duties and obligations, powers, functions and authority of the officers as
well as the members are defined. It is the organic law that determines the
validity of acts done by any officer or member of the union. Without respect for
the CBL, a union as a democratic institution degenerates into nothing more
than a group of individuals governed by mob rule.
Union Election vs. Certification Election

A union election is held pursuant to the unions constitution and bylaws, and
the right to vote in it is enjoyed only by union members. A union election
should be distinguished from a certification election, which is the process of
determining, through secret ballot, the sole and exclusive bargaining agent of
the employees in the appropriate bargaining unit, for purposes of collective
bargaining.[18] Specifically, the purpose of a certification election is to ascertain
whether or not a majority of the employees wish to be represented by a labor
organization and, in the affirmative case, by which particular labor
organization.[19]
In a certification election, all employees belonging to the appropriate
bargaining unit can vote.[20] Therefore, a union member who likewise belongs to
the appropriate bargaining unit is entitled to vote in said election. However, the
reverse is not always true; an employee belonging to the appropriate
bargaining unit but who is not a member of the union cannot vote in the union
election, unless otherwise authorized by the constitution and bylaws of the
union. Verily, union affairs and elections cannot be decided in a non-union
activity.
In both elections, there are procedures to be followed. Thus, the October 4,
1996 election cannot properly be called a union election, because the
procedure laid down in the USTFUs CBL for the election of officers was not
followed. It could not have been a certification election either, because
representation was not the issue, and the proper procedure for such election
was not followed. The participation of non-union members in the election
aggravated its irregularity.
Second Issue: USTFUs Constitution and ByLaws Violated

The importance of a unions constitution and bylaws cannot be

overemphasized. They embody a covenant between a union and its members
and constitute the fundamental law governing the members rights and
obligations.[21] As such, the unions constitution and bylaws should be upheld,
as long as they are not contrary to law, good morals or public policy.
We agree with the finding of Director Bitonio and Med-Arbiter Falconitin that the
October 4, 1996 election was tainted with irregularities because of the following
reasons.
First, the October 4, 1996 assembly was not called by the USTFU. It was
merely a convocation of faculty clubs, as indicated in the memorandum sent
to all faculty members by Fr. Rodel Aligan, OP, the secretary general of the
University of Santo Tomas.[22] It was not convened in accordance with the
provision on general membership meetings as found in the USTFUs CBL, which
reads:
ARTICLE VIII-MEETINGS OF THE UNION
Section 1. The Union shall hold regular general membership meetings at least
once every three (3) months. Notices of the meeting shall be sent out by the
Secretary-General at least ten (10) days prior to such meetings by posting in

conspicuous places, preferably inside Company premises, said notices. The

date, time and place for the meetings shall be determined by the Board of
Officers.[23]
Unquestionably, the assembly was not a union meeting. It was in fact a
gathering that was called and participated in by management and non-union
members. By no legal fiat was such assembly transformed into a union activity
by the participation of some union members.
Second, there was no commission on elections to oversee the election, as
mandated by Sections 1 and 2 of Article IX of the USTFUs CBL, which provide:
ARTICLE IX - UNION ELECTION
Section 1. There shall be a Committee on Election (COMELEC) to be created by
the Board of Officers at least thirty (30) days before any regular or special
election. The functions of the COMELEC include the following:
a)
Adopt and promulgate rules and regulations that will ensure a free, clean,
honest and orderly election, whether regular or special;
b)
Pass upon qualifications of candidates;
c)
Rule on any question or protest regarding the conduct of the election
subject to the procedure that may be promulgated by the Board of Officers; and
d)
Proclaim duly elected officers.
Section 2.
The COMELEC shall be composed of a chairman and two
members all of whom shall be appointed by the Board of Officers.
xxx xxx
xxx[24]
Third, the purported election was not done by secret balloting, in violation of
Section 6, Article IX of the USTFUs CBL, as well as Article 241 (c) of the Labor
Code.
The foregoing infirmities considered, we cannot attribute grave abuse of
discretion to Director Bitonios finding and conclusion. In Rodriguez v. Director,
Bureau of Labor Relations,[25] we invalidated the local union elections held at
the wrong date without prior notice to members and conducted without regard
for duly prescribed ground rules. We held that the proceedings were rendered
void by the lack of due process -- undue haste, lack of adequate safeguards to
ensure integrity of the voting, and the absence of the notice of the dates of
balloting.
Third Issue: Suspension of USTFUs CBL

Petitioners contend that the October 4, 1996 assembly suspended the

unions CBL. They aver that the suspension and the election that followed were
in accordance with their constituent and residual powers as members of the
collective bargaining unit to choose their representatives for purposes of
collective bargaining. Again they cite the numerous anomalies allegedly
committed by the private respondents as USTFU officers. This argument does
not persuade.
First, as has been discussed, the general faculty assembly was not the proper
forum to conduct the election of USTFU officers. Not all who attended the
assembly were members of the union; some, apparently, were even
disqualified from becoming union members, since they represented
management. Thus, Director Bitonio correctly observed:
Further, appellants cannot be heard to say that the CBL was effectively
suspended during the 04 October 1996 general assembly. A union CBL is a
covenant between the union and its members and among members (Johnson
and Johnson Labor Union-FFW, et al. v. Director of Labor Relations, 170 SCRA
469). Where ILO Convention No. 87 speaks of a unions full freedom to draw up
its constitution and rules, it includes freedom from interference by persons who
are not members of the union. The democratic principle that governance is a
matter for the governed to decide upon applies to the labor movement which,

by law and constitutional mandate, must be assiduously insulated against

intrusions coming from both the employer and complete strangers if the
'protection to labor clause' of the constitution is to be guaranteed. By
appellants own evidence, the general faculty assembly of 04 October 1996
was not a meeting of USTFU. It was attended by members and non-members
alike, and therefore was not a forum appropriate for transacting union
matters. The person who moved for the suspension of USTFUs CBL was not a
member of USTFU. Allowing a non-union member to initiate the suspension of
a unions CBL, and non-union members to participate in a union election on the
premise that the unions CBL had been suspended in the meantime, is
incompatible with the freedom of association and protection of the right to
organize.
If there are members of the so-called academic community collective
bargaining unit who are not USTFU members but who would nevertheless want
to have a hand in USTFUs affairs, the appropriate procedure would have been
for them to become members of USTFU first. The procedure for membership is
very clearly spelled out in Article IV of USTFUs CBL. Having become members,
they could then draw guidance from Ang Malayang Manggagawa Ng Ang Tibay
v. Ang Tibay, 103 Phil. 669. Therein the Supreme Court held that if a member
of the union dislikes the provisions of the by-laws he may seek to have them
amended or may withdraw from the union; otherwise he must abide by them.
Under Article XVII of USTFUs CBL, there is also a specific provision for
constitutional amendments. What is clear therefore is that USTFUs CBL
provides for orderly procedures and remedies which appellants could have
easily availed [themselves] of instead of resorting to an exercise of their socalled residual power'.[26]
Second, the grievances of the petitioners could have been brought up and
resolved in accordance with the procedure laid down by the unions CBL [27]and
by the Labor Code.[28] They contend that their sense of desperation and
helplessness led to the October 4, 1996 election. However, we cannot agree
with the method they used to rectify years of inaction on their part and thereby
ease bottled-up frustrations, as such method was in total disregard of the
USTFUs CBL and of due process. The end never justifies the means.
We agree with the solicitor generals observation that the act of suspending
the constitution when the questioned election was held is an implied admission
that the election held on that date [October 4, 1996] could not be considered
valid under the existing USTFU constitution xxx.[29]
The ratification of the new CBA executed between the petitioners and the
University of Santo Tomas management did not validate the void October 4,
1996 election. Ratified were the terms of the new CBA, not theissue of union
leadership -- a matter that should be decided only by union members in the
proper forum at the proper time and after observance of proper procedures.
Epilogue

In dismissing this Petition, we are not passing upon the merits of the
mismanagement allegations imputed by the petitioners to the private
respondents; these are not at issue in the present case. Petitioners can bring
their grievances and resolve their differences with private respondents in
timely and appropriate proceedings. Courts will not tolerate the unfair
treatment of union members by their own leaders. When the latter abuse and
violate the rights of the former, they shall be dealt with accordingly in the
proper forum after the observance of due process.
WHEREFORE, the Petition is hereby DISMISSED and the assailed
Resolutions AFFIRMED. Costs against petitioners.
SO ORDERED.

Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 93468 December 29, 1994
NATIONAL ASSOCIATION OF TRADE UNIONS (NATU)-REPUBLIC
PLANTERS BANK SUPERVISORS CHAPTER,petitioner,
vs.
HON. RUBEN D. TORRES, SECRETARY OF LABOR AND EMPLOYMENT and
REPUBLIC PLANTERS BANK,respondents.
Filemon G. Tercero for petitioner.
The Government Corporate Counsel for Republic Planters Bank.
BELLOSILLO, J.:
NATIONAL ASSOCIATION OF TRADE UNIONS (NATU)-REPUBLIC PLANTERS BANK
SUPERVISORS CHAPTER seeks nullification of the decision of public respondent
Secretary of Labor dated 23 March 1990, which modified the order of MedArbiter Manases T. Cruz dated 17 August 1989 as well as his order dated 20
April 1990 denying reconsideration.
On 17 March 1989, NATU filed a petition for certification election to determine
the exclusive bargaining representative of respondent Bank's employees
occupying supervisory positions. On 24 April 1989, the Bank moved to dismiss
the petition on the ground that the supposed supervisory employees were
actually managerial and/or confidential employees thus ineligible to join, assist
or form a union, and that the petition lacked the 20% signatory requirement
under the Labor Code.
On 17 August 1989, Med-Arbiter Manases T. Cruz granted the petition thus
WHEREFORE, . . . let a certification election be ordered conducted among all
the regular employees of the Republic Planters Bank occupying supervisory
positions or the equivalent within 20 days from receipt of a copy of this Order.
The choice shall be: (1) National Association of Trade Unions (NATU)-Republic
Planters Bank Supervisors Chapter; and (2) No Union.
The payroll three months prior to the filing of this petition shall be utilized in
determining the list of eligible voters . . . . 1
Respondent Bank appealed the order to the Secretary of Labor on the main
ground that several of the employees sought to be included in the certification
election, particularly the Department Managers, Branch Managers/OICs,
Cashiers and Controllers were managerial and/or confidential employees and
thus ineligible to join, assist or form a union. It presented annexes detailing the
job description and duties of the positions in question and affidavits of certain
employees. It also invoked provisions of the General Banking Act and the
Central Bank Act to show the duties and responsibilities of the bank and its
branches.
On 23 March 1990, public respondent issued a decision partially granting the
appeal, which is now being challenged before us
WHEREFORE, . . . the appeal is hereby partially granted. Accordingly, the Order
dated 17 August 1989 is modified to the extent that Department Managers,
Assistant Managers, Branch Managers, Cashiers and Controllers are declared
managerial employees. Perforce, they cannot join the union of supervisors such
as Division Chiefs, Accounts Officers, Staff Assistants and OIC's (sic) unless the
latter are regular managerial employees . . . . 2
NATU filed a motion for reconsideration but the same was denied on 20 April
1990. 3 Hence this recourse assailing public respondent for rendering the
decision of 23 March 1990 and the order of 20 April 1990 both with grave
abuse of discretion.

The crucial issue presented for our resolution is whether the Department
Managers, Assistant Managers, Branch Managers/OICs, Cashiers and Controllers
of respondent Bank are managerial and/or confidential employees hence
ineligible to join or assist the union of petitioner.
NATU submits that an analysis of the decision of public respondent readily
yields certain flaws that result in erroneous conclusions. Firstly, a branch does
not enjoy relative autonomy precisely because it is treated as one unit with the
head office and has to comply with uniform policies and guidelines set by the
bank itself. It would be absurd if each branch of a particular bank would be
adopting and implementing different policies covering multifarious banking
transactions. Moreover, respondent Bank's own evidence clearly shows that
policies and guidelines covering the various branches are set by the head
office. Secondly, there is absolutely no evidence showing that bank policies are
laid down through the collective action of the Branch Manager, the Cashier and
the Controller. Thirdly, the organizational setup where the Branch Manager
exercises control over branch operations, the Controller controls the Accounting
Division, and the Cashier controls the Cash Division, is nothing but a proper
delineation of duties and responsibilities. This delineation is a Central Bank
prescribed internal control measure intended to objectively establish
responsibilities among the officers to easily pinpoint culpability in case of error.
The "dual control" and "joint custody" aspects mentioned in the decision of
public respondent are likewise internal control measures prescribed by the
Central Bank.
Neither is there evidence showing that subject employees are vested with
powers or prerogatives to hire, transfer, suspend, lay off, recall, discharge,
assign or discipline employees. The bare allegations in the affidavits of
respondent Bank's Executive Assistant to the President 4 and the Senior
Manager of the Human Resource Management Department 5 that those powers
and prerogatives are inherent in subject positions are self-serving. Their claim
cannot be made to prevail upon the actual duties and responsibilities of subject
employees.
The other evidence of respondent Bank which purports to show that subject
employees exercise managerial functions even belies such claim. Insofar as
Department Managers and Assistant Managers are concerned, there is
absolutely no reason mentioned in the decision why they are managerial
employees. Not even respondent Bank in its appeal questioned the inclusion of
Assistant Managers among the qualified petitioning employees. Public
respondent has deviated from the real issue in this case, which is, the
determination of whether subject employees are managerial employees within
the contemplation of the Labor Code, as amended by RA 6715; instead, he
merely concentrated on the nature, conduct and management of banks
conformably with the General Banking Act and the Central Bank Act.
Petitioner concludes that subject employees are not managerial employees but
supervisors. Even assuming that they are confidential employees, there is no
legal prohibition against confidential employees who are not performing
managerial functions to form and join a union.
On the other hand, respondent Bank maintains that the Department Managers,
Branch Managers, Cashiers and Controllers are inherently possessed of the
powers enumerated in Art. 212, par. (m), of the Labor Code. It relies heavily on
the affidavits of its Executive Assistant to the President and Senior Manager of
the Human Resource Department. The Branch Managers, Cashiers and
Controllers are vested not only with policy-making powers necessary to run the
affairs of the branch, given the independence and relative autonomy which it

enjoys in the pursuit of its goals and objectives, but also with the concomitant
disciplinary authority over the employees.
The Solicitor General argues that NATU loses sight of the fact that by virtue of
the appeal of respondent Bank, the whole case is thrown open for consideration
by public respondent. Even errors not assigned in the appeal, such as the
exclusion by the Med-Arbiter of Assistant Managers from the managerial
employees category, is within his discretion to consider as it is closely related
to the errors properly assigned. The fact that Department Managers are
managerial employees is borne out by the evidence of petitioner itself.
Furthermore, while it assails public respondent's finding that subject employees
are managerial employees, petitioner never questioned the fact that said
officers also occupy confidential positions and thus remain prohibited from
forming or joining any labor organization.
Respondent Bank has no legal personality to move for the dismissal of the
petition for certification election on the ground that its supervisory employees
are in reality managerial employees. An employer has no standing to question
the process since this is the sole concern of the workers. The only exception is
where the employer itself has to file the petition pursuant to Art. 258 of the
Labor Code because of a request to bargain collectively. 6
Public respondent, invoking RA 6715 and the inherent functions of Department
Managers, Assistant Managers, Branch Managers, Cashiers and Controllers,
held that these officers properly fall within the definition of managerial
employees. The ratiocination in his Decision of 23 March 1990 7 is that
Republic Act No. 6715, otherwise known as the Herrera-Veloso Law, restored
the right of supervisors to form their own unions while maintaining the
proscription on the right to self-organization of managerial employees.
Accordingly, the Labor Code, as amended, distinguishes managerial,
supervisory and rank-and-file employees thus:
Art. 212 (m) Managerial employee is one who is vested with powers or
prerogatives to lay down and execute management policies and/or to hire,
transfer, suspend, lay-off, recall, discharge, assign or discipline
employees. Supervisory employees are those who, in the interest of the
employer, effectively recommend such managerial actions, if the exercise of
such managerial authority is not routinary in nature but requires the use of
independent judgment. All employees not falling within any of the above
definitions are considered rank-and-file employees (emphasis supplied).
At first glance, pursuant to the above-definitions and based on their job
descriptions as guideposts, there would seem to be no difficulty in
distinguishing a managerial employee from that of a supervisor, or from that of
a mere rank-and-file employee. Yet, this task takes on a different dimension
when applied to banks, particularly the branches thereof. This is so because
unlike ordinary corporations, a bank's organizational operation is governed and
regulated by the General Banking Act and the Central Bank Act, both special
laws . . . .
As pointed out by the respondent, in the banking industry, a branch is the
microcosm of a banking institution, uniquely autonomous and
self-governing.
This relative autonomy of a branch finds legal basis in Section 27 of the
General Banking Act, as amended, thus:
. . . . The bank shall be responsible for all business conducted in such branches
to the same extent and in the same manner as though such business had all
been conducted in the head office.
For the purpose of this Act, a bank and its branches shall be treated as a
unit (emphasis supplied).

Conformably with the above, bank policies are laid down and/or executed
through the collective action of the Branch Manager, Cashier and Controller at
the branch level. The Branch Manager exercises over-all control and supervision
over branch operation being on the top of the branch's pyramid structure.
However, both the controller and the cashier who are called in banking
parlance as "Financial Managers" due to their fiscal functions are given such a
share and sphere of responsibility in the operations of the bank. The cashier
controls and supervises the cash division while the controller that of the
Accounting Division. Likewise, their assigned task is of great significance,
without which a bank or branch for that matter cannot operate or function.
Through the collective action of these three branch officers operational
transactions are carried out like: The two (2)-signature requirement of the
manager, on one hand, and that of the controller or cashier on the other hand
as required in bank's issuances and releases. This is the so-called "dual control"
through check-and-balance as prescribed by the Central Bank, per Section
1166.6, Book I, Manual of Regulations for Banks and Financial Intermediaries.
Another is in the joint custody of the branch's cash in vault, accountable forms,
collaterals, documents of title, deposit, ledgers and others, among the branch
manager and at least two (2) officers of the branch as required under Section
1166.6 of the Manual of Regulations for Banks and Other Financial
Intermediaries.
This structural set-up creates a triad of managerial authority among the branch
manager, cashier and controller. Hence, no officer of the bank ". . . have (sic)
complete authority and responsibility for handling all phases of any transaction
from beginning to end without some control or balance from some other part of
the organization" (Section 1166.3, Division of Duties and
Responsibilities, Ibid).This aspect in the banking system which calls for the
division of duties and responsibilities is a clear manifestation of managerial
power and authority. No operational transaction at branch level is carried out
by the singular act of the Branch Manager but rather through the collective act
of the Branch Manager, Cashier/Controller (emphasis supplied).
Noteworthy is the "on call client" set up in banks. Under this scheme, the
branch manager is tasked with the responsibility of business development and
marketing of the bank's services which place him on client call. During such
usual physical absences from the branch, the cashier assumes the reins of
branch control and administration. On those occasions, the "dual control
system" is clearly manifest in the transactions and operations of the branch
bank as it will then require the necessary joint action of the controller and the
cashier.
The grave abuse of discretion committed by public respondent is at once
apparent. Art. 212, par. (m), of the Labor Code is explicit. A managerial
employee is (a) one who is vested with powers or prerogatives to lay down and
execute management policies, or to hire, transfer, suspend, lay off, recall,
discharge, assign or discipline employees; or (b) one who is vested with both
powers or prerogatives. A supervisory employee is different from a managerial
employee in the sense that the supervisory employee, in the interest of the
employer, effectively recommends such managerial actions, if the exercise of
such managerial authority is not routinary in nature but requires the use of
independent judgment.
Ranged against these definitions and after a thorough examination of the
evidence submitted by both parties, we arrive at a contrary conclusion. Branch
Managers, Cashiers and Controllers of respondent Bank are not managerial
employees but supervisory employees. The finding of public respondent that
bank policies are laid down and/or executed through the collective action of

these employees is simply erroneous. His discussion on the division of their

duties and responsibilities does not logically lead to the conclusion that they
are managerial employees, as the term is defined in Art. 212, par. (m).
Among the general duties and responsibilities of a Branch Manager is "[t]o
discharge his duties and authority with a high sense of responsibility and
integrity and shall at all times be guided by prudence like a good father of the
family, and sound judgment in accordance with and within the limitations of
the policy/policies promulgated by the Board of Directors and implemented by
the Management until suspended, superseded, revoked or modified" (par. 5,
emphasis supplied). 8 Similarly, the job summary of a Controller states:
"Supervises the Accounting Unit of the branch;sees to the compliance by the
Branch with established procedures, policies, rules and regulations of the Bank
and external supervising authorities; sees to the strict implementation of
control procedures (emphasis supplied). 9 The job description of a Cashier does
not mention any authority on his part to lay down policies, either. 10 On the
basis of the foregoing evidence, it is clear that subject employees do not
participate in policy-making but are given approved and established policies to
execute and standard practices to observe, 11 leaving little or no discretion at all
whether to implement said policies or not.12 It is the nature of the employee's
functions, and not the nomenclature or title given to his job, which determines
whether he has rank-and-file, supervisory or managerial status. 13
Moreover, the bare statement in the affidavit of the Executive Assistant to the
President of respondent Bank that the Branch Managers, Cashiers and
Controllers "formulate and implement the plans, policies and marketing
strategies of the branch towards the successful accomplishment of its profit
targets and objectives," 14 is contradicted by the following evidence submitted
by respondent Bank itself:
(a) Memorandum issued by respondent Bank's Assistant Vice President to all
Regional Managers and Branch Managers giving them temporary discretionary
authority to grant additional interest over the prescribed board rates for both
short-term and long-term CTDs subject, however, to specific limitations and
guidelines set forth in the same memorandum; 15
(b) Memorandum issued by respondent Bank's Executive Vice President to all
Regional Managers and Branch Officers regarding the policy and guidelines on
drawing against uncollected deposits (DAUD); 16
(c) Memorandum issued by respondent Bank's President to all Field Offices
regarding the guidelines on domestic bills purchased
(DBP); 17 and
(d) Memorandum issued by the same officer to all Branch Managers regarding
lending authority at the branch level and the terms and conditions thereof. 18
As a consequence, the affidavit of the Executive Assistant cannot be given any
weight at all.
Neither do the Branch Managers, Cashiers and Controllers have the power to
hire, transfer, suspend, lay off, recall, discharge, assign or discipline employees.
The Senior Manager of the Human Resource Management Department of
respondent Bank, in her affidavit, stated that "the power to hire, fire, suspend,
transfer, assign or otherwise impose discipline among subordinates within their
respective jurisdictions is lodged with the heads of the various departments,
the branch managers and officers-in-charge, the branch cashiers and the
branch controllers. Inherent as it is in the aforementioned positions, the
authority to hire, fire, suspend, transfer, assign or otherwise discipline
employees within their respective domains was deemed unnecessary to be
incorporated in their individual job descriptions; By way of illustration, on
August 24, 1989, Mr. Renato A. Tuates, the Officer-in-Charge/Branch Cashier of

the Bank's Dumaguete Branch, placed under preventive suspension and

thereafter terminated the teller of the same branch . . . . Likewise, on February
22, 1989, Mr. Francis D. Robite, Sr., the Officer-in-Charge of International
Department, assigned the cable assistant of the International Department as
the concurrent FCDU Accountable Forms Custodian." 19
However, a close scrutiny of the memorandum of Mr. Tuates reveals that he
does not have said managerial power because as plainly stated therein, it was
issued "upon instruction from Head Office." 20 With regard to the memorandum
of Mr. Robite, Sr., it appears that the power he exercised was merely in an
isolated instance, taking into account the other evidence submitted by
respondent Bank itself showing lack of said power by other Branch
Managers/OICs:
(a) Memorandum from the Branch Manager for the
AVP-Manpower Management Department expressing the opinion that a certain
employee, due to habitual absenteeism and tardiness, must be penalized in
accordance with respondent Bank's Code of Discipline; and
(b) Memorandum from a Branch OIC for the Assistant Vice President
recommending a certain employee's promotional adjustment to the present
position he occupies.
Clearly, those officials or employees possess only recommendatory powers
subject to evaluation, review and final action by higher officials. Therefore, the
foregoing affidavit cannot bolster the stand of respondent Bank.
The positions of Department Managers and Assistant Managers were also
declared by public respondent as managerial, without providing any basis
therefor. Petitioner asserts that the position of Assistant Manager was not even
included in the appeal filed by respondent Bank. While we agree with the Office
of the Solicitor General that it is within the discretion of public respondent to
consider an unassigned issue that is closely related to an issue properly
assigned, still, public respondent's error lies in the fact that his finding has no
leg to stand on. Anyway, inasmuch as the entire records are before us, now is
the opportunity to discuss this issue.
We analyzed the evidence submitted by respondent Bank in support of its claim
that Department Managers are managerial employees 21 and concluded that
they are not. Like Branch Managers, Cashiers and Controllers, Department
Managers do not possess the power to lay down policies nor to hire, transfer,
suspend, lay off, recall, discharge, assign or discipline employees. They occupy
supervisory positions, charged with the duty among others to "recommend
proposals to improve and streamline operations." 22 With respect to Assistant
Managers, there is absolutely no evidence submitted to substantiate public
respondent's finding that they are managerial employees; understandably so,
because this position is not included in the appeal of respondent Bank.
As regards the other claim of respondent Bank that Branch Managers/OICs,
Cashiers and Controllers are confidential employees, having control, custody
and/or access to confidential matters, e.g., the branch's cash position,
statements of financial condition, vault combination, cash codes for telegraphic
transfers, demand drafts and other negotiable instruments, 23 pursuant to Sec.
1166.4 of the Central Bank Manual regarding joint custody, 24 this claim is not
even disputed by petitioner. A confidential employee is one entrusted with
confidence on delicate matters, or with the custody, handling, or care and
protection of the employer's property. 25 While Art. 245 of the Labor Code
singles out managerial employees as ineligible to join, assist or form any labor
organization, under the doctrine of necessary implication, confidential
employees are similarly disqualified. This doctrine states that what is implied in
a statute is as much a part thereof as that which is expressed, as elucidated in

several cases 26 the latest of which is Chua v. Civil Service Commission27 where
we said:
No statute can be enacted that can provide all the details involved in its
application. There is always an omission that may not meet a particular
situation. What is thought, at the time of enactment, to be an all-embracing
legislation may be inadequate to provide for the unfolding events of the future.
So-called gaps in the law develop as the law is enforced. One of the rules of
statutory construction used to fill in the gap is the doctrine of necessary
implication . . . . Every statute is understood, by implication, to contain all such
provisions as may be necessary to effectuate its object and purpose, or to
make effective rights, powers, privileges or jurisdiction which it grants,
including all such collateral and subsidiary consequences as may be fairly and
logically inferred from its terms. Ex necessitate
legis . . . .
In applying the doctrine of necessary implication, we took into consideration
the rationale behind the disqualification of managerial employees expressed
in Bulletin Publishing Corporation v. Sanchez, 28 thus: ". . . if these managerial
employees would belong to or be affiliated with a Union, the latter might not be
assured of their loyalty to the Union in view of evident conflict of interests. The
Union can also become company-dominated with the presence of managerial
employees in Union membership." Stated differently, in the collective
bargaining process, managerial employees are supposed to be on the side of
the employer, to act as its representatives, and to see to it that its interests are
well protected. The employer is not assured of such protection if these
employees themselves are union members. Collective bargaining in such a
situation can become one-sided. 29 It is the same reason that impelled this
Court to consider the position of confidential employees as included in the
disqualification found in Art. 245 as if the disqualification of confidential
employees were written in the provision. If confidential employees could
unionize in order to bargain for advantages for themselves, then they could be
governed by their own motives rather than the interest of the employers.
Moreover, unionization of confidential employees for the purpose of collective
bargaining would mean the extension of the law to persons or individuals who
are supposed to act "in the interest of" the employers. 30 It is not farfetched
that in the course of collective bargaining, they might jeopardize that interest
which they are duty-bound to protect. Along the same line of reasoning we held
in Golden Farms, Inc. v. Ferrer-Calleja 31 reiterated in Philips Industrial
Development, Inc. v. NLRC, 32that "confidential employees such as accounting
personnel, radio and telegraph operators who, having access to confidential
information, may become the source of undue advantage. Said employee(s)
may act as spy or spies of either party to a collective bargaining agreement."
In fine, only the Branch Managers/OICs, Cashiers and Controllers of respondent
Bank, being confidential employees, are disqualified from joining or assisting
petitioner Union, or joining, assisting or forming any other labor organization.
But this ruling should be understood to apply only to the present case based on
the evidence of the parties, as well as to those similarly situated. It should not
be understood in any way to apply to banks in general.
WHEREFORE, the petition is partially GRANTED. The decision of public
respondent Secretary of Labor dated 23 March 1990 and his order dated 20
April 1990 are MODIFIED, hereby declaring that only the Branch
Managers/OICs, Cashiers and Controllers of respondent Republic Planters Bank
are ineligible to join or assist petitioner National Association of Trade Unions
(NATU)-Republic Planters Bank Supervisors Chapter, or join, assist or form any
other labor organization.

SO ORDERED.
Separate Opinions
PADILLA, J., concurring and dissenting:
I concur in the majority opinion's conclusion that respondent Bank's Branch
Managers/OICs, Cashiers and Controllers, being confidential employees of the
Bank, are disqualified from joining or assisting petitioner labor union or joining,
assisting or forming any other labor organization, including a supervisor's
union.
However, I dissent from its conclusion that respondent Bank's Department
Managers and Department Assistant Managers are not disqualified from joining
a labor union including a supervisors' union. My years of experience in the
banking industry (perhaps irrelevant to this case) have shown that positions of
such Department Heads (Managers) are as confidential, if not more, than the
position of Branch Managers. In fact, most of such Department Heads are VicePresidents of the Bank, which underscores their status both as managerial
employees and confidential personnel of the Bank. It would be incongruous for
a Department Manager who, as already stated, is usually a Vice-President, to
be a member of the same labor organization as his messenger or supervisory
account executives. It would be even more untenable and dangerous for a
Department Manager who usually is a Vice-President, being a member of a
labor union, to be designated a union representative for purposes of collective
bargaining with the management of which he is a part. I think the public
respondent is correct in disqualifying from membership in a labor union of
supervisors, those who are Department Managers and Assistant Managers.
I, therefore, vote for the affirmance in toto of public respondent's decision of 23
March 1990 and order of 20 April 1990.
# Separate Opinions
PADILLA, J., concurring and dissenting:
I concur in the majority opinion's conclusion that respondent Bank's Branch
Managers/OICs, Cashiers and Controllers, being confidential employees of the
Bank, are disqualified from joining or assisting petitioner labor union or joining,
assisting or forming any other labor organization, including a supervisor's
union.
However, I dissent from its conclusion that respondent Bank's Department
Managers and Department Assistant Managers are not disqualified from joining
a labor union including a supervisors' union. My years of experience in the
banking industry (perhaps irrelevant to this case) have shown that positions of
such Department Heads (Managers) are as confidential, if not more, than the
position of Branch Managers. In fact, most of such Department Heads are VicePresidents of the Bank, which underscores their status both as managerial
employees and confidential personnel of the Bank. It would be incongruous for
a Department Manager who, as already stated, is usually a Vice-President, to
be a member of the same labor organization as his messenger or supervisory
account executives. It would be even more untenable and dangerous for a
Department Manager who usually is a Vice-President, being a member of a
labor union, to be designated a union representative for purposes of collective
bargaining with the management of which he is a part. I think the public
respondent is correct in disqualifying from membership in a labor union of
supervisors, those who are Department Managers and Assistant Managers.
I, therefore, vote for the affirmance in toto of public respondent's decision of 23
March 1990 and order of 20 April 1990

THIRD DIVISION
[G.R. No. 99266. March 2, 1999]
SAN MIGUEL CORPORATION, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION, SECOND DIVISION, AND SAN MIGUEL
CORPORATION EMPLOYEES UNION (SMCEU) - PTGWO, respondents.
DECISION
PURISIMA, J.:
At bar is a Petition for Certiorari under Rule 65 of the Revised Rules of Court,
assailing the Resolution[1] of the National Labor Relations Commission in NLRC
NCR CASE NO. 00094-90, which dismissed the complaint of San Miguel
Corporation (SMC), seeking to dismiss the notice of strike given by the private
respondent union and to compel the latter to comply with the provisions of the
Collective Bargaining Agreement(CBA)[2] on grievance machinery, arbitration,
and the no-strike clause, with prayer for the issuance of a temporary
restraining order.
The antecedent facts are as follows:
In July 1990, San Miguel Corporation, alleging the need to streamline its
operations due to financial losses, shut down some of its plants and declared
55 positions as redundant, listed as follows: seventeen (17) employees in the
Business Logistics Division (BLD), seventeen (17) in the Ayala Operations
Center (AOC), and eighteen (18) in the Magnolia-Manila Buying
Station (Magnolia-MBS).[3] Consequently, the private respondent union filed
several grievance cases for the said retrenched employees, praying for
the redeployment of the said employees to the other divisions of the
company.
The grievance proceedings were conducted pursuant to Sections 5 and 8,
Article VIII of the parties 1990 Collective Bargaining Agreement providing for
the following procedures, to wit:
Sec.5. Processing of Grievance. - Should a grievance arise, an earnest
effort shall be made to settle the grievance expeditiously in accordance with
the following procedures:
Step 1. - The individual employee concerned and the Union Directors, or the
Union Steward shall, first take up the employees grievance orally with his
immediate superior. If no satisfactory agreement or adjustment of the
grievance is reached, the grievance shall, within twenty (20) working days from
the occurrence of the cause or event which gave rise to the grievance, be filed
in writing with the Department Manager or the next level superior who shall
render his decision within ten (10) working days from the receipt of the written
grievance. A copy of the decision shall be furnished the Plant Personnel
Officer.
Step 2. - If the decision in Step 1 is rejected, the employee concerned may
elevate or appeal this in writing to the Plant Manager/Director or his duly
authorized representative within twenty (20) working days from the receipt of
the Decision of the Department Manager. Otherwise, the decision in Step 1
shall be deemed accepted by the employee.
The Plant Manager/Director assisted by the Plant Personnel Officer shall
determine the necessity of conducting grievance meetings. If necessary, the
Plant Manager/Director and the Plant Personnel Officer shall meet the
employee concerned and the Union Director/Steward on such date(s) as may
be designated by the Plant Manager. In every plant/office, Grievance Meetings
shall be scheduled at least twice a month.
The Plant Manager shall give his written comments and decision within ten (10)
working days after his receipt of such grievance or the date of submission of

the grievance for resolution, as the case may be. A copy of his Decision shall
be furnished the Employee Relations Directorate.
Step 3. - If no satisfactory adjustment is arrived at Step 2, the employee may
appeal the Decision to the Conciliation Board as provided under Section 6
hereof, within fifteen (15) working days from the date of receipt of the decision
of the Plant Manager/Director or his designate. Otherwise, the decision in Step
2 shall be deemed accepted by the employee.
The Conciliation Board shall meet on the grievance in such dates as shall be
designated by the Division/Business Unit Manager or his representative. In
every Division/Business Unit, Grievance Meetings of the Conciliation Board shall
be scheduled at least once a month.
The Conciliation Board shall have fifteen (15) working days from the date of
submission of the grievance for resolution within which to decide on the
grievance.
SEC. 6. Conciliation Board. - There shall be a conciliation Board per Business
Unit or Division. Every Conciliation Board shall be composed of not more than
five (5) representatives each from the Company and the Union. Management
and the Union may be assisted by their respective legal counsels.
In every Division/Business Unit, the names of the Company and Union
representatives to the Conciliation Board shall be submitted to the
Division/Business Unit Manager not later than January of every year. The
Conciliation Board members shall act as such for one (1) year until removed by
the Company or the Union, as the case may be.
xxx
Sec. 8. Submission to Arbitration. - If the employee or Union is not satisfied
with the Decision of the Conciliation Board and desires to submit the grievance
to arbitration, the employee or the Union shall serve notice of such intention to
the Company within fifteen (15) working days after receipt of the
Boards decision. If no such written notice is received by the Company within
fifteen (15) working days, the grievance shall be considered settled on the
basis of the companys position and shall no longer be available for
arbitration.[4]
During the grievance proceedings, however, most of the employees were
redeployed, while others accepted early retirement. As a result only 17
employees remained when the parties proceeded to the third level(Step 3) of
the grievance procedure. In a meeting on October 26, 1990, petitioner
informed private respondent union that if by October 30, 1990, the remaining
17 employees could not yet be redeployed, their services would be terminated
on November 2, 1990. The said meeting adjourned when Mr. Daniel S. L.
Borbon II, a representative of the union, declared that there was nothing more
to discuss in view of the deadlock.[5]
On November 7, 1990, the private respondent filed with the National
Conciliation and Mediation Board (NCMB) of the Department of Labor and
Employment (DOLE) a notice of strike on the following grounds: a)bargaining
deadlock; b) union busting; c) gross violation of the Collective Bargaining
Agreement (CBA), such as non-compliance with the grievance
procedure; d) failure to provide private respondent with a list of vacant
positions pursuant to the parties side agreement that was appended to the
1990 CBA; and e) defiance of voluntary arbitration award. Petitioner on the
other hand, moved to dismiss the notice of strike but the NCMB failed to act on
the motion.
On December 21, 1990, petitioner SMC filed a complaint[6] with the respondent
NLRC, praying for: (1) the dismissal the notice of strike; (2) an order compelling

the respondent union to submit to grievance and arbitration the issue listed in
the notice of strike; (3) the recovery of the expenses of litigation.
On April 16, 1991, respondent NLRC came out with a minute resolution
dismissing the complaint; holding, thus:
NLRC NCR IC NO. 000094-90, entitled San Miguel Corporation, Complainant
-versus- San Miguel Corporation Employees Union-PTWO (SMCEU), Respondent.
- Considering the allegations in the complaint to restrain Respondent Union
from declaring a strike and to enforce mutual compliance with the provisions of
the collective bargaining agreement on grievance machinery, and the no-strike
clause, with prayer for issuance of temporary restraining order, and the
evidence adduced therein, the Answer filed by the respondent and the
memorandum filed by the complainant in support of its application for the
issuance of an injunction, the Second Division, after due deliberation, Resolved
to dismiss the complaint for lack of merit.[7]
Aggrieved by the said resolution, petitioner found its way to this court via the
present petition, contending that:
I
IT IS THE POSITIVE LEGAL DUTY OF RESPONDENT NLRC TO COMPEL
ARBITRATION AND TO ENJOIN A STRIKE IN VIOLATION OF A NO STRIKE CLAUSE.
II
INJUNCTION IS THE ONLY IMMEDIATE, EFFECTIVE SUBSTITUTE FOR THE
DISASTROUS ECONOMIC WARFARE THAT ARBITRATION IS DESIGNED TO
AVOID.[8]
On June 3, 1991, to preserve the status quo, the Court issued a
Resolution[9] granting petitioners prayer for the issuance of a Temporary
Restraining Order.
The Petition is impressed with merit.
Rule XXII, Section I, of the Rules and Regulations Implementing Book V the
Labor Code[10], reads:
Section 1. Grounds for strike and lockout. -- A strike or lockout may be
declared in cases of bargaining deadlocks and unfair labor practices. Violations
of the collective bargaining agreements, except flagrant and/or malicious
refusal to comply with its economic provisions, shall not be considered unfair
labor practice and shall not be strikeable. No strike or lockout may be declared
on grounds involving inter-union and intra-union disputes or on issues brought
to voluntary or compulsory arbitration.
In the case under consideration, the grounds relied upon by the private
respondent union are non-strikeable. The issues which may lend substance to
the notice of strike filed by the private respondent union are: collective
bargaining deadlock and petitioners alleged violation of the collective
bargaining agreement. These grounds, however, appear more illusory than real.
Collective Bargaining Deadlock is defined as the situation between the labor
and the management of the company where there is failure in the collective
bargaining negotiations resulting in a stalemate[11] This situation, is nonexistent in the present case since there is a Board assigned on the third
level (Step 3) of the grievance machinery to resolve the conflicting views of the
parties. Instead of asking the Conciliation Board composed of five
representatives each from the company and the union, to decide the conflict,
petitioner declared a deadlock, and thereafter, filed a notice of strike. For
failing to exhaust all the steps in the grievance machinery and arbitration
proceedings provided in the Collective Bargaining Agreement, the notice of
strike should have been dismissed by the NLRC and private respondent union
ordered to proceed with the grievance and arbitration proceedings. In the case
of Liberal Labor Union vs. Phil. Can Co.,[12] the court declared as illegal the strike

staged by the union for not complying with the grievance procedure provided in
the collective bargaining agreement, ruling that:
x x x the main purpose of the parties in adopting a procedure in the
settlement of their disputes is to prevent a strike. This procedure must be
followed in its entirety if it is to achieve its objective. x x x strikes held in
violation of the terms contained in the collective bargaining agreement are
illegal, specially when they provide for conclusive arbitration clauses. These
agreements must be strictly adhered to and respected if their ends have to be
achieved. x x x[13]
As regards the alleged violation of the CBA, we hold that such a violation is
chargeable against the private respondent union. In abandoning the grievance
proceedings and stubbornly refusing to avail of the remedies under the CBA,
private respondent violated the mandatory provisions of the collective
bargaining agreement.
Abolition of departments or positions in the company is one of the recognized
management prerogatives.[14] Noteworthy is the fact that the private
respondent does not question the validity of the business move of petitioner. In
the absence of proof that the act of petitioner was ill-motivated, it is presumed
that petitioner San Miguel Corporation acted in good faith. In fact, petitioner
acceded to the demands of the private respondent union by redeploying most
of the employees involved; such that from an original 17 excess employees in
BLD, 15 were successfully redeployed. In AOC, out of the 17 original excess,
15 were redeployed. In the Magnolia - Manila Buying Station, out of 18
employees, 6 were redeployed and only 12 were terminated. [15]
So also, in filing complaint with the NLRC, petitioner prayed that the private
respondent union be compelled to proceed with the grievance and arbitration
proceedings. Petitioner having evinced its willingness to negotiate the fate of
the remaining employees affected, there is no ground to sustain the notice of
strike of the private respondent union.
All things studiedly considered, we are of the ineluctable conclusion, and so
hold, that the NLRC gravely abused its discretion in dismissing the complaint of
petitioner SMC for the dismissal of the notice of strike, issuance of a temporary
restraining order, and an order compelling the respondent union to settle the
dispute under the grievance machinery of their CBA.
WHEREFORE, the instant petition is hereby GRANTED. Petitioner San Miguel
Corporation and private respondent San Miguel Corporation Employees Union PTGWO are hereby directed to complete the third level (Step 3) of the
Grievance Procedure and proceed with the Arbitration proceedings if
necessary. No pronouncement as to costs.
SO ORDERED.
Romero, (Chairman), and Gonzaga-Reyes, JJ., concur.
Vitug, J., abroad on official business.
Panganiban, J., on leave.

SECOND DIVISION
[G.R. No. 109383. June 15, 1998]
MANILA CENTRAL LINE CORPORATION, petitioner, vs. MANILA CENTRAL
LINE FREE WORKERS UNION-NATIONAL FEDERATION OF LABOR and the
NATIONAL LABOR RELATIONS COMMISSION, respondents.
DECISION
MENDOZA, J.:
This is a petition for certiorari to set aside the resolution dated October 10,
1991 of the National Labor Relations Commission in NLRC NCR Case No.
000977-90, dismissing the appeal of petitioner Manila Central Line Corporation
from the order of Labor Arbiter Donato G. Quinto, Jr., in NLRC NCR Case No. 0200813-90, as well as the resolution dated March 11, 1993 of the NLRC, denying
reconsideration.
This case arose out of a collective bargaining deadlock between petitioner and
private respondent Manila Central Line Free Workers Union-National Federation
of Labor. The parties collective bargaining agreement had expired on March
15, 1989. As the parties failed to reach new agreement, private respondent
sought the aid of the National Conciliation and Mediation Board on October 30,
1989, but the deadlock remained unresolved.
On February 9, 1990, private respondent filed a Petition for Compulsory
Arbitration in the Arbitration Branch for the National Capital Region of the
National Labor Relations Commission. At the initial hearing before the labor
arbiter, the parties declared that conciliation efforts before the NCMB had
terminated and it was their desire to submit the case for compulsory
arbitration. Accordingly, they were required to submit their position papers and
proposals, which they did, and in which they indicated portions of their
respective proposals to which they agreed, leaving the rest for arbitration. [1]
On September 28, 1990, the labor arbiter rendered a decision embodying
provisions for a new collective bargaining agreement. The dispositive portion
of his decision reads:
WHEREFORE, the petitioner UNION and the respondent COMPANY are directed
to execute and formalize their new five-year collective bargaining agreement
(CBA) retroactive to the date of expiry of the 1986-1989 CBA by adopting the
provisions in the aforementioned test which incorporated therein in the
disposition set forth by this Arbitrator within thirty (30) days from receipt of this
Decision
SO ORDERED.[2]
Petitioner appealed, but its appeal was denied by the NLRC in its questioned
resolution of October 10, 1991. On March 11, 1993, the NLRC denied
petitioners motion for reconsideration. Hence, this petition with the following
assignment of errors:
a) The NLRC erred in affirming the Labor Arbiters decision
1. increasing the commission rate, the incentive pay, the salaries and wages
of the fixed income employees covered by the CBA.
2. granting P500.00 signing bonus to the complainant-appellee; and
3. holding that the effectivity of the renegotiated CBA shall be retroactive to
March 15, 1989, the expiry date of the old CBA
b) There are serious errors in the findings of facts of the Labor Arbiter which
were unqualified affirmed by the NLRC and which justify the review by this
Honorable SUPREME COURT.
c) The NLRC erred in upholding the jurisdiction of the Labor Arbiter; and
d) The NLRC erred in affirming the finalization of the CBA by the Labor Arbiter
in disregard of the provisions agreed upon by the parties.

The petition is without merit. We shall deal with these contentions in the order
they are presented, with the exception of the argument concerning the
jurisdiction of the Labor Arbiter (par. (c)), which we shall treat first since it
raises a threshold question.
First. Despite the fact that it agreed with the union to submit their dispute to
the labor arbiter for arbitration, petitioner questions the jurisdiction of the labor
arbiter to render the decision in question. Petitioner contends that the policy of
the law now is to encourage resort to conciliation and voluntary arbitration as
Art 250(e) of the Labor Code provides.
Indeed, the Labor Code formerly provided that if the parties in collective
bargaining fail to reach an agreement, the Bureau of Labor Relations should
call them to conciliation meetings and, if its efforts were not successful, certify
the dispute to a labor arbiter for compulsory arbitrarion.[3] But this was changed
by R.A.No. 6715 which took effect on March 21, 1989. Art 250(e) of the Labor
Code now provides that if effects of conciliation fail, the Board shall encourage
the parties to submit their case to a voluntary arbitrator. With specific
reference to cases involving deadlocks in collective bargaining, Art. 262
provides:
Jurisdiction over other labor disputes The Voluntary Arbitrator or panel of
Voluntary Arbitrators, upon agreement of the parties, shall also hear and decide
all other labor disputes including unfair labor practices and bargaining
deadlocks.
This is what the parties did in this case. After the Board failed to resolve the
bargaining deadlock between parties, the union filed a petition for compulsory
arbitration in the Arbitration Branch of the NLRC. Petitioner joined the petition
and the case was submitted for decision. Although the unions petition was for
compulsory arbitration, the subsequent agreement of petitioner to submit the
matter for arbitration in effect made the arbitration a voluntary one. The
essence of voluntary arbitration, after all is that it is by agreement of the
parties, rather than compulsion of law, that a matter is submitted for
arbitration.[4] It does not matter that the person chosen as arbitrator is a labor
arbiter who, under Art 217 of the Labor Code, is charged with the compulsory
arbitration of certain labor cases. There is nothing in the law that prohibits
these labor arbiters from also acting as voluntary arbitrators as long as the
parties agree to have him hear and decide their dispute.
Moreover, petitioner must be deemed to be estopped from questioning the
authority of Labor Arbiter Donato G. Quinto, Jr., to act as voluntary arbitrator
and render a decision in this case. Petitioner agreed together with the union, to
refer their dispute for arbitration to him. It was only after the decision was
rendered that petitioner raised the question of lack of jurisdiction. Even then,
petitioner did so only for the first time in a supplemental memorandum of
appeal to the NLRC.[5] As the NLRC, through Commissioner Romeo B. Putong
held, it was too late in the day for petitioner to do this.[6]
Indeed, it is inconsistent for petitioner to contend, on the other hand, that this
case should have been resolved through voluntary arbitration and, on the
other, to follow the procedure for compulsory arbitration and, appealing the
decision of the labor arbiter to the NLRC and subsequently questioning the
latters decision in Luzon Development Bank v. Luzon Development Bank
Employees Association,[7] this case, considered as a special civil action
for certiorari to set aside the decision of a voluntary arbitrator, should have
been referred, as a matter of policy, to the Court of Appeals. However, it was
not evident in the beginning from a cursory consideration of the pleadings that
what actually took place in the labor agency was a proceeding for voluntary
arbitration. Accordingly, so as not to delay the disposition of this case, we have

thought on balance that this case should be retained and decided on the
merits.
Second. In par. (a) (1) and par. (b) of its assignment of errors, petitioner
questions factual findings of the labor arbiter and the NLRC. Such findings are
generally held to be binding, and even final, so long as they are substantially
supported by evidence in the record of the case. [8] This is especially so where,
as here, the agency and a subordinate one which heard the case in the first
instance are in full agreement as to the facts.[9]
The decisions of both the NLRC and the labor arbiter contain an exhaustive
discussion of the issues, belying petitioners claim that they did not fully
consider the evidence and appreciate what it claims are the dire economic
straits it is in. This is evident from the following portion of the labor arbiters
order dated September 28, 1990, which NLRC adopted:
From the foregoing allegations of the parties and as expound (sic), discussed
and/or argued by them in their respective position paper, the disagreement, or
deadlock, as we say it, focus (sic) and centers on the so called economic
issues particularly on the provisions on Salaries and Wages.
Petitioner-Union proposed that the commission for drivers, conductors and
conductresses shall be 10% and 8%, respectively of their gross collections. In
addition, as incentive pay, it proposed that drivers, conductors and
conductresses shall be entitled to incentive pay as follows: (a) For a quota
of P2,600.00, the incentive should be P40.00; (b) for a quota of P2,875.00, the
incentive should be P50.00 and (c) for a quota of P3,155.00 the incentive pay
should be P60.00.
Further, petitioner-Union, insofar as the fixed income employees are
concerned, they proposed that they should be granted a salary/wage increase
as follows: (a) effective March 15, 1989 P12.00; (b) Effective March 15, 1990
P10.00; and (c) effective March 15, 1991 P8.00.
Respondent, on the other hand, proposes that the commission for drivers and
conductor/tresses shall be 8.5% and 6.5% of their gross collection,
respectively. And in addition, these drivers and conductors/tresses shall be
entitled to an incentive pay based on the following quota, to wit: (a) for a quota
of P3,276.00, the incentive pay is P35.00; (b) for a quota of P3,635.00, it is
P45.00; and for a quoa of P3,994.00, it is P55.00. Respondent management
has no proposal insofar as grant of increase/s to fixed income employees
subject of the bargaining unit.
As noted at present under the old CBA, the commission for drivers and
conductor/tresses is 8% and 6%, respectively. During and in the negotiation,
respondent proposes to raise this rate by .5% thus making it 8.5 and 6.5
respectively. Respondent in proposing an increase of .5% justifies the same by
saying that such is only what it can afford as it had been incurring financial
losses as shown by Financial Statement it submitted in evidence. This was
rejected by the union which proposes that the rate of the commission be raised
to 10% and 8% respectively, from 8% and 6%, or an increase by 2%
respectively. The union debunked the claim fo the respondent-company that it
had been financially suffering and had claim (sic) that it had earned profit in all
the years that it had been under operation.
A look at the parties proposal and counter-proposal shows that the union was
demanding that the rate be increased to 10% and 8% from the old rate of 8%
and 6% or an increase of 2% while that of the company effectively increase the
rate by .5% to make the rate at 8.5% and 6.5%. From this, it appears that the
disagreement lies on how much would the increase equivalent to at least 25%
for the drivers and at least 33% for the conductor/tresses, while that which
proposed (sic) by the company shows an increase of at least 6% and 8%

respectively. The difference between the parties proposal and counter-proposal

is at least 19% and 25%, respectively. With this disagreement in this
difference, it is thought of to be practical and reasonable to meet at the middle
of the difference in the rate by dividing the same into two. Hence, the increase
in the rate should be from the present 8% and 6% to 8.75% and
6.75%. However, in order to make the increase realistic it is opined that it
should be rounded off to the nearest full number that is to 9% and 7%,
respectively.
As regards the incentive pay, the following appears:
OLD CBA
RESPONDENTS
UNIONS PROPOSAL
PROPOSAL
QUOTA
INCENTIVE
QUOTA
INCENTIV
QUOTA
INCENTIVE
E
P2,800.0 P 35.00
P3,276.00
P35.00
P2,600.0
P40.00
0
0
3,100.00 45.00
3,635.00
45.00
2,600.00
50.00
3,400.00 55.00
3,994.00
55.00
3,155.00
60.00
As can be gleaned from the above respondent raised the quota but maintained
the rate for the incentive pay, while the union lowers (sic) the quota and raises
(sic) the rate for the incentive. To the mind of this arbitrator, he deems it proper
and fair for both parties, to adopt the quota as proposed by the respondent
and the rate for the incentive pay as proposed by the union. It is believe (sic)
that such is fair and reasonable because as appearing in the parties proposal
and counter proposal, it would seem that they are trying to out-wit each
other. Hence, such would be as follows:
Quota
Rate of Incentive Pay
P3,276.00
P40.00
3,635.00
50.00
3,994.00
60.00
Another issue where the parties are in statements (sic) is the matter of increase
in the salary and wages of the fixed income employees covered by the
CBA. The Union proposes an increase of P12.00, P10.00 and P8.00 to be spread
in the three-year period, while the company did not submit a proposal for an
increase claiming that it cannot afford to give any increase as it had suffered
financial difficulty. However, as already discussed earlier where it is found that
respondent, as shown by its financial statement, is not really in the verge of
financial collapse, it is believed that it is reasonable and fair to the parties,
particularly to the union that increase would be mandated. However, we could
not adopt in toto the proposal of the union. Instead, we are to adopt the
increase as provided under the old CBA, that is, P6.00 for the first year, P5.00
for the second year and P4.00 for the third year. [10]
Petitioner contends, however, that the labor arbiter has a duty to indicate in his
order every relevant proof necessary to show that the opposing partys
evidence is superior to that of petitioner. This is not so. The quantum of proof
required in proceedings before administrative agencies is substantial
evidence, not overwhelming or preponderant evidence.[11] The quoted portion
of the labor arbiters order shows that the proposals of the parties as well as
petitioners financial statements were carefully considered by him in arriving at
his judgment. As the Solicitor General states:
Nor did respondent NLRC overlook the protestations of the COMPANY that it is
suffering from gargantuan economic trouble. This assertion, however, was
sufficiently refuted by the UNION by presenting proof that the COMPANY had
acquired a bus terminal area in Tunasan. Moreover, the COMPANY had just

imported machines to recondition their old buses. Also, as can be seen in the
1992 Financial Statement of the COMPANY had just imported machines
to recondition their old buses. Also, as can be seen in the1992 Financial
Statement of the COMPANY, it acquired new buses worth P2,400,000.00. These
facts verify the findings of the Labor Arbiter that the COMPANY is not on the
verge of financial collapse.Also, the COMPANY had offered an increase of .5%
but in the same breath, it claims that it can hardly maintain the commission
rate of 8% and 6%. There is a contradiction of facts right there and then, which
considerably weakens its assertions
The increase in commission rate will not really affect the income of the
COMPANY. By their very nature, commissions will only be given to the
employees if the COMPANY receives more income. They are given in the form of
incentives or encouragement so that employees would be inspired to put a little
more industry on their particular tasks. This is unlike salaries and wages which
are fixed amounts and which should be given to the employees regardless of
whether the COMPANY is making any collection or not. Therefore, the
employees are merely asking a percentage of the earnings of the COMPANY,
which they, through their efforts, helped produce.
As regards the incentive pay increase, the COMPANYs financial position was
also taken into consideration. It appears that the COMPANY and the UNION
were trying to outwit each other in their respective proposals. Thus, the
position adopted by the Labor Arbiter - - increasing the quota and the amount
of incentive is a middle ground which is fair to both parties.
The increase in salaries and wages was premised on the findings of the Labor
Arbiter that the COMPANY was not on the verge of financial collapse and that
an increase would be mandated, particularly taking into consideration the
inflation or increase in the cost of living in the subsequent years after the CBA
was finalized. In adopting the wage increase rates provided in the old CBA, the
financial condition of the COMPANY as well as the needs of the employees were
taken into consideration. When conclusions of the Labor Arbiter are sufficiently
corroborated by the evidence on record, the same should be respected by the
appellate tribunals since he is in a better position to assess or evaluate the
credibility of the contending parties [CDCP Tollways Operation Employees and
Workers Union v. NLRC, 211 SCRA 58).[12]
Nor is the grant of a P500.00 signing bonus to employees unreasonable or
arbitrary. The amount is a modest sum, to be given by petitioner only once, in
order to make employees finally agree to the new CBA. In ordering payment of
this amount, the labor arbiter acted in accordance with Art. 262-A of the Labor
Code which provides in part:
Procedures. The voluntary Arbitrator or panel of Voluntary Arbitrators shall
have the power to hold hearings, receive evidence and take whatever action is
necessary to resolve the issue or issues subject to dispute, including efforts to
effect a voluntary settlement between parties. (emphasis added)
Third. Petitioner also contends that in ordering a new CBA to be effective on
March 15, 1989, the expiry date of the old CBA, the labor arbiter acted contrary
to Art. 253-A of the Labor Code. This provision states, among others, that:
Any agreement on such other provision of the Collective Bargaining Agreement
entered into within six (6) months from the date of the expiry of the term of
such other provisions as fixed in such Collective Bargaining Agreement, shall
retroact to the day immediately following such date. If any such agreement is
entered into beyond six months, the parties shall agree on the duration of
retroactivity thereof. In case of a deadlock in the renegotiation of the collective
bargaining agreement, the parties may exercise their rights under this Code.

Art. 253-A refers to collective bargaining agreements entered into by the

parties as a result of their mutual agreement. The CBA in this case, on the
other hand, is part of an arbitral award. As such, it may be made retroactive to
the date of expiration of the previous agreement. As held in St. Lukes Medical
Center, Inc. v. Torres:
Finally, the effectivity of the Order of January 28, 1991, must retroact to the
date of the expiration of the previous CBA, contrary to the position of
petitioner. Under the circumstances of the case, Article 253-A cannot be
properly applied to herein case. As correctly stated by public respondent in his
assailed Order of April 12, 1991 dismissing petitioners Motion for
Reconsideration
Anent the alleged lack of basis for the retroactivity to provisions awarded, we
would stress that the provision of law invoked by the Hospital. Article 253-A of
the Labor Code, speaks of agreements by and between the parties, and not
arbitral awards . . . (p. 818 Rollo).
Therefore, in the absence of a specific provision of law prohibiting retroactivity
of the effectivity of arbitral awards issued by the Secretary of Labor pursuant to
Article 263(g) of the Labor Code, such as herein involved, public respondent is
deemed vested with plenary and discretionary powers to determine the
effectivity thereof.[13]
Indeed, petitioner has not shown that the question of effectivity was not
included in the general agreement of the parties to submit their dispute for
arbitration. To the contrary, as to the order of the labor arbiter states, this
question was among those submitted for arbitration by the parties:
As regards the Effectivity and Duration clause, the company proposes that
the collective bargaining agreement shall take effect only upon its signing and
shall remain in full force and effect for a period of five years. The union
proposes that the agreement shall take effect retroactive to March 15, 1989,
the expiration date of the old CBA.
And after an evaluation of the parties respective contention and argument
thereof, it is believed that the union is fair and reasonable. It is the observation
of this Arbitrator that in almost subsequent CBAs, the effectivity of the
renegotiated CBA, usually and most often is made effective retroactive to the
date when the immediately proceeding CBA expires so as to give a semblance
of continuity. Hence, for this particular case, it is believed that there is nothing
wrong adopting the stand of the union, that is that this CBA be made
retroactive effective March 15, 1989.[14]
Fourth. It is finally contended that the labor arbiter disregarded many
provisions of the old CBA which the parties had retained, improved and agreed
upon, with the result that the CBA finalized by the Honorable Labor Arbiter
does not reflect the true intention of the parties.[15] Petitioner does not specify,
however, what provisions of the old CBA were disregarded by the labor
arbiter. Consequently, this allegation should simply be dismissed.
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.
Regalado, (Chairman), Puno and Martinez, JJ., concur.
Melo, on leave.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 138094
May 29, 2003
MARILOU GUANZON APALISOK, petitioner,
vs.
RADIO PHILIPPINES NETWORK RADIO STATION DYKC and STATION
MANAGER GEORGE SUAZO,respondents.
CARPIO MORALES, J.:
Before this Court is a petition for review on certiorari under Rule 45 assailing
the Court of Appeals Decision1 of October 30, 1998 and Resolution 2 of
February 26, 1999.
On May 15, 1995, Marilou Gaunzon Apalisok (petitioner), then Production Chief
of Radio Philippines Network (RPN) Station DYKC, received a
Memorandum3 from Branches Operations Manager Gilito Datoc asking her to
submit a written explanation why no disciplinary action should be taken against
her for performance of acts hostile to RPN, and arrogant, disrespectful and
defiant behavior towards her superior Station Manager George Suazo.
Complying, petitioner submitted on May 16, 1995 her Answer 4 to the
memorandum.
On May 31, 1995, petitioner received another memorandum from the
Administrative Manager of RPN, informing her of the termination of her services
effective the close of regular office hours of June 15, 1995.
By letter of June 5, 1995, petitioner informed RPN, by letter of June 5, 1995, of
her decision to waive her right to resolve her case through the grievance
machinery of RPN as provided for in the Collective Bargaining Agreement (CBA)
and to lodge her case before the proper government forum. She thereafter filed
a complaint against RPN DYKC and Suazo (respondents) for illegal dismissal
before the National Labor Relations Commission, Regional Arbitration Branch of
Region 7 which referred it to the National Conciliation and Mediation Board.
By Submission Agreement5 dated June 20, 1995 signed by their respective
counsels, petitioner and respondents agreed to submit for voluntary arbitration
the issue of whether petitioner's dismissal was valid and to abide by the
decision of the voluntary arbitrator.
In her position paper6 submitted before the voluntary arbitrator, petitioner
prayed that her dismissal be declared invalid and that she be awarded
separation pay, backwages and other benefits granted to her by the Labor
Code since reinstatement is no longer feasible due to strained relations. She
also prayed that she be awarded P2,000,000.00 for moral damages and
P500,000.00 for exemplary damages.
Respondents on the other hand prayed for the dismissal of the complaint,
arguing that the voluntary arbitrator had no jurisdiction over the case and,
assuming that he had, the complaint is dismissible for lack of merit as
petitioner was not illegally dismissed.7
On October 18, 1995, the voluntary arbitrator rendered an Award 8 in favor of
petitioner, the dispositive portion of which reads:
WHEREFORE, above premises considered, this Voluntary Arbitrator rules that
the dismissal of complainant was invalid.
However, considering the impracticality of reinstatement because of proven
strained relation between the parties, respondents, instead shall pay
complainant the amount of FOUR HUNDRED ELEVEN THOUSAND ONE
HUNDRED TWENTY SIX PESOS & SEVENTY-SIX CENTAVOS (P411,126.76)
itemized as follows:

In summary, the total award is hereunder itemized:

1. SEPARATION PAY (P14,600.00 divide by 30 days
multiplied by 15 days per year of service x 19
years) .........................................

P138,700.95

2. BACKWAGES (P14,600 X 6 months) .............................

P 88,817.00

3. MORAL AND EXEMPLARY DAMAGES ...........................

P100,000.00

4. SERVICE INCENTIVE LEAVES (P14,600 divide by 30

days = P486.67 x 5 days = P2,433.35 x 19 years .......

P 46,233.65

5. ATTORNEY'S FEES (10%) ...........................

P 37,375.16
All other claims are hereby denied.
SO ORDERED. (Emphasis supplied)
Respondents' motion for reconsideration9 of the Award having been denied by
the voluntary arbitrator by Order of November 21, 1995, they filed a petition
for certiorari before this Court, docketed as G.R. No. 122841.
By Resolution10 of December 13, 1995, the Third Division of this Court referred
G.R. No. 122841 to the Court of Appeals, following the case of Luzon
Development Bank v. Association of Luzon Development Bank Employees, et
al.11 holding that decisions or awards of a voluntary arbitrator or panel of
arbitrators in labor cases are reviewable by the Court of Appeals.
The Court of Appeals, finding that the option of petitioner not to subject the
dispute to the grievance machinery provided for in the CBA was tantamount to
relinquishing her right to avail of the aid of a voluntary arbitrator in settling the
dispute which "likewise converted an unresolved grievance into a resolved
one," held that the voluntary arbitrator did not have jurisdiction over
petitioner's complaint and accordingly nullified and set aside, by Decision of
October 30, 1998, the voluntary arbitration award.
Petitioner's Motion for Reconsideration12 of the Court of Appeals Decision
having been denied by Resolution13 of February 26, 1999, the present petition
was filed which raises the following issues:
1. Whether or not the Voluntary Arbitrator had jurisdiction over petitioner's
complaint, and
2. Whether or not respondents are guilty of estoppel. 14
Petitioner, citing Article 262 of the Labor Code of the Philippines, as amended
which reads:
ARTICLE 262. JURISDICTION OVER OTHER LABOR DISPUTES. The Voluntary
Arbitrator or panel of Voluntary Arbitrators, upon agreement of the parties,
shall hear and decide all other labor disputesincluding unfair labor
practices and bargaining deadlocks. (Emphasis and italics supplied),
contends that her option not to subject the dispute to the grievance machinery
of RPN did not amount to her relinquishing of her right to avail of voluntary
arbitration as a mode of settling it for she and respondents in fact agreed to
have the dispute settled by a voluntary arbitrator when they freely executed
the above-said Submission Agreement. She thus concludes that the voluntary
arbitrator has jurisdiction over the controversy. 15
Petitioner contends in any event that even assuming that the voluntary
arbitrator had no jurisdiction over the case, it would not be in keeping with
settled jurisprudence to allow a losing party to question the authority of the
voluntary arbitrator after it had freely submitted itself to its authority. 16
The petition is impressed with merit.

The above quoted Article 262 of the Labor Code provides that upon
agreement of the parties, the voluntary arbitrator can hear and decide all
other labor disputes.
Contrary to the finding of the Court of Appeals, voluntary arbitration as a mode
of settling the dispute was not forced upon respondents. Both parties
indeed agreed to submit the issue of validity of the dismissal of petitioner to
the jurisdiction of the voluntary arbitrator by the Submission Agreement duly
signed by their respective counsels.
As the voluntary arbitrator had jurisdiction over the parties' controversy,
discussion of the second issue is no longer necessary.
WHEREFORE, the Court of Appeals Decision of October 30, 1998 is hereby SET
ASIDE and the voluntary arbitration Award of October 18, 1995 is hereby
REINSTATED.
SO ORDERED.
Puno and Panganiban, JJ ., concur.
Sandoval-Gutierrez and Corona, JJ ., on leave.
SECOND DIVISION
[G.R. No. 129916. March 26, 2001]
MAGELLAN CAPITAL MANAGEMENT CORPORATION and MAGELLAN
CAPITAL HOLDINGS CORPORATION, petitioners, vs. ROLANDO M. ZOSA
and HON. JOSE P. SOBERANO, JR., in his capacity as Presiding Judge of
Branch 58 of the Regional Trial Court Of Cebu, 7th Judicial
Region, respondents.
DECISION
BUENA, J.:
Under a management agreement entered into on March 18, 1994, Magellan
Capital Holdings Corporation [MCHC] appointed Magellan Capital Management
Corporation [MCMC] as manager for the operation of its business and affairs.
[1]
Pursuant thereto, on the same month, MCHC, MCMC, and private respondent
Rolando M. Zosa entered into an "Employment Agreement" designating Zosa as
President and Chief Executive Officer of MCHC.
Under the "Employment Agreement", the term of respondent Zosa's
employment shall be co-terminous with the management agreement, or until
March 1996,[2] unless sooner terminated pursuant to the provisions of the
Employment Agreement.[3] The grounds for termination of employment are also
provided in the Employment Agreement.
On May 10, 1995, the majority of MCHCs Board of Directors decided not to reelect respondent Zosa as President and Chief Executive Officer of MCHC on
account of loss of trust and confidence[4] arising from alleged violation of the
resolution issued by MCHC's board of directors and of the non-competition
clause of the Employment Agreement.[5] Nevertheless, respondent Zosa was
elected to a new position as MCHC's Vice-Chairman/Chairman for New Ventures
Development.[6]
On September 26, 1995, respondent Zosa communicated his resignation for
good reason from the position of Vice-Chairman under paragraph 7 of
the Employment Agreement on the ground that said position had less
responsibility and scope than President and Chief Executive Officer. He
demanded that he be given termination benefits as provided for in Section 8 (c)
(i) (ii) and (iii) of the Employment Agreement.[7]
In a letter dated October 20, 1995, MCHC communicated its non-acceptance of
respondent Zosa's resignation for good reason, but instead informed him that
the Employment Agreement is terminated for cause, effective November 19,
1995, in accordance with Section 7 (a) (v) of the said agreement, on account of

his breach of Section 12 thereof. Respondent Zosa was further advised that he
shall have no further rights under the said Agreement or any claims against the
Manager or the Corporation except the right to receive within thirty (30) days
from November 19, 1995, the amounts stated in Section 8 (a) (i) (ii) of the
Agreement.[8]
Disagreeing with the position taken by petitioners, respondent Zosa invoked
the Arbitration Clause of the Employment Agreement, to wit:
23. Arbitration. In the event that any dispute, controversy or claim arises out
of or under any provisions of this Agreement, then the parties hereto agree to
submit such dispute, controversy or claim to arbitration as set forth in this
Section and the determination to be made in such arbitration shall be final and
binding. Arbitration shall be effected by a panel of three arbitrators. The
Manager, Employee and Corporation shall designate one (1) arbitrator who
shall, in turn, nominate and elect who among them shall be the chairman of the
committee. Any such arbitration, including the rendering of an arbitration
award, shall take place in Metro Manila. The arbitrators shall interpret this
Agreement in accordance with the substantive laws of the Republic of the
Philippines. The arbitrators shall have no power to add to, subtract from or
otherwise modify the terms of Agreement or to grant injunctive relief of any
nature. Any judgment upon the award of the arbitrators may be entered in any
court having jurisdiction thereof, with costs of the arbitration to be borne
equally by the parties, except that each party shall pay the fees and expenses
of its own counsel in the arbitration.
On November 10, 1995, respondent Zosa designated his brother, Atty. Francis
Zosa, as his representative in the arbitration panel [9] while MCHC designated
Atty. Inigo S. Fojas[10] and MCMC nominated Atty. Enrique I. Quiason[11] as their
respective representatives in the arbitration panel. However, instead of
submitting the dispute to arbitration, respondent Zosa, on April 17, 1996, filed
an action for damages against petitioners before the Regional Trial Court of
Cebu[12] to enforce his benefits under the Employment Agreement.
On July 3, 1996, petitioners filed a motion to dismiss [13] arguing that (1) the trial
court has no jurisdiction over the instant case since respondent Zosa's claims
should be resolved through arbitration pursuant to Section 23 of
the Employment Agreement with petitioners; and (2) the venue is improperly
laid since respondent Zosa, like the petitioners, is a resident of Pasig City and
thus, the venue of this case, granting without admitting that the respondent
has a cause of action against the petitioners cognizable by the RTC, should be
limited only to RTC-Pasig City.[14]
Meanwhile, respondent Zosa filed an amended complaint dated July 5, 1996.
On August 1, 1996, the RTC Branch 58 of Cebu City issued an Order denying
petitioners motion to dismiss upon the findings that (1) the validity and legality
of the arbitration provision can only be determined after trial on the merits; and
(2) the amount of damages claimed, which is over P100,000.00, falls within the
jurisdiction of the RTC.[15] Petitioners filed a motion for reconsideration which
was denied by the RTC in an order dated September 5, 1996.[16]
In the interim, on August 22, 1996, in compliance with the earlier order of the
court directing petitioners to file responsive pleading to the amended
complaint, petitioners filed their Answer Ad Cautelam with counterclaim
reiterating their position that the dispute should be settled through arbitration
and the court had no jurisdiction over the nature of the action.[17]
On October 21, 1996, the trial court issued its pre-trial order declaring the pretrial stage terminated and setting the case for hearing. The order states:
ISSUES:
The Court will only resolve one issue in so far as this case is concerned, to wit:

Whether or not the Arbitration Clause contained in Sec.23 of the Employment

Agreement is void and of no effect: and, if it is void and of no effect, whether or
not the plaintiff is entitled to damages in accordance with his complaint and the
defendants in accordance with their counterclaim.
It is understood, that in the event the arbitration clause is valid and binding
between the parties, the parties shall submit their respective claim to the
Arbitration Committee in accordance with the said arbitration clause, in which
event, this case shall be deemed dismissed. [18]
On November 18, 1996, petitioners filed their Motion Ad Cautelam for the
Correction, Addition and Clarification of the Pre-trial Order dated November 15
1996,[19] which was denied by the court in an order dated November 28, 1996.
[20]

Thereafter, petitioners MCMC and MCHC filed a Motion Ad Cautelam for the
parties to file their Memoranda to support their respective stand on the issue of
the validity of the arbitration clause contained in theEmployment
Agreement. In an order dated December 13, 1996, the trial court denied the
motion of petitioners MCMC and MCHC.
On January 17, 1997, petitioners MCMC and MCHC filed a petition for certiorari
and prohibition under Rule 65 of the Rules of Court with the Court of Appeals,
questioning the trial court orders dated August 1, 1996, September 5, 1996,
and December 13, 1996.[21]
On March 21, 1997, the Court of Appeals rendered a decision, giving due
course to the petition, the decretal portion of which reads:
WHEREFORE, the petition is GIVEN DUE COURSE. The respondent court is
directed to resolve the issue on the validity or effectivity of the arbitration
clause in the Employment Agreement, and to suspend further proceedings in
the trial on the merits until the said issue is resolved. The questioned orders are
set aside insofar as they contravene this Courts resolution of the issues raised
as herein pronounced.
The petitioner is required to remit to this Court the sum of P81.80 for cost
within five (5) days from notice.
SO ORDERED.[22]
Petitioners filed a motion for partial reconsideration of the CA decision praying
(1) for the dismissal of the case in the trial court, on the ground of lack of
jurisdiction, and (2) that the parties be directed to submit their dispute to
arbitration in accordance with the Employment Agreement dated March
1994. The CA, in a resolution promulgated on June 20, 1997, denied the motion
for partial reconsideration for lack of merit.
In compliance with the CA decision, the trial court, on July 18, 1997, rendered a
decision declaring the arbitration clause in the Employment
Agreement partially void and of no effect. The dispositive portion of the
decision reads:
WHEREFORE, premises considered, judgment is hereby rendered partially
declaring the arbitration clause of the Employment Agreement void and of no
effect, only insofar as it concerns the composition of the panel of arbitrators,
and directing the parties to proceed to arbitration in accordance with the
Employment Agreement under the panel of three (3) arbitrators, one for the
plaintiff, one for the defendants, and the third to be chosen by both the plaintiff
and defendants. The other terms, conditions and stipulations in the arbitration
clause remain in force and effect."[23]
In view of the trial courts decision, petitioners filed this petition for review on
certiorari, under Rule 45 of the Rules of Court, assigning the following errors for
the Courts resolution:

I. The trial court gravely erred when it ruled that the arbitration clause under
the employment agreement is partially void and of no effect, considering that:
A. The arbitration clause in the employment agreement dated March 1994
between respondent Zosa and defendants MCHC and MCMC is valid and
binding upon the parties thereto.
B. In view of the fact that there are three parties to the employment
agreement, it is but proper that each party be represented in the arbitration
panel.
C. The trial court grievously erred in its conclusion that petitioners MCMC and
MCHC represent the same interest.
D. Respondent Zosa is estopped from questioning the validity of the
arbitration clause, including the right of petitioner MCMC to nominate its own
arbitrator, which he himself has invoked.
II. In any event, the trial court acted without jurisdiction in hearing the case
below, considering that it has no jurisdiction over the nature of the action or
suit since controversies in the election or appointment of officers or managers
of a corporation, such as the action brought by respondent Zosa, fall within the
original and exclusive jurisdiction of the Securities and Exchange Commission.
III. Contrary to respondent Zosas allegation, the issue of the trial courts
jurisdiction over the case below has not yet been resolved with finality
considering that petitioners have expressly reserved their right to raise said
issue in the instant petition. Moreover, the principle of the law of the case is
not applicable in the instant case.
IV. Contrary to respondent Zosas allegation, petitioners MCMC and MCHC are
not guilty of forum shopping.
V. Contrary to respondent Zosas allegation, the instant petition for review
involves only questions of law and not of fact. [24]
We rule against the petitioners.
It is error for the petitioners to claim that the case should fall under the
jurisdiction of the Securities and Exchange Commission [SEC, for brevity]. The
controversy does not in anyway involve the election/appointment of officers of
petitioner MCHC, as claimed by petitioners in their assignment of
errors. Respondent Zosas amended complaint focuses heavily on the illegality
of the Employment Agreements Arbitration Clause initially invoked by him in
seeking his termination benefits under Section 8 of the employment
contract. And under Republic Act No. 876, otherwise known as the Arbitration
Law, it is the regional trial court which exercises jurisdiction over questions
relating to arbitration. We thus advert to the following discussions made by the
Court of Appeals, speaking thru Justice Minerva P. Gonzaga-Reyes, [25] in C.A.G.R. S.P. No. 43059, viz:
As regards the fourth assigned error, asserting that jurisdiction lies with the
SEC, which is raised for the first time in this petition, suffice it to state that the
Amended Complaint squarely put in issue the question whether the Arbitration
Clause is valid and effective between the parties. Although the controversy
which spawned the action concerns the validity of the termination of the
service of a corporate officer, the issue on the validity and effectivity of the
arbitration clause is determinable by the regular courts, and do not fall within
the exclusive and original jurisdiction of the SEC.
The determination and validity of the agreement is not a matter intrinsically
connected with the regulation and internal affairs of corporations (see Pereyra
vs. IAC, 181 SCRA 244; Sales vs. SEC, 169 SCRA 121); it is rather an ordinary
case to be decided in accordance with the general laws, and do not require any
particular expertise or training to interpret and apply (Viray vs. CA, 191 SCRA
308).[26]

Furthermore, the decision of the Court of Appeals in CA-G.R. SP No. 43059

affirming the trial courts assumption of jurisdiction over the case has become
the law of the case which now binds the petitioners. The law of the case
doctrine has been defined as a term applied to an established rule that when
an appellate court passes on a question and remands the cause to the lower
court for further proceedings, the question there settled becomes the law of the
case upon subsequent appeal.[27] To note, the CAs decision in CA-G.R. SP No.
43059 has already attained finality as evidenced by a Resolution of this Court
ordering entry of judgment of said case, to wit:
ENTRY OF JUDGMENT
This is to certify that on September 8, 1997 a decision/resolution rendered in
the above-entitled case was filed in this Office, the dispositive part of which
reads as follows:
G.R. No. 129615 (Magellan Capital Management Corporation, et al. vs. Court of
Appeals, Rolando Zosa, et al.).- Considering the petitioners manifestation
dated August 11, 1997 and withdrawal of intention to file petition for review on
certiorari, the Court Resolved to DECLARE THIS CASE TERMINATED and DIRECT
the Clerk of Court to INFORM the parties that the judgment sought to be
reviewed has become final and executory, no appeal therefore having been
timely perfected.
and that the same has, on September 17, 1997, become final and executory
and is hereby recorded in the Book of Entries of Judgments. [28]
Petitioners, therefore, are barred from challenging anew, through another
remedial measure and in any other forum, the authority of the regional trial
court to resolve the validity of the arbitration clause, lest they be truly guilty of
forum-shopping which the courts consistently consider as a contumacious
practice that derails the orderly administration of justice.
Equally unavailing for the petitioners is the review by this Court, via the instant
petition, of the factual findings made by the trial court that the composition of
the panel of arbitrators would, in all probability, work injustice to respondent
Zosa. We have repeatedly stressed that the jurisdiction of this Court in a
petition for review on certiorari under Rule 45 of the Revised Rules of Court is
limited to reviewing only errors of law, not of fact, unless the factual findings
complained of are devoid of support by the evidence on record, or the assailed
judgment is based on misapprehension of facts. [29]
Even if procedural rules are disregarded, and a scrutiny of the merits of the
case is undertaken, this Court finds the trial courts observations on why the
composition of the panel of arbitrators should be voided, incisively correct so as
to merit our approval. Thus,
From the memoranda of both sides, the Court is of the view that the
defendants [petitioner] MCMC and MCHC represent the same interest. There is
no quarrel that both defendants are entirely two different corporations with
personalities distinct and separate from each other and that a corporation has
a personality distinct and separate from those persons composing the
corporation as well as from that of any other legal entity to which it may be
related.
But as the defendants [herein petitioner] represent the same interest, it could
never be expected, in the arbitration proceedings, that they would not protect
and preserve their own interest, much less, would both or either favor the
interest of the plaintiff. The arbitration law, as all other laws, is intended for
the good and welfare of everybody. In fact, what is being challenged by the
plaintiff herein is not the law itself but the provision of the Employment
Agreement based on the said law, which is the arbitration clause but only as

regards the composition of the panel of arbitrators. The arbitration clause in

question provides, thus:
In the event that any dispute, controversy or claim arise out of or under any
provisions of this Agreement, then the parties hereto agree to submit such
dispute, controversy or claim to arbitration as set forth in this Section and the
determination to be made in such arbitration shall be final and
binding. Arbitration shall be effected by a panel of three
arbitrators. The Manager, Employee, and Corporation shall designate one (1)
arbitrator who shall, in turn, nominate and elect as who among them shall be
the chairman of the committee. Any such arbitration, including the rendering
of an arbitration award, shall take place in Metro Manila. The arbitrators shall
interpret this Agreement in accordance with the substantive laws of the
Republic of the Philippines. The arbitrators shall have no power to add to,
subtract from or otherwise modify the terms of this Agreement or to grant
injunctive relief of any nature. Any judgment upon the award of the arbitrators
may be entered in any court having jurisdiction thereof, with costs of the
arbitration to be borne equally by the parties, except that each party shall pay
the fees and expenses of its own counsel in the arbitration. (Emphasis
supplied).
From the foregoing arbitration clause, it appears that the two (2) defendants
[petitioners] (MCMC and MCHC) have one (1) arbitrator each to compose the
panel of three (3) arbitrators. As the defendant MCMC is the Manager of
defendant MCHC, its decision or vote in the arbitration proceeding would
naturally and certainly be in favor of its employer and the defendant MCHC
would have to protect and preserve its own interest; hence, the two (2) votes of
both defendants (MCMC and MCHC) would certainly be against the lone
arbitrator for the plaintiff [herein defendant]. Hence, apparently, plaintiff
[defendant] would never get or receive justice and fairness in the arbitration
proceedings from the panel of arbitrators as provided in the aforequoted
arbitration clause. In fairness and justice to the plaintiff [defendant], the two
defendants (MCMC and MCHC)[herein petitioners] which represent the same
interest should be considered as one and should be entitled to only one
arbitrator to represent them in the arbitration proceedings. Accordingly, the
arbitration clause, insofar as the composition of the panel of arbitrators is
concerned should be declared void and of no effect, because the law says, Any
clause giving one of the parties power to choose more arbitrators than the
other is void and of no effect (Article 2045, Civil Code).
The dispute or controversy between the defendants (MCMC and MCHC) [herein
petitioners] and the plaintiff [herein defendant] should be settled in the
arbitration proceeding in accordance with the Employment Agreement, but
under the panel of three (3) arbitrators, one (1) arbitrator to represent the
plaintiff, one (1) arbitrator to represent both defendants (MCMC and MCHC)
[herein petitioners] and the third arbitrator to be chosen by the plaintiff
[defendant Zosa] and defendants [petitioners].
x x x
xxx
x x x[30]
In this connection, petitioners attempt to put respondent in estoppel in
assailing the arbitration clause must be struck down. For one, this issue of
estoppel, as likewise noted by the Court of Appeals, found its way for the first
time only on appeal. Well-settled is the rule that issues not raised below
cannot be resolved on review in higher courts.[31] Secondly, employment
agreements such as the one at bar are usually contracts of adhesion. Any
ambiguity in its provisions is generally resolved against the party who drafted
the document. Thus, in the relatively recent case of Phil. Federation of
Credit Cooperatives, Inc. (PFCCI) and Fr. Benedicto Jayoma vs. NLRC

and Victoria Abril,[32] we had the occasion to stress that where a contract of
employment, being a contract of adhesion, is ambiguous, any ambiguity
therein should be construed strictly against the party who prepared it. And,
finally, respondent Zosa never submitted himself to arbitration proceedings (as
there was none yet) before bewailing the composition of the panel of
arbitrators. He in fact, lost no time in assailing the arbitration clause upon
realizing the inequities that may mar the arbitration proceedings if the existing
line-up of arbitrators remained unchecked.
We need only to emphasize in closing that arbitration proceedings are designed
to level the playing field among the parties in pursuit of a mutually acceptable
solution to their conflicting claims. Any arrangement or scheme that would
give undue advantage to a party in the negotiating table is anathema to the
very purpose of arbitration and should, therefore, be resisted.
WHEREFORE, premises considered, the petition is hereby DISMISSED and the
decision of the trial court dated July 18, 1997 is AFFIRMED.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, and De Leon, Jr., JJ., concur.
Quisumbing, J., on leave.

SECOND DIVISION
[G.R. No. 138938. October 24, 2000]
CELESTINO VIVIERO, petitioner, vs. COURT OF APPEALS, HAMMONIA
MARINE SERVICES, and HANSEATIC SHIPPING CO., LTD. respondents.
DECISION
BELLOSILLO, J.:
CELESTINO VIVERO, in this petition for review, seeks the reversal of the
Decision of the Court of Appeals of 26 May 1999 setting aside the Decision of
the National Labor Relations Commission of 28 May 1998 as well as its
Resolution of 23 July 1998 denying his motion for its reconsideration, and
reinstating the decision of the Labor Arbiter of 21 January 1997.
Petitioner Vivero, a licensed seaman, is a member of the Associated Marine
Officers and Seamen's Union of the Philippines (AMOSUP). The Collective
Bargaining Agreement entered into by AMOSUP and private respondents
provides, among others ARTICLE XII
GRIEVANCE PROCEDURE
xxxx
Sec. 3. A dispute or grievance arising in connection with the terms and
provisions of this Agreement shall be adjusted in accordance with the following
procedure:
1. Any seaman who feels that he has been unjustly treated or even subjected
to an unfair consideration shall endeavor to have said grievance adjusted by
the designated representative of the unlicensed department abroad the vessel
in the following manner:
A. Presentation of the complaint to his immediate superior.
B. Appeal to the head of the department in which the seaman involved shall be
employed.
C. Appeal directly to the Master.
Sec. 4. If the grievance cannnot be resolved under the provision of Section 3,
the decision of the Master shall govern at sea x x x x in foreign ports and until
the vessel arrives at a port where the Master shall refer such dispute to either
the COMPANY or the UNION in order to resolve such dispute. It is understood,
however, if the dispute could not be resolved then both parties shall avail of the
grievance procedure.
Sec. 5. In furtherance of the foregoing principle, there is hereby created a
GRIEVANCE COMMITTEE to be composed of two COMPANY REPRESENTATIVES to
be designated by the COMPANY and two LABOR REPRESENTATIVES to be
designated by the UNION.
Sec. 6. Any grievance, dispute or misunderstanding concerning any ruling,
practice, wages or working conditions in the COMPANY, or any breach of the
Employment Contract, or any dispute arising from the meaning or the
application of the provision of this Agreement or a claim of violation thereof or
any complaint that any such crewmembers may have against the COMPANY, as
well as complaint which the COMPANY may have against such crewmembers
shall be brought to the attention of the GRIEVANCE COMMITTEE before either
party takes any action, legal or otherwise.
Sec. 7. The COMMITTEE shall resolve any dispute within seven (7) days from
and after the same is submitted to it for resolution and if the same cannot be
settled by the COMMITTEE or if the COMMITTEE fails to act on the dispute
within the 7-day period herein provided, the same shall be referred to a
VOLUNTARY ARBITRATION COMMITTEE.

An "impartial arbitrator" will be appointed by mutual choice and consent of the

UNION and the COMPANY who shall hear and decide the dispute or issue
presented to him and his decision shall be final and unappealable x x x x [1]
As found by the Labor Arbiter Complainant was hired by respondent as Chief Officer of the vessel "M.V. Sunny
Prince" on 10 June 1994 under the terms and conditions, to wit:
Duration of Contract - - - - 10 months
Basic Monthly Salary - - - - US $1,100.00
Hours of Work - - - - 44 hrs./week
Overtime - - - - 495 lump O.T.
Vacation leave with pay - - - - US $220.00/mo.
On grounds of very poor performance and conduct, refusal to perform his job,
refusal to report to the Captain or the vessels Engineers or cooperate with
other ship officers about the problem in cleaning the cargo holds or of the
shipping pump and his dismal relations with the Captain of the vessel,
complainant was repatriated on 15 July 1994.
On 01 August 1994, complainant filed a complaint for illegal dismissal at
Associated Marine Officers and Seamans Union of the Philippines (AMOSUP) of
which complainant was a member. Pursuant to Article XII of the Collective
Bargaining Agreement, grievance proceedings were conducted; however,
parties failed to reach and settle the dispute amicably, thus, on 28 November
1994, complainant filed [a] complaint with the Philippine Overseas Employment
Administration (POEA).[2]
The law in force at the time petitioner filed his Complaint with the POEA was EO
No. 247.[3]
While the case was pending before the POEA, private respondents filed
a Motion to Dismiss on the ground that the POEA had no jurisdiction over the
case considering petitioner Vivero's failure to refer it to a Voluntary Arbitration
Committee in accordance with the CBA between the parties. Upon the
enactment of RA 8042, the Migrant Workers and Overseas Filipinos Act of 1995,
the case was transferred to the Adjudication Branch of the National Labor
Relations Commission.
On 21 January 1997 Labor Arbiter Jovencio Ll. Mayor Jr., on the basis of the
pleadings and documents available on record, rendered a decision dismissing
the Complaint for want of jurisdiction.[4] According to the Labor Arbiter, since
the CBA of the parties provided for the referral to a Voluntary Arbitration
Committee should the Grievance Committee fail to settle the dispute, and
considering the mandate of Art. 261 of the Labor Code on the original and
exclusive jurisdiction of Voluntary Arbitrators, the Labor Arbiter clearly had no
jurisdiction over the case.[5]
Petitioner (complainant before the Labor Arbiter) appealed the dismissal of his
petition to the NLRC. On 28 May 1998 the NLRC set aside the decision of the
Labor Arbiter on the ground that the record was clear that petitioner had
exhausted his remedy by submitting his case to the Grievance Committee of
AMOSUP. Considering however that he could not obtain any settlement he had
to ventilate his case before the proper forum, i.e., the Philippine Overseas
Employment Administration.[6] The NLRC further held that the contested portion
in the CBA providing for the intercession of a Voluntary Arbitrator was not
binding upon petitioner since both petitioner and private respondents had to
agree voluntarily to submit the case before a Voluntary Arbitrator or Panel of
Voluntary Arbitrators. This would entail expenses as the Voluntary Arbitrator
chosen by the parties had to be paid. Inasmuch however as petitioner chose to
file his Complaint originally with POEA, then the Labor Arbiter to whom the case
was transferred would have to take cognizance of the case. [7]

The NLRC then remanded the case to the Labor Arbiter for further
proceedings. On 3 July 1998 respondents filed a Motion for
Reconsideration which was denied by the NLRC on 23 July 1998.
Thus, private respondents raised the case to the Court of Appeals contending
that the provision in the CBA requiring a dispute which remained unresolved by
the Grievance Committee to be referred to a Voluntary Arbitration Committee,
was mandatory in character in view of the CBA between the parties. They
stressed that "since it is a policy of the state to promote voluntary arbitration
as a mode of settling labor disputes, it is clear that the public respondent
gravely abused its discretion in taking cognizance of a case which was still
within the mantle of the Voluntary Arbitration Commitees jurisdiction." [8]
On the other hand, petitioner argued (A)s strongly suggested by its very title, referral of cases of this nature to the
Voluntary Arbitration Committee is voluntary in nature. Otherwise, the
committee would not have been called Voluntary Arbitration Committee but
rather, a Compulsory Arbitration Committee. Moreover, if the referral of cases
of similar nature to the Voluntary Arbitration Committee would be deemed
mandatory by virtue of the provisions in the CBA, the [NLRC] would then be
effectively deprived of its jurisdiction to try, hear and decide termination
disputes, as provided for under Article 217 of the Labor Code. Lastly,
[respondents] ought to be deemed to have waived their right to question the
procedure followed by [petitioner], considering that they have already filed
their Position Paper before belatedly filing a Motion to Dismiss x x x x [9]
But the Court of Appeals ruled in favor of private respondents. It held that the
CBA "is the law between the parties and compliance therewith is mandated by
the express policy of the law." [10]Hence, petitioner should have followed the
provision in the CBA requiring the submission of the dispute to the Voluntary
Arbitration Committee once the Grievance Committee failed to settle the
controversy.[11] According to the Court of Appeals, the parties did not have the
choice to "volunteer" to refer the dispute to the Voluntary Arbitrator or a Panel
of Arbitrators when there was already an agreement requiring them to do so.
"Voluntary Arbitration" means that it is binding because of a prior agreement or
contract, while "Compulsory Arbitration" is when the law declares the dispute
subject to arbitration, regardless of the consent or desire of the parties. [12]
The Court of Appeals further held that the Labor Code itself enumerates the
original and exclusive jurisdiction of the Voluntary Arbitrator or Panel of
Voluntary Arbitrators, and prohibits the NLRC and the Regional Directors of the
Department of Labor and Employment (DOLE) from entertaining cases falling
under the same.[13] Thus, the fact that private respondents filed their Position
Paper first before filing their Motion to Dismiss was immaterial and did not
operate to confer jurisdiction upon the Labor Arbiter, following the well-settled
rule that jurisdiction is determined by law and not by consent or agreement of
the parties or by estoppel.[14]
Finally, the appellate court ruled that a case falling under the jurisdiction of the
Labor Arbiter as provided under Art. 217 of the Labor Code may be lodged
instead with a Voluntary Arbitrator because the law prefers, or gives primacy,
to voluntary arbitration instead of compulsory arbitration.[15] Consequently, the
contention that the NLRC would be deprived of its jurisdiction to try, hear and
decide termination disputes under Art. 217 of the Labor Code, should the
instant dispute be referred to the Voluntary Arbitration Committee, is clearly
bereft of merit.[16] Besides, the Voluntary Arbitrator, whether acting solely or in
a panel, enjoys in law the status of a quasi-judicial agency independent of, and
apart from, the NLRC since his decisions are not appealable to the latter. [17]

Celestino Vivero, in his petition for review assailing the Decision of the Court of
Appeals, alleges that the appellate court committed grave abuse of discretion
in holding that a Voluntary Arbitrator or Panel of Voluntary Arbitrators, and not
the Adjudication Branch of the NLRC, has jurisdiction over his
complaint for illegal dismissal. He claims that his complaint for illegal dismissal
was undeniably a termination dispute and did not, in any way, involve an
"interpretation or implementation of collective bargaining agreement" or
"interpretation" or "enforcement" of company personnel policies. Thus, it
should fall within the original and exclusive jurisdiction of the NLRC and its
Labor Arbiter, and not with a Voluntary Arbitrator, in accordance with Art. 217
of the Labor Code.
Private respondents, on the other hand, allege that the case is clearly one
"involving the proper interpretation and implementation of the Grievance
Procedure found in the Collective Bargaining Agreement (CBA) between the
parties"[18] because of petitioners allegation in his claim/assistance request
form submitted to the Union, to wit:
NATURE OF COMPLAINT
3. Illegal Dismissal - Reason: (1) That in this case it was the master of M.V.
SUNNY PRINCE Capt. Andersen who created the trouble with physical injury and
stating false allegation; (2) That there was no proper procedure of grievance;
(3) No proper notice of dismissal.
Is there a Notice of dismissal? _x_ Yes or ____ No
What date? 11 July 1994
Is there a Grievance Procedure observed? ____ Yes or _x_ No[19]
Private respondents further allege that the fact that petitioner sought the
assistance of his Union evidently shows that he himself was convinced that
his Complaint was within the ambit of the jurisdiction of the grievance
machinery and subsequently by a Panel of Voluntary Arbitrators as provided for
in their CBA, and as explicitly mandated by Art. 261 of the Labor Code. [20]
Thus, the issue is whether the NLRC is deprived of jurisdiction over illegal
dismissal cases whenever a CBA provides for grievance machinery and
voluntary arbitration proceedings. Or, phrased in another way, does the
dismissal of an employee constitute a "grievance between the parties," as
defined under the provisions of the CBA, and consequently, within the exclusive
original jurisdiction of the Voluntary Arbitrators, thereby rendering the NLRC
without jurisdiction to decide the case?
On the original and exclusive jurisdiction of Labor Arbiters, Art. 217 of the Labor
Code provides Art. 217. Jurisdiction of Labor Arbiters and the Commission. - (a) Except as
otherwise provided under this Code, the Labor Arbiters shall have original and
exclusive jurisdiction to hear and decide within thirty (30) calendar days after
the submission of the case by the parties for decision without extension, even
in the absence of stenographic notes, the following cases involving all workers,
whether agricultural or non-agricultural: (1) Unfair labor practice cases;
(2) Termination disputes; (3) If accompanied with a claim for reinstatement,
those cases that workers may file involving wages, rates of pay, hours of work
and other terms and conditions of employment; (4) Claims for actual, moral,
exemplary and other forms of damages arising from the employer-employee
relations; (5) Cases arising from any violation of Article 264 of this Code,
including questions involving the legality of strikes and lockouts; and, (6)
Except claims for Employees Compensation, Social Security, Medicare and
maternity benefits, all other claims arising from employer-employee relations,
including those of persons in domestic or household service, involving an

amount exceeding five thousand pesos (P5,000.00) regardless of whether

accompanied with a claim for reinstatement.
(b) The Commission shall have exclusive appellate jurisdiction over all cases
decided by Labor Arbiters.
(c) Cases arising from the interpretation of collective bargaining agreements
and those arising from the interpretation or enforcement of company personnel
policies shall be disposed of by the Labor Arbiter by referring the same to the
grievance machinery and voluntary arbitration as may be provided in said
agreements (emphasis supplied).
However, any or all of these cases may, by agreement of the parties, be
submitted to a Voluntary Arbitrator or Panel of Voluntary Arbitrators for
adjudication. Articles 261 and 262 of the Labor Code provide Art. 261. Jurisdiction of Voluntary Arbitrators or Panel of Voluntary Arbitrators. The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have original
and exclusive jurisdiction to hear and decide all unresolved grievances arising
from the interpretation or implementation of the Collective Bargaining
Agreement and those arising from the interpretation or enforcement of
company personnel policies referred to in the immediately preceding
article. Accordingly, violations of a Collective Bargaining Agreement, except
those which are gross in character, shall no longer be treated as unfair labor
practice and shall be resolved as grievances under the Collective Bargaining
Agreement. For purposes of this article, gross violations of Collective Bargaining
Agreement shall mean flagrant and/or malicious refusal to comply with the
economic provisions of such agreement.
The Commission, its Regional Offices and the Regional Directors of the
Department of Labor and Employment shall not entertain disputes, grievances
or matters under the exclusive and original jurisdiction of the Voluntary
Arbitrator or panel of Voluntary Arbitrators and shall immediately dispose and
refer the same to the Grievance Machinery or Voluntary Arbitration provided in
the Collective Bargaining Agreement.
Art. 262. Jurisdiction Over Other Labor Disputes. - The Voluntary Arbitrator or
panel of Voluntary Arbitrators, upon agreement of the parties, shall also hear
and decide all other labor disputes including unfair labor practices and
bargaining deadlocks (emphasis supplied).
Private respondents attempt to justify the conferment of jurisdiction over the
case on the Voluntary Arbitrator on the ground that the issue involves the
proper interpretation and implementation of the Grievance Procedure found in
the CBA. They point out that when petitioner sought the assistance of his Union
to avail of the grievance machinery, he in effect submitted himself to the
procedure set forth in the CBA regarding submission of unresolved grievances
to a Voluntary Arbitrator.
The argument is untenable. The case is primarily a termination dispute. It is
clear from the claim/assistance request form submitted by petitioner to
AMOSUP that he was challenging the legality of his dismissal for lack of cause
and lack of due process. The issue of whether there was proper interpretation
and implementation of the CBA provisions comes into play only because the
grievance procedure provided for in the CBA was not observed after he sought
his Unions assistance in contesting his termination. Thus, the question to be
resolved necessarily springs from the primary issue of whether there was a
valid termination; without this, then there would be no reason to invoke the
need to interpret and implement the CBA provisions properly.
In San Miguel Corp. v. National Labor Relations Commission [21] this Court held
that the phrase "all other labor disputes" may include termination disputes
provided that the agreement between the Union and the Company states "in

unequivocal language that [the parties] conform to the submission of

termination disputes and unfair labor practices to voluntary arbitration." [22]Ergo,
it is not sufficient to merely say that parties to the CBA agree on the principle
that "all disputes" should first be submitted to a Voluntary Arbitrator. There is a
need for an express stipulation in the CBA that illegal termination disputes
should be resolved by a Voluntary Arbitrator or Panel of Voluntary Arbitrators,
since the same fall within a special class of disputes that are generally within
the exclusive original jurisdiction of Labor Arbiters by express provision of
law. Absent such express stipulation, the phrase "all disputes" should be
construed as limited to the areas of conflict traditionally within the jurisdiction
of Voluntary Arbitrators, i.e., disputes relating to contract-interpretation,
contract-implementation, or interpretation or enforcement of company
personnel policies. Illegal termination disputes - not falling within any of these
categories - should then be considered as a special area of interest governed
by a specific provision of law.
In this case, however, while the parties did agree to make termination disputes
the proper subject of voluntary arbitration, such submission remains
discretionary upon the parties. A perusal of the CBA provisions shows that Sec.
6, Art. XII (Grievance Procedure) of the CBA is the general agreement of the
parties to refer grievances, disputes or misunderstandings to a grievance
committee, and henceforth, to a voluntary arbitration committee. The
requirement of specificity is fulfilled by Art. XVII (Job Security) where the parties
agreed Sec. 1. Promotion, demotion, suspension, dismissal or disciplinary action of the
seaman shall be left to the discretion of the Master, upon consultation with the
Company and notification to the Union. This notwithstanding, any and all
disciplinary action taken on board the vessel shall be provided for in Appendix
B of this Agreement x x x x [23]
Sec. 4. x x x x Transfer, lay-off or discipline of seamen for incompetence,
inefficiency, neglect of work, bad behavior, perpetration of crime, drunkenness,
insubordination, desertion, violation of x x x regulations of any port touched by
the Companys vessel/s and other just and proper causes shall be at Masters
discretion x x x in the high seas or foreign ports. The Master shall refer the
case/dispute upon reaching port and if not satisfactorily settled, the
case/dispute may be referred to the grievance machinery or
procedure hereinafter provided (emphasis supplied).[24]
The use of the word "may" shows the intention of the parties to reserve the
right to submit the illegal termination dispute to the jurisdiction of the Labor
Arbiter, rather than to a Voluntary Arbitrator. Petitioner validly exercised his
option to submit his case to a Labor Arbiter when he filed his Complaint before
the proper government agency.
Private respondents invoke Navarro III v. Damasco[25] wherein the Court held
that "it is the policy of the state to promote voluntary arbitration as a mode of
settling disputes."[26] It should be noted, however, that in Navarro III all the
parties voluntarily submitted to the jurisdiction of the Voluntary Arbitrator when
they filed their respective position papers and submitted documentary
evidence before him. Furthermore, they manifested during the initial
conference that they were not questioning the authority of the Voluntary
Arbitrator.[27] In the case at bar, the dispute was never brought to a Voluntary
Arbitrator for resolution; in fact, petitioner precisely requested the Court to
recognize the jurisdiction of the Labor Arbiter over the case. The Court had held
in San Miguel Corp. v. NLRC[28] that neither officials nor tribunals can assume
jurisdiction in the absence of an express legal conferment. In the same manner,
petitioner cannot arrogate into the powers of Voluntary Arbitrators the original

and exclusive jurisdiction of Labor Arbiters over unfair labor practices,

termination disputes, and claims for damages, in the absence of an express
agreement between the parties in order for Art. 262 of the Labor Code to apply
in the case at bar. In other words, the Court of Appeals is correct in holding that
Voluntary Arbitration is mandatory in character if there is a specific agreement
between the parties to that effect. It must be stressed however that, in the
case at bar, the use of the word "may" shows the intention of the parties to
reserve the right of recourse to Labor Arbiters.
The CBA clarifies the proper procedure to be followed in situations where the
parties expressly stipulate to submit termination disputes to the jurisdiction of
a Voluntary Arbitrator or Panel of Voluntary Arbitrators. For when the parties
have validly agreed on a procedure for resolving grievances and to submit a
dispute to voluntary arbitration then that procedure should be strictly
observed. Non-compliance therewith cannot be excused, as petitioner
suggests, by the fact that he is not well-versed with the "fine prints" of the
CBA. It was his responsibility to find out, through his Union, what the provisions
of the CBA were and how they could affect his rights. As provided in Art. 241,
par. (p), of the Labor Code (p) It shall be the duty of any labor organization and its officers to inform its
members on the provisions of its constitution and by-laws, collective bargaining
agreement, the prevailing labor relations system and all their rights and
obligations under existing labor laws.
In fact, any violation of the rights and conditions of union membership is a
"ground for cancellation of union registration or expulsion of officer from office,
whichever is appropriate. At least thirty percent (30%) of all the members of a
union or any member or members especially concerned may report such
violation to the Bureau [of Labor Relations] x x x x" [29]
It may be observed that under Policy Instruction No. 56 of the Secretary of
Labor, dated 6 April 1993, "Clarifying the Jurisdiction Between Voluntary
Arbitrators and Labor Arbiters Over Termination Cases and Providing Guidelines
for the Referral of Said Cases Originally Filed with the NLRC to the NCMB,"
termination cases arising in or resulting from the interpretation and
implementation of collective bargaining agreements and interpretation and
enforcement of company personnel policies which were initially processed at
the various steps of the plant-level Grievance Procedures under the parties'
collective bargaining agreements fall within the original and exclusive
jurisdiction of the voluntary arbitrator pursuant to Art. 217 (c) and Art. 261 of
the Labor Code; and, if filed before the Labor Arbiter, these cases shall be
dismissed by the Labor Arbiter for lack of jurisdiction and referred to the
concerned NCMB Regional Branch for appropriate action towards an
expeditious selection by the parties of a Voluntary Arbitrator or Panel of
Arbitrators based on the procedures agreed upon in the CBA.
As earlier stated, the instant case is a termination dispute falling under the
original and exclusive jurisdiction of the Labor Arbiter, and does not specifically
involve the application, implementation or enforcement of company personnel
policies contemplated in Policy Instruction No. 56. Consequently, Policy
Instruction No. 56 does not apply in the case at bar. In any case, private
respondents never invoked the application of Policy Instruction No. 56 in
their Position Papers, neither did they raise the question in their Motion to
Dismiss which they filed nine (9) months after the filing of their Position
Papers. At this late stage of the proceedings, it would not serve the ends of
justice if this case is referred back to a Voluntary Arbitrator considering that
both the AMOSUP and private respondents have submitted to the jurisdiction of

the Labor Arbiter by filing their respective Position Papers and ignoring the
grievance procedure set forth in their CBA.
After the grievance proceedings have failed to bring about a resolution,
AMOSUP, as agent of petitioner, should have informed him of his option to
settle the case through voluntary arbitration. Private respondents, on their part,
should have timely invoked the provision of their CBA requiring the referral of
their unresolved disputes to a Voluntary Arbitrator once it became apparent
that the grievance machinery failed to resolve it prior to the filing of the case
before the proper tribunal. The private respondents should not have waited for
nine (9) months from the filing of theirPosition Paper with the POEA before it
moved to dismiss the case purportedly for lack of jurisdiction. As it is, private
respondents are deemed to have waived their right to question the procedure
followed by petitioner, assuming that they have the right to do so. Under their
CBA, both Union and respondent companies are responsible for selecting an
impartial arbitrator or for convening an arbitration committee; [30] yet, it is
apparent that neither made a move towards this end. Consequently, petitioner
should not be deprived of his legitimate recourse because of the refusal of both
Union and respondent companies to follow the grievance procedure.
WHEREFORE, the Decision of the Court of Appeals is SET ASIDE and the case
is remanded to the Labor Arbiter to dispose of the case with dispatch until
terminated considering the undue delay already incurred.
SO ORDERED.
Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.

[1]

Rollo, pp. 34-35.

Id., pp. 49-50.
[3]
Sec. 3, par. (d), of EO No. 247, the "Reorganization Act of the Philippine
Overseas Employment Administration" (24 July 1987) provides Sec. 3. Powers and Functions. - x x x x (d) Exercise original and exclusive
jurisdiction to hear and decide all claims arising out of an employee-employer
relationship or by virtue of any law or contract involving Filipino workers for
overseas employment including the disciplinary cases; and all pre-employment
cases which are administrative in character involving or arising out of violation
of requirement laws, rules and regulations including money claims arising
therefrom, or violation of the conditions for issuance of license or authority to
recruit workers x x x x
[15]
Labor Code, Art. 211, par. (a) provides that: It is the policy of the State to
promote and emphasize the primacy of free collective bargaining and
negotiations, including voluntary arbitration, mediation and conciliation, as
modes of settling labor or industrial disputes.
[2]

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 134903
January 16, 2002
UNICRAFT INDUSTRIES INTERNATIONAL CORPORATION, ROBERT DINO,
CRISTINA DINO and MICHAEL LLOYD DINO, petitioners,
vs.
THE HON. COURT OF APPEALS, VOLUNTARY ARBITRATOR FLORANTE V.
CALIPAY, DANILO ABARAO, ROGIETO ABARAO, BENJAMIN AVENTURADO,
BENIGNO BELARMINO, FELIX BRAZIL, RENATO BRIONES, RECCIL
ELCANA, ROLAND GERON, RICKY GIMENA, ROMEO INOC, NILIA
MANDAWE, ANTONIO MANGABON, AMELITO MONTELIN, MATIAS
ONGOS, ARTURO ORTEGA, ADRIANO PALO, JR., BERNARDO RAMOS,
WILMA RANILE, EDGAR RIVERA, RAFAEL RONDINA, ANILO ROSALES,
DIVINA ROSALES, ALONA SORTOES, VINCH TRUZ, WILSON VILLARTA,
EMETERIO YBAS, ROMEO ABARAO, WILFREDO ABARAO, EUGENIO
ABING, JAIME AGUSTIN, RUBEN RONDINA, LORENA
SORTOES, respondents.
RESOLUTION
YNARES-SANTIAGO, J.:
On March 26, 2001, a Decision was rendered annulling the assailed resolutions
of the Court of Appeals as well as the decision of Voluntary Arbitrator Florante
V. Calipay, and remanding the case to the Voluntary Arbitrator for reception of
evidence for petitioners.
Private respondents filed a Motion for Reconsideration1 of May 15, 2001, a
Supplemental Motion for Reconsideration2 on July 30, 2001 and a
2nd Supplemental Motion for Reconsideration3 on September 6, 2001. They
argue, in sum, that petitioners were not deprived of due process considering
that they were able to submit their position paper and supporting evidence;
and that their failure to present additional evidence was through their own fault
or inaction.1wphi1.nt
It should be stressed that the issue of whether or not petitioners were denied
due process in the proceedings before the voluntary arbitrator was laid to rest
when the parties entered into a stipulation, which the Court of Appeals
approved on April 22, 1997, wherein they agreed to remand the case to the
voluntary arbitrator "so that the petitioners will be granted their day in court to
prove their case." For reference, the stipulation is again reproduced as follows:
STIPULATION
PARTIES, through their respective counsel, unto this Honorable Court, most
respectfully stipulate:
1. Both parties desire to put an end to the litigation before this Honorable
Court, and instead refer the above-entitled case back to Voluntary Arbitrator
Florante V. Calipay for further hearing under the following terms and conditions:
a) The petitioners will put up a bond in the amount of P6.5 Million to be issued
by the Visayan Surety & Insurance Company or any other accredited bonding
company acceptable to private respondents to secure payment of the decision
dated March 15, 1997 (Annex A of the Petition) rendered by Voluntary
Arbitrator Calipay.
b) The case will be referred back to Voluntary Arbitrator Calipay so that the
petitioners will be granted their day in court to prove their case, the hearing
thereat to treat the following issues:
1. Whether or not the complainants mentioned in Exhibit J of the Decision really
filed their complaints before the NLRC;

2. Whether or not complainants were dismissed; if so, whether or not their

dismissals were valid;
3. Whether or not complainants are entitled to separation pay, money claims,
attorney's fees and litigation costs specified in the decision, Annex A of the
petition; and
4. Whether or not Robert Dino, Cristina Dino and Michael Dino can be held
liable for the claims of complainants.
WHEREFORE, premises considered, it is most respectfully prayed of this
Honorable Court to approve the foregoing Stipulation and to render a resolution
in accordance therewith.4
The proceedings, however, were not continued because Voluntary Arbitrator
Florante V. Calipay declared that he has lost jurisdiction over the case when he
rendered judgment therein.5
Worse, the Court of Appeals, in violation of the parties' aforesaid stipulation,
issued on June 18, 1998 a resolution ordering the partial execution of the
decision of the voluntary arbitrator with respect to the award of separation pay
and attorney's fees. Petitioners assail the resolution ordering the partial
execution of the decision of the voluntary arbitrator arguing that the Court of
Appeals deprived them of their day in court when it disregarded their
agreement with private respondents for the remand of the case.
In our Decision, we ordered the remand of the case to the voluntary arbitrator
for reception of evidence for the petitioners. We ruled that the award of
separation pay cannot be executed before trial is terminated since to do so
would be to preempt the proceedings before the voluntary arbitrator. It is worth
noting that the case filed was for illegal dismissal. The affirmance of the award
of separation pay would be tantamount to a judicial declaration that private
respondents were indeed illegally dismissed.
WHEREFORE, the Motion for Reconsideration, the Supplemental Motion for
Reconsideration, and the 2ndSupplemental Motion for Reconsideration
are DENIED for lack of merit. This denial is FINAL.
SO ORDERED.
Kapunan, and Pardo, JJ., concur.
Puno, J., dissenting opinion
Davide, Jr., C.J., join J. Puno in his dissent.
Footnote
1
Rollo, pp. 668-684.
2
Ibid., pp. 730-734.
3
Ibid., pp. 762-769.
4
Records, pp. 125-126.
5
Ibid., pp. 131-141.
G.R. No. 134903
January 16, 2002
UNICRAFT INDUSTRIES INTERNATIONAL CORPORATION
vs.
THE HON. COURT OF APPEALS, ET AL.
DISSENTING OPINION

PUNO, J.:
Private respondents seek the reconsideration of the Court's Decision dated
March 26, 2001 remanding the case to Voluntary Arbitrator Florante V. Calipay
for reception of evidence and further proceedings. In the Decision sought to be
reconsidered, the Court held that petitioners were deprived of due process

when the voluntary arbitrator rendered a ruling declaring that private

respondents were illegally dismissed without giving them an opportunity to
present evidence. The ruling was grounded on the fact that neither petitioners
nor their counsel were able to attend the hearing before the voluntary
arbitrator set for March 3, 1997 at 3:00 o'clock in the afternoon because they
received the notice thereof only at 4:00 o'clock in the afternoon of the same
date.
With due respect to the majority, I submit otherwise. A more prudent
examination of the records would reveal that petitioners were given ample
opportunity to present their arguments and their supporting evidence before
the voluntary arbitrator but they refused to do so.
It appears that the complaints for illegal dismissal, underpayment/nonpayment
of wages, overtime pay, holiday pay, 13th month pay and service incentive
leave were initially filed by private respondents before the National Labor
Relations Commission Regional Arbitration Branch VII (NLRC RAB), Cebu City in
July 1995.1 In November 1995, after initial hearings, the parties submitted their
position papers. Summary hearing was held and the case was submitted for
resolution. The parties were given ten (10) days to file memoranda. On October
11, 1996, Labor Arbiter Dominador Almirante issued an Order referring the case
to the National Conciliation and Mediation Board (NCMB) for voluntary
arbitration pursuant to Policy Instruction No. 56 of the Secretary of Labor dated
April 6, 1996.2
On December 19, 1996, Florante V. Calipay was designated as voluntary
arbitrator upon agreement of the parties.3
On December 27, 1996, Director Teodorico Yosores, Officer-in-Charge, NCMB
Region VII, informed Voluntary Arbitrator Calipay that he had been chosen by
both parties as their voluntary arbitrator and forwarded to him the pertinent
forms.4
On January 9, 1997, petitioners filed a motion for re-selection of voluntary
arbitrator which was heard on January 17, 1997. 5
On January 23, 1997, a hearing was conducted by Voluntary Arbitrator Calipay.
Private respondents and their counsel were present together with petitioners'
counsel. Voluntary Arbitrator Calipay issued an Order dated January 21, 1997
denying petitioners' motion for re-selection, defining the issues, and requiring
the parties to submit their respective position papers and evidence within
fifteen (15) days or up to February 7, 1997, thus:
"x x x
xxx
xxx
WHEREFORE, by virtue of the powers and duties vested upon me as voluntary
arbitrator, I hereby order both parties to submit their respective position papers
and evidence, within fifteen (15) days from today, treating the following issues:
a) whether or not the voluntary arbitrator had been validly selected by the
parties and/or whether the same arbitrator had validly assumed jurisdiction
over the case?
b) whether or not the complaining workers were legally dismissed? If not, what
are their rights and remedies under the law?
Failure of any party to submit their position paper and/or evidence within the
set period would (be) tantamount to waiver of such party to present the same.
The case shall then be considered submitted for immediate resolution based on
the (sic) what would thus far be submitted.
xxx
xxx
x x x."6
On February 10, 1997, the voluntary arbitrator issued an Order extending the
period to submit their position papers and evidence for ten (10) days or up to
February 17, 1997, with a warning that it would be the last extension. He again

advised the parties that failure to submit the required position paper and
evidence within the set period would constitute a waiver. The Order read:
"During the last hearing, this Voluntary Arbitrator granted the parties fifteen
(15) days to submit their respective position papers and all evidence they wish
to submit. This period ended on 7 February 1997. In order to afford both parties
adequate time and leeway, this Office extends such period for another ten (10)
days or up to 17 February 1997, Monday, to file the required pleadings and
evidence. In order for this arbitrator to comply with his legal duty for speedy
proceedings, this shall be the last extension.
The parties are therefore advised that failure to comply with this order and/or
failure (to) submit their position paper and evidence on the set period shall
constitute waiver to do so. No further evidence shall be received after 17
February 1997. After the extended deadline, the arbitrator shall decide whether
or not clarificatory hearing or trial is necessary. If in his judgment, none is
necessary, the case shall be declared submitted for resolution. Otherwise,
hearing shall be set, after which the case shall be considered submitted for
resolution."7
Private respondents filed their position paper and supporting evidence by mail
within the given period.Petitioners, however, failed to do so.
Nonetheless, private respondents attached to their position paper a
copy of petitioners' position paper submitted in the proceedings
before the NLRC RAB.8
On February 20, 1997, Voluntary Arbitrator Calipay conducted a hearing upon
due notice to both parties. Neither petitioners nor their counsel were
present. On the other hand, counsel for private respondents appeared and
moved for early resolution of the case.9 Thus, Voluntary Arbitrator Calipay
issued an Order dated February 24, 1997 setting another hearing for March 3,
1997 and giving petitioners up to said date within which to submit their
position paper and supporting evidence if they so desire. The Order stated:
"x x x
xxx
xxx
The respondents should have been in default already to submit any additional
pleading or evidence, the set deadline of 17 February 1997 having long
elapsed. Besides, this Office already had a copy of their position paper and
evidence they earlier filed with the NLRC RAB VII. But in the interest of justice
and equity, this Office is giving respondents up to the last hearing to submit
any if they so desire, which is set on 3 March 1997 at 3:00 P.M. at the NCMB
Region VII Office. After such last hearing, this case shall be submitted for
resolution without further delay pursuant to law.
xxx
xxx
x x x."10
During the hearing on March 3, 1997, private respondents and their counsel
were present, but again, neither petitioners nor their counsel appeared.
On March 15, 1997, the voluntary arbitrator rendered a Decision holding that
private respondents were illegally dismissed and awarding them backwages,
separation pay, money claims and attorneys fees. 11
From the foregoing, it is clear that petitioners were given reasonable
opportunity to submit their position paper and supporting evidence to
the voluntary arbitrator. The first Order directing the parties to file their
respective position papers and evidence was issued on January 23, 1997 and
they were given fifteen (15) days within which to submit the same. On February
10, 1997, the first period having lapsed, the voluntary arbitrator issued another
Order extending the period for ten (10) days. Petitioners, however, failed to
comply with the Order within the extended period. The voluntary arbitrator
nonetheless gave petitioners another chance to submit their position paper and
evidence until March 3, 1997. Despite the two extensions, petitioners still failed

to submit the required paper. They did not even offer any explanation for their
omission. In the Orders directing them to file their position papers, the parties
were warned that failure to submit the same within the given period would be
considered as waiver. Under these circumstances, petitioners cannot be
considered as having been denied due process. The essence of due process in
administrative proceedings is simply an opportunity to explain one's side or an
opportunity to seek a reconsideration of an action or ruling complained of. 12 The
foregoing narration of the proceedings before the voluntary arbitrator clearly
shows that petitioners were given an opportunity to present their evidence but
they refused to avail of this opportunity without any legal reason. Due process
is not violated where one is given the opportunity to be heard, but chooses not
to give his side.13
In truth, petitioners cannot complain that their position was never ventilated
before the arbitrator. Prior to the referral of the case to NCMB and to Voluntary
Arbitrator Calipay, the parties had submitted their position papers to the NLRC
RAB which held a summary trial. The voluntary arbitrator was furnished a copy
of the position paper submitted by petitioners to the NLRC RAB in connection
with the proceedings therein, and the former considered said position paper in
rendering his Decision. In their petition before this Court, petitioners failed to
show that they were actually prejudiced by the fact that they were not able to
file their position paper or attend the hearing before the voluntary arbitrator.
No new issues were raised before the voluntary arbitrator and the matters that
need to be resolved have been sufficiently threshed out in the proceedings
before the NLRC RAB. Thus, the fundamental rule of due process that mandates
notice and an opportunity to be heard has been sufficiently met in this case. 14
IN VIEW WHEREOF, I vote to GRANT the motion for
reconsideration.1wphi1.nt
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 142824
December 19, 2001
INTERPHIL LABORATORIES EMPLOYEES UNION-FFW, ENRICO GONZALES
and MA. THERESA MONTEJO,petitioners,
vs.
INTERPHIL LABORATORIES, INC., AND HONORABLE LEONARDO A.
QUISUMBING, SECRETARY OF LABOR AND EMPLOYMENT, respondents.
KAPUNAN, J.:
Assailed in this petition for review on certiorari are the decision, promulgated
on 29 December 1999, and the resolution, promulgated on 05 April 2000, of the
Court of Appeals in CA-G.R. SP No. 50978.
Culled from the questioned decision, the facts of the case are as follows:
Interphil Laboratories Employees Union-FFW is the sole and exclusive
bargaining agent of the rank-and-file employees of Interphil Laboratories, Inc.,
a company engaged in the business of manufacturing and packaging
pharmaceutical products. They had a Collective Bargaining Agreement (CBA)
effective from 01 August 1990 to 31 July 1993.
Prior to the expiration of the CBA or sometime in February 1993, Allesandro G.
Salazar,1 Vice-President-Human Resources Department of respondent company,
was approached by Nestor Ocampo, the union president, and Hernando
Clemente, a union director. The two union officers inquired about the stand of
the company regarding the duration of the CBA which was set to expire in a few
months. Salazar told the union officers that the matter could be best discussed
during the formal negotiations which would start soon.

In March 1993, Ocampo and Clemente again approached Salazar. They inquired
once more about the CBA status and received the same reply from Salazar. In
April 1993, Ocampo requested for a meeting to discuss the duration and
effectivity of the CBA. Salazar acceded and a meeting was held on 15 April
1993 where the union officers asked whether Salazar would be amenable to
make the new CBA effective for two (2) years, starting 01 August 1993. Salazar,
however, declared that it would still be premature to discuss the matter and
that the company could not make a decision at the moment. The very next day,
or on 16 April 1993, all the rank-and-file employees of the company refused to
follow their regular two-shift work schedule of from 6:00 a.m. to 6:00 p.m., and
from 6:00 p.m. to 6:00 a.m. At 2:00 p.m. and 2:00 a.m., respectively, the
employees stopped working and left their workplacewithout sealing the
containers and securing the raw materials they were working on. When Salazar
inquired about the reason for their refusal to follow their normal work schedule,
the employees told him to "ask the union officers." To minimize the damage the
overtime boycott was causing the company, Salazar immediately asked for a
meeting with the union officers. In the meeting, Enrico Gonzales, a union
director, told Salazar that the employees would only return to their normal work
schedule if the company would agree to their demands as to the effectivity and
duration of the new CBA. Salazar again told the union officers that the matter
could be better discussed during the formal renegotiations of the CBA. Since
the union was apparently unsatisfied with the answer of the company, the
overtime boycott continued. In addition, the employees started to engage in a
work slowdown campaign during the time they were working, thus substantially
delaying the production of the company.2
On 14 May 1993, petitioner union submitted with respondent company its CBA
proposal, and the latter filed its counter-proposal.
On 03 September 1993, respondent company filed with the National Labor
Relations Commission (NLRC) a petition to declare illegal petitioner union's
"overtime boycott" and "work slowdown" which, according to respondent
company, amounted to illegal strike. The case, docketed NLRC-NCR Case No.
00-09-05529-93, was assigned to Labor Arbiter Manuel R. Caday.
On 22 October 1993, respondent company filed with the National Conciliation
and Mediation Board (NCMB) an urgent request for preventive mediation aimed
to help the parties in their CBA negotiations.3 The parties, however, failed to
arrive at an agreement and on 15 November 1993, respondent company filed
with the Office of the Secretary of Labor and Employment a petition for
assumption of jurisdiction.
On 24 January 1994, petitioner union filed with the NCMB a Notice of Strike
citing unfair labor practice allegedly committed by respondent company. On 12
February 1994, the union staged a strike.
On 14 February 1994, Secretary of Labor Nieves Confesor issued an assumption
order4 over the labor dispute. On 02 March 1994, Secretary Confesor issued an
order directing respondent company to "immediately accept all striking
workers, including the fifty-three (53) terminated union officers, shop stewards
and union members back to work under the same terms and conditions
prevailing prior to the strike, and to pay all the unpaid accrued year end
benefits of its employees in 1993."5 On the other hand, petitioner union was
directed to "strictly and immediately comply with the return-to-work orders
issued by (the) Office x x x6 The same order pronounced that "(a)ll pending
cases which are direct offshoots of the instant labor dispute are hereby
subsumed herewith."7
In the i, the case before Labor Arbiter Caday continued. On 16 March 1994,
petitioner union filed an "Urgent Manifestation and Motion to Consolidate the

Instant Case and to Suspend Proceedings" seeking the consolidation of the case
with the labor dispute pending before the Secretary of Labor. Despite objection
by respondent company, Labor Arbiter Caday held in abeyance the proceedings
before him. However, on 06 June 1994, Acting Labor Secretary Jose S.
Brillantes, after finding that the issues raised would require a formal hearing
and the presentation of evidentiary matters, directed Labor Arbiters Caday and
M. Sol del Rosario to proceed with the hearing of the cases before them and to
thereafter submit their report and recommendation to his office.
On 05 September 1995, Labor Arbiter Caday submitted his recommendation to
the then Secretary of Labor Leonardo A. Quisumbing.8 Then Secretary
Quisumbing approved and adopted the report in his Order, dated 13 August
1997, hence:
WHEREFORE, finding the said Report of Labor Arbiter Manuel R. Caday to be
supported by substantial evidence, this Office hereby RESOLVES to APPROVE
and ADOPT the same as the decision in this case, and judgment is hereby
rendered:
(1) Declaring the 'overtime boycott' and 'work slowdown' as illegal strike;
(2) Declaring the respondent union officers namely:
Nestor Ocampo
President
Carmelo Santos

Vice-President

Marites Montejo

Treasurer/Board Member

Rico Gonzales

Auditor

Rod Abuan

Director

Segundino Flores

Director

Hernando Clemente
Director
who spearheaded and led the overtime boycott and work slowdown, to have
lost their employment status; and
(3) Finding the respondents guilty of unfair labor practice for violating the then
existing CBA which prohibits the union or any employee during the existence of
the CBA from staging a strike or engaging in slowdown or interruption of work
and ordering them to cease and desist from further committing the aforesaid
illegal acts.
Petitioner union moved for the reconsideration of the order but its motion was
denied. The union went to the Court of Appeals via a petition for certiorari. In
the now questioned decision promulgated on 29 December 1999, the appellate
court dismissed the petition. The union's motion for reconsideration was
likewise denied.
Hence, the present recourse where petitioner alleged:
THE HONORABLE FIFTH DIVISION OF THE COURT OF APPEALS, LIKE THE
HONORABLE PUBLIC RESPONDENT IN THE PROCEEDINGS BELOW, COMMITTED
GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK AND/OR EXCESS OF
JURISDICTION WHEN IT COMPLETELY DISREGARDED "PAROL EVIDENCE RULE" IN
THE EVALUATION AND APPRECIATION OF EVIDENCE PROFERRED BY THE
PARTIES.
THE HONORABLE FIFTH DIVISION OF THE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK AND/OR EXCESS OF
JURISDICTION, WHEN IT DID NOT DECLARE PRIVATE RESPONDENT'S ACT OF
EXTENDING SUBSTANTIAL SEPARATION PACKAGE TO ALMOST ALL INVOLVED
OFFICERS OF PETITIONER UNION, DURING THE PENDENCY OF THE CASE, AS
TANTAMOUNT TO CONDONATION, IF INDEED, THERE WAS ANY MISDEED
COMMITTED.

THE HONORABLE FIFTH DIVISION OF THE COURT OF APPEALS COMMITTED

GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK AND/OR EXCESS OF
JURISDICTION WHEN IT HELD THAT THE SECRETARY OF LABOR AND
EMPLOYMENT HAS JURISDICTION OVER A CASE (A PETITION TO DECLARE
STRIKE ILLEGAL) WHICH HAD LONG BEEN FILED AND PENDING BEFORE THE
LABOR ARBITER.9
We sustain the questioned decision.
On the matter of the authority and jurisdiction of the Secretary of Labor and
Employment to rule on the illegal strike committed by petitioner union, it is
undisputed that the petition to declare the strike illegal before Labor Arbiter
Caday was filed long before the Secretary of Labor and Employment issued the
assumption order on 14 February 1994. However, it cannot be denied that the
issues of "overtime boycott" and "work slowdown" amounting to illegal strike
before Labor Arbiter Caday are intertwined with the labor dispute before the
Labor Secretary. In fact, on 16 March 1994, petitioner union even asked Labor
Arbiter Caday to suspend the proceedings before him and consolidate the same
with the case before the Secretary of Labor. When Acting Labor Secretary
Brillantes ordered Labor Arbiter Caday to continue with the hearing of the
illegal strike case, the parties acceded and participated in the proceedings,
knowing fully well that there was also a directive for Labor Arbiter Caday to
thereafter submit his report and recommendation to the Secretary. As the
appellate court pointed out, the subsequent participation of petitioner union in
the continuation of the hearing was in effect an affirmation of the jurisdiction of
the Secretary of Labor.
The appellate court also correctly held that the question of the Secretary of
Labor and Employment's jurisdiction over labor and labor-related disputes was
already settled in International Pharmaceutical, Inc. vs. Hon. Secretary of Labor
and Associated Labor Union (ALU)10 where the Court declared:
In the present case, the Secretary was explicitly granted by Article 263(g) of
the Labor Code the authority to assume jurisdiction over a labor dispute
causing or likely to cause a strike or lockout in an industry indispensable to the
national interest, and decide the same accordingly. Necessarily, this authority
to assume jurisdiction over the said labor dispute must include and extend to
all questions and controversies arising therefrom, including cases over which
the labor arbiter has exclusive jurisdiction.
Moreover, Article 217 of the Labor Code is not without, but contemplates,
exceptions thereto. This is evident from the opening proviso therein reading
'(e)xcept as otherwise provided under this Code . . .' Plainly, Article 263(g) of
the Labor Code was meant to make both the Secretary (or the various regional
directors) and the labor arbiters share jurisdiction, subject to certain conditions.
Otherwise, the Secretary would not be able to effectively and efficiently dispose
of the primary dispute. To hold the contrary may even lead to the absurd and
undesirable result wherein the Secretary and the labor arbiter concerned may
have diametrically opposed rulings. As we have said, '(i)t is fundamental that a
statute is to be read in a manner that would breathe life into it, rather than
defeat it.
In fine, the issuance of the assailed orders is within the province of the
Secretary as authorized by Article 263(g) of the Labor Code and Article 217(a)
and (5) of the same Code, taken conjointly and rationally construed to subserve
the objective of the jurisdiction vested in the Secretary. 11
Anent the alleged misappreciation of the evidence proffered by the parties, it is
axiomatic that the factual findings of the Labor Arbiter, when sufficiently
supported by the evidence on record, must be accorded due respect by the
Supreme Court.12 Here, the report and recommendation of Labor Arbiter Caday

was not only adopted by then Secretary of Labor Quisumbing but was likewise
affirmed by the Court of Appeals. We see no reason to depart from their
findings.
Petitioner union maintained that the Labor Arbiter and the appellate court
disregarded the "parol evidence rule" 13when they upheld the allegation of
respondent company that the work schedule of its employees was from 6:00
a.m. to 6:00 p.m. and from 6:00 p.m. to 6:00 am. According to petitioner union,
the provisions of their CBA on working hours clearly stated that the normal
working hours were "from 7:30 a.m. to 4:30 p.m."14 Petitioner union
underscored that the regular work hours for the company was only eight (8)
hours. It further contended that the Labor Arbiter as well as the Court of
Appeals should not have admitted any other evidence contrary to what was
stated in the CBA.
The reliance on the parol evidence rule is misplaced. In labor cases pending
before the Commission or the Labor Arbiter, the rules of evidence prevailing in
courts of law or equity are not controlling.15 Rules of procedure and evidence
are not applied in a very rigid and technical sense in labor cases.16 Hence, the
Labor Arbiter is not precluded from accepting and evaluating evidence other
than, and even contrary to, what is stated in the CBA.
In any event, the parties stipulated:
Section 1. Regular Working Hours A normal workday shall consist of not more
than eight (8) hours. The regular working hours for the Company shall be from
7:30 A.M. to 4:30 P.M. The schedule of shift work shall be maintained; however
the company may change the prevailing work time at its discretion, should
such change be necessary in the operations of the Company. All employees
shall observe such rules as have been laid down by the company for the
purpose of effecting control over working hours.17
It is evident from the foregoing provision that the working hours may be
changed, at the discretion of the company, should such change be necessary
for its operations, and that the employees shall observe such rules as have
been laid down by the company. In the case before us, Labor Arbiter Caday
found that respondent company had to adopt a continuous 24-hour work daily
schedule by reason of the nature of its business and the demands of its clients.
It was established that the employees adhered to the said work schedule since
1988. The employees are deemed to have waived the eight-hour schedule
since they followed, without any question or complaint, the two-shift schedule
while their CBA was still in force and even prior thereto. The two-shift schedule
effectively changed the working hours stipulated in the CBA. As the employees
assented by practice to this arrangement, they cannot now be heard to claim
that the overtime boycott is justified because they were not obliged to work
beyond eight hours.
As Labor Arbiter Caday elucidated in his report:
Respondents' attempt to deny the existence of such regular overtime schedule
is belied by their own awareness of the existence of the regular overtime
schedule of 6:00 A.M. to 6:00 P.M. and 6:00 P.M. to 6:00 A.M. of the following
day that has been going on since 1988. Proof of this is the case undisputedly
filed by the union for and in behalf of its members, wherein it is claimed that
the company has not been computing correctly the night premium and
overtime pay for work rendered between 2:00 A.M. and 6:00 A.M. of the 6:00
P.M. to 6:00 A.M. shift. (tsn pp. 9-10, testimony of Alessandro G. Salazar during
hearing on August 9, 1994). In fact, the union Vice-President Carmelo C. Santos,
demanded that the company make a recomputation of the overtime records of
the employees from 1987 (Exh. "P"). Even their own witness, union Director
Enrico C. Gonzales, testified that when in 1992 he was still a Quality Control

Inspector at the Sucat Plant of the company, his schedule was sometime at
6:00 A.M. to 6:00 P.M., sometime at 6:00 A.M. to 2:00 P.M., at 2:00 P.M. to 10:00
P.M. and sometime at 6:00 P.M. to 6:00 A.M., and when on the 6 to 6 shifts, he
received the commensurate pay (t.s.n. pp. 7-9, hearing of January 10, 1994).
Likewise, while in the overtime permits, dated March 1, 6, 8, 9 to 12, 1993,
which were passed around daily for the employees to sign, his name appeared
but without his signatures, he however had rendered overtime during those
dates and was paid because unlike in other departments, it has become a habit
to them to sign the overtime schedule weekly (t.s.n. pp. 26-31, hearing of
January 10, 1994). The awareness of the respondent union, its officers and
members about the existence of the regular overtime schedule of 6:00 A.M. to
6:00 P.M. and 6:00 P.M. to 6:00 A.M. of the following day will be further shown in
the discussion of the second issue.18
As to the second issue of whether or not the respondents have engaged in
"overtime boycott" and "work slowdown" from April 16, 1993 up to March 7,
1994, both amounting to illegal strike, the evidence presented is equally crystal
clear that the "overtime boycott" and "work slowdown" committed by the
respondents amounted to illegal strike.
As undisputably testified to by Mr. Alessandro G. Salazar, the company's VicePresident-Human Resources Department, sometime in February, 1993, he was
approached by the union President Nestor Ocampo and Union Director
Hernando Clemente who asked him as to what was the stand of the company
regarding the duration of the CBA between the company and which was set to
expire on July 31, 1993. He answered that the matter could be best discussed
during the formal renegotiations which anyway was to start soon. This query
was followed up sometime in March, 1993, and his answer was the same. In
early April, 1993, the union president requested for a meeting to discuss the
duration and effectivity of the CBA. Acceding to the request, a meeting was
held on April 15, 1993 wherein the union officers asked him if he would agree to
make the new CBA effective on August 1, 1993 and the term thereof to be valid
for only two (2) years. When he answered that it was still premature to discuss
the matter, the very next day, April 16, 1993, all the rank and file employees of
the company refused to follow their regular two-shift work schedule of 6:00
A.M. to 6:00 P.M. and 6:00 P.M. to 6:00 A.M., when after the 8-hours work, they
abruptly stopped working at 2:00 P.M. and 2:00 A.M., respectively, leaving their
place of work without sealing the containers and securing the raw materials
they were working on. When he saw the workers leaving before the end of their
shift, he asked them why and their reply was "asked (sic) the union officers."
Alarmed by the overtime boycott and the damage it was causing the company,
he requested for a meeting with the union officers. In the meeting, he asked
them why the regular work schedule was not being followed by the employees,
and union Director Enrico Gonzales, with the support of the other union officers,
told him that if management would agree to a two-year duration for the new
CBA and an effectivity date of August 1, 1993, all employees will return to the
normal work schedule of two 12-hour shifts. When answered that the
management could not decide on the matter at the moment and to have it
discussed and agreed upon during the formal renegotiations, the overtime
boycott continued and the employees at the same time employed a work
slowdown campaign during working hours, causing considerable delay in the
production and complaints from the clients/customers (Exh. "O", Affidavit of
Alessandro G. Salazar which formed part of his direct testimony). This
testimonial narrations of Salazar was, as earlier said, undisputed because the
respondents' counsel waived his cross examination (t.s.n. p. 15, hearing on
August 9, 1994).

Aside from the foregoing undisputed testimonies of Salazar, the testimonies of

other Department Managers pointing to the union officers as the instigators of
the overtime boycott and work slowdown, the testimony of Epifanio Salumbides
(Exh. "Y") a union member at the time the concerted activities of the
respondents took place, is quoted hereunder:
"2. Noon Pebrero 1993, ipinatawag ng Presidente ng Unyon na si Nestor
Ocampo ang lahat ng taga-maintenance ng bawat departamento upang
dumalo sa isang miting. Sa miting na iyon, sinabi ni Rod Abuan, na isang
Direktor ng Unyon, na mayroon ilalabas na memo ang Unyon na nag-uutos sa
mga empleyado ng Kompanya na mag-imbento ng sari-saring dahilan para lang
hindi sila makapagtrabaho ng "overtime". Sinabihan rin ako ni Tessie Montejo
na siya namang Treasurer ng Unyon na 'Manny, huwag ka na lang pumasok sa
Biyernes para hindi ka masabihan ng magtrabaho ng Sabado at Linggo' na siya
namang araw ng "overtime" ko x x x
"3. Nakalipas ang dalawang buwan at noong unang bahagi ng Abril 1993,
miniting kami ng Shop Stewards namin na sina Ariel Abenoja, Dany Tansiongco
at Vicky Baron. Sinabihan kami na huwag ng mag-overtime pag nagbigay ng
senyas ang Unyon ng "showtime."
"4. Noong umaga ng ika-15 ng Abril 1993, nagsabi na si Danny Tansiongco ng
"showtime". Dahil dito wala ng empleyadong nag-overtime at sabay-sabay
silang umalis, maliban sa akin. Ako ay pumasok rin noong Abril 17 at 18, 1993
na Sabado at Linggo.
"5. Noong ika-19 ng Abril 1993, ako ay ipinatawag ni Ariel Abenoja Shop
Steward, sa opisina ng Unyon. Nadatnan ko doon ang halos lahat ng opisyales
ng Unyon na sina:
Nestor Ocampo
Presidente
Carmelo Santos

Bise-Presidente

Nanding Clemente

Director

TessMontejo

Chief Steward

Segundo Flores

Director

Enrico Gonzales

Auditor

Boy Alcantara

Shop Steward

Rod Abuan
Director
at marami pang iba na hindi ko na maala-ala. Pagpasok ko, ako'y pinaligiran ng
mga opisyales ng Unyon. Tinanong ako ni Rod Aguan kung bakit ako "nagovertime" gayong "Binigyan ka na namin ng instruction na huwag pumasok,
pinilit mo pa ring pumasok." "Management ka ba o Unyonista." Sinagot ko na
ako ay Unyonista. Tinanong niya muli kung bakit ako pumasok. Sinabi ko na
wala akong maibigay na dahilan para lang hindi pumasok at "mag-overtime."
Pagkatapos nito, ako ay pinagmumura ng mga opisyales ng Unyon kaya't ako
ay madaliang umalis.
xxx
xxx
xxx
Likewise, the respondents' denial of having a hand in the work slowdown since
there was no change in the performance and work efficiency for the year 1993
as compared to the previous year was even rebuffed by their witness Ma.
Theresa Montejo, a Quality Control Analyst. For on cross-examination, she
(Montejo) admitted that she could not answer how she was able to prepare the
productivity reports from May 1993 to February 1994 because from April 1993
up to April 1994, she was on union leave. As such, the productivity reports she
had earlier shown was not prepared by her since she had no personal

knowledge of the reports (t.s.n. pp. 32-35, hearing of February 27, 1995). Aside
from this admission, the comparison made by the respondents was of no
moment, because the higher production for the years previous to 1993 was
reached when the employees regularly rendered overtime work. But
undeniably, overtime boycott and work slowdown from April 16, 1993 up to
March 7, 1994 had resulted not only in financial losses to the company but also
damaged its business reputation.
Evidently, from all the foregoing, respondents' unjustified unilateral alteration
of the 24-hour work schedule thru their concerted activities of "overtime
boycott" and "work slowdown" from April 16, 1993 up to March 7, 1994, to
force the petitioner company to accede to their unreasonable demands, can be
classified as a strike on an installment basis, as correctly called by petitioner
company x x x19
It is thus undisputed that members of the union by their own volition decided
not to render overtime services in April 1993.20 Petitioner union even admitted
this in its Memorandum, dated 12 April 1999, filed with the Court of Appeals, as
well as in the petition before this Court, which both stated that "(s)ometime in
April 1993, members of herein petitioner, on their own volition and in keeping
with the regular working hours in the Company x x x decided not to render
overtime".21 Such admission confirmed the allegation of respondent company
that petitioner engaged in "overtime boycott" and "work slowdown" which, to
use the words of Labor Arbiter Caday, was taken as a means to coerce
respondent company to yield to its unreasonable demands.
More importantly, the "overtime boycott" or "work slowdown" by the
employees constituted a violation of their CBA, which prohibits the union or
employee, during the existence of the CBA, to stage a strike or engage in
slowdown or interruption of work.22 In Ilaw at Buklod ng Manggagawa vs.
NLRC ,23 this Court ruled:
x x x (T)he concerted activity in question would still be illicit because contrary
to the workers' explicit contractual commitment "that there shall be no strikes,
walkouts, stoppage or slowdown of work, boycotts, secondary boycotts, refusal
to handle any merchandise, picketing, sit-down strikes of any kind, sympathetic
or general strikes, or any other interference with any of the operations of the
COMPANY during the term of x x x (their collective bargaining) agreement."
What has just been said makes unnecessary resolution of SMC's argument that
the workers' concerted refusal to adhere to the work schedule in force for the
last several years, is a slowdown, an inherently illegal activity essentially illegal
even in the absence of a no-strike clause in a collective bargaining contract, or
statute or rule. The Court is in substantial agreement with the petitioner's
concept of a slowdown as a "strike on the installment plan;" as a willful
reduction in the rate of work by concerted action of workers for the purpose of
restricting the output of the employer, in relation to a labor dispute; as an
activity by which workers, without a complete stoppage of work, retard
production or their performance of duties and functions to compel management
to grant their demands. The Court also agrees that such a slowdown is
generally condemned as inherently illicit and unjustifiable, because while the
employees "continue to work and remain at their positions and accept the
wages paid to them," they at the same time "select what part of their allotted
tasks they care to perform of their own volition or refuse openly or secretly, to
the employer's damage, to do other work;" in other words, they "work on their
own terms." x x x24
Finally, the Court cannot agree with the proposition that respondent company,
in extending substantial separation package to some officers of petitioner union

during the pendency of this case, in effect, condoned the illegal acts they
committed.
Respondent company correctly postured that at the time these union officers
obtained their separation benefits, they were still considered employees of the
company. Hence, the company was merely complying with its legal
obligations.25 Respondent company could have withheld these benefits pending
the final resolution of this case. Yet, considering perhaps the financial hardships
experienced by its employees and the economic situation prevailing,
respondent company chose to let its employees avail of their separation
benefits. The Court views the gesture of respondent company as an act of
generosity for which it should not be punished.
WHEREFORE, the petition is DENIED DUE COURSE and the 29 December 1999
decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Davide, Jr., C .J ., Pardo, and Ynares-Santiago, JJ ., concur.
Puno, J ., on official leave.
2
Rollo, p. 45-46. The testimony of Salazar was not disputed since counsel for
the union waived his right to cross-examine the witness.
20
The sudden shift in the work schedule (from 24-hours to 16-hours) and the
failure of the employees to report for work on Saturdays was testified to by H.
Tanwangco (TSN, 03 October 1994,

FIRST DIVISION
[G.R. No. 119293. June 10, 2003]
SAN MIGUEL CORPORATION, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION, Second Division, ILAW AT BUKLOD NG
MANGGAGAWA (IBM), respondents.
DECISION
AZCUNA, J.:
Before us is a petition for certiorari and prohibition seeking to set aside the
decision of the Second Division of the National Labor Relations Commission
(NLRC) in Injunction Case No. 00468-94 dated November 29, 1994, [1] and its
resolution dated February 1, 1995[2] denying petitioners motion for
reconsideration.
Petitioner San Miguel Corporation (SMC) and respondent Ilaw at Buklod ng
Manggagawa (IBM), exclusive bargaining agent of petitioners daily-paid rank
and file employees, executed a Collective Bargaining Agreement (CBA) under
which they agreed to submit all disputes to grievance and arbitration
proceedings. The CBA also included a mutually enforceable no-strike no-lockout
agreement. The pertinent provisions of the said CBA are quoted hereunder:
ARTICLE IV
GRIEVANCE MACHINERY
Section 1. - The parties hereto agree on the principle that all disputes between
labor and management may be solved through friendly negotiation;. . . that an
open conflict in any form involves losses to the parties, and that, therefore,
every effort shall be exerted to avoid such an open conflict. In furtherance of
the foregoing principle, the parties hereto have agreed to establish a procedure
for the adjustment of grievances so as to (1) provide an opportunity for
discussion of any request or complaint and (2) establish procedure for the
processing and settlement of grievances.
xxx
xxx
xxx
ARTICLE V
ARBITRATION
Section 1. Any and all disputes, disagreements and controversies of any kind
between the COMPANY and the UNION and/or the workers involving or relating
to wages, hours of work, conditions of employment and/or employer-employee
relations arising during the effectivity of this Agreement or any renewal thereof,
shall be settled by arbitration through a Committee in accordance with the
procedure established in this Article. No dispute, disagreement or controversy
which may be submitted to the grievance procedure in Article IV shall be
presented for arbitration until all the steps of the grievance procedure are
exhausted.
xxx
xxx
xxx
ARTICLE VI
STRIKES AND WORK STOPPAGES
Section 1. The UNION agrees that there shall be no strikes, walkouts, stoppage
or slowdown of work, boycotts, secondary boycotts, refusal to handle any
merchandise, picketing, sit-down strikes of any kind, sympathetic or general
strikes, or any other interference with any of the operations of the COMPANY
during the term of this Agreement.
Section 2. The COMPANY agrees that there shall be no lockout during the term
of this Agreement so long as the procedure outlined in Article IV hereof is
followed by the UNION.[3]
On April 11, 1994, IBM, through its vice-president Alfredo Colomeda, filed with
the National Conciliation and Mediation Board (NCMB) a notice of strike,
docketed as NCMB-NCR-NS-04-180-94, against petitioner for allegedly

committing: (1) illegal dismissal of union members, (2) illegal transfer, (3)
violation of CBA, (4) contracting out of jobs being performed by union
members, (5) labor-only contracting, (6) harassment of union officers and
members, (7) non-recognition of duly-elected union officers, and (8) other acts
of unfair labor practice.[4]
The next day, IBM filed another notice of strike, this time through its president
Edilberto Galvez, raising similar grounds: (1) illegal transfer, (2) labor-only
contracting, (3) violation of CBA, (4) dismissal of union officers and members,
and (5) other acts of unfair labor practice. This was docketed as NCMB-NCR-NS04-182-94.[5]
The Galvez group subsequently requested the NCMB to consolidate its notice of
strike with that of the Colomeda group,[6] to which the latter opposed, alleging
Galvezs lack of authority in filing the same.[7]
Petitioner thereafter filed a Motion for Severance of Notices of Strike with
Motion to Dismiss, on the grounds that the notices raised non-strikeable issues
and that they affected four corporations which are separate and distinct from
each other.[8]
After several conciliation meetings, NCMB Director Reynaldo Ubaldo found that
the real issues involved are non-strikeable. Hence on May 2, 1994, he issued
separate letter-orders to both union groups, converting their notices of strike
into preventive mediation. The said letter-orders, in part, read:
During the conciliation meetings, it was clearly established that the real issues
involved are illegal dismissal, labor only contracting and internal union
disputes, which affect not only the interest of the San Miguel Corporation but
also the interests of the MAGNOLIA-NESTLE CORPORATION, the SAN MIGUEL
FOODS, INC., and the SAN MIGUEL JUICES, INC.
Considering that San Miguel Corporation is the only impleaded employerrespondent, and considering further that the aforesaid companies are separate
and distinct corporate entities, we deemed it wise to reduce and treat your
Notice of Strike as Preventive Mediation case for the four (4) different
companies in order to evolve voluntary settlement of the disputes. . . .
[9]
(Emphasis supplied)
On May 16, 1994, while separate preventive mediation conferences were
ongoing, the Colomeda group filed with the NCMB a notice of holding a strike
vote. Petitioner opposed by filing a Manifestation and Motion to Declare Notice
of Strike Vote Illegal,[10] invoking the case of PAL v. Drilon,[11] which held that no
strike could be legally declared during the pendency of preventive mediation.
NCMB Director Ubaldo in response issued another letter to the Colomeda Group
reiterating the conversion of the notice of strike into a case of preventive
mediation and emphasizing the findings that the grounds raised center only on
an intra-union conflict, which is not strikeable, thus:
xxx
xxx
xxx
A perusal of the records of the case clearly shows that the basic point to be
resolved entails the question of as to who between the two (2) groups shall
represent the workers for collective bargaining purposes, which has been the
subject of a Petition for Interpleader case pending resolution before the Office
of the Secretary of Labor and Employment. Similarly, the other issues raised
which have been discussed by the parties at the plant level, are ancillary issues
to the main question, that is, the union leadership...[12] (Emphasis supplied)
Meanwhile, on May 23, 1994, the Galvez group filed its second notice of strike
against petitioner, docketed as NCMB-NCR-NS-05-263-94. Additional grounds
were set forth therein, including discrimination, coercion of employees, illegal
lockout and illegal closure.[13] The NCMB however found these grounds to be
mere amplifications of those alleged in the first notice that the group filed. It

therefore ordered the consolidation of the second notice with the preceding one
that was earlier reduced to preventive mediation.[14] On the same date, the
group likewise notified the NCMB of its intention to hold a strike vote on May
27, 1994.
On May 27, 1994, the Colomeda group notified the NCMB of the results of their
strike vote, which favored the holding of a strike.[15] In reply, NCMB issued a
letter again advising them that by virtue of the PAL v. Drilon ruling, their notice
of strike is deemed not to have been filed, consequently invalidating any
subsequent strike for lack of compliance with the notice requirement.[16]Despite
this and the pendency of the preventive mediation proceedings, on June 4,
1994, IBM went on strike. The strike paralyzed the operations of petitioner,
causing it losses allegedly worth P29.98 million in daily lost production. [17]
Two days after the declaration of strike, or on June 6, 1994, petitioner filed with
public respondent NLRC an amended Petition for Injunction with Prayer for the
Issuance of Temporary Restraining Order, Free Ingress and Egress Order and
Deputization Order.[18] After due hearing and ocular inspection, the NLRC on
June 13, 1994 resolved to issue a temporary restraining order (TRO) directing
free ingress to and egress from petitioners plants, without prejudice to the
unions right to peaceful picketing and continuous hearings on the injunction
case.[19]
To minimize further damage to itself, petitioner on June 16, 1994, entered into a
Memorandum of Agreement (MOA) with the respondent-union, calling for a
lifting of the picket lines and resumption of work in exchange of good faith
talks between the management and the labor management committees. The
MOA, signed in the presence of Department of Labor and Employment (DOLE)
officials, expressly stated that cases filed in relation to their dispute will
continue and will not be affected in any manner whatsoever by the agreement.
[20]
The picket lines ended and work was then resumed.
Respondent thereafter moved to reconsider the issuance of the TRO, and
sought to dismiss the injunction case in view of the cessation of its picketing
activities as a result of the signed MOA. It argued that the case had become
moot and academic there being no more prohibited activities to restrain, be
they actual or threatened.[21] Petitioner, however, opposed and submitted
copies of flyers being circulated by IBM, as proof of the unions alleged threat to
revive the strike.[22] The NLRC did not rule on the opposition to the TRO and
allowed it to lapse.
On November 29, 1994, the NLRC issued the challenged decision, denying the
petition for injunction for lack of factual basis. It found that the circumstances
at the time did not constitute or no longer constituted an actual or threatened
commission of unlawful acts.[23] It likewise denied petitioners motion for
reconsideration in its resolution dated February 1, 1995.[24]
Hence, this petition.
Aggrieved by public respondents denial of a permanent injunction, petitioner
contends that:
A.
THE NLRC GRAVELY ABUSED ITS DISCRETION WHEN IT FAILED TO ENFORCE, BY
INJUNCTION, THE PARTIES RECIPROCAL OBLIGATIONS TO SUBMIT TO
ARBITRATION AND NOT TO STRIKE.
B.
THE NLRC GRAVELY ABUSED ITS DISCRETION IN WITHHOLDING INJUNCTION
WHICH IS THE ONLY IMMEDIATE AND EFFECTIVE SUBSTITUTE FOR THE
DISASTROUS ECONOMIC WARFARE THAT ARBITRATION IS DESIGNED TO AVOID.
C.

THE NLRC GRAVELY ABUSED ITS DISCRETION IN ALLOWING THE TRO TO LAPSE
WITHOUT RESOLVING THE PRAYER FOR INJUNCTION, DENYING INJUNCTION
WITHOUT EXPRESSING THE FACTS AND THE LAW ON WHICH IT IS BASED AND
ISSUING ITS DENIAL FIVE MONTHS AFTER THE LAPSE OF THE TRO.[25]
We find for the petitioner.
Article 254 of the Labor Code provides that no temporary or permanent
injunction or restraining order in any case involving or growing out of labor
disputes shall be issued by any court or other entity except as otherwise
provided in Articles 218 and 264 of the Labor Code. Under the first exception,
Article 218 (e) of the Labor Code expressly confers upon the NLRC the power to
enjoin or restrain actual and threatened commission of any or all prohibited or
unlawful acts, or to require the performance of a particular act in any labor
dispute which, if not restrained or performed forthwith, may cause grave or
irreparable damage to any party or render ineffectual any decision in favor of
such party x x x. The second exception, on the other hand, is when the labor
organization or the employer engages in any of the prohibited activities
enumerated in Article 264.
Pursuant to Article 218 (e), the coercive measure of injunction may also be
used to restrain an actual or threatened unlawful strike. In the case of San
Miguel Corporation v. NLRC,[26] where the same issue of NLRCs duty to enjoin
an unlawful strike was raised, we ruled that the NLRC committed grave abuse
of discretion when it denied the petition for injunction to restrain the union from
declaring a strike based on non-strikeable grounds. Further, in IBM v. NLRC,
[27]
we held that it is the legal duty and obligation of the NLRC to enjoin a
partial strike staged in violation of the law. Failure promptly to issue an
injunction by the public respondent was likewise held therein to be an abuse of
discretion.
In the case at bar, petitioner sought a permanent injunction to enjoin the
respondents strike. A strike is considered as the most effective weapon in
protecting the rights of the employees to improve the terms and conditions of
their employment. However, to be valid, a strike must be pursued within legal
bounds.[28] One of the procedural requisites that Article 263 of the Labor Code
and its Implementing Rules prescribe is the filing of a valid notice of strike with
the NCMB. Imposed for the purpose of encouraging the voluntary settlement of
disputes,[29] this requirement has been held to be mandatory, the lack of which
shall render a strike illegal.[30]
In the present case, NCMB converted IBMs notices into preventive mediation
as it found that the real issues raised are non-strikeable. Such order is in
pursuance of the NCMBs duty to exert all efforts at mediation and conciliation
to enable the parties to settle the dispute amicably, [31] and in line with the
state policy of favoring voluntary modes of settling labor disputes. [32] In
accordance with the Implementing Rules of the Labor Code, the said conversion
has the effect of dismissing the notices of strike filed by respondent. [33] A case
in point is PAL v. Drilon,[34] where we declared a strike illegal for lack of a valid
notice of strike, in view of the NCMBs conversion of the notice therein into a
preventive mediation case. We ruled, thus:
The NCMB had declared the notice of strike as appropriate for preventive
mediation. The effect of that declaration (which PALEA did not ask to be
reconsidered or set aside) was to drop the case from the docket of notice of
strikes, as provided in Rule 41 of the NCMB Rules, as if there was no notice of
strike. During the pendency of preventive mediation proceedings no strike
could be legally declared... The strike which the union mounted, while
preventive mediation proceedings were ongoing, was aptly described by the
petitioner as an ambush. (Emphasis supplied)

Clearly, therefore, applying the aforecited ruling to the case at bar, when the
NCMB ordered the preventive mediation on May 2, 1994, respondent had
thereupon lost the notices of strike it had filed. Subsequently, however, it still
defiantly proceeded with the strike while mediation was ongoing, and
notwithstanding the letter-advisories of NCMB warning it of its lack of notice of
strike. In the case of NUWHRAIN v. NLRC,[35] where the petitioner-union therein
similarly defied a prohibition by the NCMB, we said:
Petitioners should have complied with the prohibition to strike ordered by the
NCMB when the latter dismissed the notices of strike after finding that the
alleged acts of discrimination of the hotel were not ULP, hence not strikeable.
The refusal of the petitioners to heed said proscription of the NCMB is reflective
of bad faith.
Such disregard of the mediation proceedings was a blatant violation of the
Implementing Rules, which explicitly oblige the parties to bargain collectively in
good faith and prohibit them from impeding or disrupting the proceedings.[36]
The NCMB having no coercive powers of injunction, petitioner sought recourse
from the public respondent. The NLRC issued a TRO only for free ingress to and
egress from petitioners plants, but did not enjoin the unlawful strike itself. It
ignored the fatal lack of notice of strike, and five months after came out with a
decision summarily rejecting petitioners cited jurisprudence in this wise:
Complainants scholarly and impressive arguments, formidably supported by a
long line of jurisprudence cannot however be appropriately considered in the
favorable resolution of the instant case for the complainant. The cited
jurisprudence do not squarely cover and apply in this case, as they are not
similarly situated and the remedy sought for were different.[37]
Unfortunately, the NLRC decision stated no reason to substantiate the above
conclusion.
Public respondent, in its decision, moreover ruled that there was a lack of
factual basis in issuing the injunction. Contrary to the NLRCs finding, we find
that at the time the injunction was being sought, there existed a threat to
revive the unlawful strike as evidenced by the flyers then being circulated by
the IBM-NCR Council which led the union. These flyers categorically
declared: Ipaalala nyo sa management na hindi iniaatras ang ating Notice of
Strike (NOS) at anumang oras ay pwede nating muling itirik ang picket
line.[38] These flyers were not denied by respondent, and were dated June 19,
1994, just a day after the unions manifestation with the NLRC that there
existed no threat of commission of prohibited activities.
Moreover, it bears stressing that Article 264(a) of the Labor Code [39] explicitly
states that a declaration of strike without first having filed the required notice is
a prohibited activity, which may be prevented through an injunction in
accordance with Article 254. Clearly, public respondent should have granted
the injunctive relief to prevent the grave damage brought about by the
unlawful strike.
Also noteworthy is public respondents disregard of petitioners argument
pointing out the unions failure to observe the CBA provisions on grievance and
arbitration. In the case of San Miguel Corp. v. NLRC,[40] we ruled that the union
therein violated the mandatory provisions of the CBA when it filed a notice of
strike without availing of the remedies prescribed therein. Thus we held:
x x x For failing to exhaust all steps in the grievance machinery and arbitration
proceedings provided in the Collective Bargaining Agreement, the notice of
strike should have been dismissed by the NLRC and private respondent union
ordered to proceed with the grievance and arbitration proceedings. In the case
of Liberal Labor Union vs. Phil. Can Co., the court declared as illegal the strike

staged by the union for not complying with the grievance procedure provided in
the collective bargaining agreement. . . (Citations omitted)
As in the abovecited case, petitioner herein evinced its willingness to negotiate
with the union by seeking for an order from the NLRC to compel observance of
the grievance and arbitration proceedings. Respondent however resorted to
force without exhausting all available means within its reach. Such
infringement of the aforecited CBA provisions constitutes further justification
for the issuance of an injunction against the strike. As we said long ago:
Strikes held in violation of the terms contained in a collective bargaining
agreement are illegal especially when they provide for conclusive arbitration
clauses. These agreements must be strictly adhered to and respected if their
ends have to be achieved.[41]
As to petitioners allegation of violation of the no-strike provision in the CBA,
jurisprudence has enunciated that such clauses only bar strikes which are
economic in nature, but not strikes grounded on unfair labor practices. [42] The
notices filed in the case at bar alleged unfair labor practices, the initial
determination of which would entail fact-finding that is best left for the labor
arbiters. Nevertheless, our finding herein of the invalidity of the notices of
strike dispenses with the need to discuss this issue.
We cannot sanction the respondent-unions brazen disregard of legal
requirements imposed purposely to carry out the state policy of promoting
voluntary modes of settling disputes. The states commitment
to enforce mutual compliance therewith to foster industrial peace is affirmed by
no less than our Constitution.[43] Trade unionism and strikes are legitimate
weapons of labor granted by our statutes. But misuse of these instruments can
be the subject of judicial intervention to forestall grave injury to a business
enterprise.[44]
WHEREFORE, the instant petition is hereby GRANTED. The decision and
resolution of the NLRC in Injunction Case No. 00468-94 are REVERSED and SET
ASIDE. Petitioner and private respondent are hereby directed to submit the
issues raised in the dismissed notices of strike to grievance procedure and
proceed with arbitration proceedings as prescribed in their CBA, if necessary.
No pronouncement as to costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Carpio, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 119467
February 1, 2000
SAMAHAN NG MANGGAGAWA SA MOLDEX PRODUCTS, INC., ALEGRIA
AQUINO AND 62 OTHERS AS APPEARING IN ANNEX "A", petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER EDGARDO
MADRIAGA, MOLDEX PRODUCTS, INC. AND MR. JACINTO
UY, respondents.
PURISIMA, J.:
This is a petition for certiorari under Rule 65 of the Rules of Court seeking to
annul the Resolution,1 dated November 29, 1994, and Resolution, dated January
30, 1995, of the National Labor Relations Commission in NLRC NCR CA No.
6622-94.
The facts that matter are as follows:
In the earlier part of 1993, petitioners and private respondents negotiated for
the renewal of their Collective Bargaining Agreement ("CBA"). Due to some
economic differences, the negotiations ended in a deadlock.
On April 2, 1993, petitioners filed a notice of strike with the National
Conciliation and Mediation Board ("NCMB"). The series of conferences proved
unavailing.
On April 24, 1993, petitioner Union conducted a strike vote among its
members, and the results of the voting were thereafter conveyed to the
Alliance of Nationalist and Genuine Labor Organization ("ANGLO") for
submission to the NCMB, but for some unknown reason, the same was not
made.
On May 5, 1993, petitioners went on strike without the report of the strike vote
submitted to the NCMB.
On June 17, 1993, private respondents filed a "Petition to Declare Strike Illegal
and Authorize Dismissal of the Officers and Other Employees for Illegal
Acts"2 with the National Labor Relations Commission ("NLRC"). The petition
alleged that the petitioners barricaded the three gates of private respondent
(Moldex) and committed acts of violence, threats and coercion. Docketed as
NLRC-NCR Case No. 00-06-04019-93, the petition was raffled to Labor Arbiter
Edgardo M. Madriaga ("LA Madriaga"). A Temporary Restraining Order ("TRO")
was later issued.
After efforts to reach an amicable settlement failed, trial on the merits was
conducted, with the private respondents presenting their own witnesses and
evidence. Petitioners did not present any witness but instead, relied on their
Memorandum, contending that the private respondents' pieces of evidence are
inadmissible, for being hearsay, and that the pictures presented were neither
identified nor authenticated by the photographer or an eyewitness.1wphi1.nt
On March 7, 1994, Labor Arbiter Madriaga came out with a Decision, 3 disposing
thus:
WHEREFORE, premises considered, the strike staged by respondents is hereby
declared illegal for the aforementioned reasons, as a result of which the union
officers, to wit:
Peter Nudalo

President

David Pastor

Vice-President

Alejandro Cabatingan

Secretary

Cipriano Selerio

Auditor

Wilfredo Uy

Treasurer

Jose Matining

P.R.O.

Clemente Ramos

Chairman of the Board

Rico Subion

Member of the Board

Maximino Villaverde

Member of the Board

Generoso Calalo

Member of the Board

Peter Lito Semillano

Member of the Board

Stephen Landong

Member of the Board

Henry Calero

Shop Steward

Nestor Obado

Shop Steward

Igmedio Espesor

Shop Steward

Eduardo Pastoril

Shop Steward

Ronaldo Nerbiol

Shop Steward

Nestor Samantilla

Shop Steward

Arceslo Barcelona

Shop Steward

Celso Rodriguez

Shop Steward

and individual respondents who committed prohibited acts in the course of the
strike, to wit: A. Mararac, W. Guzman, R. Corpuz, N. Flores, E. Rambaoa, O.
Martinez, J. Casim, S. Bergonia, L. Aquino, M. Munoz, M. Legaspi, A. Ebrado, E.
Caballero, J. Aguilar, B. Blace, P. Candado, C. Burato, V. dela Pena, L. Gaurino, J.
Pacaldo, L. Daleon, G. Francisco, E. Blace, M. Jacobo, L. Dumaguin, J. Lumaban,
F. Mendoza, R. Canones, R. Dumlao, J. Siccuan, L. Dumlao, L. Mararac, A.
Labitan, D. Laguit, C. Villaviza, E. Viray, W. Dimailig, R. Ang, B. Llanos, F.
Basilan, M. Tugadi, L. Villanueva and J. Mansion are hereby declared to have
validly forfeited their employment status.
The rest of the striking workers, including those who were identified in
petitioner's affidavits and/or photographs, but were not formally impleaded as
party respondents are hereby ordered reinstated without backwages.
Respondents are hereby ordered to remove all obstructions barring free ingress
to and egress from company premises.
SO ORDERED.
Petitioners appealed to the NLRC which, in its Resolution 4 promulgated on
November 22, 1994, held:
We remand.
From our perusal of the records, it has dawned on Us that both parties were not
able, for reasons and/or causes known only to them, to submit crucial evidence
in support of their respective contentions. On the part of the petitioner, no

evidence is there to support its claim that the individual respondents were sent
notices. Considering the impact of a declaration of illegality of strike, the
forfeiture of employment, extra caution must be taken by the Labor Arbiter in
this regard.
As it appears that respondents are insistent in their posture that a strike vote
had been conducted and and [sic] the same is in the custody of the federation,
We are inclined to the view that, in keeping with the principles of fair play and
equity, respondents be extended a final opportunity to produce the strike vote
and the results thereof in evidence before the Labor Arbiter of origin. This, to
Us, is the equitable measure to take under the circumstances.
Pending resolution, complainant-appellee filed a Motion to Delete Names. Let
the same incident be remand [sic] for appropriate action.
WHEREFORE, the decision appealed from is hereby vacated and set aside, and
the case remanded to the Labor Arbiter for further proceedings.
SO ORDERED.
Petitioners presented a Motion for Reconsideration of the aforesaid Resolution
on the grounds that a full-blown trial was already conducted and that a remand
will only delay the case, but the NLRC denied the same. Forthwith, petitioners
found their way to this Court via the present petition, anchored on the grounds
that:
THE PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION IN RESOLVING TO REMAND
THE CASE TO THE ARBITER OF ORIGIN AS THE REQUIREMENTS OF
PROCEDURAL DUE PROCESS HAD BEEN COMPLIED WITH.
THE PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION IN RESOLVING TO REMAND
THE CASE FOR FURTHER PROCEEDINGS CONFLICTING VERSIONS OF FACTUAL
MATTERS.
The Solicitor General, for his part, raised the additional issue of:
WHETHER OR NOT THE STRIKE CONDUCTED BY PETITIONERS WAS ILLEGAL.
After a studied review of the attendant facts and study of the applicable law in
the case, the Court is of the opinion, and so holds, that the public respondent
committed grave abuse of discretion in remanding the case to the labor arbiter
of origin for further reception of evidence. Reception of evidence would be a
futile exercise considering that the facts are already clear and complete, and
would not alter the outcome of the case.
It has been shown that the results of the strike-vote were never forwarded to
the NCMB, as admitted by petitioners themselves and as attested to by a
Certification of Non-Submission of Strike Vote issued by the NCMB. 5 There is
thus no need for additional evidence on the matter, as it would not change the
fact that the results of the strike-vote were not submitted to the NCMB. Without
the submission of the results of the strike-vote, the strike was illegal, pursuant
to Article 264 of the Labor Code, which reads:
Art. 264. Prohibited activities. (a) No labor organization or employer shall
declare a strike or lockout without first having bargained collectively in
accordance with Title VII of this Book or without first having filed the notice
required in the preceding Article or without the necessary strike or lockout vote
first having been obtained and reported to the Ministry.
xxx
xxx
xxx
Any worker whose employment has been terminated as a consequence of an
unlawful lockout shall be entitled to reinstatement with full back wages. Any
union officer who knowingly participates in a illegal strike and any worker or
union officer who knowingly participates in the commission of illegal acts
during a strike may be declared to have lost his employment status: Provided,

That mere participation of a worker in a lawful strike shall not constitute

sufficient ground for termination of his employment, even if a replacement had
been hired by the employer during such lawful strike.
Neither is there any need to remand the case to determine whether petitioners
were sent notices or copies of the petition and whether the service of a copy of
private respondent's (Moldex) formal offer of evidence with the federation,
ANGLO, instead of petitioners' counsel, was valid. In their Memorandum
(paragraph 31), petitioners deny ever making such a claim. And if ever they
made such claim, they are now waiving such irregularity, dispensing with the
need of resolving the same.
It is therefore established that the result of the strike-vote was not submitted to
the NCMB making the strike staged by petitioners illegal, in accordance with
Article 264 of the Labor Code.
The requirements of procedural due process had been complied with.
Petitioners and private respondents were allowed to present their witnesses
and evidence. Private respondents presented their witnesses, while petitioners
did not, opting instead to file a Memorandum, challenging the admissibility of
private respondents' pieces of evidence. So long as a party is given an
opportunity to be heard and to submit his evidence, the requirements of
procedural due process are complied with.6
Anent the Solicitor General's stance that the strike conducted by petitioners
was illegal, the records of the case and the proceedings before Labor Arbiter
Madriaga confirm the same. Aside from not submitting the result of the strikevote to the NCMB, petitioners also committed acts of violence, threats, coercion
and intimidation during the strike. As found by Labor Arbiter Madriaga:
But even going into the merits of the case, petitioner has established by
substantial evidence on record that respondents totally blocked free ingress to
and egress from petitioner's premises and committed illegal acts of violence,
threats, coercion and intimidation in the course of their strike.
The affidavits of the witnesses of respondents which they offered during trial
are as follows:
Edwin Bayan averred in his Affidavit that on June 11, 1993 he saw A. Mararac
holding a Molotov; that W. Guzman, R. Corpuz, N. Flores, D. Rombaoa, O.
Martinez and J. Casim threw stones at company vehicles containing employees
who wanted to report for work; and that on June 11 and June 14, 1993 the
following employees formed a human barricade which prevented employees
who wished to work from entering the premises, to wit: S. Bergonia, L. Aquino,
M. Munoz, R. Corpuz, one Mararac, N. Flores, M. Legaspi, J. Matining, A. Ebrado,
E. Caballero, R. Subion, J. Aguilar, I. Espesor, B. Blace, P. Candado, C. Burato, V.
dela Pea, P. Nudalo, L. Gaurino, L. Dumlao, J. Pacaldo, L. Daleon, one Francisco,
D. Pastor, E. Blace, O. Martinez, M. Jacobo, L. Dumaguin, J. Lumaban, F.
Mendoza, R. Canones, H. Calero, M. Villaverde, R. Dumlao, J. Siccuan, E.
Rombaoa, L. Mararac, S. Landong, W. Guzman, A. Mararac; S. Bergonia, C.
Rodriguez, A. Labitan, J. Casim, N. Obado, D. Laguit and C. Villaviza.
Mr. Libio B. Cruz, Jr. in his sworn affidavit alleged that on June 15, 1993,
Emmanuel Viray, Cristito Burato, Pascual Capangpangan and Maximino
Villaverde threw stones at the Injection and Films & Sheets Building breaking
the window panes and resulting in the filing of criminal cases before the
Prosecutor's Office at Valenzuela; and that Engineering Supervisor Fidel
Santiago was threatened by Peter Nudalo, Francisco Basilan, David Pastor and
Leonardo Gaurino resulting in the filing of a criminal complaint for Grave
Threats before the Prosecutor's Office at Valenzuela.

Guillermo Tadeo Banag averred in his affidavit that he was coerced by Union
President Pedro Nudalo to stop working and that Jaime Mansion switched off the
circuit breaker to render company machines inoperable.
Oliver Salamera and Juancho Sacro alleged in their Joint Affidavit on May 5,
1993 that Union Officers Nudalo, Landong, Ramos, Semillano, Subion and
Cabatingan coerced them to stop working, barricaded the gates and prohibited
them from returning to work.
Nicolas Bauto and Joselito Custodio in their Joint Affidavit alleged that they were
threatened with bodily harm by union officers and members forcing them to
leave the plant for fear of bodily harm.
The sworn allegations of the foregoing affidavits who all took the witness
stands were corroborated by the photographs submitted by petitioner in
evidence and which were not rebutted by respondents, to wit:
Exhibit "1" is a blow-up photograph showing wooden planks and tent
obstructing the company gate and Maysan Road leading to the company
premises.
Exhibits "2" and "3" show that hollow blocks were stacked and tents built
across the gate.
Exhibits "4" to "9" show security guards dismantling obstructions built by
respondents across the company gates, pursuant to the TRO issued by the
Commission in the Injunction case filed by petitioner.
Exhibits "10" to "16" show a human blockade barring a bus carrying other
employees who wanted to report for work from entering company premises.
In picture No. 21 of Exhibit "11" and pictures 26 to 29 of Exhibits "12" to "15",
those strikers who prevented the bus from carrying workers who wanted to
report for work were identified in the Formal Offer of Evidence as Jerry
Lumaban, Celso Rodriguez, Bernard Llanos, Cristito Burato, Jerry Aguilar, Rico
Subion, Rufino Ang, Pete Lito Semillano, Sonny Bergonia, Jaime Mansion, Edwin
Almonte, Margarito Legaspi, Reynaldo Corpuz, Wilfredo Dimailig, David Pastor,
Clemente Ramos, Leonardo Gaurino, Leonardo Villanueva, Edmund Arcena,
Stephen Landong, Willy Guzman, Maximino Villaverde, Generoso Calalo,
Igmedio Espesor, Diomar Serafica, John Nero Pacaldo, Joselito Munoz,
Cristopher Lias and Antonio Awalay.
Exhibit "17" shows two strikers about to throw stones, identified in the Formal
Offer of Evidence as Stephen Landong and Jimmy Casim.
Exhibit "18" shows a flat tire of the bus caused by strikers, and Exhibits "19",
"20" and "21" show the broken windows of the bus which was barred by strikers
from entering company premises.
Exhibits "22" to "30" showed that the strikers used a human blockade, wooden
posts and threw big stones and rocks to bar a bus from entering the company
premises.
Picture No. 14 of Exhibit "22", picture No. 5 of Exhibit "23" reveal that the
strikers who prevented a bus carrying employees who wanted to report for
work on June 14, 1993 are Stephen Landong, Emerson Rombada, George
Francisco, Nicasio Flores, Julieto Albania, Arnel John Santos, Willy Guzman,
Elvira Caballero, Alfredo Viernes, Elecito Blanco, Vicleo dela Pea, Cesario
Villaviza, Leonardo Villanueva, Loreto Mararac, Celestino del Rosario, Alegria
Aquino and Leonardo de Leon.
Exhibits "31" to "34" show that the strikers used big stones, rocks, wooden
materials and GI sheets along Maysan Road leading to the company gates
which made the road impassable.
All the foregoing evidence undoubtedly prove that indeed respondents blocked
free ingress to and egress from the company premises by way of physical

obstructions, human blockades, acts of violence, coercion, threats and

intimidation.7
It bears stressing that factual findings of labor officials are conclusive and
binding on the Supreme Court when supported by substantial evidence. 8 After
going over the records on hand, the Court discerns no ground for disturbing the
above-quoted findings of Labor Arbiter Madriaga as the same are basically
supported by substantial evidence and his conclusion accords with law.
With respect to petitioners' allegation that the testimonies of the private
respondents' witnesses were hearsay and that the pictures presented during
trial were not authenticated or identified, the same is without merit. Technical
rules of procedure are not binding in labor cases. 9 The application of technical
rules of procedure may be relaxed to serve the demands of substantial
justice.10
In fine, the Court holds that there is no need to remand this case to the Labor
Arbiter for further proceedings, as the facts are clear and complete on the basis
of which a decision can be made. Furthermore, the decision of Labor Arbiter
Madriaga is supported by substantial evidence and is in accordance with law.
WHEREFORE, the assailed Resolutions, dated November 29, 1994 and January
30, 1995, respectively, of the Second Division of the National Labor Relations
Commission in NLRC NCR CA No. 6622-94 are SET ASIDE; and the strike staged
by petitioners declared ILLEGAL, with the FORFEITURE of the employment
status of the petitioners, Peter Nudalo, David Pastor, Alejandro Cabatingan,
Cipriano Seleria, Wilfredo Uy, Jose Matinig, Clemente Ramos, Rico Subion,
Maximino Villaverde, Generoso Calalo, Peter Lito Samillano, Stephen Landong,
Henry Calero, Nestort Obado, Igmedio Espesor, Eduardo Pastoril, Ronaldo
Nerbiol, Nestor Samantilla, Arceslo Barcelona, Celso Rodriguez, A. Mararao W.
Guzman, R. Corpus, L. Aquino, M. Munoz, M. Legaspi, A. Ebrao, E. Caballero, J.
Aguilar, B. Blace, P. Candado, C. Burato, V. dela Pena, L. Gaurino, J., Pacaldo, L.
Daleon, G. Francisco, E. Blace, M. Jacob, L. Dumaguin, J. Lumaban, F. Mendoza,
R. Cannes, R. Dumlao, J. Siccuan, L. Dumlao, L. Mararac, A. Latitan, D. Laguit, C.
Villaviza, E. Viray, W. Dimailig, R. Ang, B. Llanos, F. Basilan, M. Tugadi and L.
Villanueva UPHELD. No pronouncement as to costs.
SO ORDERED.1wphi1.nt
Melo, Vitug, Panganiban and Gonzaga-Reyes, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 102672 October 4, 1995
PANAY ELECTRIC COMPANY, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, FOURTH DIVISION AND
PANAY ELECTRIC COMPANY EMPLOYEES AND WORKERS
ASSOCIATION, respondents.
VITUG, J.:
In this petition for certiorari, petitioner Panay Electric Company, Inc., seeks to
set aside the questioned resolution of the National Labor Relations Commission
("NLRC") in granting separation benefits to Enrique Huyan and Prescilla Napiar,
in awarding moral and exemplary damages to Enrique Huyan, and in merely
sanctioning the suspension, instead of terminating the employment status, of
other officers and members of respondent labor union.
Here following is a factual backdrop of the case.
On 30 October 1990, petitioner Panay Electric Company, Inc., posted in its
premises a notice announcing the need for a "Report Clerk" who could assume
the responsibility of gathering accounting and computer data at its power
plant. The position was open to any employee, "with Pay Class V," of petitioner
company. When nobody applied for the position, the EDP/Personnel Manager
recommended Enrique Huyan who was at the time an Administrative Personnel
Assistant at the head office. Huyan was then also a Vice President of
respondent union. The recommendation was approved by the company's
President and General Manager.
In a letter, dated 09 November 1990, Enrique Huyan informed petitioner that
he was not interested in accepting the new position. He gave the following
reasons:
a. The manner or procedure of implementing this notice of transfer is skeptical
since from Administrative Personnel Assistant to Report Clerk is apparently a
demotion in my part.
b. The position of Report Clerk is Pay Class III per our Organizational Chart.
c. Being the Vice-President of PECEWA, my transfer would certainly hinder my
function in settling labor matters and other problems with other PECEWA
Officers.
d. Currently, the activation of geothermal power plant in Palimpinon, Negros
had gave rise to additional displaced workers in which my transfer would be
another onus to the Power Plant supervisor and my lack of technical knowhow, I
presumed would obstruct the flow of operation in the said department. 1
On 20 November 1990, the EDP/Personnel Manager required Huyan to explain
within 48 hours why no disciplinary action should be taken against him for
gross insubordination and for failure to follow the General Manager's approved
directive. Eventually, on 03 December 1990, Huyan was given a "notice of
dismissal" for:
1. Failure to comply with the GM's general directive of 11/9/90 to a new
assigned task in the Power Plant;
2. Failure to comply with your direct superior's (AO) verbal directive to proceed
to the Power Plant 11/10/90 & 11/19/90;
3 Failure to comply with the undersigned's, as personnel manager, verbal
directive to proceed to the Power Plant last 11/16/90;

4. Continued & unauthorized entry & use of the Personnel Section & property
from 11/16/90 up to the present; (and)
5. Failure to report to your assigned task in the Power Plant for a period of more
than seven consecutive days from November 16, 1990 up to the present. 2
An administrative investigation was conducted; thereafter, Huyan was ordered
dismissed effective 10 December 1990.
Respondent union, on 20 December 1990, filed a notice of strike. On 02 January
1990, a strike vote was taken where 113 out of 149 union members voted; the
result showed 108 "yes" votes, 1 "no" vote, and 4 abstentions. On 22 January
1991, the union went on strike. Forthwith, the company filed a petition to
declare the strike illegal. On 25 January 1991, upon receipt of an order from the
Secretary of Labor and Employment certifying the dispute to the NLRC, the
union lifted its strike and, on the day following, the striking employees,
including Huyan, reported for work.
In its position paper and memorandum before the NLRC, the union averred that
the real reason for ordering the transfer of Huyan was to penalize him for his
union activities, particularly for being the suspected "Mao," author of the
column "Red Corner," in the Union's New Digest which featured an item on
alleged wrongdoings by top company officials at the power plant; that in a
letter, dated 10 October 1990, addressed by the Company's Operation Manager
to the General Manager, it was suggested that an investigation of "Mao's" real
identity be conducted and, once ascertained, to have him dismissed from the
company; that the company had singled out Huyan for transfer to the power
plant; that the Personnel Manager's recommendation for such transfer was
made without Huyan's prior knowledge; that upon learning of his impending
reassignment, Huyan requested for a reconsideration but the Personnel
Manager did not bother to reply, that the transfer of Huyan was a demotion;
and that, per the Company's Code Offenses, the "insubordination" charged was
punishable with dismissal only after a fourth commission of the offense.
Petitioner company, in turn, maintained that Huyan's inexplicable refusal to
assume his new position was an act of insubordination for which reason he was
aptly dismissed; that the company's directive was a valid exercise of
management prerogative; that in declaring a strike, the Union, including its
officers and members, committed a serious breach of the "no strike, no lock out
clause," of the Collective Bargaining Agreement ("CBA"); and that during the
strike, illegal acts were committed by the union officers and members, e.g.,
a) . . . union director Rey Espinal blocked the service vehicle of PECO collectors
Domingo Tabobo and James Russel Balin, hurled invectives at them and
challenged them to fight.
b) . . . union (vice-president) Prescilla Napiar, together with union member Ma.
Teresa Cruz approached PECO messenger Douglas Legada . . . and snatched
from him the envelope containing . . . passbooks.
c) when PECO employees Carlos Miguel Borja and Joemar Paloma were on their
way to deliver bank passbook to PECO messengers riding in the car of Willy
Hallares, union (vice-president) Prescilla Napiar blocked their way at the gate
and demanded that the car be inspected for PECO bills. An unidentified union
member placed a big stone against the right front tire. Union auditor, Allen
Aquino insisted on inspecting the glove compartment of the car. 3
The NLRC, in its resolution of 18 October 1991, concluded:
WHEREFORE, in view of all the foregoing, we resolve as follows:
1. We find the strike conducted by the Union from January 22 to 25, 1991 to be
illegal as the same was staged in violation of the no strike, no lock-out clause in
the Collective Bargaining Agreement existing between the parties and also
because the same disregarded the grievance procedure.

2. Enrique Huyan and Prescilla Napiar are deemed to have lost their
employment status but they shall be entitled to separation benefits under the
CBA, or one (1) month pay for every year of service, whichever is higher.
Further, Enrique Huyan shall be paid the wages withheld from him, moral
damages in the sum of TWENTY FIVE THOUSAND (P25,000.00) PESOS and
exemplary damages in the amount of TEN THOUSAND (P10,000.00) PESOS.
3. Rey Espinal and Allen Aquino are penalized by suspension for THREE (3)
months.
4. The other officers of the Union, namely: Nieva Glenna Abeto, Noel Orquinaza,
Alex Atutubo, Federico Anatado, and Efren Lopez are penalized with suspension
for ONE (1) month.
No pronouncement as to costs.
SO ORDERED. 4
Petitioner assails NLRC's decision insofar as it has adjudged monetary awards
to private respondents Huyan and Napiar and in not sanctioning the dismissal
of other union officers and members.
We begin by restating the well-settled rule that the findings of fact of the NLRC,
except when there is a grave abuse of discretion committed by it, are
practically conclusive on this Court. 5 It is only when NLRC's findings are bereft
of any substantial support from the records that the Court can step in and
proceed to make its own and independent evaluation of the facts.
In rejecting petitioner's theory, the NLRC, in a carefully considered assessment,
said:
The company's contention that the decision to transfer Huyan was done in the
normal course of business cannot be sustained in the light of the attendant
circumstances.
We note that the request of the Company's Operations Manager which was
used as the basis for Huyan's transfer was made as early as June 18, 1990 but
it was acted only on October 15, 1990 as shown by the handwritten notations
thereon changing the designation of Computer Data Clerk to Report Clerk.
Perhaps, it may only be a pure coincidence that such action came a few days
after the Operations Manager made a strong recommendation to the General
Manager to investigate and find out who "MAO" is and to have him dismissed.
The company argues that, contrary to the Union's claim, Huyan was not being
singled out as shown by the fact that there was an announcement posted in all
bulletin boards of the Company inviting applications for the position of Report
Clerk at the power plant. On its face, this circumstance may indeed show bona
fides on the part of the Company. However, the announcement limited those
who are qualified to employees in the Pay Class V only and there were only 6 or
7 employees in the entire work force that can qualify. Again, maybe it is purely
coincidental that Enrique Huyan was one of those in the Pay Class V. The point
is, what is the logic and rationale behind posting a general announcement
when the Company fully knows that only 6 or 7 out of over a hundred
employees can qualify? To Our mind, the posting of the announcement stands
out as evidence of the Company's attempt to camouflage its plan to target
Huyan. Not only that, even the Company's EDP/Personnel Manager admitted in
his testimony that only Huyan had the best qualifications among the Pay Class
V employees, thus:
xxx xxx xxx
The conclusion is irresistible that even before the announcement was posted,
the Company, or at least the EDP/Personnel Manager, knew that it was Huyan
who will be transferred. After all, when the Company limited the choice to the
Pay Class V employees, it can be assumed that the Company had already
reviewed their qualifications.

That indeed the plan was directed against Huyan is made more evident by the
fact that the EDP/Personnel Manager did not even discuss the matter of the
transfer with Huyan before, and even after, making his recommendation. This
circumstance does not exactly speak well of the way the personnel policies of
the company is being managed. It simply shows that the concern for the wellbeing and welfare of its employees is sorely lacking. It reduces the employees
to mere pawns that can be sacrificed whenever the Company or its managers
feel like it. We cannot understand why the Company will dispensed with this
elementary courtesy on a very important matter affecting the work and even
the future of the employee. This, by itself, is more than sufficient evidence to
show the arbitrariness of the Company's decision to transfer Huyan.
We cannot also blame Huyan if he felt, at that time, that he was being
demoted. The announcement did not state that the position of Report Clerk
which was formerly Pay Class III had already been upgraded to Pay Class V. Of
course, it may be argued that because only those employees with Pay Class V
are qualified it follows that the position of Report clerk must be at least Pay
Class V. However, it is the Company's fault that it did not clarify this matter in
the announcement. Perhaps had the EDP/Personnel Manager discussed the
matter with Huyan before reassigning the latter, the misunderstanding could
have been avoided. In fact, from Huyan's letter to the EDP/Personnel Manager,
it can be deduced that he did not know about the upgrading of the position.
The least that the EDP/Personnel Manager could have done was to clarify the
matter upon receipt of Huyan's letter. However, it would appear that the
EDP/Personnel Manager was concerned of enforcing his recommendation to
transfer Huyan more than anything else.
As to the subsequent dismissal of Huyan, the grounds therefor arose out of the
disputed transfer. There was never any official written notice addressed to
Huyan concerning his reassignment. The Company's evidence consists simply
of the approved Memorandum from the EDP/Personnel Manager to the General
Manager, a copy of which was furnished to the Union and Huyan. Why no
official notice was ever given to Huyan baffles Us. Even granting for the sake of
argument that such is a mere formality, it betrays the insensitivity of the
Company for its employee for it expects him to rely on and act upon a piece of
paper that is not even addressed to him. Circumstances like this, no matter
how trivial, indicate the propensity of the Company to disregard the feelings of
its employees. To top it all, the Company saw no need to respond to Huyan's
letter for reconsideration which was courteous and respectful.
We grant that Huyan did not comply with the directives of the EDP/Personnel
Manager to transfer. However, We find that his refusal to do so was not without
reason or justification. As We see it, Huyan did not have it in his mind to be
defiant, otherwise he would not have written his superior seeking
reconsideration. He had to stand up for his rights and rightly so, considering the
treatment he received. To Our mind, therefore, in the context of the antecedent
circumstances there was no serious misconduct or willful disobedience
committed by Huyan that would warrant his dismissal. It is as if he was
provoked into resisting by what he believed was an affront to his dignity as a
union officer and as a human being. Neither could there be abandonment, as
this concept is understood in termination disputes.
Be that as it may, we cannot sustain the charge of unfair labor practice against
the Company. As admitted by Huyan and the Union, the principal cause behind
this controversy is the Company's suspicion that Huyan was "MAO." That Huyan
was the Union vice-president was purely incidental. Put in another way, any
employee who was suspected of being "MAO" would have been the object of
the Company's moves, irrespective of whether that employee is a union officer

or not. Huyan was not pinpointed because he was a union officer or because
the Company is anti-union but rather because of the suspicion that he wrote
the column that caught the ire of the company's Operations Manager. No
matter how detestable, the resultant moves of the company cannot be
considered unfair labor practice.
On the basis of the foregoing, we rule that while the conduct of the company
cannot be strictly considered an unfair labor practice, still, the exercise of its
management prerogative cannot be sustained. The dismissal of Enrique Huyan,
is illegal. Ordinarily, when there is a finding of illegal dismissal, under Article
279 of the Labor Code, the employee is entitled to reinstatement and the
payment of his backwages. However, in the case at bar, we are of the opinion
that reinstatement cannot be ordered not only because of the strained
relationship between the parties herein but also because Huyan's conduct as a
union officer leaves much to be desired . . . .
xxx xxx xxx
Considering also the motivations and actuations of the company in
orchestrating the transfer and dismissal of Huyan, we shall award Moral
Damages in the sum of TWENTY FIVE THOUSAND (P25,000.00) PESOS, and
Exemplary Damages in the amount of TEN THOUSAND (P10,000.00) PESOS.
After all Huyan's dismissal was tainted with bad faith and the motive of the
Company for dismissing Huyan was far from noble as shown by the
circumstances surrounding the dismissal. The Company and its managers are
admonished to change their attitude and manner in dealing with their
employees, especially in matters such as this.
xxx xxx xxx
. . . The absence of good faith or the honest belief that the company is
committing Unfair Labor Practice, therefore, is what inclines us to rule that the
strike conducted by the union from January 22 to 25, 1991 is illegal for being in
violation of the "no strike, no lock-out" proviso and the failure to bring the
Union's grievance under the grievance procedure in the CBA. 6
The State guarantees the right of all workers to self-organization, collective
bargaining and negotiations, as well as peaceful concerted activities, including
the right to strike, in accordance with law. 7 The right to strike, however, is not
absolute. It has heretofore been held that a "no strike, no lock-out" provision in
the Collective Bargaining Agreement ("CBA") is a valid stipulation although the
clause may be invoked by an employer only when the strike is economic in
nature or one which is conducted to force wage or other concessions from the
employer that are not mandated to be granted by the law itself. 8 It would be
inapplicable to prevent a strike which is grounded on unfair labor practice. In
this situation, it is not essential that the unfair labor practice act has, in fact,
been committed; it suffices that the striking workers are shown to have acted
honestly on an impression that the company has committed such unfair labor
practice and the surrounding circumstances could warrant such a belief in good
faith. 9
In the instant case, the NLRC found Enrique Huyan and Prescilla Napiar, the
"principal leaders" of the strike, not to have acted in good faith. The NLRC said:
It is bad enough that the Union struck despite the prohibition in the CBA. What
is worse is that its principal leaders, Napiar and Huyan, cannot honestly claim
that they were in good faith in their belief that the Company was committing
unfair labor practice. The absence of good faith or the honest belief that the
Company is committing Unfair Labor Practice, therefore, is what inclines us to
rule that the strike conducted by the Union from January 22 to 25, 1991 is
illegal for being in violation of the "no strike, no lock-out" proviso and the
failure to bring the union's grievances under the grievance procedure in the

CBA. It must be borne in mind that prior to the dismissal of Huyan, there was
sufficient time to have the matter of Huyan's transfer subjected to the
grievance procedure. That the Union considered the procedure an exercise in
futility is not reason enough to disregard the same given the circumstances in
this case. Whatever wrong the Union felt the Company committed cannot be
remedied by another wrong on the part of the Union. 10
Given its own above findings, the NLRC's grant of separation benefits and
damages to Huyan and Napiar would indeed appear to be unwarranted. Article
264, Title VIII, Book V, of the Labor Code provides that "(a)ny union officer
who knowingly participates in an illegal strike and any worker or union officer
whoknowingly, participates in the commission of illegal acts during a strike may
be declared to have lost his employment status."
In the case of the other union officers, however, the NLRC, having found no
sufficient proof to hold them guilty of "bad faith" in taking part in the strike or
of perpetrating "serious disorders" during the concerted activity, merely
decreed suspension. We see no grave abuse of discretion by the NLRC in this
regard and in not thus ordering the dismissal of said officers.
Finally, in the case of Huyan, we sustain the NLRC in holding that he, during the
period of his illegal suspension(from 09 November 1990 when he was
effectively suspended until 25 January 1991 when he, along with the striking
employees, were directed by the Secretary of Labor and Employment to return
to the work premises), should be entitled to back salaries and benefits plus
moral damages, but in the reduced amount of P10,000.00, in view of the
findings of the NLRC, with which we concur, that petitioner company acted
arbitrarily in its decision to transfer Huyan. Exemplary damages, upon the other
hand, are awarded only when a person acts in a wanton, fraudulent, reckless,
oppressive or malevolent manner (Art. 2232, Civil Code). NLRC's findings fall
short of the underhandedness required so as to justify this award.
WHEREFORE, all considered, the questioned decision of public respondent
NLRC, dated 18 October 1991, is hereby MODIFIED in that the award of
separation benefits in favor of Enrique Huyan and Prescilla Napiar is DELETED;
the award to Huyan of moral damages is REDUCED to P10,000.00; and the
grant of exemplary damages is DELETED. The decision is AFFIRMED in all other
respects. No special pronouncement on costs.
SO ORDERED.
Feliciano and Romero, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 150437
July 17, 2006
SUKHOTHAI CUISINE and RESTAURANT, petitioner,
vs.
COURT OF APPEALS, NATIONAL LABOR PHILIPPINE LABOR ALLIANCE
COUNCIL (PLAC) Local 460 Sukhothai Restaurant Chapter, EMMANUEL
CAYNO, ALEX MARTINEZ, BILLY BACUS, HERMIE RAZ, JOSE LANORIAS,
LITO ARCE, LINO SALUBRE, CESAR SANGREO, ROLANDO FABREGAS,
JIMMY BALAN, JOVEN LUALHATI, ANTONIO ENEBRAD, JOSE NEIL
ARCILLA, REY ARSENAL, ROEL ESANCHA, EDGAR EUGENIO, ALBERT
AGBUYA, ROLANDO PUGONG, ARNEL SALVADOR, RICKY DEL PRADO,
CLAUDIO PANALIGAN, BERNIE DEL MUNDO, JOHN BATHAN, ROBERTO
ECO, JOVEN TALIDONG, LENY LUCENTE, ANALIZA CABLAY, RIGOBERTO
TUBAON and MERLY NAZ, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before this Court is a petition for certiorari under Rule 45 questioning the
Decision1 dated August 8, 2001 promulgated by the Court of Appeals (CA) in
CA-G.R. SP No. 63864 which affirmed in toto the Decision dated November 29,
2000 of the National Labor Relations Commission (NLRC); and the CA
Resolution2 dated October 18, 2001 which denied the petitioner's Motion for
Reconsideration.
This case originated from a complaint for illegal strike filed with the NLRC by
the petitioner3 against private respondents due to an alleged "wildcat strike"
and other concerted action staged in the company premises on June 24, 25 and
26, 1999.
The undisputed facts are as follows:
Sometime in March 1998, the majority of the employees of the petitioner
organized themselves into a union which affiliated with the Philippine Labor
Alliance Council (PLAC), and was
designated as PLAC Local 460 Sukhothai Restaurant Chapter (Union). 4
On December 3, 1998, private respondent Union filed a Notice of Strike with
the National Conciliation and Mediation Board (NCMB) on the ground of unfair
labor practice, and particularly, acts of harassment, fault-finding, and union
busting through coercion and interference with union affairs. On December 10,
1998, in a conciliation conference, the representatives of the petitioner agreed
and guaranteed that there will be no termination of the services of private
respondents during the pendency of the case, with the reservation of the
management prerogative to issue memos to erring employees for the
infraction, or violation of company policies. On the following day, or on
December 11, 1998, a Strike Vote was conducted and supervised by NCMB
personnel, and the results of the vote were submitted to the NCMB on
December 21, 1998.
On January 21, 1999, the petitioner and the Union entered into a Submission
Agreement, thereby agreeing to submit the issue of unfair labor practice the
subject matter of the foregoing Notice of Strike and the Strike Vote for
voluntary arbitration with a view to prevent the strike.
On March 24, 1999, during the pendency of the voluntary arbitration
proceedings, the petitioner, through its president, Ernesto Garcia, dismissed
Eugene Lucente, a union member, due to an alleged petty quarrel with a co-

employee in February 1999. In view of this termination, private respondent

Union filed with the NLRC a complaint for illegal dismissal.
In the morning of June 24, 1999, private respondent Jose Lanorias, a union
member, was relieved from his post, and his employment as cook, terminated.
Subsequently, respondent Billy Bacus, the union vice-president, conferred with
Ernesto Garcia and protested Lanorias's dismissal. Shortly thereafter,
respondents staged a "wildcat strike."
On June 25, 1999, a Notice of Strike was re-filed by the private respondents and
the protest, according to the respondents, was converted into a "sit-down
strike." On the next day, or on June 26, 1999, the same was transformed into
an "actual strike."
On June 29, 1999, the petitioner filed a complaint for illegal strike with the
NLRC against private respondents, seeking to declare the strike illegal, and to
declare respondents, who participated in the commission of illegal acts, to have
lost their employment status. Having arrived at no amicable settlement, the
parties submitted their position papers, together with supporting documents,
affidavits of witnesses, and photographs, in compliance with the orders of the
Labor Arbiter. On October 12, 1999, the Labor Arbiter rendered a Decision the
dispositive portion of which reads:
WHEREFORE, premises considered, respondents are hereby declared to have
staged an illegal strike, and the employment of union officers and all individual
respondents are deemed validly terminated in accordance with law.
Finally, all individual respondents are hereby directed to immediately remove
their picket lines and all physical obstructions that impede ingress and egress
to petitioner's premises.
SO ORDERED.5
The principal question before the Labor Arbiter was whether the private
respondents staged an illegal strike. Ruling in the affirmative, the Labor Arbiter
held that the Notice of Strike dated December 3, 1998 as well as the Strike Vote
of December 11, 1998 referred to a prior dispute submitted for voluntary
arbitration and, hence, they cannot apply to the strike staged about six months
later, which commenced on June 24, 1999 and ended on June 26, 1999; that,
for these reasons, the Union failed to comply with the mandatory requisites for
a lawful strike; that the issuance of memos by the petitioner to instill discipline
on erring employees is a lawful exercise of management prerogative and do not
amount to acts of unfair labor practice; that, instead of resorting to a strike,
private respondents should have availed of the proper legal remedies such as
the filing of complaints for illegal suspension or illegal dismissal with the NLRC;
that, the root causes of the controversy are the petition for certification election
and petition for cancellation of union registration which were then pending
before the Department of Labor as well as the issue on unfair labor practice
then pending before the voluntary arbitrator, and, hence, the parties should
have awaited the resolution of the cases in the proper fora; and that even if
private respondents complied with all the requisites of a valid strike, the strike
is still illegal due to the commission of prohibited acts, including the obstruction
of free ingress and egress of the premises, intimidation, and threat inflicted
upon non-striking employees.
Private respondents appealed to the NLRC which, on November 29, 2000,
promulgated its Decision the dispositive portion of which states:
WHEREFORE, the appeal is hereby granted. Accordingly, the Decision dated
October 12, 1999 in the above entitled case is hereby vacated and set-aside.
Consequently, the complaint of illegal strike is hereby dismissed for lack of
merit.

All striking workers are hereby ordered to return to work immediately and
Sukhothai Restaurant to accept them back to their former or equivalent
positions. If the same is no longer possible, Sukhothai Restaurant is ordered to
pay them separation pay equivalent to one month salary for every year of
service reckoned from their initial date of employment up to the present.
SO ORDERED.6
In overruling the Labor Arbiter, the NLRC held that the petitioner is guilty of
union busting; that the petitioner violated the Submission Agreement dated
December 10, 1998 in that no termination shall be effected during the
voluntary arbitration proceedings and, hence, the strike was justified; that the
Notice of Strike and Strike Vote dated December 3, 1998 and December 11,
1998, respectively, are applicable to the strike of June 24, 25, and 26, 1999
since the same issues of unfair labor practice were involved and that unfair
labor practices are continuing offenses; that even if the foregoing Notice of
Strike and Strike Vote were not applicable, the Union may take action
immediately since the petitioner is guilty of union busting; and that the re-filing
of a Notice of Strike on June 25, 1999 cured the defect of non-compliance with
the mandatory requirements.
After the NLRC denied the Motion for Reconsideration, the petitioner appealed
to the CA and raised the following issues:
I. WHETHER OR NOT THE STRIKE STAGED BY THE PRIVATE RESPONDENTS IS
LEGAL; and
II. WHETHER OR NOT THE PRIVATE RESPONDENTS WHO PARTICIPATED IN THE
STRIKE AND COMMITTED ILLEGAL ACTS WERE PROPERLY AND VALIDLY
DECLARED TO HAVE LOST THEIR EMPLOYMENT STATUS.7
As stated above, the CA denied the petition and affirmed the NLRC. Petitioner is
now before this Court, raising the following grounds:
I. THE COURT OF APPEALS GRAVELY ERRED AND DECIDED THE ISSUES IN THE
INSTANT CASE IN A MANNER CONTRARY TO ESTABLISHED LAW AND
JURISPRUDENCE BY RULING THAT THE WILDCAT STRIKE OF JUNE 24, 1999 IS
VALID AND LEGAL DESPITE CLEAR AND INCONTROVERTIBLE EVIDENCE THAT:
A. PRIVATE RESPONDENTS FAILED TO COMPLY WITH THE REQUISITES FOR A
VALID STRIKE AS PRESCRIBED BY THE PERTINENT PROVISIONS OF THE LABOR
CODE;
B. THERE WERE NO STRIKEABLE ISSUES; AND
C. PRIVATE RESPONDENTS COMMITTED ILLEGAL AND PROHIBITED ACTS
DURING THE STRIKE.
II. THE COURT OF APPEALS GRAVELY ERRED BY FAILING TO ADDRESS THE
OTHER ISSUES RAISED BY THE PETITIONER IN ITS PETITION FOR CERTIORARI
WHICH FAILURE AMOUNTED TO A DENIAL OF ITS RIGHT TO DUE PROCESS OF
LAW.8
The petition is meritorious.
The questions before this Court are whether the strike staged by the private
respondents is illegal; and whether private respondents are deemed to have
lost their employment status by participating in the commission of illegal acts
during the strike.
Respondents insist that the filing of the Notice of Strike on December 3, 1998,
the Strike Vote of December 11, 1998, the submission of the results of the vote
to the NCMB on December 21, 1998, and their observation of the 15-day
cooling-off period in case of unfair labor practice as well as the seven-day
reporting period of the results of the strike vote, all satisfy the mandatory
requirements under Article 2639 of the Labor Code and are applicable to the
June 1999 strike. In support of this theory, respondents invoke Article 263(f) in
that the decision to strike is valid for the duration of the dispute based on

substantially the same grounds considered when the strike vote was taken,
thus, there is no need to repeat the process. Furthermore, according to the
respondents, even assuming for the sake of argument that the Notice of Strike
and Strike Vote in December 1998 cannot be made to apply to the concerted
actions in June 1999, these requirements may nonetheless be dispensed with
since the petitioner is guilty of union busting and, hence, the Union can take
action immediately.
The undisputed fact, however, is that at the time the strike was staged in June
1999, voluntary arbitration between the parties was ongoing by virtue of the
January 21, 1999 Submission Agreement. The issue to be resolved under those
proceedings pertained to the very same issues stated in the Notice of Strike of
December 3, 1998: the commission of unfair labor practices, such as acts of
harassment, fault-finding, and union busting through coercion and interference
with union affairs.
Article 264 of the Labor Code provides:
Art. 264. Prohibited activities.
xxxx
No strike or lockout shall be declared after assumption of jurisdiction by the
President or the Secretary or after certification or submission of the dispute to
compulsory or voluntary arbitration or during the pendency of cases involving
the same grounds for the strike or lockout.
x x x x (emphasis supplied)
This Court has held that strikes staged in violation of agreements providing for
arbitration are illegal, since these agreements must be strictly adhered to and
respected if their ends are to be achieved. 10 The rationale of the prohibition
under Article 264 is that once jurisdiction over the labor dispute has been
properly acquired by competent authority, that jurisdiction should not be
interfered with by the application of the coercive processes of a strike. 11 Indeed
it is among the chief policies of the State to promote and emphasize the
primacy of free collective bargaining and negotiations, including voluntary
arbitration, mediation, and conciliation, as modes of settling labor, or industrial
disputes.12 In Alliance of Government Workers v. Minister of Labor, 13 Chief
Justice Fernando declared that the principle behind labor unionism in private
industry is that industrial peace cannot be secured through compulsion by law.
Relations between private employers and their employees rest on an
essentially voluntary basis, subject to the minimum requirements of wage laws
and other labor and welfare legislation.14
The alleged dismissals of Lucente and respondent Lanorias, both union
members, which allegedly triggered the wildcat strike, are not sufficient
grounds to justify the radical recourse on the part of the private respondents.
The questions that surround their dismissal, as private respondents so affirm,
are connected to the alleged breach of the "guarantee" by the petitioner not to
dismiss its employees during the pendency of the arbitration case, the very
questions which they also link to the other incidents of unfair labor practices
allegedly committed by the petitionerthese matters should have been raised
and resolved in the voluntary arbitration proceedings that were commenced
precisely to address them. On the other hand, if private respondents believed
that the disciplinary measures had nothing to do with the issues under
arbitration, then they should have availed of the appropriate remedies under
the Labor Code, such as the institution of cases of illegal dismissal 15 or, by
agreement of the parties, the submission of the cases to the grievance
machinery of the CBA, if one is available, so that they may be subjected to
separate voluntary arbitration proceedings,16 or simply seek to terminate the
pending voluntary arbitration case and complete the mandatory procedure for

a lawful strike. Private respondents should have availed themselves of any of

these alternative remedies instead of resorting to a drastic and unlawful
measure, specifically, the holding a wildcat strike.17 And because of the fact
that the Union was fully aware that the arbitration proceedings were pending,
good faith cannot be invoked as a defense.18
For failing to exhaust all steps in the arbitration proceedings by virtue of the
Submission Agreement, in view of the proscription under Article 264 of the
Labor Code, and the prevailing state policy as well as its underlying rationale,
this Court declares that the strike staged by the private respondents is illegal. 19
With respect to respondents' averment that assuming arguendo that the Notice
of Strike and Strike Vote in December 1998 cannot be made to apply to the
strike in June 1999, the requirements for a valid strike may nonetheless be
dispensed
with in case of union busting,20 the Court finds it unnecessary to discuss the
question at length, especially in view of the foregoing declaration that the
strike is illegal, as well as the considerations of established doctrine: the
language of the law leaves no room for doubt that the cooling-off period and
the seven-day strike ban after the strike-vote report were intended to be
mandatory,21 and in case of union busting where the existence of the union is
threatened, it is only the 15-day cooling-off period that may be dispensed with.
Article 263(f) in part states: "In every case, the union or the employer shall
furnish the Department the results of the voting at least seven days before the
intended strike or lockout, subject to the cooling-off period herein provided."
This provision should be read with Section 3, Rule XXII, Book V of the Rules
Implementing the Labor Code, then applicable at the time of the dispute, the
relevant provisions of which state:
However, in case of unfair labor practice involving the dismissal from
employment of any union officer duly elected in accordance with the union
constitution and by-laws which may constitute union-busting where the
existence of the union is threatened, the fifteen-day cooling-off period shall not
apply and the union may take action immediately after the strike vote is
conducted and the results thereof submitted to the appropriate regional branch
of the Board. (emphasis supplied)
The NCMB Primer on Strike, Picketing, and Lockout (January 31, 1992) provide
the same wording. The foregoing provision of the implementing rules should
also be compared to the provisions of the Labor Code under Article 263(c):
(c) x x x However, in case of dismissal from employment of union officers duly
elected in accordance with the union constitution and by-laws, which may
constitute union busting where the existence of the union is threatened, the 15day cooling-off period shall not apply and the union may take action
immediately.
The implementing rules clarify Article 263(c) in that the union may strike
"immediately" provided that the strike vote is conducted, the results thereof
submitted "in every case" at least seven days before the intended strike or
lockout. In sum, in case of alleged union busting, the three remaining
requirements notice, strike vote, and seven-day report period cannot be
dispensed with.22
What is more, the strike had been attended by the widespread commission of
prohibited acts. Well-settled is the rule that even if the strike were to be
declared valid because its objective or purpose is lawful, the strike may still be
declared invalid where the means employed are illegal. 23 Among such limits are
the prohibited activities under Article 264 of the Labor Code, particularly
paragraph (e), which states that no person engaged in picketing shall:
a) commit any act of violence, coercion, or intimidation or

b) obstruct the free ingress to or egress from the employer's premises for lawful
purposes, or
c) obstruct public thoroughfares.
The following acts have been held to be prohibited activities: where the strikers
shouted slanderous and scurrilous words against the owners of the
vessels;24 where the strikers used unnecessary and obscene language 25 or
epithets to prevent other laborers to go to work, 26 and circulated libelous
statements against the employer which show actual malice; 27 where the
protestors used abusive and threatening language towards the patrons of a
place of business or against co-employees, going beyond the mere attempt to
persuade customers to withdraw their patronage; 28 where the strikers formed a
human cordon and blocked all the ways and approaches to the launches and
vessels of the vicinity of the workplace29 and perpetrated acts of violence and
coercion to prevent work from being performed;30 and where the strikers shook
their fists and threatened non-striking employees with bodily harm if they
persisted to proceed to the workplace.31 Permissible activities of the picketing
workers do
not include obstruction of access of customers.32
The evidence in the record clearly and extensively shows that the individual
respondents engaged in illegal acts during the strike, such as the intimidation
and harassment of a considerable number of customers to turn them away and
discourage them from patronizing the business of the petitioner; 33 waving their
arms and shouting at the passersby, "Huwag kayong pumasok sa
Sukhothai!"[34] and "Nilagyan na namin ng lason ang pagkain d'yan!"[35]as
well as numerous other statements made to discredit the reputation of the
establishment;36 preventing the entry of customers;37 angry and unruly
behavior calculated to cause commotion38 which affected neighboring
establishments within the mall;39 openly cursing and shouting at the president
in front of customers40 and using loud and abusive language, such as "Putang
ina niyong lahat!", toward the rest of the management41 as well as their coworkers who refused to go on strike; 42 physically preventing non-strikers from
entering the premises,43 as well as deliberately blocking their movements
inside the restaurant,44 at times by sharply bumping into them45 or through
indecent physical contact;46 openly threatening non-strikers with bodily harm,
such as "Pag hindi sila pumayag, upakan mo!";47 and shouting at the security
guard "Granada!" which caused panic among the customers and prompted
security to report a possible death threat to management and the security
agency.48
In the determination of the liabilities of the individual respondents, the
applicable provision is Article 264(a) of the Labor Code:
Art. 264. Prohibited Activities (a) x x x
xxxx
x x x x Any union officer who knowingly participates in an illegal strike and any
worker or union officer who knowingly participates in the commission of illegal
acts during a strike may be declared to have lost his employment status:
Provided, That mere participation of a worker in a lawful strike shall not
constitute sufficient ground for termination of his employment, even if a
replacement had been hired by the employer during such lawful strike.
xxxx
In Samahang Manggagawa sa Sulpicio Lines, Inc.-NAFLU v. Sulpicio Lines,
Inc.49 this Court explained that the effects of such illegal strikes, outlined in
Article 264, make a distinction between workers and union officers who
participate therein: an ordinary striking worker cannot be terminated for mere
participation in an illegal strike. There must be proof that he or she committed

illegal acts during a strike. A union officer, on the other hand, may be
terminated from work when he knowingly participates in an illegal strike, and
like other workers, when he commits an illegal act during a strike. 50 In all cases,
the striker must be identified. But proof beyond reasonable doubt is not
required. Substantial evidence available under the attendant circumstances,
which may justify the imposition of the penalty of dismissal, may
suffice.51 Liability for prohibited acts is to be determined on an individual basis:
Rank in
Private
Responden
Respondent
t Union
Illegal Acts
Knowingly participating in an illegal strike; shouting at
the security guard "Granada!" which caused panic among
the customers;52Intimidating, harassing, preventing, and
discouraging customers from entering the
restaurant;53 publicly denouncing the reputation of the
Emmanuel
establishment;54 openly threatening non-strikers with
Cayno
President
bodily harm;55
Knowingly participating in an illegal strike; Intimidating,
harassing, preventing, and discouraging customers from
entering the restaurant;56 use of abusive language
towards management or non-strikers;57 deliberately
Vice
blocking the movements of management or non-strikers
Billy Bacus
President
inside the restaurant;58
Knowingly participating in an illegal strike; Intimidating,
harassing, preventing, and discouraging customers from
Analiza Cablay Secretary
entering the restaurant;59
Knowingly participating in an illegal strike; Intimidating,
harassing, preventing, and discouraging customers from
entering the restaurant;60 publicly denouncing the
reputation of the establishment;61 coercing non-strikers to
strike;62 Cursing and use of abusive language towards
Jose Neil Arcilla Treasurer
management, non-strikers, or customers;63
Knowingly participating in an illegal strike; intimidating,
harassing, preventing, and discouraging customers from
Roel Esancha
Auditor
entering the restaurant;64
Knowingly participating in an illegal strike; use of abusive
language towards management, non-strikers, or
customers;65 intimidating, harassing, preventing, and
discouraging customers from entering the
Claudio
Board
restaurant;66deliberately blocking the movements of
Panaligan
Member
management or non-strikers inside the restaurant;67
Intimidating, harassing, preventing, and discouraging
Rey Arsenal
Member
customers from entering the restaurant;68
Intimidating, harassing, preventing, and discouraging
Alex Martinez
Member
customers from entering the restaurant;69
Cursing and use of abusive language towards
management, non-strikers, or customers;70deliberately
blocking the movements of management or non-strikers
inside the restaurant;71 intimidating, harassing,
preventing, and discouraging customers from entering
Hermie Raz
Member
the restaurant;72
Jose Lanorias
Member
Intimidating, harassing, preventing, and discouraging

Lito Arce
Cesar Sangreo
Rolando
Fabregas

Member
Member

Jimmy Balan

Member

Joven Lualhati
Antonio
Enebrad

Member

Edgar Eugenio

Member

Albert Agbuya
Arnel Salvador
Ricky Del Prado
Bernie Del
Mundo
Roberto Eco
Joven Talidong
Leny Lucente

Member
Member
Member

Member

Member

customers from entering the restaurant; 73

Id.74
Id.75
Id.76
Id.;77 deliberately blocking movements of non-strikers
inside the restaurant by sharply bumping into them78 or
through indecent physical contact; 79 cursing and use of
abusive language towards management, non-strikers, or
customers;80
Intimidating, harassing, preventing, and discouraging
customers from entering the restaurant; 81
Id.82
Id.;83 cursing and use of abusive language towards
management, non-strikers, or customers;84
Intimidating, harassing, preventing, and discouraging
customers from entering the restaurant; 85
Id.86
Id.87

Id.88
Id.89
Id.90
Id.;91 threatening non-strikers with bodily harm;92
Intimidating, harassing, preventing, and discouraging
customers from entering the restaurant; 93 cursing and
Rigoberto
use of abusive language towards management, nonTubaon
Member
strikers, or customers;94
Intimidating, harassing, preventing, and discouraging
customers from entering the restaurant; 95 cursing and
use of abusive language towards management, nonMerly Naz
Member
strikers, or customers;96
Preventing and discouraging customers from entering the
Lino Salubre
Member
restaurant;97
Preventing and discouraging customers from entering the
Rolando Pugong Member
restaurant;98
Intimidating, harassing, preventing, and discouraging
John Bathan
Member
customers from entering the restaurant; 99
Thus, the Labor Arbiter is correct in ruling that the employment of all individual
private respondents are deemed validly terminated.
WHEREFORE, the petition is granted. The Decision and Resolution of the Court
of Appeals together with the Decision dated November 29, 2000 of the National
Labor Relations Commission are REVERSED and SET ASIDE. The Decision of
the Labor Arbiter dated October 12, 1999 is REINSTATED. The Court finds the
strike illegal and, as a consequence thereto, the union officers who participated
in the illegal strike and in the commission of illegal acts, namely, Emmanuel
Cayno, Billy Bacus, Analiza Cablay, Jose Neil Arcilla, Roel Esancha, and Claudio
Panaligan, as well as the union members who participated in the commission of
illegal acts during the strike, namely, Rey Arsenal, Alex Martinez, Hermie Raz,
Jose Lanorias, Lito Arce, Cesar Sangreo, Rolando Fabregas, Jimmy Balan, Joven
Member
Member
Member
Member

Lualhati, Antonio Enebrad, Edgar Eugenio, Albert Agbuya, Arnel Salvador, Ricky
Del Prado, Bernie Del Mundo, Roberto Eco, Joven Talidong, Leny Lucente,
Rigoberto Tubaon, Merly Naz, Lino Salubre, Rolando Pugong, and John Bathan,
all private respondents, are hereby declared to have lost their employment
status.
No pronouncement as to costs.
SO ORDERED.
3
The name of the petitioner as a party-in-interest should read "Rosemich, Inc."
which is the legal entity that owns and manages the Sukhothai restaurants at
the SM Megamall Bldg. A and at the Ayala Center (Glorietta 3) branches. See
rollo, pp. 240, 243, 245, 247. The caption may also read "Rosemich, Inc., doing
business under the name and style Sukhothai Cuisine and Restaurant."
4
At the time of the suit, the Union membership included the employees of both
the SM Mega Mall (Mandaluyong) and Glorietta III (Ayala Center, Makati City)
branches of the petitioner.
9
Labor Code, Art. 263. Strikes, picketing and lockouts. - (a) x x x x
xxxx
(c) In cases of bargaining deadlocks, the duly certified or recognized bargaining
agent may file a notice of strike or the employer may file a notice of lockout
with the Department at least thirty (30) days before the intended date thereof.
In cases of unfair labor practice, the period of notice shall be fifteen (15) days
and in the absence of a duly certified or recognized bargaining agent, the
notice of strike may be filed by any legitimate labor organization in behalf of its
members. However, in case of dismissal from employment of union officers
duly elected in accordance with the union constitution and by-laws, which may
constitute union busting where the existence of the union is threatened, the 15day cooling-off period shall not apply and the union may take action
immediately.
xxxx
(f) A decision to declare a strike must be approved by a majority of the total
union membership in the bargaining unit concerned, obtained by secret ballot
in meetings or referenda called for that purpose. A decision to declare a lockout
must be approved by a majority of the board of directors of the corporation or
association or of the partners in a partnership, obtained by secret ballot in a
meeting called for that purpose. The decision shall be valid for the duration of
the dispute based on substantially the same grounds considered when the
strike or lockout vote was taken. The Department may at its own initiative or
upon the request of any affected party, supervise the conduct of the secret
balloting. In every case, the union or the employer shall furnish the Department
the results of the voting at least seven days before the intended strike or
lockout, subject to the cooling-off period herein provided. (emphasis supplied)
14
Id.at 15. See Social Security System Employees Association (SSSEA) v. Court
of Appeals, G.R. No. 85279, July 28, 1989, 175 SCRA 686, 697 (reiterating the
foregoing labor-relations policy). A dispute pending in voluntary arbitration (or
compulsory arbitration) cannot be the subject of a strike or lockout notice. 2
C.A. Azucena, The Labor Code With Comments and Cases 377
(1999), interpreting The Labor Code of the Philippines, P.D. No. 442, as
amended, Art. 264 (1974).
15
See The Labor Code of the Philippines, P.D. No. 442, as amended, Art. 217(a)
(2) (1974). See generallyNational Union of Workers in Hotels, Restaurants and
Allied Industries (NUWHRAIN) - Peninsula Manila Chapter v. National Labor
Relations Commission, 350 Phil. 641, 651 (1998).
16
Labor Code, Articles 260 and 262 provide:

Article 260. Grievance Machinery and Voluntary Arbitration. The parties to a

Collective Bargaining Agreement shall include therein provisions that will
ensure the mutual observance of its terms and conditions. They shall establish
a machinery for the adjustment and resolution of grievances arising from the
interpretation or implementation of their Collective Bargaining Agreement and
those arising from the interpretation or enforcement of company personnel
policies.
xxxx
For this purpose, parties to a Collective Bargaining Agreement shall name and
designate in advance a Voluntary Arbitrator or panel of Voluntary Arbitrators, or
include in the agreement a procedure for the selection of such Voluntary
Arbitrator or panel of Voluntary Arbitrators, preferably from the listing of
qualified Voluntary Arbitrators duly accredited by the Board. In case the parties
fail to select a Voluntary Arbitrator or panel of Voluntary Arbitrators, the Board
shall designate the Voluntary Arbitrator or panel of Voluntary Arbitrators, as
may be necessary, pursuant to the selection procedure agreed upon in the
Collective Bargaining Agreement, which shall act with the same force and effect
as if the Arbitrator or panel of Arbitrators has been selected by the parties as
described above.
Article 262. Jurisdiction over other labor disputes. The Voluntary Arbitrator or
panel of Voluntary Arbitrators, upon agreement of the parties, shall also hear
and decide all other labor disputes including unfair labor practices and
bargaining deadlocks.
See National Union of Workers in Hotels, Restaurants and Allied Industries
(NUWHRAIN) - Peninsula Manila Chapter v. National Labor Relations
Commission, supra note 15.
17
National Union of Workers in Hotels, Restaurants and Allied Industries
(NUWHRAIN) - Peninsula Manila Chapter v. National Labor Relations
Commission, supra note 15, at 652.
18
First City Interlink Transportation Co., Inc.. v. Sec. Confesor, 338 Phil. 635, 644
(1997) (holding that the union cannot invoke good faith when conciliation
meetings were ongoing). A mere claim of good faith would not justify the
holding of a strike under the aforesaid exception as, in addition thereto, the
circumstances must have warranted such belief. It is therefore, not enough that
the union believed that the employer committed acts of unfair labor practice
when the circumstances clearly negate even a prima facie showing to sustain
such belief. National Union of Workers in Hotels, Restaurants and Allied
Industries (NUWHRAIN) - Peninsula Manila Chapter v. National Labor Relations
Commission, supra note 15, at 650; Tiu v. National Labor Relations Commission,
343 Phil. 478, 486-487 (1997).
20
The Labor Code, Article 263(c), provides in part: "x x x However, in case of
dismissal from employment of union officers duly elected in accordance with
the union constitution and by-laws, which may constitute union busting where
the existence of the union is threatened, the 15-day cooling-off period shall not
apply and the union may take action immediately."

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 149440
January 28, 2003
HACIENDA FATIMA and/or PATRICIO VILLEGAS, ALFONSO VILLEGAS and
CRISTINE SEGURA, petitioners,
vs.
NATIONAL FEDERATION OF SUGARCANE WORKERS-FOOD AND
GENERAL TRADE, respondents.
PANGANIBAN, J.:
Although the employers have shown that respondents performed work that was
seasonal in nature, they failed to prove that the latter worked only for the
duration of one particular season. In fact, petitioners do not deny that these
workers have served them for several years already. Hence, they are regular
not seasonal employees.
The Case
Before the Court is a Petition for Review under Rule 45 of the Rules of Court,
seeking to set aside the February 20, 2001 Decision of the Court of
Appeals 1 (CA) in CA-GR SP No. 51033. The dispositive part of the Decision
reads:
"WHEREFORE, premises considered, the instant special civil action for certiorari
is hereby DENIED." 2
On the other hand, the National Labor Relations Commission (NLRC)
Decision, 3 upheld by the CA, disposed in this wise:
"WHEREFORE, premises considered, the decision of the Labor Arbiter is hereby
SET ASIDE and VACATED and a new one entered declaring complainants to
have been illegally dismissed. Respondents are hereby ORDERED to reinstate
complainants except Luisa Rombo, Ramona Rombo, Bobong Abriga and Boboy
Silva to their previous position and to pay full backwages from September 1991
until reinstated. Respondents being guilty of unfair labor practice are further
ordered to pay complainant union the sum of P10,000.00 as moral damages
and P5,000.00 as exemplary damages." 4
The Facts
The facts are summarized in the NLRC Decision as follows:
"Contrary to the findings of the Labor Arbiter that complainants [herein
respondents] refused to work and/or were choosy in the kind of jobs they
wanted to perform, the records is replete with complainants' persistence and
dogged determination in going back to work.
"Indeed, it would appear that respondents did not look with favor workers'
having organized themselves into a union. Thus, when complainant union was
certified as the collective bargaining representative in the certification
elections, respondents under the pretext that the result was on appeal, refused
to sit down with the union for the purpose of entering into a collective
bargaining agreement. Moreover, the workers including complainants herein
were not given work for more than one month. In protest, complainants staged
a strike which was however settled upon the signing of a Memorandum of
Agreement which stipulated among others that:
'a) The parties will initially meet for CBA negotiations on the 11th day of
January 1991 and will endeavor to conclude the same within thirty (30) days.
'b) The management will give priority to the women workers who are members
of the union in case work relative . . . or amount[ing] to gahit and [dipol] arises.
'c) Ariston Eruela Jr. will be given back his normal work load which is six (6)
days in a week.

'd) The management will provide fifteen (15) wagons for the workers and that
existing workforce prior to the actual strike will be given priority. However, in
case the said workforce would not be enough, the management can hire
additional workers to supplement them.
'e) The management will not anymore allow the scabs, numbering about
eighteen (18) workers[,] to work in the hacienda; and
'f) The union will immediately lift the picket upon signing of this agreement.'
"However, alleging that complainants failed to load the fifteen wagons,
respondents reneged on its commitment to sit down and bargain collectively.
Instead, respondent employed all means including the use of private armed
guards to prevent the organizers from entering the premises.
"Moreover, starting September 1991, respondents did not any more give work
assignments to the complainants forcing the union to stage a strike on January
2, 1992. But due to the conciliation efforts by the DOLE, another Memorandum
of Agreement was signed by the complainants and respondents which provides:
'Whereas the union staged a strike against management on January 2, 1992
grounded on the dismissal of the union officials and members;
'Whereas parties to the present dispute agree to settle the case amicably once
and for all;
'Now therefore, in the interest of both labor and management, parties herein
agree as follows:
'1. That the list of the names of affected union members hereto attached and
made part of this agreement shall be referred to the Hacienda payroll of 1990
and determine whether or not this concerned Union members are hacienda
workers;
'2. That in addition to the payroll of 1990 as reference, herein parties will use as
guide the subjects of a Memorandum of Agreement entered into by and
between the parties last January 4, 1990;
'3. That herein parties can use other employment references in support of their
respective claims whether or not any or all of the listed 36 union members are
employees or hacienda workers or not as the case may be;
'4. That in case conflict or disagreement arises in the determination of the
status of the particular hacienda workers subject of this agreement herein
parties further agree to submit the same to voluntary arbitration;
'5. To effect the above, a Committee to be chaired by Rose Mengaling is hereby
created to be composed of three representatives each and is given five working
days starting Jan. 23, 1992 to resolve the status of the subject 36 hacienda
workers. (Union representatives: Bernardo Torres, Martin Alas-as, Ariston Arulea
Jr.)"
"Pursuant thereto, the parties subsequently met and the Minutes of the
Conciliation Meeting showed as follows:
'The meeting started at 10:00 A.M. A list of employees was submitted by Atty.
Tayko based on who received their 13th month pay. The following are deemed
not considered employees:
1. Luisa Rombo
2. Ramona Rombo
3. Bobong Abrega
4. Boboy Silva
'The name Orencio Rombo shall be verified in the 1990 payroll.
'The following employees shall be reinstated immediately upon availability of
work:

1. Jose Dagle

7. Alejandro Tejares

2. Rico Dagle

8. Gaudioso Rombo

3. Ricardo Dagle

9. Martin Alas-as Jr.

4. Jesus Silva

10. Cresensio Abrega

5. Fernando Silva

11. Ariston Eruela Sr.

6. Ernesto Tejares
12. Ariston Eruela Jr.'
"When respondents again reneged on its commitment; complainants filed the
present complaint.
"But for all their persistence, the risk they had to undergo in conducting a strike
in the face of overwhelming odds, complainants in an ironic twist of fate now
find themselves being accused of 'refusing to work and being choosy in the
kind of work they have to perform'." 5 (Citations omitted)
Ruling of the Court of Appeals
The CA affirmed that while the work of respondents was seasonal in nature,
they were considered to be merely on leave during the off-season and were
therefore still employed by petitioners. Moreover, the workers enjoyed security
of tenure. Any infringement upon this right was deemed by the CA to be
tantamount to illegal dismissal.
The appellate court found neither "rhyme nor reason in petitioner's argument
that it was the workers themselves who refused to or were choosy in their
work." As found by the NLRC, the record of this case is "replete with
complainants' persistence and dogged determination in going back to work." 6
The CA likewise concurred with the NLRC's finding that petitioners were guilty
of unfair labor practice.
Hence this Petition. 7
Issues
Petitioners raise the following issues for the Court's consideration:
"A. Whether or not the Court of Appeals erred in holding that respondents,
admittedly seasonal workers, were regular employees, contrary to the clear
provisions of Article 280 of the Labor Code, which categorically state that
seasonal employees are not covered by the definition of regular employees
under paragraph 1, nor covered under paragraph 2 which refers exclusively to
casual employees who have served for at least one year.
"B. Whether or not the Court of Appeals erred in rejecting the ruling in Mercado,
. . . and relying instead on rulings which are not directly applicable to the case
at bench, viz, Philippine Tobacco, Bacolod-Murcia, and Gaco, . . .
"C Whether or not the Court of Appeals committed grave abuse of discretion in
upholding the NLRC's conclusion that private respondents were illegally
dismissed, that petitioner[s were] guilty of unfair labor practice, and that the
union be awarded moral and exemplary damages." 8
Consistent with the discussion in petitioners' Memorandum, we shall take up
Items A and B as the first issue and Item C as the second.
The Court's Ruling
The Petition has no merit.
First Issue:
Regular Employment
At the outset, we must stress that only errors of law are generally reviewed by
this Court in petitions for review on certiorari of CA decisions. 9 Questions of
fact are not entertained. 10 The Court is not a trier of facts and, in labor cases,
this doctrine applies with greater force. 11 Factual questions are for labor

tribunals to resolve. 12 In the present case, these have already been threshed
out by the NLRC. Its findings were affirmed by the appellate court.
Contrary to petitioners' contention, the CA did not err when it held that
respondents were regular employees.
Article 280 of the Labor Code, as amended, states:
"Art. 280. Regular and Casual Employment. The provisions of written
agreement to the contrary notwithstanding and regardless of the oral
agreement of the parties, an employment shall be deemed to be regular where
the employee has been engaged to perform activities which are usually
necessary or desirable in the usual business or trade of the employer, except
where the employment has been fixed for a specific project or undertaking the
completion or termination of which has been determined at the time of the
engagement of the employee or where the work or services to be performed is
seasonal in nature and the employment is for the duration of the season.
"An employment shall be deemed to be casual if it is not covered by the
preceding paragraph: Provided, That, any employee who has rendered at least
one year of service, whether such service is continuous or broken, shall be
considered a regular employee with respect to the activity in which he is
employed and his employment shall continue while such activity exist." (Italics
supplied)
For respondents to be excluded from those classified as regular employees, it is
not enough that they perform work or services that are seasonal in nature.
They must have also been employed only for the duration of one season. The
evidence proves the existence of the first, but not of the second, condition. The
fact that respondents with the exception of Luisa Rombo, Ramona Rombo,
Bobong Abriga and Boboy Silva repeatedly worked as sugarcane workers for
petitioners for several years is not denied by the latter. Evidently, petitioners
employed respondents for more than one season. Therefore, the general rule of
regular employment is applicable.
In Abasolo v. National Labor Relations Commission, 13 the Court issued this
clarification:
"[T]he test of whether or not an employee is a regular employee has been laid
down in De Leon v. NLRC, in which this Court held:
"The primary standard, therefore, of determining regular employment is the
reasonable connection between the particular activity performed by the
employee in relation to the usual trade or business of the employer. The test is
whether the former is usually necessary or desirable in the usual trade or
business of the employer. The connection can be determined by considering
the nature of the work performed and its relation to the scheme of the
particular business or trade in its entirety. Also if the employee has been
performing the job for at least a year, even if the performance is not continuous
and merely intermittent, the law deems repeated and continuing need for its
performance as sufficient evidence of the necessity if not indispensability of
that activity to the business. Hence, the employment is considered regular, but
only with respect to such activity and while such activity exists.
xxx
xxx
xxx
". . . [T]he fact that [respondents] do not work continuously for one whole year
but only for the duration of the . . . season does not detract from considering
them in regular employment since in a litany of cases this Court has already
settled that seasonal workers who are called to work from time to time and are
temporarily laid off during off-season are not separated from service in said
period, but merely considered on leave until re-employed." 14
The CA did not err when it ruled that Mercado v. NLRC 15 was not applicable to
the case at bar. In the earlier case, the workers were required to perform

phases of agricultural work for a definite period of time, after which their
services would be available to any other farm owner. They were not hired
regularly and repeatedly for the same phase/s of agricultural work, but on and
off for any single phase thereof. On the other hand, herein respondents, having
performed the same tasks for petitioners every season for several years, are
considered the latter's regular employees for their respective tasks. Petitioners'
eventual refusal to use their services even if they were ready, able and
willing to perform their usual duties whenever these were available and
hiring of other workers to perform the tasks originally assigned to respondents
amounted to illegal dismissal of the latter.
The Court finds no reason to disturb the CA's dismissal of what petitioners claim
was their valid exercise of a management prerogative. The sudden changes in
work assignments reeked of bad faith. These changes were implemented
immediately after respondents had organized themselves into a union and
started demanding collective bargaining. Those who were union members were
effectively deprived of their jobs. Petitioners' move actually amounted to
unjustified dismissal of respondents, in violation of the Labor Code.
"Where there is no showing of clear, valid and legal cause for the termination of
employment, the law considers the matter a case of illegal dismissal and the
burden is on the employer to prove that the termination was for a valid and
authorized cause." 16 In the case at bar, petitioners failed to prove any such
cause for the dismissal of respondents who, as discussed above, are regular
employees.
Second Issue:
Unfair Labor Practice
The NLRC also found herein petitioners guilty of unfair labor practice. It ruled as
follows:
"Indeed, from respondents' refusal to bargain, to their acts of economic
inducements resulting in the promotion of those who withdrew from the union,
the use of armed guards to prevent the organizers to come in, and the
dismissal of union officials and members, one cannot but conclude that
respondents did not want a union in their haciendaa clear interference in the
right of the workers to self-organization." 17
We uphold the CA's affirmation of the above findings. Indeed, factual findings of
labor officials, who are deemed to have acquired expertise in matters within
their respective jurisdictions, are generally accorded not only respect but even
finality. Their findings are binding on the Supreme Court. 18 Verily, their
conclusions are accorded great weight upon appeal, especially when supported
by substantial evidence. 19 Consequently, the Court is not duty-bound to delve
into the accuracy of their factual findings, in the absence of a clear showing
that these were arbitrary and bereft of any rational basis." 20
The finding of unfair labor practice done in bad faith carries with it the sanction
of moral and exemplary damages."21
WHEREFORE, the Petition is hereby DENIED and the assailed
Decision AFFIRMED. Costs against petitioners.
SO ORDERED.
Puno, Sandoval-Gutierrez and Corona, JJ., concur.

SECOND DIVISION
[G.R. No. 114734. March 31, 2000]
VIVIAN Y. IMBUIDO, petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION, INTERNATIONAL INFORMATION SERVICES, INC. and
GABRIEL LIBRANDO, respondents.
DECISION
BUENA, J.:
This special civil action for certiorari seeks to set aside the Decision[1] of the
National Labor Relations Commission (NLRC) promulgated on September 27,
1993 and its Order dated January 11, 1994, which denied petitioners motion
for reconsideration. Scslx
Petitioner was employed as a data encoder by private respondent International
Information Services, Inc., a domestic corporation engaged in the business of
data encoding and keypunching, from August 26, 1988 until October 18, 1991
when her services were terminated. From August 26, 1988 until October 18,
1991, petitioner entered into thirteen (13) separate employment contracts with
private respondent, each contract lasting only for a period of three (3) months.
Aside from the basic hourly rate, specific job contract number and period of
employment, each contract contains the following terms and conditions: Slxsc
"a. This Contract is for a specific project/job contract only and shall be effective
for the period covered as above-mentioned unless sooner terminated when the
job contract is completed earlier or withdrawn by client, or when employee is
dismissed for just and lawful causes provided by law. The happening of any of
these events will automatically terminate this contract of employment. Slxmis
"b. Subject shall abide with the Companys rules and regulations for its
employees attached herein to form an integral part hereof.
"c. The nature of your job may require you to render overtime work with pay so
as not to disrupt the Companys commitment of scheduled delivery dates made
on said job contract."[2]
In September 1991, petitioner and twelve (12) other employees of private
respondent allegedly agreed to the filing of a petition for certification election
involving the rank-and-file employees of private respondent. [3] Thus, on October
8, 1991, Lakas Manggagawa sa Pilipinas (LAKAS) filed a petition for certification
election with the Bureau of Labor Relations (BLR), docketed as NCR-OD-M-9110128.[4]
Subsequently, on October 18, 1991, petitioner received a termination letter
from Edna Kasilag, Administrative Officer of private respondent, allegedly "due
to low volume of work."[5]
Thus, on May 25, 1992, petitioner filed a complaint for illegal dismissal with
prayer for service incentive leave pay and 13th month differential pay, with the
National Labor Relations Commission, National Capital Region, Arbitration
Branch, docketed as NLRC-NCR Case No. 05-02912-92.[6]
In her position paper dated August 3, 1992 and filed before labor arbiter Raul T.
Aquino, petitioner alleged that her employment was terminated not due to the
alleged low volume of work but because she "signed a petition for certification
election among the rank and file employees of respondents," thus charging
private respondent with committing unfair labor practices. Petitioner further
complained of non-payment of service incentive leave benefits and
underpayment of 13th month pay.[7]
On the other hand, private respondent, in its position paper filed on July 16,
1992, maintained that it had valid reasons to terminate petitioners
employment and disclaimed any knowledge of the existence or formation of a
union among its rank-and-file employees at the time petitioners services were
terminated.[8] Private respondent stressed that its business "relies heavily on

companies availing of its services. Its retention by client companies with

particular emphasis on data encoding is on a project to project basis," [9] usually
lasting for a period of "two (2) to five (5) months." Private respondent further
argued that petitioners employment was for a "specific project with a specified
period of engagement." According to private respondent, "the certainty of the
expiration of complainants engagement has been determined at the time of
their (sic) engagement (until 27 November 1991) or when the project is earlier
completed or when the client withdraws," as provided in the contract. [10] "The
happening of the second event [completion of the project] has materialized,
thus, her contract of employment is deemed terminated per the Brent School
ruling."[11] Finally, private respondent averred that petitioners "claims for nonpayment of overtime time (sic) and service incentive leave [pay] are without
factual and legal basis."[12]
In a decision dated August 25, 1992, labor arbiter Raul T. Aquino, ruled in favor
of petitioner, and accordingly ordered her reinstatement without loss of
seniority rights and privileges, and the payment of backwages and service
incentive leave pay. The dispositive part of the said decision reads: Missdaa
"WHEREFORE, responsive to the foregoing, judgment is hereby rendered
ordering respondents to immediately reinstate complainant [petitioner herein]
as a regular employee to her former position without loss of seniority rights and
privileges and to pay backwages from the time of dismissal up to the date of
this decision, the same to continue until complainant [s] [petitioner herein]
actual reinstatement from (sic) the service. Respondents are likewise ordered
to pay complainant [petitioner herein] service incentive leave pay computed as
follows: Sdaadsc
Backwages:
10/18/91 8/25/92 = 10.23 mos.
P118.00 x 26 x 10.23 mos. = P31, 385.64
Service Incentive Leave Pay
1989 = P89.00 x 5 days = P445.00
1990 = 106 x 5 days = P530.00
1991 = 118 x 5 days = P590.00
P 1, 565.00
Total P32, 950.64
SO ORDERED."[13]
In his decision, the labor arbiter found petitioner to be a regular employee,
ruling that "[e]ven if herein complainant [petitioner herein] had been
obstensively (sic) hired for a fixed period or for a specific undertaking, she
should be considered as [a] regular employee of the respondents in conformity
with the provisions (sic) laid down under Article 280 of the Labor Code," [14] after
finding that "[i]t is crystal clear that herein complainant [petitioner herein]
performed a job which are (sic) usually necessary or desirable in the usual
business of respondent [s]."[15] The labor arbiter further denounced "the
purpose behind the series of contracts which respondents required complainant
to execute as a condition of employment was to evade the true intent and spirit
of the labor laws for the workingmen."[16] Furthermore, the labor arbiter
concluded that petitioner was illegally dismissed because the alleged reason
for her termination, that is, low volume of work, is "not among the just causes
for termination recognized by law,"[17] hence, he ordered her immediate
reinstatement without loss of seniority rights and with full backwages. With
regard to the service incentive leave pay, the labor arbiter decided "to grant
the same for failure of the respondents to fully controvert said
claims."[18] Lastly, the labor arbiter rejected petitioners claim for 13th month

pay "since complainant [petitioner herein] failed to fully substantiate and

argued (sic) the same."[19]
On appeal, the NLRC reversed the decision of the labor arbiter in a
decision[20] promulgated on September 27, 1993, the dispositive part of which
reads:
"WHEREFORE, the appealed decision is hereby set aside. The complaint for
illegal dismissal is hereby dismissed for being without merit. Complainants
[petitioner herein] claim for service incentive leave pay is hereby remanded for
further arbitration.
SO ORDERED."[21]
The NLRC ruled that "[t]here is no question that the complainant [petitioner
herein], viewed in relation to said Article 280 of the [Labor] Code, is a regular
employee judging from the function and/or work for which she was hired. xxx
xxx. But this does not necessarily mean that the complainant [petitioner
herein] has to be guaranteed a tenurial security beyond the period for which
she was hired."[22] The NLRC held that the complainant [petitioner herein],
while hired as a regular worker, is statutorily guaranteed, in her tenurial
security, only up to the time the specific project for which she was hired is
completed."[23] Hence, the NLRC concluded that "[w]ith the specific project "at
RCBC 014" admittedly completed, the complainant [petitioner herein] has
therefore no valid basis in charging illegal dismissal for her concomittant (sic)
dislocation."[24]
In an Order dated January 11, 1994, the NLRC denied petitioners motion for
reconsideration.[25]
In this petition for certiorari, petitioner, for and in her behalf, argues that (1)
the public respondent "committed grave abuse of discretion when it ignored
the findings of Labor Arbiter Raul Aquino based on the evidence presented
directly before him, and when it made findings of fact that are contrary to or
not supported by evidence," [26] (2) "[p]etitioner was a "regular employee," NOT
a "project employee" as found by public respondent NLRC," [27] (3) "[t]he
termination of petition (sic) was tainted with unfair labor practice," [28] and (4)
the public respondent "committed grave abuse of discretion in remanding the
awarded service incentive leave pay for further arbitration." [29]
The petition is impressed with merit. Sdaadsc
We agree with the findings of the NLRC that petitioner is a project employee.
The principal test for determining whether an employee is a project employee
or a regular employee is whether the project employee was assigned to carry
out a specific project or undertaking, the duration and scope of which were
specified at the time the employee was engaged for that project. [30] A project
employee is one whose employment has been fixed for a specific project or
undertaking, the completion or termination of which has been determined at
the time of the engagement of the employee or where the work or service to be
performed is seasonal in nature and the employment is for the duration of the
season.[31] In the instant case, petitioner was engaged to perform activities
which were usually necessary or desirable in the usual business or trade of the
employer, as admittedly, petitioner worked as a data encoder for private
respondent, a corporation engaged in the business of data encoding and
keypunching, and her employment was fixed for a specific project or
undertaking the completion or termination of which had been determined at
the time of her engagement, as may be observed from the series of
employment contracts[32] between petitioner and private respondent, all of
which contained a designation of the specific job contract and a specific period
of employment.

However, even as we concur with the NLRCs findings that petitioner is a

project employee, we have reached a different conclusion. In the recent case of
Maraguinot, Jr. vs. NLRC,[33] we held that "[a] project employee or a member of
a work pool may acquire the status of a regular employee when the following
concur: Rtcspped
1) There is a continuous rehiring of project employees even after [the]
cessation of a project;[34] and
2) The tasks performed by the alleged "project employee" are vital, necessary
and indispensable to the usual business or trade of the employer. [35]"
The evidence on record reveals that petitioner was employed by private
respondent as a data encoder, performing activities which are usually
necessary or desirable in the usual business or trade of her employer,
continuously for a period of more than three (3) years, from August 26, 1988 to
October 18, 1991[36] and contracted for a total of thirteen (13) successive
projects. We have previously ruled that "[h]owever, the length of time during
which the employee was continuously re-hired is not controlling, but merely
serves as a badge of regular employment."[37] Based on the foregoing, we
conclude that petitioner has attained the status of a regular employee of
private respondent.
At this point, we reiterate with emphasis that: Korte
"xxx xxx
"At this time, we wish to allay any fears that this decision unduly burdens an
employer by imposing a duty to re-hire a project employee even after
completion of the project for which he was hired. The import of this decision is
not to impose a positive and sweeping obligation upon the employer to re-hire
project employees. What this decision merely accomplishes is a judicial
recognition of the employment status of a project or work pool
employee in accordance with what is fait accompli, i.e., the continuous
re-hiring by the employer of project or work pool employees who
perform tasks necessary or desirable to the employer's usual business
or trade. Let it not be said that this decision "coddles" labor, for as Lao[38] has
ruled, project or work pool employees who have gained the status of
regular employees are subject to the "no work-no pay" principle, to
repeat:
"A work pool may exist although the workers in the pool do not receive salaries
and are free to seek other employment during temporary breaks in the
business, provided that the worker shall be available when called to report for a
project. Although primarily applicable to regular seasonal workers, this set-up
can likewise be applied to project workers insofar as the effect of temporary
cessation of work is concerned. This is beneficial to both the employer and
employee for it prevents the unjust situation of "coddling labor at the expense
of capital" and at the same time enables the workers to attain the status of
regular employees. Sclaw
"The Court's ruling here is meant precisely to give life to the constitutional
policy of strengthening the labor sector, but, we stress, not at the expense of
management. Lest it be misunderstood, this ruling does not mean that simply
because an employee is a project or work pool employee even outside the
construction industry, he is deemed, ipso jure, a regular employee. All that we
hold today is that once a project or work pool employee has been: (1)
continuously, as opposed to intermittently, re-hired by the same
employer for the same tasks or nature of tasks; and (2) these tasks
are vital, necessary and indispensable to the usual business or trade
of the employer, then the employee must be deemed a regular
employee, pursuant to Article 280 of the Labor Code and

jurisprudence. To rule otherwise would allow circumvention of labor

laws in industries not falling within the ambit of Policy Instruction No.
20/Department Order No. 19, hence allowing the prevention of
acquisition of tenurial security by project or work pool employees who
have already gained the status of regular employees by the
employer's conduct."[39] (emphasis supplied)
Being a regular employee, petitioner is entitled to security of tenure and could
only be dismissed for a just or authorized cause, as provided in Article 279 of
the Labor Code, as amended: Sclex
"Art. 279. Security of Tenure In cases of regular employment, the employer
shall not terminate the services of an employee except for a just cause or when
authorized by this Title. An employee who is unjustly dismissed from work shall
be entitled to reinstatement without loss of seniority rights and other privileges
and to his full backwages, inclusive of allowances, and to his other benefits or
their monetary equivalent computed from the time his compensation was
withheld from him up to the time of his actual reinstatement."
The alleged causes of petitioners dismissal (low volume of work and belatedly,
completion of project) are not valid causes for dismissal under Articles 282 and
283 of the Labor Code. Thus, petitioner is entitled to reinstatement without loss
of seniority rights and other privileges, and to her full backwages, inclusive of
allowances, and to her other benefits or their monetary equivalent computed
from the time her compensation was withheld from her up to the time of her
actual reinstatement. However, complying with the principles of "suspension of
work" and "no work, no pay" between the end of one project and the start of a
new one, in computing petitioners backwages, the amounts corresponding to
what could have been earned during the periods from the date petitioner was
dismissed until her reinstatement when private respondent was not
undertaking any project, should be deducted. Xlaw
With regard to petitioners claim for service incentive leave pay, we agree with
the labor arbiter that petitioner is entitled to service incentive leave pay, as
provided in Article 95 of the Labor Code, which reads:
"Article 95 Right to service incentive leave
(a) Every employee who has rendered at least one year of service shall be
entitled to a yearly service incentive leave of five days with pay.
xxx xxx xxx."
Having already worked for more than three (3) years at the time of her
unwarranted dismissal, petitioner is undoubtedly entitled to service incentive
leave benefits, computed from 1989 until the date of her actual reinstatement.
As we ruled in the recent case of Fernandez vs. NLRC,[40] "[s]ince a service
incentive leave is clearly demandable after one year of service whether
continuous or broken or its equivalent period, and it is one of the "benefits"
which would have accrued if an employee was not otherwise illegally
dismissed, it is fair and legal that its computation should be up to the date of
reinstatement as provided under Section [Article] 279 of the Labor Code, as
amended, which reads: Xsc
"ART. 279. Security of Tenure. An employee who is unjustly dismissed from
work shall be entitled to reinstatement without loss of seniority rights and other
privileges and to his full backwages, inclusive of allowances, and to his other
benefits or their monetary equivalent computed from the time his
compensation is withheld from him up to the time of his actual reinstatement."
(emphasis supplied).
WHEREFORE, the instant petition is GRANTED. The assailed decision of the
National Labor Relations Commission in NLRC NCR CA No. 003845-92 dated
September 27, 1993, as well as its Order dated January 11, 1994, are hereby

ANNULLED and SET ASIDE for having been rendered with grave abuse of
discretion, and the decision of the Labor Arbiter in NLRC NCR Case No. 0502912-92 is REINSTATED with MODIFICATION as above-stated, with regard to
the computation of back wages and service incentive leave pay. Sc
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and De Leon, Jr., JJ., concur.

FIRST DIVISION
[G.R. No. 118695. April 22, 1998]
CEBU ENGINEERING and DEVELOPMENT COMPANY, INC., petitioner,
vs. NATIONAL LABOR RELATIONS COMMISSION and JAIME
PEREZ,respondents.
DECISION
BELLOSILLO, J.:
When the conflicting interests of labor and capital are weighed on the scales of
social justice, the heavier influence of the latter must be counterbalanced by
the sympathy and compassion the law must accord the underprivileged
worker. This is only fair if he is to be given the opportunity - and the right - to
assert and defend his cause not as a subordinate but as a peer of
management, with which he can negotiate on even plane. Labor is not a mere
employee of capital but its active and equal partner. [1]
ASSERTING grave abuse of disretion amounting to lack or excess of jurisdiction,
petitioner seeks to annul the decision of the National Labor Relations
Commission (NLRC) finding it liable for illegal dismissal and damages.
In the first week of November 1991 private respondent Jaime Perez was hired
as clerk for P120.00 a day by Cebu Engineering and Development Company
(CEDCO) which was engaged in the business of providing engineering
infrastructure, designing and consultancy services to construction and
development projects. His first assignment was to the Metro Cebu
Development Project (MCDP) II. In the last week of May 1992, when the field
teams of petitioner were reduced to only two (2), he was reassigned to
MCDP III effective 1 June 1992.
On 16 December 1992 private respondent was ordered by his supervisor, a
certain Ms. Tudtud, to drive an engineer and her team to the job site but
Perez refused because, according to him, the car could only be used by the
President of the company or by one specifically authorized by him, and also,
the rental contracts of the vehicles restricted the use of the car to only those
authorized and the engineer was not.
On 23 December 1992 respondent Perez was summoned by Mr. Butalid,
CEDCO Vice President for Administration and Finance, to the latter's office and
asked why he did not comply with the order of Ms. Tudtud. After a
confrontation with Ms. Tudtud, the project accountant, and one Ramon Pernea,
Perez was given a notice of recall and a notice of termination at the same
time. Resisting his recall and termination, Perez filed a case for illegal dismissal
with the Labor Arbiter's office.
On 4 January 1994 Labor Arbiter Nicasio C. Aninon ruled that private
respondent's employment was not regular and was
merely coterminous with the MCDP project which was already completed
as of 30 June 1993. The Labor Arbiter however found the dismissal to be
groundless and granted Perez back wages from the time of termination up to
the time of completion of the project. The award of back wages however was
reduced to only three (3) months because he found Mr. Perez not entirely
blameless for his recall and termination.[2]
Both parties appealed to the NLRC. On 17 November 1994 the NLRC reversed
the Labor Arbiter's decision on the status of Perez' employment and found
him to be a regular employee, affirmed the finding of illegal dismissal and
ordered his reinstatement. It expanded the award of back wages from the time
of dismissal not only until completion of the MCDP III but until his actual
reinstatement. The NLRC also ordered that in the event reinstatement was
impossible or impracticable, CEDCO was also directed to give separation pay of
one (1) month for every year of service.[3]

Petitioners motion for reconsideration was denied; hence, this petition raising
the issue of whether the NLRC committed grave abuse
of discretion amounting to lack or excess of jurisdiction: (a) in
finding private respondent a regular employee, contrary to the decision of the
Labor Arbiter; (b) in disregarding the numerous infractions constituting just
cause for termination or discontinuance
of
Perez' employment
with
CEDCO; (c) in ordering
the
reinstatement of Perez although the remedy was not sought for in his appeal
and comment and/or answer to CEDCO's partial appeal; and, (d) in awarding
back wages to Perez even after 30 June 1993, the date of completion of the
MCDP III.[4]
The petition is without merit.
Petitioner insists that respondent Perez was a project employee who was first
hired for a fixed period from November 1991 to May 1992 but was unable to
finish his term because he had to go to Manila to attend to some personal
matters. When he reapplied the company only accommodated him out of
kindness. This time he was assigned to MCDP III. Petitioner offered as
evidence Perez notarized contract for personal services duly signed by him
which stipulated that his employment was from 1 June 1992 to 30 November
1992. Thus Perez was merely a project employee and his term of employment
was coterminous with the existence of the project.
We do not agree. It is not disputed that private respondent started working
with petitioner in November 1991 and continued to do so until 16 December
1992. There is no evidence to prove petitioner's allegation that private
respondent preterminated his employ in May of 1992. The records do not
show any resignation letter. Neither does the contract for personal services
purportedly signed by private respondent conclusively establish a casual
employment.
On the contrary, we have oftentimes regarded such contract
as an employer's device for circumventing the employee's right to security of
tenure. Hence, it does not matter that the employee signs a contract for
personal services in which is stipulated the temporary period of his
employment. What determines the regularity of one's employment is whether
he was engaged to perform activities which are necessary and desirable in the
usual business or trade of the employer. And indeed private respondent's
employ was vital to the company as evidenced by the memorandum sent to
him by the Vice President when he was assigned to MCDP III. Thus he was
instructed to "abide by the rules and regulations of the project office without
abdicating your role as a responsible corporate member of CEDCO
Inc."[5] (underscoring supplied).
Private respondent belonged to a work pool from which CEDCO drew its
employees and assigned them to different projects.[6] He was not hired for a
specific project. He was a regular employee to different projects. He was in
fact a mainstay of the company. Contrary to petitioners claim, his services
were not terminated on 30 November 1992. He continued working after
that. Hence, according to the law, on 1 December 1992, after a year of
continuous work, he became a regular employee regardless of any contract to
the contrary. It is in keeping with the intent and spirit of the law to rule that
the status of regular employment attaches to the casual worker on the day
immediately after the end of the first year of service. [7]
Petitioner next contends that the dismissal of Perez was with just cause
considering the numerous infractions he had committed, namely,
insubordination, overpricing in the purchase of mylar sheets, and incompetence
in handling his job as a clerk.

The contention is without merit. They are mere allegations. Aside from the
fact that CEDCO did not have one single evidence to prove the infractions,
private respondent's dismissal was for an entirely different cause. Perez was
dismissed not because the term of employment had already expired, nor that
the project had been completed, but solely because he had allegedly become a
"redundant" employee.[8] Again, such allegation was never proved.
This leads
us to agree with the NLRC that the alleged infractions were "trumped up to
[9]
camouflage the illegal act of CEDCO in dismissing the complainant."
Furthermore, assuming arguendo that there was a valid reason for dismissing
private respondent, such dismissal must be coupled with due process which
requires the employer to furnish the worker or employee sought to be
dismissed with two (2) written notices, i.e., (a) notice which apprises the
employee of the particular acts or omissions for which his dismissal is sought;
and, (b) subsequent notice which informs the employee of the employer's
decision to dismiss him.[10] The records show that no such notices were
furnished respondent Perez. Such failure to comply with the
requirement
indeed taints
his
dismissal with
irregularity. Moreover
, the contract for personal services stipulated that such contract shall be
cancelled "subject to ten (10) days notice from the Project Manager." Perez
was never given any 10-day notice. CEDCO did not even comply with its own
stipulation, hence, Perez dismissal was illegal.
CEDCO also contends that the NLRC has no jurisdiction to order the
reinstatement of Perez since such remedy was not sought for in his appeal, and
that courts cannot grant reliefs not prayed for in the complaint or appeal, nor
decide on matters not at issue.
Petitioner is wrong on both counts. Reinstatement is one of the reliefs
specifically enumerated in both the complaint and the notice of appeal to the
NLRC.[11] Nonetheless, the NLRC may, in the exercise of its appellate powers,
correct, amend or waive any error, defect or irregularity, whether in substance
or in form.[12]
Lastly, CEDCO assails the award of back wages beyond the completion date of
MCDP III. There is nothing whimsical or abitrary in the exercise of this
prerogative. NLRC ruled that Perez was a regular employee of CEDCO, not a
project employee of MCDP. Hence, his employment goes beyond the
completion of MCDP III. The award is merely a consequential effect of
the NLRC finding.
WHEREFORE, the petition is dismissed and the decision of public respondent
NLRC is AFFIRMED. Petitioner CEDCO is ordered to reinstate private respondent
Jaime Perez immediately to his former position without loss of seniority rights
and benefits, with full back wages from date of his dismissal until his actual
reinstatement.
SO ORDERED.
Davide, Jr., (Chairman), Vitug, Panganiban, and Quisumbing, JJ., concur.
SPECIAL FIRST DIVISION
[G.R. No. 110524. July 29, 2002]
DOUGLAS MILLARES and ROGELIO LAGDA, petitioners, vs. NATIONAL
LABOR RELATIONS COMMISSION, TRANS-GLOBAL MARITIME AGENCY,
INC. and ESSO INTERNATIONAL SHIPPING CO., LTD. respondents.
RESOLUTION
KAPUNAN, J.:
On March 14, 2000, the Court promulgated its decision in the above-entitled
case, ruling in favor of the petitioners. The dispositive portion reads, as
follows:

WHEREFORE, premises considered, the assailed Decision, dated June 1, 1993,

of the National Labor Relations Commission is hereby REVERSED and SET
ASIDE and a new judgment is hereby rendered ordering the private
respondents to:
(1)
Reinstate petitioners Millares and Lagda to their former positions without
loss of seniority rights, and to pay full backwages computed from the time of
illegal dismissal to the time of actual reinstatement;
(2)
Alternatively, if reinstatement is not possible, pay petitioners Millares and
Lagda separation pay equivalent to one months salary for every year of
service; and,
(3)
Jointly and severally pay petitioners One Hundred Percent (100%) of their
total credited contributions as provided under the Consecutive Enlistment
Incentive Plan.
SO ORDERED.[1]
A motion for reconsideration was consequently filed[2] by the private
respondents to which petitioners filed an Opposition thereto.[3]
In a Minute Resolution dated June 28, 2000, the Court resolved to deny the
motion for reconsideration with finality.[4]
Subsequently, the Filipino Association for Mariners Employment, Inc. (FAME)
filed a Motion for Leave to Intervene and to Admit a Motion for Reconsideration
in Intervention.
Private respondents, meanwhile, also filed a Motion for Leave to File a Second
Motion for Reconsideration of our decision.
In both motions, the private respondents and FAME respectively pray in the
main that the Court reconsider its ruling that Filipino seafarers are considered
regular employees within the context of Article 280 of the Labor Code. They
claim that the decision may establish a precedent that will adversely affect the
maritime industry.
The Court resolved to set the case for oral arguments to enable the parties to
present their sides.
To recall, the facts of the case are, as follows:
Petitioner Douglas Millares was employed by private respondent ESSO
International Shipping Company LTD. (Esso International, for brevity) through
its local manning agency, private respondent Trans-Global Maritime Agency,
Inc. (Trans-Global, for brevity) on November 16, 1968 as a machinist. In 1975,
he was promoted as Chief Engineer which position he occupied until he opted
to retire in 1989. He was then receiving a monthly salary of US $1,939.00.
On June 13, 1989, petitioner Millares applied for a leave of absence for the
period July 9 to August 7, 1989. In a letter dated June 14, 1989, Michael J.
Estaniel, President of private respondent Trans-Global, approved the request for
leave of absence. On June 21, 1989, petitioner Millares wrote G.S. Hanly,
Operations Manager of Exxon International Co., (now Esso International)
through Michael J. Estaniel, informing him of his intention to avail of the
optional retirement plan under the Consecutive Enlistment Incentive Plan (CEIP)
considering that he had already rendered more than twenty (20) years of
continuous service. On July 13, 1989 respondent Esso International, through
W.J. Vrints, Employee Relations Manager, denied petitioner Millares request for
optional retirement on the following grounds, to wit: (1) he was employed on a
contractual basis; (2) his contract of enlistment (COE) did not provide for
retirement before the age of sixty (60) years; and (3) he did not comply with
the requirement for claiming benefits under the CEIP, i.e., to submit a written
advice to the company of his intention to terminate his employment within
thirty (30) days from his last disembarkation date.

On August 9, 1989, petitioner Millares requested for an extension of his leave of

absence from August 9 to 24, 1989. On August 19, 1989, Roy C. Palomar,
Crewing Manager, Ship Group A, Trans-global, wrote petitioner Millares advising
him that respondent Esso International has corrected the deficiency in its
manpower requirement specifically in the Chief Engineer rank by promoting a
First Assistant Engineer to this position as a result of (his) previous leave of
absence which expired last August 8, 1989. The adjustment in said rank was
required in order to meet manpower schedules as a result of (his) inability.
On September 26, 1989, respondent Esso International, through H. Regenboog,
Personnel Administrator, advised petitioner Millares that in view of his absence
without leave, which is equivalent to abandonment of his position, he had been
dropped from the roster of crew members effective September 1, 1989.
On the other hand, petitioner Lagda was employed by private respondent Esso
International as wiper/oiler in June 1969. He was promoted as Chief Engineer in
1980, a position he continued to occupy until his last COE expired on April 10,
1989. He was then receiving a monthly salary of US$1,939.00.
On May 16, 1989, petitioner Lagda applied for a leave of absence from June 19,
1989 up to the whole month of August 1989. On June 14, 1989, respondent
Trans-Globals President, Michael J. Estaniel, approved petitioner Lagdas leave
of absence from June 22, 1989 to July 20, 1989 and advised him to report for
re-assignment on July 21, 1989.
On June 26, 1989, petitioner Lagda wrote a letter to G.S. Stanley, Operations
Manager of respondent Esso International, through respondent Trans-Globals
President Michael J. Estaniel, informing him of his intention to avail of the
optional early retirement plan in view of his twenty (20) years continuous
service in the complaint.
On July 13, 1989, respondent Trans-global denied petitioner Lagdas request for
availment of the optional early retirement scheme on the same grounds upon
which petitioner Millares request was denied.
On August 3, 1989, he requested for an extension of his leave of absence up to
August 26, 1989 and the same was approved. However, on September 27,
1989, respondent Esso International, through H. Regenboog, Personnel
Administrator, advised petitioner Lagda that in view of his unavailability for
contractual sea service, he had been dropped from the roster of crew
members effective September 1, 1989.
On October 5, 1989, petitioners Millares and Lagda filed a complaint-affidavit,
docketed as POEA (M) 89-10-9671, for illegal dismissal and non-payment of
employee benefits against private respondents Esso International and TransGlobal, before the POEA.[5]
On July 17, 1991, the POEA rendered a decision dismissing the complaint for
lack of merit.
On appeal to the NLRC, the decision of the POEA was affirmed on June 1, 1993
with the following disquisition:
The first issue must be decided in the negative. Complainants-appellants, as
seamen and overseas contract workers are not covered by the term regular
employment as defined under Article 280 of the Labor Code. The POEA, which
is tasked with protecting the rights of the Filipino workers for overseas
employment to fair and equitable recruitment and employment practices and
to ensure their welfare, prescribes a standard employment contract for seamen
on board ocean-going vessels for a fixed period but in no case to exceed twelve
(12) months (Part 1, Sec. C). This POEA policy appears to be in consonance
with the international maritime practice. Moreover, the Supreme Court in Brent
School, Inc. vs. Zamora, 181 SCRA 702, had held that a fixed term is essential
and natural appurtenance of overseas employment contracts to which the

concept of regular employment with all that it implies is not applicable, Article
280 of the Labor Code notwithstanding. There is, therefore, no reason to
disturb the POEA Administrators finding that complainants-appellants were
hired on a contractual basis and for a definite period. Their employment is thus
governed by the contracts they sign each time they are re-hired and is
terminated at the expiration of the contract period. [6]
Undaunted, the petitioners elevated their case to this Court [7] and successfully
obtained the favorable action, which is now vehemently being assailed.
At the hearing on November 15, 2000, the Court defined the issues for
resolution in this case, namely:
I.
ARE PETITIONERS REGULAR OR CONTRACTUAL EMPLOYEES WHOSE
EMPLOYMENTS ARE TERMINATED EVERYTIME THEIR CONTRACTS OF
EMPLOYMENT EXPIRE?
II.
ASSUMING THAT PETITIONERS ARE REGULAR EMPLOYEES, WERE THEY
DISMISSED WITHOUT JUST CAUSE SO AS TO BE ENTITLED TO
REINSTATEMENT AND BACKWAGES, INCLUDING PAYMENT OF 100% OF THEIR
TOTAL CREDITED CONTRIBUTIONS TO THE CONSECUTIVE ENLISTMENT
INCENTIVE PLAN (CEIP)?
III.
DOES THE PROVISION OF THE POEA STANDARD CONTRACT FOR
SEAFARERS ON BOARD FOREIGN VESSELS (SEC. C., DURATION OF CONTRACT)
PRECLUDE THE ATTAINMENT BY SEAMEN OF THE STATUS OF REGULAR
EMPLOYEES?
IV.
DOES THE DECISION OF THE COURT IN G.R. NO. 110524 CONTRAVENE
INTERNATIONAL MARITIME LAW, ALLEGEDLY PART OF THE LAW OF THE LAND
UNDER SECTION 2, ARTICLE II OF THE CONSTITUTION?
V.
DOES THE SAME DECISION OF THE COURT CONSTITUTE A DEPARTURE
FROM ITS RULING IN COYOCA VS. NLRC (G.R. NO. 113658, March 31, 1995)?[8]
In answer to the private respondents Second Motion for Reconsideration and to
FAMEs Motion for Reconsideration in Intervention, petitioners maintain that
they are regular employees as found by the Court in the March 14, 2000
Decision. Considering that petitioners performed activities which are usually
necessary or desirable in the usual business or trade of private respondents,
they should be considered as regular employees pursuant to Article 280, Par. 1
of the Labor Code.[9] Other justifications for this ruling include the fact that
petitioners have rendered over twenty (20) years of service, as admitted by the
private respondents;[10] that they were recipients of Merit Pay which is an
express acknowledgment by the private respondents that petitioners are
regular and not just contractual employees;[11] that petitioners were registered
under the Social Security System (SSS).
The petitioners further state that the case of Coyoca v. NLRC[12] which the
private respondents invoke is not applicable to the case at bar as the factual
milieu in that case is not the same. Furthermore, private respondents fear that
our judicial pronouncement will spell the death of the manning industry is far
from real. Instead, with the valuable contribution of the manning industry to
our economy, these seafarers are supposed to be considered as Heroes of the
Republic whose rights must be protected.[13] Finally, the first motion for
reconsideration has already been denied with finality by this Court and it is
about time that the Court should write finis to this case.
The private respondents, on the other hand, contend that: (a) the ruling holding
petitioners as regular employees was not in accord with the decision in Coyoca
v. NLRC, 243 SCRA 190; (b) Art. 280 is not applicable as what applies is the
POEA Rules and Regulations Governing Overseas Employment; (c) seafarers are
not regular employees based on international maritime practice; (d) grave
consequences would result on the future of seafarers and manning agencies if

the ruling is not reconsidered; (e) there was no dismissal committed; (f) a
dismissed seafarer is not entitled to back wages and reinstatement, that being
not allowed under the POEA rules and the Migrant Workers Act; and, (g)
petitioners are not entitled to claim the total amount credited to their account
under the CEIP.[14]
Meanwhile, Intervenor Filipino Association of Mariners Employment (FAME)
avers that our decision, if not reconsidered, will have negative consequences in
the employment of Filipino Seafarers overseas which, in turn, might lead to the
demise of the manning industry in the Philippines. As intervenor FAME puts it:
xxx
7.1 Foreign principals will start looking for alternative sources for seafarers to
man their ships. AS reported by the BIMCO/ISF study, there is an expectancy
that there will be an increasing demand for (and supply of) Chinese seafarers,
with some commentators suggesting that this may be a long-term alternative
to the Philippines. Moreover, the political changes within the former Eastern
Bloc have made new sources of supply available to the international
market. Intervenors recent survey among its members shows that 50
Philippine manning companies had already lost some 6,300 slots to other
Asian, East Europe and Chinese competition for the last two years;
7.2 The Philippine stands to lose an annual foreign income estimated at U.S.
DOLLARS TWO HUNDRED SEVENTY FOUR MILLION FIVE HUNDRED FORTY NINE
THOUSAND (US$ 274,549,000.00) from the manning industry and another US
DOLLARS FOUR BILLION SIX HUNDRED FIFTY MILLION SEVEN HUNDRED SIX
THOUSAND (US$ 4,650,760,000.00) from the land-based sector if seafarers and
equally situated land-based contract workers will be declared regular
employees;
7.3 Some 195,917 (as of 1998) deployed overseas Filipino seafarers will be
rendered jobless should we lose the market;
7.4 Some 360 manning agencies (as of 30 June 2000) whose principals may no
longer be doing business with them will close their shops;
7.5 The contribution to the Overseas Workers Welfare Administration by the
sector, which is USD 25.00 per contract and translates to US DOLLARS FOUR
MILLION (US$ 4,000,000.00)annually, will be drastically reduced. This is not to
mention the processing fees paid to POEA, Philippine Regulatory Commission
(PRC), Department of Foreign Affairs (DFA) and Maritime Industry Authority
(MARINA) for the documentation of these seafarers;
7.6 Worst, some 195,917 (as of 1998) families will suffer socially and
economically, as their breadwinners will be rendered jobless; and
7.7 It will considerably slow down the governments program of employment
generation, considering that, as expected foreign employers will now avoid
hiring Filipino overseas contract workers as they will become regular employees
with all its concomitant effects.[15]
Significantly, the Office of the Solicitor General, in a departure from its original
position in this case, has now taken the opposite view. It has expressed its
apprehension in sustaining our decision and has called for a re-examination of
our ruling.[16]
Considering all the arguments presented by the private respondents, the
Intervenor FAME and the OSG, we agree that there is a need to reconsider our
position with respect to the status of seafarers which we considered as regular
employees under Article 280 of the Labor Code. We, therefore, partially grant
the second motion for reconsideration.
In Brent School Inc. v. Zamora,[17] the Supreme Court stated that Article 280 of
the Labor Code does not apply to overseas employment.

In the light of the foregoing description of the development of the provisions of

the Labor Code bearing on term or fixed-period employment that the question
posed in the opening paragraph of this opinion should now be addressed. Is it
then the legislative intention to outlaw stipulations in employment contracts
laying down a definite period therefor? Are such stipulations in essence
contrary to public policy and should not on this account be accorded
legitimacy?
On the other hand, there is the gradual and progressive elimination of
references to term or fixed-period employment in the Labor Code, and the
specific statement of the rule that:
Regular and Casual Employment The provisions of written agreement to the
contrary notwithstanding and regardless of the oral agreement of the parties,
an employment shall be deemed to be regular where the employee has been
engaged to perform activities which are usually necessary or desirable in the
usual business or trade of the employer except where the employment has
been fixed for a specific project or undertaking the completion or termination of
which has been determined at the time of the engagement of the employee or
where the work or service to be employee is seasonal in nature and the
employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered by the
preceding paragraph; provided that, any employee who has rendered at least
one year of service, whether such service is continuous or broken, shall be
considered a regular employee with respect to the activity in which he is
employed and his employment shall continue while such actually exists.
There is, on the other hand, the Civil Code, which has always recognized, and
continues to recognize, the validity and propriety of contracts and obligations
with a fixed or definite period, and imposes no restraints on the freedom of the
parties to fix the duration of a contract, whatever its object, be it specific,
goods or services, except the general admonition against stipulations contrary
to law, morals, good customs, public order or public policy. Under the Civil
code, therefore, and as a general proposition, fixed-term employment contracts
are not limited, as they are under the present Labor Code, to those by natural
seasonal or for specific projects with predetermined dates of completion; they
also include those to which the parties by free choice have assigned a specific
date of termination.
Some familiar examples may be cited of employment contract which
may be neither for seasonal work nor for specific projects, but to
which a fixed term is an essential and natural appurtenance: overseas
employment contracts, for one, to which, whatever the nature of the
engagement, the concept of regular employment with all that it
implies does not appear ever to have been applied. Article 280 of the
Labor Code notwithstanding also appointments to the positions of dean,
assistant dean, college secretary, principal, and other administrative offices in
educational institutions, which are by practice or tradition rotated among the
faculty members, and where fixed terms are a necessity without which no
reasonable rotation would be possible. Similarly, despite the provisions of
Article 280, Policy Instructions. No. 8 of the Minister of Labor implicitly
recognize that certain company officials may be elected for what would amount
to fix periods, at the expiration of which they would have to stand down, in
providing that these officials, xxx may lose their jobs as president, executive
vice-president or vice-president, etc. because the stockholders or the board of
directors for one reason or another did not reelect them.
There can of course be no quarrel with the proposition that where from the
circumstances it is apparent that periods have been imposed to preclude

acquisition of tenurial security by the employee, they should be struck down or

disregard as contrary to public policy, morals, etc. But where no such intent to
circumvent the law is shown, or stated otherwise, where the reason for the law
does not exists, e.g., where it is indeed the employee himself who insists upon
a period or where the nature of the engagement is such that, without being
seasonal or for a specific project, a definite date of termination is a sine qua
non, would an agreement fixing a period be essentially evil or illicit, therefore
anathema? Would such an agreement come within the scope of Article 280
which admittedly was enacted to prevent the circumvention of the right of the
employee to be secured in xxx his employment
As it is evident from even only the three examples already given that Article
280 of the Labor Code, under a narrow and literal interpretation, not only fails
to exhaust the gamut of employment contracts to which the lack of a fixed
period would be an anomaly, but would also appear to restrict, without
reasonable distinctions, the right of an employee to freely stipulate within his
employer the duration of his engagement, it logically follows that such a literal
interpretation should be eschewed or avoided. The law must be given a
reasonable interpretation, to preclude absurdity in its application. Outlawing
the whole concept of term employment and subverting to boot the principle of
freedom of contract to remedy the evil of employers using it as a means to
prevent their employees from obtaining security of tenure is like cutting off the
nose to spite the face or, more relevantly, curing a headache by lopping of the
head.
It is a salutary principle in statutory construction that there exists a valid
presumption that undesirable consequences were never intended by a
legislative measure, and that a construction of which the statute is fairly
susceptible is favored, which will avoid all objectionable, mischievous,
indefensible, wrongful, evil, and injurious consequences.
Nothing is better settled than that courts are not to give words a meaning
which would lead to absurd or unreasonable consequences. That is a principle
that goes back to In re Allen decided on October 27, 1902, where it was held
that a literal interpretation is to be rejected if it would be unjust or lead to
absurd results. That is a strong argument against its adoption. The words of
Justice Laurel are particularly apt. Thus: the appellants would lead to an
absurdity is another argument for rejecting it.
Xxx We have, here, then a case where the true intent of the law is clear that
calls for the application of the cardinal rule of statutory construction that such
intent of spirit must prevail over the letter thereof, for whatever is within the
spirit of a statute is within the statute, since adherence to the letter would
result in absurdity, injustice and contradictions and would defeat the plain and
vital purpose of the statute.
Accordingly, and since the entire purpose behind the development of
legislation culminating in the present Article 280 of the Labor code
clearly appears to have been, as already observed, to prevent
circumvention of the employees right to be secure in his tenure, the
clause in said article indiscriminately and completely ruling out all
written or oral agreements conflicting with the concept of regular
employment as defined therein should be construed to refer to the
substantive evil that the Code itself has singled out; agreements
entered into precisely to circumvent security of tenure. It should have
no application to instances where a fixed period of employment was
agreed upon knowingly and voluntarily by the parties, without any
force, duress or improper pressure being brought to bear upon the
employee and absent any other circumstances vitiating his consent, or

where it satisfactorily appears that the employer and employee dealt

with each other on more or less equal terms with no moral dominance
whatever being exercised by the former over the latter. Unless thus
limited in its purview, the law would be made to apply to purposes other than
those explicitly stated by its framers; it thus becomes pointless and arbitrary,
unjust in its effects and apt to lead to absurd and unintended consequences.
Again, in Pablo Coyoca v. NLRC,[18] the Court also held that a seafarer is not a
regular employee and is not entitled to separation pay. His employment is
governed by the POEA Standard Employment Contract for Filipino Seamen.
XXX. In this connection, it is important to note that neither does the POEA
standard employment contract for Filipino seamen provide for such benefits.
As a Filipino seaman, petitioner is governed by the Rules and
Regulations Governing Overseas Employment and the said Rules do
not provide for separation or termination pay. What is embodied in
petitioners contract is the payment of compensation arising from permanent
partial disability during the period of employment. We find that private
respondent complied with the terms of contract when it paid petitioner
P42,315.00 which, in our opinion, is a reasonable amount, as compensation for
his illness.
Lastly, petitioner claims that he eventually became a regular employee of
private respondent and thus falls within the purview of Articles 284 and 95 of
the Labor Code. In support of this contention, petitioner cites the case
of Worth Shipping Service, Inc., et al. v. NLRC, et al., wherein we held that the
crew members of the shipping company had attained regular status and thus,
were entitled to separation pay. However, the facts of said case differ from the
present. In Worth, we held that the principal and agent had operational
control and management over the MV Orient Carrier and thus, were the actual
employers of their crew members.
From the foregoing cases, it is clear that seafarers are considered contractual
employees. They can not be considered as regular employees under Article
280 of the Labor Code. Their employment is governed by the contracts they
sign everytime they are rehired and their employment is terminated when the
contract expires. Their employment is contractually fixed for a certain period of
time. They fall under the exception of Article 280 whose employment has been
fixed for a specific project or undertaking the completion or termination of
which has been determined at the time of engagement of the employee or
where the work or services to be performed is seasonal in nature and the
employment is for the duration of the season. [19] We need not depart from the
rulings of the Court in the two aforementioned cases which indeed
constitute stare decisis with respect to the employment status of seafarers.
Petitioners insist that they should be considered regular employees, since they
have rendered services which are usually necessary and desirable to the
business of their employer, and that they have rendered more than twenty(20)
years of service. While this may be true, the Brent case has, however, held
that there are certain forms of employment which also require the performance
of usual and desirable functions and which exceed one year but do not
necessarily attain regular employment status under Article 280. [20] Overseas
workers including seafarers fall under this type of employment which are
governed by the mutual agreements of the parties.
In this jurisdiction and as clearly stated in the Coyoca case, Filipino seamen are
governed by the Rules and Regulations of the POEA. The Standard Employment
Contract governing the employment of All Filipino seamen on Board OceanGoing Vessels of the POEA, particularly in Part I, Sec. C specifically provides that

the contract of seamen shall be for a fixed period. And in no case should the
contract of seamen be longer than 12 months. It reads:
Section C. Duration of Contract
The period of employment shall be for a fixed period but in no case to exceed
12 months and shall be stated in the Crew Contract. Any extension of the
Contract period shall be subject to the mutual consent of the parties.
Moreover, it is an accepted maritime industry practice that employment of
seafarers are for a fixed period only. Constrained by the nature of their
employment which is quite peculiar and unique in itself, it is for the mutual
interest of both the seafarer and the employer why the employment status
must be contractual only or for a certain period of time. Seafarers spend most
of their time at sea and understandably, they can not stay for a long and an
indefinite period of time at sea.[21] Limited access to shore society during the
employment will have an adverse impact on the seafarer. The national, cultural
and lingual diversity among the crew during the COE is a reality that
necessitates the limitation of its period.[22]
Petitioners make much of the fact that they have been continually re-hired or
their contracts renewed before the contracts expired (which has admittedly
been going on for twenty (20) years). By such circumstance they claim to have
acquired regular status with all the rights and benefits appurtenant to it.
Such contention is untenable. Undeniably, this circumstance of continuous rehiring was dictated by practical considerations that experienced crew members
are more preferred. Petitioners were only given priority or preference because
of their experience and qualifications but this does not detract the fact that
herein petitioners are contractual employees. They can not be considered
regular employees. We quote with favor the explanation of the NLRC in this
wise:
Xxx The reference to permanent and probationary masters and employees
in these papers is a misnomer and does not alter the fact that the contracts for
enlistment between complainants-appellants and respondent-appellee Esso
International were for a definite periods of time, ranging from 8 to 12
months. Although the use of the terms permanent and probationary is
unfortunate, what is really meant is eligible for-re-hire. This is the only logical
conclusion possible because the parties cannot and should not violate POEAs
requirement that a contract of enlistment shall be for a limited period only; not
exceeding twelve (12)months.[23]
From all the foregoing, we hereby state that petitioners are not considered
regular or permanent employees under Article 280 of the Labor
Code. Petitioners employment have automatically ceased upon the expiration
of their contracts of enlistment (COE). Since there was no dismissal to speak
of, it follows that petitioners are not entitled to reinstatement or payment of
separation pay or backwages, as provided by law.
With respect to the benefits under the Consecutive Enlistment Incentive Plan
(CEIP), we hold that the petitioners are still entitled to receive 100% of the total
amount credited to him under the CEIP. Considering that we have declared that
petitioners are contractual employees, their compensation and benefits are
covered by the contracts they signed and the CEIP is part and parcel of the
contract.
The CEIP was formulated to entice seamen to stay long in the company. As the
name implies, the program serves as an incentive for the employees to renew
their contracts with the same company for as long as their services were
needed. For those who remained loyal to them, they were duly rewarded with
this additional remuneration under the CEIP, if eligible. While this is an act of
benevolence on the part of the employer, it can not, however, be denied that

this is part of the benefits accorded to the employees for services

rendered. Such right to the benefits is vested upon them upon their eligibility
to the program.
The CEIP provides that an employee becomes covered under the Plan when he
completes thirty-six (36) months or an equivalent of three (3) years of credited
service with respect to employment after June 30, 1973. [24] Upon eligibility, an
amount shall be credited to his account as it provides, among others:
III.
Distribution of Benefits
A.
Retirement, Death and Disability
When the employment of an employee terminates because of his retirement,
death or permanent and total disability, a percentage of the total amount
credited to his account will be distributed to him (or his eligible survivor(s) in
accordance with the following:
Reason for Termination
Percentage
a) Attainment of mandatory retire100%
ment age of 60.
b) Permanent and total disability,
100%
while under contract, that is
not due to accident or misconduct.
c) Permanent and total disability,
100%
while under contract, that is
due to accident, and not due to
misconduct.
xxx
B.
Voluntary Termination
When an employee voluntary terminates his employment with at least 36
months of credited service without any misconduct on his part, 18 percent of
the total amount credited to his account, plus an additional of one percent
for each month (up to a maximum of 164 months of credited service in excess
of 36, will be distributed to him provided (1) the employee has completed his
last Contract of Enlistment and (2) employee advises the company in writing,
within 30 days, from his last disembarkation date, of his intention to terminate
his employment. (To advise the Company in writing means that the original
letter must be sent to the Companys agent in the Philippines, a copy sent to
the Company in New York).
xxx
C.
Other Terminations
When the employment of an employee is terminated by the Company for a
reason other than one in A and B above, without any misconduct on his part, a
percentage of the total amount credited to his account will be distributed to
him in accordance with the following.
Credited Service
Percentage
36 months
50%
48
75%
60
100%
When the employment of an employee is terminated due to his poorperformance, misconduct, unavailability, etc., or if employee is not offered reengagement for similar reasons, no distribution of any portion of employees
account will ever be made to him (or his eligible survivor[s]).
It must be recalled that on June 21, 1989, Millares wrote a letter to his
employer informing his intention to avail of the optional retirement plan under
the CEIP considering that he has rendered more than twenty (20) years of
continuous service. Lagda, likewise, manifested the same intention in a letter
dated June 26, 1989. Private respondent, however, denied their requests for

benefits under the CEIP since: (1) the contract of enlistment (COE) did not
provide for retirement before 60 years of age; and that (2) petitioners failed to
submit a written notice of their intention to terminate their employment within
thirty (30) days from the last disembarkation date pursuant to the provision on
Voluntary Termination of the CEIP. Petitioners were eventually dropped from
the roster of crew members and on grounds of abandonment and
unavailability for contractual sea service, respectively, they were disqualified
from receiving any benefits under the CEIP. [25]
In our March 14, 2000 Decision, we, however, found that petitioners Millares
and Lagda were not guilty of abandonment or unavailability for contractual
sea service, as we have stated:
The absence of petitioners was justified by the fact that they secured the
approval of private respondents to take a leave of absence after the
termination of their last contracts of enlistment. Subsequently, petitioners
sought for extensions of their respective leaves of
absence. Granting arguendo that their subsequent requests for extensions
were not approved, it cannot be said that petitioners were unavailable or had
abandoned their work when they failed to report back for assignment as they
were still questioning the denial of private respondents of their desire to avail
of the optional early retirement policy, which they believed in good faith to
exist.[26]
Neither can we consider petitioners guilty of poor performance or misconduct
since they were recipients of Merit Pay Awards for their exemplary
performances in the company.
Anent the letters dated June 21, 1989 (for Millares) and June 26, 1989 (for
Lagda) which private respondent considered as belated written notices of
termination, we find such assertion specious. Notwithstanding, we could
conveniently consider the petitioners eligible under Section III-B of the CEIP
(Voluntary Termination), but this would, however, award them only a measly
amount of benefits which to our mind, the petitioners do not rightfully deserve
under the facts and circumstances of the case. As the CEIP provides:
III. Distribution of Benefits
xxx
E. Distribution of Accounts
When an employee terminates under conditions that would qualify for a
distribution of more than one specified in A, B or C above, the largest single
amount, only, will be distributed.
Since petitioners termination of employment under the CEIP do not fall under
Section III-A (Retirement, Death and Disability) or Section III-B (Voluntary
Termination), nor could they be considered under the second paragraph of
Section III-C, as earlier discussed; it follows that their termination falls under
the first paragraph of Section III-C for which they are entitled to 100% of the
total amount credited to their accounts. The private respondents can not now
renege on their commitment under the CEIP to reward deserving and loyal
employees as the petitioners in this case.
In taking cognizance of private respondents Second Motion for
Reconsideration, the Court hereby suspends the rules to make them
conformable to law and justice and to subserve an overriding public interest.
IN VIEW OF THE FOREGOING, THE COURT Resolved to Partially
GRANT Private Respondents Second Motion for Reconsideration and
Intervenor FAMES Motion for Reconsideration in Intervention. The Decision of
the National Labor Relations Commission dated June 1, 1993 is hereby
REINSTATED with MODIFICATION. The Private Respondents, Trans-Global
Maritime Agency, Inc. and Esso International Shipping Co.,Ltd. are hereby

jointly and severally ORDERED to pay petitioners One Hundred Percent (100%)
of their total credited contributions as provided under the Consecutive
Enlistment Incentive Plan(CEIP).
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, and Ynares-Santiago, JJ., concur.
Austria-Martinez, J., no part. Did not participate in the Decision.
SECOND DIVISION
[G.R. No. 121962. April 30, 1999]
ESPERANZA C. ESCORPIZO, and UNIVERSITY OF BAGUIO FACULTY
EDUCATION WORKERS UNION, petitioners, vs. UNIVERSITY OF BAGUIO
and VIRGILIO C. BAUTISTA and NATIONAL LABOR RELATIONS
COMMISSION, respondents.
DECISION
QUISUMBING, J.:
This special civil action for certiorari seeks to annul the Resolution[1] of NLRC
promulgated on May 31, 1995 in NLRC Case No. RAB - CAR - 07-0217-92 which
dismissed petitioners appeal and affirmed the decision of the Labor Arbiter.
Petitioner Esperanza Escorpizo was initially hired by respondent university on
June 13, 1989 as a high school classroom teacher. Under the rules of the
respondent university, appointment to teach during the first two years at the
university is probationary in nature. During the probation period, the teacher is
observed and evaluated to determine his competency. Attainment of a
permanent status by a faculty member is conditioned upon compliance with
certain requirements, such as passing the professional board examination for
teachers (PBET).
On March 18, 1991, respondent university informed Escorpizo that her
employment was being terminated at the end of the school semester in view of
her failure to pass the PBET. But before the start of the school year 1991-1992,
Escorpizo reapplied and pleaded that she be given another chance. She told
the respondent school that she had just taken the PBET and hoped to pass it.
As Escorpizos appeal was favorably considered, she was allowed to teach
during the school year 1991-1992. However, her continued employment was
conditioned on her passing the PBET. Unfortunately, Escorpizo failed
again. Undaunted, Escorpizo took the examination a third time in November
1991. At the end of the school year 1991-1992, respondent university
evaluated the teachers performance to determine who would be in the list for
the next school year. Escorpizo, not having passed the PBET yet, was not
included.
Much later, on June 8, 1992, the results of the PBET were released and this time
Escorpizo passed said examination. Nevertheless, on June 15, 1992,
respondent university no longer renewed Escorpizos contract of employment
on the ground that she failed to qualify as a regular teacher. This prompted
Escorpizo to file on July 16, 1992 a complaint for illegal dismissal, payment of
backwages and reinstatement against private respondents.
On June 22, 1993, the labor arbiter ruled that respondent university had a
permissible reason in not renewing the employment contract of Escorpizo.
[2]
Nevertheless, the labor official ordered the reinstatement of Escorpizo and
disposed of the case as follows:
WHEREFORE, evidence and law considered, the respondents are hereby
directed to cause the immediate reinstatement of the complainant but without
backwages, and to extend to her regular status.
All other claims are hereby dismissed for lack of merit.
SO ORDERED.[3]

Dissatisfied with the decision there being no award of backwages, Escorpizo

appealed to the National Labor Relations Commission (NLRC). But in its
assailed Resolution[4] dated May 31, 1995, the NLRC dismissed said appeal and
affirmed the labor arbiters decision.
Instead of filing the required motion for reconsideration, petitioners filed this
instant petition[5] imputing grave abuse of discretion on the part of public
respondent in affirming the decision of the labor arbiter.
This precipitate filing of petition for certiorari under Rule 65 without first
moving for reconsideration of the assailed resolution warrants the outright
dismissal of this case. As we consistently held in numerous cases, [6] a motion
for reconsideration is indispensable for it affords the NLRC an opportunity to
rectify errors or mistakes it might have committed before resort to the courts
can be had.
It is settled that certiorari will lie only if there is no appeal or any other plain,
speedy and adequate remedy in the ordinary course of law against acts of
public respondents. In the case at bar, the plain and adequate remedy
expressly provided by law was a motion for reconsideration of the impugned
resolution, based on palpable or patent errors, to be made under oath and filed
within ten (10) days from receipt of the questioned resolution of the NLRC, [7] a
procedure which is jurisdictional. Hence, original action of certiorari, as in this
case, will not prosper. Further, it should be stressed that without a motion for
reconsideration seasonably filed within the ten-day reglementary period, the
questioned order, resolution or decision of NLRC, becomes final and executory
after ten (10) calendar days from receipt thereof. Consequently, the merits of
the case can no longer be reviewed to determine if the public respondent had
committed any grave abuse of discretion.[8]
Besides, petitioners did not comply with the rule on certification against forum
shopping. As pointed out by the private respondents, the certification in the
present petition was executed by the counsel of petitioners,[9] which is not
correct. The certification of non-forum shopping must be by the plaintiff or any
of the principal party and not the attorney.[10] This procedural lapse on the part
of petitioners is also a cause for the dismissal of this action.
To be sure, even if the aforesaid procedural and technical infirmities were to be
set aside, we find no cogent reason to depart from the decision of public
respondent as hereunder elucidated. Definitely, no grave abuse of discretion
could be imputed to the public respondent in affirming the decision of the labor
arbiter.
Petitioners contend that Escorpizo had attained the status of a regular
employee having rendered very satisfactory performance as probationary
teacher for two years, consistent with the collective bargaining agreement
between the respondent university and petitioner union of which Escorpizo is a
member. They argue that the prerequisite prescribed by respondent university
that teachers pass the PBET to attain regular employment has no legal basis
because it is not stipulated in the collective bargaining agreement.
This contention, in our view, is bereft of merit.
A probationary employee is one who, for a given period of time, is being
observed and evaluated to determine whether or not he is qualified for
permanent employment. A probationary appointment affords the employer an
opportunity to observe the skill, competence and attitude of a probationer. The
word probationary, as used to describe the period of employment, implies the
purpose of the term or period. While the employer observes the fitness,
propriety and efficiency of a probationer to ascertain whether he is qualified for
permanent employment, the probationer at the same time, seeks to prove to

the employer that he has the qualifications to meet the reasonable standards
for permanent employment.[11]
There is no dispute that Escorpizo was a probationary employee from the time
she was employed on June 13, 1989 and until the end of the school semester in
March 1991 or for two academic years. Thereafter, on her plea, she was again
allowed to teach for school year 1991-1992. She knew that her status then was
not that of a regular employee. For, she was also aware that her attainment of
a regular employment is conditioned upon compliance with the requisites
attached to her position, pursuant to the rules prescribed by respondent
university, to wit:
PROBATIONARY STATUS
An appointment to teach during the first two years at the University is
probationary in nature. xxx.
During the period of probation (four semesters, excluding summer terms), the
teacher is observed and evaluated formally by a committee composed of: (1)
the most ranking/senior member of the faculty in his discipline/field of
specialization, (2) his department head or college dean, (3) the Personnel
Director and (4) the Vice President for Academic Affairs, including his students
to determine his competency and fitness to be elevated to permanent status.
xxx
xxx
xxx
Permanent status is granted to the faculty member of the high school or
elementary school who has satisfactorily complied with the requirements of the
probationary period, has at least a bachelors degree in education, and
has passed the Professional Teacher Board Examination or an equivalent Civil
Service Examination.[12]
Under the aforecited rule, the following conditions must concur in order that a
probationary teacher may be extended a regular appointment; (1) the faculty
member must satisfactorily complete the probationary period of four semesters
or two years, within which his performance shall be observed and evaluated for
the purpose of determining his competency and fitness to be extended
permanent status; and (2) the faculty member must pass the PBET or an
equivalent civil service examination.
Admittedly, while Escorpizo met the first requirement, she did not fulfill the
second. She had failed the PBET twice at the time her probationary period
ended. That she did not qualify to become a permanent employee is further
evidenced by the fact that before her employment contract expired, she was
informed that her services would be terminated by the end of the school year in
March 1991. When she was given, upon her plea, a teaching load in the next
succeeding school year, it was already beyond the two-year probationary
period. The most that could be conceded in this situation is that her continued
employment was deemed an extension, ex-gratia, of her probationary period,
affording her another chance to pass the requisite licensure test for teachers.
[13]
Petitioners did not even deny that Escorpizo was rehired on a temporary
basis on condition that she has to pass the PBET in order to become a
permanent employee. Under no circumstance could continued employment
alone beyond the two-year period bestow on her the status of a regular
employee. It was only after fulfilling the cited second requirement when, on
the third try, she passed the PBET that she qualified for regular and permanent
employment.
Petitioners reliance on the collective bargaining agreement (CBA) alone is not
tenable. Indeed, provisions of a CBA must be respected since its terms and
conditions constitute the law between the contracting parties. Those who are
entitled to its benefits can invoke its provisions. And in the event that an
obligation therein imposed is not fulfilled, the aggrieved party has the right to

go to court for redress.[14] To buttress their position, petitioners cite the

following provision of the CBA between respondent university and petitioner
union:
SECTION 3. Probationary academic employees. A probationary academic
employee is one hired by the Administration on trial or probation for the
purpose of occupying, if found fit and qualified, a permanent or regular position
in the University. Before such probationary employee becomes regular or
permanent, he shall undergo for two (2) years, which period however, may be
reduced by the Administration at the latters discretion.[15]
Clearly, the abovequoted provision does not mention that passing the PBET is a
prerequisite for attaining permanent status as a teacher. Nevertheless, the
aforecited CBA provision must be read in conjunction with statutory and
administrative regulations governing faculty qualifications. It is settled that an
existing law enters into and forms part of a valid contract without the need for
the parties expressly making reference to it. [16] Further, while contracting
parties may establish such stipulations, clauses, terms and conditions as they
may see fit, such right to contract is subject to limitation that the agreement
must not be contrary to law or public policy. [17]
In this connection, DECS Order No. 38, series of 1990, a regulation
implementing Presidential Decree No. 1006[18] or the Decree Professionalizing
Teaching stipulates that no person shall be allowed to engage in teaching
and/or act as a teacher unless he has registered as professional teacher with
the National Board for Teachers. To be eligible as professional teacher, one
must have passed the board examination for teachers or the examinations
given by the Civil Service Commission or jointly by the Department of
Education, Culture & Sports and the Civil Service Commission. The Order also
provides that effective January 1, 1992, no teacher in the private schools shall
be allowed to teach unless he or she is a registered professional
teacher. Significantly, school officials are enjoined by the said administrative
order to ensure that all persons engaged in teaching in the public or private
elementary or secondary schools are registered professional teachers.
Undoubtedly, the requirement of passing the PBET before one could become a
regular employee as prescribed by respondent university is legally in
order. Being a prerequisite imposed by law, such requirement could not have
been waived by respondent university, as herein insisted by petitioners. In the
same vein, petitioners proposition that upon completion of two-year
probationary period with a very satisfactory performance, Escorpizo
automatically becomes permanent is not correct. For as earlier stressed,
Escorpizo could only qualify to become permanent employee upon fulfilling the
reasonable standards for permanent employment which include passing the
board examination for teachers.
This is by no means to assert that probationary teachers do not enjoy security
of tenure. They enjoy security of tenure in the sense that during their
probationary employment they cannot be dismissed except for
cause. However, upon expiration of their contract of employment, probationary
academic personnel cannot claim security of tenure and compel their
employers to renew their employment contracts. [19] In fact, the services of an
employee hired on probationary basis may be terminated when he fails to
qualify as a regular employee in accordance with reasonable standards made
known by the employer to the employee at the time of his engagement. There
is nothing that would hinder the employer from extending a regular or
permanent appointment to an employee once the employer finds that the
employee is qualified for regular employment even before the expiration of the
probationary period. Conversely, if the purpose sought by the employer is

neither attained nor attainable within the said period, the law does not preclude
the employer from terminating the probationary employment on justifiable
ground.[20]
In the instant case, Escorpizo was entitled to security of tenure during the
period of her probation but such protection ended the moment her employment
contract expired at the close of school year 1991-1992 and she was not
extended a new appointment. No vested right to a permanent appointment
had as yet accrued in Escorpizos favor since she had not yet complied, during
her probation, with the prerequisites necessary for the acquisition of permanent
status.[21] Consequently, as respondent university was not under obligation to
renew Escorpizos contract of employment, her separation cannot be said to
have been without justifiable cause. Legally speaking, Escorpizo was not
illegally dismissed. Her contract merely expired.
WHEREFORE, the instant petition is hereby DISMISSED, and the assailed
RESOLUTION of public respondent is hereby AFFIRMED. Costs against
petitioners.
SO ORDERED.
Bellosillo, (Chairman), Puno, Mendoza, and Buena, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-66826 August 19, 1988
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT and ZSHORNACK respondents.
Pacis & Reyes Law Office for petitioner.
Ernesto T. Zshornack, Jr. for private respondent.
CORTES, J.:
The original parties to this case were Rizaldy T. Zshornack and the Commercial
Bank and Trust Company of the Philippines [hereafter referred to as
"COMTRUST."] In 1980, the Bank of the Philippine Islands (hereafter referred to
as BPI absorbed COMTRUST through a corporate merger, and was substituted
as party to the case.
Rizaldy Zshornack initiated proceedings on June 28,1976 by filing in the Court
of First Instance of Rizal Caloocan City a complaint against COMTRUST
alleging four causes of action. Except for the third cause of action, the CFI ruled
in favor of Zshornack. The bank appealed to the Intermediate Appellate Court
which modified the CFI decision absolving the bank from liability on the fourth
cause of action. The pertinent portions of the judgment, as modified, read:
IN VIEW OF THE FOREGOING, the Court renders judgment as follows:
1. Ordering the defendant COMTRUST to restore to the dollar savings account
of plaintiff (No. 25-4109) the amount of U.S $1,000.00 as of October 27, 1975
to earn interest together with the remaining balance of the said account at the
rate fixed by the bank for dollar deposits under Central Bank Circular 343;
2. Ordering defendant COMTRUST to return to the plaintiff the amount of U.S.
$3,000.00 immediately upon the finality of this decision, without interest for
the reason that the said amount was merely held in custody for safekeeping,
but was not actually deposited with the defendant COMTRUST because being
cash currency, it cannot by law be deposited with plaintiffs dollar account and
defendant's only obligation is to return the same to plaintiff upon demand;
xxx xxx xxx
5. Ordering defendant COMTRUST to pay plaintiff in the amount of P8,000.00 as
damages in the concept of litigation expenses and attorney's fees suffered by
plaintiff as a result of the failure of the defendant bank to restore to his
(plaintiffs) account the amount of U.S. $1,000.00 and to return to him (plaintiff)
the U.S. $3,000.00 cash left for safekeeping.
Costs against defendant COMTRUST.
SO ORDERED. [Rollo, pp. 47-48.]
Undaunted, the bank comes to this Court praying that it be totally absolved
from any liability to Zshornack. The latter not having appealed the Court of
Appeals decision, the issues facing this Court are limited to the bank's liability
with regard to the first and second causes of action and its liability for
damages.
1. We first consider the first cause of action, On the dates material to this case,
Rizaldy Zshornack and his wife, Shirley Gorospe, maintained in COMTRUST,
Quezon City Branch, a dollar savings account and a peso current account.
On October 27, 1975, an application for a dollar draft was accomplished by
Virgilio V. Garcia, Assistant Branch Manager of COMTRUST Quezon City, payable
to a certain Leovigilda D. Dizon in the amount of $1,000.00. In the application,
Garcia indicated that the amount was to be charged to Dollar Savings Acct. No.

25-4109, the savings account of the Zshornacks; the charges for commission,
documentary stamp tax and others totalling P17.46 were to be charged to
Current Acct. No. 210465-29, again, the current account of the Zshornacks.
There was no indication of the name of the purchaser of the dollar draft.
On the same date, October 27,1975, COMTRUST, under the signature of Virgilio
V. Garcia, issued a check payable to the order of Leovigilda D. Dizon in the sum
of US $1,000 drawn on the Chase Manhattan Bank, New York, with an indication
that it was to be charged to Dollar Savings Acct. No. 25-4109.
When Zshornack noticed the withdrawal of US$1,000.00 from his account, he
demanded an explanation from the bank. In answer, COMTRUST claimed that
the peso value of the withdrawal was given to Atty. Ernesto Zshornack, Jr.,
brother of Rizaldy, on October 27, 1975 when he (Ernesto) encashed with
COMTRUST a cashier's check for P8,450.00 issued by the Manila Banking
Corporation payable to Ernesto.
Upon consideration of the foregoing facts, this Court finds no reason to disturb
the ruling of both the trial court and the Appellate Court on the first cause of
action. Petitioner must be held liable for the unauthorized withdrawal of
US$1,000.00 from private respondent's dollar account.
In its desperate attempt to justify its act of withdrawing from its depositor's
savings account, the bank has adopted inconsistent theories. First, it still
maintains that the peso value of the amount withdrawn was given to Atty.
Ernesto Zshornack, Jr. when the latter encashed the Manilabank Cashier's
Check. At the same time, the bank claims that the withdrawal was made
pursuant to an agreement where Zshornack allegedly authorized the bank to
withdraw from his dollar savings account such amount which, when converted
to pesos, would be needed to fund his peso current account. If indeed the peso
equivalent of the amount withdrawn from the dollar account was credited to
the peso current account, why did the bank still have to pay Ernesto?
At any rate, both explanations are unavailing. With regard to the first
explanation, petitioner bank has not shown how the transaction involving the
cashier's check is related to the transaction involving the dollar draft in favor of
Dizon financed by the withdrawal from Rizaldy's dollar account. The two
transactions appear entirely independent of each other. Moreover, Ernesto
Zshornack, Jr., possesses a personality distinct and separate from Rizaldy
Zshornack. Payment made to Ernesto cannot be considered payment to Rizaldy.
As to the second explanation, even if we assume that there was such an
agreement, the evidence do not show that the withdrawal was made pursuant
to it. Instead, the record reveals that the amount withdrawn was used to
finance a dollar draft in favor of Leovigilda D. Dizon, and not to fund the current
account of the Zshornacks. There is no proof whatsoever that peso Current
Account No. 210-465-29 was ever credited with the peso equivalent of the
US$1,000.00 withdrawn on October 27, 1975 from Dollar Savings Account No.
25-4109.
2. As for the second cause of action, the complaint filed with the trial court
alleged that on December 8, 1975, Zshornack entrusted to COMTRUST, thru
Garcia, US $3,000.00 cash (popularly known as greenbacks)
forsafekeeping, and that the agreement was embodied in a document, a copy
of which was attached to and made part of the complaint. The document reads:
Makati Cable Address:
Philippines "COMTRUST"
COMMERCIAL BANK AND TRUST COMPANY
of the Philippines
Quezon City Branch
December 8, 1975

MR. RIZALDY T. ZSHORNACK

&/OR MRS SHIRLEY E. ZSHORNACK
Sir/Madam:
We acknowledged (sic) having received from you today the sum of US
DOLLARS: THREE THOUSAND ONLY (US$3,000.00) for safekeeping.
Received by:
(Sgd.) VIRGILIO V. GARCIA
It was also alleged in the complaint that despite demands, the bank refused to
return the money.
In its answer, COMTRUST averred that the US$3,000 was credited to
Zshornack's peso current account at prevailing conversion rates.
It must be emphasized that COMTRUST did not deny specifically under oath the
authenticity and due execution of the above instrument.
During trial, it was established that on December 8, 1975 Zshornack indeed
delivered to the bank US $3,000 for safekeeping. When he requested the return
of the money on May 10, 1976, COMTRUST explained that the sum was
disposed of in this manner: US$2,000.00 was sold on December 29, 1975 and
the peso proceeds amounting to P14,920.00 were deposited to Zshornack's
current account per deposit slip accomplished by Garcia; the remaining
US$1,000.00 was sold on February 3, 1976 and the peso proceeds amounting
to P8,350.00 were deposited to his current account per deposit slip also
accomplished by Garcia.
Aside from asserting that the US$3,000.00 was properly credited to
Zshornack's current account at prevailing conversion rates, BPI now posits
another ground to defeat private respondent's claim. It now argues that the
contract embodied in the document is the contract of depositum (as defined in
Article 1962, New Civil Code), which banks do not enter into. The bank alleges
that Garcia exceeded his powers when he entered into the transaction. Hence,
it is claimed, the bank cannot be liable under the contract, and the obligation is
purely personal to Garcia.
Before we go into the nature of the contract entered into, an important point
which arises on the pleadings, must be considered.
The second cause of action is based on a document purporting to be signed by
COMTRUST, a copy of which document was attached to the complaint. In short,
the second cause of action was based on an actionable document. It was
therefore incumbent upon the bank to specifically deny under oath the due
execution of the document, as prescribed under Rule 8, Section 8, if it desired:
(1) to question the authority of Garcia to bind the corporation; and (2) to deny
its capacity to enter into such contract. [See, E.B. Merchant v. International
Banking Corporation, 6 Phil. 314 (1906).] No sworn answer denying the due
execution of the document in question, or questioning the authority of Garcia to
bind the bank, or denying the bank's capacity to enter into the contract, was
ever filed. Hence, the bank is deemed to have admitted not only Garcia's
authority, but also the bank's power, to enter into the contract in question.
In the past, this Court had occasion to explain the reason behind this
procedural requirement.
The reason for the rule enunciated in the foregoing authorities will, we think, be
readily appreciated. In dealing with corporations the public at large is bound to
rely to a large extent upon outward appearances. If a man is found acting for a
corporation with the external indicia of authority, any person, not having notice
of want of authority, may usually rely upon those appearances; and if it be
found that the directors had permitted the agent to exercise that authority and
thereby held him out as a person competent to bind the corporation, or had
acquiesced in a contract and retained the benefit supposed to have been

conferred by it, the corporation will be bound, notwithstanding the actual

authority may never have been granted
... Whether a particular officer actually possesses the authority which he
assumes to exercise is frequently known to very few, and the proof of it usually
is not readily accessible to the stranger who deals with the corporation on the
faith of the ostensible authority exercised by some of the corporate officers. It
is therefore reasonable, in a case where an officer of a corporation has made a
contract in its name, that the corporation should be required, if it denies his
authority, to state such defense in its answer. By this means the plaintiff is
apprised of the fact that the agent's authority is contested; and he is given an
opportunity to adduce evidence showing either that the authority existed or
that the contract was ratified and approved. [Ramirez v. Orientalist Co. and
Fernandez, 38 Phil. 634, 645- 646 (1918).]
Petitioner's argument must also be rejected for another reason. The practical
effect of absolving a corporation from liability every time an officer enters into
a contract which is beyond corporate powers, even without the proper
allegation or proof that the corporation has not authorized nor ratified the
officer's act, is to cast corporations in so perfect a mold that transgressions and
wrongs by such artificial beings become impossible [Bissell v. Michigan
Southern and N.I.R. Cos 22 N.Y 258 (1860).] "To say that a corporation has no
right to do unauthorized acts is only to put forth a very plain truism but to say
that such bodies have no power or capacity to err is to impute to them an
excellence which does not belong to any created existence with which we are
acquainted. The distinction between power and right is no more to be lost sight
of in respect to artificial than in respect to natural persons." [Ibid.]
Having determined that Garcia's act of entering into the contract binds the
corporation, we now determine the correct nature of the contract, and its legal
consequences, including its enforceability.
The document which embodies the contract states that the US$3,000.00 was
received by the bank for safekeeping. The subsequent acts of the parties also
show that the intent of the parties was really for the bank to safely keep the
dollars and to return it to Zshornack at a later time, Thus, Zshornack demanded
the return of the money on May 10, 1976, or over five months later.
The above arrangement is that contract defined under Article 1962, New Civil
Code, which reads:
Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of returning
the same. If the safekeeping of the thing delivered is not the principal purpose
of the contract, there is no deposit but some other contract.
Note that the object of the contract between Zshornack and COMTRUST was
foreign exchange. Hence, the transaction was covered by Central Bank Circular
No. 20, Restrictions on Gold and Foreign Exchange Transactions, promulgated
on December 9, 1949, which was in force at the time the parties entered into
the transaction involved in this case. The circular provides:
xxx xxx xxx
2. Transactions in the assets described below and all dealings in them of
whatever nature, including, where applicable their exportation and
importation, shall NOT be effected, except with respect to deposit accounts
included in sub-paragraphs (b) and (c) of this paragraph, when such deposit
accounts are owned by and in the name of, banks.
(a) Any and all assets, provided they are held through, in, or with banks or
banking institutions located in the Philippines, including money, checks, drafts,
bullions bank drafts, deposit accounts (demand, time and savings), all debts,
indebtedness or obligations, financial brokers and investment houses, notes,

debentures, stocks, bonds, coupons, bank acceptances, mortgages, pledges,

liens or other rights in the nature of security, expressed in foreign currencies,
or if payable abroad, irrespective of the currency in which they are expressed,
and belonging to any person, firm, partnership, association, branch office,
agency, company or other unincorporated body or corporation residing or
located within the Philippines;
(b) Any and all assets of the kinds included and/or described in subparagraph
(a) above, whether or not held through, in, or with banks or banking
institutions, and existent within the Philippines, which belong to any person,
firm, partnership, association, branch office, agency, company or other
unincorporated body or corporation not residing or located within the
Philippines;
(c) Any and all assets existent within the Philippines including money, checks,
drafts, bullions, bank drafts, all debts, indebtedness or obligations, financial
securities commonly dealt in by bankers, brokers and investment houses,
notes, debentures, stock, bonds, coupons, bank acceptances, mortgages,
pledges, liens or other rights in the nature of security expressed in foreign
currencies, or if payable abroad, irrespective of the currency in which they are
expressed, and belonging to any person, firm, partnership, association, branch
office, agency, company or other unincorporated body or corporation residing
or located within the Philippines.
xxx xxx xxx
4. (a) All receipts of foreign exchange shall be sold daily to the Central Bank by
those authorized to deal in foreign exchange. All receipts of foreign exchange
by any person, firm, partnership, association, branch office, agency, company
or other unincorporated body or corporation shall be sold to the authorized
agents of the Central Bank by the recipients within one business day following
the receipt of such foreign exchange. Any person, firm, partnership,
association, branch office, agency, company or other unincorporated body or
corporation, residing or located within the Philippines, who acquires on and
after the date of this Circular foreign exchange shall not, unless licensed by the
Central Bank, dispose of such foreign exchange in whole or in part, nor receive
less than its full value, nor delay taking ownership thereof except as such delay
is customary; Provided, further, That within one day upon taking ownership, or
receiving payment, of foreign exchange the aforementioned persons and
entities shall sell such foreign exchange to designated agents of the Central
Bank.
xxx xxx xxx
8. Strict observance of the provisions of this Circular is enjoined; and any
person, firm or corporation, foreign or domestic, who being bound to the
observance thereof, or of such other rules, regulations or directives as may
hereafter be issued in implementation of this Circular, shall fail or refuse to
comply with, or abide by, or shall violate the same, shall be subject to the
penal sanctions provided in the Central Bank Act.
xxx xxx xxx
Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular No.
281, Regulations on Foreign Exchange, promulgated on November 26, 1969 by
limiting its coverage to Philippine residents only. Section 6 provides:
SEC. 6. All receipts of foreign exchange by any resident person, firm, company
or corporation shall be sold to authorized agents of the Central Bank by the
recipients within one business day following the receipt of such foreign
exchange. Any resident person, firm, company or corporation residing or
located within the Philippines, who acquires foreign exchange shall not, unless
authorized by the Central Bank, dispose of such foreign exchange in whole or in

part, nor receive less than its full value, nor delay taking ownership thereof
except as such delay is customary; Provided, That, within one business day
upon taking ownership or receiving payment of foreign exchange the
aforementioned persons and entities shall sell such foreign exchange to the
authorized agents of the Central Bank.
As earlier stated, the document and the subsequent acts of the parties show
that they intended the bank to safekeep the foreign exchange, and return it
later to Zshornack, who alleged in his complaint that he is a Philippine resident.
The parties did not intended to sell the US dollars to the Central Bank within
one business day from receipt. Otherwise, the contract of depositum would
never have been entered into at all.
Since the mere safekeeping of the greenbacks, without selling them to the
Central Bank within one business day from receipt, is a transaction which is not
authorized by CB Circular No. 20, it must be considered as one which falls
under the general class of prohibited transactions. Hence, pursuant to Article 5
of the Civil Code, it is void, having been executed against the provisions of a
mandatory/prohibitory law. More importantly, it affords neither of the parties a
cause of action against the other. "When the nullity proceeds from the illegality
of the cause or object of the contract, and the act constitutes a criminal
offense, both parties being in pari delicto, they shall have no cause of action
against each other. . ." [Art. 1411, New Civil Code.] The only remedy is one on
behalf of the State to prosecute the parties for violating the law.
We thus rule that Zshornack cannot recover under the second cause of action.
3. Lastly, we find the P8,000.00 awarded by the courts a quo as damages in the
concept of litigation expenses and attorney's fees to be reasonable. The award
is sustained.
WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is
ordered to restore to the dollar savings account of private respondent the
amount of US$1,000.00 as of October 27, 1975 to earn interest at the rate fixed
by the bank for dollar savings deposits. Petitioner is further ordered to pay
private respondent the amount of P8,000.00 as damages. The other causes of
action of private respondent are ordered dismissed.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 90027 March 3, 1993
CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,
vs.
THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.
Dolorfino & Dominguez Law Offices for petitioner.
Danilo B. Banares for private respondent.
DAVIDE, JR., J.:
Is the contractual relation between a commercial bank and another party in a
contract of rent of a safety deposit box with respect to its contents placed by
the latter one of bailor and bailee or one of lessor and lessee?
This is the crux of the present controversy.
On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the
spouses Ramon and Paula Pugao entered into an agreement whereby the
former purchased from the latter two (2) parcels of land for a consideration of
P350,625.00. Of this amount, P75,725.00 was paid as downpayment while the
balance was covered by three (3) postdated checks. Among the terms and
conditions of the agreement embodied in a Memorandum of True and Actual
Agreement of Sale of Land were that the titles to the lots shall be transferred to
the petitioner upon full payment of the purchase price and that the owner's
copies of the certificates of titles thereto, Transfer Certificates of Title (TCT)
Nos. 284655 and 292434, shall be deposited in a safety deposit box of any
bank. The same could be withdrawn only upon the joint signatures of a
representative of the petitioner and the Pugaos upon full payment of the
purchase price. Petitioner, through Sergio Aguirre, and the Pugaos then rented
Safety Deposit Box No. 1448 of private respondent Security Bank and Trust
Company, a domestic banking corporation hereinafter referred to as the
respondent Bank. For this purpose, both signed a contract of lease (Exhibit "2")
which contains, inter alia, the following conditions:
13. The bank is not a depositary of the contents of the safe and it has neither
the possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except herein
expressly provided, and it assumes absolutely no liability in connection
therewith. 1
After the execution of the contract, two (2) renter's keys were given to the
renters one to Aguirre (for the petitioner) and the other to the Pugaos. A
guard key remained in the possession of the respondent Bank. The safety
deposit box has two (2) keyholes, one for the guard key and the other for the
renter's key, and can be opened only with the use of both keys. Petitioner
claims that the certificates of title were placed inside the said box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner
the two (2) lots at a price of P225.00 per square meter which, as petitioner
alleged in its complaint, translates to a profit of P100.00 per square meter or a
total of P280,500.00 for the entire property. Mrs. Ramos demanded the
execution of a deed of sale which necessarily entailed the production of the
certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then
proceeded to the respondent Bank on 4 October 1979 to open the safety
deposit box and get the certificates of title. However, when opened in the

presence of the Bank's representative, the box yielded no such certificates.

Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew her
earlier offer to purchase the lots; as a consequence thereof, the petitioner
allegedly failed to realize the expected profit of P280,500.00. Hence, the latter
filed on 1 September 1980 a complaint 2 for damages against the respondent
Bank with the Court of First Instance (now Regional Trial Court) of Pasig, Metro
Manila which docketed the same as Civil Case No. 38382.
In its Answer with Counterclaim, 3 respondent Bank alleged that the petitioner
has no cause of action because of paragraphs 13 and 14 of the contract of
lease (Exhibit "2"); corollarily, loss of any of the items or articles contained in
the box could not give rise to an action against it. It then interposed a
counterclaim for exemplary damages as well as attorney's fees in the amount
of P20,000.00. Petitioner subsequently filed an answer to the counterclaim. 4
In due course, the trial court, now designated as Branch 161 of the Regional
Trial Court (RTC) of Pasig, Metro Manila, rendered a decision 5 adverse to the
petitioner on 8 December 1986, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered dismissing
plaintiff's complaint.
On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to
pay defendant the amount of FIVE THOUSAND (P5,000.00) PESOS as attorney's
fees.
With costs against plaintiff. 6
The unfavorable verdict is based on the trial court's conclusion that under
paragraphs 13 and 14 of the contract of lease, the Bank has no liability for the
loss of the certificates of title. The court declared that the said provisions are
binding on the parties.
Its motion for reconsideration 7 having been denied, petitioner appealed from
the adverse decision to the respondent Court of Appeals which docketed the
appeal as CA-G.R. CV No. 15150. Petitioner urged the respondent Court to
reverse the challenged decision because the trial court erred in (a) absolving
the respondent Bank from liability from the loss, (b) not declaring as null and
void, for being contrary to law, public order and public policy, the provisions in
the contract for lease of the safety deposit box absolving the Bank from any
liability for loss, (c) not concluding that in this jurisdiction, as well as under
American jurisprudence, the liability of the Bank is settled and (d) awarding
attorney's fees to the Bank and denying the petitioner's prayer for nominal and
exemplary damages and attorney's fees. 8
In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the
appealed decision principally on the theory that the contract (Exhibit "2")
executed by the petitioner and respondent Bank is in the nature of a contract of
lease by virtue of which the petitioner and its co-renter were given control over
the safety deposit box and its contents while the Bank retained no right to open
the said box because it had neither the possession nor control over it and its
contents. As such, the contract is governed by Article 1643 of the Civil
Code 10 which provides:
Art. 1643. In the lease of things, one of the parties binds himself to give to
another the enjoyment or use of a thing for a price certain, and for a period
which may be definite or indefinite. However, no lease for more than ninetynine years shall be valid.
It invoked Tolentino vs. Gonzales 11 which held that the owner of the property
loses his control over the property leased during the period of the contract
and Article 1975 of the Civil Code which provides:
Art. 1975. The depositary holding certificates, bonds, securities or instruments
which earn interest shall be bound to collect the latter when it becomes due,

and to take such steps as may be necessary in order that the securities may
preserve their value and the rights corresponding to them according to law.
The above provision shall not apply to contracts for the rent of safety deposit
boxes.
and then concluded that "[c]learly, the defendant-appellee is not under any
duty to maintain the contents of the box. The stipulation absolving the
defendant-appellee from liability is in accordance with the nature of the
contract of lease and cannot be regarded as contrary to law, public order and
public policy." 12 The appellate court was quick to add, however, that under the
contract of lease of the safety deposit box, respondent Bank is not completely
free from liability as it may still be made answerable in case unauthorized
persons enter into the vault area or when the rented box is forced open. Thus,
as expressly provided for in stipulation number 8 of the contract in question:
8. The Bank shall use due diligence that no unauthorized person shall be
admitted to any rented safe and beyond this, the Bank will not be responsible
for the contents of any safe rented from it. 13
Its motion for reconsideration 14 having been denied in the respondent Court's
Resolution of 28 August 1989, 15 petitioner took this recourse under Rule 45 of
the Rules of Court and urges Us to review and set aside the respondent Court's
ruling. Petitioner avers that both the respondent Court and the trial court (a)
did not properly and legally apply the correct law in this case, (b) acted with
grave abuse of discretion or in excess of jurisdiction amounting to lack thereof
and (c) set a precedent that is contrary to, or is a departure from precedents
adhered to and affirmed by decisions of this Court and precepts in American
jurisprudence adopted in the Philippines. It reiterates the arguments it had
raised in its motion to reconsider the trial court's decision, the brief submitted
to the respondent Court and the motion to reconsider the latter's decision. In a
nutshell, petitioner maintains that regardless of nomenclature, the contract for
the rent of the safety deposit box (Exhibit "2") is actually a contract of deposit
governed by Title XII, Book IV of the Civil Code of the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for
the loss of the certificates of title pursuant to Article 1972 of the said Code
which provides:
Art. 1972. The depositary is obliged to keep the thing safely and to return it,
when required, to the depositor, or to his heirs and successors, or to the person
who may have been designated in the contract. His responsibility, with regard
to the safekeeping and the loss of the thing, shall be governed by the
provisions of Title I of this Book.
If the deposit is gratuitous, this fact shall be taken into account in determining
the degree of care that the depositary must observe.
Petitioner then quotes a passage from American Jurisprudence 17 which is
supposed to expound on the prevailing rule in the United States, to wit:
The prevailing rule appears to be that where a safe-deposit company leases a
safe-deposit box or safe and the lessee takes possession of the box or safe and
places therein his securities or other valuables, the relation of bailee and bail or
is created between the parties to the transaction as to such securities or other
valuables; the fact that the
safe-deposit company does not know, and that it is not expected that it shall
know, the character or description of the property which is deposited in such
safe-deposit box or safe does not change that relation. That access to the
contents of the safe-deposit box can be had only by the use of a key retained
by the lessee ( whether it is the sole key or one to be used in connection with
one retained by the lessor) does not operate to alter the foregoing rule. The
argument that there is not, in such a case, a delivery of exclusive possession

and control to the deposit company, and that therefore the situation is entirely
different from that of ordinary bailment, has been generally rejected by the
courts, usually on the ground that as possession must be either in the depositor
or in the company, it should reasonably be considered as in the latter rather
than in the former, since the company is, by the nature of the contract, given
absolute control of access to the property, and the depositor cannot gain
access thereto without the consent and active participation of the company. . . .
(citations omitted).
and a segment from Words and Phrases 18 which states that a contract for the
rental of a bank safety deposit box in consideration of a fixed amount at stated
periods is a bailment for hire.
Petitioner further argues that conditions 13 and 14 of the questioned contract
are contrary to law and public policy and should be declared null and void. In
support thereof, it cites Article 1306 of the Civil Code which provides that
parties to a contract 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.
After the respondent Bank filed its comment, this Court gave due course to the
petition and required the parties to simultaneously submit their respective
Memoranda.
The petition is partly meritorious.
We agree with the petitioner's contention that the contract for the rent of the
safety deposit box is not an ordinary contract of lease as defined in Article 1643
of the Civil Code. However, We do not fully subscribe to its view that the same
is a contract of deposit that is to be strictly governed by the provisions in the
Civil Code on deposit; 19the contract in the case at bar is a special kind of
deposit. It cannot be characterized as an ordinary contract of lease under
Article 1643 because the full and absolute possession and control of the safety
deposit box was not given to the joint renters the petitioner and the Pugaos.
The guard key of the box remained with the respondent Bank; without this key,
neither of the renters could open the box. On the other hand, the respondent
Bank could not likewise open the box without the renter's key. In this case, the
said key had a duplicate which was made so that both renters could have
access to the box.
Hence, the authorities cited by the respondent Court 20 on this point do not
apply. Neither could Article 1975, also relied upon by the respondent Court, be
invoked as an argument against the deposit theory. Obviously, the first
paragraph of such provision cannot apply to a depositary of certificates, bonds,
securities or instruments which earn interest if such documents are kept in a
rented safety deposit box. It is clear that the depositary cannot open the box
without the renter being present.
We observe, however, that the deposit theory itself does not altogether find
unanimous support even in American jurisprudence. We agree with the
petitioner that under the latter, the prevailing rule is that the relation between
a bank renting out safe-deposit boxes and its customer with respect to the
contents of the box is that of a bail or and bailee, the bailment being for hire
and mutual benefit. 21 This is just the prevailing view because:
There is, however, some support for the view that the relationship in question
might be more properly characterized as that of landlord and tenant, or lessor
and lessee. It has also been suggested that it should be characterized as that of
licensor and licensee. The relation between a bank, safe-deposit company, or
storage company, and the renter of a safe-deposit box therein, is often
described as contractual, express or implied, oral or written, in whole or in part.
But there is apparently no jurisdiction in which any rule other than that

applicable to bailments governs questions of the liability and rights of the

parties in respect of loss of the contents of safe-deposit boxes. 22 (citations
omitted)
In the context of our laws which authorize banking institutions to rent out
safety deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the
United States has been adopted. Section 72 of the General Banking
Act 23pertinently provides:
Sec. 72. In addition to the operations specifically authorized elsewhere in this
Act, banking institutions other than building and loan associations may perform
the following services:
(a) Receive in custody funds, documents, and valuable objects, and rent safety
deposit boxes for the safeguarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and
(c) of this section asdepositories or as agents. . . . 24 (emphasis supplied)
Note that the primary function is still found within the parameters of a contract
of deposit, i.e., the receiving in custody of funds, documents and other valuable
objects for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this principal function.
A contract of deposit may be entered into orally or in writing 25 and, pursuant to
Article 1306 of the Civil Code, the parties thereto 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 depositary's responsibility for the safekeeping of the objects
deposited in the case at bar is governed by Title I, Book IV of the Civil Code.
Accordingly, the depositary would be liable if, in performing its obligation, it is
found guilty of fraud, negligence, delay or contravention of the tenor of the
agreement. 26 In the absence of any stipulation prescribing the degree of
diligence required, that of a good father of a family is to be observed. 27Hence,
any stipulation exempting the depositary from any liability arising from the loss
of the thing deposited on account of fraud, negligence or delay would be void
for being contrary to law and public policy. In the instant case, petitioner
maintains that conditions 13 and 14 of the questioned contract of lease of the
safety deposit box, which read:
13. The bank is not a depositary of the contents of the safe and it has neither
the possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except herein
expressly provided, and it assumes absolutely no liability in connection
therewith. 28
are void as they are contrary to law and public policy. We find Ourselves in
agreement with this proposition for indeed, said provisions are inconsistent with
the respondent Bank's responsibility as a depositary under Section 72(a) of the
General Banking Act. Both exempt the latter from any liability except as
contemplated in condition 8 thereof which limits its duty to exercise reasonable
diligence only with respect to who shall be admitted to any rented safe, to wit:
8. The Bank shall use due diligence that no unauthorized person shall be
admitted to any rented safe and beyond this, the Bank will not be responsible
for the contents of any safe rented from it. 29
Furthermore, condition 13 stands on a wrong premise and is contrary to the
actual practice of the Bank. It is not correct to assert that the Bank has neither
the possession nor control of the contents of the box since in fact, the safety
deposit box itself is located in its premises and is under its absolute control;
moreover, the respondent Bank keeps the guard key to the said box. As stated
earlier, renters cannot open their respective boxes unless the Bank cooperates

by presenting and using this guard key. Clearly then, to the extent above
stated, the foregoing conditions in the contract in question are void and
ineffective. It has been said:
With respect to property deposited in a safe-deposit box by a customer of a
safe-deposit company, the parties, since the relation is a contractual one, may
by special contract define their respective duties or provide for increasing or
limiting the liability of the deposit company, provided such contract is not in
violation of law or public policy. It must clearly appear that there actually was
such a special contract, however, in order to vary the ordinary obligations
implied by law from the relationship of the parties; liability of the deposit
company will not be enlarged or restricted by words of doubtful meaning. The
company, in renting
safe-deposit boxes, cannot exempt itself from liability for loss of the contents
by its own fraud or negligence or that of its agents or servants, and if a
provision of the contract may be construed as an attempt to do so, it will be
held ineffective for the purpose. Although it has been held that the lessor of a
safe-deposit box cannot limit its liability for loss of the contents thereof through
its own negligence, the view has been taken that such a lessor may limits its
liability to some extent by agreement or stipulation. 30 (citations omitted)
Thus, we reach the same conclusion which the Court of Appeals arrived at, that
is, that the petition should be dismissed, but on grounds quite different from
those relied upon by the Court of Appeals. In the instant case, the respondent
Bank's exoneration cannot, contrary to the holding of the Court of Appeals, be
based on or proceed from a characterization of the impugned contract as a
contract of lease, but rather on the fact that no competent proof was presented
to show that respondent Bank was aware of the agreement between the
petitioner and the Pugaos to the effect that the certificates of title were
withdrawable from the safety deposit box only upon both parties' joint
signatures, and that no evidence was submitted to reveal that the loss of the
certificates of title was due to the fraud or negligence of the respondent Bank.
This in turn flows from this Court's determination that the contract involved was
one of deposit. Since both the petitioner and the Pugaos agreed that each
should have one (1) renter's key, it was obvious that either of them could ask
the Bank for access to the safety deposit box and, with the use of such key and
the Bank's own guard key, could open the said box, without the other renter
being present.
Since, however, the petitioner cannot be blamed for the filing of the complaint
and no bad faith on its part had been established, the trial court erred in
condemning the petitioner to pay the respondent Bank attorney's fees. To this
extent, the Decision (dispositive portion) of public respondent Court of Appeals
must be modified.
WHEREFORE, the Petition for Review is partially GRANTED by deleting the
award for attorney's fees from the 4 July 1989 Decision of the respondent Court
of Appeals in CA-G.R. CV No. 15150. As modified, and subject to the
pronouncement We made above on the nature of the relationship between the
parties in a contract of lease of safety deposit boxes, the dispositive portion of
the said Decision is hereby AFFIRMED and the instant Petition for Review is
otherwise DENIED for lack of merit.
No pronouncement as to costs.
SO ORDERED.
Feliciano, Bidin, Romero and Melo, JJ., concur.
Gutierrez, Jr., J., is on leave.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-30511 February 14, 1980
MANUEL M. SERRANO, petitioner,
vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA;
EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR.,
JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA, ANTONIO B.
RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA
RAMOS TANJUATCO, and TEOFILO TANJUATCO, respondents.
Rene Diokno for petitioner.
F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the
Philippines.
Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent
Overseas Bank of Manila.
Josefina G. Salonga for all other respondents.
CONCEPCION, JR., J.:
Petition for mandamus and prohibition, with preliminary injunction, that seeks
the establishment of joint and solidary liability to the amount of Three Hundred
Fifty Thousand Pesos, with interest, against respondent Central Bank of the
Philippines and Overseas Bank of Manila and its stockholders, on the alleged
failure of the Overseas Bank of Manila to return the time deposits made by
petitioner and assigned to him, on the ground that respondent Central Bank
failed in its duty to exercise strict supervision over respondent Overseas Bank
of Manila to protect depositors and the general public. 1 Petitioner also prays
that both respondent banks be ordered to execute the proper and necessary
documents to constitute all properties fisted in Annex "7" of the Answer of
respondent Central Bank of the Philippines in G.R. No. L-29352,
entitled "Emerita M. Ramos, et al vs. Central Bank of the Philippines," into a
trust fund in favor of petitioner and all other depositors of respondent Overseas
Bank of Manila. It is also prayed that the respondents be prohibited
permanently from honoring, implementing, or doing any act predicated upon
the validity or efficacy of the deeds of mortgage, assignment. and/or
conveyance or transfer of whatever nature of the properties listed in Annex "7"
of the Answer of respondent Central Bank in G.R. No. 29352. 2
A sought for ex-parte preliminary injunction against both respondent banks was
not given by this Court.
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner made a time deposit,
for one year with 6% interest, of One Hundred Fifty Thousand Pesos
(P150,000.00) with the respondent Overseas Bank of Manila. 3 Concepcion
Maneja also made a time deposit, for one year with 6-% interest, on March 6,
1967, of Two Hundred Thousand Pesos (P200,000.00) with the same respondent
Overseas Bank of Manila. 4
On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano,
assigned and conveyed to petitioner Manuel M. Serrano, her time deposit of
P200,000.00 with respondent Overseas Bank of Manila. 5
Notwithstanding series of demands for encashment of the aforementioned time
deposits from the respondent Overseas Bank of Manila, dating from December
6, 1967 up to March 4, 1968, not a single one of the time deposit certificates
was honored by respondent Overseas Bank of Manila. 6

Respondent Central Bank admits that it is charged with the duty of

administering the banking system of the Republic and it exercises supervision
over all doing business in the Philippines, but denies the petitioner's allegation
that the Central Bank has the duty to exercise a most rigid and stringent
supervision of banks, implying that respondent Central Bank has to watch
every move or activity of all banks, including respondent Overseas Bank of
Manila. Respondent Central Bank claims that as of March 12, 1965, the
Overseas Bank of Manila, while operating, was only on a limited degree of
banking operations since the Monetary Board decided in its Resolution No. 322,
dated March 12, 1965, to prohibit the Overseas Bank of Manila from making
new loans and investments in view of its chronic reserve deficiencies against its
deposit liabilities. This limited operation of respondent Overseas Bank of Manila
continued up to 1968. 7
Respondent Central Bank also denied that it is guarantor of the permanent
solvency of any banking institution as claimed by petitioner. It claims that
neither the law nor sound banking supervision requires respondent Central
Bank to advertise or represent to the public any remedial measures it may
impose upon chronic delinquent banks as such action may inevitably result to
panic or bank "runs". In the years 1966-1967, there were no findings to declare
the respondent Overseas Bank of Manila as insolvent. 8
Respondent Central Bank likewise denied that a constructive trust was created
in favor of petitioner and his predecessor in interest Concepcion Maneja when
their time deposits were made in 1966 and 1967 with the respondent Overseas
Bank of Manila as during that time the latter was not an insolvent bank and its
operation as a banking institution was being salvaged by the respondent
Central Bank. 9
Respondent Central Bank avers no knowledge of petitioner's claim that the
properties given by respondent Overseas Bank of Manila as additional
collaterals to respondent Central Bank of the Philippines for the former's
overdrafts and emergency loans were acquired through the use of depositors'
money, including that of the petitioner and Concepcion Maneja. 10
In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the
Philippines," a case was filed by the petitioner Ramos, wherein respondent
Overseas Bank of Manila sought to prevent respondent Central Bank from
closing, declaring the former insolvent, and liquidating its assets. Petitioner
Manuel Serrano in this case, filed on September 6, 1968, a motion to intervene
in G.R. No. L-29352, on the ground that Serrano had a real and legal interest as
depositor of the Overseas Bank of Manila in the matter in litigation in that case.
Respondent Central Bank in G.R. No. L-29352 opposed petitioner Manuel
Serrano's motion to intervene in that case, on the ground that his claim as
depositor of the Overseas Bank of Manila should properly be ventilated in the
Court of First Instance, and if this Court were to allow Serrano to intervene as
depositor in G.R. No. L-29352, thousands of other depositors would follow and
thus cause an avalanche of cases in this Court. In the resolution dated October
4, 1968, this Court denied Serrano's, motion to intervene. The contents of said
motion to intervene are substantially the same as those of the present
petition. 11
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which
became final and executory on March 3, 1972, favorable to the respondent
Overseas Bank of Manila, with the dispositive portion to wit:
WHEREFORE, the writs prayed for in the petition are hereby granted and
respondent Central Bank's resolution Nos. 1263, 1290 and 1333 (that prohibit
the Overseas Bank of Manila to participate in clearing, direct the suspension of
its operation, and ordering the liquidation of said bank) are hereby annulled

and set aside; and said respondent Central Bank of the Philippines is directed to
comply with its obligations under the Voting Trust Agreement, and to desist
from taking action in violation therefor. Costs against respondent Central Bank
of the Philippines. 12
Because of the above decision, petitioner in this case filed a motion for
judgment in this case, praying for a decision on the merits, adjudging
respondent Central Bank jointly and severally liable with respondent Overseas
Bank of Manila to the petitioner for the P350,000 time deposit made with the
latter bank, with all interests due therein; and declaring all assets assigned or
mortgaged by the respondents Overseas Bank of Manila and the Ramos groups
in favor of the Central Bank as trust funds for the benefit of petitioner and other
depositors. 13
By the very nature of the claims and causes of action against respondents, they
in reality are recovery of time deposits plus interest from respondent Overseas
Bank of Manila, and recovery of damages against respondent Central Bank for
its alleged failure to strictly supervise the acts of the other respondent Bank
and protect the interests of its depositors by virtue of the constructive trust
created when respondent Central Bank required the other respondent to
increase its collaterals for its overdrafts said emergency loans, said collaterals
allegedly acquired through the use of depositors money. These claims shoud be
ventilated in the Court of First Instance of proper jurisdiction as We already
pointed out when this Court denied petitioner's motion to intervene in G.R. No.
L-29352. Claims of these nature are not proper in actions for mandamus and
prohibition as there is no shown clear abuse of discretion by the Central Bank in
its exercise of supervision over the other respondent Overseas Bank of Manila,
and if there was, petitioner here is not the proper party to raise that question,
but rather the Overseas Bank of Manila, as it did in G.R. No. L-29352. Neither is
there anything to prohibit in this case, since the questioned acts of the
respondent Central Bank (the acts of dissolving and liquidating the Overseas
Bank of Manila), which petitioner here intends to use as his basis for claims of
damages against respondent Central Bank, had been accomplished a long time
ago.
Furthermore, both parties overlooked one fundamental principle in the nature
of bank deposits when the petitioner claimed that there should be created a
constructive trust in his favor when the respondent Overseas Bank of Manila
increased its collaterals in favor of respondent Central Bank for the former's
overdrafts and emergency loans, since these collaterals were acquired by the
use of depositors' money.
Bank deposits are in the nature of irregular deposits. They are really loans
because they earn interest. All kinds of bank deposits, whether fixed, savings,
or current are to be treated as loans and are to be covered by the law on
loans. 14 Current and savings deposit are loans to a bank because it can use the
same. The petitioner here in making time deposits that earn interests with
respondent Overseas Bank of Manila was in reality a creditor of the respondent
Bank and not a depositor. The respondent Bank was in turn a debtor of
petitioner. Failure of he respondent Bank to honor the time deposit is failure to
pay s obligation as a debtor and not a breach of trust arising from depositary's
failure to return the subject matter of the deposit
WHEREFORE, the petition is dismissed for lack of merit, with costs against
petitioner.
SO ORDERED.
Antonio, Abad Santos, JJ., concur.
Barredo (Chairman) J., concur in the judgment on the of the concurring opinion
of Justice Aquino.

Separate Opinions
AQUINO, J., concurring:
The petitioner prayed that the Central Bank be ordered to pay his time deposits
of P350,000, plus interests, which he could not recover from the distressed
Overseas Bank of Manila, and to declare all the assets assigned or mortgaged
by that bank and the Ramos group to the Central Bank as trust properties for
the benefit of the petitioner and other depositors.
The petitioner has no causes of action agianst the Central Bank to obtain those
reliefs. They cannot be granted in petitioner's instant original actions in this
Court for mandamus and prohibition. It is not the Central Bank's ministerial
duty to pay petitioner's time deposits or to hold the mortgaged properties in
trust for the depositors of the Overseas Bank of Manila. The petitioner has no
cause of action for prohibition, a remedy usually available against any tribunal,
board, corporation or person exercising judicial or ministerial functions.
Since the Overseas Bank of Manila was found to be insolvent and the
Superintendent of Banks was ordered to take over its assets preparatory to its
liquidation under section 29 of Republic Act No. 265 (p. 197, Rollo,
Manifestation of September 19, 1973), petitioner's remedy is to file his claim in
the liquidating proceeding (Central Bank vs. Morfe, L-38427, March 12, 1975,
63 SCRA 114; Hernandez vs. Rural Bank of Lucena, Inc., L-29791, January 10,
1978, 81 SCRA 75).
Separate Opinions
AQUINO, J., concurring:
The petitioner prayed that the Central Bank be ordered to pay his time deposits
of P350,000, plus interests, which he could not recover from the distressed
Overseas Bank of Manila, and to declare all the assets assigned or mortgaged
by that bank and the Ramos group to the Central Bank as trust properties for
the benefit of the petitioner and other depositors.
The petitioner has no causes of action agianst the Central Bank to obtain those
reliefs. They cannot be granted in petitioner's instant original actions in this
Court for mandamus and prohibition. It is not the Central Bank's ministerial
duty to pay petitioner's time deposits or to hold the mortgaged properties in
trust for the depositors of the Overseas Bank of Manila. The petitioner has no
cause of action for prohibition, a remedy usually available against any tribunal,
board, corporation or person exercising judicial or ministerial functions.
Since the Overseas Bank of Manila was found to be insolvent and the
Superintendent of Banks was ordered to take over its assets preparatory to its
liquidation under section 29 of Republic Act No. 265 (p. 197, Rollo,
Manifestation of September 19, 1973), petitioner's remedy is to file his claim in
the liquidating proceeding (Central Bank vs. Morfe, L-38427, March 12, 1975,
63 SCRA 114; Hernandez vs. Rural Bank of Lucena, Inc., L-29791, January 10,
1978, 81 SCRA 75).

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-60033 April 4, 1984
TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA
SANTOS, petitioners,
vs.
THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY
FISCAL FELIZARDO N. LOTA and CLEMENT DAVID, respondents.
MAKASIAR, Actg. C.J.:+.wph!1
This is a petition for prohibition and injunction with a prayer for the immediate
issuance of restraining order and/or writ of preliminary injunction filed by
petitioners on March 26, 1982.
On March 31, 1982, by virtue of a court resolution issued by this Court on the
same date, a temporary restraining order was duly issued ordering the
respondents, their officers, agents, representatives and/or person or persons
acting upon their (respondents') orders or in their place or stead to refrain from
proceeding with the preliminary investigation in Case No. 8131938 of the Office
of the City Fiscal of Manila (pp. 47-48, rec.). On January 24, 1983, private
respondent Clement David filed a motion to lift restraining order which was
denied in the resolution of this Court dated May 18, 1983.
As can be gleaned from the above, the instant petition seeks to prohibit public
respondents from proceeding with the preliminary investigation of I.S. No. 8131938, in which petitioners were charged by private respondent Clement
David, with estafa and violation of Central Bank Circular No. 364 and related
regulations regarding foreign exchange transactions principally, on the ground
of lack of jurisdiction in that the allegations of the charged, as well as the
testimony of private respondent's principal witness and the evidence through
said witness, showed that petitioners' obligation is civil in nature.
For purposes of brevity, We hereby adopt the antecedent facts narrated by the
Solicitor General in its Comment dated June 28,1982, as follows:t.hqw
On December 23,1981, private respondent David filed I.S. No. 81-31938 in the
Office of the City Fiscal of Manila, which case was assigned to respondent Lota
for preliminary investigation (Petition, p. 8).
In I.S. No. 81-31938, David charged petitioners (together with one Robert
Marshall and the following directors of the Nation Savings and Loan Association,
Inc., namely Homero Gonzales, Juan Merino, Flavio Macasaet, Victor Gomez, Jr.,
Perfecto Manalac, Jaime V. Paz, Paulino B. Dionisio, and one John Doe) with
estafa and violation of Central Bank Circular No. 364 and related Central Bank
regulations on foreign exchange transactions, allegedly committed as follows
(Petition, Annex "A"):t.hqw
"From March 20, 1979 to March, 1981, David invested with the Nation Savings
and Loan Association, (hereinafter called NSLA) the sum of P1,145,546.20 on
nine deposits, P13,531.94 on savings account deposits (jointly with his sister,
Denise Kuhne), US$10,000.00 on time deposit, US$15,000.00 under a receipt
and guarantee of payment and US$50,000.00 under a receipt dated June 8,
1980 (au jointly with Denise Kuhne), that David was induced into making the
aforestated investments by Robert Marshall an Australian national who was
allegedly a close associate of petitioner Guingona Jr., then NSLA President,
petitioner Martin, then NSLA Executive Vice-President of NSLA and petitioner
Santos, then NSLA General Manager; that on March 21, 1981 N LA was placed
under receivership by the Central Bank, so that David filed claims therewith for

his investments and those of his sister; that on July 22, 1981 David received a
report from the Central Bank that only P305,821.92 of those investments were
entered in the records of NSLA; that, therefore, the respondents in I.S. No. 8131938 misappropriated the balance of the investments, at the same time
violating Central Bank Circular No. 364 and related Central Bank regulations on
foreign exchange transactions; that after demands, petitioner Guingona Jr. paid
only P200,000.00, thereby reducing the amounts misappropriated to
P959,078.14 and US$75,000.00."
Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition, Annex' B')
in which they stated the following.t.hqw
"That Martin became President of NSLA in March 1978 (after the resignation of
Guingona, Jr.) and served as such until October 30, 1980, while Santos was
General Manager up to November 1980; that because NSLA was urgently in
need of funds and at David's insistence, his investments were treated as
special- accounts with interest above the legal rate, an recorded in separate
confidential documents only a portion of which were to be reported because he
did not want the Australian government to tax his total earnings (nor) to know
his total investments; that all transactions with David were recorded except the
sum of US$15,000.00 which was a personal loan of Santos; that David's check
for US$50,000.00 was cleared through Guingona, Jr.'s dollar account because
NSLA did not have one, that a draft of US$30,000.00 was placed in the name of
one Paz Roces because of a pending transaction with her; that the Philippine
Deposit Insurance Corporation had already reimbursed David within the legal
limits; that majority of the stockholders of NSLA had filed Special Proceedings
No. 82-1695 in the Court of First Instance to contest its (NSLA's) closure; that
after NSLA was placed under receivership, Martin executed a promissory note
in David's favor and caused the transfer to him of a nine and on behalf (9 1/2)
carat diamond ring with a net value of P510,000.00; and, that the liabilities of
NSLA to David were civil in nature."
Petitioner, Guingona, Jr., in his counter-affidavit (Petition, Annex' C') stated the
following:t.hqw
"That he had no hand whatsoever in the transactions between David and NSLA
since he (Guingona Jr.) had resigned as NSLA president in March 1978, or prior
to those transactions; that he assumed a portion o; the liabilities of NSLA to
David because of the latter's insistence that he placed his investments with
NSLA because of his faith in Guingona, Jr.; that in a Promissory Note dated June
17, 1981 (Petition, Annex "D") he (Guingona, Jr.) bound himself to pay David
the sums of P668.307.01 and US$37,500.00 in stated installments; that he
(Guingona, Jr.) secured payment of those amounts with second mortgages over
two (2) parcels of land under a deed of Second Real Estate Mortgage (Petition,
Annex "E") in which it was provided that the mortgage over one (1) parcel shall
be cancelled upon payment of one-half of the obligation to David; that he
(Guingona, Jr.) paid P200,000.00 and tendered another P300,000.00 which
David refused to accept, hence, he (Guingona, Jr.) filed Civil Case No. Q-33865
in the Court of First Instance of Rizal at Quezon City, to effect the release of the
mortgage over one (1) of the two parcels of land conveyed to David under
second mortgages."
At the inception of the preliminary investigation before respondent Lota,
petitioners moved to dismiss the charges against them for lack of jurisdiction
because David's claims allegedly comprised a purely civil obligation which was
itself novated. Fiscal Lota denied the motion to dismiss (Petition, p. 8).
But, after the presentation of David's principal witness, petitioners filed the
instant petition because: (a) the production of the Promisory Notes, Banker's
Acceptance, Certificates of Time Deposits and Savings Account allegedly

showed that the transactions between David and NSLA were simple loans, i.e.,
civil obligations on the part of NSLA which were novated when Guingona, Jr. and
Martin assumed them; and (b) David's principal witness allegedly testified that
the duplicate originals of the aforesaid instruments of indebtedness were all on
file with NSLA, contrary to David's claim that some of his investments were not
record (Petition, pp. 8-9).
Petitioners alleged that they did not exhaust available administrative remedies
because to do so would be futile (Petition, p. 9) [pp. 153-157, rec.].
As correctly pointed out by the Solicitor General, the sole issue for resolution is
whether public respondents acted without jurisdiction when they investigated
the charges (estafa and violation of CB Circular No. 364 and related regulations
regarding foreign exchange transactions) subject matter of I.S. No. 81-31938.
There is merit in the contention of the petitioners that their liability is civil in
nature and therefore, public respondents have no jurisdiction over the charge
of estafa.
A casual perusal of the December 23, 1981 affidavit. complaint filed in the
Office of the City Fiscal of Manila by private respondent David against
petitioners Teopisto Guingona, Jr., Antonio I. Martin and Teresita G. Santos,
together with one Robert Marshall and the other directors of the Nation Savings
and Loan Association, will show that from March 20, 1979 to March, 1981,
private respondent David, together with his sister, Denise Kuhne, invested with
the Nation Savings and Loan Association the sum of P1,145,546.20 on time
deposits covered by Bankers Acceptances and Certificates of Time Deposits and
the sum of P13,531.94 on savings account deposits covered by passbook nos.
6-632 and 29-742, or a total of P1,159,078.14 (pp. 15-16, roc.). It appears
further that private respondent David, together with his sister, made
investments in the aforesaid bank in the amount of US$75,000.00 (p. 17, rec.).
Moreover, the records reveal that when the aforesaid bank was placed under
receivership on March 21, 1981, petitioners Guingona and Martin, upon the
request of private respondent David, assumed the obligation of the bank to
private respondent David by executing on June 17, 1981 a joint promissory note
in favor of private respondent acknowledging an indebtedness of Pl,336,614.02
and US$75,000.00 (p. 80, rec.). This promissory note was based on the
statement of account as of June 30, 1981 prepared by the private respondent
(p. 81, rec.). The amount of indebtedness assumed appears to be bigger than
the original claim because of the added interest and the inclusion of other
deposits of private respondent's sister in the amount of P116,613.20.
Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to
divide the said indebtedness, and petitioner Guingona executed another
promissory note antedated to June 17, 1981 whereby he personally
acknowledged an indebtedness of P668,307.01 (1/2 of P1,336,614.02) and
US$37,500.00 (1/2 of US$75,000.00) in favor of private respondent (p. 25, rec.).
The aforesaid promissory notes were executed as a result of deposits made by
Clement David and Denise Kuhne with the Nation Savings and Loan
Association.
Furthermore, the various pleadings and documents filed by private respondent
David, before this Court indisputably show that he has indeed invested his
money on time and savings deposits with the Nation Savings and Loan
Association.
It must be pointed out that when private respondent David invested his money
on nine. and savings deposits with the aforesaid bank, the contract that was
perfected was a contract of simple loan or mutuum and not a contract of
deposit. Thus, Article 1980 of the New Civil Code provides that:t.hqw

Article 1980. Fixed, savings, and current deposits of-money in banks and similar
institutions shall be governed by the provisions concerning simple loan.
In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119
[1975], We said:t.hqw
It should be noted that fixed, savings, and current deposits of money in banks
and similar institutions are hat true deposits. are considered simple loans and,
as such, are not preferred credits (Art. 1980 Civil Code; In re Liquidation of
Mercantile Batik of China Tan Tiong Tick vs. American Apothecaries Co., 66 Phil
414; Pacific Coast Biscuit Co. vs. Chinese Grocers Association 65 Phil. 375;
Fletcher American National Bank vs. Ang Chong UM 66 PWL 385; Pacific
Commercial Co. vs. American Apothecaries Co., 65 PhiL 429; Gopoco Grocery
vs. Pacific Coast Biscuit CO.,65 Phil. 443)."
This Court also declared in the recent case of Serrano vs. Central Bank of the
Philippines (96 SCRA 102 [1980]) that:t.hqw
Bank deposits are in the nature of irregular deposits. They are really 'loans
because they earn interest. All kinds of bank deposits, whether fixed, savings,
or current are to be treated as loans and are to be covered by the law on loans
(Art. 1980 Civil Code Gullas vs. Phil. National Bank, 62 Phil. 519). Current and
saving deposits, are loans to a bank because it can use the same. The
petitioner here in making time deposits that earn interests will respondent
Overseas Bank of Manila was in reality a creditor of the respondent Bank and
not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure
of the respondent Bank to honor the time deposit is failure to pay its obligation
as a debtor and not a breach of trust arising from a depositary's failure to
return the subject matter of the deposit (Emphasis supplied).
Hence, the relationship between the private respondent and the Nation Savings
and Loan Association is that of creditor and debtor; consequently, the
ownership of the amount deposited was transmitted to the Bank upon the
perfection of the contract and it can make use of the amount deposited for its
banking operations, such as to pay interests on deposits and to pay
withdrawals. While the Bank has the obligation to return the amount
deposited, it has, however, no obligation to return or deliver the same
money that was deposited. And, the failure of the Bank to return the amount
deposited will not constitute estafa through misappropriation punishable under
Article 315, par. l(b) of the Revised Penal Code, but it will only give rise to civil
liability over which the public respondents have no- jurisdiction.
WE have already laid down the rule that:t.hqw
In order that a person can be convicted under the above-quoted provision, it
must be proven that he has the obligation to deliver or return the some money,
goods or personal property that he receivedPetitioners had no such obligation
to return the same money, i.e., the bills or coins, which they received from
private respondents. This is so because as clearly as stated in criminal
complaints, the related civil complaints and the supporting sworn statements,
the sums of money that petitioners received were loans.
The nature of simple loan is defined in Articles 1933 and 1953 of the Civil
Code.t.hqw
"Art. 1933. By the contract of loan, one of the parties delivers to another,
either something not consumable so that the latter may use the same for a
certain time- and return it, in which case the contract is called a commodatum;
or money or other consumable thing, upon the condition that the same amount
of the same kind and quality shall he paid in which case the contract is simply
called a loan or mutuum.
"Commodatum is essentially gratuitous.
"Simple loan may be gratuitous or with a stipulation to pay interest.

"In commodatum the bailor retains the ownership of the thing loaned while in
simple loan, ownership passes to the borrower.
"Art. 1953. A person who receives a loan of money or any other fungible
thing acquires the ownership thereof, and is bound to pay to the creditor an
equal amount of the same kind and quality."
It can be readily noted from the above-quoted provisions that in simple loan
(mutuum), as contrasted to commodatum the borrower acquires ownership of
the money, goods or personal property borrowed Being the owner, the
borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act
will not be considered misappropriation thereof' (Yam vs. Malik, 94 SCRA 30, 34
[1979]; Emphasis supplied).
But even granting that the failure of the bank to pay the time and savings
deposits of private respondent David would constitute a violation of paragraph
1(b) of Article 315 of the Revised Penal Code, nevertheless any incipient
criminal liability was deemed avoided, because when the aforesaid bank was
placed under receivership by the Central Bank, petitioners Guingona and Martin
assumed the obligation of the bank to private respondent David, thereby
resulting in the novation of the original contractual obligation arising from
deposit into a contract of loan and converting the original trust relation
between the bank and private respondent David into an ordinary debtorcreditor relation between the petitioners and private respondent. Consequently,
the failure of the bank or petitioners Guingona and Martin to pay the deposits
of private respondent would not constitute a breach of trust but would merely
be a failure to pay the obligation as a debtor.
Moreover, while it is true that novation does not extinguish criminal liability, it
may however, prevent the rise of criminal liability as long as it occurs prior to
the filing of the criminal information in court. Thus, in Gonzales vs. Serrano ( 25
SCRA 64, 69 [1968]) We held that:t.hqw
As pointed out in People vs. Nery, novation prior to the filing of the criminal
information as in the case at bar may convert the relation between the
parties into an ordinary creditor-debtor relation, and place the complainant in
estoppel to insist on the original transaction or "cast doubt on the true nature"
thereof.
Again, in the latest case of Ong vs. Court of Appeals (L-58476, 124 SCRA 578,
580-581 [1983] ), this Court reiterated the ruling in People vs. Nery ( 10 SCRA
244 [1964] ), declaring that:t.hqw
The novation theory may perhaps apply prior to the filling of the criminal
information in court by the state prosecutors because up to that time the
original trust relation may be converted by the parties into an ordinary creditordebtor situation, thereby placing the complainant in estoppel to insist on the
original trust. But after the justice authorities have taken cognizance of the
crime and instituted action in court, the offended party may no longer divest
the prosecution of its power to exact the criminal liability, as distinguished from
the civil. The crime being an offense against the state, only the latter can
renounce it (People vs. Gervacio, 54 Off. Gaz. 2898; People vs. Velasco, 42 Phil.
76; U.S. vs. Montanes, 8 Phil. 620).
It may be observed in this regard that novation is not one of the means
recognized by the Penal Code whereby criminal liability can be extinguished;
hence, the role of novation may only be to either prevent the rise of criminal
habihty or to cast doubt on the true nature of the original basic transaction,
whether or not it was such that its breach would not give rise to penal
responsibility, as when money loaned is made to appear as a deposit, or other
similar disguise is resorted to (cf. Abeto vs. People, 90 Phil. 581; U.S. vs.
Villareal, 27 Phil. 481).

In the case at bar, there is no dispute that petitioners Guingona and Martin
executed a promissory note on June 17, 1981 assuming the obligation of the
bank to private respondent David; while the criminal complaint for estafa was
filed on December 23, 1981 with the Office of the City Fiscal. Hence, it is clear
that novation occurred long before the filing of the criminal complaint with the
Office of the City Fiscal.
Consequently, as aforestated, any incipient criminal liability would be avoided
but there will still be a civil liability on the part of petitioners Guingona and
Martin to pay the assumed obligation.
Petitioners herein were likewise charged with violation of Section 3 of Central
Bank Circular No. 364 and other related regulations regarding foreign exchange
transactions by accepting foreign currency deposit in the amount of
US$75,000.00 without authority from the Central Bank. They contend however,
that the US dollars intended by respondent David for deposit were all converted
into Philippine currency before acceptance and deposit into Nation Savings and
Loan Association.
Petitioners' contention is worthy of behelf for the following reasons:
1. It appears from the records that when respondent David was about to make
a deposit of bank draft issued in his name in the amount of US$50,000.00 with
the Nation Savings and Loan Association, the same had to be cleared first and
converted into Philippine currency. Accordingly, the bank draft was endorsed by
respondent David to petitioner Guingona, who in turn deposited it to his dollar
account with the Security Bank and Trust Company. Petitioner Guingona merely
accommodated the request of the Nation Savings and loan Association in order
to clear the bank draft through his dollar account because the bank did not
have a dollar account. Immediately after the bank draft was cleared, petitioner
Guingona authorized Nation Savings and Loan Association to withdraw the
same in order to be utilized by the bank for its operations.
2. It is safe to assume that the U.S. dollars were converted first into Philippine
pesos before they were accepted and deposited in Nation Savings and Loan
Association, because the bank is presumed to have followed the ordinary
course of the business which is to accept deposits in Philippine currency only,
and that the transaction was regular and fair, in the absence of a clear and
convincing evidence to the contrary (see paragraphs p and q,Sec. 5, Rule 131,
Rules of Court).
3. Respondent David has not denied the aforesaid contention of herein
petitioners despite the fact that it was raised. in petitioners' reply filed on May
7, 1982 to private respondent's comment and in the July 27, 1982 reply to
public respondents' comment and reiterated in petitioners' memorandum filed
on October 30, 1982, thereby adding more support to the conclusion that the
US$75,000.00 were really converted into Philippine currency before they were
accepted and deposited into Nation Savings and Loan Association. Considering
that this might adversely affect his case, respondent David should have
promptly denied petitioners' allegation.
In conclusion, considering that the liability of the petitioners is purely civil in
nature and that there is no clear showing that they engaged in foreign
exchange transactions, We hold that the public respondents acted without
jurisdiction when they investigated the charges against the petitioners.
Consequently, public respondents should be restrained from further proceeding
with the criminal case for to allow the case to continue, even if the petitioners
could have appealed to the Ministry of Justice, would work great injustice to
petitioners and would render meaningless the proper administration of justice.
While as a rule, the prosecution in a criminal offense cannot be the subject of
prohibition and injunction, this court has recognized the resort to the

extraordinary writs of prohibition and injunction in extreme cases, thus:t.

hqw
On the issue of whether a writ of injunction can restrain the proceedings in
Criminal Case No. 3140, the general rule is that "ordinarily, criminal
prosecution may not be blocked by court prohibition or injunction." Exceptions,
however, are allowed in the following instances:t.hqw
"1. for the orderly administration of justice;
"2. to prevent the use of the strong arm of the law in an oppressive and
vindictive manner;
"3. to avoid multiplicity of actions;
"4. to afford adequate protection to constitutional rights;
"5. in proper cases, because the statute relied upon is unconstitutional or was
held invalid" ( Primicias vs. Municipality of Urdaneta, Pangasinan, 93 SCRA 462,
469-470 [1979]; citing Ramos vs. Torres, 25 SCRA 557 [1968]; and Hernandez
vs. Albano, 19 SCRA 95, 96 [1967]).
Likewise, in Lopez vs. The City Judge, et al. ( 18 SCRA 616, 621-622 [1966]), We
held that:t.hqw
The writs of certiorari and prohibition, as extraordinary legal remedies, are in
the ultimate analysis, intended to annul void proceedings; to prevent the
unlawful and oppressive exercise of legal authority and to provide for a fair and
orderly administration of justice. Thus, in Yu Kong Eng vs. Trinidad, 47 Phil. 385,
We took cognizance of a petition for certiorari and prohibition although the
accused in the case could have appealed in due time from the order
complained of, our action in the premises being based on the public welfare
policy the advancement of public policy. In Dimayuga vs. Fajardo, 43 Phil. 304,
We also admitted a petition to restrain the prosecution of certain chiropractors
although, if convicted, they could have appealed. We gave due course to their
petition for the orderly administration of justice and to avoid possible
oppression by the strong arm of the law. And in Arevalo vs. Nepomuceno, 63
Phil. 627, the petition for certiorari challenging the trial court's action admitting
an amended information was sustained despite the availability of appeal at the
proper time.
WHEREFORE, THE PETITION IS HEREBY GRANTED; THE TEMPORARY
RESTRAINING ORDER PREVIOUSLY ISSUED IS MADE PERMANENT. COSTS
AGAINST THE PRIVATE RESPONDENT.
SO ORDERED.1wph1.t

[G.R. No. 160544. February 21, 2005]

TRIPLE-V vs. FILIPINO MERCHANTS
THIRD DIVISION
Gentlemen:
Quoted hereunder, for your information, is a resolution of this Court dated FEB
21 2005.
G.R. No. 160544 (Triple-V Food Services, Inc. vs. Filipino Merchants Insurance
Company, Inc.)
Assailed in this petition for review on certiorari is the decision [1]cralaw dated
October 21, 2003 of the Court of Appeals in CA-G.R. CV No. 71223, affirming an
earlier decision of the Regional Trial Court at Makati City, Branch 148, in its Civil
Case No. 98-838, an action for damages thereat filed by respondent Filipino
Merchants Insurance, Company, Inc., against the herein petitioner, Triple-V Food
Services, Inc.
On March 2, 1997, at around 2:15 o'clock in the afternoon, a certain Mary JoAnne De Asis (De Asis) dined at petitioner's Kamayan Restaurant at 15 West
Avenue, Quezon City. De Asis was using a Mitsubishi Galant Super Saloon Model
1995 with plate number UBU 955, assigned to her by her employer Crispa
Textile Inc. (Crispa). On said date, De Asis availed of the valet parking service of
petitioner and entrusted her car key to petitioner's valet counter. A
corresponding parking ticket was issued as receipt for the car. The car was then
parked by petitioner's valet attendant, a certain Madridano, at the designated
parking area. Few minutes later, Madridano noticed that the car was not in its
parking slot and its key no longer in the box where valet attendants usually
keep the keys of cars entrusted to them. The car was never recovered.
Thereafter, Crispa filed a claim against its insurer, herein respondent Filipino
Merchants Insurance Company, Inc. (FMICI). Having indemnified Crispa in the
amount of P669.500 for the loss of the subject vehicle, FMICI, as subrogee to
Crispa's rights, filed with the RTC at Makati City an action for damages against
petitioner Triple-V Food Services, Inc., thereat docketed as Civil Case No. 98-838
which was raffled to Branch 148.
In its answer, petitioner argued that the complaint failed to aver facts to
support the allegations of recklessness and negligence committed in the
safekeeping and custody of the subject vehicle, claiming that it and its
employees wasted no time in ascertaining the loss of the car and in informing
De Asis of the discovery of the loss. Petitioner further argued that in accepting
the complimentary valet parking service, De Asis received a parking ticket
whereunder it is so provided that "[Management and staff will not be
responsible for any loss of or damage incurred on the vehicle nor of valuables
contained therein", a provision which, to petitioner's mind, is an explicit waiver
of any right to claim indemnity for the loss of the car; and that De Asis
knowingly assumed the risk of loss when she allowed petitioner to park her
vehicle, adding that its valet parking service did not include extending a
contract of insurance or warranty for the loss of the vehicle.
During trial, petitioner challenged FMICI's subrogation to Crispa's right to file a
claim for the loss of the car, arguing that theft is not a risk insured against
under FMICI's Insurance Policy No. PC-5975 for the subject vehicle.
In a decision dated June 22, 2001, the trial court rendered judgment for
respondent FMICI, thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff (FMICI) and against the defendant Triple V (herein petitioner) and the
latter is hereby ordered to pay plaintiff the following:
1. The amount of P669,500.00, representing actual damages plus compounded
(sic);

2. The amount of P30,000.00 as acceptance fee plus the amount equal to 25%
of the total amount due as attorney's fees;
3. The amount of P50,000.00 as exemplary damages;
4. Plus, cost of suit.
Defendant Triple V is not therefore precluded from taking appropriate action
against defendant Armando Madridano.
SO ORDERED.
Obviously displeased, petitioner appealed to the Court of Appeals reiterating its
argument that it was not a depositary of the subject car and that it exercised
due diligence and prudence in the safe keeping of the vehicle, in handling the
car-napping incident and in the supervision of its employees. It further argued
that there was no valid subrogation of rights between Crispa and respondent
FMICI.
In a decision dated October 21, 2003,[2]cralaw the Court of Appeals dismissed
petitioner's appeal and affirmed the appealed decision of the trial court, thus:
WHEREFORE, based on the foregoing premises, the instant appeal is hereby
DISMISSED. Accordingly, the assailed June 22, 2001 Decision of the RTC of
Makati City - Branch 148 in Civil Case No. 98-838 is AFFIRMED.
SO ORDERED.
In so dismissing the appeal and affirming the appealed decision, the appellate
court agreed with the findings and conclusions of the trial court that: (a)
petitioner was a depositary of the subject vehicle; (b) petitioner was negligent
in its duties as a depositary thereof and as an employer of the valet attendant;
and (c) there was a valid subrogation of rights between Crispa and respondent
FMICI.
Hence, petitioner's present recourse.
We agree with the two (2) courts below.
When De Asis entrusted the car in question to petitioners valet attendant while
eating at petitioner'sKamayan Restaurant, the former expected the car's safe
return at the end of her meal. Thus, petitioner was constituted as a depositary
of the same car. Petitioner cannot evade liability by arguing that neither a
contract of deposit nor that of insurance, guaranty or surety for the loss of the
car was constituted when De Asis availed of its free valet parking service.
In a contract of deposit, a person receives an object belonging to another with
the obligation of safely keeping it and returning the same. [3]cralaw A deposit
may be constituted even without any consideration. It is not necessary that the
depositary receives a fee before it becomes obligated to keep the item
entrusted for safekeeping and to return it later to the depositor.
Specious is petitioner's insistence that the valet parking claim stub it issued to
De Asis contains a clear exclusion of its liability and operates as an explicit
waiver by the customer of any right to claim indemnity for any loss of or
damage to the vehicle.
The parking claim stub embodying the terms and conditions of the parking,
including that of relieving petitioner from any loss or damage to the car, is
essentially a contract of adhesion, drafted and prepared as it is by the
petitioner alone with no participation whatsoever on the part of the customers,
like De Asis, who merely adheres to the printed stipulations therein appearing.
While contracts of adhesion are not void in themselves, yet this Court will not
hesitate to rule out blind adherence thereto if they prove to be one-sided under
the attendant facts and circumstances. [4]cralaw
Hence, and as aptly pointed out by the Court of Appeals, petitioner must not be
allowed to use its parking claim stub's exclusionary stipulation as a shield from
any responsibility for any loss or damage to vehicles or to the valuables
contained therein. Here, it is evident that De Asis deposited the car in question

with the petitioner as part of the latter's enticement for customers by providing
them a safe parking space within the vicinity of its restaurant. In a very real
sense, a safe parking space is an added attraction to petitioner's restaurant
business because customers are thereby somehow assured that their vehicle
are safely kept, rather than parking them elsewhere at their own risk. Having
entrusted the subject car to petitioner's valet attendant, customer De Asis, like
all of petitioner's customers, fully expects the security of her car while at
petitioner's premises/designated parking areas and its safe return at the end of
her visit at petitioner's restaurant.
Petitioner's argument that there was no valid subrogation of rights between
Crispa and FMICI because theft was not a risk insured against under FMICI's
Insurance Policy No. PC-5975 holds no water.
Insurance Policy No. PC-5975 which respondent FMICI issued to Crispa contains,
among others things, the following item: "Insured's Estimate of Value of
Scheduled Vehicle- P800.000".[5]cralaw On the basis of such item, the trial court
concluded that the coverage includes a full comprehensive insurance of the
vehicle in case of damage or loss. Besides, Crispa paid a premium of P10,304
to cover theft. This is clearly shown in the breakdown of premiums in the same
policy.[6]cralaw Thus, having indemnified CRISPA for the stolen car, FMICI, as
correctly ruled by the trial court and the Court of Appeals, was properly
subrogated to Crispa's rights against petitioner, pursuant to Article 2207 of the
New Civil Code[7].
Anent the trial court's findings of negligence on the part of the petitioner, which
findings were affirmed by the appellate court, we have consistently ruled that
findings of facts of trial courts, more so when affirmed, as here, by the Court of
Appeals, are conclusive on this Court unless the trial court itself ignored,
overlooked or misconstrued facts and circumstances which, if considered,
warrant a reversal of the outcome of the case.[8]cralaw This is not so in the case
at bar. For, we have ourselves reviewed the records and find no justification to
deviate from the trial court's findings.
WHEREFORE, petition is hereby DENIED DUE COURSE.
SO ORDERED.

[7]

cralaw Article 2207. If the plaintiffs property has been insured, and he has
received indemnity from the insurance company for the injury or loss arising
out of the wrong or breach of contract complained of, the insurance company
shall be subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract. Xxx
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 126780
February 17, 2005
YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA
PAYAM, petitioners,
vs.
THE COURT OF APPEALS and MAURICE McLOUGHLIN, respondents.
DECISION
TINGA, J.:
The primary question of interest before this Court is the only legal issue in the
case: It is whether a hotel may evade liability for the loss of items left with it for

safekeeping by its guests, by having these guests execute written waivers

holding the establishment or its employees free from blame for such loss in
light of Article 2003 of the Civil Code which voids such waivers.
Before this Court is a Rule 45 petition for review of the Decision1 dated 19
October 1995 of the Court of Appeals which affirmed the Decision2 dated 16
December 1991 of the Regional Trial Court (RTC), Branch 13, of Manila, finding
YHT Realty Corporation, Brunhilda Mata-Tan (Tan), Erlinda Lainez (Lainez) and
Anicia Payam (Payam) jointly and solidarily liable for damages in an action filed
by Maurice McLoughlin (McLoughlin) for the loss of his American and Australian
dollars deposited in the safety deposit box of Tropicana Copacabana Apartment
Hotel, owned and operated by YHT Realty Corporation.
The factual backdrop of the case follow.
Private respondent McLoughlin, an Australian businessman-philanthropist, used
to stay at Sheraton Hotel during his trips to the Philippines prior to 1984 when
he met Tan. Tan befriended McLoughlin by showing him around, introducing him
to important people, accompanying him in visiting impoverished street children
and assisting him in buying gifts for the children and in distributing the same to
charitable institutions for poor children. Tan convinced McLoughlin to transfer
from Sheraton Hotel to Tropicana where Lainez, Payam and Danilo Lopez were
employed. Lopez served as manager of the hotel while Lainez and Payam had
custody of the keys for the safety deposit boxes of Tropicana. Tan took care of
McLoughlin's booking at the Tropicana where he started staying during his trips
to the Philippines from December 1984 to September 1987. 3
On 30 October 1987, McLoughlin arrived from Australia and registered with
Tropicana. He rented a safety deposit box as it was his practice to rent a safety
deposit box every time he registered at Tropicana in previous trips. As a tourist,
McLoughlin was aware of the procedure observed by Tropicana relative to its
safety deposit boxes. The safety deposit box could only be opened through the
use of two keys, one of which is given to the registered guest, and the other
remaining in the possession of the management of the hotel. When a registered
guest wished to open his safety deposit box, he alone could personally request
the management who then would assign one of its employees to accompany
the guest and assist him in opening the safety deposit box with the two keys. 4
McLoughlin allegedly placed the following in his safety deposit box: Fifteen
Thousand US Dollars (US$15,000.00) which he placed in two envelopes, one
envelope containing Ten Thousand US Dollars (US$10,000.00) and the other
envelope Five Thousand US Dollars (US$5,000.00); Ten Thousand Australian
Dollars (AUS$10,000.00) which he also placed in another envelope; two (2)
other envelopes containing letters and credit cards; two (2) bankbooks; and a
checkbook, arranged side by side inside the safety deposit box. 5
On 12 December 1987, before leaving for a brief trip to Hongkong, McLoughlin
opened his safety deposit box with his key and with the key of the management
and took therefrom the envelope containing Five Thousand US Dollars
(US$5,000.00), the envelope containing Ten Thousand Australian Dollars
(AUS$10,000.00), his passports and his credit cards. 6 McLoughlin left the other
items in the box as he did not check out of his room at the Tropicana during his
short visit to Hongkong. When he arrived in Hongkong, he opened the envelope
which contained Five Thousand US Dollars (US$5,000.00) and discovered upon
counting that only Three Thousand US Dollars (US$3,000.00) were enclosed
therein.7 Since he had no idea whether somebody else had tampered with his
safety deposit box, he thought that it was just a result of bad accounting since
he did not spend anything from that envelope. 8
After returning to Manila, he checked out of Tropicana on 18 December 1987
and left for Australia. When he arrived in Australia, he discovered that the

envelope with Ten Thousand US Dollars (US$10,000.00) was short of Five

Thousand US Dollars (US$5,000). He also noticed that the jewelry which he
bought in Hongkong and stored in the safety deposit box upon his return to
Tropicana was likewise missing, except for a diamond bracelet.9
When McLoughlin came back to the Philippines on 4 April 1988, he asked
Lainez if some money and/or jewelry which he had lost were found and
returned to her or to the management. However, Lainez told him that no one in
the hotel found such things and none were turned over to the management. He
again registered at Tropicana and rented a safety deposit box. He placed
therein one (1) envelope containing Fifteen Thousand US Dollars
(US$15,000.00), another envelope containing Ten Thousand Australian Dollars
(AUS$10,000.00) and other envelopes containing his traveling
papers/documents. On 16 April 1988, McLoughlin requested Lainez and Payam
to open his safety deposit box. He noticed that in the envelope containing
Fifteen Thousand US Dollars (US$15,000.00), Two Thousand US Dollars
(US$2,000.00) were missing and in the envelope previously containing Ten
Thousand Australian Dollars (AUS$10,000.00), Four Thousand Five Hundred
Australian Dollars (AUS$4,500.00) were missing.10
When McLoughlin discovered the loss, he immediately confronted Lainez and
Payam who admitted that Tan opened the safety deposit box with the key
assigned to him.11 McLoughlin went up to his room where Tan was staying and
confronted her. Tan admitted that she had stolen McLoughlin's key and was
able to open the safety deposit box with the assistance of Lopez, Payam and
Lainez.12 Lopez also told McLoughlin that Tan stole the key assigned to
McLoughlin while the latter was asleep.13
McLoughlin requested the management for an investigation of the incident.
Lopez got in touch with Tan and arranged for a meeting with the police and
McLoughlin. When the police did not arrive, Lopez and Tan went to the room of
McLoughlin at Tropicana and thereat, Lopez wrote on a piece of paper a
promissory note dated 21 April 1988. The promissory note reads as follows:
I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and
US$2,000.00 or its equivalent in Philippine currency on or before May 5, 1988. 14
Lopez requested Tan to sign the promissory note which the latter did and Lopez
also signed as a witness. Despite the execution of promissory note by Tan,
McLoughlin insisted that it must be the hotel who must assume responsibility
for the loss he suffered. However, Lopez refused to accept the responsibility
relying on the conditions for renting the safety deposit box
entitled "Undertaking For the Use Of Safety Deposit Box,"15specifically
paragraphs (2) and (4) thereof, to wit:
2. To release and hold free and blameless TROPICANA APARTMENT HOTEL from
any liability arising from any loss in the contents and/or use of the said deposit
box for any cause whatsoever, including but not limited to the presentation or
use thereof by any other person should the key be lost;
...
4. To return the key and execute the RELEASE in favor of TROPICANA
APARTMENT HOTEL upon giving up the use of the box.16
On 17 May 1988, McLoughlin went back to Australia and he consulted his
lawyers as to the validity of the abovementioned stipulations. They opined that
the stipulations are void for being violative of universal hotel practices and
customs. His lawyers prepared a letter dated 30 May 1988 which was signed by
McLoughlin and sent to President Corazon Aquino. 17 The Office of the President
referred the letter to the Department of Justice (DOJ) which forwarded the same
to the Western Police District (WPD).18

After receiving a copy of the indorsement in Australia, McLoughlin came to the

Philippines and registered again as a hotel guest of Tropicana. McLoughlin went
to Malacaang to follow up on his letter but he was instructed to go to the DOJ.
The DOJ directed him to proceed to the WPD for documentation. But McLoughlin
went back to Australia as he had an urgent business matter to attend to.
For several times, McLoughlin left for Australia to attend to his business and
came back to the Philippines to follow up on his letter to the President but he
failed to obtain any concrete assistance.19
McLoughlin left again for Australia and upon his return to the Philippines on 25
August 1989 to pursue his claims against petitioners, the WPD conducted an
investigation which resulted in the preparation of an affidavit which was
forwarded to the Manila City Fiscal's Office. Said affidavit became the basis of
preliminary investigation. However, McLoughlin left again for Australia without
receiving the notice of the hearing on 24 November 1989. Thus, the case at the
Fiscal's Office was dismissed for failure to prosecute. Mcloughlin requested the
reinstatement of the criminal charge for theft. In the meantime, McLoughlin and
his lawyers wrote letters of demand to those having responsibility to pay the
damage. Then he left again for Australia.
Upon his return on 22 October 1990, he registered at the Echelon Towers at
Malate, Manila. Meetings were held between McLoughlin and his lawyer which
resulted to the filing of a complaint for damages on 3 December 1990 against
YHT Realty Corporation, Lopez, Lainez, Payam and Tan (defendants) for the loss
of McLoughlin's money which was discovered on 16 April 1988. After filing the
complaint, McLoughlin left again for Australia to attend to an urgent business
matter. Tan and Lopez, however, were not served with summons, and trial
proceeded with only Lainez, Payam and YHT Realty Corporation as defendants.
After defendants had filed their Pre-Trial Brief admitting that they had
previously allowed and assisted Tan to open the safety deposit box, McLoughlin
filed an Amended/Supplemental Complaint20 dated 10 June 1991 which
included another incident of loss of money and jewelry in the safety deposit box
rented by McLoughlin in the same hotel which took place prior to 16 April
1988.21 The trial court admitted the Amended/Supplemental Complaint.
During the trial of the case, McLoughlin had been in and out of the country to
attend to urgent business in Australia, and while staying in the Philippines to
attend the hearing, he incurred expenses for hotel bills, airfare and other
transportation expenses, long distance calls to Australia, Meralco power
expenses, and expenses for food and maintenance, among others. 22
After trial, the RTC of Manila rendered judgment in favor of McLoughlin, the
dispositive portion of which reads:
WHEREFORE, above premises considered, judgment is hereby rendered by this
Court in favor of plaintiff and against the defendants, to wit:
1. Ordering defendants, jointly and severally, to pay plaintiff the sum of
US$11,400.00 or its equivalent in Philippine Currency of P342,000.00, more or
less, and the sum of AUS$4,500.00 or its equivalent in Philippine Currency
of P99,000.00, or a total of P441,000.00, more or less, with 12% interest from
April 16 1988 until said amount has been paid to plaintiff (Item 1, Exhibit CC);
2. Ordering defendants, jointly and severally to pay plaintiff the sum
of P3,674,238.00 as actual and consequential damages arising from the loss of
his Australian and American dollars and jewelries complained against and in
prosecuting his claim and rights administratively and judicially (Items II, III, IV,
V, VI, VII, VIII, and IX, Exh. "CC");
3. Ordering defendants, jointly and severally, to pay plaintiff the sum
of P500,000.00 as moral damages (Item X, Exh. "CC");

4. Ordering defendants, jointly and severally, to pay plaintiff the sum

of P350,000.00 as exemplary damages (Item XI, Exh. "CC");
5. And ordering defendants, jointly and severally, to pay litigation expenses in
the sum of P200,000.00 (Item XII, Exh. "CC");
6. Ordering defendants, jointly and severally, to pay plaintiff the sum
of P200,000.00 as attorney's fees, and a fee of P3,000.00 for every
appearance; and
7. Plus costs of suit.
SO ORDERED.23
The trial court found that McLoughlin's allegations as to the fact of loss and as
to the amount of money he lost were sufficiently shown by his direct and
straightforward manner of testifying in court and found him to be credible and
worthy of belief as it was established that McLoughlin's money, kept in
Tropicana's safety deposit box, was taken by Tan without McLoughlin's consent.
The taking was effected through the use of the master key which was in the
possession of the management. Payam and Lainez allowed Tan to use the
master key without authority from McLoughlin. The trial court added that if
McLoughlin had not lost his dollars, he would not have gone through the trouble
and personal inconvenience of seeking aid and assistance from the Office of
the President, DOJ, police authorities and the City Fiscal's Office in his desire to
recover his losses from the hotel management and Tan. 24
As regards the loss of Seven Thousand US Dollars (US$7,000.00) and jewelry
worth approximately One Thousand Two Hundred US Dollars (US$1,200.00)
which allegedly occurred during his stay at Tropicana previous to 4 April 1988,
no claim was made by McLoughlin for such losses in his complaint dated 21
November 1990 because he was not sure how they were lost and who the
responsible persons were. But considering the admission of the defendants in
their pre-trial brief that on three previous occasions they allowed Tan to open
the box, the trial court opined that it was logical and reasonable to presume
that his personal assets consisting of Seven Thousand US Dollars
(US$7,000.00) and jewelry were taken by Tan from the safety deposit box
without McLoughlin's consent through the cooperation of Payam and Lainez. 25
The trial court also found that defendants acted with gross negligence in the
performance and exercise of their duties and obligations as innkeepers and
were therefore liable to answer for the losses incurred by McLoughlin. 26
Moreover, the trial court ruled that paragraphs (2) and (4) of the "Undertaking
For The Use Of Safety Deposit Box" are not valid for being contrary to the
express mandate of Article 2003 of the New Civil Code and against public
policy.27 Thus, there being fraud or wanton conduct on the part of defendants,
they should be responsible for all damages which may be attributed to the nonperformance of their contractual obligations.28
The Court of Appeals affirmed the disquisitions made by the lower court except
as to the amount of damages awarded. The decretal text of the appellate
court's decision reads:
THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED but
modified as follows:
The appellants are directed jointly and severally to pay the plaintiff/appellee
the following amounts:
1) P153,200.00 representing the peso equivalent of US$2,000.00 and
AUS$4,500.00;
2) P308,880.80, representing the peso value for the air fares from Sidney [sic]
to Manila and back for a total of eleven (11) trips;
3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana
Apartment Hotel;

4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon

Tower;
5) One-half of P179,863.20 or P89,931.60 for the taxi xxx transportation from
the residence to Sidney [sic] Airport and from MIA to the hotel here in Manila,
for the eleven (11) trips;
6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
7) One-half of P356,400.00 or P178,000.00 representing expenses for food and
maintenance;
8) P50,000.00 for moral damages;
9) P10,000.00 as exemplary damages; and
10) P200,000 representing attorney's fees.
With costs.
SO ORDERED.29
Unperturbed, YHT Realty Corporation, Lainez and Payam went to this Court in
this appeal by certiorari.
Petitioners submit for resolution by this Court the following issues: (a) whether
the appellate court's conclusion on the alleged prior existence and subsequent
loss of the subject money and jewelry is supported by the evidence on record;
(b) whether the finding of gross negligence on the part of petitioners in the
performance of their duties as innkeepers is supported by the evidence on
record; (c) whether the "Undertaking For The Use of Safety Deposit Box"
admittedly executed by private respondent is null and void; and (d) whether
the damages awarded to private respondent, as well as the amounts thereof,
are proper under the circumstances.30
The petition is devoid of merit.
It is worthy of note that the thrust of Rule 45 is the resolution only of questions
of law and any peripheral factual question addressed to this Court is beyond
the bounds of this mode of review.
Petitioners point out that the evidence on record is insufficient to prove the fact
of prior existence of the dollars and the jewelry which had been lost while
deposited in the safety deposit boxes of Tropicana, the basis of the trial court
and the appellate court being the sole testimony of McLoughlin as to the
contents thereof. Likewise, petitioners dispute the finding of gross negligence
on their part as not supported by the evidence on record.
We are not persuaded.l^vvphi1.net We adhere to the findings of the trial court
as affirmed by the appellate court that the fact of loss was established by the
credible testimony in open court by McLoughlin. Such findings are factual and
therefore beyond the ambit of the present petition.1awphi1.nt
The trial court had the occasion to observe the demeanor of McLoughlin while
testifying which reflected the veracity of the facts testified to by him. On this
score, we give full credence to the appreciation of testimonial evidence by the
trial court especially if what is at issue is the credibility of the witness. The oftrepeated principle is that where the credibility of a witness is an issue, the
established rule is that great respect is accorded to the evaluation of the
credibility of witnesses by the trial court.31 The trial court is in the best position
to assess the credibility of witnesses and their testimonies because of its
unique opportunity to observe the witnesses firsthand and note their
demeanor, conduct and attitude under grilling examination. 32
We are also not impressed by petitioners' argument that the finding of gross
negligence by the lower court as affirmed by the appellate court is not
supported by evidence. The evidence reveals that two keys are required to
open the safety deposit boxes of Tropicana. One key is assigned to the guest
while the other remains in the possession of the management. If the guest
desires to open his safety deposit box, he must request the management for

the other key to open the same. In other words, the guest alone cannot open
the safety deposit box without the assistance of the management or its
employees. With more reason that access to the safety deposit box should be
denied if the one requesting for the opening of the safety deposit box is a
stranger. Thus, in case of loss of any item deposited in the safety deposit box, it
is inevitable to conclude that the management had at least a hand in the
consummation of the taking, unless the reason for the loss is force majeure.
Noteworthy is the fact that Payam and Lainez, who were employees of
Tropicana, had custody of the master key of the management when the loss
took place. In fact, they even admitted that they assisted Tan on three separate
occasions in opening McLoughlin's safety deposit box. 33 This only proves that
Tropicana had prior knowledge that a person aside from the registered guest
had access to the safety deposit box. Yet the management failed to notify
McLoughlin of the incident and waited for him to discover the taking before it
disclosed the matter to him. Therefore, Tropicana should be held responsible for
the damage suffered by McLoughlin by reason of the negligence of its
employees.
The management should have guarded against the occurrence of this incident
considering that Payam admitted in open court that she assisted Tan three
times in opening the safety deposit box of McLoughlin at around 6:30 A.M. to
7:30 A.M. while the latter was still asleep.34 In light of the circumstances
surrounding this case, it is undeniable that without the acquiescence of the
employees of Tropicana to the opening of the safety deposit box, the loss of
McLoughlin's money could and should have been avoided.
The management contends, however, that McLoughlin, by his act, made its
employees believe that Tan was his spouse for she was always with him most of
the time. The evidence on record, however, is bereft of any showing that
McLoughlin introduced Tan to the management as his wife. Such an inference
from the act of McLoughlin will not exculpate the petitioners from liability in the
absence of any showing that he made the management believe that Tan was
his wife or was duly authorized to have access to the safety deposit box. Mere
close companionship and intimacy are not enough to warrant such conclusion
considering that what is involved in the instant case is the very safety of
McLoughlin's deposit. If only petitioners exercised due diligence in taking care
of McLoughlin's safety deposit box, they should have confronted him as to his
relationship with Tan considering that the latter had been observed opening
McLoughlin's safety deposit box a number of times at the early hours of the
morning. Tan's acts should have prompted the management to investigate her
relationship with McLoughlin. Then, petitioners would have exercised due
diligence required of them. Failure to do so warrants the conclusion that the
management had been remiss in complying with the obligations imposed upon
hotel-keepers under the law.
Under Article 1170 of the New Civil Code, those who, in the performance of
their obligations, are guilty of negligence, are liable for damages. As to who
shall bear the burden of paying damages, Article 2180, paragraph (4) of the
same Code provides that the owners and managers of an establishment or
enterprise are likewise responsible for damages caused by their employees in
the service of the branches in which the latter are employed or on the occasion
of their functions. Also, this Court has ruled that if an employee is found
negligent, it is presumed that the employer was negligent in selecting and/or
supervising him for it is hard for the victim to prove the negligence of such
employer.35 Thus, given the fact that the loss of McLoughlin's money was
consummated through the negligence of Tropicana's employees in allowing Tan
to open the safety deposit box without the guest's consent, both the assisting

employees and YHT Realty Corporation itself, as owner and operator of

Tropicana, should be held solidarily liable pursuant to Article 2193. 36
The issue of whether the "Undertaking For The Use of Safety Deposit Box"
executed by McLoughlin is tainted with nullity presents a legal question
appropriate for resolution in this petition. Notably, both the trial court and the
appellate court found the same to be null and void. We find no reason to
reverse their common conclusion. Article 2003 is controlling, thus:
Art. 2003. The hotel-keeper cannot free himself from responsibility by posting
notices to the effect that he is not liable for the articles brought by the guest.
Any stipulation between the hotel-keeper and the guest whereby the
responsibility of the former as set forth in Articles 1998 to 2001 37 is suppressed
or diminished shall be void.
Article 2003 was incorporated in the New Civil Code as an expression of public
policy precisely to apply to situations such as that presented in this case. The
hotel business like the common carrier's business is imbued with public
interest. Catering to the public, hotelkeepers are bound to provide not only
lodging for hotel guests and security to their persons and belongings. The twin
duty constitutes the essence of the business. The law in turn does not allow
such duty to the public to be negated or diluted by any contrary stipulation in
so-called "undertakings" that ordinarily appear in prepared forms imposed by
hotel keepers on guests for their signature.
In an early case,38 the Court of Appeals through its then Presiding Justice (later
Associate Justice of the Court) Jose P. Bengzon, ruled that to hold hotelkeepers
or innkeeper liable for the effects of their guests, it is not necessary that they
be actually delivered to the innkeepers or their employees. It is enough that
such effects are within the hotel or inn.39 With greater reason should the liability
of the hotelkeeper be enforced when the missing items are taken without the
guest's knowledge and consent from a safety deposit box provided by the hotel
itself, as in this case.
Paragraphs (2) and (4) of the "undertaking" manifestly contravene Article 2003
of the New Civil Code for they allow Tropicana to be released from liability
arising from any loss in the contents and/or use of the safety deposit box
for any cause whatsoever.40 Evidently, the undertaking was intended to bar any
claim against Tropicana for any loss of the contents of the safety deposit box
whether or not negligence was incurred by Tropicana or its employees. The New
Civil Code is explicit that the responsibility of the hotel-keeper shall extend to
loss of, or injury to, the personal property of the guests even if caused by
servants or employees of the keepers of hotels or inns as well as by strangers,
except as it may proceed from any force majeure.41 It is the loss through force
majeurethat may spare the hotel-keeper from liability. In the case at bar, there
is no showing that the act of the thief or robber was done with the use of arms
or through an irresistible force to qualify the same as force majeure.42
Petitioners likewise anchor their defense on Article 200243 which exempts the
hotel-keeper from liability if the loss is due to the acts of his guest, his family,
or visitors. Even a cursory reading of the provision would lead us to reject
petitioners' contention. The justification they raise would render nugatory the
public interest sought to be protected by the provision. What if the negligence
of the employer or its employees facilitated the consummation of a crime
committed by the registered guest's relatives or visitor? Should the law
exculpate the hotel from liability since the loss was due to the act of the visitor
of the registered guest of the hotel? Hence, this provision presupposes that the
hotel-keeper is not guilty of concurrent negligence or has not contributed in any
degree to the occurrence of the loss. A depositary is not responsible for the loss
of goods by theft, unless his actionable negligence contributes to the loss. 44

In the case at bar, the responsibility of securing the safety deposit box was
shared not only by the guest himself but also by the management since two
keys are necessary to open the safety deposit box. Without the assistance of
hotel employees, the loss would not have occurred. Thus, Tropicana was guilty
of concurrent negligence in allowing Tan, who was not the registered guest, to
open the safety deposit box of McLoughlin, even assuming that the latter was
also guilty of negligence in allowing another person to use his key. To rule
otherwise would result in undermining the safety of the safety deposit boxes in
hotels for the management will be given imprimatur to allow any person, under
the pretense of being a family member or a visitor of the guest, to have access
to the safety deposit box without fear of any liability that will attach thereafter
in case such person turns out to be a complete stranger. This will allow the
hotel to evade responsibility for any liability incurred by its employees in
conspiracy with the guest's relatives and visitors.
Petitioners contend that McLoughlin's case was mounted on the theory of
contract, but the trial court and the appellate court upheld the grant of the
claims of the latter on the basis of tort.45 There is nothing anomalous in how the
lower courts decided the controversy for this Court has pronounced a
jurisprudential rule that tort liability can exist even if there are already
contractual relations. The act that breaks the contract may also be tort. 46
As to damages awarded to McLoughlin, we see no reason to modify the
amounts awarded by the appellate court for the same were based on facts and
law. It is within the province of lower courts to settle factual issues such as the
proper amount of damages awarded and such finding is binding upon this Court
especially if sufficiently proven by evidence and not unconscionable or
excessive. Thus, the appellate court correctly awarded McLoughlin Two
Thousand US Dollars (US$2,000.00) and Four Thousand Five Hundred Australian
dollars (AUS$4,500.00) or their peso equivalent at the time of payment, 47 being
the amounts duly proven by evidence.48 The alleged loss that took place prior
to 16 April 1988 was not considered since the amounts alleged to have been
taken were not sufficiently established by evidence. The appellate court also
correctly awarded the sum of P308,880.80, representing the peso value for the
air fares from Sydney to Manila and back for a total of eleven (11) trips; 49onehalf of P336,207.05 or P168,103.52 representing payment to Tropicana;50 onehalf of P152,683.57 orP76,341.785 representing payment to Echelon
Tower;51 one-half of P179,863.20 or P89,931.60 for the taxi or transportation
expenses from McLoughlin's residence to Sydney Airport and from MIA to the
hotel here in Manila, for the eleven (11) trips;52 one-half of P7,801.94
or P3,900.97 representing Meralco power expenses;53 one-half of P356,400.00
or P178,000.00 representing expenses for food and maintenance. 54
The amount of P50,000.00 for moral damages is reasonable. Although trial
courts are given discretion to determine the amount of moral damages, the
appellate court may modify or change the amount awarded when it is palpably
and scandalously excessive.l^vvphi1.net Moral damages are not intended to
enrich a complainant at the expense of a defendant.l^vvphi1.net They are
awarded only to enable the injured party to obtain means, diversion or
amusements that will serve to alleviate the moral suffering he has undergone,
by reason of defendants' culpable action.55
The awards of P10,000.00 as exemplary damages and P200,000.00
representing attorney's fees are likewise sustained.
WHEREFORE, foregoing premises considered, the Decision of the Court of
Appeals dated 19 October 1995 is hereby AFFIRMED. Petitioners are directed,
jointly and severally, to pay private respondent the following amounts:

(1) US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of

payment;
(2) P308,880.80, representing the peso value for the air fares from Sydney to
Manila and back for a total of eleven (11) trips;
(3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana
Copacabana Apartment Hotel;
(4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon
Tower;
(5) One-half of P179,863.20 or P89,931.60 for the taxi or transportation
expense from McLoughlin's residence to Sydney Airport and from MIA to the
hotel here in Manila, for the eleven (11) trips;
(6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
(7) One-half of P356,400.00 or P178,200.00 representing expenses for food and
maintenance;
(8) P50,000.00 for moral damages;
(9) P10,000.00 as exemplary damages; and
(10) P200,000 representing attorney's fees.
With costs.
SO ORDERED.
Puno, (Chairman), Callejo, Sr., and Chico-Nazario, JJ., concur.
Austria-Martinez, J., no part.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 154183
August 7, 2003
SPOUSES VICKY TAN TOH and LUIS TOH, petitioners,
vs.
SOLID BANK CORPORATION, FIRST BUSINESS PAPER CORPORATION,
KENNETH NG LI and MA. VICTORIA NG LI, respondents.
BELLOSILLO, J.:
RESPONDENT SOLID BANK CORPORATION AGREED TO EXTEND an "omnibus
line" credit facility worth P10 million in favor of respondent First Business Paper
Corporation (FBPC). The terms and conditions of the agreement as well as the
checklist of documents necessary to open the credit line were stipulated in a
"letter-advise" of the Bank dated 16 May 1993 addressed to FBPC and to its
President, respondent Kenneth Ng Li.1 The "letter-advise"2 was effective upon
"compliance with the documentary requirements."3
The documents essential for the credit facility and submitted for this purpose
were the (a) Board Resolution or excerpts of the Board of Directors Meeting,
duly ratified by a Notary Public, authorizing the loan and security arrangement
as well as designating the officers to negotiate and sign for FBPC specifically
stating authority to mortgage, pledge and/or assign the properties of the
corporation; (b) agreement to purchase Domestic Bills; and, (c) Continuing
Guaranty for any and all amounts signed by petitioner-spouses Luis Toh and
Vicky Tan Toh, and respondent-spouses Kenneth and Ma. Victoria Ng Li. 4 The
spouses Luis Toh and Vicky Tan Toh were then Chairman of the Board and VicePresident, respectively, of FBPC, while respondent-spouses Kenneth Ng Li and
Ma. Victoria Ng Li were President and General Manager, respectively, of the
same corporation.5
It is not disputed that the credit facility as well as its terms and conditions was
not cancelled or terminated, and that there was no prior notice of such fact as
required in the "letter-advise," if any was done.
On 10 May 1993, more than thirty (30) days from date of the "letter-advise,"
petitioner-spouses Luis Toh and Vicky Tan Toh and respondent-spouses Kenneth
Ng Li and Ma. Victoria Ng Li signed the required Continuing Guaranty, which
was embodied in a public document prepared solely by respondent Bank. 6 The
terms of the instrument defined the contract arising therefrom as a surety
agreement and provided for the solidary liability of the signatories thereto for
and in consideration of "loans or advances" and "credit in any other manner to,
or at the request or for the account" of FBPC.
The Continuing Guaranty set forth no maximum limit on the indebtedness that
respondent FBPC may incur and for which the sureties may be liable, stating
that the credit facility "covers any and all existing indebtedness of, and such
other loans and credit facilities which may hereafter be granted to FIRST
BUSINESS PAPER CORPORATION." The surety also contained a de
facto acceleration clause if "default be made in the payment of any of the
instruments, indebtedness, or other obligation" guaranteed by petitioners and
respondents. So as to strengthen this security, the Continuing Guaranty waived
rights of the sureties against delay or absence of notice or demand on the part
of respondent Bank, and gave future consent to the Bank's action to "extend or
change the time payment, and/or the manner, place or terms of payment,"
including renewal, of the credit facility or any part thereof in such manner and
upon such terms as the Bank may deem proper without notice to or further
assent from the sureties.

The effectivity of the Continuing Guaranty was not contingent upon any event
or cause other than the written revocation thereof with notice to the Bank that
may be executed by the sureties.
On 16 June 1993 respondent FBPC started to avail of the credit facility and
procure letters of credit.7 On 17 November 1993 FBPC opened thirteen (13)
letters of credit and obtained loans totaling P15,227,510.00. 8 As the letters of
credit were secured, FBPC through its officers Kenneth Ng Li, Ma. Victoria Ng Li
and Redentor Padilla as signatories executed a series of trust receipts over the
goods allegedly purchased from the proceeds of the loans.9
On 13 January 1994 respondent Bank received information that respondentspouses Kenneth Ng Li and Ma. Victoria Ng Li had fraudulently departed from
their conjugal home.10 On 14 January 1994 the Bank served a demand letter
upon FBPC and petitioner Luis Toh invoking the acceleration clause11 in the trust
receipts of FBPC and claimed payment for P10,539,758.68 as unpaid overdue
accounts on the letters of credit plus interests and penalties within twenty-four
(24) hours from receipt thereof.12 The Bank also invoked the Continuing
Guaranty executed by petitioner-spouses Luis Toh and Vicky Tan Toh who were
the only parties known to be within national jurisdiction to answer as sureties
for the credit facility of FBPC.13
On 17 January 1994 respondent Bank filed a complaint for sum of money with
ex parte application for a writ of preliminary attachment against FBPC, spouses
Kenneth Ng Li and Ma. Victoria Ng Li, and spouses Luis Toh and Vicky Tan Toh,
docketed as Civil Case No. 64047 of RTC-Br. 161, Pasig City. 14 Alias summonses
were served upon FBPC and spouses Luis Toh and Vicky Tan Toh but not upon
Kenneth Ng Li and Ma. Victoria Ng Li who had apparently absconded.15
Meanwhile, with the implementation of the writ of preliminary attachment
resulting in the impounding of purported properties of FBPC, the trial court was
deluged with third-party claims contesting the propriety of the attachment. 16In
the end, the Bank relinquished possession of all the attached properties to the
third-party claimants except for two (2) insignificant items as it allegedly could
barely cope with the yearly premiums on the attachment bonds.17
Petitioner-spouses Luis Toh and Vicky Tan Toh filed a joint answer to the
complaint where they admitted being part of FBPC from its incorporation on 29
August 1991, which was then known as "MNL Paper, Inc.," until its corporate
name was changed to "First Business Paper Corporation." 18 They also
acknowledged that on 6 March 1992 Luis Toh was designated as one of the
authorized corporate signatories for transactions in relation to FBPC's checking
account with respondent Bank.19 Meanwhile, for failing to file an answer,
respondent FBPC was declared in default.20
Petitioner-spouses however could not be certain whether to deny or admit the
due execution and authenticity of the Continuing Guaranty. 21 They could only
allege that they were made to sign papers in blank and the Continuing
Guaranty could have been one of them.
Still, as petitioners asserted, it was impossible and absurd for them to have
freely and consciously executed the surety on 10 May 1993, the date appearing
on its face22 since beginning March of that year they had already divested their
shares in FBPC and assigned them in favor of respondent Kenneth Ng Li
although the deeds of assignment were notarized only on 14 June
1993.23 Petitioners also contended that through FBPC Board Resolution dated
12 May 1993 petitioner Luis Toh was removed as an authorized signatory for
FBPC and replaced by respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li
and Redentor Padilla for all the transactions of FBPC with respondent
Bank.24 They even resigned from their respective positions in FBPC as reflected
in the 12 June 1993 Secretary's Certificate submitted to the Securities and

Exchange Commission25 as petitioner Luis Toh was succeeded as Chairman by

respondent Ma. Victoria Ng Li, while one Mylene C. Padilla took the place of
petitioner Vicky Tan Toh as Vice-President. 26
Finally, petitioners averred that sometime in June 1993 they obtained from
respondent Kenneth Ng Li their exclusion from the several surety agreements
they had entered into with different banks, i.e., Hongkong and Shanghai Bank,
China Banking Corporation, Far East Bank and Trust Company, and herein
respondent Bank.27As a matter of record, these other banks executed written
surety agreements that showed respondent Kenneth Ng Li as the only surety of
FBPC's indebtedness.28
On 16 May 1996 the trial court promulgated its Decision in Civil Case No. 64047
finding respondent FBPC liable to pay respondent Solid Bank Corporation the
principal of P10,539,758.68 plus twelve percent (12%) interest per annum from
finality of the Decision until fully paid, but absolving petitioner-spouses Luis Toh
and Vicky Tan Toh of any liability to respondent Bank.29 The court a quo found
that petitioners "voluntarily affixed their signature[s]" on the Continuing
Guaranty and were thus "at some given point in time willing to be liable under
those forms,"30although it held that petitioners were not bound by the surety
contract since the letters of credit it was supposed to secure were opened long
after petitioners had ceased to be part of FBPC. 31
The trial court described the Continuing Guaranty as effective only while
petitioner-spouses were stockholders and officers of FBPC since respondent
Bank compelled petitioners to underwrite FBPC's indebtedness as sureties
without the requisite investigation of their personal solvency and capability to
undertake such risk.32 The lower court also believed that the Bank knew of
petitioners' divestment of their shares in FBPC and their subsequent resignation
as officers thereof as these facts were obvious from the numerous public
documents that detailed the changes and substitutions in the list of authorized
signatories for transactions between FBPC and the Bank, including the many
trust receipts being signed by persons other than petitioners, 33 as well as the
designation of new FBPC officers which came to the notice of the Bank's VicePresident Jose Chan Jr. and other officers. 34
On 26 September 1996 the RTC-Br. 161 of Pasig City denied reconsideration of
its Decision.35
On 9 October 1996 respondent Bank appealed the Decision to the Court of
Appeals, docketed as CA-G.R. CV No. 55957.36 Petitioner-spouses did not move
for reconsideration nor appeal the finding of the trial court that they voluntarily
executed the Continuing Guaranty.
The appellate court modified the Decision of the trial court and held that by
signing the Continuing Guaranty, petitioner-spouses became solidarily liable
with FBPC to pay respondent Bank the amount of P10,539,758.68 as principal
with twelve percent (12%) interest per annum from finality of the judgment
until completely paid.37 The Court of Appeals ratiocinated that the provisions of
the surety agreement did not "indicate that Spouses Luis and Vicky Toh x x x
signed the instrument in their capacities as Chairman of the Board and VicePresident, respectively, of FBPC only." 38 Hence, the court a quo deduced,
"[a]bsent any such indication, it was error for the trial court to have presumed
that the appellees indeed signed the same not in their personal
capacities."39 The appellate court also ruled that as petitioners failed to execute
any written revocation of the Continuing Guaranty with notice to respondent
Bank, the instrument remained in full force and effect when the letters of credit
were availed of by respondent FBPC.40
Finally, the Court of Appeals rejected petitioners' argument that there were
"material alterations" in the provisions of the "letter-advise," i.e., that only

domestic letters of credit were opened when the credit facility was for
importation of papers and other materials, and that marginal deposits were not
paid, contrary to the requirements stated in the "letter-advise." 41 The simple
response of the appellate court to this challenge was, first, the "letter-advise"
itself authorized the issuance of domestic letters of credit, and second, the
several waivers extended by petitioners in the Continuing Guaranty, which
included changing the time and manner of payment of the indebtedness,
justified the action of respondent Bank not to charge marginal deposits. 42
Petitioner-spouses moved for reconsideration of the Decision, and after
respondent Bank's comment, filed a lengthy Reply with Motion for Oral
Argument.43 On 2 July 2002 reconsideration of the Decision was denied on the
ground that no new matter was raised to warrant the reversal or modification
thereof.44 Hence, this Petition for Review.
Petitioner-spouses Luis Toh and Vicky Tan Toh argue that the Court of Appeals
denied them due process when it did not grant their motion for reconsideration
and without "bother[ing] to consider [their] Reply with Motion for Oral
Argument." They maintain that the Continuing Guaranty is not legally valid and
binding against them for having been executed long after they had withdrawn
from FBPC. Lastly, they claim that the surety agreement has been extinguished
by the material alterations thereof and of the "letter-advise" which were
allegedly brought about by (a) the provision of an acceleration clause in the
trust receipts; (b) the flight of their co-sureties, respondent-spouses Kenneth Ng
Li and Ma. Victoria Ng Li; (c) the grant of credit facility despite the non-payment
of marginal deposits in an amount beyond the credit limit of P10 million pesos;
(d) the inordinate delay of the Bank in demanding the payment of the
indebtedness; (e) the presence of ghost deliveries and fictitious purchases
using the Bank's letters of credit and trust receipts; (f) the extension of the due
dates of the letters of credit without the required 25% partial payment per
extension; (g) the approval of another letter of credit, L/C 93-0042, even after
respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li had defaulted on their
previous obligations; and, (h) the unmistakable pattern of fraud.
Respondent Solid Bank maintains on the other hand that the appellate court is
presumed to have passed upon all points raised by
petitioners' Reply with Motion for Oral Argument as this pleading formed part of
the records of the appellate court. It also debunks the claim of petitioners that
they were inexperienced and ignorant parties who were taken advantage of in
the Continuing Guaranty since petitioners are astute businessmen who are very
familiar with the "ins" and "outs" of banking practice. The Bank further argues
that the notarization of the Continuing Guaranty discredits the uncorroborated
assertions against the authenticity and due execution thereof, and that the
Decision of the trial court in the civil case finding the surety agreement to be
valid and binding is now res judicata for failure of petitioners to appeal
therefrom. As a final point, the Bank refers to the various waivers made by
petitioner-spouses in the Continuing Guaranty to justify the extension of the
due dates of the letters of credit.
To begin with, we find no merit in petitioners' claim that the Court of Appeals
deprived them of their right to due process when the court a quo did not
address specifically and explicitly their Reply with Motion for Oral Argument.
While the Resolution of the appellate court of 2 July 2002 made no mention
thereof in disposing of their arguments on reconsideration, it is presumed that
"all matters within an issue raised in a case were laid before the court and
passed upon it."45 In the absence of evidence to the contrary, we must rule that
the court a quo discharged its task properly. Moreover, a reading of the
assailed Resolution clearly makes reference to a "careful review of the records,"

which undeniably includes the Reply with Motion for Oral Argument, hence
there is no reason for petitioners to asseverate otherwise.
This Court holds that the Continuing Guaranty is a valid and binding contract of
petitioner-spouses as it is a public document that enjoys the presumption of
authenticity and due execution. Although petitioners as appellees may raise
issues that have not been assigned as errors by respondent Bank as partyappellant, i.e., unenforceability of the surety contract, we are bound by the
consistent finding of the courts a quo that petitioner-spouses Luis Toh and Vicky
Tan Toh "voluntarily affixed their signature[s]" on the surety agreement and
were thus "at some given point in time willing to be liable under those
forms."46 In the absence of clear, convincing and more than preponderant
evidence to the contrary, our ruling cannot be otherwise.
Similarly, there is no basis for petitioners to limit their responsibility thereon so
long as they were corporate officers and stockholders of FBPC. Nothing in the
Continuing Guaranty restricts their contractual undertaking to such condition or
eventuality. In fact the obligations assumed by them therein subsist "upon the
undersigned, the heirs, executors, administrators, successors and assigns of
the undersigned, and shall inure to the benefit of, and be enforceable by you,
your successors, transferees and assigns," and that their commitment "shall
remain in full force and effect until written notice shall have been received by
[the Bank] that it has been revoked by the undersigned." Verily, if petitioners
intended not to be charged as sureties after their withdrawal from FBPC, they
could have simply terminated the agreement by serving the required notice of
revocation upon the Bank as expressly allowed therein. 47 In Garcia v. Court of
Appeals[48] we ruled
Regarding the petitioner's claim that he is liable only as a corporate officer of
WMC, the surety agreement shows that he signed the same not in
representation of WMC or as its president but in his personal capacity. He is
therefore personally bound. There is no law that prohibits a corporate officer
from binding himself personally to answer for a corporate debt. While the
limited liability doctrine is intended to protect the stockholder by immunizing
him from personal liability for the corporate debts, he may nevertheless divest
himself of this protection by voluntarily binding himself to the payment of the
corporate debts. The petitioner cannot therefore take refuge in this doctrine
that he has by his own acts effectively waived.
But as we bind the spouses Luis Toh and Vicky Tan Toh to the surety agreement
they signed so must we also hold respondent Bank to its representations in the
"letter-advise" of 16 May 1993. Particularly, as to the extension of the due
dates of the letters of credit, we cannot exclude from the Continuing Guaranty
the preconditions of the Bank that were plainly stipulated in the "letter-advise."
Fairness and justice dictate our doing so, for the Bank itself liberally applies the
provisions of cognate agreements whenever convenient to enforce its
contractual rights, such as, when it harnessed a provision in the trust receipts
executed by respondent FBPC to declare its entire indebtedness as due and
demandable and thereafter to exact payment thereof from petitioners as
sureties.49 In the same manner, we cannot disregard the provisions of the
"letter-advise" in sizing up the panoply of commercial obligations between the
parties herein.
Insofar as petitioners stipulate in the Continuing Guaranty that respondent
Bank "may at any time, or from time to time, in [its] discretion x x x extend or
change the time payment," this provision even if understood as a waiver is
confined per se to the grant of an extension and does not surrender the
prerequisites therefor as mandated in the "letter-advise." In other words, the
authority of the Bank to defer collection contemplates

only authorizedextensions, that is, those that meet the terms of the "letteradvise."
Certainly, while the Bank may extend the due date at its discretion pursuant to
the Continuing Guaranty, it should nonetheless comply with the requirements
that domestic letters of credit be supported by fifteen percent (15%) marginal
deposit extendible three (3) times for a period of thirty (30) days for each
extension, subject to twenty-five percent (25%) partial payment per extension.
This reading of the Continuing Guaranty is consistent with Philippine National
Bank v. Court of Appeals50 that any doubt on the terms and conditions of the
surety agreement should be resolved in favor of the surety.
Furthermore, the assurance of the sureties in the Continuing Guaranty that
"[n]o act or omission of any kind on [the Bank's] part in the premises shall in
any event affect or impair this guaranty"51 must also be read "strictissimi juris"
for the reason that petitioners are only accommodation sureties, i.e., they
received nothing out of the security contract they signed. 52 Thus said, the acts
or omissions of the Bank conceded by petitioners as not affecting nor impairing
the surety contract refer only to those occurring "in the premises," or those that
have been the subject of the waiver in the Continuing Guaranty, and stretch to
no other. Stated otherwise, an extension of the period for enforcing the
indebtedness does not by itself bring about the discharge of the sureties unless
the extra time is not permitted within the terms of the waiver, i.e., where there
is no payment or there is deficient settlement of the marginal deposit and the
twenty-five percent (25%) consideration, in which case the illicit extension
releases the sureties. Under Art. 2055 of the Civil Code, the liability of a surety
is measured by the terms of his contract, and while he is liable to the full extent
thereof, his accountability is strictly limited to that assumed by its terms.
It is admitted in the Complaint of respondent Bank before the trial court that
several letters of credit were irrevocably extended for ninety (90) days with
alarmingly flawed and inadequate consideration - the indispensable marginal
deposit of fifteen percent (15%) and the twenty-five percent (25%) prerequisite
for each extension of thirty (30) days. It bears stressing that the requisite
marginal deposit and security for every thirty (30) - day extension specified in
the "letter-advise" were not set aside or abrogated nor was there any prior
notice of such fact, if any was done.
Moreover, these irregular extensions were candidly admitted by Victor Ruben L.
Tuazon, an account officer and manager of respondent Bank and its lone
witness in the civil case
Q:
You extended it even if there was no marginal deposit?A:
Yes.
Q:
And even if partial payment is less than 25%?A:
Yes x x x x
Q:
You have repeatedly extended despite the insufficiency partial payment
requirement?
A:
I would say yes.53
The foregoing extensions of the letters of credit made by respondent Bank
without observing the rigid restrictions for exercising the privilege are not
covered by the waiver stipulated in the Continuing Guaranty. Evidently, they
constitute illicit extensions prohibited under Art. 2079 of the Civil Code, "[a]n
extension granted to the debtor by the creditor without the consent of the
guarantor extinguishes the guaranty." This act of the Bank is not mere failure or
delay on its part to demand payment after the debt has become due, as was
the case in unpaid five (5) letters of credit which the Bank did not extend, defer
or put off,54 but comprises conscious, separate and binding agreements to
extend the due date, as was admitted by the Bank itself
Q:
How much was supposed to be paid on 14 September 1993, the
original LC of P1,655,675.13?

A:
Under LC 93-0017 first matured on 14 September 1993. We rolled it
over, extended it to December 13, 1993 but they made partial payment that is
why we extended it.
Q:
The question to you now is how much was paid? How much is supposed
to be paid on September 14, 1993 on the basis of the original amount of
P1,655,675.13?
A:
Whenever this obligation becomes due and demandable except when
you roll it over so there is novation there on the original
obligations55 (underscoring supplied).
As a result of these illicit extensions, petitioner-spouses Luis Toh and Vicky Tan
Toh are relieved of their obligations as sureties of respondent FBPC under Art.
2079 of the Civil Code.
Further, we note several suspicious circumstances that militate against the
enforcement of the Continuing Guaranty against the accommodation sureties.
Firstly, the guaranty was executed more than thirty (30) days from the original
acceptance period as required in the "letter-advise." Thereafter, barely two (2)
days after the Continuing Guaranty was signed, corporate agents of FBPC were
replaced on 12 May 1993 and other adjustments in the corporate structure of
FBPC ensued in the month of June 1993, which the Bank did not investigate
although such were made known to it.
By the same token, there is no explanation on record for the utter
worthlessness of the trust receipts in favor of the Bank when these documents
ought to have added more security to the indebtedness of FBPC. The Bank has
in fact no information whether the trust receipts were indeed used for the
purpose for which they were obtained.56To be sure, the goods subject of the
trust receipts were not entirely lost since the security officer of respondent
Bank who conducted surveillance of FBPC even had the chance to intercept the
surreptitious transfer of the items under trust: "We saw two (2) delivery vans
with Plates Nos. TGH 257 and PAZ 928 coming out of the compound x x x
[which were] taking out the last supplies stored in the compound." 57 In addition,
the attached properties of FBPC, except for two (2) of them, were perfunctorily
abandoned by respondent Bank although the bonds therefor were considerably
reduced by the trial court.58
The consequence of these omissions is to discharge the surety, petitioners
herein, under Art. 2080 of the Civil Code,59 or at the very least, mitigate the
liability of the surety up to the value of the property or lien released
If the creditor x x x has acquired a lien upon the property of a principal, the
creditor at once becomes charged with the duty of retaining such security, or
maintaining such lien in the interest of the surety, and any release or
impairment of this security as a primary resource for the payment of a debt,
will discharge the surety to the extent of the value of the property or lien
released x x x x [for] there immediately arises a trust relation between the
parties, and the creditor as trustee is bound to account to the surety for the
value of the security in his hands.60
For the same reason, the grace period granted by respondent Bank represents
unceremonious abandonment and forfeiture of the fifteen percent (15%)
marginal deposit and the twenty-five percent (25%) partial payment as fixed in
the "letter-advise." These payments are unmistakably additional securities
intended to protect both respondent Bank and the sureties in the event that the
principal debtor FBPC becomes insolvent during the extension period.
Compliance with these requisites was not waived by petitioners in the
Continuing Guaranty. For this unwarranted exercise of discretion, respondent
Bank bears the loss; due to its unauthorized extensions to pay granted to FBPC,

petitioner-spouses Luis Toh and Vicky Tan Toh are discharged as sureties under
the Continuing Guaranty.
Finally, the foregoing omission or negligence of respondent Bank in failing to
safe-keep the security provided by the marginal deposit and the twenty-five
percent (25%) requirement results in the material alteration of the principal
contract, i.e., the "letter-advise," and consequently releases the surety. 61 This
inference was admitted by the Bank through the testimony of its lone witness
that "[w]henever this obligation becomes due and demandable, except when
you roll it over, (so) there is novation there on the original obligations." As has
been said, "if the suretyship contract was made upon the condition that the
principal shall furnish the creditor additional security, and the security being
furnished under these conditions is afterwards released by the creditor, the
surety is wholly discharged, without regard to the value of the securities
released, for such a transaction amounts to an alteration of the main
contract."62
WHEREFORE, the instant Petition for Review is GRANTED. The Decision of the
Court of Appeals dated 12 December 2001 in CA-G.R. CV No. 55957, Solid Bank
Corporation v. First Business Paper Corporation, Kenneth Ng Li, Ma. Victoria Ng
Li, Luis Toh and Vicky Tan Toh, holding petitioner-spouses Luis Toh and Vicky Tan
Toh solidarily liable with First Business Paper Corporation to pay Solid Bank
Corporation the amount of P10,539,758.68 as principal with twelve percent
(12%) interest per annum until fully paid, and its Resolution of 2 July 2002
denying reconsideration thereof are REVERSED and SET ASIDE.
The Decision dated 16 May 1996 of RTC-Br. 161 of Pasig City in Civil Case No.
64047, Solid Bank Corporation v. First Business Paper Corporation, Kenneth Ng
Li, Ma. Victoria Ng Li, Luis Toh and Vicky Tan Toh, finding First Business Paper
Corporation liable to pay respondent Solid Bank Corporation the principal of
P10,539,758.68 plus twelve percent (12%) interest per annum until fully paid,
but absolving petitioner-spouses Luis Toh and Vicky Tan Toh of any liability to
respondent Solid Bank Corporation is REINSTATED and AFFIRMED. No costs.
SO ORDERED.
11
Id., p. 37; It states "[t]he Bank may at any time cancel this trust and take
possession of said goods, documents or instruments or of the proceeds as may
then have been sold wherever the said goods or proceeds may then be found,
and in the event of any suspension, or failure or assignment for benefit of
creditor or our non-fulfillment of any obligation, or of the non-payment at
maturity of any acceptance specified hereon or under any credit issued by the
Bank on our account, or of any indebtedness on our part to said Bank, all our
obligations, acceptances, indebtedness, and liabilities whatsoever shall
thereupon (with or without notice) mature and become due and payable."
59
Art. 2080 reads: "The guarantors, even though they be solidary, are released
from their obligation whenever by some act of the creditor they cannot be
subrogated to the rights, mortgages, and preference of the latter;" There is no
reason not to apply this provision to a surety agreement since guaranty and
surety are cognate contracts; see People's Bank and Trust Company v.
Tambunting, No. L-29666, 29 October 1971, 42 SCRA 119.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 143304
July 8, 2004
SPECIAL STEEL PRODUCTS, INC., petitioner,
vs.
LUTGARDO VILLAREAL AND FREDERICK SO, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
May an employer withhold its employees wages and benefits as lien to protect
its interest as a surety in the latters car loan and for expenses incurred in a
training abroad? This is the basic issue for our resolution in the instant case.
At bar is a petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, as amended, assailing the Decision 1 dated October 29, 1999
and Resolution2 dated May 8, 2000 of the Court of Appeals in CA-G.R. SP No.
50957, entitled "Special Steel Products, Inc. vs. National Labor Relations
Commission, Lutgardo Villareal and Frederick So."
The factual antecedents as borne by the records are:
Special Steel Products, Inc., petitioner, is a domestic corporation engaged in
the principal business of importation, sale, and marketing of BOHLER steel
products. Lutgardo C. Villareal and Frederick G. So, respondents, worked for
petitioner as assistant sales manager and salesman, respectively.
Sometime in May 1993, respondent Villareal obtained a car loan from the Bank
of Commerce, with petitioner as surety, as shown by a "continuing suretyship
agreement" and "promissory note" wherein they jointly and severally agreed to
pay the bank P786,611.60 in 72 monthly installments. On January 15, 1997,
respondent Villareal resigned and thereafter joined Hi-Grade Industrial and
Technical Products, Inc. as executive vice-president.
Sometime in August 1994, petitioner "sponsored" respondent Frederick So to
attend a training course in Kapfenberg, Austria conducted by BOHLER,
petitioners principal company. This training was a reward for respondent Sos
outstanding sales performance. When respondent returned nine months
thereafter, petitioner directed him to sign a memorandum providing that
BOHLER requires trainees from Kapfenberg to continue working with petitioner
for a period of three (3) years after the training. Otherwise, each trainee shall
refund to BOHLER $6,000.00 (US dollars) by way of set-off or compensation. On
January 16, 1997 or 2 years and 4 months after attending the training,
respondent resigned from petitioner.
Immediately, petitioner ordered respondents to render an accounting of its
various Christmas giveaways3 they received. These were intended for
distribution to petitioners customers.
In protest, respondents demanded from petitioner payment of their separation
benefits, commissions, vacation and sick leave benefits, and proportionate
13th month pay. But petitioner refused and instead, withheld their 13 thmonth
pay and other benefits.
On April 16, 1997, respondents filed with the Labor Arbiter a complaint for
payment of their monetary benefits against petitioner and its president,
Augusto Pardo, docketed as NLRC NCR Case No. 04-02820-97.
In due course, the Labor Arbiter rendered a Decision dated February 18, 1998,
the dispositive portion of which reads:
"WHEREFORE, decision is hereby rendered ordering the respondents, Special
Steel Products, Inc. and Mr. Augusto Pardo to pay, jointly and severally,

complainants Frederick G. So and Lutgardo C. Villareal the amounts of Seventy

One Thousand Two Hundred Seventy Nine Pesos and Fifty Eight Centavos
(P71,279.58) and One Hundred Sixty Four Thousand Eight Hundred Seventy
Three Pesos (P164,873.00), respectively, representing their commissions,
retirement benefit (for Villareal), proportionate 13th month, earned vacation and
sick leave benefits, and attorneys fees.
xxx
SO ORDERED."
On appeal, the National Labor Relations Commission (NLRC), in a Decision
dated June 29, 1998, affirmed with modification the Arbiters Decision in the
sense that Pardo, petitioners president, was exempted from any liability.
On September 11, 1998, petitioner filed a motion for reconsideration but was
denied.
Hence, petitioner filed with the Court of Appeals a petition for certiorari.
On October 29, 1999, the Court of Appeals rendered a Decision dismissing the
petition and affirming the assailed NLRC Decision, thus:
"At the outset, the Court notes that despite its Seventh Assignment of Error,
petitioner does not question the NLRCs decision affirming the labor arbiters
award to private respondents of commissions, proportionate 13 th month pay,
earned vacation and sick leave benefits and retirement benefit (for Villareal). It
merely asserts that it was withholding private respondents claims by reason of
their pending obligations.
Petitioner justifies its withholding of Villareals monetary benefits as a lien for
the protection of its right as surety in the car loan. It asserts that it would
release Villareals monetary benefits if he would cause its substitution as surety
by Hi-Grade. It further asserts that since Villareals debt to the Bank is now due
and demandable, it may, pursuant to Art. 2071 of the New Civil Code, demand
a security that shall protect him from any proceeding by the creditor and from
the danger of insolvency of the debtor.
Petitioners posture is not sanctioned by law. It may only protect its right as
surety by instituting an action x x x to demand a security (Kuenzle and Streiff
vs. Tan Sunco, 16 Phil 670). It may not take the law into its own hands. Indeed,
it is unlawful for any person, directly or indirectly, to withhold any amount from
the wages of a worker or induce him to give up any part of his wages by force,
stealth, intimidation, threat or by any other means whatsoever without the
workers consent (Art. 116, Labor Code).
Moreover, petitioner has made no payment on the car loan. Consequently,
Villareal is not indebted to petitioner. On the other hand, petitioner owes
Villareal for the decreed monetary benefits. The withholding of Villareals
monetary benefits had effectively prevented him from settling his arrearages
with the Bank.
With regard to Sos money claims. We find no cogent reason to disturb the
findings of the NLRC. x x x.
Sos all-expense paid trip to Austria was a bonus for his outstanding sales
performance. Before his sojourn to Austria, petitioner issued him a
memorandum (or memo) stating that Bohler is now imposing that trainees
coming to Kapfenberg to stay with the local representative for at least three (3)
years after training, otherwise, a lump sum compensation of not less than US
$6,000.00 will have to be refunded to them by the trainee. So did not affix his
signature on the memo. However, nine (9) months after coming back from his
training, he was made to sign the memo. In his letter to Augusto Pardo dated
July 18, 1997, So stated that his signature was needed only as a formality and
that he was left with no choice but to accommodate Augusto Pardos request.
The labor arbiter gave credence to such explanation.

Assuming arguendo that the memo is binding on So, his more than two years
post-training stay with petitioner is a substantial compliance with the condition.
Besides, So tendered his resignation effective February 16, 1997. Instead of
asking So to defer his resignation until the expiration of the three-year period,
petitioner advanced its effectivity by one month - as of January 16, 1997. This
means that petitioner no longer needed Sos services, particularly the skill and
expertise acquired by him from the training. More importantly, the party
entitled to claim the US $6,000.00 liquidated damages is BOHLER and not
petitioner. Consequently, petitioner has no right to insist on payment of the
liquidated damages, much less to withhold Sos monetary benefits in order to
exact payment thereof.
With regard to the Christmas giveaways. We agree with the findings of the
labor arbiter (affirmed by the NLRC) that there is no existing memorandum
requiring the accounting of such giveaways and that no actual accounting has
ever been required before, as in the case of then Sales Manager Benito Sayo
whose resignation took effect on December 31, 1996 but was not required to
account for the Christmas giveaways. To make So account now for said items
would amount to discrimination. In any event, the matter of accounting of the
giveaways may be ventilated in the proper forum.
Finally, petitioner may not offset its claims against private
respondents monetary benefits. With respect to its being the surety of
Villareal, two requisites of compensation are lacking, to wit: that each one of
the obligors be bound principally, and that he be at the same time a principal
creditor of the other and that (the two debts) be liquidated and demandable
(Art. 1279 (1) and (4), New Civil Code). And in respect to its claim for liquidated
damages against So, there can be no compensation because his creditor is
not petitioner but BOHLER (Art. 1278, New Civil Code).
Consequently, the NLRC committed no grave abuse of discretion.
WHEREFORE, the petition is DISMISSED while the assailed decision of the NLRC
is AFFIRMED.
SO ORDERED."
On December 15, 1999, petitioner filed a motion for reconsideration but was
denied by the Appellate Court in a Resolution dated May 8, 2000.
Hence, this petition for review on certiorari. Petitioner contends that as a
guarantor, it could legally withhold respondent Villareals monetary benefits as
a preliminary remedy pursuant to Article 2071 of the Civil Code, as
amended.4 As to respondent So, petitioner, citing Article 113 of the Labor Code,
as amended,5 in relation to Article 1706 of the Civil Code, as
amended,6 maintains that it could withhold his monetary benefits being
authorized by the memorandum he signed.
Article 116 of the Labor Code, as amended, provides:
"ART. 116. Withholding of wages and kickbacks prohibited. It shall be
unlawful for any person, directly or indirectly, to withhold any amount
from the wages (and benefits) of a worker or induce him to give up any
part of his wages by force, stealth, intimidation, threat or by any other means
whatsoeverwithout the workers consent."
The above provision is clear and needs no further elucidation. Indeed,
petitioner has no legal authority to withhold respondents 13 th month pay and
other benefits. What an employee has worked for, his employer must pay. 7Thus,
an employer cannot simply refuse to pay the wages or benefits of its employee
because he has either defaulted in paying a loan guaranteed by his employer;
or violated their memorandum of agreement; or failed to render an accounting
of his employers property.8

Nonetheless, petitioner, relying on Article 2071 (earlier cited), contends that

the right to demand security and obtain release from the guaranty it executed
in favor of respondent Villareal may be exercised even without initiating a
separate and distinct action.
There is no guaranty involved herein and, therefore, the provision of Article
2071 does not apply.
A guaranty is distinguished from a surety in that a guarantor is the insurer of
the solvency of the debtor and thus binds himself to pay if the principal is
unable to pay, while a surety is the insurer of the debt, and he obligates
himself to pay if the principal does not pay.9
Based on the above distinction, it appears that the contract executed by
petitioner and respondent Villareal (in favor of the Bank of Commerce) is a
contract of surety. In fact, it is denominated as a "continuing suretyship
agreement." Hence, petitioner could not just unilaterally withhold respondents
wages or benefits as a preliminary remedy under Article 2071. It must file an
action against respondent Villareal. Thus, the Appellate Court aptly ruled that
petitioner "may only protect its right as surety by instituting an action to
demand a security."
As to respondent So, petitioner maintains that there can be a set-off or legal
compensation between them. Consequently, it can withhold his 13 th month pay
and other benefits.
For legal compensation to take place, the requirements set forth in Articles
1278 and 1279 of the Civil Code, quoted below, must be present.
"ARTICLE 1278. Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other.
"ARTICLE 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the latter
has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor."
In the present case, set-off or legal compensation cannot take place between
petitioner and respondent So because they are not mutually creditor and
debtor of each other.
A careful reading of the Memorandum10 dated August 22, 1994 reveals that the
"lump sum compensation of not less than US $6,000.00 will have to be
refunded" by each trainee to BOHLER, not to petitioner.
In fine, we rule that petitioner has no legal right to withhold respondents
13th month pay and other benefits to recompense for whatever amount it paid
as security for respondent Villareals car loan; and for the expenses incurred by
respondent So in his training abroad.
WHEREFORE, the petition is DENIED. The Decision dated October 29, 1999
and Resolution dated May 8, 2000 of the Court of Appeals in CA-G.R. SP No.
50957 are hereby AFFIRMED.
SO ORDERED.
Vitug, (Chairman), Corona, and Carpio-Morales, JJ., concur.
3
These Christmas giveaways were worth P38,108.00, for respondent Villareal,
and P54,481.00, for respondent So.
4
Article 2071 of the Civil Code, as amended, provides:

"Art. 2071. The guarantor, even before having paid, may proceed against the
principal debtor:
(1) When he is sued for the payment;
(2) In case of insolvency of the principal debtor;
(3) When the debtor has bound himself to relieve him from the guaranty within
a specified period, and this period has expired;
(4) When the debt has become demandable, by reason of the expiration of the
period for payment;
(5) After the lapse of ten years, when the principal obligation has no fixed
period for its maturity, unless it be of such nature that it cannot be
extinguished except within a period longer than ten years;
(6) If there are reasonable grounds to fear that the principal debtor intends to
abscond;
(7) If the principal debtor is in imminent danger of becoming insolvent.
In all these cases, the action of the guarantor is to obtain release from the
guaranty, or to demand a security that shall protect him from any
proceedings by the creditor and from the danger of insolvency of the
debtor."

Article 113 of the Labor Code, as amended, provides:

"ART. 113. Wage Deduction. No employer, in his own behalf or in behalf of any
person, shall make any deduction from the wages of his employees, except:
(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 checkoff 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.
6
Article 1706 of the Civil Code, as amended, provides:
"Article 1706. Withholding of the wages, except for a debt due, shall not be
made by the employer."