JUANITO A. GARCIA and ALBERTO J.

DUMAGO, Petitioners, versus PHILIPPINE

AIRLINES, INC., Respondent.

2007-08-29 | G.R. No. 164856

DECISION

QUISUMBING, J.:

This petition for review assails both the Decision[1] dated December 5, 2003 and the Resolution[2] dated
April 16, 2004 of the Court of Appeals in CA-G.R. SP No. 69540, which had annulled the Resolutions[3]
dated November 26, 2001 and January 28, 2002 of the National Labor Relations Commission (NLRC) in
NLRC Injunction Case No. 0001038-01, and also denied the motion for reconsideration, respectively.

The antecedent facts of the case are as follows:

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

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

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

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

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

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

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

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

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

34,125.00 for 13th month pay

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

107,562.00 for 13th month pay

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

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

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

SO ORDERED.[7]

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

On appeal, the NLRC reversed the Labor Arbiter's decision and dismissed the case for lack of merit.[8]
Reconsideration having been denied, an Entry of Judgment[9] was issued on July 13, 2000.

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

xxxx

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

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

x x x x[11]

Although PAL filed an Urgent Motion to Quash Writ of Execution, the Labor Arbiter issued a Notice of
Garnishment[12] addressed to the President/Manager of the Allied Bank Head Office in Makati City for
the amount of P549,309.60.

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

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

SO ORDERED.[13]

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

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

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

SO ORDERED.[14]

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

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

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

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

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

SECTION 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other forms of associations registered with it as
expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to
hear and decide cases involving:

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

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

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

xxxx

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

xxxx

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

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

Furthermore, the actions that are suspended cover all claims against the corporation whether for
damages founded on a breach of contract of carriage, labor cases, collection suits or any other claims of
a pecuniary nature.[19] No exception in favor of labor claims is mentioned in the law.[20]

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

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

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

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

SO ORDERED.

LEONARDO A. QUISUMBING
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice

CONCHITA CARPIO MORALES

Associate Justice

DANTE O. TINGA
Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

ATTESTATION

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

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

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

REYNATO S. PUNO
Chief Justice

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

[2] Id. at 49.

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

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

[5] Id. at 32-33.

[6] Id. at 160-167.

[7] Id. at 167.

[8] Id. at 174-186.

[9] Id. at 209-210.

[10] CA rollo, pp. 57-61.

[11] Id. at 60-61.

[12] Id. at 71.

[13] Id. at 21.

[14] Rollo, pp. 47-48.

[15] Id. at 219.

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

[17] Philippine Airlines, Inc. v. Zamora, G.R. No. 166996, February 6, 2007, p. 20.

[18] Philippine Airlines, Inc. v. Court of Appeals, G.R. No. 123238, July 11, 2005, p. 11.

[19] Philippine Airlines, Inc. v. Zamora, supra note 17.

[20] Rubberworld (Phils.), Inc. v. NLRC, supra at 729.

[21] Supra note 17.

[22] Clarion Printing House, Inc. v. National Labor Relations Commission, G.R. No. 148372, June 27,
2005, 461 SCRA 272, 296.

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