TAXATION - PRESCRIPTION

REYES, J.:

ALI allegedly has a deficiency 10% value added tax (VAT) on its income for the taxable
year 2003. ALI filed its protest with the office of respondent contesting the factual and legal
bases of the VAT assessment. The protest was denied. A letter of authority was then issued.
In order to protect its right, ALI filed the Petition for Review. CTA Second Division
rendered its Decision granting ALIs petition for review. The CIRs motion for
reconsideration was denied, prompting him to file an appeal to the CTA en banc. The CTA
en banc rendered its Decision affirming the decision of the CTA Second Division. Feeling
aggrieved, the CIR filed a motion for reconsideration, but this was denied by the CTA.
The CIR claims that it did not receive a copy of the CTA en bancs resolution denying his
motion for reconsideration. The CIR then filed on July 2, 2009 a Manifestation with the
Motion to Reconsider Resolution Ordering Entry of Judgment. CTA ruled that the petition
for relief of the CIR was filed beyond the 60-day reglementary period. Did the CTA
commit grave abuse of discretion amounting to lack or excess of jurisdiction in ruling that
the petition for relief of the CIR was filed beyond the 60-day reglementary period under
Rule 38? No. In resolving the substantive issue, it is crucial to determine the date when the
petitioner learned of the CTA en bancs Resolution dated March 25, 2009, as Section 3, Rule 38
of the Rules of Court provides: Time for filing petition; contents and verification. A petition
provided for in either of the preceding sections of this Rule must be verified, filed within sixty
(60) days after the petitioner learns of the judgment, final order, or other proceeding to be set
aside, and not more than six (6) months after such judgment or final order was entered, or such
proceeding was taken; and must be accompanied with affidavits showing the fraud, accident,
mistake, or excusable negligence relied upon, and the facts constituting the petitioners good and
substantial cause of action or defense, as the case may be. By the CIRs own evidence and
admissions, particularly in the narration of facts in the petition for relief, the OSGs letter and the
affidavit of merit attached thereto, it is evident that both the CIR and the OSG had known of the
CTAs Resolution dated March 25, 2009 long before August 3. Furthermore, as far as we are
concerned, there is doubt in the propriety of filing a petition for relief at this time. From your
receipt on June 17, 2009 of the entry of judgment, CIR filed a "Manifestation and Motion to
Reconsider Resolution Ordering Entry of Judgment" dated July 1, 2009 instead of a petition for
relief. In the meantime, the 60 days period (from actual knowledge) under Section 3, Rule 38
within which to file the edition for relief continued to run and has expired already. Given the
foregoing, this Court finds no cogent reason to grant petitioner's plea for the issuance of a writ of
certiorari. An act of a court or tribunal may only be considered as committed in grave abuse of
discretion when the same is performed in a capricious or whimsical exercise of judgment, which
is equivalent to lack of jurisdiction. The abuse of discretion must be so patent and gross as to
amount to an evasion of positive duty or to a vi1iual refusal to perform a duty enjoined by law or
to act at all in contemplation of law, as where the power is exercised in an arbitrary and despotic
manner by reason of passion or personal hostility. There was no such grave abuse of discretion in
this case because the CIR's petition for relief was indeed filed out of time. (COMMISSIONER
OF INTERNAL REVENUE vs COURT OF TAX APPEALS and AYALA LAND, INC., G.R. No.
190680, September 13, 2012)
 LABOR LAW- REINSTATEMENT

MENDOZA, J.

Chemical Manufacturing Corporation (ACMC) hired respondent Ronaldo A. Bides

(Bides). Matthew, the plant manager of ACMC, sent a written memorandum requiring
Bides to explain in writing within 48 hours his refusal to sign the disciplinary form in
connection with his alleged infractions of loitering in the comfort room under pain of
revocation of his housing privileges. On the same day, instead of submitting a written
explanation in compliance with the memorandum, Bides orally explained to William,
another plant manager of ACMC, his justification for his alleged infractions. Matthew
confronted Bides and prohibited him from reporting for work the following day, as he
would be terminated from the company. On May 20, 2003, the day he was supposed to be
dismissed from the service, Bides instituted a complaint for illegal dismissal. The NLRC
ordered ACMC to reinstate Bides to his former position or equivalent position. The CA
however, ordered the awarding of separation pay in lieu of reinstatement, taking into
account the fact of strained relations between the parties. Is there a strained relationship
existing between ACMC and Bides to bar the latters reinstatement and justify the award
of separation pay? Yes. Patent animosity existed between ACMC and Bides considering the
confrontation that took place between the latter and Matthew. This confrontation coupled with
Bides refusal to be reinstated led to the LAs finding of "strained relations" necessitating an
award of separation pay in lieu of reinstatement. The Court is well aware that reinstatement is the
rule and, for the exception of "strained relations" to apply, it should be proved that it is likely
that, if reinstated, an atmosphere of antipathy and antagonism would be generated as to adversely
affect the efficiency and productivity of the employee concerned. Under the doctrine of strained
relations, the payment of separation pay is considered an acceptable alternative to reinstatement
when the latter option is no longer desirable or viable. On one hand, such payment liberates the
employee from what could be a highly oppressive work environment. On the other hand, it
releases the employer from the grossly unpalatable obligation of maintaining in its employ a
worker it could no longer trust. Moreover, the doctrine of strained relations has been made
applicable to cases where the employee decides not to be reinstated and demands for separation
pay. In the present case, Bides has consistently maintained, from the proceedings in the LA up to
the CA, his refusal to be reinstated due to his fear of reprisal which he could experience as a
consequence of his return. By doing so, Bides unequivocally foreclosed reinstatement as a relief.
The CA erred, however, in awarding a half month salary only for every year of service.
Considering, however, that Bides did not question that portion of the CA decision, the Court is of
the view that he was satisfied and would no longer disturb it. (APO CHEMICAL
MANUFACTURING CORPORATION and MICHAEL CHENG vs. RONALDO A. BIDES,
G.R. No. 186002, September 19, 2012)
 TAXATION- GROSS RECEIPTS

MENDOZA, J.:

GF questions the validity of Revenue Regulations No. 6-66, claiming that it is not a correct
interpretation of Section 118(A) of the NIRC, and insisting that the gross receipts should be
based on the "net net" amount the amount actually received, derived, collected, and
realized by the petitioner from passengers, cargo and excess baggage. It further argues that
the CAB approved fares are merely notional and not reflective of the actual revenue or
receipts derived by it from its business as an international air carrier. GF also insists that
its construction of "gross receipts" to mean the "net net" amount actually received, rather
than the CAB approved rates as mandated by Revenue Regulations No. 6-66, has been
validated by the issuance of Revenue Regulations No. 15-2002 which expressly superseded
the former. Does the definition of "gross receipts," for purposes of computing the 3%
Percentage Tax under Section 118(A) of the 1997 National Internal Revenue Code (NIRC),
includes special commissions on passengers and special commissions on cargo based on the
rates approved by the CAB? Section 118(A) of the NIRC states that: Sec. 118. Percentage Tax
on International Carriers. (A) International air carriers doing business in the Philippines shall
pay a tax of three percent (3%) of their quarterly gross receipts. Pursuant to this, the Secretary of
Finance promulgated Revenue Regulations No. 15-2002, which prescribes that "gross receipts"
for the purpose of determining Common Carriers Tax shall be the same as the tax base for
calculating Gross Philippine Billings Tax. The gross revenue for passengers whose tickets are
sold in the Philippines shall be the actual amount derived for transportation services, for a first
class, business class or economy class passage, as the case may be, on its continuous and
uninterrupted flight from any port or point in the Philippines to its final destination in any port or
point of a foreign country, as reflected in the remittance area of the tax coupon forming an
integral part of the plane ticket. For this purpose, the Gross Philippine Billings shall be
determined by computing the monthly average net fare of all the tax coupons of plane tickets
issued for the month per point of final destination, per class of passage (i.e., first class, business
class, or economy class) and per classification of passenger (i.e., adult, child or infant) and
multiplied by the corresponding total number of passengers flown for the month as declared in
the flight manifest. For tickets sold outside the Philippines, the gross revenue for passengers for
first class, business class or economy class passage, as the case may be, on a continuous and
uninterrupted flight from any port of point in the Philippines to final destination in any port or
point of a foreign country shall be determined using the locally available net fares applicable to
such flight taking into consideration the seasonal fare rate established at the time of the flight, the
class of passage (whether first class, business class, economy class or non-revenue), the
classification of passenger (whether adult, child or infant), the date of embarkation, and the place
of final destination. Correspondingly, the Gross Philippine Billing for tickets sold outside the
Philippines shall be determined in the manner as provided in the preceding paragraph. GF is
reminded that rules and regulations interpreting the tax code and promulgated by the Secretary of
Finance, who has been granted the authority to do so by Section 244 of the NIRC, "deserve to be
given weight and respect by the courts in view of the rule-making authority given to those who
formulate them and their specific expertise in their respective fields. As such, absent any
showing that Revenue Regulations No. 6-66 is inconsistent with the provisions of the NIRC, its
stipulations shall be upheld and applied accordingly. (GULF AIR COMPANY, PHILIPPINE
BRANCH (GF) vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 182045 , September
19, 2012)
 LABOR LAW- ILLEGAL DISMISSAL

PERLAS-BERNABE, J.:

Respondent Dakila was employed by Skylanders as early as 1987 and terminated for cause
in April 1997 when the corporation was sold. In May 1997, he was rehired as consultant by
the petitioners under a Contract for Consultancy Services dated April 30, 1997. Thereafter,
Dakila informed petitioners of his compulsory retirement effective May 2, 2007 and sought
for the payment of his retirement benefits pursuant to the Collective Bargaining
Agreement. His request, however, was not acted upon. Instead, he was terminated from
service effective May 1, 2007. Dakila filed a complaint for constructive illegal dismissal,
non-payment of retirement benefits, under/non-payment of wages and other benefits of a
regular employee, and damages against petitioners. Was Dakila illegally dismissed? Yes.
The issue of illegal dismissal is premised on the existence of an employer-employee relationship
between the parties herein. It is essentially a question of fact, beyond the ambit of a petition for
review on certiorari under Rule 45 of the Rules of Court unless there is a clear showing of
palpable error or arbitrary disregard of evidence which does not obtain in this case. Records
reveal that both the LA and the NLRC, as affirmed by the CA, have found substantial evidence
to show that respondent Dakila was a regular employee who was dismissed without cause.
Following Article 279 of the Labor Code, an employee who is unjustly dismissed from work is
entitled to reinstatement without loss of seniority rights and other privileges and to his full
backwages computed from the time he was illegally dismissed. However, considering that
respondent Dakila was terminated on May 1, 2007, or one (1) day prior to his compulsory
retirement on May 2, 2007, his reinstatement is no longer feasible. Accordingly, the NLRC
correctly held him entitled to the payment of his retirement benefits pursuant to the CBA. On the
other hand, his backwages should be computed only for days prior to his compulsory retirement
which in this case is only a day. (THE NEW PHILIPPINE SKYLANDERS, INC. and/or
JENNIFER M. ENANO-BOTE vs. FRANCISCO N. DAKILA, G.R. No. 199547, September 24,
2012)
 SPECIAL PROCEEDINGS- PARTITION

MENDOZA, J.:

(Faustina) was the original owner of a parcel of land covered by TCT No. 16776. The land
had a total area of 140,211 square meters. On December 8, 1941, Faustina died without any
children. She left a holographic will, assigning and distributing her property to her
nephews and nieces. The said holographic will, however, was not probated. Benjamin
Laxamana was one of Faustinas heirs. He died in 1960. He had two heirs: his wife and his
son, Domingo Laxamana (Domingo). On March 5, 1975, Domingo executed a Deed of Sale
in favor of Laureano Cabalu covering 9,000 square meters of the land inherited by his
father from Faustina. On August 1, 1994, the legitimate heirs of Faustina executed a Deed
of Extra-Judicial Succession with Partition. The said deed imparted 9,000 square meters of
the land covered by TCT No. 16776 to Domingo. Thereafter, Domingo sold 4,500 square
meters of the 9,000 square meters of the land to his nephew, Eleazar Tabamo. The
remaining portion was registered in Domingos name under TCT No. 281353. On August 4,
1996, Domingo died. On October 8, 1996, or two (2) months after Domingos death,
Domingo purportedly executed a Deed of Sale of TCT No. 281353 in favor of Renato Tabu
(Tabu). Tabu and his wife Dolores Laxamana subdivided the lot into two which resulted to
TCT Nos. 291338 and 291339. Consequently, petitioners Milagros de Belen Vda. De
Cabalu, Meliton Cabalu, Spouses Angela Cabalu and Rodolfo Talavera, and Patricio Abus
filed a complaint before the RTC seeking to declare TCT Nos. 291338 and 291339 as null
and void. Was the March 5, 1975 Deed of Sale null and void? Yes. even if Benjamin died
sometime in 1960, Domingo in 1975 could not yet validly dispose of the whole or even a portion
thereof for the reason that he was not the sole heir of Benjamin, as his mother only died
sometime in 1980. Besides, under Article 1347 of the Civil Code, "No contract may be entered
into upon future inheritance except in cases expressly authorized by law." Paragraph 2 of Article
1347, characterizes a contract entered into upon future inheritance as void. The law applies when
the following requisites concur: (1) the succession has not yet been opened; (2) the object of the
contract forms part of the inheritance; and (3) the promissor has, with respect to the object, an
expectancy of a right which is purely hereditary in nature. In this case, at the time the deed was
executed, Faustinas will was not yet probated; the object of the contract, the 9,000 square meter
property, still formed part of the inheritance of his father from the estate of Faustina; and
Domingo had a mere inchoate hereditary right therein. Domingo became the owner of the said
property only on August 1, 1994, the time of execution of the Deed of Extrajudicial Succession
with Partition by the heirs of Faustina, when the 9,000 square meter lot was adjudicated to him.
(MILAGROS DE BELEN VDA. DE CABALU, MELITON CABALU, SPS. ANGELA CABALU
and RODOLFO TALAVERA, and PATRICIO ABUS, vs. SPS. RENATO DOLORES TABU and
LAXAMANA, G.R. No. 188417, September 24, 2012)
G.R. No. 183533 September 25, 2012

IN THE MATTER OF THE PETITION FOR THE WRIT OF AMPARO AND THE
WRIT OF HABEAS DATA IN FAVOR OF FRANCIS SAEZ, Petitioner,
vs.
GLORIA MACAPAGAL ARROYO, GEN. HERMOGENES ESPERON, P/DIR. GEN.
AVELINO RAZON, 22ND MICO, CAPT. LAWRENCE BANAAG, SGT. CASTILLO,
CAPT. ROMMEL GUTIERREZ, CAPT. JAKE OBLIGADO, CPL. ROMAN ITO QUINT
ANA, PVT. JERICO DUQUIL, CPL. ARIEL FONTANILLA, A CERTAIN CAPT. ALCA
YDO, A CERTAIN FIRST SERGEANT, PVT. ZALDY OSlO, A CERTAIN PFC. SONNY,
A CERTAIN CPL. JAMES, A CERTAIN JOEL, RODERICK CLANZA and JEFFREY
GOMEZ, Respondents.

On March 6, 2008, the petitioner filed with the Court a petition to be granted the privilege of the
writs of amparo and habeas data with prayers for temporary protection order, inspection of place
and production of documents. In the petition, he expressed his fear of being abducted and killed.
He likewise prayed for the military to cease from further conducting surveillance and monitoring
of his activities and for his name to be excluded from the order of battle and other government
records connecting him to the Communist Party of the Philippines (CPP).During the hearings,
the petitioner narrated that starting April 16, 2007, he noticed that he was always being followed
by a certain "Joel," a former colleague at Bayan Muna.

For action by the Court is the Motion for Reconsideration1 dated September 26, 2010 filed by
petitioner Francis Saez of our Resolution2 dated August 31, 2010 denying the Petition for
Review3 he filed on July 21, 2008.

The Office of the Solicitor General (OSG) filed its Comment4 thereon stating that it does not
find cogent grounds to warrant setting aside our decision.

Antecedent Facts
On March 6, 2008, the petitioner filed with the Court a petition to be granted the privilege of the
writs of amparo and habeas data with prayers for temporary protection order, inspection of place
and production of documents.5 In the petition, he expressed his fear of being abducted and
killed; hence, he sought that he be placed in a sanctuary appointed by the Court. He likewise
prayed for the military to cease from further conducting surveillance and monitoring of his
activities and for his name to be excluded from the order of battle and other government records
connecting him to the Communist Party of the Philippines (CPP).

Without necessarily giving due course to the petition, the Court issued the writ of amparo
commanding the respondents to make a verified return, and referred the case to the Court of
Appeals (CA) for hearing and decision.The case before the CA was docketed as CA-G.R. SP No.
00024 WOA.

In the Return of the Writ,6 the respondents denied the assignment in the units of Captains
Lawrence Banaag and Rommel Gutierrez and Corporal Ariel Fontanilla. The respondents also
alleged that the names and descriptions of "Capt. Alcaydo," "a certain First Sergeant," "Cpl.
James," "Pfc. Sonny," and "Joel" were insufficient to properly identify some of the persons
sought to be included as among the respondents in the petition.

On the other hand, respondents General Hermogenes Esperon, Jr. (Gen. Esperon), Capt. Jacob
Thaddeus Obligado, Pvt. Rizaldy A. Osio (Pvt. Osio), Pfc. Romanito C. Quintana, Jr. and Pfc.
Jerico Duquil submitted their affidavits.

The CA conducted hearings with an intent to clarify what actually transpired and to determine
specific acts which threatened the petitioners right to life, liberty or security.

During the hearings, the petitioner narrated that starting April 16, 2007, he noticed that he was
always being followed by a certain "Joel," a former colleague at Bayan Muna. "Joel" pretended
peddling pandesal in the vicinity of the petitioners store. Three days before the petitioner was
apprehended, "Joel" approached and informed him of his marital status and current job as a baker
in Calapan, Mindoro Oriental. "Joel" inquired if the petitioner was still involved with
ANAKPAWIS. When asked by the CA justices during the hearing if the petitioner had gone
home to Calapan after having filed the petition, he answered in the negative explaining that he
was afraid of Pvt. Osio who was always at the pier.

CA-G.R. SP No. 00024 WOA

On July 9, 2008, the CA rendered its Decision,7 denying on formal and substantial grounds the
reliefs prayed for in the petition and dropping former President Gloria Macapagal Arroyo as a
respondent. The CA ratiocinated:

There was no attempt at all to clarify how petitioner came to know about Zaldy Osios presence
at their pier if the former had not gone home since the petition was filed and what Zaldy Osio
was doing there to constitute violation or threat to violate petitioners right to life, liberty or
security. This Court cannot just grant the privilege of the writs without substantial evidence to
establish petitioners entitlement thereto. This Court cannot grant the privilege of the writs
applied for on mere speculation or conjecture. This Court is convinced that the Supreme Court
did not intend it to be so when the rules on the writs of Amparo and Habeas Data were adopted.
It is the impression of this Court that the privilege of the writs herein prayed for should be
considered as extraordinary remedies available to address the specific situations enumerated in
the rules and no other.

xxxx

Not only did the petition and the supporting affidavit x x x fail to allege how the supposed threat
or violation of petitioners [right to] life, liberty and security is committed. Neither is there any
narration of any circumstances attendant to said supposed violation or threat to
violatepetitioners right to life, liberty or security to warrant entitlement to the privilege of the
writs prayed for.

xxxx

A reading of the petition will show that the allegations therein do not comply with the aforestated
requirements of Section 6 Rule on the Writ of Habeas Data of the pertinent rule. The petition is
bereft of any allegation stating with specific definiteness as to how petitioners right to privacy
was violated or threatened to be violated. He did not include any allegation as to what recourses
he availed of to obtain the alleged documents from respondents. Neither did petitioner allege
what specific documents he prays for and from whom or [sic] from what particular office of the
government he prays to obtain them. The petition prays "to order respondents to produce any
documents submitted to any of them in the matter of any report on the case of FRANCIS SAEZ,
including all military intelligence reports."

xxxx

Both the rules on the writs of Amparo and Habeas Data (Section 17, A.M. No. 07-9-12-SC and
Section 16, A.M. No. 08-1-16-SC) provide that the parties shall establish their claims by
substantial evidence. Not only was petitioner unable to establish his entitlement to the privilege
of the writs applied for, the exigency thereof was negated by his own admission that nothing
happened between him and Joel after July 21, 2007. The filing of the petition appears to have
been precipitated by his fear that something might happen to him, not because of any apparent
violation or visible threat to violate his right to life, liberty or security. Petitioner was, in fact,
unable to establish likewise who among the respondents committed specific acts defined under
the rules on both writs to constitute violation or threat to violate petitioners rights to life, liberty
or security or his right to privacy thereof.

xxxx

x x x The ruling in David, et al. vs. Gloria Macapagal Arroyo, et al. (G.R. No. 171396, May 3,
2006, 489 SCRA 160, 224) is aptly instructive:

"Settled is the doctrine that the President, during his tenure of office or actual incumbency, may
not be sued in any civil or criminal case, and there is no need to provide for it in the Constitution
or law. It will degrade the dignity of the high office of the President, the Head of State, if he can
be dragged into court litigations while serving as such. Furthermore, it is important that he be
freed from any form of harassment, hindrance or distraction to enable him to fully attend to the
performance of his official duties and functions. x x x."

xxxx

IV. The petition lacks proper verification in violation of Section 12, 2004 Rules on Notarial
Practice.8

On July 21, 2008, Petition for Review was filed assailing the foregoing CA decision with the
following issues submitted for resolution:

WHETHER OR NOT THE CA COMMITTED REVERSIBLE ERROR IN DISMISSING THE

PETITION AND DROPPING GLORIA MACAPAGAL ARROYO AS PARTY
RESPONDENT.

WHETHER OR NOT THE NOTARIAL OFFICERS OMISSION OF REQUIRING FROM

THE PETITIONER IDENTIFICATION CARDS RELATIVE TO THE LATTERS
EXECUTION OF THE VERIFICATION AND CERTIFICATION OF NON-FORUM
SHOPPING JUSTIFIES THE DENIAL OF THE PETITION.

WHETHER OR NOT THE CA COMMITTED GROSS ABUSE OF DISCRETION WHEN IT

FAILED TO CONCLUDE FROM THE EVIDENCE OFFERED BY THE PETITIONER THE
FACT THAT BY BEING PLACED IN THE ORDER OF BATTLE LIST, THREATS AND
VIOLATIONS TO THE LATTERS LIFE, LIBERTY AND SECURITY WERE ACTUALLY
COMMITTED BY THE RESPONDENTS.9

Courts Resolution dated August 31, 2010

On August 31, 2010, the Court issued the Resolution10 denying the petition for review for the
following reasons, viz:

A careful perusal of the subject petition shows that the CA correctly found that the petition was
bereft of any allegation as to what particular acts or omission of respondents violated or
threatened petitioners right to life, liberty and security. His claim that he was incommunicado
lacks credibility as he was given a cellular phone and allowed to go back to Oriental Mindoro.
The CA also correctly held that petitioner failed to present substantial evidence that his right to
life, liberty and security were violated, or how his right to privacy was threatened by
respondents. He did not specify the particular documents to be secured, their location or what
particular government office had custody thereof, and who has possession or control of the same.
He merely prayed that the respondents be ordered "to produce any documents submitted to any
of them in the matter of any report on the case of FRANCIS SAEZ, including all military
intelligence reports."
Petitioner assails the CA in failing to appreciate that in his Affidavit and Fact Sheet, he had
specifically detailed the violation of his right to privacy as he was placed in the Order of Battle
and promised to have his record cleared if he would cooperate and become a military asset.
However, despite questions propounded by the CA Associate Justices during the hearing, he still
failed to enlighten the appellate court as to what actually transpired to enable said court to
determine whether his right to life, liberty or security had actually been violated or threatened.
Records bear out the unsubstantiated claims of petitioner which justified the appellate courts
dismissal of the petition.

As to petitioners argument that the CA erred in deleting the President as party-respondent, we

find the same also to be without merit. The Court has already made it clear in David v.
Macapagal-Arroyo that the President, during his or her tenure of office or actual incumbency,
may not be sued in any civil or criminal case, and there is no need to provide for it in the
Constitution or law. It will degrade the dignity of the high office of the President, the Head of
State, if the President can be dragged into court litigations while serving as such. Furthermore, it
is important that the President be freed from any form of harassment, hindrance or distraction to
enable the President to fully attend to the performance of official duties and functions.11
(Citation omitted)

Hence, the petitioner filed the instant motion for reconsideration.12

Petitioners Arguments

Contrary to the CAs findings, it had been shown by substantial evidence and even by the
respondents own admissions that the petitioners life, liberty and security were threatened.
Military personnel, whom the petitioner had named and described, knew where to get him and
they can do so with ease. He also became a military asset, but under duress, as the respondents
had documents allegedly linking him to the CPP and including him in the order of battle. The
petitioner claims that the foregoing circumstances were not denied by the respondents.

The petitioner likewise challenges the CAs finding that he was not rendered incommunicado as
he was even provided with a cellular phone. The petitioner argues that the phone was only given
to him for the purpose of communicating with the respondents matters relative to his infiltration
activities of target legal organizations.

The petitioner cites Secretary of National Defense v. Manalo,13 which pronounced that "in the
amparo context, it is more correct to say that the right to security is actually the freedom from
threat".14 According to the petitioner, his freedom from fear was undoubtedly violated, hence,
to him pertains a cause of action. Anent the quantum of proof required in a petition for the
issuance of the writ of amparo, mere substantial evidence is sufficient. The petition "is not an
action to determine criminal guilt requiring proof beyond reasonable doubt, or liability for
damages requiring preponderance of evidence, or administrative responsibility requiring
substantial evidence that will require full and exhaustive proceedings".15

Sadly, in the petitioners case, the court not only demanded a greater quantum of proof than what
the rules require, but it also accorded special preference for the respondents evidence.
The petitioner also cites a speech delivered in Siliman University by former Chief Justice
Reynato Puno who expressed that "the remedy of habeas data can be used by any citizen against
any governmental agency or register to find out what information is held about his or her
person." The person can likewise "request the rectification or even the destruction of erroneous
data gathered and kept against him or her." In the petitioners case, he specifically sought the
production of the order of battle, which allegedly included his name, and other records which
supposedly contain erroneous data relative to his involvement with the CPP.

OSGs Comment

In the respondents comment16 filed by the OSG, it is generally claimed that the petitioner
advances no cogent grounds to justify the reversal of the Courts Resolution dated August 31,
2010.

The Courts Disquisition

While the issuance of the writs sought by the petitioner cannot be granted, the Court nevertheless
finds ample grounds to modify the Resolution dated August 31, 2010.

The petition conforms to the

requirements of the Rules on the
Writs of Amparo and Habeas Data

Section 517 of A.M. No. 07-9-12-SC (Rule on the Writ of Amparo) and Section 618 of A.M. 08-
1-16-SC (Rule on the Writ of Habeas Data) provide for what the said petitions should contain.

In the present case, the Court notes that the petition for the issuance of the privilege of the writs
of amparo and habeas data is sufficient as to its contents. The petitioner made specific allegations
relative to his personal circumstances and those of the respondents. The petitioner likewise
indicated particular acts, which are allegedly violative of his rights and the participation of some
of the respondents in their commission. As to the pre-requisite conduct and result of an
investigation prior to the filing of the petition, it was explained that the petitioner expected no
relief from the military, which he perceived as his oppressors, hence, his request for assistance
from a human rights organization, then a direct resort to the court. Anent the documents sought
to be the subject of the writ of habeas data prayed for, the Court finds the requirement of
specificity to have been satisfied. The documents subject of the petition include the order of
battle, those linking the petitioner to the CPP and those he signed involuntarily, and military
intelligence reports making references to him. Although the exact locations and the custodians of
the documents were not identified, this does not render the petition insufficient. Section 6(d) of
the Rule on the Writ of Habeas Data is clear that the requirement of specificity arises only when
the exact locations and identities of the custodians are known. The Amparo Rule was not
promulgated with the intent to make it a token gesture of concern for constitutional rights.19
Thus, despite the lack of certain contents, which the Rules on the Writs of Amparo and Habeas
Data generally require, for as long as their absence under exceptional circumstances can be
reasonably justified, a petition should not be susceptible to outright dismissal.
From the foregoing, the Court holds that the allegations stated in the petition for the privilege of
the writs of amparo and habeas data filed conform to the rules. However, they are mere
allegations, which the Court cannot accept "hook, line and sinker", so to speak, and whether
substantial evidence exist to warrant the granting of the petition is a different matter altogether.

No substantial evidence exists to

prove the petitioners claims

The Court has ruled that in view of the recognition of the evidentiary difficulties attendant to the
filing of a petition for the privilege of the writs of amparo and habeas data, not only direct
evidence, but circumstantial evidence, indicia, and presumptions may be considered, so long as
they lead to conclusions consistent with the admissible evidence adduced.20

With the foregoing in mind, the Court still finds that the CA did not commit a reversible error in
declaring that no substantial evidence exist to compel the grant of the reliefs prayed for by the
petitioner. The Court took a second look on the evidence on record and finds no reason to
reconsider the denial of the issuance of the writs prayed for.

In the hearing before the CA, it was claimed that "Joel" once inquired from the petitioner if the
latter was still involved with ANAKPAWIS. By itself, such claim cannot establish with certainty
that the petitioner was being monitored. The encounter happened once and the petitioner, in his
pleadings, nowhere stated that subsequent to the time he was asked about his involvement with
ANAKPAWIS, he still noticed "Joel" conducting surveillance operations on him. He alleged that
he was brought to the camp of the 204th Infantry Brigade in Naujan, Oriental Mindoro but was
sent home at 5:00 p.m. The petitioner and the respondents have conflicting claims about what
transpired thereafter. The petitioner insisted that he was brought against his will and was asked to
stay by the respondents in places under the latters control. The respondents, on the other hand,
averred that it was the petitioner who voluntarily offered his service to be a military asset, but
was rejected as the former still doubted his motives and affiliations.

Section 19 of both the Rules on the Writ of Amparo and Habeas Data is explicit that questions of
fact and law can be raised before the Court in a petition for review on certiorari under Rule 45.
As a rule then, the Court is not bound by the factual findings made by the appellate court which
rendered the judgment in a petition for the issuance of the writs of amparo and habeas data. Be
that as it may, in the instant case, the Court agrees with the CA that the petitioner failed to
discharge the burden of proof imposed upon him by the rules to establish his claims. It cannot be
overemphasized that Section 1 of both the Rules on the Writ of Amparo and Habeas Data
expressly include in their coverage even threatened violations against a persons right to life,
liberty or security. Further, threat and intimidation that vitiate the free will although not
involving invasion of bodily integrity nevertheless constitute a violation of the right to security
in the sense of "freedom from threat".21

It must be stressed, however, that such "threat" must find rational basis on the surrounding
circumstances of the case. In this case, the petition was mainly anchored on the alleged threats
against his life, liberty and security by reason of his inclusion in the militarys order of battle, the
surveillance and monitoring activities made on him, and the intimidation exerted upon him to
compel him to be a military asset. While as stated earlier, mere threats fall within the mantle of
protection of the writs of amparo and habeas data, in the petitioners case, the restraints and
threats allegedly made allegations lack corroborations, are not supported by independent and
credible evidence, and thus stand on nebulous grounds.

The Court is cognizant of the evidentiary difficulties attendant to a petition for the issuance of
the writs. Unlike, however, the unique nature of cases involving enforced disappearances or
extra-judicial killings that calls for flexibility in considering the gamut of evidence presented by
the parties, this case sets a different scenario and a significant portion of the petitioners
testimony could have been easily corroborated. In his Sinumpaang Salaysay22 dated March 5,
2008 and the Fact Sheet dated December 9, 200723 executed before the Alliance for the
Advancement of Peoples Rights-Southern Tagalog (KARAPATAN-ST), the petitioner stated
that when he was invited and interrogated at the military camp in Naujan, Oriental Mindoro, he
brought with him his uncle Norberto Roxas, Barangay Captain Mario Ilagan and two of his
bodyguards, and Edwardo Estabillo five witnesses who can attest and easily corroborate his
statement but curiously, the petitioner did not present any piece of evidence, whether
documentary or testimonial, to buttress such claim nor did he give any reason for their non-
presentation.This could have made a difference in light of the denials made by the respondents as
regards the petitioners claims.

The existence of an order of battle and inclusion of the petitioners name in it is another
allegation by the petitioner that does not find support on the evidence adduced. The Court notes
that such allegation was categorically denied by respondent Gen. Avelino I. Razon, Jr. who, in
his Affidavit dated March 31, 2008, stated that he "does not have knowledge about any Armed
Forces of the Philippines (AFP) order of battle which allegedly lists the petitioner as a member
of the CPP."24 This was also denied by Pvt. Osio, who the petitioner identified as the one who
told him that he was included in the order of battle.25 The 2nd Infantry (Jungle Fighter) Division
of the Philippine Army also conducted an investigation pursuant to the directive of AFP Chief of
Staff Gen. Esperon,26 and it was shown that the persons identified by the petitioners who
allegedly committed the acts complained of were not connected or assigned to the 2nd Infantry
Division.27

Moreover, the evidence showed that the petitioners mobility was never curtailed. From the time
he was allegedly brought to Batangas in August of 2007 until the time he sought the assistance of
KARAPATAN-ST, there was no restraint upon the petitioner to go home, as in fact, he went
home to Mindoro on several instances. And while he may have been wary of Pvt. Osios
presence at the pier, there was no claim by the petitioner that he was threatened or prevented by
Pvt. Osio from boarding any vehicle that may transport him back home. The petitioner also
admitted that he had a mobile phone; hence, he had unhampered access to communication and
can readily seek assistance from non-governmental organizations and even government agencies.

The respondents also belied the petitioners claim that they forced him to become a military
informant and instead, alleged that it was the petitioner who volunteered to be one. Thus, in his
Sinumpaang Salaysay28 executed on March 25, 2008, Pvt. Osio admitted that he actually knew
the petitioner way back in 1998 when they were still students. He also stated that when he saw
the petitioner again in 2007, the latter manifested his intention to become a military informant in
exchange for financial and other forms of assistance.

The petitioner also harps on the alleged "monitoring" activities being conducted by a certain
"Joel", e.g., the latters alleged act of following him, pretending to peddle pandesal and asking
him about his personal circumstances. Such allegation by the petitioner, however, is, at best, a
conclusion on his part, a mere impression that the petitioner had, based on his personal
assessment of the circumstances. The petitioner even admitted in his testimony before the CA
that when he had a conversation with "Joel" sometime in July 2007, the latter merely asked him
whether he was still connected with ANAKPAWIS, but he was not threatened "with anything"
and no other incident occurred between them since then.29 There is clearly nothing on record
which shows that "Joel" committed overt acts that will unequivocally lead to the conclusion
arrived at by the petitioner, especially since the alleged acts committed by "Joel" are susceptible
of different interpretations.

Given that the totality of the evidence presented by the petitioner failed to support his claims, the
reliefs prayed for, therefore, cannot be granted. The liberality accorded to amparo and habeas
data cases does not mean that a claimant is dispensed with the onus of proving his case. "Indeed,
even the liberal standard of substantial evidence demands some adequate evidence."30

The President cannot be

automatically dropped as a
respondent pursuant to the doctrine
of command responsibility

In Noriel Rodriguez v. Gloria Macapagal Arroyo, et al.,31 the Court stated:

a. Command responsibility of the President

Having established the applicability of the doctrine of command responsibility in amparo

proceedings, it must now be resolved whether the president, as commander-in-chief of the
military, can be held responsible or accountable for extrajudicial killings and enforced
disappearances. We rule in the affirmative.

To hold someone liable under the doctrine of command responsibility, the following elements
must obtain:

a. the existence of a superior-subordinate relationship between the accused as superior

and the perpetrator of the crime as his subordinate;

b. the superior knew or had reason to know that the crime was about to be or had been
committed; and

c. the superior failed to take the necessary and reasonable measures to prevent the
criminal acts or punish the perpetrators thereof.
The president, being the commander-in-chief of all armed forces, necessarily possesses control
over the military that qualifies him as a superior within the purview of the command
responsibility doctrine.

On the issue of knowledge, it must be pointed out that although international tribunals apply a
strict standard of knowledge, i.e., actual knowledge, such may nonetheless be established
through circumstantial evidence. In the Philippines, a more liberal view is adopted and superiors
may be charged with constructive knowledge. This view is buttressed by the enactment of
Executive Order No. 226, otherwise known as the Institutionalization of the Doctrine of
Command Responsibility in all Government Offices, particularly at all Levels of Command in
the

Philippine National Police and other Law Enforcement Agencies (E.O. 226). Under E.O. 226, a
government official may be held liable for neglect of duty under the doctrine of command
responsibility if he has knowledge that a crime or offense shall be committed, is being
committed, or has been committed by his subordinates, or by others within his area of
responsibility and, despite such knowledge, he did not take preventive or corrective action either
before, during, or immediately after its commission. Knowledge of the commission of
irregularities, crimes or offenses is presumed when (a) the acts are widespread within the
government officials area of jurisdiction; (b) the acts have been repeatedly or regularly
committed within his area of responsibility; or (c) members of his immediate staff or office
personnel are involved.

Meanwhile, as to the issue of failure to prevent or punish, it is important to note that as the
commander-in-chief of the armed forces, the president has the power to effectively command,
control and discipline the military. (Citations omitted)

Pursuant to the doctrine of command responsibility, the President, as the Commander-in-Chief of

the AFP, can be held liable for affront against the petitioners rights to life, liberty and security
as long as substantial evidence exist to show that he or she had exhibited involvement in or can
be imputed with knowledge of the violations, or had failed to exercise necessary and reasonable
diligence in conducting the necessary investigations required under the rules.1wphi1

The Court also stresses that rule that the presidential immunity from suit exists only in
concurrence with the presidents incumbency.32

Conversely, this presidential privilege of immunity cannot be invoked by a non-sitting president

even for acts committed during his or her tenure.33 Courts look with disfavor upon the
presidential privilege of immunity, especially when it impedes the search for truth or impairs the
vindication of a right.34

The petitioner, however, is not exempted from the burden of proving by substantial evidence his
allegations against the President to make the latter liable for either acts or omissions violative of
rights against life, liberty and security. In the instant case, the petitioner merely included the
Presidents name as a party respondent without any attempt at all to show the latters actual
involvement in, or knowledge of the alleged violations. Further, prior to the filing of the petition,
there was no request or demand for any investigation that was brought to the Presidents
attention. Thus, while the President cannot be completely dropped as a respondent in a petition
for the privilege of the writs of amparo and habeas data merely on the basis of the presidential
immunity from suit, the petitioner in this case failed to establish accountability of the President,
as commander-in-chief, under the doctrine of command responsibility.

Compliance with technical rules of

procedure is ideal but it cannot be
accorded primacy

Among the grounds cited by the CA in denying the petition for the issuance of the writs of
amparo and habeas data was the defective verification which was attached to the petition. In
Tagitis,35 supporting affidavits required under Section 5(c) of the Rule on the Writ of Amparo
were not submitted together with the petition and it was ruled that the defect was fully cured
when the petitioner and the witness personally testified to prove the truth of their allegations in
the hearings held before the CA. In the instant case, the defective verification was not the sole
reason for the CAs denial of the petition for the issuance of the writs of amparo and habeas data.
Nonetheless, it must be stressed that although rules of procedure play an important rule in
effectively administering justice, primacy should not be accorded to them especially in the
instant case where there was at least substantial compliance with the requirements and where
petitioner himself testified in the hearings to attest to the veracity of the claims which he stated in
his petition.

To conclude, compliance with technical rules of procedure is ideal but it cannot be accorded
primacy. In the proceedings before the CA, the petitioner himself testified to prove the veracity
of his allegations which he stated in the petition. Hence, the defect in the verification attached to
the petition. Hence, the defect in the verification attached to the petition was deemed cured.

WHEREFORE, premises considered, the petitioner's motion for reconsideration is DENIED

WITH FINALITY.

SO ORDERED.
G.R. No. 179115 September 26, 2012

ASIA INTERNATIONAL AUCTIONEERS, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

RESOLUTION

PERLAS-BERNABE, J.:

Before the Court is a Petition for Review seeking to reverse and set aside the Decision dated
August 3, 2007 of the Court of Tax Appeals (CTA) En Banc, 1 and the Resolutions dated
November 20, 20062 and February 22, 20073 of the CTA First Division dismissing Asia
International Auctioneers, Inc.s (AIA) appeal due to its alleged failure to timely protest the
Commissioner of Internal Revenues (CIR) tax assessment.

The Factual Antecedents

AIA is a duly organized corporation operating within the Subic Special Economic Zone. It is
engaged in the importation of used motor vehicles and heavy equipment which it sells to the
public through auction.4
On August 25, 2004, AIA received from the CIR a Formal Letter of Demand, dated July 9, 2004,
containing an assessment for deficiency value added tax (VAT) and excise tax in the amounts of
102,535,520.00 and 4,334,715.00, respectively, or a total amount of 106,870,235.00,
inclusive of penalties and interest, for auction sales conducted on February 5, 6, 7, and 8, 2004.5

AIA claimed that it filed a protest letter dated August 29, 2004 through registered mail on
August 30, 2004.6 It also submitted additional supporting documents on September 24, 2004 and
November 22, 2004.7

The CIR failed to act on the protest, prompting AIA to file a petition for review before the CTA
on June 20, 2005,8 to which the CIR filed its Answer on July 26, 2005.9

On March 8, 2006, the CIR filed a motion to dismiss10 on the ground of lack of jurisdiction
citing the alleged failure of AIA to timely file its protest which thereby rendered the assessment
final and executory. The CIR denied receipt of the protest letter dated August 29, 2004 claiming
that it only received the protest letter dated September 24, 2004 on September 27, 2004, three
days after the lapse of the 30-day period prescribed in Section 22811 of the Tax Code.12

In opposition to the CIRs motion to dismiss, AIA submitted the following evidence to prove the
filing and the receipt of the protest letter dated August 29, 2004: (1) the protest letter dated
August 29, 2004 with attached Registry Receipt No. 3824;13 (2) a Certification dated November
15, 2005 issued by Wilfredo R. De Guzman, Postman III, of the Philippine Postal Corporation of
Olongapo City, stating that Registered Letter No. 3824 dated August 30, 2004 , addressed to the
CIR, was dispatched under Bill No. 45 Page 1 Line 11 on September 1, 2004 from Olongapo
City to Quezon City;14 (3) a Certification dated July 5, 2006 issued by Acting Postmaster,
Josefina M. Hora, of the Philippine Postal Corporation-NCR, stating that Registered Letter No.
3824 was delivered to the BIR Records Section and was duly received by the authorized
personnel on September 8, 2004;15 and (4) a certified photocopy of the Receipt of Important
Communication Delivered issued by the BIR Chief of Records Division, Felisa U. Arrojado,
showing that Registered Letter No. 3824 was received by the BIR.16 AIA also presented
Josefina M. Hora and Felisa U. Arrojado as witnesses to testify on the due execution and the
contents of the foregoing documents.

Ruling of the Court of Tax Appeals

After hearing both parties, the CTA First Division rendered the first assailed Resolution dated
November 20, 2006 granting the CIRs motion to dismiss. Citing Republic v. Court of
Appeals,17 it ruled that "while a mailed letter is deemed received by the addressee in the course
of the mail, still, this is merely a disputable presumption, subject to controversion, and a direct
denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove
that the mailed letter indeed was received by the addressee."18

The CTA First Division faulted AIA for failing to present the registry return card of the subject
protest letter. Moreover, it noted that the text of the protest letter refers to a Formal Demand
Letter dated June 9, 2004 and not the subject Formal Demand Letter dated July 9, 2004.
Furthermore, it rejected AIAs argument that the September 24, 2004 letter merely served as a
cover letter to the submission of its supporting documents pointing out that there was no mention
therein of a prior separate protest letter.19

AIAs motion for reconsideration was subsequently denied by the CTA First Division in its
second assailed Resolution dated February 22, 2007. On appeal, the CTA En Banc in its
Decision dated August 3, 2007 affirmed the ruling of the CTA First Division holding that AIAs
evidence was not sufficient to prove receipt by the CIR of the protest letter dated August 24,
2004.

Hence, the instant petition.

Issue Before the Court

Both parties discussed the legal bases for AIAs tax liability, unmindful of the fact that this case
stemmed from the CTAs dismissal of AIAs petition for review for failure to file a timely
protest, without passing upon the substantive merits of the case.

Relevantly, on January 30, 2008, AIA filed a Manifestation and Motion with Leave of the
Honorable Court to Defer or Suspend Further Proceedings20 on the ground that it availed of the
Tax Amnesty Program under Republic Act 948021 (RA 9480), otherwise known as the Tax
Amnesty Act of 2007. On February 13, 2008, it submitted to the Court a Certification of
Qualification22 issued by the BIR on February 5, 2008 stating that AIA "has availed and is
qualified for Tax Amnesty for the Taxable Year 2005 and Prior Years" pursuant to RA 9480.

With AIAs availment of the Tax Amnesty Program under RA 9480, the Court is tasked to first
determine its effects on the instant petition.

Ruling of the Court

A tax amnesty is a general pardon or the intentional overlooking by the State of its authority to
impose penalties on persons otherwise guilty of violating a tax law. It partakes of an absolute
waiver by the government of its right to collect what is due it and to give tax evaders who wish
to relent a chance to start with a clean slate.23

A tax amnesty, much like a tax exemption, is never favored or presumed in law. The grant of a
tax amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and
liberally in favor of the taxing authority.24

In 2007, RA 9480 took effect granting a tax amnesty to qualified taxpayers for all national
internal revenue taxes for the taxable year 2005 and prior years, with or without assessments
duly issued therefor, that have remained unpaid as of December 31, 2005.25

The Tax Amnesty Program under RA 9480 may be availed of by any person except those who
are disqualified under Section 8 thereof, to wit:
Section 8. Exceptions. The tax amnesty provided in Section 5 hereof shall not extend to the
following persons or cases existing as of the effectivity of this Act:

(a) Withholding agents with respect to their withholding tax liabilities;

(b) Those with pending cases falling under the jurisdiction of the Presidential
Commission on Good Government;

(c) Those with pending cases involving unexplained or unlawfully acquired wealth or
under the Anti-Graft and Corrupt Practices Act;

(d) Those with pending cases filed in court involving violation of the Anti-Money
Laundering Law;

(e) Those with pending criminal cases for tax evasion and other criminal offenses under
Chapter II of Title X of the National Internal Revenue Code of 1997, as amended, and the
felonies of frauds, illegal exactions and transactions, and malversation of public funds
and property under Chapters III and IV of Title VII of the Revised Penal Code; and

(f) Tax cases subject of final and executory judgment by the courts.(Emphasis supplied)

The CIR contends that AIA is disqualified under Section 8(a) of RA 9480 from availing itself of
the Tax Amnesty Program because it is "deemed" a withholding agent for the deficiency taxes.
This argument is untenable.

The CIR did not assess AIA as a withholding agent that failed to withhold or remit the deficiency
VAT and excise tax to the BIR under relevant provisions of the Tax Code. Hence, the argument
that AIA is "deemed" a withholding agent for these deficiency taxes is fallacious.

Indirect taxes, like VAT and excise tax, are different from withholding taxes.1wphi1 To
distinguish, in indirect taxes, the incidence of taxation falls on one person but the burden thereof
can be shifted or passed on to another person, such as when the tax is imposed upon goods
before reaching the consumer who ultimately pays for it.26 On the other hand, in case of
withholding taxes, the incidence and burden of taxation fall on the same entity, the statutory
taxpayer. The burden of taxation is not shifted to the withholding agent who merely collects, by
withholding, the tax due from income payments to entities arising from certain transactions27
and remits the same to the government. Due to this difference, the deficiency VAT and excise
tax cannot be "deemed" as withholding taxes merely because they constitute indirect taxes.
Moreover, records support the conclusion that AIA was assessed not as a withholding agent but,
as the one directly liable for the said deficiency taxes.28

The CIR also argues that AIA, being an accredited investor/taxpayer situated at the Subic Special
Economic Zone, should have availed of the tax amnesty granted under RA 939929 and not under
RA 9480. This is also untenable.
RA 9399 was passed prior to the passage of RA 9480. RA 9399 does not preclude taxpayers
within its coverage from availing of other tax amnesty programs available or enacted in futuro
like RA 9480. More so, RA 9480 does not exclude from its coverage taxpayers operating within
special economic zones. As long as it is within the bounds of the law, a taxpayer has the liberty
to choose which tax amnesty program it wants to avail.

Lastly, the Court takes judicial notice of the "Certification of Qualification"30 issued by Eduardo
A. Baluyut, BIR Revenue District Officer, stating that AlA "has availed and is qualified for Tax
Amnesty for the Taxable Year 2005 and Prior Years" pursuant to RA 9480. In the absence of
sufficient evidence proving that the certification was issued in excess of authority, the
presumption that it was issued in the regular performance of the revenue district officer's official
duty stands.31

WHEREFORE, the petition is DENIED for being MOOT and ACADEMIC in view of Asia
International Auctioneers, Inc.'s (AlA) availment of the Tax Amnesty Program under RA 9480.
Accordingly, the outstanding deficiency taxes of AlA are deemed fully settled.

SO ORDERED.

G.R. No. 197205 September 26, 2012

JESSIE V. DAVID, represented by his wife, MA. THERESA S. DAVID, and children,
KATHERINE and KRISTINA DAVID, Petitioners,
vs.
OSG SHIP MANAGEMENT MANILA, INC., and/or MICHAELMAR SHIPPING
SERVICES, Respondents.

DECISION

VELASCO, J.:

Before Us in a Petition for Review on Certiorari under Rule 45 assailing and seeking to set aside
the Decision1 and Resolution2 dated March 11, 2011 and June 1, 2011, respectively, of the
Court of Appeals (CA) in CA-G.R. SP No. 114616, overturning the January 22, 2010 and March
30, 2010 Resolutions3 of the National Labor Relations Commission (NLRC), Second Division in
NLRC NCR OFW Case No. (M)09-10261-07.

The facts are not disputed. On May 10, 2006, petitioner Jessie David (David) entered into a six-
month Contract of Employment4 with respondent OSG Shipmanagement Manila, Inc. (OSG
Manila), for and in behalf of its principal Michaelmar Shipping Services, Inc., as a Third Officer
of the crude tanker M/T Raphael. The engagement was the third contract of employment
between David and OSG Manila. OSG Manila previously hired and deployed David to work
aboard crude tankers since December 2004.5

Prior to his embarkation, David underwent a pre-employment medical examination (PEME) and
was declared "fit for further sea duty."6 David then boarded the ship M/T Raphael on May 23,
2006.7 Barely six months into his employment or in November 2006, David complained of an
intolerable pain on his left foot so that he consulted a doctor at the port of Rotterdam. The doctor
diagnosed him as suffering from "lipoma on the left upper leg"8 and a possible "calcaneus spur
of the left foot."9 Although found to be fit for work, David was nonetheless advised to undergo
further treatment upon repatriation to the Philippines.10

Immediately after his return to the country on December 4, 2006, OSG Manila referred David to
the company-designated physician, Dr. Robert Lim (Dr. Lim) of the Metropolitan Medical
Center (MMC), who referred him to the Cardinal Santos Medical Center for a Magnetic
Resonance Imaging (MRI), which reflected the following impressions:

Large soft tissue mass of the anterior left thigh, as described. Considerations include neoplasm
such as benign/malignant nerve sheath tumor, hemangioma, soft tissue sarcoma or inflammatory
process such as intramuscular abscess.11

The Pathology Report of the MMC also showed the following: "Left anterior thigh mass
excision: Malignant fibrous histiocytoma, myxoid type. Margins of resection negative for
tumor."12

On February 27, 2007, OSG Manila certified Davids entitlement "to sickness allowance from
the company or principal equivalent to basic salary of member."13

On March 2, 2007, Dr. Christopher Co Pea (Dr Pea), also of MMC, wrote Dr. Lim, informing
the latter of the etiology of soft tissue sarcoma, viz:

The following are the etiology of soft tissue sarcoma:

1. Ionizing radiation

2. Genetic predisposition

3. Chemical exposure Phenoxyacetic acid, cholorophenols, thorotrast, vinyl chloride,

arsenic

4. Chronic lymphedema

Whether work-related or not will depend on the exposure of the above mentioned factors.14
On March 5, 2007, the Marine Medical Services of MMC certified that David had undergone
medical and surgical evaluation treatment at its establishment from December 21, 2006 due to
"malignant fibrous histiocytoma, left thigh calcaneal spur, left; s/p with excision of mass left
thigh."15

Apparently as a result of another inquiry regarding Davids illness and its relation to his work,
Dr. Pea again addressed a letter to Dr. Lim stating:

Dear Dr. Lim,

This is with regards to Mr. Jessie David, diagnosed case of Malignant Fibrous Histiocytoma last
February 2007. S/P Resection. Etiology has already been mentioned in my previous letter dated
March 2, 2007. It is difficult to determine exactly whether his work history would have bearing
as etiology is multifactorial. Unless there is documented exposure to the previously mentioned
chemicals.16

Despite the non-conclusive findings of the company designated physician and Dr. Pea,
respondents issued on June 28, 2007 a Certification stating that David has been given a
"permanent disability Grade One (1)"17 by the Marine Medical Services, viz:

CERTIFICATION

TO WHOM IT MAY CONCERN:

This is to certify that MR. JESSIE V. DAVID, a resident of Block 3 Lot 4, NWSA Compound
Tondo, Manila, has been given a permanent disability Grade of One (1) by Marine Medical
Services.

This certification is being issued 28th day of June 2007 for whatever legal purpose it may serve
him best.

Very truly yours,

OSG SHIPMANAGEMENT MANILA INC.

As Agent Only, acting for and in behalf of the Owners

(SGD.) MS. MA. CRISTINA G. PARAS

President

Due to his condition, David underwent chemotherapy per the advice of the company-designated
physician. However, despite several requests, respondents refused to shoulder Davids expenses
and medication. Hence, after an unsuccessful grievance proceeding, David filed on September
17, 2007 a complaint against respondents for total and permanent disability benefits, medical and
transportation expenses, moral and exemplary damages, and attorneys fees.18
In his Decision of March 31, 2008 finding for David, Labor Arbiter (LA) Legerio V. Ancheta
noted that there was no categorical denial on the part of respondents that Davids disability was
not work-related. Instead, respondent OSG Manila, through its President, issued a certification
that David has a Grade I disability. According to LA Ancheta, this certification should bind the
respondents.19 Hence, LA Ancheta declared David to be permanently and totally disabled,
entitled to be paid his total disability compensation, plus damages and attorneys fees in the total
amount of USD 115,500 and PhP 426,645.69.20

The NLRC affirmed the Decision of the LA in toto holding that the respondents, by certifying
Davids Grade I disability and by paying his sickness allowance, are estopped from impugning
the work-related nature of Davids illness.21

Undaunted, respondents elevated the case to the CA. In its Decision dated March 11, 2011, the
appellate court ruled against Davids entitlement to the benefits he claimed, and accordingly
nullified the resolutions of the NLRC.22 The CA ratiocinated, thus:

In the case at bar, there is no question that private respondent (David) reported to the company-
designated physician for treatment immediately upon arriving in the Philippines. Problems arose,
however, when private respondent was diagnosed to be suffering from malignant fibrous
histiocytoma and while his condition was given a grade I disability rating, Dr. Chrisopher Co
Pea who diagnosed private respondents condition opined that it is difficult to determine
whether work history would have a bearing to his illness as etiology is multifactorial. Dr. Pea
was short of declaring private respondents illness as non-work related. It is noted, however, that
aside from the certification by the president of petitioner OSG stating that the Marine Medical
Services, the record is bereft of the actual medical certificate coming from the Marine Medical
Services itself which shows that indeed it issued a Grade I disability rating for private
respondents illness.

xxxx

Malignant Fibrous Histiocytoma is not listed as an occupational disease under Section 32-A
thereof. Nonetheless, Section 20(B), paragraph (4) provides that "those illnesses not listed in
Section 32 of this Contract are disputably presumed as work-related." The burden is, therefore,
placed upon private respondent to present substantial evidence x x x. Private respondent,
however, failed to do this. Private respondent did not, by way of a contrary medical finding,
assail the diagnosis arrived at by the company-designated physician x x x.

xxxx

As to the issue that there was an admission on the part of petitioner OSG that private respondent
was already assessed to have a grade I disability, the same only shows that indeed private
respondent is suffering from a disability. But going back to the provisions of the POEA Standard
Employment Contract, such disability must have a causal relation to the work of private
respondent to be compensable.23
In due time, David filed a Motion for Reconsideration of the CAs March 11, 2011 Decision.24
Pending the resolution of his motion, David succumbed and died on April 9, 201125 and was
substituted in the case by his wife and children.26 On June 14, 2011, the CA issued a resolution
denying the motion for reconsideration.

Hence, this petition.27

Petitioners argue that the appellate court grievously erred in overturning the NLRC and the LAs
decisions considering that it is presumed that Davids illness was work-related and it behooves
the respondents to present substantial evidence to overcome this presumption.To petitioners,
respondents have failed to discharge this burden. On the contrary, respondents admitted that
David was suffering from a Grade I disability. Petitioners further add that there is a reasonable
causal connection between Davids illness and the duties he performed as a Third Officer on
board respondents crude tanker.

In their comment, respondents counter that the appellate courts denial action was correct since
"convenient presumption regarding work-relation will not suffice to justify an award of disability
benefits"28 and David failed to submit any real and substantial evidence "to dispute the opinion
of the company physician confirming [the] absence of work-relation."29 Respondents posit that
if David was indeed convinced that his illness was work-related, he should have procured
supporting opinion from his various doctors.30

The petition has merit.

Deemed read and incorporated into the Contract of Employment between David and respondents
are the provisions of the 2000 Philippine Overseas Employment Agency Standard Employment
Contract (POEA-SEC). Section 20(B) of the POEA-SEC reads:

SECTION 20. COMPENSATION AND BENEFITS. ---

B. COMPENSATION AND BENEFITS FOR INJURY OR ILLNESSES

The liabilities of the employer when the seafarer suffers work-related injury or illness during the
term of his contract are as follows:

1. x x x x

2. x x x x

3. Upon sign-off from the vessel for medical treatment, the seafarer is entitled to sickness
allowance equivalent to his basic wage until he is declared fit to work, or the degree of
permanent disability has been assessed by the company-designated physician, but in no
case shall this period exceed one hundred twenty (120) days.

xxxx
 4. Those illnesses not listed in Section 32 of this Contract are disputably presumed as
work related.31 (Emphasis supplied.)

In this case, David suffered from malignant fibrous histiocytoma (MFH) in his left thigh. MFH is
not one of the diseases enumerated under Sec. 32 of the POEA-SEC. However, Sec. 20(B)(4) of
the POEA-SEC clearly established a disputable presumption in favor of the compensability of an
illness suffered by a seafarer during the term of his contract. This disputable presumption works
in favor of the employee pursuant to the mandate under Executive Order No. (EO) 247 dated
July 21, 1987 under which the POEA-SEC was created: "to secure the best terms and conditions
of employment of Filipino contract workers and ensure compliance therewith"32 and "to
promote and protect the well-being of Filipino workers overseas."33 Hence, unless contrary
evidence is presented by the seafarers employer/s, this disputable presumption stands.34

In this case, David not only relies on this disputable presumption of the compensability of his
illness but further alleges that the following conditions provided in Sec. 32-A of the POEA-SEC
have all been satisfied:

SECTION 32-A OCCUPATIONAL DISEASES

For an occupational disease and the resulting disability or death to be compensable, all of the
following conditions must be satisfied:

1. The seafarers work must involve the risks describe herein;

2. The disease was contracted as a result of the seafarers exposure to the described risks;

3. The disease was contracted within a period of exposure and under such other factors
necessary to contract it;

4. There was no notorious negligence on the part of the seafarer.

David showed that part of his duties as a Third Officer of the crude tanker M/T Raphael involved
"overseeing the loading, stowage, securing and unloading of cargoes."35 As a necessary
corollary, David was frequently exposed to the crude oil that M/T Raphael was carrying.36 The
chemical components of crude oil include, among others, sulphur, vanadium and arsenic
compounds.37 Hydrogen sulphide and carbon monoxide may also be encountered,38 while
benzene is a naturally occurring chemical in crude oil.39 It has been regarded that these
hazardous chemicals can possibly contribute to the formation of cancerous masses.40

In this case, David was diagnosed with MFH (now known as undifferentiated pleomorphic
sarcoma [UPS]),41 which is a class of soft-tissue sarcoma or an illness that account for
approximately 1% of the known malignant tumors.42 As stated by Dr. Pea of the MMC, who
was consulted by the company-designated physician, the etiology of soft tissue sarcomas are
multifactorial.43 However, some factors are associated with a higher risk.44 These factors
include exposure to chemical carcinogens45 like some of the chemical components of crude oil.
Clearly, David has provided more than a reasonable nexus between the nature of his job and the
disease that manifested itself on the sixth month of his last contract with respondents. It is not
necessary that the nature of the employment be the sole and only reason for the illness suffered
by the seafarer. It is sufficient that there is a reasonable linkage between the disease suffered by
the employee and his work to lead a rational mind to conclude that his work may have
contributed to the establishment or, at the very least, aggravation of any pre-existing condition he
might have had.46

This reasonable connection has not been convincingly refuted by respondents. On the contrary,
respondents do not deny the functions performed by David on board M/T Raphael or the cargo
transported by the tanker in which he was assigned. At best, respondents have cited contrary
researches suggesting that the chemicals in crude oil do not induce the kind of disease contracted
by Davida soft tissue sarcoma, which can supposedly occur to anybody regardless of the
nature of their employment.47

Furthermore, respondents harp on the alleged "opinion of the company physician confirming
absence of work-relation"48 that "explicitly stated that there is no documented exposure to
previously cited etiology."49

A review of the documentary evidence submitted by parties will readily show that there is no
such "opinion of the company physician confirming absence of work-relation," much less an
explicit statement that David had "no documented exposure" to the etiology cited by Dr. Pea in
his letter to the company-designated physician, Dr. Lim.50 There is only an imprecise and
ambivalent medical opinion regarding the work-relation of the MFH/UPS suffered by David that
can be construed in favor of the employee.

With more reason, such construal in favor of David and the relation of his illness to the nature of
his work must be sustained considering that the employers, through respondent OSG Manila,
admitted that David had suffered a Grade I disability. Notably, respondents have not denied the
authenticity and genuineness of the Certification dated June 28, 2007 wherein the admission was
made.51 Instead, respondents whimsically argue that the admission merely pertains to the gravity
of the ailment suffered by David but not its nature. This hair-splitting argument presented by
respondents, and accepted by the appellate court, does not persuade. It ignores the fact that
employers do not have the business of certifying the gravity of an illness suffered by an
employee unless it is in relation to the latters employment. Hence, the certification issued by
OSG Manila regarding the classification/grading of Davids illness can only be taken as a strong
validation of the relation between Davids illness and his employment as a seafarer with the
respondents.

It is significant to note that OSG Manila issued the June 28, 2007 Certification after the issuance
of the letters/certifications regarding the possible etiology of Davids illness, where it was tacitly
suggested by the MMC doctors that Davids illness could be work-related provided there is a
documented exposure to carcinogenic chemicals. It can be easily deduced, therefore, that the
certification impliedly fills in the information required by Dr. Pea in his last letter to the
company-designated physician regarding the nature of the work performed by David and his
exposure to chemical carcinogens that could have led to his illness. After all, respondents, as
Davids employers, have knowledge regarding the functions of a Third Officer on board a crude
tanker and the nature of the cargo transported in their vessels. Without a doubt, the certification
issued by OSG Manila encompasses not only the gravity of Davids illness but also its nature and
relation to the employment undertaken by David in their crude tankers.

This conclusion is corroborated by respondents contemporaneous act of extending to David

sickness allowance under Sec. 20(B) of the POEA-SEC, since an employer is liable for the
payment of sickness allowance only "when the seafarer suffers work-related injury or illness
during the term of his contract." Surely, an illness that has been recognized at the outset by the
employer as work-related cannot evolve to an illness not connected to the seafarers
employment.

The quantom of evidence required in labor cases to determine the liability of an employer for the
illness suffered by an employee under the POEA-SEC is not proof beyond reasonable doubt but
mere substantial evidence or "such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion."52 In this case, in accordance with the foregoing disquisitions,
We find that there is substantial evidence to support the decision of the LA and the NLRC.

WHEREFORE, the petition is GRANTED. The March 11, 2011 Decision of the CA and its June
1, 2011 Resolution are hereby REVERSED and SET ASIDE, and the January 22, 2010 and
March 30, 2010 Resolutions of the NLRC are REINSTATED.

SO ORDERED.

G.R. No. 174669 September 19, 2012

BELLE CORPORATION, Petitioner,

vs.
ERLINDA DE LEON-BANKS, RHODORA DE LEON-TIATCO, BETTY DE LEON-
TORRES, GREGORIO DE LEON, ALBERTO DE LEON, EUFRONIO DE LEON,* and
MARIA ELIZA DE LEON-DE GRANO, Respondents.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking to reverse and set aside the Decision1 of the Court of Appeals (CA), dated May 18,2006
in CA-G.R. CV No. 74669. The assailed Decision nullified the Order of the Regional Trial Court
(RTC) of Tanauan, Batangas, Branch 6 in Civil Case No. T-1 046, which dismissed herein
petitioner's Amended Complaint. The petition also seeks to reverse and set aside the CAs
Resolution denying petitioner's Motion for Reconsideration.

The factual and procedural antecedents of the case, as summarized by the CA, are as follows:

Plaintiffs-appellants herein respondents Erlinda De Leon-Banks, Rhodora De Leon-Tiatco, Betty

De Leon-Torres, Gregorio De Leon, Alberto De Leon, Eufronio De Leon, Jr. and defendant-
appellee Nelia De Leon-Alleje were seven of the eight children of the late spouses Eufronio and
Josefa De Leon (LATE SPOUSES), while plaintiff Maria Eliza De Leon-De Grano also one of
herein respondents was the daughter and sole heir of the late Angelina De Leon-De Grano, the
eighth child.

Defendant-appellee Alfredo Alleje was the husband of Nelia De Leon-Alleje (both hereinafter
referred to as SPOUSES ALLEJE), both of whom were the principal stockholders and officers of
defendant-appellee Nelfred Properties Corporation (NELFRED). Meanwhile, defendantappellee
herein petitioner Belle Corporation BELLE was the purchaser of the disputed property.

The disputed property was a 13.29 hectare parcel of unregistered land originally belonging to the
late spouses Eufronio and Josefa De Leon. It is located at Paliparan, Talisay, Batangas and was
covered by various tax declarations.

On February 9, 1979, a Deed of Absolute Sale (1979 DEED) was executed between the LATE
SPOUSES and NELFRED, represented therein by defendant-appellee Nelia De Leon-Alleje,
wherein ownership of the property was conveyed to Nelia De Leon-Alleje for 60,000.00. At
that time, the disputed property was covered by Tax Declarations No. 0359 and No. 0361.

On December 19, 1980, the 1979 DEED was registered with the Register of Deeds. As time
passed, several tax declarations over the disputed property were obtained by NELFRED in its
own name.

On September 23, 1997, x x x herein petitioner BELLE, on one hand, and NELFRED and
SPOUSES ALLEJE on the other, executed a Contract to Sell covering the disputed property for
the purchase price of 53,124,000.00 to be paid in four installments. When the final installment
had been paid, a Deed of Absolute Sale (1998 DEED) was executed on June 24, 1998 between
BELLE and NELFRED wherein the latter transferred ownership of the disputed property to the
former.

Meanwhile, on January 19, 1998, x x x herein respondents filed a Complaint for "Annulment of
Deed of Sale, Reconveyance of Property with Prayer for Issuance of a Writ of Preliminary
Injunction and Damages" against the SPOUSES ALLEJE, NELFRED and BELLE] wherein they
sought the annulment of the Contract to Sell. They alleged that the 1979 DEED was simulated;
that x x x NELFRED paid no consideration for the disputed property; that the disputed property
was to be held in trust by x x x Nelia De Leon-Alleje, through, NELFRED, for the equal benefit
of all of the LATE SPOUSES' children x x x herein respondents and x x x Nelia De Leon-
Alleje; that in the event of any sale, notice and details shall be given to all the children who must
consent to the sale and that all amounts paid for the property shall be shared equally by the
children; that on September 3, 1997, x x x SPOUSES ALLEJE gave x x x herein respondents
10,400,000.00 in cash, representing a portion of the proceeds of the sale of the disputed property;
that it was only then that they were given notice of the sale; that their inquiries were ignored by
the SPOUSES ALLEJE; that a final payment was to be made by x x x BELLE to x x x
SPOUSES ALLEJE sometime in January 1998; and that the x x x SPOUSES ALLEJE had
refused to compromise.

On February 2, 1998, x x x SPOUSES ALLEJE and NELFRED filed a Motion to Dismiss

wherein they alleged that herein respondents' cause of action, the existence of an implied trust
between them and NELFRED on the one hand and the LATE SPOUSES on the other, was
barred by prescription and laches because more than 10 years had passed since the execution of
the 1979 DEED.

On February 9, 1998, x x x BELLE filed a Motion to Dismiss wherein it alleged that the
Complaint stated no cause of action against BELLE, which was an innocent purchaser for value;
that assuming, for the sake of argument, that herein respondents had a cause of action against
BELLE, the claim on which the Complaint is founded was unenforceable; and assuming that the
cause of action was based on an implied trust, the same had already been barred by laches.

On September 23, 1998, the RTC promulgated an Order that dismissed the Complaint against x x
x BELLE for failure to state a cause of action on the ground that there was no allegation in the
Complaint that BELLE was a purchaser in bad faith. Herein respondents then filed a Motion for
Reconsideration.

On November 11, 1998, pending the resolution of their Motion for Reconsideration of the
September 23, 1998 Order, herein respondents filed a Manifestation/Motion to admit their
Amended Complaint wherein they added the allegations that x x x NELFRED did not effect the
registration of the disputed property, which remained unregistered land covered only by tax
declarations; that at the time of the execution of the 1997 Contract to Sell, the disputed property
was still unregistered land and remained unregistered; that a Deed of Absolute Sale (1998
DEED) had already been executed in favor of x x x BELLE; that x x x BELLE purchased the
land with the knowledge that it was being claimed by other persons; and that x x x BELLE was
in bad faith because when the 1998 DEED was executed between it and NELFRED on June 24,
1998, the Complaint in the case at bench had already been filed.

On April 29, 1999, the RTC reconsidered its Order of September 23, 1998 and lifted the
dismissal against BELLE. At the same time, the RTC admitted the Amended Complaint of the
plaintiffs-appellants.

On June 9, 1999, x x x BELLE filed a "Motion for Reconsideration or to Dismiss the Amended
Complaint" wherein it alleged that the claim in the Amended Complaint was unenforceable; that
the Amended Complaint still stated no cause of action against BELLE; and that the Amended
Complaint was barred by prescription.
 xxx xxx xxx

On December 16, 1999, the RTC promulgated its assailed Order in Civil Case No. T-1046
dismissing the Amended Complaint.2

Aggrieved by the Order of the RTC, herein respondents filed an appeal with the CA.

On May 18, 2006, the CA rendered its assailed Decision, the dispositive portion of which reads
as follows:

WHEREFORE, premises considered, appeal is hereby GRANTED and the assailed December
16, 1999 Order of the RTC of Tanauan, Batangas, Branch 6, in Civil Case No. T-1046, is hereby
REVERSED and SET ASIDE and defendant-appellee Belle Corporation is hereby
DIRECTED within fifteen (15) days from finality of this Decision, to file its Answer.

SO ORDERED.3

Herein petitioner filed a Motion for Reconsideration, but the CA denied it in its Resolution dated
September 4, 2006.

Hence, the instant petition based on the following assignment of errors:

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN DECLARING

THAT PETITIONER HYPOTHETICALLY ADMITTED RESPONDENTS'
ALLEGATIONS THAT IT HAD FULL KNOWLEDGE OF THEIR CLAIM ON THE
PROPERTY AND, THEREFORE, PURCHASED THE SAME IN BAD FAITH.

II

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING

THAT THE TRUST CREATED BY THE LATE SPOUSES IN FAVOR OF NELFRED
WAS AN IMPLIED TRUST INSTEAD OF AN EXPRESS TRUST.

III

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING

THAT THE TEN-YEAR PRESCRIPTIVE PERIOD FOR AN IMPLIED TRUST
SHOULD BE RECKONED FROM THE EXECUTION OF THE DEED OF SALE BY
NELFRED IN FAVOR OF PETITIONER AND NOT FROM THE REGISTRATION
OF THE SALE BETWEEN THE LATE SPOUSES AND NELFRED WITH THE
REGISTER OF DEEDS.

IV
 THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING
THAT BECAUSE THE SUBJECT OF THE SALE IS UNREGISTERED LAND,
PETITIONER'S GOOD FAITH IS IMMATERIAL AND BOUGHT THE PROPERTY
AT ITS OWN PERIL EVEN AS RESPONDENTS WERE RESPONSIBLE FOR
CREATING SUCH PERIL.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING

THAT A TRUST WAS CREATED WHEN ITS VERY PURPOSE WAS TO AVOID
COMPLIANCE WITH TAX LAWS AND THE COMPREHENSIVE AGRARIAN
REFORM LAW.4

The basic issue in the instant case is whether the CA was correct in reversing the Order of the
RTC which dismissed respondents' Amended Complaint on the ground of failure to state a cause
of action.

The Court rules in the affirmative.

Section 2, Rule 2 of the Rules of Court defines cause of action as the acts or omission by which a
party violates a right of another.

A cause of action is a formal statement of the operative facts that give rise to a remedial right.5
The question of whether the complaint states a cause of action is determined by its averments
regarding the acts committed by the defendant.6 Thus, it must contain a concise statement of the
ultimate or essential facts constituting the plaintiffs cause of action.7 Failure to make a
sufficient allegation of a cause of action in the complaint warrants its dismissal.8

The essential elements of a cause of action are (1) a right in favor of the plaintiff by whatever
means and under whatever law it arises or is created; (2) an obligation on the part of the named
defendant to respect or not to violate such right; and (3) an act or omission on the part of such
defendant in violation of the right of the plaintiff or constituting a breach of the obligation of the
defendant to the plaintiff for which the latter may maintain an action for recovery of damages or
other appropriate relief.9

In determining whether a complaint states a cause of action, the RTC can consider all the
pleadings filed, including annexes, motions, and the evidence on record.10 The focus is on the
sufficiency, not the veracity, of the material allegations.11 Moreover, the complaint does not
have to establish facts proving the existence of a cause of action at the outset; this will have to be
done at the trial on the merits of the case.12

Thus, the first paragraph of Section 1, Rule 8 of the Rules of Court provides that "every pleading
shall contain in a methodical and logical form, a plain, concise and direct statement of the
ultimate facts on which the party pleading relies for his claim or defense, as the case may be,
omitting the statement of mere evidentiary facts."
Ultimate facts mean the important and substantial facts which either directly form the basis of
the plaintiffs primary right and duty or directly make up the wrongful acts or omissions of the
defendant.13 They refer to the principal, determinative, constitutive facts upon the existence of
which the cause of action rests.14

In the instant case, pertinent portions of respondents' allegations in their Amended Complaint are
as follows:

xxxx

5. Plaintiffs herein respondents Erlinda De Leon-Banks, Rhodora De Leon-Tiatco, Betty

De Leon-Torres, Gregorio De Leon, Alberto De Leon and Eufronio De Leon, Jr. and
defendant Nelia De Leon-Alleje are seven (7) of the eight (8) children of the late spouses
Eufronio and Josefa De Leon, while plaintiff [also one of herein respondents] Maria Eliza
De Leon-De Grano is the daughter and sole heir of the late Angelina De Leon-De Grano,
the eight[h] child.

xxxx

9. During their lifetime, the late Eufronio and Josefa Acquired several tracts of land
located in the Province of Batangas, the City of Manila, Tagaytay City and Baguio City.
The properties acquired included a 13.29 hectare property located at Paliparan, Talisay,
Batangas covered by Tax Declaration Nos. 0359 and 0361 issued by the Provincial
Assessor of Batangas, Tanauan Branch ("Paliparan Property").

10. The spouses Eufronio and Josefa, to protect and to ensure during their lifetime the
interest of their children in the properties they acquired, planned and decided to transfer
and in fact transferred without consideration several properties to their children to be held
in trust by whoever the transferee is for the equal benefit of all of the late spouses'
children with the specific instruction in the event of any subsequent sale, that notice and
details of the sale shall be given to all the children who must consent to the sale and that
all amounts paid for the property shall be shared equally by the children and the late
spouses during their lifetime.

xxxx

13. Sometime in 1979, in accordance with their already established plan and purpose of
property disposition, the late spouses, during their lifetime, transferred to their daughter,
defendant Nelia Alleje, the Paliparan Property, through NELFRED which was
represented in said act by defendant Nelia Alleje, under a Deed of Absolute Sale, x x x.

14. Defendant NELFRED paid no consideration for the transfer of the Paliparan Property
although the Deed of Absolute Sale mentioned 60,000.00 as consideration for the
alleged transfer, as defendant Nelia Alleje knew fully well the nature and purpose of the
transfer and the condition that, as in the case of earlier transfers made by the decedent
spouses, in the event of a subsequent sale by defendant Nelia Alleje, through NELFRED,
the proceeds thereof shall be distributed equally among all the children, the herein
plaintiffs and defendant Nelia Alleje.

15. After the transfer in trust to defendant Nelia Alleje, through NELFRED, the late
Eufronio and Josefa continued to receive during their lifetime their share in the produce
of the Paliparan Property as landowner and likewise continued the payment of the real
estate taxes due thereon. In accordance with the transfer in trust to defendant Nelia
Alleje, N[ELFRED] did not effect the registration of the Paliparan Property in its
name and the same remained to be unregistered land covered only by tax
declarations.

16. In flagrant violation of the trust reposed on her and with intent to defraud the
plaintiffs of their rightful share in the proceeds of the sale of the Paliparan Property,
defendant Spouses Alleje surreptitiously sold the Paliparan Property to defendant Belle
Corporation. At the time of the sale to Belle Corporation in September 1997, the
Paliparan Property was unregistered land covered only by tax declarations. Up to
the present, the subject property is unregistered.

xxxx

23. By their acts, defendant Spouses Alleje clearly acted and continues to act to deprive
herein plaintiffs of their lawful distributive share in the proceeds of the sale of the
Paliparan Property. Moreover, defendant Nelia Alleje repudiated the trust created
over the Paliparan Property when said property was sold to Belle Corporation in
September 1997. Plaintiffs were put on notice of this act of repudiation only when
defendant Nelia Alleje tendered a total amount of 10,400,000.00 to plaintiffs and
their children on 3 September 1997. Said amount turned out to be part of the
proceeds of the sale of the Paliparan Property to Belle Corporation.

24. On the other hand, Belle Corporation knowingly purchased unregistered land
covered only by tax declarations and knew that persons other than the individual
defendants were paying for the land taxes. It should not have disregarded such
knowledge, as well as other circumstances which pointed to the fact that its vendors
were not the true owners of the property. Since the Paliparan Property is
unregistered, Belle Corporation should have inquired further into the true
ownership of the property.

25. Belle Corporation was likewise in bad faith when, despite having had notice of
plaintiffs' claim over the Paliparan Property on 19 January 1998 when it was
impleaded as a co-defendant in this civil case, Belle Corporation still entered into a
Deed of Absolute Sale with defendant Spouses Alleje and NELFRED on 24 June
1998. Thus, Belle Corporation finalized its purchase of the subject property from its
co defendants with knowledge that some other persons are claiming and actually
own the same.

x x x x15
It is evident from the above allegations in the Amended Complaint that respondents specifically
alleged that they are owners of the subject property being held in trust by their sister, Nelia
Alleje, and that petitioner acted in bad faith when it bought the property from their sister, through
her company, Nelfred, knowing that herein respondents claim ownership over it.

Assuming the above allegations to be true, respondents can, therefore, validly seek the
nullification of the sale of the subject property to petitioner because the same effectively denied
them their right to give or withhold their consent if and when the subject property is intended to
be sold, which right was also alleged by respondents to have been provided for in the trust
agreement between their parents and their sister, Nelia Alleje. The Court, thus, finds no error on
the part of the CA in ruling that the allegations in the complaint are sufficient to establish a cause
of action for the nullification of the sale of the subject property to herein petitioner.

Petitioner contends that "it may be held liable ONLY IF it is proven by preponderance of
evidence that [it] indeed acted in bad faith in dealing with the [subject] property."16 Indeed, bad
faith is a question of fact and is evidentiary.17 Bad faith has to be established by the claimant
with clear and convincing evidence, and this necessitates an examination of the evidence of all
the parties.18 This is best passed upon after a full-blown trial on the merits.

Stated differently, the determination of whether or not petitioner is guilty of bad faith cannot be
made in a mere motion to dismiss. An issue that requires the contravention of the allegations of
the complaint, as well as the full ventilation, in effect, of the main merits of the case, should not
be within the province of a mere motion to dismiss.19

The parties have gone to great lengths in discussing their respective positions on the merits of the
main case. However, there is yet no need to do so in the instant petition. There will be enough
time for these disputations in the lower court after responsive pleadings are filed and issues are
joined for eventual trial of the case.1wphi1

Indeed, the other assigned errors in the instant petition dwell on issues which are matters of
defense on the part of petitioner. The questions of whether or not there is an implied or express
trust and whether the said trust is null and void are assertions that go into the merits of the main
case and still need to be proven or disproven by the parties and resolved by the RTC. In the same
manner, the issues on prescription and estoppel raised in petitioner's Opposition to
Manifestation/Motion with Supplemental Motion to Dismiss,20 as well as in its Motion for
Reconsideration or to Dismiss the Amended Complaint,21 are matters of defense not proper in a
motion to dismiss for failure to state a cause of action. They should be pleaded in the answer, to
be resolved after the trial on the basis of the arguments and evidence submitted by the parties. As
jurisprudence holds, so rigid is the norm prescribed that if the court should doubt the truth of the
facts averred, it must not dismiss the complaint but require an answer and proceed to hear the
case on the merits.22 This dictum is in line with the policy that motions to dismiss should not be
lightly granted where the ground invoked is not indubitable, as in the present case.23 In such a
situation, the objections to the complaint must be embodied in the answer as denials or special
and affirmative defenses and threshed out in a full-blown trial on the merits.24
In sum, this Court finds that the CA did not commit error in reversing and setting aside the
assailed Order of the RTC.

WHEREFORE, the instant petition Is DENIED. The assailed Decision and Resolution of the
Court of Appeals, dated May 18, 2006 and September 4, 2006, respectively, in CA-G.R. CV No.
74669, are AFFIRMED.

SO ORDERED.

G.R. No. 178584 October 8, 2012

ASSOCIATED MARINE OFFICERS AND SEAMEN'S UNION OF THE PHILIPPINES

PTGWO-ITF, Petitioner,
vs.
NORIEL DECENA, Respondent.

DECISION

PERLAS-BERNABE, J.:

This Petition for Review on Certiorari seeks the reversal of the Decision1 of the Court of
Appeals (CA) dated July 31, 2006, as well as the Resolution2 dated June 20, 2007, which
dismissed the complaint for unlawful detainer filed by petitioner against respondent on the
ground of prematurity, as petitioner has not shown that it complied with the mandatory
requirements for a valid and effective cancellation of the contract to sell a house and lot.

The Factual Antecedents

Associated Marine Officers and Seamen's Union of the Philippines

PTGWO-ITF (petitioner) is a duly registered labor organization engaged in an on-going Shelter

Program, which offers residential lots and fully-furnished houses to its members-seafarers under
a reimbursement scheme requiring no down payment and no interest on the principal sum
advanced for the acquisition and development of the land and the construction of the house.

On April 27, 1995, petitioner entered into a contract3 under the Shelter Program with one of its
members, Noriel Decena (respondent), allowing the latter to take possession of a house and lot
described as 7 STOLT MODEL, Lot 16, Block 7, in the Seamen's Village, Sitio Piela, Barangay
Paliparan, Dasmarias, Cavite, with the obligation to reimburse petitioner the cost (US$28,563)4
thereof in 180 equal monthly payments. It was stipulated in said contract that, in case respondent
fails to remit three (3) monthly reimbursement payments, he shall be given a 3-month grace
period within which to remit his arrears, otherwise, the contract shall be automatically revoked or
cancelled and respondent shall voluntarily vacate the premises without need of demand or
judicial action.5

Subsequently, respondent failed to pay twenty-five (25) monthly reimbursement payments

covering the period August 1999 to August 2001, despite demands. Hence, petitioner cancelled
the contract and treated all his reimbursement payments as rental payments for his occupancy of
the house and lot.

On August 21, 2001, petitioner sent respondent a notice of final demand6 requiring him to fulfill
his obligation within a 30-day grace period. Thereafter, on October 18, 2001, his wife received a
notice to vacate7 the premises. For failure of respondent to heed said notices, petitioner filed a
complaint before the barangay lupon and, eventually, a case for unlawful detainer, docketed as
Civil Case No. 12108 before the Municipal Trial Court (MTC) of Dasmarias, Cavite.

The Ruling of the MTC

On December 4, 2002, the MTC found petitioner's case meritorious and, thus, rendered
judgment9 ordering respondent to (1) vacate the premises; (2) pay monthly rental in the amount
of 8,109.00 from August 1999 with legal interests thereon until he has actually and fully paid
the same; and (3) pay attorney's fees in the amount of 30,000.00, as well as the costs of suit.

The Ruling of the RTC

On appeal (App. Civil Case No. 312-03), the Regional Trial Court (RTC) of Imus, Cavite,
affirmed10 in toto the decision of the MTC after finding that the cancellation and revocation of
the contract for failure of respondent to remit 25 monthly reimbursement payments converted the
latter's stay on the premises to one of "mere permission"11 by petitioner, and that respondent's
refusal to heed the notice to vacate the premises rendered his continued possession thereof
unlawful.12

With respect to the issue raised by respondent that the instant case is covered by Republic Act
No. 6552 (R.A. No. 6552),13 the Maceda Law, the RTC ruled in the negative, ratiocinating that
the Shelter Contract Award is neither a contract of sale nor a contract to sell. Rather, it is "more
akin to a contract of lease with the monthly reimbursements as rentals."14

The Ruling of the Court of Appeals

On petition for review (CA-G.R. SP No. 81954) before the CA, the appellate court set aside the
decision of the RTC and entered a new judgment15 dismissing the complaint for unlawful
detainer and restoring respondent to the peaceful possession of the subject house and lot. The CA
held that the contract between the parties is not a contract of lease, but a contract to sell, which
stipulates that upon full payment of the value of the house and lot, respondent shall become the
owner thereof.16 The issues, which involve "the propriety of terminating the relationship
contracted by the parties, as well as the demand upon [respondent] to deliver the premises and to
pay unpaid reimbursements,"17 extend beyond those commonly involved in unlawful detainer
suits, thus, converting the instant case into one incapable of pecuniary estimation exclusively
cognizable by the RTC.18

Moreover, the appellate court faulted petitioner for failing to comply with the mandatory twin
requirements for a valid and effective cancellation of a contract to sell under Section 3 (b) of
R.A. No. 6552: (1) to send a notarized notice of cancellation, and (2) to refund the cash surrender
value of the payments on the property. Consequently, it held that the contract to sell still subsists,
at least until properly rescinded, and the action for ejectment filed by petitioner is premature.19

Aggrieved, petitioner filed a motion for reconsideration, which was denied by the CA in its
Resolution20 dated June 20, 2007. Hence, petitioner is now before this Court alleging that

The Issues

1. The Honorable Court of Appeals erred in changing the main issue to be resolved in the instant
unlawful detainer case from who has the better right of possession to whether or not the
agreement between the parties is a contract of lease or a contract to sell, especially when the
nature of the agreement between the parties was never questioned nor raised as an issue in the
court a quo.

2. Even assuming that the Honorable Court of Appeals was correct in changing the main issue to
be resolved, it nevertheless erred in determining that:

a. The agreement between the parties is allegedly one of contract to sell when the
Housing and Land Use Regulatory Board itself already made a pronouncement that the
Shelter Program and its contract award is not a sale of real estate.
 b. The action for unlawful detainer filed by petitioner AMOSUP is allegedly premature
especially considering that Republic Act No. 6552, which requires notarial notice of
rescission, is not applicable to the case at bar and, thus, the written notice of termination
previously served on the respondent is already sufficient.21

The Ruling of the Court

It is basic that a contract is what the law defines it to be, and not what it is called by the
contracting parties. A contract to sell is defined as a bilateral contract whereby the prospective
seller, while expressly reserving the ownership of the subject property despite delivery thereof to
the prospective buyer, binds itself to sell the said property exclusively to the prospective buyer
upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.22

The Shelter Contract Award granted to respondent expressly stipulates that "upon completion of
payment of the amount of US$28,563 representing the full value of the House and Lot subject of
the Contract Award, the UNION shall execute a Deed of Transfer and shall cause the issuance of
the corresponding Transfer Certificate of Title in favor of and in the name of the
AWARDEE."23 It cannot be denied, therefore, that the parties herein entered into a contract to
sell in the guise of a reimbursement scheme requiring respondent to make monthly
reimbursement payments which are, in actuality, installment payments for the value of the
subject house and lot.

While respondent occupied the subject premises, title nonetheless remained with petitioner.
Considering, therefore, that the basis for such occupation is a contract to sell the premises on
installment, the contractual relations between the parties are more than that of a lessor-lessee.24
The appellate court thus correctly ruled that the Shelter Contract Award has not been converted
into one of lease.

Petitioner tried, albeit in vain, to mislead the Court that the nature of the agreement between the
parties, and even the validity of the termination thereof, were never raised in the trial courts. In
the pre-trial brief filed by respondent before the MTC, the first issue he presented is "whether or
not the present action is a simple case of or an action for unlawful detainer or an action for
rescission of the Contract of Shelter Award which is outside of the jurisdiction of the Honorable
Court."25

In the parallel case of Pagtalunan v. Dela Cruz Vda. De Manzano,26 which likewise originated
as an action for unlawful detainer, we affirmed the finding of the appellate court that, since the
contract to sell was not validly cancelled or rescinded under Section 3(b) of R.A. No. 6552, the
respondent therein had the right to continue occupying unmolested the property subject thereof.
Section 3(b) reads:

SEC. 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding industrial
lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight
hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine,
where the buyer has paid at least two years of installments, the buyer is entitled to the following
rights in case he defaults in the payment of succeeding installments:

xxx

(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty per cent of the total payments made, and, after five
years of installments, an additional five per cent every year but not to exceed ninety per cent of
the total payments made: Provided, That the actual cancellation of the contract shall take place
after thirty days from receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon full payment of the cash surrender value to
the buyer. (Emphasis supplied)

As we emphasized in Pagtalunan, "R.A. No. 6552, otherwise known as the Realty Installment
Buyer Protection Act, recognizes in conditional sales of all kinds of real estate (industrial,
commercial, residential) the right of the seller to cancel the contract upon non-payment of an
installment by the buyer, which is simply an event that prevents the obligation of the vendor to
convey title from acquiring binding force." While we agreed that the cancellation of a contract to
sell may be done outside of court, however, "the cancellation by the seller must be in accordance
with Sec. 3(b) of R.A. No. 6552, which requires a notarial act of rescission and the refund to the
buyer of the full payment of the cash surrender value of the payments on the property."27 In the
present case, as aptly pointed out by the appellate court, petitioner failed to prove that the Shelter
Contract Award had been cancelled in accordance with R.A. No. 6552, which would have been
the basis for the illegality of respondent's possession of the subject premises. Hence, the action
for ejectment must necessarily fail.

Petitioner nonetheless insists on the inapplicability of R.A. No. 6552 in this case, capitalizing on
the Decision28 of the Housing and Land Use Regulatory Board in HLURB CASE No. IV6-
090902-1842 entitled "Seamen's Village Brotherhood Homeowners Association, Inc. v.
Associated Marine Officers And Seamen's Union of the Philippines (AMOSUP)" which held that
the transaction between petitioner and the residents of Seamen's Village cannot be considered a
sale within the purview of Presidential Decree (P.D.) No. 957.29 It should be pointed out that the
only issue resolved in that case is "whether or not the respondent (petitioner herein) is engaged in
the business of selling real estate subdivisions, so as to fall under the ambit of P.D. 957, the
resolution of which would determine whether or not respondent is required under the law to
register with (the) Office and procure a license to sell."30

Section 2(b) of P.D. 957 defines a sale as follows:

b.) Sale or Sell "sale" or "sell" shall include every disposition, or attempt to dispose, for a
valuable consideration, of a subdivision lot, including the building and other improvements
thereon, if any, in a subdivision project or a condominium unit in a condominium project. "Sale"
or "sell" shall include a contract to sell, a contract of purchase and sale, an exchange, an attempt
to sell, an option of sale or purchase, a solicitation of a sale, or an offer to sell, directly or by an
agent, or by a circular letter, advertisement or otherwise.
A privilege given to a member of a cooperative, corporation, partnership, or any association
and/or the issuance of a certificate or receipt evidencing or giving the right of participation in, or
right to any land in consideration of payment of the membership fee or dues, shall be deemed a
sale within the meaning of this definition.

A reading of the Decision in its entirety reveals a vacillation on the part of the HLURB in
classifying the transaction between petitioner and its members. While the HLURB held that there
is no sale as contemplated under the first paragraph of the aforequoted provision "for the reason
that there is no valuable consideration involved in the transaction,"31 yet it went on to opine that
the second paragraph of the same provision "appears to have an apparent application in the
instant case although the same is not clear."32 Then, in its final disposition,33 the HLURB
required petitioner to secure a Certificate of Registration and License to Sell for its subdivision
project thereby effectively bringing it under the jurisdiction of said office. Clearly, the argument
of petitioner that respondent is not a realty installment buyer that needs to be protected by the
law has no leg to stand on.

In the interest, however, of putting an end to the controversy between the parties herein that had
lasted for more than ten (10) years, as in the cited case of Pagtalunan, the Court orders
respondent to pay his arrears and settle the balance of the full value of the subject premises. He
had enjoyed the use thereof since 1995. After defaulting in August 1999, respondent had not
made any subsequent reimbursement payments. Thus, for the delay in his reimbursement
payments, we award interest at the rate of 6% per annum on the unpaid balance applying Article
220934 of the Civil Code, there being no stipulation in the Shelter Contract Award for such
interest.35 For purposes of computing the legal interest, the reckoning period should be the
notice of final demand, conformably with Articles 116936 and 158937 of the same Code, which,
as found by the MTC, was sent by petitioner to respondent on August 21, 2001.38

In his Comment to the instant Petition, respondent claimed that he had made payments in the
amount of 318,167.70.39 The total amount for reimbursement for the subject house and lot is
US$28,563, which the Shelter Contract Award requires to be paid in "180 equal monthly
periodic reimbursements of US$159 or in equivalent Philippine Currency at the time the same
falls due."40 For lack of pertinent data with which to determine how many months respondent's
alleged total payment of 318,167.70 is equivalent to, we direct petitioner to submit to the trial
court an accounting of the payments made by respondent particularly showing the number of
months he was able to make the required payments of US$159 or its peso equivalent. The
balance of the full value of the subject premises shall then be computed on the basis of the
following formula: (180 months minus the number of months that respondent had already paid)
multiplied by US$159 or its peso equivalent at the time of payment.

WHEREFORE, the Decision of the Court of Appeals dated July 31, 2006 and the Resolution
dated June 20, 2007 are hereby AFFIRMED with the following MODIFICATIONS:

1. The Municipal Trial Court of Dasmarias, Cavite is directed to conduct a hearing,

within a maximum period of thirty (30) days from receipt of this Decision, to determine:
(a) the unpaid balance of the full value of the subject house and Jot; and (b) the
reasonable amount of rental for the subject property at present times.
 2. Within sixty (60) days from the determination of the trial court of said balance,
respondent shall pay the amount thereof to petitioner, with interest at six percent ( 6%)
per annum from August 1, 2001 up to the date of actual payment;

3. Upon payment, petitioner shall execute a Deed of Absolute Sale of the subject property
and deliver the transfer certificate of title in favor of respondent;

4. In case of failure to pay within the mandated 60-day period, respondent shall
immediately vacate the premises without need of further demand. Petitioner, on the other
hand, shall pay respondent the cash surrender value equivalent to 50% of the total
reimbursement payments made. The Shelter Contract Award shall then be deemed
cancelled thirty (30) days after receipt by respondent of the full payment of the cash
surrender value. If respondent fails to vacate the premises, he shall be charged reasonable
rental in the amount determined by the trial court.

SO ORDERED.

G.R. No. 176162 October 9, 2012

CIVIL SERVICE COMMISSION, Petitioner,

vs.
COURT OF APPEALS, DR. DANTE G. GUEV ARRA and ATTY. AUGUSTUS F.
CEZAR, Respondents.

x-----------------------x

G.R. No. 178845

ATTY. HONESTO L. CUEVA, Petitioner,
vs.
COURT OF APPEALS, DR. DANTE G. GUEV ARRA and ATTY. AUGUSTUS F.
CEZAR, Respondents.

DECISION

MENDOZA, J.:

These are consolidated petitions for review under Rule 45 of the Revised Rules of Civil
Procedure assailing the December 29, 2006 Decision1 of the Court of Appeals (CA) in CA-G.R.
SP No. 95293, entitled "Dr. Dante G. Guevarra and Atty. Augustus Cezar v. Civil Service
Commission and Atty. Honesto L. Cueva."

The Facts

Respondents Dante G. Guevarra (Guevarra) and Augustus F. Cezar (Cezar) were the Officer-in-
Charge/President and the Vice President for Administration, respectively, of the Polytechnic
University of the Philippines (PUP)2 in 2005.

On September 27, 2005, petitioner Honesto L. Cueva (Cueva), then PUP Chief Legal Counsel,
filed an administrative case against Guevarra and Cezar for gross dishonesty, grave misconduct,
falsification of official documents, conduct prejudicial to the best interest of the service, being
notoriously undesirable, and for violating Section 4 of Republic Act (R.A.) No. 6713.3 Cueva
charged Guevarra with falsification of a public document, specifically the Application for Bond
of Accountable Officials and Employees of the Republic of the Philippines, in which the latter
denied the existence of his pending criminal and administrative cases. As the head of the school,
Guevarra was required to be bonded in order to be able to engage in financial transactions on
behalf of PUP.4 In his Application for Bond of Accountable Officials and Employees of the
Republic of the Philippines (General Form No. 58-A), he answered Question No. 11 in this wise:

11. Do you have any criminal or administrative records? NO. If so, state briefly the nature
thereof NO.5

This was despite the undisputed fact that, at that time, both Guevarra and Cezar admittedly had
17 pending cases for violation of Section 3(e) of R.A. No. 3019 before the Sandiganbayan.6
Cezar, knowing fully well that both he and Guevarra had existing cases before the
Sandiganbayan, endorsed and recommended the approval of the application.7

The respondents explained that they believed "criminal or administrative records" to mean final
conviction in a criminal or administrative case.8 Thus, because their cases had not yet been
decided by the Sandiganbayan, they asserted that Guevarra responded to Question No. 11 in
General Form No. 58-A correctly and in good faith.9

On March 24, 2006, the Civil Service Commission (CSC) issued Resolution No. 06052110
formally charging Guevarra with Dishonesty and Cezar with Conduct Prejudicial to the Best
Interest of the Service after a prima facie finding that they had committed acts punishable under
the Civil Service Law and Rules.

Subsequently, the respondents filed their Motion for Reconsideration and Motion to Declare
Absence of Prima Facie Case11 praying that the case be suspended immediately and that the
CSC declare a complete absence of a prima facie case against them. Cueva, on the other hand,
filed an Urgent Ex-Parte Motion for the Issuance of Preventive Suspension12 and an Omnibus
Motion13 seeking the issuance of an order of preventive suspension against Guevarra and Cezar
and the inclusion of the following offenses in the formal charge against them: Grave Misconduct,
Falsification of Official Document, Conduct Prejudicial to the Best Interest of the Service, Being
Notoriously Undesirable, and Violation of Section 4 of R.A. No. 6713.

In Resolution No. 061141, dated June 30, 2006,14 the CSC denied the motion for
reconsideration filed by the respondents for being a non-responsive pleading, akin to a motion to
dismiss, which was a prohibited pleading under Section 16 of the Uniform Rules on
Administrative Cases in the Civil Service Commission.15 It also denied Cuevas motion to
include additional charges against the respondents. The CSC, however, placed Guevarra under
preventive suspension for ninety (90) days, believing it to be necessary because, as the officer-in-
charge of PUP, he was in a position to unduly influence possible witnesses against him.

Aggrieved, Guevarra and Cezar filed a petition for certiorari and prohibition before the CA
essentially questioning the jurisdiction of the CSC over the administrative complaint filed against
them by Cueva. On December 29, 2006, the CA rendered its Decision granting the petition and
nullifying and setting aside the questioned resolutions of the CSC for having been rendered
without jurisdiction. According to the CA, Section 47, Chapter 7, Subtitle A, Title I, Book V of
Executive Order No. 292 (The Administrative Code of 1987), the second paragraph of which
states that heads of agencies and instrumentalities "shall have jurisdiction to investigate and
decide matters involving disciplinary action against officers and employees under their
jurisdiction," bestows upon the Board of Regents the jurisdiction to investigate and decide
matters involving disciplinary action against respondents Guevarra and Cezar. In addition, the
CA noted that the CSC erred in recognizing the complaint filed by Cueva, reasoning out that the
latter should have exhausted all administrative remedies by first bringing his grievances to the
attention of the PUP Board of Regents.

Hence, these petitions.

THE ISSUE

In G.R. No. 176162, petitioner CSC raises the sole issue of:

Whether or not the Civil Service Commission has original concurrent jurisdiction over
administrative cases falling under the jurisdiction of heads of agencies.

The same issue is among those raised by petitioner Cueva in G.R. No. 178845.
The Court agrees that the only question which must be addressed in this case is whether the CSC
has jurisdiction over administrative cases filed directly with it against officials of a chartered
state university.

The Courts Ruling

The petitions are meritorious.

Both CSC and Cueva contend that because the CSC is the central personnel agency of the
government, it has been expressly granted by Executive Order (E.O.) No. 292 the authority to
assume original jurisdiction over complaints directly filed with it. The CSC explains that under
the said law, it has appellate jurisdiction over all administrative disciplinary proceedings and
original jurisdiction over complaints against government officials and employees filed before it
by private citizens.16 Accordingly, the CSC has concurrent original jurisdiction, together with
the PUP Board of Regents, over the administrative case against Guevarra and Cezar and it can
take cognizance of a case filed directly with it, despite the fact that the Board of Regents is the
disciplining authority of university employees.

Respondents Guevarra and Cezar, on the other hand, fully adopted the position of the CA in its
questioned decision and propounded the additional argument that the passage of R.A. No. 8292
has effectively removed from the CSC the authority to hear and decide on cases filed directly
with it.

CSC has jurisdiction over cases

filed directly with it, regardless of
who initiated the complaint

The CSC, as the central personnel agency of the government, has the power to appoint and
discipline its officials and employees and to hear and decide administrative cases instituted by or
brought before it directly or on appeal.17 Section 2(1), Article IX(B) of the 1987 Constitution
defines the scope of the civil service:

The civil service embraces all branches, subdivisions, instrumentalities, and agencies of the
Government, including government-owned or controlled corporations with original charters.

By virtue of Presidential Decree (P.D.) No. 1341,18 PUP became a chartered state university,
thereby making it a government-owned or controlled corporation with an original charter whose
employees are part of the Civil Service and are subject to the provisions of E.O. No. 292.19

The parties in these cases do not deny that Guevarra and Cezar are government employees and
part of the Civil Service. The controversy, however, stems from the interpretation of the
disciplinary jurisdiction of the CSC as specified in Section 47, Chapter 7, Subtitle A, Title I,
Book V of E.O. No. 292:

SECTION 47. Disciplinary Jurisdiction. (1) The Commission shall decide upon appeal all
administrative disciplinary cases involving the imposition of a penalty of suspension for more
than thirty days, or fine in an amount exceeding thirty days salary, demotion in rank or salary or
transfer, removal or dismissal from office. A complaint may be filed directly with the
Commission by a private citizen against a government official or employee in which case it may
hear and decide the case or it may deputize any department or agency or official or group of
officials to conduct the investigation. The results of the investigation shall be submitted to the
Commission with recommendation as to the penalty to be imposed or other action to be taken.

(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. [Emphases and underscoring supplied]

While in its assailed decision, the CA conceded that paragraph one of the same provision
abovequoted allows the filing of a complaint directly with the CSC, it makes a distinction
between a complaint filed by a private citizen and that of an employee under the jurisdiction of
the disciplining authority involved. The CA resolved that because Cueva was then the Dean of
the College of Law and the Chief Legal Counsel of PUP when he filed the complaint with the
CSC, he was under the authority of the PUP Board of Regents. Thus, it is the Board of Regents
which had exclusive jurisdiction over the administrative case he initiated against Guevarra and
Cezar.

The Court finds itself unable to sustain the reading of the CA.

The issue is not novel.

The understanding by the CA of Section 47, Chapter 7, Subtitle A, Title I, Book V of E.O. No.
292 which states that "a complaint may be filed directly with the Commission by a private
citizen against a government official or employee" is that the CSC can only take cognizance of a
case filed directly before it if the complaint was made by a private citizen.

The Court is not unaware of the use of the words "private citizen" in the subject provision and
the plain meaning rule of statutory construction which requires that when the law is clear and
unambiguous, it must be taken to mean exactly what it says. The Court, however, finds that a
simplistic interpretation is not in keeping with the intention of the statute and prevailing
jurisprudence. It is a well-established rule that laws should be given a reasonable interpretation
so as not to defeat the very purpose for which they were passed. As such, "a literal interpretation
is to be rejected if it would be unjust or lead to absurd results."20 In Secretary of Justice v.
Koruga,21 the Court emphasized this principle and cautioned us on the overzealous application
of the plain meaning rule:
The general rule in construing words and phrases used in a statute is that in the absence of
legislative intent to the contrary, they should be given their plain, ordinary, and common usage
meaning. However, a literal interpretation of a statute is to be rejected if it will operate unjustly,
lead to absurd results, or contract the evident meaning of the statute taken as a whole. After all,
statutes should receive a sensible construction, such as will give effect to the legislative intention
and so as to avoid an unjust or an absurd conclusion. Indeed, courts are not to give words
meanings that would lead to absurd or unreasonable consequences.22

A literal interpretation of E.O. 292 would mean that only private citizens can file a complaint
directly with the CSC. For administrative cases instituted by government employees against their
fellow public servants, the CSC would only have appellate jurisdiction over those. Such a plain
reading of the subject provision of E.O. 202 would effectively divest CSC of its original
jurisdiction, albeit shared, provided by law. Moreover, it is clearly unreasonable as it would be
tantamount to disenfranchising government employees by removing from them an alternative
course of action against erring public officials.

There is no cogent reason to differentiate between a complaint filed by a private citizen and one
filed by a member of the civil service, especially in light of Section 12(11), Chapter 3, Subtitle
A, Title I, Book V of the same E.O. No. 292 which confers upon the CSC the power to "hear and
decide administrative cases instituted by or brought before it directly or on appeal" without any
qualification.

In the case of Camacho v. Gloria,23 the Court stated that "under E.O. No. 292, a complaint
against a state university official may be filed with either the universitys Board of Regents or
directly with the Civil Service Commission."24 It is important to note that the Court did not
interpret the Administrative Code as limiting such authority to exclude complaints filed directly
with it by a member of the civil service.

Moreover, as early as in the case of Hilario v. Civil Service Commission,25 the Court interpreted
Section 47, Chapter 7, Subtitle A, Title I, Book V of E.O. No. 292 as allowing the direct filing
with the CSC by a public official of a complaint against a fellow government employee. In the
said case, Quezon City Vice-Mayor Charito Planas directly filed with the CSC a complaint for
usurpation, grave misconduct, being notoriously undesirable, gross insubordination, and conduct
prejudicial to the best interest of the service against the City Legal Officer of Quezon City. The
CSC issued a resolution ruling that the respondent official should not be allowed to continue
holding the position of legal officer. In a petition to the Supreme Court, the official in question
asserted that the City Mayor was the only one who could remove him from office directly and
not the CSC. The Court upheld the decision of the CSC, citing the same provision of the
Administrative Code:

Although respondent Planas is a public official, there is nothing under the law to prevent her
from filing a complaint directly with the CSC against petitioner. Thus, when the CSC determined
that petitioner was no longer entitled to hold the position of City Legal Officer, it was acting
within its authority under the Administrative Code to hear and decide complaints filed before
it.26 [Underscoring supplied]
It has been argued that Hilario is not squarely in point.27 While it is true that the circumstances
present in the two cases are not identical, a careful reading of Hilario reveals that petitioner
therein questioned the authority of the CSC to hear the disciplinary case filed against him,
alleging that the CSCs jurisdiction was only appellate in nature. Hence, the reference to the
abovequoted passage in Hilario is very appropriate in this case as respondents herein pose a
similar query before us.

It cannot be overemphasized that the identity of the complainant is immaterial to the acquisition
of jurisdiction over an administrative case by the CSC. The law is quite clear that the CSC may
hear and decide administrative disciplinary cases brought directly before it or it may deputize
any department or agency to conduct an investigation.

CSC has concurrent original jurisdiction

with the Board of Regents over
administrative cases

The Uniform Rules on Administrative Cases in the Civil Service28 (the Uniform Rules)
explicitly allows the CSC to hear and decide administrative cases directly brought before it:

Section 4. Jurisdiction of the Civil Service Commission. The Civil Service Commission shall
hear and decide administrative cases instituted by, or brought before it, directly or on appeal,
including contested appointments, and shall review decisions and actions of its offices and of the
agencies attached to it.

Except as otherwise provided by the Constitution or by law, the Civil Service Commission shall
have the final authority to pass upon the removal, separation and suspension of all officers and
employees in the civil service and upon all matters relating to the conduct, discipline and
efficiency of such officers and employees. [Emphases and underscoring supplied]

The CA construed the phrase "the Civil Service Commission shall have the final authority to
pass upon the removal, separation and suspension of all officers and employees in the civil
service" to mean that the CSC could only step in after the relevant disciplinary authority, in this
case the Board of Regents of PUP, had investigated and decided on the charges against the
respondents. Regrettably, the CA failed to take into consideration the succeeding section of the
same rules which undeniably granted original concurrent jurisdiction to the CSC and belied its
suggestion that the CSC could only take cognizance of cases on appeal:

Section 7. Jurisdiction of Heads of Agencies. Heads of Departments, agencies, provinces,

cities, municipalities and other instrumentalities shall have original concurrent jurisdiction, with
the Commission, over their respective officers and employees.29 [Emphasis supplied]

It was also argued that although Section 4 of the Uniform Rules is silent as to who can file a
complaint directly with the CSC, it cannot be construed to authorize one who is not a private
citizen to file a complaint directly with the CSC. This is because a rule issued by a government
agency pursuant to its law-making power cannot modify, reduce or enlarge the scope of the law
which it seeks to implement.30
Following the earlier disquisition, it can be said that the Uniform Rules does not contradict the
Administrative Code. Rather, the former simply provides a reasonable interpretation of the latter.
Such action is perfectly within the authority of the CSC, pursuant to Section 12(2), Chapter 3,
Subtitle A, Title I, Book V of E.O. No. 292, which gives it the power to "prescribe, amend and
enforce rules and regulations for carrying into effect the provisions of the Civil Service Law and
other pertinent laws."

Another view has been propounded that the original jurisdiction of the CSC has been further
limited by Section 5 of the Uniform Rules, such that the CSC can only take cognizance of
complaints filed directly with it which: (1) are brought against personnel of the CSC central
office, (2) are against third level officials who are not presidential appointees, (3) are against
officials and employees, but are not acted upon by the agencies themselves, or (4) otherwise
require direct or immediate action in the interest of justice:

Section 5. Jurisdiction of the Civil Service Commission Proper. The Civil Service Commission
Proper shall have jurisdiction over the following cases:

A. Disciplinary

1. Decisions of the Civil Service Regional Offices brought before it on petition for
review;

2. Decisions of heads of departments, agencies, provinces, cities, municipalities and other

instrumentalities, imposing penalties exceeding thirty days suspension or fine in an
amount exceeding thirty days salary brought before it on appeal;

3. Complaints brought against Civil Service Commission Proper personnel;

4. Complaints against third level officials who are not presidential appointees;

5. Complaints against Civil Service officials and employees which are not acted upon by
the agencies and such other complaints requiring direct or immediate action, in the
interest of justice;

6. Requests for transfer of venue of hearing on cases being heard by Civil Service
Regional Offices;

7. Appeals from the Order of Preventive Suspension; and

8. Such other actions or requests involving issues arising out of or in connection with the
foregoing enumerations.

It is the Courts position that the Uniform Rules did not supplant the law which provided the
CSC with original jurisdiction. While the Uniform Rules may have so provided, the Court invites
attention to the cases of Civil Service Commission v. Alfonso31 and Civil Service Commission
v. Sojor,32 to be further discussed in the course of this decision, both of which buttressed the
pronouncement that the Board of Regents shares its authority to discipline erring school officials
and employees with the CSC. It can be presumed that, at the time of their promulgation, the
members of this Court, in Alfonso and Sojor, were fully aware of all the existing laws and
applicable rules and regulations pertaining to the jurisdiction of the CSC, including the Uniform
Rules. In fact, Sojor specifically cited the Uniform Rules in support of its ruling allowing the
CSC to take cognizance of an administrative case filed directly with it against the president of a
state university. As the Court, in the two cases, did not consider Section 5 of the Uniform Rules
as a limitation to the original concurrent jurisdiction of the CSC, it can be stated that Section 5 is
merely implementary. It is merely directory and not restrictive of the CSCs powers. The CSC
itself is of this view as it has vigorously asserted its jurisdiction over this case through this
petition.

The case of Alfonso33 is on all fours with the case at bench. The case involved a complaint filed
before the CSC against a PUP employee by two employees of the same university. The CA was
then faced with the identical issue of whether it was the CSC or the PUP Board of Regents which
had jurisdiction over the administrative case filed against the said PUP employee. The CA
similarly ruled that the CSC could take cognizance of an administrative case if the decisions of
secretaries or heads of agencies, instrumentalities, provinces, cities and municipalities were
appealed to it or if a private citizen directly filed with the CSC a complaint against a government
official or employee. Because the complainants in the said case were PUP employees and not
private citizens, the CA held that the CSC had no jurisdiction to hear the administrative case. It
further posited that even assuming the CSC had the authority to do so, immediate resort to the
CSC violated the doctrine of exhaustion of administrative remedies as the complaint should have
been first lodged with the PUP Board of Regents to allow them the opportunity to decide on the
matter. This Court, however, reversed the said decision and declared the following:

xxx. Admittedly, the CSC has appellate jurisdiction over disciplinary cases decided by
government departments, agencies and instrumentalities. However, a complaint may be filed
directly with the CSC, and the Commission has the authority to hear and decide the case,
although it may opt to deputize a department or an

agency to conduct the investigation. x x x

xxx xxx xxx

We are not unmindful of certain special laws that allow the creation of disciplinary committees
and governing bodies in different branches, subdivisions, agencies and instrumentalities of the
government to hear and decide administrative complaints against their respective officers and
employees. Be that as it may, we cannot interpret the creation of such bodies nor the passage of
laws such as R.A. Nos. 8292 and 4670 allowing for the creation of such disciplinary bodies
as having divested the CSC of its inherent power to supervise and discipline government
employees, including those in the academe. To hold otherwise would not only negate the very
purpose for which the CSC was established, i.e. to instill professionalism, integrity, and
accountability in our civil service, but would also impliedly amend the Constitution itself.

xxx xxx xxx

But it is not only for this reason that Alfonsos argument must fail. Equally significant is the fact
that he had already submitted himself to the jurisdiction of the CSC when he filed his counter-
affidavit and his motion for reconsideration and requested for a change of venue, not from the
CSC to the BOR of PUP, but from the CSC-Central Office to the CSC-NCR. It was only when
his motion was denied that he suddenly had a change of heart and raised the question of proper
jurisdiction. This cannot be allowed because it would violate the doctrine of res judicata, a legal
principle that is applicable to administrative cases as well. At the very least, respondents active
participation in the proceedings by seeking affirmative relief before the CSC already bars him
from impugning the Commissions authority under the principle of estoppel by laches.

In this case, the complaint-affidavits were filed by two PUP employees. These complaints were
not lodged before the disciplinary tribunal of PUP, but were instead filed before the CSC, with
averments detailing respondents alleged violation of civil service laws, rules and regulations.
After a fact-finding investigation, the Commission found that a prima facie case existed against
Alfonso, prompting the Commission to file a formal charge against the latter. Verily, since the
complaints were filed directly with the CSC, and the CSC has opted to assume jurisdiction over
the complaint, the CSCs exercise of jurisdiction shall be to the exclusion of other tribunals
exercising concurrent jurisdiction. To repeat, it may, however, choose to deputize any
department or agency or official or group of officials such as the BOR of PUP to conduct the
investigation, or to delegate the investigation to the proper regional office. But the same is
merely permissive and not mandatory upon the Commission.34 [Emphases and underscoring
supplied]

It has been opined that Alfonso does not apply to the case at bar because respondent therein
submitted himself to the jurisdiction of the CSC when he filed his counter-affidavit before it,
thereby preventing him from later questioning the jurisdiction of the CSC. Such circumstance is
said to be totally absent in this case.35

The records speak otherwise. As in Alfonso, respondents herein submitted themselves to the
jurisdiction of the CSC when they filed their Joint Counter-Affidavit.36 It was only when their
Motion for Reconsideration and Motion to Declare Absence of Prima Facie Case37 was denied
by the CSC that they thought to put in issue the jurisdiction of the CSC before the CA, clearly a
desperate attempt to evade prosecution by the CSC. As in Alfonso, respondents are also estopped
from questioning the jurisdiction of the CSC.

Based on all of the foregoing, the inescapable conclusion is that the CSC may take cognizance of
an administrative case filed directly with it against an official or employee of a chartered state
college or university. This is regardless of whether the complainant is a private citizen or a
member of the civil service and such original jurisdiction is shared with the Board of Regents of
the school.

Gaoiran not applicable

In its decision, the CA relied heavily on Gaoiran v. Alcala38 to support its judgment that it is the
Board of Regents, and not the CSC, which has jurisdiction over the administrative complaint
filed against the respondents.
A thorough study of the said case, however, reveals that it is irrelevant to the issues discussed in
the case at bench. Gaoiran speaks of a complaint filed against a high school teacher of a state-
supervised school by another employee of the same school. The complaint was referred to the
Legal Affairs Service of the Commission on Higher Education (LAS-CHED). After a fact-
finding investigation established the existence of a prima facie case against the teacher, the
Officer-in-Charge of the Office of the Director of LAS-CHED issued a formal charge for Grave
Misconduct and Conduct Prejudicial to the Best Interest of the Service, together with the Order
of Preventive Suspension. The newly-appointed Director of LAS-CHED, however, dismissed the
administrative complaint on the ground that the letter-complaint was not made under oath.
Unaware of this previous resolution, the Chairman of the CHED issued another resolution
finding petitioner therein guilty of the charges against him and dismissing him from the service.
The trial court upheld the resolution of the director of LAS-CHED but on appeal, this was
reversed by the CA, affirming the decision of the CHED chairman removing petitioner from
service. One of the issues raised therein before this Court was whether the CA erred in
disregarding the fact that the complaint was not made under oath as required by the Omnibus
Rules Implementing Book V of E.O. 292.

In the said case, the Court concurred with the findings of the CA that it was the formal charge
issued by the LAS-CHED which constituted the complaint, and because the same was initiated
by the appropriate disciplining authority, it need not be subscribed and sworn to and CHED
acquired jurisdiction over the case. The Court further affirmed the authority of the heads of
agencies to investigate and decide matters involving disciplinary action against their officers and
employees. It bears stressing, at this point, that there is nothing in the case that remotely implies
that this Court meant to place upon the Board of Regent exclusive jurisdiction over
administrative cases filed against their employees.

In fact, following the ruling in Gaoiran, it can be argued that it was CSC Resolution No. 060521
which formally charged respondents that constituted the complaint, and since the complaint was
initiated by the CSC itself as the disciplining authority, the CSC properly acquired jurisdiction
over the case.

R.A. No. 8292 is not in conflict

with E.O. No. 292.

In addition, the respondents argue that R.A. No. 8292, which granted to the board of regents or
board of trustees disciplinary authority over school employees and officials of chartered state
colleges and universities, should prevail over the provisions of E.O. No. 292.39 They anchor
their assertion that the Board of Regents has exclusive jurisdiction over administrative cases on
Section 4 of R.A. No. 8292,40 to wit:

Section 4. Powers and duties of Governing Boards. The governing board shall have the
following specific powers and duties in addition to its general powers of administration and the
exercise of all the powers granted to the board of directors of a corporation under Section 36 of
Batas Pambansa Blg. 68 otherwise known as the Corporation Code of the Philippines;

xxxx
(h) to fix and adjust salaries of faculty members and administrative officials and employees
subject to the provisions of the revised compensation and classification system and other
pertinent budget and compensation laws governing hours of service, and such other duties and
conditions as it may deem proper; to grant them, at its discretion, leaves of absence under such
regulations as it may promulgate, any provisions of existing law to the contrary not with
standing; and to remove them for cause in accordance with the requirements of due process of
law. [Emphasis supplied]

The respondents are mistaken.

Basic is the principle in statutory construction that interpreting and harmonizing laws is the best
method of interpretation in order to form a uniform, complete, coherent, and intelligible system
of jurisprudence, in accordance with the legal maxim interpretare et concordare leges legibus est
optimus interpretandi modus.41 Simply because a later statute relates to a similar subject matter
as that of an earlier statute does not result in an implied repeal of the latter.42

A perusal of the abovequoted provision clearly reveals that the same does not indicate any
intention to remove employees and officials of state universities and colleges from the ambit of
the CSC. What it merely states is that the governing board of a school has the authority to
discipline and remove faculty members and administrative officials and employees for cause. It
neither supersedes nor conflicts with E.O. No. 292 which allows the CSC to hear and decide
administrative cases filed directly with it or on appeal.

In addition to the previously cited case of Alfonso, the case of The Civil Service Commission v.
Sojor43 is likewise instructive. In the said case, this Court ruled that the CSC validly took
cognizance of the administrative complaints directly filed with it concerning violations of civil
service rules committed by a university president. This Court acknowledged that the board of
regents of a state university has the sole power of administration over a university, in accordance
with its charter and R.A. No. 8292. With regard to the disciplining and removal of its employees
and officials, however, such authority is not exclusive to it because all members of the civil
service fall under the jurisdiction of the CSC:

Verily, the BOR of NORSU has the sole power of administration over the university. But this
power is not exclusive in the matter of disciplining and removing its employees and officials.
Although the BOR of NORSU is given the specific power under R.A. No. 9299 to discipline its
employees and officials, there is no showing that such power is exclusive. When the law bestows
upon a government body the jurisdiction to hear and decide cases involving specific matters, it is
to be presumed that such jurisdiction is exclusive unless it be proved that another body is
likewise vested with the same jurisdiction, in which case, both bodies have concurrent
jurisdiction over the matter.

All members of the civil service are under the jurisdiction of the CSC, unless otherwise provided
by law. Being a non-career civil servant does not remove respondent from the ambit of the CSC.

Career or non-career, a civil service official or employee is within the jurisdiction of the CSC.44
[Emphases and underscoring supplied]
It has been pointed out that the case of Sojor is not applicable to the case at bar because the
distinction between a complaint filed by a private citizen and one filed by a government
employee was not taken into consideration in the said case.45 The dissent fails to consider that
Sojor is cited in the ponencia to support the ruling that R.A. No. 8292 is not in conflict with E.O.
No. 292 and to counter respondents flawed argument that the passage of R.A. No. 8292 granted
the Board of Regents exclusive jurisdiction over administrative cases against school employees
and officials of chartered state colleges and universities. Also noteworthy is the fact that the
complainants before the CSC in Sojor were faculty members of a state university and were, thus,
government employees. Nevertheless, despite this, the Court allowed the CSC to assert
jurisdiction over the administrative case, proclaiming that the power of the Board of Regents to
discipline its officials and employees is not exclusive but is concurrent with the CSC.46

The case of University of the Philippines v. Regino47 was also cited to bolster the claim that
original jurisdiction over disciplinary cases against government officials is vested upon the
department secretaries and heads of agencies and instrumentalities, provinces, cities and
municipalities, whereas the CSC only enjoys appellate jurisdiction over such cases.48 The
interpretation therein of the Administrative Code supposedly renders effectual the provisions of
R.A. No. 8292 and does not "deprive the governing body of the power to discipline its own
officials and employees and render inutile the legal provisions on disciplinary measures which
may be taken by it."49

The Court respectfully disagrees. Regino is obviously inapplicable to this case because there, the
school employee had already been found guilty and dismissed by the Board of Regents of the
University of the Philippines. Therefore, the issue put forth before this Court was whether the
CSC had appellate jurisdiction over cases against university employees, considering the
university charter which gives it academic freedom allegedly encompassing institutional
autonomy. In contrast, no administrative case was filed before the Board of Regents of PUP
because the case was filed directly with the CSC and so, the question here is whether the CSC
has original concurrent jurisdiction over disciplinary cases. Rationally, the quoted portions in
Regino find no application to the case at bench because those statements were made to uphold
the CSCs appellate jurisdiction which was being contested by petitioner therein. At the risk of
being repetitive, it is hereby stressed that the authority of the CSC to hear cases on appeal has
already been established in this case. What is in question here is its original jurisdiction over
administrative cases.

A different interpretation of the Administrative Code was suggested in order to harmonize the
provisions of R.A. No. 8292 and E.O. 292. By allowing only a private citizen to file a complaint
directly with the CSC, the CSC maintains its power to review on appeal decisions of the Board
of Regents while at the same time the governing board is not deprived of its power to discipline
its officials and employees.50

To begin with, there is no incongruity between R.A. No. 8292 and E.O. No. 292, as previously
explained in Sojor. Moreover, the Court fails to see how a complaint filed by a private citizen is
any different from one filed by a government employee. If the grant to the CSC of concurrent
original jurisdiction over administrative cases filed by private citizens against public officials
would not deprive the governing bodies of the power to discipline their own officials and
employees and would not be violative of R.A. No. 8292, it is inconceivable that a similar case
filed by a government employee would do so. Such a distinction between cases filed by private
citizens and those by civil servants is simply illogical and unreasonable. To accede to such a
mistaken interpretation of the Administrative Code would be a great disservice to our developing
jurisprudence.1wphi1

It is therefore apparent that despite the enactment of R.A. No. 8292 giving the board of regents
or board of trustees of a state school the authority to discipline its employees, the CSC still
retains jurisdiction over the school and its employees and has concurrent original jurisdiction,
together with the board of regents of a state university, over administrative cases against state
university officials and employees.

Finally, with regard to the concern that the CSC may be overwhelmed by the increase in number
of cases filed before it which would result from our ruling,51 it behooves us to allay such worries
by highlighting two important facts. Firstly, it should be emphasized that the CSC has original
concurrent jurisdiction shared with the governing body in question, in this case, the Board of
Regents of PUP. This means that if the Board of Regents first takes cognizance of the complaint,
then it shall exercise jurisdiction to the exclusion of the CSC.52 Thus, not all administrative
cases will fall directly under the CSC. Secondly, Section 47, Chapter 7, Subtitle A, Title I, Book
V of the Administrative Code affords the CSC the option of whether to decide the case or to
deputize some other department, agency or official to conduct an investigation into the matter,
thereby considerably easing the burden placed upon the CSC.

Having thus concluded, the Court sees no need to discuss the other issues raised in the petitions.

WHEREFORE, the petitions are GRANTED. The December 29, 2006 Decision of the Court of
Appeals is hereby REVERSED and SET ASIDE. Resolution Nos. 060521 and 061141 dated
March 24, 2006 and June 30, 2006, respectively, of the Civil Service Commission are
REINSTATED.

SO ORDERED.

G.R. No. 183053 October 10, 2012

EMILIO A.M. SUNTAY III, Petitioner,

vs.
ISABEL COJUANGCO-SUNTAY, Respondent.

RESOLUTION

PEREZ, J.:

The now overly prolonged, all-too familiar and too-much-stretched imbroglio over the estate of
Cristina Aguinaldo-Suntay has continued. We issued a Decision in the dispute as in Inter
Caetera.1 We now find a need to replace the decision.
Before us is a Motion for Reconsideration filed by respondent Isabel Cojuangco-Suntay
(respondent Isabel) of our Decision2 in G.R. No. 183053 dated 16 June 2010, directing the
issuance of joint letters of administration to both petitioner Emilio A.M. Suntay III (Emilio III)
and respondent. The dispositive portion thereof reads:

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R.
CV No. 74949 is REVERSED and SET ASIDE. Letters of Administration over the estate of
decedent Cristina Aguinaldo-Suntay shall issue to both petitioner Emilio A.M. Suntay III and
respondent Isabel Cojuangco-Suntay upon payment by each of a bond to be set by the Regional
Trial Court, Branch 78, Malolos, Bulacan, in Special Proceeding Case No. 117-M-95. The
Regional Trial Court, Branch 78, Malolos, Bulacan is likewise directed to make a determination
and to declare the heirs of decedent Cristina Aguinaldo-Suntay according to the actual factual
milieu as proven by the parties, and all other persons with legal interest in the subject estate. It is
further directed to settle the estate of decedent Cristina Aguinaldo-Suntay with dispatch. No
costs.3

We are moved to trace to its roots the controversy between the parties.

The decedent Cristina Aguinaldo-Suntay (Cristina) died intestate on 4 June 1990. Cristina was
survived by her spouse, Dr. Federico Suntay (Federico) and five grandchildren: three legitimate
grandchildren, including herein respondent, Isabel; and two illegitimate grandchildren, including
petitioner Emilio III, all by Federicos and Cristinas only child, Emilio A. Suntay (Emilio I),
who predeceased his parents.

The illegitimate grandchildren, Emilio III and Nenita, were both reared from infancy by the
spouses Federico and Cristina. Their legitimate grandchildren, Isabel and her siblings, Margarita
and Emilio II, lived with their mother Isabel Cojuangco, following the separation of Isabels
parents, Emilio I and Isabel Cojuangco. Isabels parents, along with her paternal grandparents,
were involved in domestic relations cases, including a case for parricide filed by Isabel
Cojuangco against Emilio I. Emilio I was eventually acquitted.

In retaliation, Emilio I filed a complaint for legal separation against his wife, charging her among
others with infidelity. The trial court declared as null and void and of no effect the marriage of
Emilio I and Isabel Cojuangco on the finding that:

From February 1965 thru December 1965 plaintiff was confined in the Veterans memorial
Hospital. Although at the time of the trial of parricide case (September 8, 1967) the patient was
already out of the hospital, he continued to be under observation and treatment.

It is the opinion of Dr. Aramil that the symptoms of the plaintiffs mental aberration classified as
schizophernia (sic) had made themselves manifest even as early as 1955; that the disease
worsened with time, until 1965 when he was actually placed under expert neuro-psychiatrist (sic)
treatment; that even if the subject has shown marked progress, the remains bereft of adequate
understanding of right and wrong.
There is no controversy that the marriage between the parties was effected on July 9, 1958, years
after plaintiffs mental illness had set in. This fact would justify a declaration of nullity of the
marriage under Article 85 of the Civil Code which provides:

Art. 95. (sic) A marriage may be annulled for any of the following causes after (sic) existing at
the time of the marriage:

xxxx

(3) That either party was of unsound mind, unless such party, after coming to reason, freely
cohabited with the other as husband or wife.

There is a dearth of proof at the time of the marriage defendant knew about the mental condition
of plaintiff; and there is proof that plaintiff continues to be without sound reason. The charges in
this very complaint add emphasis to the findings of the neuro-psychiatrist handling the patient,
that plaintiff really lives more in fancy than in reality, a strong indication of schizophernia (sic).4

Intent on maintaining a relationship with their grandchildren, Federico and Isabel filed a
complaint for visitation rights to spend time with Margarita, Emilio II, and Isabel in the same
special lower court. The Juvenile Domestic Relations Court in Quezon City (JDRC-QC) granted
their prayer for one hour a month of visitation rights which was subsequently reduced to thirty
minutes, and ultimately stopped, because of respondent Isabels testimony in court that her
grandparents visits caused her and her siblings stress and anxiety.5

On 27 September 1993, more than three years after Cristinas death, Federico adopted his
illegitimate grandchildren, Emilio III and Nenita.

On 26 October 1995, respondent Isabel, filed before the Regional Trial Court (RTC), Malolos,
Bulacan, a petition for the issuance of letters of administration over Cristinas estate docketed as
Special Proceeding Case No. 117-M-95. Federico, opposed the petition, pointing out that: (1) as
the surviving spouse of the decedent, he should be appointed administrator of the decedents
estate; (2) as part owner of the mass of conjugal properties left by the decedent, he must be
accorded preference in the administration thereof; (3) Isabel and her siblings had been alienated
from their grandparents for more than thirty (30) years; (4) the enumeration of heirs in the
petition was incomplete as it did not mention the other children of his son, Emilio III and Nenita;
(5) even before the death of his wife, Federico had administered their conjugal properties, and
thus, is better situated to protect the integrity of the decedents estate; (6) the probable value of
the estate as stated in the petition was grossly overstated; and (7) Isabels allegation that some of
the properties are in the hands of usurpers is untrue.

Federico filed a Motion to Dismiss Isabels petition for letters of administration on the ground
that Isabel had no right of representation to the estate of Cristina, she being an illegitimate
grandchild of the latter as a result of Isabels parents marriage being declared null and void.
However, in Suntay v. Cojuangco-Suntay, we categorically declared that Isabel and her siblings,
having been born of a voidable marriage as opposed to a void marriage based on paragraph 3,
Article 85 of the Civil Code, were legitimate children of Emilio I, who can all represent him in
the estate of their legitimate grandmother, the decedent, Cristina.

Undaunted by the set back, Federico nominated Emilio III to administer the decedents estate on
his behalf in the event letters of administration issues to Federico. Consequently, Emilio III filed
an Opposition-In-Intervention, echoing the allegations in his grandfathers opposition, alleging
that Federico, or in his stead, Emilio III, was better equipped than respondent to administer and
manage the estate of the decedent, Cristina.

On 13 November 2000, Federico died.

Almost a year thereafter or on 9 November 2001, the trial court rendered a decision appointing
Emilio III as administrator of decedent Cristinas intestate estate:

WHEREFORE, the petition of Isabel Cojuangco-Suntay is DENIED and the Opposition-in-

Intervention is GRANTED.

Accordingly, the Intervenor, Emilio A.M. Suntay, III (sic) is hereby appointed administrator of
the estate of the decedent Cristina Aguinaldo Suntay, who shall enter upon the execution of his
trust upon the filing of a bond in the amount of 200,000.00, conditioned as follows:

(1) To make and return within three (3) months, a true and complete inventory;

(2) To administer the estate and to pay and discharge all debts, legatees, and charge on the same,
or dividends thereon;

(3) To render a true and just account within one (1) year, and at any other time when required by
the court, and

(4) To perform all orders of the Court.

Once the said bond is approved by the court, let Letters of Administration be issued in his
favor.6

On appeal, the Court of Appeals reversed and set aside the decision of the RTC, revoked the
Letters of Administration issued to Emilio III, and appointed respondent as administratrix of the
subject estate:

WHEREFORE, in view of all the foregoing, the assailed decision dated November 9, 2001 of
Branch 78, Regional Trial Court of Malolos, Bulacan in SPC No. 117-M-95 is REVERSED and
SET ASIDE and the letters of administration issued by the said court to Emilio A.M. Suntay III,
if any, are consequently revoked. Petitioner Isabel Cojuangco-Suntay is hereby appointed
administratrix of the intestate estate of Cristina Aguinaldo Suntay. Let letters of administration
be issued in her favor upon her filing of a bond in the amount of Two Hundred Thousand (
200,000.00) Pesos.7
As previously adverted to, on appeal by certiorari, we reversed and set aside the ruling of the
appellate court. We decided to include Emilio III as co-administrator of Cristinas estate, giving
weight to his interest in Federicos estate. In ruling for co-administration between Emilio III and

Isabel, we considered that:

1. Emilio III was reared from infancy by the decedent, Cristina, and her husband,
Federico, who both acknowledged him as their grandchild;

2. Federico claimed half of the properties included in the estate of the decedent, Cristina,
as forming part of their conjugal partnership of gains during the subsistence of their
marriage;

3. Cristinas properties, forming part of her estate, are still commingled with those of her
husband, Federico, because her share in the conjugal partnership remains undetermined
and unliquidated; and

4. Emilio III is a legally adopted child of Federico, entitled to share in the distribution of
the latters estate as a direct heir, one degree from Federico, and not simply in
representation of his deceased illegitimate father, Emilio I.

In this motion, Isabel pleads for total affirmance of the Court of Appeals Decision in favor of
her sole administratorship based on her status as a legitimate grandchild of Cristina, whose estate
she seeks to administer.

Isabel contends that the explicit provisions of Section 6, Rule 78 of the Rules of Court on the
order of preference for the issuance of letters of administration cannot be ignored and that Article
992 of the Civil Code must be followed. Isabel further asserts that Emilio III had demonstrated
adverse interests and disloyalty to the estate, thus, he does not deserve to become a co-
administrator thereof.

Specifically, Isabel bewails that: (1) Emilio III is an illegitimate grandchild and therefore, not an
heir of the decedent; (2) corollary thereto, Emilio III, not being a "next of kin" of the decedent,
has no interest in the estate to justify his appointment as administrator thereof; (3) Emilio IIIs
actuations since his appointment as administrator by the RTC on 9 November 2001 emphatically
demonstrate the validity and wisdom of the order of preference in Section 6, Rule 78 of the Rules
of Court; and (4) there is no basis for joint administration as there are no "opposing parties or
factions to be represented."

To begin with, the case at bar reached us on the issue of who, as between Emilio III and Isabel, is
better qualified to act as administrator of the decedents estate. We did not choose. Considering
merely his demonstrable interest in the subject estate, we ruled that Emilio III should likewise
administer the estate of his illegitimate grandmother, Cristina, as a co-administrator. In the
context of this case, we have to make a choice and therefore, reconsider our decision of 16 June
2010.
The general rule in the appointment of administrator of the estate of a decedent is laid down in
Section 6, Rule 78 of the Rules of Court:

SEC. 6. When and to whom letters of administration granted. If no executor is named in the
will, or the executor or executors are incompetent, refuse the trust, or fail to give bond, or a
person dies intestate, administration shall be granted:

(a) To the surviving husband or wife, as the case may be, or next of kin, or both, in the discretion
of the court, or to such person as such surviving husband or wife, or next of kin, requests to have
appointed, if competent and willing to serve;

(b) If such surviving husband or wife, as the case may be, or next of kin, or the person selected
by them, be incompetent or unwilling, or if the husband or widow, or next of kin, neglects for
thirty (30) days after the death of the person to apply for administration or to request that
administration be granted to some other person, it may be granted to one or more of the principal
creditors, if competent and willing to serve;

(c) If there is not such creditor competent and willing to serve, it may be granted to such other
person as the court may select.

Textually, the rule lists a sequence to be observed, an order of preference, in the appointment of
an administrator. This order of preference, which categorically seeks out the surviving spouse,
the next of kin and the creditors in the appointment of an administrator, has been reinforced in
jurisprudence.8

The paramount consideration in the appointment of an administrator over the estate of a decedent
is the prospective administrators interest in the estate.9 This is the same consideration which
Section 6, Rule 78 takes into account in establishing the order of preference in the appointment
of administrator for the estate. The rationale behind the rule is that those who will reap the
benefit of a wise, speedy and economical administration of the estate, or, in the alternative, suffer
the consequences of waste, improvidence or mismanagement, have the highest interest and most
influential motive to administer the estate correctly.10 In all, given that the rule speaks of an
order of preference, the person to be appointed administrator of a decedents estate must
demonstrate not only an interest in the estate, but an interest therein greater than any other
candidate.

To illustrate, the preference bestowed by law to the surviving spouse in the administration of a
decedents estate presupposes the surviving spouses interest in the conjugal partnership or
community property forming part of the decedents estate.11 Likewise, a surviving spouse is a
compulsory heir of a decedent12 which evinces as much, if not more, interest in administering
the entire estate of a decedent, aside from her share in the conjugal partnership or absolute
community property.

It is to this requirement of observation of the order of preference in the appointment of

administrator of a decedents estate, that the appointment of co-administrators has been allowed,
but as an exception. We again refer to Section 6(a) of Rule 78 of the Rules of Court which
specifically states that letters of administration may be issued to both the surviving spouse and
the next of kin. In addition and impliedly, we can refer to Section 2 of Rule 82 of the Rules of
Court which say that "x x x when an executor or administrator dies, resigns, or is removed, the
remaining executor or administrator may administer the trust alone, x x x."

In a number of cases, we have sanctioned the appointment of more than one administrator for the
benefit of the estate and those interested therein.13 We recognized that the appointment of
administrator of the estate of a decedent or the determination of a persons suitability for the
office of judicial administrator rests, to a great extent, in the sound judgment of the court
exercising the power of appointment.14

Under certain circumstances and for various reasons well-settled in Philippine and American
jurisprudence, we have upheld the appointment of co-administrators: (1) to have the benefits of
their judgment and perhaps at all times to have different interests represented;15 (2) where
justice and equity demand that opposing parties or factions be represented in the management of
the estate of the deceased; (3) where the estate is large or, from any cause, an intricate and
perplexing one to settle;16 (4) to have all interested persons satisfied and the representatives to
work in harmony for the best interests of the estate;17 and when a person entitled to the
administration of an estate desires to have another competent person associated with him in the
office.18

In the frequently cited Matias v. Gonzales, we dwelt on the appointment of special co-
administrators during the pendency of the appeal for the probate of the decedents will. Pending
the probate thereof, we recognized Matias special interest in the decedents estate as universal
heir and executrix designated in the instrument who should not be excluded in the administration
thereof. Thus, we held that justice and equity demands that the two (2) factions among the non-
compulsory heirs of the decedent, consisting of an instituted heir (Matias) and intestate heirs
(respondents thereat), should be represented in the management of the decedents estate.19

Another oft-cited case is Vda. de Dayrit v. Ramolete, where we held that "inasmuch as
petitioner-wife owns one-half of the conjugal properties and that she, too, is a compulsory heir of
her husband, to deprive her of any hand in the administration of the estate prior to the probate of
the will would be unfair to her proprietary interests."20

Hewing closely to the aforementioned cases is our ruling in Ventura v. Ventura21 where we
allowed the appointment of the surviving spouse and legitimate children of the decedent as co-
administrators. However, we drew a distinction between the heirs categorized as next of kin, the
nearest of kin in the category being preferred, thus:

In the case at bar, the surviving spouse of the deceased Gregorio Ventura is Juana Cardona while
the next of kin are: Mercedes and Gregoria Ventura and Maria and Miguel Ventura. The "next of
kin" has been defined as those persons who are entitled under the statute of distribution to the
decedents property (citations omitted). It is generally said that "the nearest of kin, whose interest
in the estate is more preponderant, is preferred in the choice of administrator. Among members
of a class the strongest ground for preference is the amount or preponderance of interest. As
between next of kin, the nearest of kin is to be preferred." (citations omitted)
As decided by the lower court and sustained by the Supreme Court, Mercedes and Gregoria
Ventura are the legitimate children of Gregorio Ventura and his wife, the late Paulina
Simpliciano. Therefore, as the nearest of kin of Gregorio Ventura, they are entitled to preference
over the illegitimate children of Gregorio Ventura, namely: Maria and Miguel Ventura. Hence,
under the aforestated preference provided in Section 6 of Rule 78, the person or persons to be
appointed administrator are Juana Cardona, as the surviving spouse, or Mercedes and Gregoria
Ventura as nearest of kin, or Juana Cardona and Mercedes and Gregoria Ventura in the discretion
of the Court, in order to represent both interests.22 (Emphasis supplied)

In Silverio, Sr. v. Court of Appeals,23 we maintained that the order of preference in the
appointment of an administrator depends on the attendant facts and circumstances. In that case,
we affirmed the legitimate childs appointment as special administrator, and eventually as
regular administrator, of the decedents estate as against the surviving spouse who the lower
court found unsuitable. Reiterating Sioca v. Garcia24 as good law, we pointed out that
unsuitableness for appointment as administrator may consist in adverse interest of some kind or
hostility to those immediately interested in the estate.

In Valarao v. Pascual,25 we see another story with a running theme of heirs squabbling over the
estate of a decedent. We found no reason to set aside the probate courts refusal to appoint as
special co-administrator Diaz, even if he had a demonstrable interest in the estate of the decedent
and represented one of the factions of heirs, because the evidence weighed by the probate court
pointed to Diazs being remiss in his previous duty as co-administrator of the estatein the early
part of his administration. Surveying the previously discussed cases of Matias, Corona, and Vda.
de Dayrit, we clarified, thus:

Respondents cannot take comfort in the cases of Matias v. Gonzales, Corona v. Court of
Appeals, and Vda. de Dayrit v. Ramolete, cited in the assailed Decision. Contrary to their claim,
these cases do not establish an absolute right demandable from the probate court to appoint
special co-administrators who would represent the respective interests of squabbling heirs.
Rather, the cases constitute precedents for the authority of the probate court to designate not just
one but also two or more special co-administrators for a single estate. Now whether the probate
court exercises such prerogative when the heirs are fighting among themselves is a matter left
entirely to its sound discretion.

Furthermore, the cases of Matias, Corona and Vda. de Dayrit hinge upon factual circumstances
other than the incompatible interests of the heirs which are glaringly absent from the instant case.
In Matias this Court ordered the appointment of a special co-administrator because of the
applicant's status as the universal heir and executrix designated in the will, which we considered
to be a "special interest" deserving protection during the pendency of the appeal. Quite
significantly, since the lower court in Matias had already deemed it best to appoint more than
one special administrator, we found grave abuse of discretion in the act of the lower court in
ignoring the applicant's distinctive status in the selection of another special administrator.

In Corona we gave "highest consideration" to the "executrix's choice of Special Administrator,

considering her own inability to serve and the wide latitude of discretion given her by the
testatrix in her will," for this Court to compel her appointment as special co-administrator. It is
also manifest from the decision in Corona that the presence of conflicting interests among the
heirs therein was not per se the key factor in the designation of a second special administrator as
this fact was taken into account only to disregard or, in the words of Corona, to "overshadow"
the objections to the appointment on grounds of "impracticality and lack of kinship."

Finally in Vda. de Dayrit we justified the designation of the wife of the decedent as special co-
administrator because it was "our considered opinion that inasmuch as petitioner-wife owns one-
half of the conjugal properties and that she, too, is a compulsory heir of her husband, to deprive
her of any hand in the administration of the estate prior to the probate of the will would be unfair
to her proprietary interests." The special status of a surviving spouse in the special administration
of an estate was also emphasized in Fule v. Court of Appeals where we held that the widow
would have more interest than any other next of kin in the proper administration of the entire
estate since she possesses not only the right of succession over a portion of the exclusive
property of the decedent but also a share in the conjugal partnership for which the good or bad
administration of the estate may affect not just the fruits but more critically the naked ownership
thereof. And in Gabriel v. Court of Appeals we recognized the distinctive status of a surviving
spouse applying as regular administrator of the deceased spouse's estate when we counseled the
probate court that "there must be a very strong case to justify the exclusion of the widow from
the administration."

Clearly, the selection of a special co-administrator in Matias, Corona and Vda. de Dayrit was
based upon the independent proprietary interests and moral circumstances of the appointee that
were not necessarily related to the demand for representation being repeatedly urged by
respondents.26 (Emphasis supplied)

In Gabriel v. Court of Appeals, we unequivocally declared the mandatory character of the rule on
the order of preference for the issuance of letters of administration:

Evidently, the foregoing provision of the Rules prescribes the order of preference in the issuance
of letters of administration, it categorically seeks out the surviving spouse, the next of kin and the
creditors, and requires that sequence to be observed in appointing an administrator. It would be a
grave abuse of discretion for the probate court to imperiously set aside and insouciantly ignore
that directive without any valid and sufficient reason therefor.27

Subsequently, in Angeles v. Angeles-Maglaya,28 we expounded on the legal contemplation of a

"next of kin," thus:

Finally, it should be noted that on the matter of appointment of administrator of the estate of the
deceased, the surviving spouse is preferred over the next of kin of the decedent. When the law
speaks of "next of kin," the reference is to those who are entitled, under the statute of
distribution, to the decedent's property; one whose relationship is such that he is entitled to share
in the estate as distributed, or, in short, an heir. In resolving, therefore, the issue of whether an
applicant for letters of administration is a next of kin or an heir of the decedent, the probate court
perforce has to determine and pass upon the issue of filiation. A separate action will only result
in a multiplicity of suits. Upon this consideration, the trial court acted within bounds when it
looked into and passed upon the claimed relationship of respondent to the late Francisco
Angeles.29

Finally, in Uy v. Court of Appeals,30 we took into consideration the size of, and benefits to, the
estate should respondent therein be appointed as co-administrator. We emphasized that where the
estate is large or, from any cause, an intricate and perplexing one to settle, the appointment of co-
administrators may be sanctioned by law.

In our Decision under consideration, we zeroed in on Emilio IIIs demonstrable interest in the
estate and glossed over the order of preference set forth in the Rules. We gave weight to Emilio
IIIs demonstrable interest in Cristinas estate and without a closer scrutiny of the attendant facts
and circumstances, directed co-administration thereof. We are led to a review of such position by
the foregoing survey of cases.

The collected teaching is that mere demonstration of interest in the estate to be settled does not
ipso facto entitle an interested person to co-administration thereof. Neither does squabbling
among the heirs nor adverse interests necessitate the discounting of the order of preference set
forth in Section 6, Rule 78. Indeed, in the appointment of administrator of the estate of a
deceased person, the principal consideration reckoned with is the interest in said estate of the one
to be appointed as administrator.31 Given Isabels unassailable interest in the estate as one of the
decedents legitimate grandchildren and undoubted nearest "next of kin," the appointment of
Emilio III as co-administrator of the same estate, cannot be a demandable right. It is a matter left
entirely to the sound discretion of the Court32 and depends on the facts and the attendant
circumstances of the case.33

Thus, we proceed to scrutinize the attendant facts and circumstances of this case even as we
reiterate Isabels and her siblings apparent greater interest in the estate of Cristina.

These considerations do not warrant the setting aside of the order of preference mapped out in
Section 6, Rule 78 of the Rules of Court. They compel that a choice be made of one over the
other.

1. The bitter estrangement and long-standing animosity between Isabel, on the one hand,
and Emilio III, on the other, traced back from the time their paternal grandparents were
alive, which can be characterized as adverse interest of some kind by, or hostility of,
Emilio III to Isabel who is immediately interested in the estate;

2. Corollary thereto, the seeming impossibility of Isabel and Emilio III working
harmoniously as co-administrators may result in prejudice to the decedents estate,
ultimately delaying settlement thereof; and

3. Emilio III, for all his claims of knowledge in the management of Cristinas estate, has
not looked after the estates welfare and has acted to the damage and prejudice thereof.

Contrary to the assumption made in the Decision that Emilio IIIs demonstrable interest in the
estate makes him a suitable co-administrator thereof, the evidence reveals that Emilio III has
turned out to be an unsuitable administrator of the estate. Respondent Isabel points out that after
Emilio IIIs appointment as administrator of the subject estate in 2001, he has not looked after
the welfare of the subject estate and has actually acted to the damage and prejudice thereof as
evidenced by the following:

1. Emilio III, despite several orders from the probate court for a complete inventory,
omitted in the partial inventories34 he filed therewith properties of the estate35 including
several parcels of land, cash, bank deposits, jewelry, shares of stock, motor vehicles, and
other personal properties, contrary to Section 1,36 paragraph a, Rule 81 of the Rules of
Court.

2. Emilio III did not take action on both occasions against Federicos settlement of the
decedents estate which adjudicated to himself a number of properties properly belonging
to said estate (whether wholly or partially), and which contained a declaration that the
decedent did not leave any descendants or heirs, except for Federico, entitled to succeed
to her estate.37

In compliance to our Resolution dated 18 April 2012 requiring Emilio III to respond to the
following imputations of Isabel that:

1. Emilio III did not file an inventory of the assets until November 14, 2002;

2. The inventory Emilio III submitted did not include several properties of the decedent;

3. That properties belonging to the decedent have found their way to different individuals or
persons; several properties to Federico Suntay himself; and

4. While some properties have found their way to Emilio III, by reason of falsified documents;38

Emilio III refutes Isabels imputations that he was lackadaisical in assuming and performing the
functions of administrator of Cristinas estate:

1. From the time of the RTCs Order appointing Emilio III as administrator, Isabel, in her
pleadings before the RTC, had vigorously opposed Emilio IIIs assumption of that office,
arguing that "the decision of the RTC dated 9 November 2001 is not among the
judgments authorized by the Rules of Court which may be immediately implemented or
executed;"

2. The delay in Emilio IIIs filing of an inventory was due to Isabels vociferous
objections to Emilio IIIs attempts to act as administrator while the RTC decision was
under appeal to the Court of Appeals;

3. The complained partial inventory is only initiatory, inherent in the nature thereof, and
one of the first steps in the lengthy process of settlement of a decedents estate, such that
it cannot constitute a complete and total listing of the decedents properties; and
 4. The criminal cases adverted to are trumped-up charges where Isabel, as private
complainant, has been unwilling to appear and testify, leading the Judge of the Regional
Trial Court, Branch 44 of Mamburao, Occidental Mindoro, to warn the prosecutor of a
possible motu propio dismissal of the cases.

While we can subscribe to Emilio IIIs counsels explanation for the blamed delay in the filing of
an inventory and his exposition on the nature thereof, partial as opposed to complete, in the
course of the settlement of a decedents estate, we do not find any clarification on Isabels
accusation that Emilio III had deliberately omitted properties in the inventory, which properties
of Cristina he knew existed and which he claims to be knowledgeable about.

The general denial made by Emilio III does not erase his unsuitability as administrator rooted in
his failure to "make and return x x x a true and complete inventory" which became proven fact
when he actually filed partial inventories before the probate court and by his inaction on two
occasions of Federicos exclusion of Cristinas other compulsory heirs, herein Isabel and her
siblings, from the list of heirs.

As administrator, Emilio III enters into the office, posts a bond and executes an oath to faithfully
discharge the duties of settling the decedents estate with the end in view of distribution to the
heirs, if any. This he failed to do. The foregoing circumstances of Emilio IIIs omission and
inaction become even more significant and speak volume of his unsuitability as administrator as
it demonstrates his interest adverse to those immediately interested in the estate of the decedent,
Cristina.

In this case, palpable from the evidence on record, the pleadings, and the protracted litigation, is
the inescapable fact that Emilio III and respondent Isabel have a deep aversion for each
other.1awp++i1 To our mind, it becomes highly impractical, nay, improbable, for the two to
work as co-administrators of their grandmothers estate. The allegations of Emilio III, the
testimony of Federico and the other witnesses for Federico and Emilio III that Isabel and her
siblings were estranged from their grandparents further drive home the point that Emilio III bears
hostility towards Isabel. More importantly, it appears detrimental to the decedents estate to
appoint a co-administrator (Emilio III) who has shown an adverse interest of some kind or
hostility to those, such as herein respondent Isabel, immediately interested in the said estate.

Bearing in mind that the issuance of letters of administration is simply a preliminary order to
facilitate the settlement of a decedents estate, we here point out that Emilio III is not without
remedies to protect his interests in the estate of the decedent. In Hilado v. Court of Appeals,39
we mapped out as among the allowable participation of "any interested persons" or "any persons
interested in the estate" in either testate or intestate proceedings:

xxxx

4. Section 640 of Rule 87, which allows an individual interested in the estate of the deceased "to
complain to the court of the concealment, embezzlement, or conveyance of any asset of the
decedent, or of evidence of the decedents title or interest therein;"
5. Section 1041 of Rule 85, which requires notice of the time and place of the examination and
allowance of the Administrators account "to persons interested;"

6. Section 7(b)42 of Rule 89, which requires the court to give notice "to the persons interested"
before it may hear and grant a petition seeking the disposition or encumbrance of the properties
of the estate; and

7. Section 1,43 Rule 90, which allows "any person interested in the estate" to petition for an
order for the distribution of the residue of the estate of the decedent, after all obligations are
either satisfied or provided for.44

In addition to the foregoing, Emilio III may likewise avail of the remedy found in Section 2,
Rule 82 of the Rules of Court, to wit:

Sec. 2. Court may remove or accept resignation of executor or administrator. Proceedings upon
death, resignation, or removal. If an executor or administrator neglects to render his account
and settle the estate according to law, or to perform an order or judgment of the court, or a duty
expressly provided by these rules, or absconds, or becomes insane, or otherwise incapable or
unsuitable to discharge the trust, the court may remove him, or, in its discretion, may permit him
to resign. When an executor or administrator dies, resigns, or is removed, the remaining executor
or administrator may administer the trust alone, unless the court grants letters to someone to act
with him. If there is no remaining executor or administrator, administration may be granted to
any suitable person.

Once again, as we have done in the Decision, we exercise judicial restraint: we uphold that the
question of who are the heirs of the decedent Cristina is not yet upon us. Article 992 of the Civil
Code or the curtain bar rule is inapplicable in resolving the issue of who is better qualified to
administer the estate of the decedent.

Thus, our disquisition in the assailed Decision:

Nonetheless, it must be pointed out that judicial restraint impels us to refrain from making a final
declaration of heirship and distributing the presumptive shares of the parties in the estates of
Cristina and Federico, considering that the question on who will administer the properties of the
long deceased couple has yet to be settled.

Our holding in Capistrano v. Nadurata on the same issue remains good law:

The declaration of heirs made by the lower court is premature, although the evidence sufficiently
shows who are entitled to succeed the deceased. The estate had hardly been judicially opened,
and the proceeding has not as yet reached the stage of distribution of the estate which must come
after the inheritance is liquidated.

Section 1, Rule 90 of the Rules of Court does not depart from the foregoing admonition:
Sec. 1. When order for distribution of residue is made. - x x x. If there is a controversy before the
court as to who are the lawful heirs of the deceased person or as to the distributive shares to
which each person is entitled under the law, the controversy shall be heard and decided as in
ordinary cases.

No distribution shall be allowed until the payment of the obligations above mentioned has been
made or provided for, unless the distributees, or any of them, give a bond, in a sum to be fixed by
the court, conditioned for the payment of said obligations within such time as the court directs.45

Lastly, we dispose of a peripheral issue raised in the Supplemental Comment46 of Emilio III
questioning the Special Second Division which issued the 18 April 2012 Resolution. Emilio III
asseverates that "the operation of the Special Second Division in Baguio is unconstitutional and
void" as the Second Division in Manila had already promulgated its Decision on 16 June 2010
on the petition filed by him:

7. The question is: who created the Special Second Division in Baguio, acting separately from
the Second Division of the Supreme Court in Manila? There will then be two Second Divisions
of the Supreme Court: one acting with the Supreme Court in Manila, and another Special Second
Division acting independently of the Second Division of the Supreme Court in Manila.47

For Emilio IIIs counsels edification, the Special Second Division in Baguio is not a different
division created by the Supreme Court.

The Second Division which promulgated its Decision on this case on 16 June 2010, penned by
Justice Antonio Eduardo B. Nachura, now has a different composition, with the advent of Justice
Nachuras retirement on 13 June 2011. Section 7, Rule 2 of the Internal Rules of the Supreme
Court provides:

Sec. 7. Resolutions of motions for reconsideration or clarification of decisions or signed

resolutions and all other motions and incidents subsequently filed; creation of a Special
Division. Motions for reconsideration or clarification of a decision or of a signed resolution and
all other motions and incidents subsequently filed in the case shall be acted upon by the ponente
and the other Members of the Division who participated in the rendition of the decision or signed
resolution.

If the ponente has retired, is no longer a Member of the Court, is disqualified, or has inhibited
himself or herself from acting on the motion for reconsideration or clarification, he or she shall
be replaced through raffle by a new ponente who shall be chosen among the new Members of the
Division who participated in the rendition of the decision or signed resolution and who concurred
therein. If only one Member of the Court who participated and concurred in the rendition of the
decision or signed resolution remains, he or she shall be designated as the new ponente.

If a Member (not the ponente) of the Division which rendered the decision or signed resolution
has retired, is no longer a Member of the Court, is disqualified, or has inhibited himself or herself
from acting on the motion for reconsideration or clarification, he or she shall be replaced through
raffle by a replacement Member who shall be chosen from the other Divisions until a new Justice
is appointed as replacement for the retired Justice. Upon the appointment of a new Justice, he or
she shall replace the designated Justice as replacement Member of the Special Division.

Any vacancy or vacancies in the Special Division shall be filled by raffle from among the other
Members of the Court to constitute a Special Division of five (5) Members.

If the ponente and all the Members of the Division that rendered the Decision or signed
Resolution are no longer Members of the Court, the case shall be raffled to any Member of the
Court and the motion shall be acted upon by him or her with the participation of the other
Members of the Division to which he or she belongs.

If there are pleadings, motions or incidents subsequent to the denial of the motion for
reconsideration or clarification, the case shall be acted upon by the ponente on record with the
participation of the other Members of the Division to which he or she belongs at the time said
pleading, motion or incident is to be taken up by the Court. (Emphasis supplied)

As regards the operation thereof in Baguio City, such is simply a change in venue for the
Supreme Court's summer session held last April.48

WHEREFORE, the Motion for Reconsideration is PARTIALLY GRANTED. Our Decision in

G.R. No. 183053 dated 16 June 2010 is MODIFIED. Letters of Administration over the estate
of decedent Cristina Aguinaldo-Suntay shall solely issue to respondent Isabel Cojuangco-Suntay
upon payment of a bond to be set by the Regional Trial Court, Branch 78, Malolos, Bulacan, in
Special Proceeding Case No. 117-M-95. The Regional Trial Court, Branch 78, Malolos, Bulacan
is likewise directed to settle the estate of decedent Cristina Aguinaldo-Suntay with dispatch. No
costs.

SO ORDERED.

G.R. No. 178909 October 10, 2012

SUPERIOR PACKAGING CORPORATION, Petitioner,

vs.
ARNEL BALAGSA Y, ZALDY ALFORGNE, JAIME ANGELES, REY APURA,
GERALD CABALAN, JONALD CALENTENG, RAMIL CROIJERO, JUNREY
CABALGUINTO, OSCAR DAYTO, RUFO DIONOLA, DIONILO ESMERALDA,
BOOTS LADRILLO, ELIEZER MAGHAMOY, LEO FLORES,
RENATOPAGADORA,REYNALDO PLAZA, H.OGER SJBNEAO, EDWIN TONALBA,
.JOHN ACHARON, RODERICK RAMAS, SALVADOR ACURATO, JULUIS BASUL,
CARLOS RAYTA, LITO BELANO, ROGER CASIMIRO, RENE CURADA, NESTRO
ESTE, ROMMEL IMPELIOO, ZOILO ISLA, JHONIE OGARDO, EDWIN POSADAS,
ALEXANDER REGPALA, CHRISTOPHER SAMPIANO, RITCHIE SANCHES,
ROLANDO SORIANO, ROWELL ANCHETA, RICKY BORDAS, ANTONIO BEHEN,
RONALD DOMINGO, JERRY MORENO, ROLLY ROSALES, RENATO RESTANO
and ISIDRO SARIGNE, Respondents.

RESOLUTION

REYES, J.:

The main issue in this case is whether Superior Packaging Corporation (petitioner) may be held
solidarily liable with Lancer Staffing & Services Network, Inc. (Lancer) for respondents unpaid
money claims.

The facts are undisputed.

The petitioner engaged the services of Lancer to provide reliever services to its business, which
involves the manufacture and sale of commercial and industrial corrugated boxes. According to
petitioner, the respondents were engaged for four (4) months from February to June 1998 and
their tasks included loading, unloading and segregation of corrugated boxes.

Pursuant to a complaint filed by the respondents against the petitioner and its President, Cesar
Luz (Luz), for underpayment of wages, non-payment of premium pay for worked rest, overtime
pay and non-payment of salary, the Department of Labor and Employment (DOLE) conducted
an inspection of the petitioners premises and found several violations, to wit: (1) non-
presentation of payrolls and daily time records; (2) non-submission of annual report of safety
organization; (3) medical and accident/illness reports; (4) non-registration of establishment under
Rule 1020 of Occupational and Health Standards; and (5) no trained first aide1 Due to the
petitioners failure to appear in the summary investigations conducted by the DOLE, an Order2
was issued on June 18, 2003 finding in favor of the respondents and adopting the computation of
the claims submitted. Petitioner and Luz were ordered, among others, to pay respondents their
total claims in the amount of Eight Hundred Forty Thousand Four Hundred Sixty-Three Pesos
and 38/100 ( 840,463.38).3

They filed a motion for reconsideration on the ground that respondents are not its employees but
of Lancer and that they pay Lancer in lump sum for the services rendered. The DOLE, however,
denied its motion in its Resolution4 dated February 16, 2004, ruling that the petitioner failed to
support its claim that the respondents are not its employees, and even assuming that they were
employed by Lancer, the petitioner still cannot escape liability as Section 13 of the Department
Order No. 10, Series of 1997, makes a principal jointly and severally liable with the contractor to
contractual employees to the extent of the work performed when the contractor fails to pay its
employees wages.

Their appeal to the Secretary of DOLE was dismissed per Order5 dated July 30, 2004 and the
Order dated June 18, 2003 and Resolution dated February 16, 2004 were affirmed.6 Their
motion for reconsideration likewise having been dismissed by the Secretary of DOLE in an
Order dated January 21, 2005,7 petitioner and Luz filed a petition for certiorari with the Court of
Appeals (CA).

On November 17, 2006, the CA affirmed the Secretary of DOLEs orders, with the modification
in that Luz was absolved of any personal liability under the award.8 The petitioner filed a partial
motion for reconsideration insofar as the finding of solidary liability with Lancer is concerned
but it was denied by the CA in a Resolution9 dated July 10, 2007.

The petitioner is now before the Court on petition for review under Rule 45 of the Rules of
Court, alleging that:

THE COURT OF APPEALS SERIOUSLY ERRED AND GRAVELY ABUSED ITS

DISCRETION IN AFFIRMING THE RULING OF THE SECRETARY OF LABOR AND
EMPLOYMENT THAT THE COMPANY IS SOLIDARILY LIABLE WITH THE
CONTRACTOR NOTWITHSTANDING THE FACT THAT:

A. THE COMPANY CANNOT BE HELD SOLIDARILY LIABLE WITH THE

CONTRACTOR FOR THE PENALTY OR SANCTION IMPOSED BY WAY OF
"DOUBLE INDEMNITY" UNDER REPUBLIC ACT NO. 6727.

B. THERE IS NO EVIDENCE TO SHOW THAT PRIVATE RESPONDENTS

RENDERED OVERTIME WORK AND ACTUALLY WORKED ON THEIR
RESTDAYS FOR THE COMPANY FOR THE PERIOD IN QUESTION.

II

THE COURT OF APPEALS SERIOUSLY ERRED AND GRAVELY ABUSED ITS

DISCRETION IN AFFIRMING THE FINDINGS OF THE SECRETARY OF LABOR AND
EMPLOYMENT THAT THE CONTRACTOR IS ENGAGED IN LABOR-ONLY
CONTRACTING.10

On the first ground, the petitioner argues that the DOLE erred in doubling respondents
underpayment of wages and regular holiday pay under Republic Act No. 6727 (Wage
Rationalization Act) inasmuch as the solidary liability of a principal does not extend to a punitive
award against a contractor.11 The petitioner also contends that there is no evidence showing that
the respondents rendered overtime work and that they actually worked on their rest days for them
to be entitled to such pay.12

On the second ground, the petitioner objects to the finding that it is engaged in labor-only
contracting and is consequently an indirect employer, considering that it is beyond the visitorial
and enforcement power of the DOLE to make such conclusion. According to the petitioner, such
conclusion may be made only upon consideration of evidentiary matters and cannot be
determined solely through a labor inspection.13 The petitioner also refutes respondents alleged
belated argument that the latter are its employees.14

The petition is bereft of merit.

To begin with, the Court will not resolve or dwell on the petitioners argument on the doubling
of respondents underpayment of wages and regular holiday pay by the DOLE for the simple
reason that this is the first time that the petitioner raised such contention. From its pleadings filed
in the DOLE and all the way up to the CA, the petitioner never questioned nor discussed such
issue. It is only now before the Court that the petitioner belatedly presented such argument. It is
well-settled that points of law, theories, issues and arguments not brought to the attention of the
lower court, administrative agency or quasi-judicial body need not be considered by a reviewing
court, as they cannot be raised for the first time at that late stage.15 To consider the alleged facts
and arguments raised belatedly would amount to trampling on the basic principles of fair play,
justice and due process.16

With regard to the contention that there is no evidence to support the finding that the respondents
rendered overtime work and that they worked on their rest day, the resolution of this argument
requires a review of the factual findings and the evidence presented, which this Court will not do.
This Court is not a trier of facts and this applies with greater force in labor cases.17 Hence,
where the factual findings of the labor tribunals or agencies conform to, and are affirmed by, the
CA, the same are accorded respect and finality, and are binding upon this Court.18

Petitioner also questions the authority of the DOLE to make a finding of an employer-employee
relationship concomitant to its visitorial and enforcement power. The Court notes at this juncture
that the petitioner, again, did not raise this question in the proceedings before the DOLE. At best,
what the petitioner raised was the sufficiency of evidence proving the existence of an employer-
employee relationship and it was only in its petition for certiorari with the CA that the petitioner
sought to have this matter addressed. The CA should have refrained from resolving said matter
as the petitioner was deemed to have waived such argument and was estopped from raising the
same.19

At any rate, such argument lacks merit. The DOLE clearly acted within its authority when it
determined the existence of an employer-employee relationship between the petitioner and
respondents as it falls within the purview of its visitorial and enforcement power under Article
128(b) of the Labor Code, which provides:

Notwithstanding the provisions of Articles 129 and 217 of this Code to the contrary, and in cases
where the relationship of employer-employee still exists, the Secretary of Labor and
Employment or his duly authorized representatives shall have the power to issue compliance
orders to give effect to the labor standards provisions of this Code and other labor legislation
based on the findings of labor employment and enforcement officers or industrial safety
engineers made in the course of inspection. The Secretary or his duly authorized representative
shall issue writs of execution to the appropriate authority for the enforcement of their orders,
except in cases where the employer contests the findings of the labor employment and
enforcement officer and raises issues supported by documentary proofs which were not
considered in the course of inspection.

In Peoples Broadcasting (Bombo Radyo Phils., Inc.) v. Secretary of the Department of Labor
and Employment,20 the Court stated that it can be assumed that the DOLE in the exercise of its
visitorial and enforcement power somehow has to make a determination of the existence of an
employer-employee relationship. Such determination, however, is merely preliminary, incidental
and collateral to the DOLEs primary function of enforcing labor standards provisions. Such
power was further explained recently by the Court in its Resolution21 dated March 6, 2012
issued in Peoples Broadcasting, viz:

The determination of the existence of an employer-employee relationship by the DOLE must be

respected. The expanded visitorial and enforcement power of the DOLE granted by RA 7730
would be rendered nugatory if the alleged employer could, by the simple expedient of disputing
the employer-employee relationship, force the referral of the matter to the NLRC. The Court
issued the declaration that at least a prima facie showing of the absence of an employer-
employee relationship be made to oust the DOLE of jurisdiction. But it is precisely the DOLE
that will be faced with that evidence, and it is the DOLE that will weigh it, to see if the same
does successfully refute the existence of an employer-employee relationship.

xxxx

x x x The power of the DOLE to determine the existence of an employer-employee relationship

need not necessarily result in an affirmative finding.1wphi1 The DOLE may well make the
determination that no employer-employee relationship exists, thus divesting itself of jurisdiction
over the case. It must not be precluded from being able to reach its own conclusions, not by the
parties, and certainly not by this Court.

Under Art. 128(b) of the Labor Code, as amended by RA 7730, the DOLE is fully empowered to
make a determination as to the existence of an employer-employee relationship in the exercise of
its visitorial and enforcement power, subject to judicial review, not review by the NLRC.22

Also, the existence of an employer-employee relationship is ultimately a question of fact.23 The

determination made in this case by the DOLE, albeit provisional, and as affirmed by the
Secretary of DOLE and the CA is beyond the ambit of a petition for review on certiorari.24

The Court now comes to the issue regarding the nature of the relationship between the petitioner
and respondents, and the consequent liability of the petitioner to the respondents under the
latters claim.

It was the consistent conclusion of the DOLE and the CA that Lancer was not an independent
contractor but was engaged in "labor-only contracting"; hence, the petitioner was considered an
indirect employer of respondents and liable to the latter for their unpaid money claims.
At the time of the respondents employment in 1998, the applicable regulation was DOLE
Department Order No. 10, Series of 1997.25 Under said Department Order, labor-only
contracting was defined as follows:

Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to an
employer shall be deemed to be engaged in labor-only contracting where such person:

(1) Does not have substantial capital or investment in the form of tools, equipment, machineries,
work premises and other materials; and

(2) The workers recruited and placed by such persons are performing activities which are directly
related to the principal business or operations of the employer in which workers are habitually
employed.

Labor-only contracting is prohibited and the person acting as contractor shall be considered
merely as an agent or intermediary of the employer who shall be responsible to the workers in
the same manner and extent as if the latter were directly employed by him.26

According to the CA, the totality of the facts and surrounding circumstances of this case point to
such conclusion. The Court agrees.

The ratio of Lancers authorized capital stock of 400,000.00 as against its subscribed and paid-
up capital stock of 25,000.00 shows the inadequacy of its capital investment necessary to
maintain its day-to-day operations. And while the Court does not set an absolute figure for what
it considers substantial capital for an independent job contractor, it measures the same against the
type of work which the contractor is obligated to perform for the principal.27 Moreover, the
nature of respondents work was directly related to the petitioners business. The marked
disparity between the petitioners actual capitalization ( 25,000.00) and the resources needed to
maintain its business, i.e., "to establish, operate and manage a personnel service company which
will conduct and undertake services for the use of offices, stores, commercial and industrial
services of all kinds," supports the finding that Lancer was, indeed, a labor-only contractor.
Aside from these is the undisputed fact that the petitioner failed to produce any written service
contract that might serve as proof of its alleged agreement with Lancer.28

Finally, a finding that a contractor is a "labor-only" contractor is equivalent to declaring that

there is an employer-employee relationship between the principal and the employees of the
supposed contractor, and the "labor only" contractor is considered as a mere agent of the
principal, the real employer.29 The former becomes solidarily liable for all the rightful claims of
the employees.30 The petitioner therefore, being the principal employer and Lancer, being the
labor-only contractor, are solidarily liable for respondents unpaid money claims.

WHEREFORE, the petition for review is DENIED.

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

MARIETTA N. PORTILLO, Petitioner,

vs.
RUDOLF LIETZ, INC., RUDOLF LIETZ and COURT OF APPEALS Respondents.

DECISION
PEREZ, J.:

Before us is a petition for certiorari assailing the Resolution 1 dated 14 October 2010 of the
Court of Appeals in CA-G.R. SP No. I 065g I which modified its Decision2 dated 31 March
2009, thus allowing the legal compensation or petitioner Marietta N. Portillo's (Portillo)
monetary claims against respondent corporation Rudolf Lietz, Inc.'s (Lietz Inc.)3 claim for
liquidated damages arising from Portillos alleged violation of the "Goodwill Clause" in the
employment contract executed by the parties.

The facts are not in dispute.

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

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

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

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

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

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

Three (3) years thereafter, on 6 June 2005, Portillo resigned from Lietz Inc. During her exit
interview, Portillo declared that she intended to engage in businessa rice dealership, selling
rice in wholesale.

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

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

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

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

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

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

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

In its position paper, Lietz Inc. admitted liability for Portillos money claims in the total amount
of P110,662.16. However, Lietz Inc. raised the defense of legal compensation: Portillos money
claims should be offset against her liability to Lietz Inc. for liquidated damages in the amount of
869,633.097 for Portillos alleged breach of the "Goodwill Clause" in the employment contract
when she became employed with Ed Keller Philippines, Limited.

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

WHEREFORE, judgment is hereby rendered ordering respondents Rudolf Lietz, Inc. to pay
complainant Marietta N. Portillo the amount of Php110,662.16, representing her salary and
commissions, including 13th month pay.8

On appeal by respondents, the NLRC, through its Second Division, affirmed the ruling of Labor
Arbiter Daniel J. Cajilig. On motion for reconsideration, the NLRC stood pat on its ruling.
Expectedly, respondents filed a petition for certiorari before the Court of Appeals, alleging
grave abuse of discretion in the labor tribunals rulings.

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

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

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

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

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

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

Portillos motion for reconsideration was denied.

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

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION BY

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

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION BY

OVERSTEPPING THE BOUNDS OF APPELLATE JURISDICTION[;]

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION BY

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

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION BY

EVADING THE POSITIVE DUTY TO UPHOLD THE RELEVANT LAWS[.]11

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

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

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

A petition for review on certiorari under Rule 45 and a petition for certiorari under Rule 65 are
mutually exclusive remedies. Certiorari cannot co-exist with an appeal or any other adequate
remedy.13 If a petition for review is available, even prescribed, the nature of the questions of law
intended to be raised on appeal is of no consequence. It may well be that those questions of law
will treat exclusively of whether or not the judgment or final order was rendered without or in
excess of jurisdiction, or with grave abuse of discretion. This is immaterial. The remedy is
appeal, not certiorari as a special civil action.14

Be that as it may, on more than one occasion, to serve the ultimate purpose of all rules of
proceduresattaining substantial justice as expeditiously as possible15 we have accepted
procedurally incorrect petitions and decided them on the merits. We do the same here.

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

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

We are not convinced.

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

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

xxxx

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

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

As early as Singapore Airlines Limited v. Pao,18 we established that not all disputes between
an employer and his employee(s) fall within the jurisdiction of the labor tribunals. We
differentiated between abandonment per se and the manner and consequent effects of such
abandonment and ruled that the first, is a labor case, while the second, is a civil law case.

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

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

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

"Although the acts complained of seemingly appear to constitute 'matter involving employee-
employer' relations as Quisaba's dismissal was the severance of a pre-existing employee-
employer relations, his complaint is grounded not on his dismissal per se, as in fact he does not
ask for reinstatement or backwages, but on the manner of his dismissal and the consequent
effects of such dismissal.

"Civil law consists of that 'mass of precepts that determine or regulate the relations . . . that exist
between members of a society for the protection of private interest (1 Sanchez Roman 3).
"The 'right' of the respondents to dismiss Quisaba should not be confused with the manner in
which the right was exercised and the effects flowing therefrom. If the dismissal was done anti-
socially or oppressively as the complaint alleges, then the respondents violated Article 1701 of
the Civil Code which prohibits acts of oppression by either capital or labor against the other, and
Article 21, which makes a person liable for damages if he wilfully causes loss or injury to
another in a manner that is contrary to morals, good customs or public policy, the sanction for
which, by way of moral damages, is provided in article 2219, No. 10. [citation omitted]"

Stated differently, petitioner seeks protection under the civil laws and claims no benefits
under the Labor Code. The primary relief sought is for liquidated damages for breach of a
contractual obligation. The other items demanded are not labor benefits demanded by
workers generally taken cognizance of in labor disputes, such as payment of wages,
overtime compensation or separation pay. The items claimed are the natural consequences
flowing from breach of an obligation, intrinsically a civil dispute.19 (Emphasis supplied)

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

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

In Dai-Chi Electronics Manufacturing Corporation v. Villarama, Jr.,22 which reiterated the San
Miguel ruling and allied jurisprudence, we pronounced that a non-compete clause, as in the
"Goodwill Clause" referred to in the present case, with a stipulation that a violation thereof
makes the employee liable to his former employer for liquidated damages, refers to post-
employment relations of the parties.

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

That the "Goodwill Clause" in this case is likewise a postemployment issue should brook no
argument. There is no dispute as to the cessation of Portillos employment with Lietz Inc.23 She
simply claims her unpaid salaries and commissions, which Lietz Inc. does not contest. At that
juncture, Portillo was no longer an employee of Lietz Inc.24 The "Goodwill Clause" or the
"Non-Compete Clause" is a contractual undertaking effective after the cessation of the
employment relationship between the parties. In accordance with jurisprudence, breach of the
undertaking is a civil law dispute, not a labor law case.

It is clear, therefore, that while Portillos claim for unpaid salaries is a money claim that arises
out of or in connection with an employer-employee relationship, Lietz Inc.s claim against
Portillo for violation of the goodwill clause is a money claim based on an act done after the
cessation of the employment relationship. And, while the jurisdiction over Portillos claim is
vested in the labor arbiter, the jurisdiction over Lietz Inc.s claim rests on the regular courts.
Thus:

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

For sure, a plain and cursory reading of the complaint will readily reveal that the subject matter
is one of claim for damages arising from a breach of contract, which is within the ambit of the
regular court's jurisdiction. [citation omitted]
It is basic that jurisdiction over the subject matter is determined upon the allegations made in the
complaint, irrespective of whether or not the plaintiff is entitled to recover upon the claim
asserted therein, which is a matter resolved only after and as a result of a trial. Neither can
jurisdiction of a court be made to depend upon the defenses made by a defendant in his answer or
motion to dismiss. If such were the rule, the question of jurisdiction would depend almost
entirely upon the defendant.25 [citation omitted]

xxxx

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

xxxx

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

Neither can we uphold the reasoning of respondent court that because the resolution of the issues
presented by the complaint does not entail application of the Labor Code or other labor laws, the
dispute is intrinsically civil. Article 217(a) of the Labor Code, as amended, clearly bestows upon
the Labor Arbiter original and exclusive jurisdiction over claims for damages arising from
employer-employee relationsin other words, the Labor Arbiter has jurisdiction to award not
only the reliefs provided by labor laws, but also damages governed by the Civil Code.27
(Emphasis supplied)

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

We are aware that in Baez v. Hon. Valdevilla, we mentioned that:

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

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

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

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

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

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

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

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

The alleged contractual violation did not arise during the existence of the employer-employee
relationship. It was a post-employment matter, a post-employment violation. Reminders are apt.
That is provided by the fairly recent case of Yusen Air and Sea Services Phils., Inc. v.
Villamor,31 which harked back to the previous rulings on the necessity of "reasonable causal
connection" between the tortious damage and the damage arising from the employer-employee
relationship. Yusen proceeded to pronounce that the absence of the connection results in the
absence of jurisdiction of the labor arbiter. Importantly, such absence of jurisdiction cannot be
remedied by raising before the labor tribunal the tortious damage as a defense. Thus:

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

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

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

It is basic that jurisdiction over the subject matter is determined upon the allegations made in the
complaint, irrespective of whether or not the plaintiff is entitled to recover upon the claim
asserted therein, which is a matter resolved only after and as a result of a trial. Neither can
jurisdiction of a court be made to depend upon the defenses made by a defendant in his answer or
motion to dismiss. If such were the rule, the question of jurisdiction would depend almost
entirely upon the defendant.32 (Underscoring supplied).

The error of the appellate court in its Resolution of 14 October 2010 is basic. The original
decision, the right ruling, should not have been reconsidered.1wphi1

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

ART. 113. Wage Deduction. No employer, in his own behalf or in behalf of any person, shall
make any deduction from wages of his employees, except:

(a) In cases where the worker is insured with his consent by the employer, and the deduction is to
recompense the employer for the amount paid by him as premium on the insurance;
(b) For union dues, in cases where the right of the worker or his union to check-off has been
recognized by the employer or authorized in writing by the individual worker concerned; and

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

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

SO ORDERED.

G.R. Nos. 184903 October 10, 2012

DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC., Petitioner,

vs.
DIGITEL EMPLOYEES UNION (DEU), ARCELO RAFAEL A. ESPLANA, ALAN D.
LICANDO, FELICITO C. ROMERO, JR., ARNOLD D. GONZALES, REYNEL
FRANCISCO B. GARCIA, ZOSIMO B. PERALTA, REGINO T. UNIDAD and JIM L.
JAVIER, Respondents.
 DECISION

PEREZ, J.:

This treats of the petition for review filed by Digital Telecommunications Philippines, Inc.
(Digitel) assailing the 18 June 2008 Decision1 and 9 October 2008 Resolution of the Court of
Appeals 10th Division in CA-G.R. SP No. 91719, which affirms the Order of the Secretary of
Labor and Employment directing Digitel to commence Collective Bargaining Agreement (CBA)
negotiations and in CA-G.R. SP No. 94825, which declares the dismissal of affected Digitel
employees as illegal.

The facts, as borne by the records, follow.

By virtue of a certification election, Digitel Employees Union (Union) became the exclusive
bargaining agent of all rank and file employees of Digitel in 1994. The Union and Digitel then
commenced collective bargaining negotiations which resulted in a bargaining deadlock. The
Union threatened to go on strike, but then Acting Labor Secretary Bienvenido E. Laguesma
assumed jurisdiction over the dispute and eventually directed the parties to execute a CBA.2

However, no CBA was forged between Digitel and the Union. Some Union members abandoned
their employment with Digitel. The Union later became dormant.

Ten (10) years thereafter or on 28 September 2004, Digitel received from Arceo Rafael A.
Esplana (Esplana), who identified himself as President of the Union, a letter containing the list of
officers, CBA proposals and ground rules.3 The officers were respondents Esplana, Alan D.
Licando (Vice-President), Felicito C. Romero, Jr. (Secretary), Arnold D. Gonzales (Treasurer),
Reynel Francisco B. Garcia (Auditor), Zosimo B. Peralta (PRO), Regino T. Unidad (Sgt. at
Arms), and Jim L. Javier (Sgt. at Arms).

Digitel was reluctant to negotiate with the Union and demanded that the latter show compliance
with the provisions of the Unions Constitution and By-laws on union membership and election
of officers.

On 4 November 2004, Esplana and his group filed a case for Preventive Mediation before the
National Conciliation and Mediation Board based on Digitels violation of the duty to bargain.
On 25 November 2004, Esplana filed a notice of strike.

On 10 March 2005, then Labor Secretary Patricia A. Sto. Tomas issued an Order4 assuming
jurisdiction over the labor dispute.

During the pendency of the controversy, Digitel Service, Inc. (Digiserv), a non-profit enterprise
engaged in call center servicing, filed with the Department of Labor and Employment (DOLE)
an Establishment Termination Report stating that it will cease its business operation. The closure
affected at least 100 employees, 42 of whom are members of the herein respondent Union.
Alleging that the affected employees are its members and in reaction to Digiservs action,
Esplana and his group filed another Notice of Strike for union busting, illegal lock-out, and
violation of the assumption order.

On 23 May 2005, the Secretary of Labor ordered the second notice of strike subsumed by the
previous Assumption Order.5

Meanwhile, on 14 March 2005, Digitel filed a petition with the Bureau of Labor Relations (BLR)
seeking cancellation of the Unions registration on the following grounds: 1) failure to file the
required reports from 1994-2004; 2) misrepresentation of its alleged officers; 3) membership of
the Union is composed of rank and file, supervisory and managerial employees; and 4)
substantial number of union members are not Digitel employees.6

In a Decision dated 11 May 2005, the Regional Director of the DOLE dismissed the petition for
cancellation of union registration for lack of merit. The Regional Director ruled that it does not
have jurisdiction over the issue of non-compliance with the reportorial requirements. He also
held that Digitel failed to adduce substantial evidence to prove misrepresentation and the mixing
of non-Digitel employees with the Union. Finally, he declared that the inclusion of supervisory
and managerial employees with the rank and file employees is no longer a ground for
cancellation of the Unions certificate of registration.7

The appeal filed by Digitel with the BLR was eventually dismissed for lack of merit in a
Resolution dated 9 March 2007, thereby affirming the 11 May 2005 Decision of the Regional
Director.

CA-G.R. SP No. 91719

In an Order dated 13 July 2005, the Secretary of Labor directed Digitel to commence the CBA
negotiation with the Union. Thus:

WHEREFORE, all the foregoing premises considered, this Office hereby orders:

1. DIGITEL to commence collective bargaining negotiation with DEU without further delay;
and,

2. The issue of unfair labor practice, consisting of union-busting, illegal termination/lockout and
violation of the assumption of jurisdiction, specifically the return-to-work aspect of the 10 March
2005 and 03 June 2005 orders, be CERTIFIED for compulsory arbitration to the NLRC.8

Digitel moved for reconsideration on the contention that the pendency of the petition for
cancellation of the Unions certificate of registration is a prejudicial question that should first be
settled before the DOLE could order the parties to bargain collectively. On 19 August 2005, then
Acting Secretary Manuel G. Imson of DOLE denied the motion for reconsideration, affirmed the
13 July 2005 Order and reiterated the order directing parties to commence collective bargaining
negotiations.9
On 14 October 2005, Digitel filed a petition, docketed as CA-G.R. SP No. 91719, before the
Court of Appeals assailing the 13 July and 19 August 2005 Orders of the DOLE Secretary and
attributing grave abuse of discretion on the part of the DOLE Secretary for ordering Digitel to
commence bargaining negotiations with the Union despite the pendency of the issue of union
legitimacy.

CA-G.R. SP No. 94825

In accordance with the 13 July 2005 Order of the Secretary of Labor, the unfair labor practice
issue was certified for compulsory arbitration before the NLRC, which, on 31 January 2006,
rendered a Decision dismissing the unfair labor practice charge against Digitel but declaring the
dismissal of the 13 employees of Digiserv as illegal and ordering their reinstatement. The Union
manifested that out of 42 employees, only 13 remained, as most had already accepted separation
pay. The dispositive portion of the Decision reads:

WHEREFORE, premises considered, the charge of unfair labor practice is hereby DISMISSED
for lack of merit. However, the dismissal of the remaining thirteen (13) affected employees is
hereby declared illegal and DIGITEL is hereby ORDERED to reinstate them to their former
position with full backwages up to the time they are reinstated, computed as follows:

x x x x.10

Upon motion for reconsideration filed by Digitel, four (4) affected employees, namely Ma.
Loreta Eser, Marites Jereza, Leonore Tuliao and Aline G. Quillopras, were removed from
entitlement to the awards pursuant to the deed of quitclaim and release which they all signed.11

In view of this unfavorable decision, Digitel filed another petition on 9 June 2006 in CA-G.R. SP
No. 94825 before the Court of Appeals, challenging the above NLRC Decision and Resolution
and arguing mainly that Digiserv employees are not employees of Digitel.

Ruling of the Court of Appeals

On 18 June 2008, the Tenth Division of the Court of Appeals consolidated the two petitions in
CA-G.R. SP No. 91719 and CA-G.R. SP No. 94825, and disposed as follows:

WHEREFORE, the petition in CA-G.R. SP No. 91719 is DISMISSED. The July 13, 2005
Order and the August 19, 2005 Resolution of the DOLE Secretary are AFFIRMED in toto.
With costs.

The petition in CA-G.R. SP No. 94825 is partially GRANTED, with the effect that the assailed
dispositions must be MODIFIED, as follows:

1) In addition to the order directing reinstatement and payment of full backwages to the nine (9)
affected employees, Digital Telecommunications Philippines, Inc. is furthered ORDERED,
should reinstatement is no longer feasible, to pay separation pay equivalent to one (1) month pay,
or one-half (1/2) month pay for every year of service, whichever is higher.
2) The one hundred thousand (Ph 100,000.00) peso-fine imposed on Digital
Telecommunications Philippines, Inc. is DELETED. No costs.12

The Court of Appeals upheld the Secretary of Labors Order for Digitel to commence CBA
negotiations with the Union and emphasized that the pendency of a petition for the cancellation
of a unions registration does not bar the holding of negotiations for a CBA. The Court of
Appeals sustained the finding that Digiserv is engaged in labor-only contracting and that its
employees are actually employees of Digitel.

Digitel filed a motion for reconsideration but was denied in a Resolution dated 9 October 2008.

Hence, this petition for review on certiorari.

Digitel argues that the Court of Appeals seriously erred when it condoned the act of the Secretary
of Labor in issuing an assumption order despite the pendency of an appeal on the issue of union
registration. Digitel maintains that it cannot be compelled to negotiate with a union for purposes
of collective bargaining when the very status of the same as the exclusive bargaining agent is in
question.

Digitel insists that had the Court of Appeals considered the nature of the activities performed by
Digiserv, it would reach the conclusion that Digiserv is a legitimate contractor. To bolster its
claim, Digitel asserts that the affected employees are registered with the Social Security System,
Pag-ibig, Bureau of Internal Revenue and Philhealth with Digiserv as their employer. Digitel
further contends that assuming that the affected Digiserv employees are employees of Digitel,
they were nevertheless validly dismissed on the ground of closure of a department or a part of
Digitels business operation.

The three issues raised in this petition are: 1) whether the Secretary of Labor erred in issuing the
assumption order despite the pendency of the petition for cancellation of union registration; 2)
whether Digiserv is a legitimate contractor; and 3) whether there was a valid dismissal.

The pendency of a petition

for cancellation of union
registration does not preclude
collective bargaining.

The first issue raised by Digitel is not novel. It is well-settled that the pendency of a petition for
cancellation of union registration does not preclude collective bargaining.

The 2005 case of Capitol Medical Center, Inc. v. Hon. Trajano13 is apropos. The respondent
union therein sent a letter to petitioner requesting a negotiation of their CBA. Petitioner refused
to bargain and instead filed a petition for cancellation of the unions certificate of registration.
Petitioners refusal to bargain forced the union to file a notice of strike. They eventually staged a
strike. The Secretary of Labor assumed jurisdiction over the labor dispute and ordered all
striking workers to return to work. Petitioner challenged said order by contending that its petition
for cancellation of unions certificate of registration involves a prejudicial question that should
first be settled before the Secretary of Labor could order the parties to bargain collectively. When
the case eventually reached this Court, we agreed with the Secretary of Labor that the pendency
of a petition for cancellation of union registration does not preclude collective bargaining, thus:

That there is a pending cancellation proceeding against the respondent Union is not a bar to set in
motion the mechanics of collective bargaining. If a certification election may still be ordered
despite the pendency of a petition to cancel the unions registration certificate (National Union of
Bank Employees vs. Minister of Labor, 110 SCRA 274), more so should the collective
bargaining process continue despite its pendency. We must emphasize that the majority status of
the respondent Union is not affected by the pendency of the Petition for Cancellation pending
against it. Unless its certificate of registration and its status as the certified bargaining agent are
revoked, the Hospital is, by express provision of the law, duty bound to collectively bargain with
the Union.14

Trajano was reiterated in Legend International Resorts Limited v. Kilusang Manggagawa ng

Legenda (KML-Independent).15 Legend International Resorts reiterated the rationale for
allowing the continuation of either a CBA process or a certification election even during the
pendency of proceedings for the cancellation of the unions certificate of registration. Citing the
cases of Association of Court of Appeals Employees v. Ferrer- Calleja16 and Samahan ng
Manggagawa sa Pacific Plastic v. Hon. Laguesma,17 it was pointed out at the time of the filing
of the petition for certification election or a CBA process as in the instant case the union still
had the personality to file a petition for certification or to ask for a CBA negotiation as in the
present case.

Digiserv is a labor-only contractor.

Labor-only contracting is expressly prohibited by our labor laws. Article 106 of the Labor Code
defines labor-only contracting as "supplying workers to an employer [who] does not have
substantial capital or investment in the form of tools, equipment, machineries, work premises,
among others, and the workers recruited and placed by such person are performing activities
which are directly related to the principal business of such employer."

Section 5, Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code
(Implementing Rules), as amended by Department Order No. 18-02, expounds on the prohibition
against labor-only contracting, thus:

Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby

declared prohibited. For this purpose, labor-only contracting shall refer to an arrangement where
the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work
or service for a principal, and any of the following elements are present:

i) The contractor or subcontractor does not have substantial capital or investment which relates to
the job, work or service to be performed and the employees recruited, supplied or placed by such
contractor or subcontractor are performing activities which are directly related to the main
business of the principal; or
ii) The contractor does not exercise the right to control over the performance of the work of the
contractual employee.

The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the
Labor Code, as amended.

xxxx

The "right to control" shall refer to the right reserved to the person for whom, the services of the
contractual workers are performed, to determine not only the end to be achieved, but also the
manner and means to be used in reaching that end.

The law and its implementing rules allow contracting arrangements for the performance of
specific jobs, works or services. Indeed, it is management prerogative to farm out any of its
activities, regardless of whether such activity is peripheral or core in nature. However, in order
for such outsourcing to be valid, it must be made to an independent contractor because the
current labor rules expressly prohibit labor-only contracting.18

After an exhaustive review of the records, there is no showing that first, Digiserv has substantial
investment in the form of capital, equipment or tools. Under the Implementing Rules, substantial
capital or investment refers to "capital stocks and subscribed capitalization in the case of
corporations, tools, equipment, implements, machineries and work premises, actually and
directly used by the contractor or subcontractor in the performance or completion of the job,
work or service contracted out." The NLRC, as echoed by the Court of Appeals, did not find
substantial Digiservs authorized capital stock of One Million Pesos ( 1,000,000.00). It pointed
out that only Two Hundred Fifty Thousand Pesos ( 250,000.00) of the authorized capital stock
had been subscribed and only Sixty-Two Thousand Five Hundred Pesos ( 62,500.00) had been
paid up. There was no increase in capitalization for the last ten (10) years.19

Moreover, in the Amended Articles of Incorporation, as well as in the General Information

Sheets for the years 1994, 2001 and 2005, the primary purpose of Digiserv is to provide
manpower services. In PCI Automation Center, Inc. v. National Labor Relations Commission,20
the Court made the following distinction: "the legitimate job contractor provides services while
the labor-only contractor provides only manpower. The legitimate job contractor undertakes to
perform a specific job for the principal employer while the labor-only contractor merely provides
the personnel to work for the principal employer." The services provided by employees of
Digiserv are directly related to the business of Digitel, as rationalized by the NLRC in this wise:

It is undisputed that as early as March 1994, the affected employees, except for two, were
already performing their job as Traffic Operator which was later renamed as Customer Service
Representative (CSR). It is equally undisputed that all throughout their employment, their
function as CSR remains the same until they were terminated effective May 30, 2005. Their long
period of employment as such is an indication that their job is directly related to the main
business of DIGITEL which is telecommunications. Because, if it was not, DIGITEL would not
have allowed them to render services as Customer Service Representative for such a long period
of time.21
Furthermore, Digiserv does not exercise control over the affected employees. The NLRC
highlighted the fact that Digiserv shared the same Human Resources, Accounting, Audit and
Legal Departments with Digitel which manifested that it was Digitel who exercised control over
the performance of the affected employees. The NLRC also relied on the letters of
commendation, plaques of appreciation and certification issued by Digitel to the Customer
Service Representatives as evidence of control.

Considering that Digiserv has been found to be engaged in labor-only contracting, the dismissed
employees are deemed employees of Digitel.

Section 7 of the Implementing Rules holds that labor-only contracting would give rise to: (1) the
creation of an employer-employee relationship between the principal and the employees of the
contractor or sub-contractor; and (2) the solidary liability of the principal and the contractor to
the employees in the event of any violation of the Labor Code.

Accordingly, Digitel is considered the principal employer of respondent employees.

The affected employees were

illegally dismissed.

In addition to finding that Digiserv is a labor-only contractor, records teem with proof that its
dismissed employees are in fact employees of Digitel. The NLRC enumerated these evidences,
thus:

That the remaining thirteen (13) affected employees are indeed employees of DIGITEL is
sufficiently established by the facts and evidence on record.

It is undisputed that the remaining affected employees, except for two (2), were already hired by
DIGITEL even before the existence of DIGISERV. (The other two (2) were hired after the
existence of DIGISERV). The UNION submitted a sample copy of their appointment paper
(Annex "A" of UNIONs Position Paper, Records, Vol. 1, p. 100) showing that they were
appointed on March 1, 1994, almost three (3) months before DIGISERV came into existence on
May 30, 1994 (Annex "B", Ibid, Records, Vol. 1, p. 101). On the other hand, not a single
appointment paper was submitted by DIGITEL showing that these remaining affected employees
were hired by DIGISERV.

It is equally undisputed that the remaining, affected employees continuously held the position of
Customer Service Representative, which was earlier known as Traffic Operator, from the time
they were appointed on March 1, 1994 until they were terminated on May 30, 2005. The UNION
alleges that these Customer Service Representatives were under the Customer Service Division
of DIGITEL. The UNIONs allegation is correct. Sample of letter of commendations issued to
Customer Service Representatives (Annexes "C" and "C-1" of UNIONs Position Paper,
Records, p. 100 and 111) indeed show that DIGITEL has a Customer Service Division which
handles its Call Center operations.
Further, the Certificates issued to Customer Service Representative likewise show that they are
employees of DIGITEL (Annexes "C-5", "C-6" - "C-7" of UNIONs Position Paper, Records,
Vol. 1, pp. 115 to 117), Take for example the "Service Award" issued to Ma. Loretta C. Esen,
one of the remaining affected employees (Annex "C-5", Supra). The "Service Award" was
signed by the officers of DIGITEL the VP-Customer Services Division, the VP-Human
Resources Division and the Group Head-Human Resources Division. It was issued by DIGITEL
to Esen thru the above named officers "In recognition of her seven (7) years continuous and
valuable contributions to the achievement of Digitels organization objectives". It cannot be
gainsaid that it is only the employer that issues service award to its employees.22 (Emphasis not
supplied)

As a matter of fact, even before the incorporation of Digiserv, the affected employees were
already employed by Digitel as Traffic Operators, later renamed as Customer Service
Representatives.

As an alternative argument, Digitel maintains that the affected employees were validly dismissed
on the grounds of closure of Digiserv, a department within Digitel.

In the recent case of Waterfront Cebu City Hotel v. Jimenez,23 we referred to the closure of a
department or division of a company as retrenchment. The dismissed employees were
undoubtedly retrenched with the closure of Digiserv.

For a valid retrenchment, the following elements must be present:

(1) That retrenchment is reasonably necessary and likely to prevent business losses which, if
already incurred, are not merely de minimis, but substantial, serious, actual and real, or if only
expected, are reasonably imminent as perceived objectively and in good faith by the employer;

(2) That the employer served written notice both to the employees and to the Department of
Labor and Employment at least one month prior to the intended date of retrenchment;

(3) That the employer pays the retrenched employees separation pay equivalent to one (1) month
pay or at least month pay for every year of service, whichever is higher;

(4) That the employer exercises its prerogative to retrench employees in good faith for the
advancement of its interest and not to defeat or circumvent the employees right to security of
tenure; and

(5) That the employer used fair and reasonable criteria in ascertaining who would be dismissed
and who would be retained among the employees, such as status, efficiency, seniority, physical
fitness, age, and financial hardship for certain workers.24

Only the first 3 elements of a valid retrenchment had been here satisfied. Indeed, it is
management prerogative to close a department of the company. Digitels decision to outsource
the call center operation of the company is a valid reason to close down the operations of a
department under which the affected employees were employed. Digitel cited the decline in the
volume of transaction of operator-assisted call services as supported by Financial Statements for
the years 2003 and 2004, during which Digiserv incurred a deficit of 163,624.00 and
164,055.00, respectively.25 All affected employees working under Digiserv were served with
individual notices of termination. DOLE was likewise served with the corresponding notice. All
affected employees were offered separation pay. Only 9 out of the 45 employees refused to
accept the separation pay and chose to contest their dismissal before this Court.

The fifth element regarding the criteria to be observed by Digitel clearly does not apply because
all employees under Digiserv were dismissed. The instant case is all about the fourth element,
that is, whether or not the affected employees were dismissed in good faith. We find that there
was no good faith in the retrenchment.

Prior to the cessation of Digiservs operations, the Secretary of Labor had issued the first
assumption order to enjoin an impending strike. When Digiserv effected the dismissal of the
affected employees, the Union filed another notice of strike. Significantly, the Secretary of Labor
ordered that the second notice of strike be subsumed by the previous assumption order. Article
263(g) of the Labor Code provides:

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

The effects of the assumption order issued by the Secretary of Labor are two-fold. It enjoins an
impending strike on the part of the employees and orders the employer to maintain the status
quo.

There is no doubt that Digitel defied the assumption order by abruptly closing down Digiserv.
The closure of a department is not illegal per se. What makes it unlawful is when the closure is
undertaken in bad faith. In St. John Colleges, Inc. v. St. John Academy Faculty and Employees
Union,26 bad faith was evidenced by the timing of and reasons for the closure and the timing of
and reasons for the subsequent opening. There, the collective bargaining negotiations between
St. John and the Union resulted in a bargaining deadlock that led to the filing of a notice of
strike. The labor dispute was referred to the Secretary of Labor who assumed jurisdiction.

Pending resolution of the dispute, St. John closed the school prompting the Union to file a
complaint for illegal dismissal and unfair labor practice. The Union members alleged that the
closure of the high school was done in bad faith in order to get rid of the Union and render
useless any decision of the SOLE on the CBA deadlocked issues. We held that closure was done
to defeat the affected employees security of tenure, thus:

The determination of whether SJCI acted in bad faith depends on the particular facts as
established by the evidence on record. Bad faith is, after all, an inference which must be drawn
from the peculiar circumstances of a case. The two decisive factors in determining whether SJCI
acted in bad faith are (1) the timing of, and reasons for the closure of the high school, and (2) the
timing of, and the reasons for the subsequent opening of a college and elementary department,
and, ultimately, the reopening of the high school department by SJCI after only one year from its
closure.

Prior to the closure of the high school by SJCI, the parties agreed to refer the 1997 CBA
deadlock to the SOLE for assumption of jurisdiction under Article 263 of the Labor Code. As a
result, the strike ended and classes resumed. After the SOLE assumed jurisdiction, it required the
parties to submit their respective position papers. However, instead of filing its position paper,
SJCI closed its high school, allegedly because of the "irreconcilable differences between the
school management and the Academys Union particularly the safety of our students and the
financial aspect of the ongoing CBA negotiations." Thereafter, SJCI moved to dismiss the
pending labor dispute with the SOLE contending that it had become moot because of the closure.
Nevertheless, a year after said closure, SJCI reopened its high school and did not rehire the
previously terminated employees.

Under these circumstances, it is not difficult to discern that the closure was done to defeat the
parties agreement to refer the labor dispute to the SOLE; to unilaterally end the bargaining
deadlock; to render nugatory any decision of the SOLE; and to circumvent the Unions right to
collective bargaining and its members right to security of tenure. By admitting that the closure
was due to irreconcilable differences between the Union and school management, specifically,
the financial aspect of the ongoing CBA negotiations, SJCI in effect admitted that it wanted to
end the bargaining deadlock and eliminate the problem of dealing with the demands of the
Union. This is precisely what the Labor Code abhors and punishes as unfair labor practice since
the net effect is to defeat the Unions right to collective bargaining.27 (Emphasis not supplied)

As in St. John, bad faith was manifested by the timing of the closure of Digiserv and the rehiring
of some employees to Interactive Technology Solutions, Inc. (I-tech), a corporate arm of Digitel.
The assumption order directs employees to return to work, and the employer to reinstate the
employees. The existence of the assumption order should have prompted Digitel to observe the
status quo. Instead, Digitel proceeded to close down Digiserv. The Secretary of Labor had to
subsume the second notice of strike in the assumption order. This order notwithstanding, Digitel
proceeded to dismiss the employees.

The timing of the creation of I-tech is dubious. It was incorporated on 18 January 2005 while the
labor dispute within Digitel was pending. I-techs primary purpose was to provide call
center/customer contact service, the same service provided by Digiserv. It conducts its business
inside the Digitel office at 110 E. Rodriguez Jr. Avenue, Bagumbayan, Quezon City. The former
head of Digiserv, Ms. Teresa Taniega, is also an officer of I-tech. Thus, when Digiserv was
closed down, some of the employees presumably non-union members were rehired by I-tech.
Thus, the closure of Digiserv pending the existence of an assumption order coupled with the
creation of a new corporation performing similar functions as Digiserv leaves no iota of doubt
that the target of the closure are the union member-employees. These factual circumstances
prove that Digitel terminated the services of the affected employees to defeat their security of
tenure. The termination of service was not a valid retrenchment; it was an illegal dismissal of
employees.

It needs to be mentioned too that the dismissal constitutes an unfair labor practice under Article
248(c) of the Labor Code which refers to contracting out services or functions being performed
by union members when such will interfere with, restrain or coerce employees in the exercise of
their rights to self-organization. At the height of the labor dispute, occasioned by Digitels
reluctance to negotiate with the Union, I-tech was formed to provide, as it did provide, the same
services performed by Digiserv, the Union members nominal employer.

Under Article 279 of the Labor Code, an illegally dismissed employee is entitled to backwages
and reinstatement. Where reinstatement is no longer viable as an option, as in this case where
Digiserv no longer exists, separation pay equivalent to one (1) month salary, or one-half (1/2)
month pay for every year of service, whichever is higher, should be awarded as an alternative.28
The payment of separation pay is in addition to payment of backwages.29

Indeed, while we have found that the closure of Digiserv was undertaken in bad faith, badges
thereof evident in the timing of Digiservs closure, hand in hand, with I-techs creation, the
closure remains a foregone conclusion. There is no finding, and the Union makes no such
assertion, that Digiserv and I-tech are one and the same corporation. The timing of Digiservs
closure and I-techs ensuing creation is doubted, not the legitimacy of I-tech as a business
process outsourcing corporation providing both inbound and outbound services to an expanded
local and international clientele.30

The finding of unfair labor practice hinges on Digitels contracting-out certain services
performed by union member-employees to interfere with, restrain or coerce them in the exercise
of their right to self-organization.

We have no basis to direct reinstatement of the affected employees to an ostensibly different

corporation. The surrounding circumstance of the creation of I-tech point to bad faith on the part
of Digitel, as well as constitutive of unfair labor practice in targeting the dismissal of the union
member-employees. However, this bad faith does not contradict, much less negate, the
impossibility of the employees reinstatement because Digiserv has been closed and no longer
exists.

Even if it is a possibility that I-tech, as though Digitel, can absorb the dismissed union member-
employees as I-tech was incorporated during the time of the controversy with the same primary
purpose as Digiserv, we would be hard pressed to mandate the dismissed employees
reinstatement given the lapse of more than seven (7) years.

This length of time from the date the incident occurred to its Resolution31 coupled with the
demonstrated litigiousness of the disputants: (1) with all sorts of allegations thrown by either
party against the other; (2) the two separate filings of a notice of strike by the Union; (3) the
Assumption Orders of the DOLE; (4) our own finding of unfair labor practice by Digitel in
targeting the union member-employees, abundantly show that the relationship between Digitel
and the union member-employees is strained. Indeed, such discordance between the parties can
very well be a necessary consequence of the protracted and branched out litigation. We adhere to
the oft-quoted doctrine that separation pay may avail in lieu of reinstatement if reinstatement is
no longer practical or in the best interest of the parties.32

Under the doctrine of strained relations, the payment of separation pay is considered an
acceptable alternative to reinstatement when the latter option is no longer desirable or viable. On
one hand, such payment liberates the employee from what could be a highly oppressive work
environment. On the other hand, it releases the employer from the grossly unpalatable obligation
of maintaining in its employ a worker it could no longer trust.33

Finally, an illegally dismissed employee should be awarded moral and exemplary damages as
their dismissal was tainted with unfair labor practice.34 Depending on the factual milieu,
jurisprudence has awarded varying amounts as moral and exemplary damages to illegally
dismissed employees when the dismissal is attended by bad faith or fraud; or constitutes an act
oppressive to labor; or is done in a manner contrary to good morals, good customs or public
policy; or if the dismissal is effected in a wanton, oppressive or malevolent manner.35 1wphi1

In Nueva Ecija I Electric Cooperative, Inc. (NEECO I) Employees Association v. National Labor
Relations Commission, we intoned:

Unfair labor practices violate the constitutional rights of workers and employees to self-
organization, are inimical to the legitimate interests of both labor and management, including
their right to bargain collectively and otherwise deal with each other in an atmosphere of
freedom and mutual respect; and disrupt industrial peace and hinder the promotion of healthy
and stable labor-management relations. As the conscience of the government, it is the Courts
sworn duty to ensure that none trifles with labor rights.36

We awarded moral damages in the amount of 10,000.00 and likewise awarded 5,000.00 as
exemplary damages for each dismissed employee.

In the recent case of Purefoods Corporation v. Nagkakaisang Samahang Manggagawa ng

Purefoods Rank-and-File,37 we awarded the aggregate amount of 500,000.00 as moral and
exemplary damages to the illegally dismissed union member-employees which exact number
was undetermined.

In the case at hand, with the Unions manifestation that only 13 employees remain as
respondents, as most had already accepted separation pay, and consistent with our finding that
Digitel committed an unfair labor practice in violation of the employees constitutional right to
self-organization, we deem it proper to award each of the illegally dismissed union member-
employees the amount of 10,000.00 and 5,000.00 as moral and exemplary damages,
respectively.
WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP
No. 91719 is AFFIRMED, while the Decision in CA-G.R. SP No. 94825 declaring the dismissal
of affected union member-employees as illegal is MODIFIED to include the payment of moral
and exemplary damages in amount of 10,000.00 and 5,000.00, respectively, to each of the
thirteen (13) illegally dismissed union-member employees.

Petitioner Digital Telecommunications Philippines, Inc. is ORDERED to pay the affected

employees backwages and separation pay equivalent to one (1) month salary, or one-half (1/2)
month pay for every year of service, whichever is higher.

Let this case be REMANDED to the Labor Arbiter for the computation of monetary claims due
to the affected employees.

SO ORDERED.

G.R. No. 197309 October 10, 2012

ACE NAVIGATION CO., INC., VELA INTERNATIONAL MARINE LTD., and/or
RODOLFO PAMINTUAN, Petitioners,
vs.
TEODORICO FERNANDEZ, assisted by GLENITA FERNANDEZ, Respondent.

DECISION

BRION, J.:

For resolution is the petition for review on certiorari1 which seeks to nullify the decision2 dated
September 22, 2010 and the resolution3 dated May 26,2011 ofthe Court of Appeals (CA) in CA-
G.R. SP No. 112081.

The Antecedents

On October 9, 2008, seaman Teodorico Fernandez (Fernandez), assisted by his wife, Glenita
Fernandez, filed with the National Labor Relations Commission (NLRC) a complaint for
disability benefits, with prayer for moral and exemplary damages, plus attorneys fees, against
Ace Navigation Co., Inc., Vela International Marine Ltd., and/or Rodolfo Pamintuan
(petitioners).

The petitioners moved to dismiss the complaint,4 contending that the labor arbiter had no
jurisdiction over the dispute. They argued that exclusive original jurisdiction is with the
voluntary arbitrator or panel of voluntary arbitrators, pursuant to Section 29 of the POEA
Standard Employment Contract (POEA-SEC), since the parties are covered by the AMOSUP-
TCC or AMOSUP-VELA (as later cited by the petitioners) collective bargaining agreement
(CBA). Under Section 14 of the CBA, a dispute between a seafarer and the company shall be
settled through the grievance machinery and mandatory voluntary arbitration.

Fernandez opposed the motion.5 He argued that inasmuch as his complaint involves a money
claim, original and exclusive jurisdiction over the case is vested with the labor arbiter.

The Compulsory Arbitration Rulings

On December 9, 2008, Labor Arbiter Romelita N. Rioflorido denied the motion to dismiss,
holding that under Section 10 of Republic Act (R.A.) No. 8042, the Migrant Workers and
Overseas Filipinos Act of 1995, the labor arbiter has original and exclusive jurisdiction over
money claims arising out of an employer-employee relationship or by virtue of any law or
contract, notwithstanding any provision of law to the contrary.6

The petitioners appealed to the NLRC, but the labor agency denied the appeal. It agreed with the
labor arbiter that the case involves a money claim and is within the jurisdiction of the labor
arbiter, in accordance with Section 10 of R.A. No. 8042. Additionally, it declared that the denial
of the motion to dismiss is an interlocutory order which is not appealable. Accordingly, it
remanded the case to the labor arbiter for further proceedings. The petitioners moved for
reconsideration, but the NLRC denied the motion, prompting the petitioners to elevate the case to
the CA through a petition for certiorari under Rule 65 of the Rules of Court.

The CA Decision

Through its decision of September 22, 2010,7 the CA denied the petition on procedural and
substantive grounds.

Procedurally, it found the petitioners to have availed of the wrong remedy when they challenged
the labor arbiters denial of their motion to dismiss by way of an appeal to the NLRC. It stressed
that pursuant to the NLRC rules,8 an order denying a motion to dismiss is interlocutory and is
not subject to appeal.

On the merits of the case, the CA believed that the petition cannot also prosper. It rejected the
petitioners submission that the grievance and voluntary arbitration procedure of the parties
CBA has jurisdiction over the case, to the exclusion of the labor arbiter and the NLRC. As the
labor arbiter and the NLRC did, it opined that under Section 10 of R.A. No. 8042, the labor
arbiter has the original and exclusive jurisdiction to hear Fernandezs money claims.

Further, the CA clarified that while the law9 allows parties to submit to voluntary arbitration
other labor disputes, including matters falling within the original and exclusive jurisdiction of the
labor arbiters under Article 217 of the Labor Code as this Court recognized in Vivero v. Court of
Appeals,10 the parties submission agreement must be expressed in unequivocal language. It
found no such unequivocal language in the AMOSUP/TCC CBA that the parties agreed to
submit money claims or, more specifically, claims for disability benefits to voluntary arbitration.

The CA also took note of the POEA-SEC11 which provides in its Section 29 that in cases of
claims and disputes arising from a Filipino seafarers employment, the parties covered by a CBA
shall submit the claim or dispute to the original and exclusive jurisdiction of the voluntary
arbitrator or panel of voluntary arbitrators. The CA explained that the relevant POEA-SEC
provisions should likewise be qualified by the ruling in the Vivero case, the Labor Code, and
other applicable laws and jurisprudence.

In sum, the CA stressed that the jurisdiction of voluntary arbitrators is limited to the seafarers
claims which do not fall within the labor arbiters original and exclusive jurisdiction or even in
cases where the labor arbiter has jurisdiction, the parties have agreed in unmistakable terms
(through their CBA) to submit the case to voluntary arbitration.

The petitioners moved for reconsideration of the CA decision, but the appellate court denied the
motion, reiterating its earlier pronouncement that on the ground alone of the petitioners wrong
choice of remedy, the petition must fail.

The Petition

The petitioners are now before this Court praying for a reversal of the CA judgment on the
following grounds:
1. The CA committed a reversible error in disregarding the Omnibus Implementing Rules and
Regulations (IRR) of the Migrant Workers and Overseas Filipinos Act of 1995,12 as amended by
R.A. No. 10022,13 mandating that "For OFWs with collective bargaining agreements, the
caseshall be submitted for voluntary arbitration in accordance with Articles 261 and 262 of the
Labor Code."14

The petitioners bewail the CAs rejection of the above argument for the reason that the remedy
they pursued was inconsistent with the 2005 Revised Rules of Procedure of the NLRC. Citing
Municipality of Sta. Fe v. Municipality of Aritao,15 they argue that the "dismissal of a case for
lack of jurisdiction may be raised at any stage of the proceedings."

In any event, they posit that the IRR of R.A. No. 10022 is in the nature of an adjective or
procedural law which must be given retroactive effect and which should have been applied by
the CA in resolving the present case.

2. The CA committed a reversible error in ruling that the AMOSUP-VELA CBA does not
contain unequivocal wordings for the mandatory referral of Fernandezs claim to voluntary
arbitration.

The petitioners assail the CAs failure to explain the basis "for ruling that no explicit or
unequivocal wordings appeared on said CBA for the mandatory referral of the disability claim to
arbitration."16 They surmise that the CA construed the phrase "either party may refer the case to
a MANDATORY ARBITRATION COMMITTEE" under Section 14.7(a) of the CBA as merely
permissive and not mandatory because of the use of the word "may." They contend that
notwithstanding the use of the word "may," the parties unequivocally and unmistakably agreed
to refer the present disability claim to mandatory arbitration.

3. The CA committed a reversible error in disregarding the NLRC memorandum prescribing the
appropriate action for complaints and/or proceedings which were initially processed in the
grievance machinery of existing CBAs. In their motion for reconsideration with the CA, the
petitioners manifested that the appellate courts assailed decision had been modified by the
following directive of the NLRC:

As one of the measures being adopted by our agency in response to the Platform and Policy
Pronouncements on Labor Employment, you are hereby directed to immediately dismiss the
complaint and/or terminate proceedings which were initially processed in the grievance
machinery as provided in the existing Collective Bargaining Agreements (CBAs) between
parties, through the issuance of an Order of Dismissal and referral of the disputes to the National
Conciliation Mediation Board (NCMB) for voluntary arbitration.

FOR STRICT COMPLIANCE.17

4. On July 31, 2012,18 the petitioners manifested before the Court that on June 13, 2012, the
Courts Second Division issued a ruling in G.R. No. 172642, entitled Estate of Nelson R. Dulay,
represented by his wife Merridy Jane P. Dulay v. Aboitiz Jebsen Maritime, Inc., and General
Charterers, Inc., upholding the jurisdiction of the voluntary arbitrator or panel of voluntary
arbitrators over a seafarers money claim. They implore the Court that since the factual backdrop
and the issues involved in the case are similar to the present dispute, the Dulay ruling should be
applied to this case and which should accordingly be referred to the National Conciliation and
Mediation Board for voluntary arbitration.

The Case for Fernandez

In compliance with the Courts directive,19 Fernandez filed on October 7, 2011 his Comment20
(on the Petition) with the plea that the petition be dismissed for lack of merit. Fernandez presents
the following arguments:

1. The IRR of the Migrant Workers and Overseas Filipinos Act of 1995 (R.A. No. 8042),
as amended by R.A. No. 10022,21 did not divest the labor arbiters of their original and
exclusive jurisdiction over money claims arising from employment, for nowhere in said
IRR is there such a divestment.

2. The voluntary arbitrators do not have jurisdiction over the present controversy as can
be deduced from Articles 261 and 262 of the Labor Code. Fernandez explains that his
complaint does not involve any "unresolved grievances arising from the interpretation or
implementation of the Collective Bargaining Agreement [nor] from the interpretation or
enforcement of company personnel policies[.]"22 As he never referred his claim to the
grievance machinery, there is no "unresolved grievance" to speak of. His complaint
involves a claim for compensation and damages which is outside the voluntary
arbitrators jurisdiction under Article 261. Further, only disputes involving the union and
the company shall be referred to the grievance machinery and to voluntary arbitration, as
the Court held in Sanyo Philippines Workers Union-PSSLU v. Caizares23 and Silva v.
CA.24

3. The CA correctly ruled that no unequivocal wordings appear in the CBA for the
mandatory referral of Fernandezs disability claim to a voluntary arbitrator.

The Courts Ruling

We first rule on the procedural question arising from the labor arbiters denial of the petitioners
motion to dismiss the complaint. On this point, Section 6, Rule V of The 2005 Revised Rules of
Procedure of the NLRC provides:

On or before the date set for the mandatory conciliation and mediation conference, the
respondent may file a motion to dismiss. Any motion to dismiss on the ground of lack of
jurisdiction, improper venue, or that the cause of action is barred by prior judgment, prescription,
or forum shopping, shall be immediately resolved by the Labor Arbiter through a written order.
An order denying the motion to dismiss, or suspending its resolution until the final determination
of the case, is not appealable. [underscoring ours]

Corollarily, Section 10, Rule VI of the same Rules states:

Frivolous or Dilatory Appeals. No appeal from an interlocutory order shall be entertained. To
discourage frivolous or dilatory appeals, including those taken from interlocutory orders, the
Commission may censure or cite in contempt the erring parties and their counsels, or subject
them to reasonable fine or penalty.

In Indiana Aerospace University v. Comm. on Higher Educ.,25 the Court declared that "[a]n
order denying a motion to dismiss is interlocutory"; the proper remedy in this situation is to
appeal after a decision has been rendered. Clearly, the denial of the petitioners motion to
dismiss in the present case was an interlocutory order and, therefore, not subject to appeal as the
CA aptly noted.

The petitions procedural lapse notwithstanding, the CA proceeded to review the merits of the
case and adjudged the petition unmeritorious. We find the CAs action in order. The Labor Code
itself declares that "it is the spirit and intention of this Code that the Commission and its
members and the Labor Arbiters shall use every and all reasonable means to ascertain the facts in
each case speedily and objectively and without regard to technicalities of law or procedure, all in
the interest of due process."26

We now address the focal question of who has the original and exclusive jurisdiction over
Fernandezs disability claim the labor arbiter under Section 10 of R.A. No. 8042, as amended,
or the voluntary arbitration mechanism as prescribed in the parties CBA and the POEA-SEC?

The answer lies in the States labor relations policy laid down in the Constitution and fleshed out
in the enabling statute, the Labor Code. Section 3, Article XIII (on Social Justice and Human
Rights) of the Constitution declares:

xxxx

The State shall promote the principle of shared responsibility between workers and employers
and the preferential use of voluntary modes in settling disputes, including conciliation, and shall
enforce their mutual compliance therewith to foster industrial peace.

Article 260 of the Labor Code (Grievance machinery and voluntary arbitration) states:

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.

Article 261 of the Labor Code (Jurisdiction of Voluntary Arbitrators or panel of Voluntary
Arbitrators), on the other hand, reads in part:

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[.]

Article 262 of the Labor Code (Jurisdiction over other labor disputes) declares:

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.

Further, the POEA-SEC, which governs the employment of Filipino seafarers, provides in its
Section 29 on Dispute Settlement Procedures:

In cases of claims and disputes arising from this employment, the parties covered by a
collective bargaining agreement shall submit the claim or dispute to the original and
exclusive jurisdiction of the voluntary arbitrator or panel of voluntary arbitrators. If the
parties are not covered by a collective bargaining agreement, the parties may at their option
submit the claim or dispute to either the original and exclusive jurisdiction of the National Labor
Relations Commission (NLRC), pursuant to Republic Act (RA) 8042 otherwise known as the
Migrant Workers and Overseas Filipinos Act of 1995 or to the original and exclusive jurisdiction
of the voluntary arbitrator or panel of voluntary arbitrators. If there is no provision as to the
voluntary arbitrators to be appointed by the parties, the same shall be appointed from the
accredited voluntary arbitrators of the National Conciliation and Mediation Board of the
Department of Labor and Employment. [emphasis ours]

We find merit in the petition.

Under the above-quoted constitutional and legal provisions, the voluntary arbitrator or panel of
voluntary arbitrators has original and exclusive jurisdiction over Fernandezs disability claim.
There is no dispute that the claim arose out of Fernandezs employment with the petitioners and
that their relationship is covered by a CBA the AMOSUP/TCC or the AMOSUP-VELA
CBA. The CBA provides for a grievance procedure for the resolution of grievances or disputes
which occur during the employment relationship and, like the grievance machinery created under
Article 261 of the Labor Code, it is a two-tiered mechanism, with voluntary arbitration as the last
step.1wphi1

Contrary to the CAs reading of the CBAs Article 14, there is unequivocal or unmistakable
language in the agreement which mandatorily requires the parties to submit to the grievance
procedure any dispute or cause of action they may have against each other. The relevant
provisions of the CBA state:

14.6 Any Dispute, grievance, or misunderstanding concerning any ruling, practice, wages
or working conditions in the COMPANY or any breach of the Contract of Employment, or
any dispute arising from the meaning or application of the provisions of this Agreement or
a claim of violation thereof or any complaint or cause of action that any such Seaman may
have against the COMPANY, as well as complaints which the COMPANY may have
against such Seaman shall be brought to the attention of the GRIEVANCE RESOLUTION
COMMITTEE before either party takes any action, legal or otherwise. Bringing such a
dispute to the Grievance Resolution Committee shall be unwaivable prerequisite or
condition precedent for bringing any action, legal or otherwise, in any forum and the
failure to so refer the dispute shall bar any and all legal or other actions.

14.7a) If by reason of the nature of the Dispute, the parties are unable to amicably settle the
dispute, either party may refer the case to a MANDATORY ARBITRATION
COMMITTEE. The MANDATORY ARBITRATION COMMITTEE shall consist of one
representative to be designated by the UNION, and one representative to be designated by the
COMPANY and a third member who shall act as Chairman and shall be nominated by mutual
choice of the parties. xxx

h) Referral of all unresolved disputes from the Grievance Resolution Committee to the
Mandatory Arbitration Committee shall be unwaivable prerequisite or condition precedent
for bringing any action, claim, or cause of action, legal or otherwise, before any court,
tribunal, or panel in any jurisdiction. The failure by a party or seaman to so refer and avail
oneself to the dispute resolution mechanism contained in this action shall bar any legal or
other action. All parties expressly agree that the orderly resolution of all claims in the
prescribed manner served the interests of reaching settlements or claims in an orderly and
uniform manner, as well as preserving peaceful and harmonious labor relations between
seaman, the Union, and the Company.27 (emphases ours)

What might have caused the CA to miss the clear intent of the parties in prescribing a grievance
procedure in their CBA is, as the petitioners have intimated, the use of the auxiliary verb "may"
in Article 14.7(a) of the CBA which, to reiterate, provides that "if by reason of the nature of
the Dispute, the parties are unable to amicably settle the dispute, either party may refer the
case to a MANDATORY ARBITRATION COMMITTEE."28

While the CA did not qualify its reading of the subject provision of the CBA, it is reasonable to
conclude that it viewed as optional the referral of a dispute to the mandatory arbitration
committee when the parties are unable to amicably settle the dispute.

We find this a strained interpretation of the CBA provision. The CA read the provision
separately, or in isolation of the other sections of Article 14, especially 14.7(h), which, in clear,
explicit language, states that the "referral of all unresolved disputes from the Grievance
Resolution Committee to the Mandatory Arbitration Committee shall be unwaivable
prerequisite or condition precedent for bringing any action, claim, or cause of action, legal
or otherwise, before any court, tribunal, or panel in any jurisdiction"29 and that the
failure by a party or seaman to so refer the dispute to the prescribed dispute resolution
mechanism shall bar any legal or other action.

Read in its entirety, the CBAs Article 14 (Grievance Procedure) unmistakably reflects the
parties agreement to submit any unresolved dispute at the grievance resolution stage to
mandatory voluntary arbitration under Article 14.7(h) of the CBA. And, it should be added that,
in compliance with Section 29 of the POEA-SEC which requires that in cases of claims and
disputes arising from a seafarers employment, the parties covered by a CBA shall submit the
claim or dispute to the original and exclusive jurisdiction of the voluntary arbitrator or panel of
voluntary arbitrators.

Since the parties used unequivocal language in their CBA for the submission of their disputes to
voluntary arbitration (a condition laid down in Vivero for the recognition of the submission to
voluntary arbitration of matters within the original and exclusive jurisdiction of labor arbiters),
we find that the CA committed a reversible error in its ruling; it disregarded the clear mandate of
the CBA between the parties and the POEA-SEC for submission of the present dispute to
voluntary arbitration.

Consistent with this finding, Fernandezs contention that his complaint for disability benefits
is a money claim that falls within the original and exclusive jurisdiction of the labor arbiter under
Section 10 of R.A. No. 8042 is untenable. We likewise reject his argument that he never
referred his claim to the grievance machinery (so that no unresolved grievance exists as required
under Article 261 of the Labor Code), and that the parties to the case are not the union and the
employer.30 Needless to state, no such distinction exists in the parties CBA and the POEA-
SEC.

It bears stressing at this point that we are upholding the jurisdiction of the voluntary arbitrator or
panel of voluntary arbitrators over the present dispute, not only because of the clear language of
the parties CBA on the matter; more importantly, we so uphold the voluntary arbitrators
jurisdiction, in recognition of the States express preference for voluntary modes of dispute
settlement, such as conciliation and voluntary arbitration as expressed in the Constitution, the
law and the rules.

In this light, we see no need to further consider the petitioners submission regarding the IRR of
the Migrant Workers and Overseas Filipinos Act of 1995, as amended by R.A. No. 10022, except
to note that the IRR lends further support to our ruling.

In closing, we quote with approval a most recent Court pronouncement on the same issue, thus

It is settled that 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.31 (emphasis ours)

WHEREFORE, premises considered, the petition is GRANTED. The assailed decision and
resolution of the Court of Appeals are SET ASIDE. Teodorico Fernandez's disability claim is
REFERRED to the Grievance Resolution Committee of the parties' collective bargaining
agreement and/or the Mandatory Arbitration Committee, if warranted.

SO ORDERED.