VENUE OF ACTION

G.R. No. 117650 March 7, 1996

SULPICIO LINES, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JAIME CAGATAN, respondents.
KAPUNAN, J.:p
Petitioner Sulpicio Lines, Inc., owner of MV Cotabato Princess, on January 15, 1992 dismissed
private respondent Jaime Cagatan, a messman of the said vessel, allegedly for being absent
without leave for a "prolonged" period of six (6) months.
As a result of his dismissal, the private respondent filed a complaint for illegal dismissal before the
National Labor Relations Commission (NLRC) through its National Capital Region Arbitration Branch
in Manila, docketed as NLRC-NCR Case No. 00-06-3163-92.
Responding to the said complaint, petitioner, on June 25, 1992, filed a Motion to Dismiss on the
ground of improper venue, stating, among other things, that the case for illegal dismissal should
have been lodged with the NLRC's Regional Branch No. VII (Cebu), as its main office was located in
Cebu City.
In an Order dated August 21, 1992 Labor Arbiter Arthur L. Amansec of the NLRC-NCR denied
petitioner's Motion to Dismiss, holding that:
Considering that the complainant is a ship steward, traveled on board respondent's
ship along the Manila-Enstancia-lloilo-Zamboanga-Cotabato vice-versa route, Manila
Can be said to be part of the complainant's territorial workplace.
The aforequoted Order was seasonably appealed to the NLRC by petitioner. On February 28, 1994,
respondent NLRC found petitioner's appeal unmeritorious and sustained the Labor Arbiter's August
21, 1992 ruling, explaining that "under the New NLRC Rules, the Commission or the Labor Arbiter
before whom the case is pending may order a change of venue." Finding no grave abuse of discretion
in the Labor Arbiter's assailed Order, respondent NLRC emphasized that:
[T]he complainant instituted the Action in Manila where he resides. Hence, we see no
grave abuse of discretion on the part of the labor arbiter in denying the respondent's
Motion to Dismiss as We find support in the basic principle that the State shall afford
protection to labor and that the NLRC is not bound by strict technical rules of
procedure.
Undaunted, petitioner sought a reconsideration of the above Order, which the public respondent
denied in its Resolution dated July 22, 1994. Consequently, petitioner comes to this Court for relief, in
the form of a Special Civil Action for Certiorari under Rule 65 of the Rules of Court, contending that
public respondent NLRC acted with grave abuse of discretion amounting to lack or excess of jurisdiction
when it issued its assailed rulings.
It is petitioner's principal contention that a ship or vessel as workplace is an extension of its
homeport or principal place of business, and that "being part of the territory of the homeport,
(such) vessel is governed to a large extent by the laws and is under the jurisdiction of the
homeport. Based on this submission, petitioner avers that its vessel-as-workplace is "under the
territorial jurisdiction of the Regional Arbitration branch where (its) . . . principal office is located," which
is Branch VII, located in Cebu City.

We disagree.
As early as 1911, this Court held that the question of venue essentially relates to the trial and
touches more upon the convenience of the parties, rather than upon the substance and merits of
the case. Our permissive rules underlying provisions on venue are intended to assure convenience for
the plaintiff and his witnesses and to promote the ends of justice. This axiom all the more finds
applicability in cases involving labor and management because of the principle, paramount in our
jurisdiction, that the State shall afford full protection to labor.
Even in cases where venue has been stipulated by the parties by contract, this Court has not
hesitated to set aside agreements on venue if the same would lead to a situation so grossly
inconvenient to one party as to virtually negate his claim. In Sweet Lines vs. Teves, involving a
contract of adhesion, we held that:
An agreement will not be held valid where it practically negates the action of the
claimants, such as the private respondents herein. The philosophy underlying the
provisions on transfer of venue of actions is the convenience of the plaintiffs as well
as his witnesses and to promote the ends of justice. Considering the expense and
trouble a passenger residing outside Cebu City would incur to prosecute a claim in
the City of Cebu, he would most probably decide not to file the action at all. The
condition will thus defeat, instead of enhance, the ends of justice. Upon the other
hand, petitioner had branches or offices in the respective ports of call of the vessels
and can afford to litigate in any of these places. Hence, the filing of the suit in the CFI
of Misamis Oriental, as was done in the instant case will not cause inconvenience to,
much less prejudice petitioner.
In the case at bench, it is not denied that while petitioner maintains its principal office in Cebu City,
it retains a major booking and shipping office in Manila from which it earns considerable revenue,
and from which it hires and trains a significant number of its workforce. Its virulent insistence on
holding the proceedings in the NLRC's regional arbitration branch in Cebu City is obviously a ploy
to inconvenience the private respondent, a mere steward who resides in Metro Manila, who would
obviously not be able to afford the frequent trips to Cebu City in order to follow up his case.
Even the provisions cited by petitioner in support of its contention that venue of the illegal
dismissal case lodged by private respondent is improperly laid, would not absolutely support his
claim that respondent NLRC acted with grave abuse of discretion in allowing the private
respondent to file his case with the NCR arbitration branch.
Section 1, Rule IV of the NLRC Rules of Procedure on Venue, provides that:
Sec. 1. Venue (a) All cases in which Labor Arbiters have authority to hear and
decide may be filed in the Regional Arbitration Branch having jurisdiction the
workplace of the complainant/petitioner.
This provision is obviously permissive, for the said section uses the word "may," allowing a
different venue when the interests of substantial justice demand a different one. In any case, as
stated earlier, the Constitutional protection accorded to labor is a paramount and compelling
factor, provided the venue chosen is not altogether oppressive to the employer.
Moreover, Section Rule IV of the 1990 NLRC Rules additionally provides that, "for purposes of
venue, workplace shall be understood as the place or locality where the employee is regularly
assigned when the cause of action arose." Since the private respondent's regular place of
assignment is the vessel MV Cotabato Princess which plies the Manila-Estancia-Iloilo-ZamboangaCotabato route, we are of the opinion that Labor Arbiter Arthur L. Amansec was correct in
concluding that Manila could be considered part of the complainant's territorial workplace.

Respondent NLRC, therefore, committed no grave abuse of discretion in sustaining the labor
arbiter's denial of herein petitioner's Motion to Dismiss.
WHEREFORE, premises considered, the instant petition is hereby DISMISSED for lack of merit. SO
ORDERED.

JURISDICTION OVER CLAIMS FOR DAMAGES

G.R. No. L-56431 January 19, 1988
NATIONAL UNION OF BANK EMPLOYEES, In Its Own Right And In Behalf Of CBTC
EMPLOYEES Affiliated With It; CBTC EMPLOYEES UNION, In Its Own Right And Interest
And In Behalf Of All CBTC Rank And File Employees Including Its Members, BENJAMIN
GABAT, BIENVENIDO MORALEDA, ELICITA GAMBOA, FAUSTINO TEVES, SALVADOR LISING,
and NESTOR DE LOS SANTOS, petitioners,
vs.
THE HON. JUDGE ALFREDO M. LAZARO, CFI-MANILA BRANCH XXXV; COMMERCLKL BANK
AND TRUST COMPANY OF THE PHILIPPINES; BANK OF THE PHILIPPINE ISLANDS; AYALA
CORPORATION; MANUEL J. MARQUEZ; ENRIQUE ZOBEL; ALBERTO VILLA-ABRILLE;
VICENTE A. PACIS, JR.; and DEOGRACIAS A. FERNANDO, respondents.
SARMIENTO, J.:
The sole issue in this special civil action for certiorari is whether or not the courts may take
cognizance of claims for damages arising from a labor controversy.
The antecedent facts are not disputed.
On July 1, 1977, the Commercial Bank and Trust Company, a Philippine banking institution, entered
into a collective bargaining agreement with the Commercial Bank and Trust Company Union,
representing the rank and file of the bank with a membership of over one thousand employees,
and an affiliated local of the National Union of Bank Employees, a national labor organization.
The agreement was effective until June 30, 1980, with an automatic renewal clause until the
parties execute a new agreement.
On May 20, 1980, the union, together with the National Union of Bank Employees, submitted to the
bank management proposals for the renegotiation of a new collective bargaining agreement. The
following day, however, the bank suspended negotiations with the union. The bank had meanwhile
entered into a merger with the Bank of the Philippine Islands, another Philippine banking
institution, which assumed all assets and liabilities thereof.
As a consequence, the union went to the then Court of First Instance of Manila, presided over by
the respondent Judge, on a complaint for specific performance, damages, and preliminary
injunction against the private respondents. Among other things, the complaint charged:
xxx xxx xxx
51. In entering in to such arrangement for the termination of the CURRENT CBA, and
the consequent destruction to existing rights, interests and benefits thereunder,CBTC
is liable for wilful injury to the contract and property rights thereunder as provided in
Article 2220 of the Civil Code of the Philippines;

52. By arranging for the termination of the CURRENT CBA in the manner above
described, CBTC committed breach of said contract in bad faith, in that CBTC had
taken undue advantage of its own employees, by concealing and hiding the
negotiations towards an agreement on the sales and merger, when it was under a
statutory duty to disclose and bargain on the effects thereof, according to law;
xxx xxx xxx
54. In virtually suppressing the collective bargaining rights of plaintiffs under the law
and as provided in the CURRENT CBA, through shadow bargaining, calculated delay,
suspension of negotiations, concealment of bargainable issues and high-handed
dictation, the CBTC and its defendant officials, as well as the BANK OF P.I. and its
defendant officials, were all actuated by a dishonest purpose to secure an undue
advantage; on the part of the CBTC it was to avoid fresh and additional contractual
commitments, which would substantially lessen and diminish the profitability of the
sale; and on the part of the BANKOF P.I., it was to avoid having to face higher
compensation rates of CBTC employees in the course of integration and merger
which could force the upgrading of the benefit package for the personnel of the
merged operations, and thereby pushed personnel costs upwards; substantial outlays
and costs thereby entailed were all deftly avoided and evaded, through the expedient
of deliberate curtailment and suppression of contractual bargaining rights;
55. All the other defendants have actively cooperated with and abetted the CBTC and
its defendant officers in negotiating, contriving and effecting the above
arrangements for the attainment of its dishonest purpose, for abuse of its rights, and
for taking undue advantage of its very own employees, through the secret sale and
scheduled merger; the collective participation therein evinces machination, deceit,
wanton attitude, bad faith, and oppressive intent, wilfully causing loss or injury to
plaintiffs in a manner that is contrary to law, morals, good customs and public policy,
in violation of Articles 21 and 28 of the Civil Code;
xxx xxx xxx
Predictably, the private respondents moved for the dismissal of the case on the ground,
essentially, of lack of jurisdiction of the court.
On November 26, 1980, the respondent Judge issued an order, dismissing the case for lack of
jurisdiction. According to the court, the complaint partook of an unfair labor practice dispute
notwithstanding the incidental claim for damages, jurisdiction over which is vested in the labor
arbiter. This order, as well as a subsequent one denying reconsideration, is now alleged as having
been issued 'in excess of his jurisdiction amounting to a grave abuse of discretion."
We sustain the dismissal of the case, which is, as correctly held by the respondent court, an unfair
labor practice controversy within the original and exclusive jurisdiction of the labor arbiters and the
exclusive appellate jurisdiction of the National Labor Relations Commission. The claim against the
Bank of Philippine Islands the principal respondent according to the petitioners for allegedly
inducing the Commercial Bank and Trust Company to violate the existing collective bargaining
agreement in the process of re-negotiation, consists mainly of the civil aspect of the unfair labor
practice charge referred to under Article 247 of the Labor Code.
Under Article 248 of the Labor Code, it shall be an unfair labor practice:
(a) To interfere with, restrain or coerce employees in the exercise of their right to selforganization;

xxx xxx xxx

(g) To violate the duty to bargain collectively as prescribed by this Code;
xxx xxx xxx
The act complained of is broad enough to embrace either provision. Since it involves collective
bargaining whether or not it involved an accompanying violation of the Civil Code it may
rightly be categorized as an unfair labor practice. The civil implications thereof do not defeat its
nature as a fundamental labor offense.
As we stated, the damages (allegedly) suffered by the petitioners only form part of the civil
component of the injury arising from the unfair labor practice. Under Article 247 of the Code, "the
civil aspects of all cases involving unfair labor practices, which may include claims for damages
and other affirmative relief, shall be under the jurisdiction of the labor arbiters.
The petitioners' claimed injury as a consequence of the tort allegedly committed by the private
respondents, specifically, the Bank of the Philippine Islands, under Article 1314 of the Civil
Code, does not necessarily give the courts jurisdiction to try the damage suit. Jurisdiction is conferred
by law and not necessarily by the nature of the action. Civil controversies are not the exclusive domain
of the courts. In the case at bar, Presidential Decree No. 442, as amended by Batas Blg. 70, has vested
such a jurisdiction upon the labor arbiters, a jurisdiction the courts may not assume.
Jurisdiction over unfair labor practice cases, moreover, belongs generally to the labor department
of the government, never the courts. In Associated Labor Union v. Gomez, we said:
A rule buttressed upon statute and reason that is frequently reiterated in
jurisprudence is that labor cases involving unfair practice are within the exclusive
jurisdiction of the CIR. By now, this rule has ripened into dogma. It thus commands
adherence, not breach.
The fact that the Bank of the Philippine Islands is not a party to the collective bargaining
agreement, for which it "cannot be sued for unfair labor practice at the time of the action," cannot
bestow on the respondent court the jurisdiction it does not have. In Cebu Portland Cement Co. v.
Cement Workers' Union, we held:
xxx xxx xxx
There is no merit in the allegation. In the first place, it must be remembered that
jurisdiction is conferred by law; it is not determined by the existence of an action in
another tribunal. In other words, it is not filing of an unfair labor case in the Industrial
Court that divests the court of first instance jurisdiction over actions properly
belonging to the former. It is the existence of a controversy that properly falls within
the exclusive jurisdiction of the Industrial Court and to which the civil action is linked
or connected that removes said civil case from the competence of the regular courts.
It is for this reason that civil actions found to be intertwined with or arising out of, a
dispute exclusively cognizable by the Court of Industrial Relations were dismissed,
even if the cases were commenced ahead of the unfair labor practice proceeding,
and jurisdiction to restrain picketing was decreed to belong to the Court of Industrial
Relations although no unfair labor practice case has as yet been instituted. For the
court of first instance to lose authority to pass upon a case, therefore, it is enough
that unfair labor practice case is in fact involved in or attached to the action, such
fact of course being established by sufficient proof.
xxx xxx xxx

Furthermore, to hold that the alleged tortious act now attributed to the Bank of the Philippine
Islands may be the subject of a separate suit is to sanction split jurisdiction long recognized to be
an offense against the orderly administration of justice. As stated in Nolganza v. Apostol:
xxx xxx xxx
As far back as Associated Labor Union vs. Gomez [L-25999, February 9, 1967, 19
SCRA 304] the exclusive jurisdiction of the Court of Industrial Relations in disputes of
this character was upheld. "To hold otherwise," as succinctly stated by the ponente,
Justice Sanchez, "is to sanction split jurisdiction-which is obnoxious to the orderly
administration of justice." Then, in Progressive Labor Association vs. Atlas
Consolidated Mining and Development Corporation [L-27585, May 29, 1970, 33 SCRA
349] decided three years later, Justice J.B.L. Reyes, speaking for the Court, stressed
that to rule that such demand for damages is to be passed upon by the regular
courts of justice, instead of leaving the matter to the Court of Industrial Relations,
'would be to sanction split jurisdiction, which is prejudicial to the orderly
administration of justice'. Thereafter, this Court, in the cases of Leoquinco vs. Canada
Dry Bottling Co. [L-28621, February 22, 1971, 37 SCRA 535] and Associated Labor
Union v. Cruz ([L-28978, September 22, 1971, 41 SCRA 12], with the opinions coming
from the same distinguished jurist, adhered to such a doctrine. The latest case in
point, as noted at the outset, is the Goodrich Employees Association decision [L30211, October 5, 1976, 73 SCRA 297].
xxx xxx xxx
The petitioners' reliance upon Calderon v. Court of Appeals is not well-taken. Calderon has since lost
its persuasive force, beginning with our ruling in PEPSI-COLA BOTTLING COMPANY v. MARTINEZ, EBON
v. DE GUZMAN, and AGUSAN DEL NORTE ELECTRIC COOP., INC. v. SUAREZ, and following the
promulgation of Presidential Decree No. 1691, restoring the jurisdiction to decide money claims unto the
labor arbiters.
Neither does the fact that the Bank of the Philippine Islands "was not an employer at the time the
act was committed' abate a recourse to the labor arbiter. It should be noted indeed that the Bank
of the Philippine Islands assumed "all the assets and liabilities" of the Commercial Bank and Trust
Company. Moreover, under the Corporation Code:
xxx xxx xxx
5. The surviving or consolidated corporation shall be responsible and liable for all the
liabilities and obligations of each of the constituent corporations in the same manner
as if such surviving or consolidated corporation had itself incurred such liabilities or
obligations; and any claim, action or proceeding pending by or against any of such
constituent corporations may be prosecuted by or against the surviving or
consolidated corporation, as the case may be. Neither the rights of creditors nor any
lien upon the property of any of such constituent corporations shall be impaired by
such merger or consolidation.
xxx xxx xxx
In sum, the public respondent has not acted with grave abuse of discretion.
WHEREFORE, the petition is DISMISSED. No costs.

G.R. No. 163768

March 27, 2007

JULIUS KAWACHI and GAYLE KAWACHI, Petitioners,

vs.
DOMINIE DEL QUERO and HON. JUDGE MANUEL R. TARO, Metropolitan Trial Court,
Branch 43, Quezon City, Respondents.
DECISION
TINGA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure, assailing two
resolutions of the Regional Trial Court (RTC), Branch 226, Quezon City which affirmed the
jurisdiction of the Metropolitan Trial Court (MeTC), Branch 42, Quezon City over private
respondents action for damages against petitioner.
The following factual antecedents are matters of record.

1vvphi1.nt

In an Affidavit-Complaint dated 14 August 2002, private respondent Dominie Del Quero charged A/J
Raymundo Pawnshop, Inc., Virgilio Kawachi and petitioner Julius Kawachi with illegal dismissal, nonexecution of a contract of employment, violation of the minimum wage law, and non-payment of
overtime pay. The complaint was filed before the National Labor Relations Commission (NLRC).
The complaint essentially alleged that Virgilio Kawachi hired private respondent as a clerk of the
pawnshop and that on certain occasions, she worked beyond the regular working hours but was
not paid the corresponding overtime pay.
The complaint also narrated an incident on 10 August 2002, wherein petitioner Julius Kawachi
scolded private respondent in front of many people about the way she treated the customers of
the pawnshop and afterwards terminated private respondents employment without affording her
due process.
On 7 November 2002, private respondent Dominie Del Quero filed an action for damages against
petitioners Julius Kawachi and Gayle Kawachi before the MeTC of Quezon City.The complaint, which
was docketed as Civil Case No. 29522, alleged the following:
2. That the Plaintiff was employed as a clerk in the pawnshop business office of the
Defendants otherwise known as the A/J RAYMUNDO PAWNSHOP, INC. located (sic) and with
principal office address at Unit A Virka Bldg. Edsa Corner Roosevelt[,] Quezon City, from May
27, 2002 to August 10, 2002;
3. That on August 10, 2002 at or about 11:30 AM, the Plaintiff was admonished by the
Defendants Julius Kawachi and Gayle Kawachi who are acting as manager and assistant
manager respectively of the pawnshop business and alternately accused her of having
committed an act which she had not done and was scolded in a loud voice in front of many
employees and customers in their offices;
4. That further for no apparent reason the Plaintiff was ordered to get out and leave the
pawnshop office and was told to wait for her salary outside the office when she tried to
explain that she had no fault in the complaint of the customer, (sic) [H]owever[,] her
explanation fell on deaf ears;
5. That she was instantly dismissed from her job without due process;

6. That the incident happened in front of many people which caused the Plaintiff to suffer
serious embarrassment and shame so that she could not do anything but cry because of the
shameless way by which she was terminated from the service; x x x
The complaint for damages specifically sought the recovery of moral damages, exemplary
damages and attorneys fees.
Petitioners moved for the dismissal of the complaint on the grounds of lack of jurisdiction and
forum-shopping or splitting causes of action. At first, the MeTC granted petitioners motion and
ordered the dismissal of the complaint for lack of jurisdiction in an Order dated 2 January
2003. Upon private respondents motion, the MeTC reconsidered and set aside the order of
dismissal in an Order dated 3 March 2003. It ruled that no causal connection appeared between
private respondents cause of action and the employer-employee relations between the parties.
The MeTC also rejected petitioners motion for reconsideration in an Order dated 22 April 2003.
Thus, petitioners elevated the MeTCs aforesaid two orders to the RTC, Branch 226 of Quezon
City, via a Petition for Certiorari (With Prayer for Temporary Restraining Order and/or Preliminary
Injunction). After due hearing, the RTC declined petitioners prayer for a temporary restraining
order. For her part, private respondent filed a Motion to Dismiss Petition.
On 20 October 2003, the RTC issued the assailed Resolution, upholding the jurisdiction of the MeTC
over private respondents complaint for damages.
The RTC held that private respondents action for damages was based on the alleged tortious acts
committed by her employers and did not seek any relief under the Labor Code. The RTC cited the
pronouncement in Medina, et al. v. Hon. Castro-Bartolome, etc., et al. where the Court held that
the employees action for damages based on the slanderous remarks uttered by the employer was
within the regular courts jurisdiction since the complaint did not allege any unfair labor practice on
the part of the employer.
On 29 March 2004, the RTC denied petitioners motion for reconsideration. Hence, the instant
petition for review on certiorari, raising the sole issue of jurisdiction over private respondents
complaint for damages.
Petitioners argue that the NLRC has jurisdiction over the action for damages because the alleged
injury is work-related. They also contend that private respondent should not be allowed to split her
causes of action by filing the action for damages separately from the labor case.
Private respondent maintains that there is no causal connection between her cause of action and
the employer-employee relations of the parties.
The petition is meritorious.
The jurisdictional controversy of the sort presented in this case has long been settled by this Court.
Article 217(a) of the Labor Code, as amended, clearly bestows upon the Labor Arbiter original and
exclusive jurisdiction over claims for damages arising from employer-employee relations in other
words, the Labor Arbiter has jurisdiction to award not only the reliefs provided by labor laws, but
also damages governed by the Civil Code.1
In the 1999 case of San Miguel Corporation v. Etcuban, the Court noted what was then the current
trend, and still is, to refer worker-employer controversies to labor courts, unless unmistakably

provided by the law to be otherwise. Because of the trend, the Court noted further, jurisprudence
has developed the "reasonable causal connection rule." Under this rule, if there is a reasonable
causal connection between the claim asserted and the employer-employee relations, then the case
is within the jurisdiction of our labor courts. In the absence of such nexus, it is the regular courts
that have jurisdiction.
In San Miguel Corporation, the Court upheld the labor arbiters jurisdiction over the employees
separate action for damages, which also sought the nullification of the so-called "contract of
termination" and noted that the allegations in the complaint were so carefully formulated as to
avoid a semblance of employer-employee relations.
In said case, the employees of San Miguel Corporation (SMC) availed of the "Retrenchment to
Prevent Loss Program." After their inclusion in the retrenchment program, the employees were
given their termination letters and separation pay. In return, the employees executed "receipt and
release" documents in favor of the company. Subsequently, the employees learned that the
company was never in financial distress and was engaged in hiring new employees. Thus, they
filed a complaint
before the NLRC for the declaration of nullity of the retrenchment program and prayed for
reinstatement, backwages and damages. After the labor arbiter dismissed the complaint, the
employees filed an action for damages before the RTC, alleging the deception employed upon
them by SMC which led to their separation from the company. They sought the declaration of
nullity of their so-called collective "contract of termination" and the recovery of actual and
compensatory damages, moral damages, exemplary damages, and attorneys fees.
The Court held that the employees claim for damages was intertwined with their having been
separated from their employment without just cause and, consequently, had a reasonable causal
connection with their employer-employee relations with petitioner. The Court explained in this
manner:
x x x First, their claim for damages is grounded on their having been deceived into serving their
employment due to SMCs concocted financial distress and fraudulent retrenchment programa
clear case of illegal dismissal. Second, a comparison of respondents complaint for the declaration
of nullity of the retrenchment program before the labor arbiter and the complaint for the
declaration of nullity of their "contract of termination" before the RTC reveals that the allegations
and prayer of the former are almost identical with those of the latter except that the prayer for
reinstatement was no longer included and the claim for backwages and other benefits was
replaced with a claim for actual damages. These are telltale signs that respondents claim for
damages is intertwined with their having been separated from their employment without just
cause and, consequently, has a reasonable causal connection with their employer-employee
relations with SMC. Accordingly, it cannot be denied that respondents claim falls under the
jurisdiction of the labor arbiter as provided in paragraph 4 of Article 217. The "reasonable causal
connection rule" emerged in the 1987 case of Primero v. Intermediate Appellate Court, where the
Court recognized the jurisdiction of the labor arbiters over claims for damages in connection with
termination of employment, thus:
It is clear that the question of the legality of the act of dismissal is intimately related to the issue of
the legality ofthe manner by which that act of dismissal was performed. But while the Labor Code
treats of the nature of, and the remedy available as
regards the first the employees separation from employment it does not at all deal with the
second the manner of that separation which is governed exclusively by the Civil Code. In
addressing the first issue, the Labor Arbiter applies the Labor Code; in addressing the second, the

Civil Code. And this appears to be the plain and patent intendment of the law. For apart from the
reliefs expressly set out in the Labor Code flowing from illegal dismissal from employment, no
other damages may be awarded to an illegally dismissed employee other than those specified by
the Civil Code. Hence, the fact that the issueof whether or not moral or other damages were
suffered by an employee and in the affirmative, the amount that should properly be awarded to
him in the circumstancesis determined under the provisions of the Civil Code and not the Labor
Code, obviously was not meant to create a cause of action independent of that for illegal dismissal
and thus place the matter beyond the Labor Arbiters jurisdiction.
In the instant case, the allegations in private respondents complaint for damages show that her
injury was the offshoot of petitioners immediate harsh reaction as her administrative superiors to
the supposedly sloppy manner by which she had discharged her duties.
Petitioners reaction culminated in private respondents dismissal from work in the very same
incident. The incident on 10 August 2002 alleged in the complaint for damages was similarly
narrated in private respondents Affidavit-Complaint supporting her action for illegal dismissal
before the NLRC. Clearly, the alleged injury is directly related to the employer-employee relations
of the parties.
Where the employer-employee relationship is merely incidental and the cause of action proceeds
from a different source of obligation, the Court has not hesitated to uphold the jurisdiction of the
regular
courts. Where the damages claimed for were based on tort, malicious prosecution, or breach of
contract, as when the claimant seeks to recover a debt from a former employee or seeks liquidated
damages in the enforcement of a prior employment contract, the jurisdiction of regular courts was
upheld. The scenario that obtains in this case is obviously different. The allegations in private
respondents complaint unmistakably relate to the manner of her alleged illegal dismissal.
For a single cause of action, the dismissed employee cannot be allowed to sue in two forums: one,
before the labor arbiter for reinstatement and recovery of back wages or for separation pay, upon
the theory that the dismissal was illegal; and two, before a court of justice for recovery of moral
and other damages, upon the theory that the
manner of dismissal was unduly injurious or tortious. Suing in the manner described is known as
"splitting a cause of action," a practice engendering multiplicity of actions. It is considered
procedurally unsound and obnoxious to the orderly administration of justice.
In the instant case, the NLRC has jurisdiction over private respondents complaint for illegal
dismissal and damages arising therefrom. She cannot be allowed to file a separate or independent
civil action for damages where the alleged injury has a reasonable connection to her termination
from employment. Consequently, the action for damages filed before the MeTC must be dismissed.
WHEREFORE, the petition for review on certiorari is GRANTED. The two Resolutions dated 20
October 2003 and 29 March 2004 of the Regional Trial Court, Branch 226, Quezon City are
REVERSED and SET ASIDE. Costs against private respondent. SO ORDERED.

RA 6145 AS A CURATIVE STATUTE

G.R. No. 110226 June 19, 1997

10

ALBERTO S. SILVA, EDILBERTO VIRAY ANGELES BARON, CEFERINO ROMERO, JAIME

ACEVEDO, RODOLFO JUAN, ANDREW DE LA ISLA BAYANI PILAR, ULDARICO GARCIA,
ANANIAS HERMOCILLA, WALLY LEONES, PABLO ALULOD, RODOLFO MARIANO, HERNANI
ABOROT, CARLITO CHOSAS, VALERIANO MAUBAN, RENAN HALILI, MANOLITO CUSTODIO,
NONILON DAWAL, RICARDO ESCUETA, SEVERINO ROSETE, ERNESTO LITADA, ERNESTO
BARENG, BONIFACIO URBANO, VICENTE SANTOS, MARIO CREDO BERNABE GERONIMO,
ERNESTO BANAY, PASTOR VELUZ, RICARDO CUEVAS, FELOMENO BALLON, ORLANDO
MENDOZA, ANICETO ARBAN, GERONIMO ESPLANA, VICENTE CHAVEZ, STEVE VELECINA,
and RICARDO B. VENTURA, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and PHILTREAD (FIRESTONE) TIRE AND
RUBBER CORPORATION, respondents.
ROMERO, J.:
Petitioners, all former employees of private respondent Philtread (Firestone) Tire and Rubber
Corporation (Philtread, for brevity), impute grave abuse of discretion on the National Labor
Relations Commission (NLRC) for issuing two resolutions, dated April 7, 1993, and November 18, 1992,
which reconsidered a resolution it rendered on April 15, 1992. They allege that its resolution of April 15,
1992 became final and executory when Philtread failed to seasonably file a motion for reconsideration
within the ten-day reglementary period required by Article 223 of the Labor Code.
The record unfolds the following facts:
Sometime in 1985, petitioners, then rank-and-file employees and members of Philtread Workers
Union (PWU), volunteered for, and availed of, the retrenchment program instituted by Philtread
with the understanding that they would have priority in re-employment in the event that the
company recovers from its financial crisis, in accordance with Section 4, Article III of the Collective
Bargaining Agreement concluded on July 5, 1983.
In November 1986, Philtread, apparently having recovered from its financial reverses, expanded its
operations and hired new personnel. Upon discovery of this development, petitioners filed their
respective applications for employment with Philtread, which however, merely agreed to consider
them for future vacancies. Subsequent demands for re-employment made by petitioners were
ignored. Even the request of the incumbent union for Philtread to stop hiring new personnel until
petitioners were first hired failed to elicit any favorable response.
Thus, on December 5, 1988, petitioners lodged a complaint with the National Capital Region
Arbitration Branch of the NLRC for unfair labor practice (ULP), damages and attorney's fees against
Philtread.
Both parties submitted their respective position papers. On its part, Philtread moved for the
dismissal of the complaint based on two grounds, namely: (1) that the NLRC lacked jurisdiction,
there being no employer-employee relationship between it and petitioners and that the basic issue
involved was the interpretation of a contract, the CBA, which was cognizable by the regular courts;
and (2) that petitioners had no locus standi, not being privy to the CBA executed between the
union and Philtread.
Petitioners, however, challenging Philtread's motion to dismiss, stressed that the complaint was
one for unfair labor practice precipitated by the unjust and unreasonable refusal of Philtread to reemploy them, as mandated by the provisions of Section 4, Article III of the 1986 and 1983 CBAs.
Being one for unfair labor practice, petitioners concluded that the NLRC had jurisdiction over the
case, pursuant to Article 217 (a) (1) of the Labor Code.
On August 31, 1989, Labor Arbiter Edgardo M. Madriaga rendered a decision dismissing the
complaint but directing Philtread to give petitioners priority in hiring, as well as those former

11

employees similarly situated for available positions provided they meet the necessary current
qualifications. In dismissing the complaint, the Labor Arbiter, however, did not tackle the jurisdictional
issue posed by Philtread in its position paper. Instead, he dwelt solely on the question whether the
petitioners were entitled to priority in re-employment on the basis of the CBA.
Petitioners duly appealed the decision of the Labor Arbiter to the NLRC. Philtread opted not to
interpose an appeal despite the Labor Arbiter's failure to rule squarely on the question of
jurisdiction.
On April 15, 1992, the NLRC issued a resolution reversing the decision of the Labor Arbiter. It
directed Philtread to re-employ petitioners and other employees similarly situated, regardless of
age qualifications and other pre-employment conditions, subject only to existing vacancies and a
finding of good physical condition. This resolution was received by Atty. Abraham B. Borreta of the
law firm of Borreta, Gutierrez and Leogardo on May 5, 1992, as shown by the bailiff's return.
Subsequently, Atty. Borreta filed with the NLRC on May 20, 1992, an ex parte manifestation
explaining that he was returning the copy of the resolution rendered on April 15, 1992, which,
according to him, was erroneously served on him by the process server of the NLRC. He alleged
that in the several conciliation conferences held, it was Atty. Daniel C. Gutierrez who exclusively
handled the case on behalf of Philtread and informed the Labor Arbiter and petitioners that the law
firm of Borreta, Gutierrez and Leogardo had already been dissolved.
Being of the impression that the April 15, 1992 resolution of the NLRC had been properly served at
the address of the law firm of Atty. Gutierrez and that no seasonable motion for reconsideration
was ever filed by Philtread, petitioners moved for its execution.
On November 18, 1992, the NLRC, acting on a motion for reconsideration filed by Atty. Gutierrez,
promulgated one of its challenged resolutions dismissing the complaint of petitioners. It ruled that
while petitioners had standing to sue, the complaint should have been filed with the voluntary
arbitrator, pursuant to Article 261 of the Labor Code, since the primary issue was the
implementation and interpretation of the CBA.
Dismayed by the NLRC's sudden change of position, petitioners immediately moved for
reconsideration. They pointed out that the NLRC's reliance on Article 261 of the Labor Code was
patently erroneous because it was the amended provision which was being cited by the NLRC.
They added that the amendment of Article 261 introduced by Republic Act No. 6715 took effect
only on March 21, 1989, or after the filing of the complaint on December 5, 1988. This being the
case, petitioners argued that the subsequent amendment cannot retroactively divest the Labor
Arbiter of the jurisdiction already acquired in accordance with Articles 217 and 248 of the Labor
Code. Petitioners further stressed that the resolution of April 15, 1992, had already become final
and executory since Philtread's counsel of record did not file any motion for reconsideration within
the period of ten (10) days from receipt of the resolution on May 5, 1992.
The NLRC, however, was not convinced by petitioners' assertions. In another resolution issued on
April 7, 1993, it affirmed its earlier resolution dated November 18, 1992, ruling that even before
the amendatory law took effect, matters involving bargaining agreements were already within the
exclusive jurisdiction of the voluntary arbitrator, as set forth in Article 262 of the Labor Code.
Hence, this petition.
As stated at the outset, petitioners fault the NLRC for issuing the assailed resolutions even when
the resolution sought to be reconsidered had already attained finality upon Philtread's failure to
timely move for its reconsideration. They posit that since the bailiff's return indicated May 5, 1992,
as the date of receipt of the April 15, 1992 resolution by the law firm of Borreta, Gutierrez and
Leogardo, Philtread's counsel of record, then Philtread only had ten (10) calendar days or until May
15, 1992, within which to file a motion for reconsideration. Since Philtread indisputably failed to file

12

any such motion within said period, petitioners deemed it highly irregular and capricious for the
NLRC to still allow reconsideration of its April 15, 1992 resolution.
The petition is impressed with merit.
Time and again, this Court has been emphatic in ruling that the seasonable filing of a motion for
reconsideration within the l0-day reglementary period following the receipt by a party of any order,
resolution or decision of the NLRC, is a mandatory requirement to forestall the finality of such
order, resolution or decision. The statutory bases for this is found in Article 223 of the Labor Code and
Section 14, Rule VII of the New Rules of Procedure of the National Labor Relations Commission.
In the case at bar, it is uncontroverted that Philtread's counsel filed a motion for reconsideration of
the April 15, 1992 resolution only on June 5, 1992, or 31 days after receipt of said resolution. It was
thus incumbent upon the NLRC to have dismissed outright Philtread's late motion for reconsideration.
By doing exactly the opposite, its actuation was not only whimsical and capricious but also a
demonstration of its utter disregard for its very own rules. Certiorari, therefore, lies.
To be sure, it is settled doctrine that the NLRC, as an administrative and quasi-judicial body, is not
bound by the rigid application of technical rules of procedure in the conduct of its
proceedings. However, the filing of a motion for reconsideration and filing it ON TIME are not mere
technicalities of procedure. These are jurisdictional and mandatory requirements which must be strictly
complied with. Although there are exceptions to said rule, the case at bar presents no peculiar
circumstances warranting a departure therefrom.
The Court is aware of Philtread's obvious attempt to skirt the requirement for seasonable filing of a
motion for reconsideration by persuading us that both the Labor Arbiter and the NLRC have no
jurisdiction over petitioners' complaint. Jurisdiction, Philtread claims, lies instead with the voluntary
arbitrator so that when the Labor Arbiter and the NLRC took cognizance of the case, their decisions
thereon were null and void and, therefore, incapable of attaining finality. In short, Philtread
maintains that the ten-day reglementary period could not have started running and, therefore, its
motion could not be considered late.
The argument is not tenable. While we agree with the dictum that a void judgment cannot attain
finality, said rule, however, is only relevant if the tribunal or body which takes cognizance of a
particular subject matter indeed lacks jurisdiction over the same. In this case, the rule adverted to
is misapplied for it is actually the Labor Arbiter and the NLRC which possess jurisdiction over
petitioners' complaint and NOT the voluntary arbitrator, as erroneously contended by Philtread.
In this regard, we observe that there is a confusion in the minds of both Philtread and the NLRC
with respect to the proper jurisdiction of the voluntary arbitrator. They appear to share the view
that once the question involved is an interpretation or implementation of CBA provisions, which in
this case is the re-employment clause, then the same necessarily falls within the competence of
the voluntary arbitrator pursuant to Article 261 of the Labor Code.
Respondents' posture is too simplistic and finds no support in law or in jurisprudence. When the
issue concerns an interpretation or implementation of the CBA, one cannot immediately jump to
the conclusion that jurisdiction is with the voluntary arbitrator. There is an equally important need
to inquire further if the disputants involved are the union and the employer; otherwise, the
voluntary arbitrator cannot assume jurisdiction. To this effect was the ruling of the Court in Sanyo
Philippines Workers Union-PSSLU v. Canizares, where we clarified the jurisdiction of the voluntary
arbitrator in this manner:
In the instant case, however, We hold that the Labor Arbiter and not the Grievance
Machinery provided for in the CBA has the jurisdiction to hear and decide the
complaints of the private respondents. While it appears that the dismissal of the
private respondents was made upon the recommendation of PSSLU pursuant to the
13

union security clause provided in the CBA, We are of the opinion that these facts do
not come within the phrase "grievances arising from the interpretation or
implementation of (their) Collective Bargaining Agreement and those arising from the
interpretation or enforcement of company personnel policies," the jurisdiction of
which pertains to the Grievance Machinery or thereafter, to a voluntary arbitrator or
panel of voluntary arbitrators. Article 260 of the Labor Code on grievance machinery
and voluntary arbitrator states that "(t)he 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." It is further provided in said article that
the parties to a CBA shall name or designate their respective representatives to the
grievance machinery and if the grievance is not settled in that level, it shall
automatically be referred to voluntary arbitrators (or panel of voluntary arbitrators)
designated in advance by the parties. It need not be mentioned that the parties to a
CBA are the union and the company. Hence, only disputes involving the union and
the company shall be referred to the grievance machinery or voluntary arbitrators.
(Emphasis supplied)
Since the contending parties in the instant case are not the union and Philtread, then pursuant to
the Sanyodoctrine, it is not the voluntary arbitrator who can take cognizance of the complaint,
notwithstanding Philtread's claim that the real issue is the interpretation of the CBA provision on
re-employment.
The Court, however, does not write finis to the discussion. A more important question arises: If the
voluntary arbitrator could not have assumed jurisdiction over the case, did the Labor Arbiter and
the NLRC validly acquire jurisdiction when both of them entertained the complaint?
A brief review of relevant statutory provisions is in order.
We note that at the time petitioners filed their complaint for unfair labor practice, damages and
attorney's fees on December 5, 1988, the governing provision of the Labor Code with respect to
the jurisdiction of the Labor Arbiter and the NLRC was Article 217 which states:
Art. 217. Jurisdiction of Labor Arbiters and the Commission. (a) The Labor Arbiters
shall have the original and exclusive jurisdiction to hear and decide within thirty (30)
working days after submission of the case by the parties for decision, the following
cases involving all workers, whether agricultural or non-agricultural:
1. Unfair labor practice cases;
2. Those that workers may file involving wages, hours of work and other terms and
conditions of employment;
3. All money claims of workers, including those based on non-payment or
underpayment of wages, overtime compensation, separation pay and other benefits
provided by law or appropriate agreement, except claims for employees'
compensation, social security, medicare and maternity benefits;
4. Cases involving household services; and
5. Cases arising from any violation of Article 265 of this Code, including questions
involving the legality of strikes and lockouts.

14

(b) The Commission shall have exclusive appellate jurisdiction over all
cases decided by Labor Arbiters.
Articles 261 and 262, on the other hand, defined the jurisdiction of the voluntary arbitrator, viz.:
Art. 261. Grievance machinery. Whenever a grievance arises from the
interpretation or implementation of a collective agreement, including disciplinary
actions imposed on members of the bargaining unit, the employer and the bargaining
representative shall meet to adjust the grievance. Where there is no collective
agreement and in cases where the grievance procedure as provided herein does not
apply, grievances shall be subject to negotiation, conciliation or arbitration as
provided elsewhere in this Code.
Art. 262. Voluntary arbitration. All grievances referred to in the immediately
preceding Article which are not settled through the grievance procedure provided in
the collective agreement shall be referred to voluntary arbitration prescribed in said
agreement: Provided, That termination disputes shall be governed by Article 278 of
this Code, as amended, unless the parties agree to submit them to voluntary
arbitration.
Under the above provisions then prevailing, one can understand why petitioners lodged their
complaint for ULP with the Labor Arbiter. To their mind, Philtread's refusal to re-employ them was
tantamount to a violation of the re-employment clause in the 1983 CBA which was also
substantially reproduced in the 1986 CBA. At the time, any violation of the CBA was unqualifiedly
treated as ULP of the employer falling within the competence of the Labor Arbiter to hear and
decide. Thus:
Art. 248. Unfair labor practices of employers. It shall be unlawful for an employer
to commit any of the following unfair labor practice:
xxx xxx xxx
(i) To violate a collective bargaining agreement.
On March 21, 1989, however, Republic Act 6715, or the so-called "Herrera-Veloso Amendments,"
took effect, amending several provisions of the Labor Code, including the respective jurisdictions of the
Labor Arbiter, the NLRC and the voluntary arbitrator. As a result, the present jurisdiction of the Labor
Arbiter and the NLRC is as follows:
Art. 217. Jurisdiction of Labor Arbiters and the Commission. (a) Except as
otherwise provided under this Code the Labor Arbiters shall have original and
exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the
submission of the case by the parties for decision without extension, even in the
absence of stenographic notes, the following cases involving all workers, whether
agricultural or non-agricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that workers may file
involving wages, rates of pay, hours of work and other terms and conditions of
employment;

15

4. Claims for actual, moral, exemplary and other forms of damages arising from the
employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code, including questions
involving the legality of strikes and lockouts; and
6. Except claims for Employees Compensation, Social Security, Medicare and
maternity benefits, all other claims, arising from employer-employee relations,
including those of persons in domestic or household service, involving an amount
exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with
a claim for reinstatement.
(b) The Commission shall have exclusive appellate jurisdiction over all cases decided
by Labor Arbiters.
(c) Cases arising from the interpretation or implementation of collective bargaining
agreements and those arising from the interpretation or enforcement of company
personnel policies shall be disposed of by the Labor Arbiter by referring the same to
the grievance machinery and voluntary arbitration as may be provided in said
agreements.
while that of the voluntary arbitrator is defined in this wise:
Art. 261. Jurisdiction of Voluntary Arbitrators or panel of Voluntary Arbitrators. The
Voluntary Arbitrator or panel of Voluntary Arbitrators shall have original and exclusive
jurisdiction to hear and decide all unresolved grievances arising from the
interpretation or implementation of the Collective Bargaining Agreement and those
arising from the interpretation or enforcement of company personnel policies referred
to in the immediately preceding article. According violations of a Collective
Bargaining Agreement, except those which are gross in character, shall no longer be
treated as unfair labor practice and shall be resolved as as grievances under the
Collective Bargaining Agreement. For purposes of this article, gross violations of
Collective Bargaining Agreement shall mean flagrant and/or malicious refusal to
comply with the economic provisions of such agreement. . . . (Emphasis supplied)
Art. 262. Jurisdiction over other labor disputes. The Voluntary Arbitrator or panel of
Voluntary Arbitrators, upon agreement of the parties, shall also hear and decide all
other labor disputes including unfair labor practices and bargaining deadlocks.
With the amendments introduced by RA 6715, it can be gleaned that the Labor Arbiter still retains
jurisdiction over ULP cases. There is, however, a significant change: The unqualified jurisdiction
conferred upon the Labor Arbiter prior to the amendment by RA 6715 has been narrowed down so
that "violations of a Collective Bargaining Agreement, except those which are gross in
character, shall no longer be treated as unfair labor practice but as grievances under the
Collective Bargaining Agreement. It is further stated that "gross violations of Collective Bargaining
Agreement shall mean flagrant and/or malicious refusal to comply with the economic provisions of
such agreement." Hence, for a ULP case to be cognizable by the Labor Arbiter, and the NLRC to
exercise its appellate jurisdiction, the allegations in the complaint should show prima facie the
concurrence of two things, namely: (1) gross violation of the CBA; AND (2) the violation pertains to
the economic provisions of the CBA.
In several instances prior to the instant case, the Court already made its pronouncement that RA
6715 is in the nature of a curative statute. As such, we declared that it can be applied retroactively
to pending cases. Thus, inBriad Agro Development Corporation v. Dela Cerna, we held:

16

Republic Act No. 6715, like its predecessors, Executive Order No. 111 and Article 217,
as amended, has retroactive application. Thus, when this new law divested Regional
Directors of the power to hear money claims, the divestment affected pending
litigations. It also affected this particular case. (Note that under par 6, where the
claim does not exceed P5,000.00, regional directors have jurisdiction).
In Garcia v. Martinez, we categorically held that amendments relative to the
jurisdiction of labor arbiters (under Presidential Decree No. 1367, divesting the labor
arbiter of jurisdiction) partake of the nature of curative statutes, thus:
It now appears that at the time this case was decided the lower court
had jurisdiction over Velasco's complaint although at the time it was
filed said court was not clothed with such jurisdiction. The lack of
jurisdiction was cured by the issuance of the amendatory decree which
is in the nature of a curative statute with retrospective application to a
pending proceeding, like Civil Case No. 9657 (See 82 C.J.S. 1004).
Garcia has since been uniformly applied in subsequent cases. Thus,
in Calderon v. Court of Appeals, reiterated that PD No. 1367 [is] curative and
retrospective in nature.
The Decision of this case, finally, acknowledged the retrospective characteristics of
Executive Order No. 111. . . .
With the Briad ruling in place, the implication is that the qualified jurisdiction of the Labor Arbiter
and the NLRC should have been applied when the ULP complaint was still pending. This means that
petitioners should have been required to show in their complaint the gross nature of the CBA
violation, as well as the economic provision violated, without which the complaint would be
dismissible. Herein lies the problem. The Court's appreciation of petitioners' cause of action is that,
while it would make out a case for ULP, under present law, however, the same falls short of the
special requirements necessary to make it cognizable by the Labor Arbiter and the NLRC.
Unsubstantiated conclusions of bad faith and unjustified refusal to re-employ petitioners, to our
mind, do not constitute gross violation of the CBA for purposes of lodging jurisdiction with the
Labor Arbiter and the NLRC. Although evidentiary matters are not required (and even discouraged)
to be alleged in complaint, still, sufficient details supporting the conclusion of bad faith and unjust
refusal to re-employ petitioners must be indicated. Furthermore, it is even doubtful if the CBA
provision on re-employment fits into the accepted notion of an economic provision of the CBA.
Thus, given the foregoing considerations, may the Briad doctrine be applied to the instant case
and cause its dismissal for want of jurisdiction of the Labor Arbiter and the NLRC?
Upon a careful and meticulous study of Briad, the Court holds that the rationale behind it does not
apply to the present case. We adopt instead the more recent case of Erectors, Inc. v. National
Labor Relations Commission, where we refused to give retroactive application to Executive Order No.
797 which created the Philippine Overseas Employment Administration (POEA). Under said law, POEA
was vested with "original and exclusive jurisdiction over all cases, including money claims, involving
employer-employee relations arising out of or by virtue of any law or contract involving Filipino workers
for overseas employment," which jurisdiction was originally conferred upon the Labor Arbiter. As in the
instant case, the Labor Arbiter's assumption of jurisdiction therein was likewise questioned in view of
the subsequent enactment of E.O. 797. In ruling against the retroactive application of the law, the Court
explained its position as follows:
The rule is that jurisdiction over the subject matter is determined by the law in force
at the time of the commencement of the action. On March 31, 1982, at the time
private respondent filed his complaint against the petitioner, the prevailing laws were
Presidential Decree No. 1691 and Presidential Decree No. 1391 which vested the
Regional Offices of the Ministry of Labor and the Labor Arbiters with "original and

17

exclusive jurisdiction over all cases involving employer-employee relations including

money claims arising out of any law or contracts involving Filipino workers for
overseas employment." At the time of the filing of the complaint, the Labor Arbiter
had clear jurisdiction over the same.
E.O. No. 797 did not divest the Labor Arbiter's authority to hear and decide the case
filed by private respondent prior to its effectivity. Laws should only be applied
prospectively unless the legislative intent to give them retroactive effect is expressly
declared or is necessarily implied from the language used. We fail to perceive in the
language of E.O. No. 797 an intention to give it retroactive effect.
The case of Briad Agro Development Corp. vs. Dela Cerna cited by the petitioner is
not applicable to the case at bar. In Briad, the Court applied the exception rather
than the general rule. In this case, Briad Agro Development Corp. and L.M. Camus
Engineering Corp. challenged the jurisdiction of the Regional Director of the
Department of Labor and Employment over cases involving workers' money claims,
since Article 217 of the Labor Code, the law in force at the time of the filing of the
complaint, vested in the Labor Arbiters exclusive jurisdiction over such cases. The
Court dismissed the petition in its Decision dated June 29, 1989. It ruled that the
enactment of E.O. No. 111, amending Article 217 of the Labor Code, cured the
Regional Director's lack of jurisdiction by giving the Labor Arbiter and the Regional
Director concurrent jurisdiction over all cases involving money claims. However, on
November 9, 1989, the Court, in a Resolution, reconsidered and set aside its June 29
Decision and referred the case to the Labor Arbiter for proper proceedings, in view of
the promulgation of Republic Act (R.A.) 6715 which divested the Regional Directors of
the power to hear money claims. It bears emphasis that the Court accorded E.O. No.
111 and R.A. 6715 a retroactive application because as curative statutes, they fall
under the exceptions to the rule on prospectivity of laws.
E.O. No. 111, amended Article 217 of the Labor Code to widen the worker's access to
the government for redress of grievances by giving the Regional Directors and Labor
Arbiters concurrent jurisdiction over cases involving money claims. This amendment,
however, created a situation where the jurisdiction of the Regional Directors and the
Labor Arbiters overlapped. As a remedy, R.A. 6715 further amended Article 217 by
delineating their respective jurisdictions. Under R.A. 6715, the Regional Director has
exclusive original jurisdiction over cases involving money claims provided: (1) the
claim is presented by an employer or person employed in domestic or household
service, or househelper under the Code; (2) the claimant, no longer being employed,
does not seek reinstatement; and (3) the aggregate money claim of the employee or
househelper does not exceed P5,000.00. All other cases within the exclusive and
original jurisdiction of the Labor Arbiter. E.O. No. 111 and R.A. 6715 are therefore
curative statutes. A curative statute is enacted to cure defects in a prior law or to
validate legal proceedings, instruments or acts of public authorities which would
otherwise be void for want of conformity with certain existing legal requirements.
The law at bar, E.O. No. 797, is not a curative statute. . . .
We do not find any reason why the Court should not apply the above ruling to the case at bar,
notwithstanding the fact that a different law is involved. Actually, this is not the first time that the
Court refused to apply RA 6715 retroactively. Our previous decisions on whether to give it retroactive
application or not depended to a great extent on what amended provisions were under consideration,
as well as the factual circumstances to which they were made to apply. In Briad, the underlying reason
for applying RA 6715 retroactively was the fact that prior to its amendment, Article 217 of the Labor
Code, as amended by then Executive Order No. 111, created a scenario where the Labor Arbiters and
the Regional Directors of the Department of Labor and Employment (DOLE) had overlapping jurisdiction
over money claims. This situation was viewed as a defect in the law so that when RA No. 6715 was

18

passed and delineated the jurisdiction of the Labor Arbiters and Regional Directors, the Court deemed it
a rectification of such defect; hence, the conclusion that it was curative in nature and, therefore, must
be applied retroactively.

The same thing cannot be said of the case at bar. Like in Erectors, the instant case presents no
defect in the law requiring a remedy insofar as the jurisdiction of the Labor Arbiter and the
Voluntary Arbitrator is concerned. There is here no overlapping of jurisdiction to speak of because
matters involving interpretation and implementation of CBA provisions, as well as interpretation
and enforcement of company personnel policies, have always been determined by the Voluntary
Arbitrator even prior to RA 6715. Similarly, all ULP cases were exclusively within the jurisdiction of
the Labor Arbiter. What RA 6715 merely did was to re-apportion the jurisdiction over ULP cases by
conferring exclusive jurisdiction over such ULP cases that do not involve gross violation of a CBA's
economic provision upon the voluntary arbitrator. We do not see anything in the act of reapportioning jurisdiction curative of any defect in the law as it stood prior to the enactment of RA
6715. The Court view it as merely a matter of change in policy of the lawmakers, especially since
the 1987 Constitution adheres to the preferential use of voluntary modes of dispute
settlement. This, instead of the inherent defect in the law, must be the rationale that prompted the
amendment. Hence, we uphold the jurisdiction of the Labor Arbiter which attached to this case at the
time of its filing on December 5, 1988.
Finally, the contention that it was Atty. Gutierrez who exclusively represented Philtread and that
the law firm of Borreta, Gutierrez and Leogardo had been dissolved, are lame excuses to cast
doubt on the propriety of service to Atty. Borreta. It must be noted that the complaint of petitioners
was filed on December 5, 1988. Presumably, the preliminary conferences adverted to by Atty.
Borreta, where Atty. Gutierrez supposedly declared that he was exclusively representing Philtread,
transpired at around that date. The Court, however, is surprised to discover that the record bears a
Notice of Change of Address dated March 12, 1990, filed by Atty. Gutierrez, indicating therein that
the counsel for respondent (Philtread) was "Borreta, Gutierrez and Leogardo" whose address could
be found at the "3rd Floor, Commodore Condominium Arquiza corner M. Guerrero Streets, Ermita,
Manila." If, indeed, Atty. Gutierrez declared during the Labor Arbiter's proceedings that he was
exclusively representing Philtread, why then did he use the firm's name, and its new address at
that, in the aforementioned notice to the NLRC? Moreover, why did Atty. Borreta take fifteen days
to file his Manifestation and inform the NLRC of the "improper" service of the resolution to him?
Why did he not object immediately to the service by the bailiff? Considering that Atty. Gutierrez
and Atty. Borreta were once partners in their law firm, it behooves Atty. Borreta to have at least
advised his former partner of the receipt of the resolution. As a lawyer, his receipt of the adverse
resolution should have alerted him of the adverse consequences which might follow if the same
were not acted upon promptly, as what in fact happened here. As for Atty. Gutierrez, if the law firm
of Borreta, Gutierrez, and Leogardo were really dissolved, it was incumbent upon him not to have
used the firm's name in the first place, or he should have withdrawn the appearance of the firm
and entered his own appearance, in case the dissolution took place midstream. By failing to
exercise either option, Atty. Gutierrez cannot now blame the NLRC for serving its resolution at the
address of the firm still on record. To our mind, these excuses cannot camouflage the clever ploy of
Philtread's counsel to earn a last chance to move for reconsideration. This Court, it bears emphasizing,
is not impressed, but looks incredulously at such superficial moves.
WHEREFORE, the instant petition is hereby GRANTED. The assailed resolutions of the NLRC dated
November 18, 1992, and April 7, 1993, are SET ASIDE, while its resolution dated April 15, 1992, is
REINSTATED for immediate execution. SO ORDERED.

JURISDICTION OVER BREACH OF CONTRACTUAL OBLIGATIONS

G.R. No. 154830

June 8, 2007

19

PIONEER CONCRETE PHILIPPINES, INC., PIONEER PHILIPPINES HOLDINGS, and PHILIP J.

KLEPZIG,petitioners,
vs.
ANTONIO D. TODARO, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari seeking to annul and set aside the
Decision of the Court of Appeals (CA) dated October 31, 2000 in CA-G.R. SP No. 54155 and its
Resolution of August 21, 2002 denying petitioners Motion for Reconsideration.
The factual and procedural antecedents of the case are as follows:
On January 16, 1998, herein respondent Antonio D. Todaro (Todaro) filed with the Regional Trial
Court (RTC) of Makati City, a complaint for Sum of Money and Damages with Preliminary
Attachment against Pioneer International Limited (PIL), Pioneer Concrete Philippines, Inc. (PCPI),
Pioneer Philippines Holdings, Inc. (PPHI), John G. McDonald (McDonald) and Philip J. Klepzig
(Klepzig).
In his complaint, Todaro alleged that PIL is a corporation duly organized and existing under the
laws of Australia and is principally engaged in the ready-mix concrete and concrete aggregates
business; PPHI is the company established by PIL to own and hold the stocks of its operating
company in the Philippines; PCPI is the company established by PIL to undertake its business of
ready-mix concrete, concrete aggregates and quarrying operations in the Philippines; McDonald is
the Chief Executive of the Hongkong office of PIL; and, Klepzig is the President and Managing
Director of PPHI and PCPI; Todaro has been the managing director of Betonval Readyconcrete, Inc.
(Betonval), a company engaged in pre-mixed concrete and concrete aggregate production; he
resigned from Betonval in February 1996; in May 1996, PIL contacted Todaro and asked him if he
was available to join them in connection with their intention to establish a ready-mix concrete
plant and other related operations in the Philippines; Todaro informed PIL of his availability and
interest to join them; subsequently, PIL and Todaro came to an agreement wherein the former
consented to engage the services of the latter as a consultant for two to three months, after which,
he would be employed as the manager of PIL's ready-mix concrete operations should the company
decide to invest in the Philippines; subsequently, PIL started its operations in the Philippines;
however, it refused to comply with its undertaking to employ Todaro on a permanent basis.
Instead of filing an Answer, PPHI, PCPI and Klepzig separately moved to dismiss the complaint on
the grounds that the complaint states no cause of action, that the RTC has no jurisdiction over the
subject matter of the complaint, as the same is within the jurisdiction of the NLRC, and that the
complaint should be dismissed on the basis of the doctrine of forum non conveniens.
In its Order dated January 4, 1999, the RTC of Makati, Branch 147, denied herein petitioners'
respective motions to dismiss. Herein petitioners, as defendants, filed an Urgent Omnibus
Motion for the reconsideration of the trial court's Order of January 4, 1999 but the trial court denied
it via its Order dated June 3, 1999.
On August 3, 1999, herein petitioners filed a Petition for Certiorari with the CA. On October 31,
2000, the CA rendered its presently assailed Decision denying herein petitioners' Petition
for Certiorari. Petitioners filed a Motion for Reconsideration but the CA denied it in its Resolution
dated August 21, 2002.

20

Hence, herein Petition for Review on Certiorari based on the following assignment of errors:
A.
THE COURT OF APPEALS' CONCLUSION THAT THE COMPLAINT STATES A CAUSE OF ACTION
AGAINST PETITIONERS IS WITHOUT ANY LEGAL BASIS. THE ANNEXES TO THE COMPLAINT
CLEARLY BELIE THE ALLEGATION OF EXISTENCE OF AN EMPLOYMENT CONTRACT BETWEEN
PRIVATE RESPONDENT AND PETITIONERS.
B.
THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORD
WITH LAW AND WITH APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT UPHELD
THE JURISDICTION OF THE TRIAL COURT DESPITE THE FACT THAT THE COMPLAINT
INDUBITABLY SHOWS THAT IT IS AN ACTION FOR AN ALLEGED BREACH OF EMPLOYMENT
CONTRACT, AND HENCE, FALLS WITHIN THE EXLCUSIVE JURISDICTION OF THE NATIONAL
LABOR RELATIONS COMMISSION.
C
THE COURT OF APPEALS DISREGARDED AND FAILED TO CONSIDER THE PRINCIPLE OF
"FORUM NON CONVENIENS" AS A VALID GROUND FOR DISMISSING A COMPLAINT.
In their first assigned error, petitioners contend that there was no perfected employment contract
between PIL and herein respondent. Petitioners assert that the annexes to respondent's complaint
show that PIL's offer was for respondent to be employed as the manager only of its pre-mixed
concrete operations and not as the company's managing director or CEO. Petitioners argue that
when respondent reiterated his intention to become the manager of PIL's overall business venture
in the Philippines, he, in effect did not accept PIL's offer of employment and instead made a
counter-offer, which, however, was not accepted by PIL. Petitioners also contend that under Article
1318 of the Civil Code, one of the requisites for a contract to be perfected is the consent of the
contracting parties; that under Article 1319 of the same Code, consent is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute the
contract; that the offer must be certain and the acceptance absolute; that a qualified acceptance
constitutes a counter-offer. Petitioners assert that since PIL did not accept respondent's counteroffer, there never was any employment contract that was perfected between them.
Petitioners further argue that respondent's claim for damages based on the provisions of Articles
19 and 21 of the Civil Code is baseless because it was shown that there was no perfected
employment contract.
Assuming, for the sake of argument, that PIL may be held liable for breach of employment
contract, petitioners contend that PCPI and PPHI, may not also be held liable because they are
juridical entities with personalities which are separate and distinct from PIL, even if they are
subsidiary corporations of the latter. Petitioners also aver that the annexes to respondent's
complaint show that the negotiations on the alleged employment contract took place between
respondent and PIL through its office in Hongkong. In other words, PCPI and PPHI were not privy to
the negotiations between PIL and respondent for the possible employment of the latter; and under
Article 1311 of the Civil Code, a contract is not binding upon and cannot be enforced against one
who was not a party to it even if he be aware of such contract and has acted with knowledge
thereof.

21

Petitioners further assert that petitioner Klepzig may not be held liable because he is simply acting
in his capacity as president of PCPI and PPHI and settled is the rule that an officer of a corporation
is not personally liable for acts done in the performance of his duties and within the bounds of the
authority conferred on him. Furthermore, petitioners argue that even if PCPI and PPHI are held
liable, respondent still has no cause of action against Klepzig because PCPI and PPHI have
personalities which are separate and distinct from those acting in their behalf, such as Klepzig.
As to their second assigned error, petitioners contend that since herein respondent's claims for
actual, moral and exemplary damages are solely premised on the alleged breach of employment
contract, the present case should be considered as falling within the exclusive jurisdiction of the
NLRC.
With respect to the third assigned error, petitioners assert that the principle of forum non
conveniens dictates that even where exercise of jurisidiction is authorized by law, courts may
refuse to entertain a case involving a foreign element where the matter can be better tried and
decided elsewhere, either because the main aspects of the case transpired in a foreign jurisdiction
or the material witnesses have their residence there and the plaintiff sought the forum merely to
secure procedural advantage or to annoy or harass the defendant. Petitioners also argue that one
of the factors in determining the most convenient forum for conflicts problem is the power of the
court to enforce its decision. Petitioners contend that since the majority of the defendants in the
present case are not residents of the Philippines, they are not subject to compulsory processes of
the Philippine court handling the case for purposes of requiring their attendance during trial. Even
assuming that they can be summoned, their appearance would entail excessive costs. Petitioners
further assert that there is no allegation in the complaint from which one can conclude that the
evidence to be presented during the trial can be better obtained in the Philippines. Moreover, the
events which led to the present controversy occurred outside the Philippines. Petitioners conclude
that based on the foregoing factual circumstances, the case should be dismissed under the
principle of forum non conveniens.
In his Comment, respondent extensively quoted the assailed CA Decision maintaining that the
factual allegations in the complaint determine whether or not the complaint states a cause of
action.
As to the question of jurisdiction, respondent contends that the complaint he filed was not based
on a contract of employment. Rather, it was based on petitioners' unwarranted breach of their
contractual obligation to employ respondent. This breach, respondent argues, gave rise to an
action for damages which is cognizable by the regular courts.
Even assuming that there was an employment contract, respondent asserts that for the NLRC to
acquire jurisdiction, the claim for damages must have a reasonable causal connection with the
employer-employee relationship of petitioners and respondent.
Respondent further argues that there is a perfected contract between him and petitioners as they
both agreed that the latter shall employ him to manage and operate their ready-mix concrete
operations in the Philippines. Even assuming that there was no perfected contract, respondent
contends that his complaint alleges an alternative cause of action which is based on the provisions
of Articles 19 and 21 of the Civil Code.
As to the applicability of the doctrine of forum non conveniens, respondent avers that the question
of whether a suit should be entertained or dismissed on the basis of the principle of forum non
conveniens depends largely upon the facts of the particular case and is addressed to the sound
discretion of the trial judge, who is in the best position to determine whether special circumstances
require that the court desist from assuming jurisdiction over the suit.
22

The petition lacks merit.

Section 2, Rule 2 of the Rules of Court, as amended, defines a cause of action as the act or
omission by which a party violates a right of another. A cause of action exists if the following
elements are present: (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 violative 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.
In Hongkong and Shanghai Banking Corporation Limited v. Catalan, this Court held:
The elementary test for failure to state a cause of action is whether the complaint alleges
facts which if true would justify the relief demanded. Stated otherwise, may the court render
a valid judgment upon the facts alleged therein? The inquiry is into the sufficiency, not the
veracity of the material allegations. If the allegations in the complaint furnish sufficient
basis on which it can be maintained, it should not be dismissed regardless of the defense
that may be presented by the defendants.
Moreover, the complaint does not have to establish or allege 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. To sustain a
motion to dismiss for lack of cause of action, the complaint must show that the claim for relief does
not exist, rather than that a claim has been defectively stated, or is ambiguous, indefinite or
uncertain.
Hence, in resolving whether or not the Complaint in the present case states a cause of action, the
trial court correctly limited itself to examining the sufficiency of the allegations in the Complaint as
well as the annexes thereto. It is proscribed from inquiring into the truth of the allegations in the
Complaint or the authenticity of any of the documents referred or attached to the Complaint, since
these are deemed hypothetically admitted by the respondent.
This Court has reviewed respondents allegations in its Complaint. In a nutshell, respondent alleged
that herein petitioners reneged on their contractual obligation to employ him on a permanent
basis. This allegation is sufficient to constitute a cause of action for damages.
The issue as to whether or not there was a perfected contract between petitioners and respondent
is a matter which is not ripe for determination in the present case; rather, this issue must be taken
up during trial, considering that its resolution would necessarily entail an examination of the
veracity of the allegations not only of herein respondent as plaintiff but also of petitioners as
defendants.
The Court does not agree with petitioners' contention that they were not privy to the negotiations
for respondent's possible employment. It is evident from paragraphs 24 to 28 of the
Complaint that, on various occasions, Klepzig conducted negotiations with respondent regarding
the latter's possible employment. In fact, Annex "H" of the complaint shows that it was Klepzig who
informed respondent that his company was no longer interested in employing respondent. Hence,
based on the allegations in the Complaint and the annexes attached thereto, respondent has a
cause of action against herein petitioners.
As to the question of jurisdiction, this Court has consistently held that where no employeremployee relationship exists between the parties and no issue is involved which may be resolved
by reference to the Labor Code, other labor statutes or any collective bargaining agreement, it is

23

the Regional Trial Court that has jurisdiction. In the present case, no employer-employee
relationship exists between petitioners and respondent. In fact, in his complaint, private
respondent is not seeking any relief under the Labor Code, but seeks payment of damages on
account of petitioners' alleged breach of their obligation under their agreement to employ him. It is
settled that an action for breach of contractual obligation is intrinsically a civil dispute. In the
alternative, respondent seeks redress on the basis of the provisions of Articles 19 and 21 of the
Civil Code. Hence, it is clear that the present action is within the realm of civil law, and jurisdiction
over it belongs to the regular courts.
With respect to the applicability of the principle of forum non conveniens in the present case, this
Court's ruling inBank of America NT & SA v. Court of Appeals is instructive, to wit:
The doctrine of forum non conveniens, literally meaning the forum is inconvenient,
emerged in private international law to deter the practice of global forum shopping, that is
to prevent non-resident litigants from choosing the forum or place wherein to bring their suit
for malicious reasons, such as to secure procedural advantages, to annoy and harass the
defendant, to avoid overcrowded dockets, or to select a more friendly venue. Under this
doctrine, a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it
is not the most "convenient" or available forum and the parties are not precluded from
seeking remedies elsewhere.
Whether a suit should be entertained or dismissed on the basis of said doctrine depends
largely upon the facts of the particular case and is addressed to the sound discretion of the
trial court. In the case ofCommunication Materials and Design, Inc. vs. Court of Appeals, this
Court held that "xxx [a] Philippine Court may assume jurisdiction over the case if it chooses
to do so; provided, that the following requisites are met: (1) that the Philippine Court is one
to which the parties may conveniently resort to; (2) that the Philippine Court is in a position
to make an intelligent decision as to the law and the facts; and, (3) that the Philippine Court
has or is likely to have power to enforce its decision."
Moreover, this Court enunciated in Philsec. Investment Corporation vs. Court of Appeals,
that the doctrine of forum non conveniens should not be used as a ground for a
motion to dismiss because Sec. 1, Rule 16 of the Rules of Court does not include
said doctrine as a ground. This Court further ruled that while it is within the
discretion of the trial court to abstain from assuming jurisdiction on this ground,
it should do so only after vital facts are established, to determine whether special
circumstances require the courts desistance; and that the propriety of
dismissing a case based on this principle of forum non conveniens requires a
factual determination, hence it is more properly considered a matter of
defense. (emphasis supplied)
In the present case, the factual circumstances cited by petitioners which would allegedly justify the
application of the doctrine of forum non conveniens are matters of defense, the merits of which
should properly be threshed out during trial.
WHEREFORE, the instant petition is DENIED and the assailed Decision and Resolution of the Court
of Appeals are AFFIRMED.
Costs against petitioners. SO ORDERED.

24

WHO ARE CORPORATE OFFICERS FOR THE PURPOSES OF JURISDICTION OVER THE
DISPUTE
G.R. No. 171993

December 12, 2011

MARC II MARKETING, INC. and LUCILA V. JOSON, Petitioners,

vs.
ALFREDO M. JOSON, Respondent.
DECISION
PEREZ, J.:
In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, herein petitioners Marc
II Marketing, Inc. and Lucila V. Joson assailed the Decision dated 20 June 2005 of the Court of
Appeals in CA-G.R. SP No. 76624 for reversing and setting aside the Resolution of the National
Labor Relations Commission (NLRC) dated 15 October 2002, thereby affirming the Labor Arbiters
Decision dated 1 October 2001 finding herein respondent Alfredo M. Josons dismissal from
employment as illegal. In the questioned Decision, the Court of Appeals upheld the Labor Arbiters
jurisdiction over the case on the basis that respondent was not an officer but a mere employee of
petitioner Marc II Marketing, Inc., thus, totally disregarding the latters allegation of intra-corporate
controversy. Nonetheless, the Court of Appeals remanded the case to the NLRC for further
proceedings to determine the proper amount of monetary awards that should be given to
respondent.
Assailed as well is the Court of Appeals Resolution4 dated 7 March 2006 denying their Motion for
Reconsideration.
Petitioner Marc II Marketing, Inc. (petitioner corporation) is a corporation duly organized and
existing under and by virtue of the laws of the Philippines. It is primarily engaged in buying,
marketing, selling and distributing in retail or wholesale for export or import household appliances
and products and other items. It took over the business operations of Marc Marketing, Inc. which
was made non-operational following its incorporation and registration with the Securities and
Exchange Commission (SEC). Petitioner Lucila V. Joson (Lucila) is the President and majority
stockholder of petitioner corporation. She was also the former President and majority stockholder
of the defunct Marc Marketing, Inc.
Respondent Alfredo M. Joson (Alfredo), on the other hand, was the General Manager, incorporator,
director and stockholder of petitioner corporation.
The controversy of this case arose from the following factual milieu:
Before petitioner corporation was officially incorporated, respondent has already been engaged by
petitioner Lucila, in her capacity as President of Marc Marketing, Inc., to work as the General
Manager of petitioner corporation. It was formalized through the execution of a Management
Contract dated 16 January 1994 under the letterhead of Marc Marketing, Inc. as petitioner
corporation is yet to be incorporated at the time of its execution. It was explicitly provided therein
that respondent shall be entitled to 30% of its net income for his work as General Manager.
Respondent will also be granted 30% of its net profit to compensate for the possible loss of
opportunity to work overseas.

25

Pending incorporation of petitioner corporation, respondent was designated as the General

Manager of Marc Marketing, Inc., which was then in the process of winding up its business. For
occupying the said position, respondent was among its corporate officers by the express provision
of Section 1, Article IV of its by-laws.
On 15 August 1994, petitioner corporation was officially incorporated and registered with the SEC.
Accordingly, Marc Marketing, Inc. was made non-operational. Respondent continued to discharge
his duties as General Manager but this time under petitioner corporation.
Pursuant to Section 1, Article IV of petitioner corporations by-laws, its corporate officers are as
follows: Chairman, President, one or more Vice-President(s), Treasurer and Secretary. Its Board of
Directors, however, may, from time to time, appoint such other officers as it may determine to be
necessary or proper.
Per an undated Secretarys Certificate, petitioner corporations Board of Directors conducted a
meeting on 29 August 1994 where respondent was appointed as one of its corporate officers with
the designation or title of General Manager to function as a managing director with other duties
and responsibilities that the Board of Directors may provide and authorized.
Nevertheless, on 30 June 1997, petitioner corporation decided to stop and cease its operations, as
evidenced by an Affidavit of Non-Operation dated 31 August 1998, due to poor sales collection
aggravated by the inefficient management of its affairs. On the same date, it formally informed
respondent of the cessation of its business operation. Concomitantly, respondent was apprised of
the termination of his services as General Manager since his services as such would no longer be
necessary for the winding up of its affairs.
Feeling aggrieved, respondent filed a Complaint for Reinstatement and Money Claim against
petitioners before the Labor Arbiter which was docketed as NLRC NCR Case No. 00-03-04102-99.
In his complaint, respondent averred that petitioner Lucila dismissed him from his employment
with petitioner corporation due to the feeling of hatred she harbored towards his family. The same
was rooted in the filing by petitioner Lucilas estranged husband, who happened to be
respondents brother, of a Petition for Declaration of Nullity of their Marriage.
For the parties failure to settle the case amicably, the Labor Arbiter required them to submit their
respective position papers. Respondent complied but petitioners opted to file a Motion to Dismiss
grounded on the Labor Arbiters lack of jurisdiction as the case involved an intra-corporate
controversy, which jurisdiction belongs to the SEC [now with the Regional Trial Court
(RTC)]. Petitioners similarly raised therein the ground of prescription of respondents monetary
claim.
On 5 September 2000, the Labor Arbiter issued an Order deferring the resolution of petitioners
Motion to Dismiss until the final determination of the case. The Labor Arbiter also reiterated his
directive for petitioners to submit position paper. Still, petitioners did not comply. Insisting that the
Labor Arbiter has no jurisdiction over the case, they instead filed an Urgent Motion to Resolve the
Motion to Dismiss and the Motion to Suspend Filing of Position Paper.
In an Order dated 15 February 2001, the Labor Arbiter denied both motions and declared final the
Order dated 5 September 2000. The Labor Arbiter then gave petitioners a period of five days from
receipt thereof within which to file position paper, otherwise, their Motion to Dismiss will be treated
as their position paper and the case will be considered submitted for decision.

26

Petitioners, through counsel, moved for extension of time to submit position paper. Despite the
requested extension, petitioners still failed to submit the same. Accordingly, the case was
submitted for resolution.
On 1 October 2001, the Labor Arbiter rendered his Decision in favor of respondent. Its decretal
portion reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered declaring [respondents]
dismissal from employment illegal. Accordingly, [petitioners] are hereby ordered:
1. To reinstate [respondent] to his former or equivalent position without loss of seniority
rights, benefits, and privileges;
2. Jointly and severally liable to pay [respondents] unpaid wages in the amount
of P450,000.00 per month from [26 March 1996] up to time of dismissal in the total amount
of P6,300,000.00;
3. Jointly and severally liable to pay [respondents] full backwages in the amount
of P450,000.00 per month from date of dismissal until actual reinstatement which at the
time of promulgation amounted toP21,600,000.00;
4. Jointly and severally liable to pay moral damages in the amount of P100,000.00 and
attorneys fees in the amount of 5% of the total monetary award. [Emphasis supplied.]
In the aforesaid Decision, the Labor Arbiter initially resolved petitioners Motion to Dismiss by
finding the ground of lack of jurisdiction to be without merit. The Labor Arbiter elucidated that
petitioners failed to adduce evidence to prove that the present case involved an intra-corporate
controversy. Also, respondents money claim did not arise from his being a director or stockholder
of petitioner corporation but from his position as being its General Manager. The Labor Arbiter
likewise held that respondent was not a corporate officer under petitioner corporations by-laws. As
such, respondents complaint clearly arose from an employer-employee relationship, thus, subject
to the Labor Arbiters jurisdiction.
The Labor Arbiter then declared respondents dismissal from employment as illegal. Respondent,
being a regular employee of petitioner corporation, may only be dismissed for a valid cause and
upon proper compliance with the requirements of due process. The records, though, revealed that
petitioners failed to present any evidence to justify respondents dismissal.
Aggrieved, petitioners appealed the aforesaid Labor Arbiters Decision to the NLRC.
In its Resolution dated 15 October 2002, the NLRC ruled in favor of petitioners by giving credence
to the Secretarys Certificate, which evidenced petitioner corporations Board of Directors meeting
in which a resolution was approved appointing respondent as its corporate officer with designation
as General Manager. Therefrom, the NLRC reversed and set aside the Labor Arbiters Decision
dated 1 October 2001 and dismissed respondents Complaint for want of jurisdiction.
The NLRC enunciated that the validity of respondents appointment and termination from the
position of General Manager was made subject to the approval of petitioner corporations Board of
Directors. Had respondent been an ordinary employee, such board action would not have been
required. As such, it is clear that respondent was a corporate officer whose dismissal involved a
purely intra-corporate controversy. The NLRC went further by stating that respondents claim for
30% of the net profit of the corporation can only emanate from his right of ownership therein as

27

stockholder, director and/or corporate officer. Dividends or profits are paid only to stockholders or
directors of a corporation and not to any ordinary employee in the absence of any profit sharing
scheme. In addition, the question of remuneration of a person who is not a mere employee but a
stockholder and officer of a corporation is not a simple labor problem. Such matter comes within
the ambit of corporate affairs and management and is an intra-corporate controversy in
contemplation of the Corporation Code.
When respondents Motion for Reconsideration was denied in another Resolution dated 23 January
2003, he filed a Petition for Certiorari with the Court of Appeals ascribing grave abuse of discretion
on the part of the NLRC.
On 20 June 2005, the Court of Appeals rendered its now assailed Decision declaring that the Labor
Arbiter has jurisdiction over the present controversy. It upheld the finding of the Labor Arbiter that
respondent was a mere employee of petitioner corporation, who has been illegally dismissed from
employment without valid cause and without due process. Nevertheless, it ordered the records of
the case remanded to the NLRC for the determination of the appropriate amount of monetary
awards to be given to respondent. The Court of Appeals, thus, decreed:
WHEREFORE, the petition is by us PARTIALLY GRANTED. The Labor Arbiter is DECLARED to have
jurisdiction over the controversy. The records are REMANDED to the NLRC for further proceedings
to determine the appropriate amount of monetary awards to be adjudged in favor of [respondent].
Costs against the [petitioners] in solidum.
Petitioners moved for its reconsideration but to no avail.
Petitioners are now before this Court with the following assignment of errors:
THE COURT OF APPEALS ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION IN
DECIDING THAT THE NLRC HAS THE JURISDICTION IN RESOLVING A PURELY INTRACORPORATE MATTER WHICH IS COGNIZABLE BY THE SECURITIES AND EXCHANGE
COMMISSION/REGIONAL TRIAL COURT.
ASSUMING, GRATIS ARGUENDO, THAT THE NLRC HAS JURISDICTION OVER THE CASE, STILL
THE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT THERE IS NO EMPLOYEREMPLOYEE RELATIONSHIP BETWEEN [RESPONDENT] ALFREDO M. JOSON AND MARC II
MARKETING, INC. [PETITIONER CORPORATION].
ASSUMING GRATIS ARGUENDO THAT THE NLRC HAS JURISDICTION OVER THE CASE, THE
COURT OF APPEALS ERRED IN NOT RULING THAT THE LABOR ARBITER COMMITTED GRAVE
ABUSE OF DISCRETION IN AWARDING MULTI-MILLION PESOS IN COMPENSATION AND
BACKWAGES BASED ON THE PURPORTED GROSS INCOME OF [PETITIONER CORPORATION].
THE COURT OF APPEALS SERIOUSLY ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION
IN NOT MAKING ANY FINDINGS AND RULING THAT [PETITIONER LUCILA] SHOULD NOT BE
HELD SOLIDARILY LIABLE IN THE ABSENCE OF EVIDENCE OF MALICE AND BAD FAITH ON HER
PART.
Petitioners fault the Court of Appeals for having sustained the Labor Arbiters finding that
respondent was not a corporate officer under petitioner corporations by-laws. They insist that
there is no need to amend the corporate by-laws to specify who its corporate officers are. The
resolution issued by petitioner corporations Board of Directors appointing respondent as General
Manager, coupled with his assumption of the said position, positively made him its corporate

28

officer. More so, respondents position, being a creation of petitioner corporations Board of
Directors pursuant to its by-laws, is a corporate office sanctioned by the Corporation Code and the
doctrines previously laid down by this Court. Thus, respondents removal as petitioner
corporations General Manager involved a purely intra-corporate controversy over which the RTC
has jurisdiction.
Petitioners further contend that respondents claim for 30% of the net profit of petitioner
corporation was anchored on the purported Management Contract dated 16 January 1994. It
should be noted, however, that said Management Contract was executed at the time petitioner
corporation was still nonexistent and had no juridical personality yet. Such being the case,
respondent cannot invoke any legal right therefrom as it has no legal and binding effect on
petitioner corporation. Moreover, it is clear from the Articles of Incorporation of petitioner
corporation that respondent was its director and stockholder. Indubitably, respondents claim for
his share in the profit of petitioner corporation was based on his capacity as such and not by virtue
of any employer-employee relationship.
Petitioners further avow that even if the present case does not pose an intra-corporate
controversy, still, the Labor Arbiters multi-million peso awards in favor of respondent were
erroneous. The same was merely based on the latters self-serving computations without any
supporting documents.
Finally, petitioners maintain that petitioner Lucila cannot be held solidarily liable with petitioner
corporation. There was neither allegation nor iota of evidence presented to show that she acted
with malice and bad faith in her dealings with respondent. Moreover, the Labor Arbiter, in his
Decision, simply concluded that petitioner Lucila was jointly and severally liable with petitioner
corporation without making any findings thereon. It was, therefore, an error for the Court of
Appeals to hold petitioner Lucila solidarily liable with petitioner corporation.
From the foregoing arguments, the initial question is which between the Labor Arbiter or the RTC,
has jurisdiction over respondents dismissal as General Manager of petitioner corporation. Its
resolution necessarily entails the determination of whether respondent as General Manager of
petitioner corporation is a corporate officer or a mere employee of the latter.
While Article 217(a)2 of the Labor Code, as amended, provides that it is the Labor Arbiter who has
the original and exclusive jurisdiction over cases involving termination or dismissal of workers
when the person dismissed or terminated is a corporate officer, the case automatically falls within
the province of the RTC. The dismissal of a corporate officer is always regarded as a corporate act
and/or an intra-corporate controversy.
Under Section 5 of Presidential Decree No. 902-A, intra-corporate controversies are those
controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members or associates; between any or all of them and the corporation, partnership
or association of which they are stockholders, members or associates, respectively; and between
such corporation, partnership or association and the State insofar as it concerns their individual
franchise or right to exist as such entity. It also includes controversies in the election or
appointments of directors, trustees, officers or managers of such
corporations, partnerships or associations.
Accordingly, in determining whether the SEC (now the RTC) has jurisdiction over the controversy,
the status or relationship of the parties and the nature of the question that is the subject of their
controversy must be taken into consideration.

29

In Easycall Communications Phils., Inc. v. King, this Court held that in the context of Presidential
Decree No. 902-A, corporate officers are those officers of a corporation who are given that
character either by the Corporation Code or by the corporations by-laws. Section 25 of the
Corporation Code specifically enumerated who are these corporate officers, to wit: (1) president;
(2) secretary; (3) treasurer; and (4) such other officers as may be provided for in the by-laws.
The aforesaid Section 25 of the Corporation Code, particularly the phrase "such other officers as
may be provided for in the by-laws," has been clarified and elaborated in this Courts recent
pronouncement in Matling Industrial and Commercial Corporation v. Coros, where it held, thus:
Conformably with Section 25, a position must be expressly mentioned in the [b]y-[l]aws in order to
be considered as a corporate office. Thus, the creation of an office pursuant to or under a [b]y[l]aw enabling provision is not enough to make a position a corporate office. [In] Guerrea v. Lezama
[citation omitted] the first ruling on the matter, held that the only officers of a corporation were
those given that character either by the Corporation Code or by the [b]y-[l]aws; the rest of the
corporate officers could be considered only as employees or subordinate officials. Thus, it was held
in Easycall Communications Phils., Inc. v. King [citation omitted]:
An "office" is created by the charter of the corporation and the officer is elected by the directors or
stockholders. On the other hand, an employee occupies no office and generally is employed not by
the action of the directors or stockholders but by the managing officer of the corporation who also
determines the compensation to be paid to such employee.
xxxx
This interpretation is the correct application of Section 25 of the Corporation Code, which plainly
states that the corporate officers are the President, Secretary, Treasurer and such other officers as
may be provided for in the [b]y-[l]aws. Accordingly, the corporate officers in the context of PD No.
902-A are exclusively those who are given that character either by the Corporation Code or by the
corporations [b]y[l]aws.
A different interpretation can easily leave the way open for the Board of Directors to circumvent
the constitutionally guaranteed security of tenure of the employee by the expedient inclusion in
the [b]y-[l]aws of an enabling clause on the creation of just any corporate officer position.
It is relevant to state in this connection that the SEC, the primary agency administering the
Corporation Code, adopted a similar interpretation of Section 25 of the Corporation Code in its
Opinion dated November 25, 1993 [citation omitted], to wit:
Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the
corporate officers enumerated in the by-laws are the exclusive Officers of the corporation and the
Board has no power to create other Offices without amending first the corporate [b]ylaws. However, the Board may create appointive positions other than the positions of
corporate Officers, but the persons occupying such positions are not considered as
corporate officers within the meaning of Section 25 of the Corporation Code and are not
empowered to exercise the functions of the corporate Officers, except those functions lawfully
delegated to them. Their functions and duties are to be determined by the Board of
Directors/Trustees. [Emphasis supplied.]
A careful perusal of petitioner corporations by-laws, particularly paragraph 1, Section 1, Article
IV, would explicitly reveal that its corporate officers are composed only of: (1) Chairman; (2)

30

President; (3) one or more Vice-President; (4) Treasurer; and (5) Secretary. The position of General
Manager was not among those enumerated.
Paragraph 2, Section 1, Article IV of petitioner corporations by-laws, empowered its Board of
Directors to appoint such other officers as it may determine necessary or proper. It is by virtue of
this enabling provision that petitioner corporations Board of Directors allegedly approved a
resolution to make the position of General Manager a corporate office, and, thereafter, appointed
respondent thereto making him one of its corporate officers. All of these acts were done without
first amending its by-laws so as to include the General Manager in its roster of corporate officers.
With the given circumstances and in conformity with Matling Industrial and Commercial
Corporation v. Coros, this Court rules that respondent was not a corporate officer of petitioner
corporation because his position as General Manager was not specifically mentioned in the roster
of corporate officers in its corporate by-laws. The enabling clause in petitioner corporations bylaws empowering its Board of Directors to create additional officers, i.e., General Manager, and the
alleged subsequent passage of a board resolution to that effect cannot make such position a
corporate office. Matling clearly enunciated that the board of directors has no power to create
other corporate offices without first amending the corporate by-laws so as to include therein the
newly created corporate office. Though the board of directors may create appointive positions
other than the positions of corporate officers, the persons occupying such positions cannot be
viewed as corporate officers under Section 25 of the Corporation Code. In view thereof, this Court
holds that unless and until petitioner corporations by-laws is amended for the inclusion of General
Manager in the list of its corporate officers, such position cannot be considered as a corporate
office within the realm of Section 25 of the Corporation Code.
This Court considers that the interpretation of Section 25 of the Corporation Code laid down in
Matling safeguards the constitutionally enshrined right of every employee to security of tenure. To
allow the creation of a corporate officer position by a simple inclusion in the corporate by-laws of
an enabling clause empowering the board of directors to do so can result in the circumvention of
that constitutionally well-protected right.
It is also of no moment that respondent, being petitioner corporations General Manager, was given
the functions of a managing director by its Board of Directors. As held in Matling, the only officers
of a corporation are those given that character either by the Corporation Code or by the corporate
by-laws. It follows then that the corporate officers enumerated in the by-laws are the exclusive
officers of the corporation while the rest could only be regarded as mere employees or subordinate
officials. Respondent, in this case, though occupying a high ranking and vital position in petitioner
corporation but which position was not specifically enumerated or mentioned in the latters bylaws, can only be regarded as its employee or subordinate official. Noticeably, respondents
compensation as petitioner corporations General Manager was set, fixed and determined not by
the latters Board of Directors but simply by its President, petitioner Lucila. The same was not
subject to the approval of petitioner corporations Board of Directors. This is an indication that
respondent was an employee and not a corporate officer.
To prove that respondent was petitioner corporations corporate officer, petitioners presented
before the NLRC an undated Secretarys Certificate showing that corporations Board of Directors
approved a resolution making respondents position of General Manager a corporate office. The
submission, however, of the said undated Secretarys Certificate will not change the fact that
respondent was an employee. The certification does not amount to an amendment of the by-laws
which is needed to make the position of General Manager a corporate office.
Moreover, as has been aptly observed by the Court of Appeals, the board resolution mentioned in
that undated Secretarys Certificate and the latter itself were obvious fabrications, a mere
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afterthought. Here we quote with conformity the Court of Appeals findings on this matter stated in
this wise:
The board resolution is an obvious fabrication. Firstly, if it had been in existence since [29 August
1994], why did not [herein petitioners] attach it to their [M]otion to [D]ismiss filed on [26 August
1999], when it could have been the best evidence that [herein respondent] was a corporate
officer? Secondly, why did they report the [respondent] instead as [herein petitioner corporations]
employee to the Social Security System [(SSS)] on [11 October 1994] or a later date than their [29
August 1994] board resolution? Thirdly, why is there no indication that the [respondent], the
person concerned himself, and the [SEC] were furnished with copies of said board resolution? And,
lastly, why is the corporate [S]ecretarys [C]ertificate not notarized in keeping with the customary
procedure? That is why we called it manipulative evidence as it was a shameless sham meant to
be thrown in as a wild card to muddle up the [D]ecision of the Labor Arbiter to the end that it be
overturned as the latter had firmly pointed out that [respondent] is not a corporate officer under
[petitioner corporations by-laws]. Regrettably, the [NLRC] swallowed the bait hook-line-and sinker.
It failed to see through its nature as a belatedly manufactured evidence. And even on the
assumption that it were an authentic board resolution, it did not make [respondent] a corporate
officer as the board did not first and properly create the position of a [G]eneral [M]anager by
amending its by-laws.
(2) The scope of the term "officer" in the phrase "and such other officers as may be
provided for in the by-laws["] (Sec. 25, par. 1), would naturally depend much on the
provisions of the by-laws of the corporation. (SEC Opinion, [4 December 1991.]) If the bylaws enumerate the officers to be elected by the board, the provision is conclusive, and the
board is without power to create new offices without amending the by-laws. (SEC Opinion,
[19 October 1971.])
(3) If, for example, the general manager of a corporation is not listed as an officer, he is to
be classified as an employee although he has always been considered as one of the
principal officers of a corporation [citing De Leon, H. S., The Corporation Code of the
Philippines Annotated, 1993 Ed., p. 215.] [Emphasis supplied.]
That respondent was also a director and a stockholder of petitioner corporation will not
automatically make the case fall within the ambit of intra-corporate controversy and be subjected
to RTCs jurisdiction. To reiterate, not all conflicts between the stockholders and the corporation are
classified as intra-corporate. Other factors such as the status or relationship of the parties and the
nature of the question that is the subject of the controversy must be considered in determining
whether the dispute involves corporate matters so as to regard them as intra-corporate
controversies. As previously discussed, respondent was not a corporate officer of petitioner
corporation but a mere employee thereof so there was no intra-corporate relationship between
them. With regard to the subject of the controversy or issue involved herein, i.e., respondents
dismissal as petitioner corporations General Manager, the same did not present or relate to an
intra-corporate dispute. To note, there was no evidence submitted to show that respondents
removal as petitioner corporations General Manager carried with it his removal as its director and
stockholder. Also, petitioners allegation that respondents claim of 30% share of petitioner
corporations net profit was by reason of his being its director and stockholder was without basis,
thus, self-serving. Such an allegation was tantamount to a mere speculation for petitioners failure
to substantiate the same.
In addition, it was not shown by petitioners that the position of General Manager was offered to
respondent on account of his being petitioner corporations director and stockholder. Also, in
contrast to NLRCs findings, neither petitioner corporations by-laws nor the Management Contract
stated that respondents appointment and termination from the position of General Manager was
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subject to the approval of petitioner corporations Board of Directors. If, indeed, respondent was a
corporate officer whose termination was subject to the approval of its Board of Directors, why is it
that his termination was effected only by petitioner Lucila, President of petitioner corporation? The
records are bereft of any evidence to show that respondents dismissal was done with the
conformity of petitioner corporations Board of Directors or that the latter had a hand on
respondents dismissal. No board resolution whatsoever was ever presented to that effect.
With all the foregoing, this Court is fully convinced that, indeed, respondent, though occupying the
General Manager position, was not a corporate officer of petitioner corporation rather he was
merely its employee occupying a high-ranking position.
Accordingly, respondents dismissal as petitioner corporations General Manager did not amount to
an intra-corporate controversy. Jurisdiction therefor properly belongs with the Labor Arbiter and not
with the RTC.
Having established that respondent was not petitioner corporations corporate officer but merely
its employee, and that, consequently, jurisdiction belongs to the Labor Arbiter, this Court will now
determine if respondents dismissal from employment is illegal.
It was not disputed that respondent worked as petitioner corporations General Manager from its
incorporation on 15 August 1994 until he was dismissed on 30 June 1997. The cause of his
dismissal was petitioner corporations cessation of business operations due to poor sales collection
aggravated by the inefficient management of its affairs.
In termination cases, the burden of proving just and valid cause for dismissing an employee from
his employment rests upon the employer. The latter's failure to discharge that burden would
necessarily result in a finding that the dismissal is unjustified.
Under Article 283 of the Labor Code, as amended, one of the authorized causes in terminating the
employment of an employee is the closing or cessation of operation of the establishment or
undertaking. Article 283 of the Labor Code, as amended, reads, thus:
ART. 283. Closure of establishment and reduction of personnel. The employer may also terminate
the employment of any employee due to the installation of labor saving-devices, redundancy,
retrenchment to prevent losses or the closing or cessation of operation of the establishment or
undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by
serving a written notice on the workers and the Department of Labor and Employment at least one
(1) month before the intended date thereof. x x x In case of retrenchment to prevent losses and in
cases of closures or cessation of operations of establishment or undertaking not due to serious
business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay
or to at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of
at least six (6) months shall be considered one (1) whole year. [Emphasis supplied.]
From the afore-quoted provision, the closure or cessation of operations of establishment or
undertaking may either be due to serious business losses or financial reverses or otherwise. If the
closure or cessation was due to serious business losses or financial reverses, it is incumbent upon
the employer to sufficiently and convincingly prove the same. If it is otherwise, the employer can
lawfully close shop anytime as long as it was bona fide in character and not impelled by a motive
to defeat or circumvent the tenurial rights of employees and as long as the terminated employees
were paid in the amount corresponding to their length of service.

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Accordingly, under Article 283 of the Labor Code, as amended, there are three requisites for a valid
cessation of business operations: (a) service of a written notice to the employees and to the
Department of Labor and Employment (DOLE) at least one month before the intended date
thereof; (b) the cessation of business must be bona fide in character; and (c) payment to the
employees of termination pay amounting to one month pay or at least one-half month pay for
every year of service, whichever is higher.
In this case, it is obvious that petitioner corporations cessation of business operations was not due
to serious business losses. Mere poor sales collection, coupled with mismanagement of its affairs
does not amount to serious business losses. Nonetheless, petitioner corporation can still validly
cease or close its business operations because such right is legally allowed, so long as it was not
done for the purpose of circumventing the provisions on termination of employment embodied in
the Labor Code. As has been stressed by this Court in Industrial Timber Corporation v. Ababon,
thus:
Just as no law forces anyone to go into business, no law can compel anybody to continue the same.
It would be stretching the intent and spirit of the law if a court interferes with management's
prerogative to close or cease its business operations just because the business is not suffering
from any loss or because of the desire to provide the workers continued employment.
A careful perusal of the records revealed that, indeed, petitioner corporation has stopped and
ceased business operations beginning 30 June 1997. This was evidenced by a notarized Affidavit of
Non-Operation dated 31 August 1998. There was also no showing that the cessation of its business
operations was done in bad faith or to circumvent the Labor Code. Nevertheless, in doing so,
petitioner corporation failed to comply with the one-month prior written notice rule. The records
disclosed that respondent, being petitioner corporations employee, and the DOLE were not given
a written notice at least one month before petitioner corporation ceased its business operations.
Moreover, the records clearly show that respondents dismissal was effected on the same date that
petitioner corporation decided to stop and cease its operation. Similarly, respondent was not paid
separation pay upon termination of his employment.
As respondents dismissal was not due to serious business losses, respondent is entitled to
payment of separation pay equivalent to one month pay or at least one-half month pay for every
year of service, whichever is higher. The rationale for this was laid down in Reahs Corporation v.
National Labor Relations Commission, thus:
The grant of separation pay, as an incidence of termination of employment under Article 283, is a
statutory obligation on the part of the employer and a demandable right on the part of the
employee, except only where the closure or cessation of operations was due to serious business
losses or financial reverses and there is sufficient proof of this fact or condition. In the absence of
such proof of serious business losses or financial reverses, the employer closing his business is
obligated to pay his employees and workers their separation pay.
The rule, therefore, is that in all cases of business closure or cessation of operation or undertaking
of the employer, the affected employee is entitled to separation pay. This is consistent with the
state policy of treating labor as a primary social economic force, affording full protection to its
rights as well as its welfare. The exception is when the closure of business or cessation of
operations is due to serious business losses or financial reverses duly proved, in which case, the
right of affected employees to separation pay is lost for obvious reasons. [Emphasis supplied.]
As previously discussed, respondents dismissal was due to an authorized cause, however,
petitioner corporation failed to observe procedural due process in effecting such dismissal. In Culili

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v. Eastern Telecommunications Philippines, Inc., this Court made the following pronouncements,
thus:
x x x there are two aspects which characterize the concept of due process under the Labor Code:
one is substantive whether the termination of employment was based on the provision of the
Labor Code or in accordance with the prevailing jurisprudence; the other is procedural the
manner in which the dismissal was effected.
Section 2(d), Rule I, Book VI of the Rules Implementing the Labor Code provides:
(d) In all cases of termination of employment, the following standards of due process shall be
substantially observed:
xxxx
For termination of employment as defined in Article 283 of the Labor Code, the requirement of due
process shall be deemed complied with upon service of a written notice to the employee and the
appropriate Regional Office of the Department of Labor and Employment at least thirty days before
effectivity of the termination, specifying the ground or grounds for termination.
In Mayon Hotel & Restaurant v. Adana, [citation omitted] we observed:
The requirement of law mandating the giving of notices was intended not only to enable the
employees to look for another employment and therefore ease the impact of the loss of their jobs
and the corresponding income, but more importantly, to give the Department of Labor and
Employment (DOLE) the opportunity to ascertain the verity of the alleged authorized cause of
termination. [Emphasis supplied].
The records of this case disclosed that there was absolutely no written notice given by petitioner
corporation to the respondent and to the DOLE prior to the cessation of its business operations.
This is evident from the fact that petitioner corporation effected respondents dismissal on the
same date that it decided to stop and cease its business operations. The necessary consequence
of such failure to comply with the one-month prior written notice rule, which constitutes a violation
of an employees right to statutory due process, is the payment of indemnity in the form of
nominal damages. In Culili v. Eastern Telecommunications Philippines, Inc., this Court further held:
In Serrano v. National Labor Relations Commission [citation omitted], we noted that "a job is more
than the salary that it carries." There is a psychological effect or a stigma in immediately finding
ones self laid off from work. This is exactly why our labor laws have provided for mandating
procedural due process clauses. Our laws, while recognizing the right of employers to terminate
employees it cannot sustain, also recognize the employees right to be properly informed of the
impending severance of his ties with the company he is working for. x x x.
x x x Over the years, this Court has had the opportunity to reexamine the sanctions imposed upon
employers who fail to comply with the procedural due process requirements in terminating its
employees. In Agabon v. National Labor Relations Commission [citation omitted], this Court
reverted back to the doctrine in Wenphil Corporation v. National Labor Relations Commission
[citation omitted] and held that where the dismissal is due to a just or authorized cause, but
without observance of the due process requirements, the dismissal may be upheld but the
employer must pay an indemnity to the employee. The sanctions to be imposed however, must be
stiffer than those imposed in Wenphil to achieve a result fair to both the employers and the
employees.

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In Jaka Food Processing Corporation v. Pacot [citation omitted], this Court, taking a cue from
Agabon, held that since there is a clear-cut distinction between a dismissal due to a just cause and
a dismissal due to an authorized cause, the legal implications for employers who fail to comply
with the notice requirements must also be treated differently:
Accordingly, it is wise to hold that: (1) if the dismissal is based on a just cause under Article 282
but the employer failed to comply with the notice requirement, the sanction to be imposed upon
him should be tempered because the dismissal process was, in effect, initiated by an act imputable
to the employee; and (2) if the dismissal is based on an authorized cause under Article 283 but the
employer failed to comply with the notice requirement, the sanction should be stiffer because the
dismissal process was initiated by the employer's exercise of his management
prerogative. [Emphasis supplied.]
Thus, in addition to separation pay, respondent is also entitled to an award of nominal damages. In
conformity with this Courts ruling in Culili v. Eastern Telecommunications Philippines, Inc. and
Shimizu Phils. Contractors, Inc. v. Callanta, both citing Jaka Food Processing Corporation v.
Pacot, this Court fixed the amount of nominal damages to P50,000.00.
With respect to petitioners contention that the Management Contract executed between
respondent and petitioner Lucila has no binding effect on petitioner corporation for having been
executed way before its incorporation, this Court finds the same meritorious.
Section 19 of the Corporation Code expressly provides:
Sec. 19. Commencement of corporate existence. - A private corporation formed or organized
under this Code commences to have corporate existence and juridical personality and is deemed
incorporated from the date the Securities and Exchange Commission issues a certificate of
incorporation under its official seal; and thereupon the incorporators, stockholders/members and
their successors shall constitute a body politic and corporate under the name stated in the articles
of incorporation for the period of time mentioned therein, unless said period is extended or the
corporation is sooner dissolved in accordance with law. [Emphasis supplied.]
Logically, there is no corporation to speak of prior to an entitys incorporation. And no contract
entered into before incorporation can bind the corporation.
As can be gleaned from the records, the Management Contract dated 16 January 1994 was
executed between respondent and petitioner Lucila months before petitioner corporations
incorporation on 15 August 1994. Similarly, it was done when petitioner Lucila was still the
President of Marc Marketing, Inc. Undeniably, it cannot have any binding and legal effect on
petitioner corporation. Also, there was no evidence presented to prove that petitioner corporation
adopted, ratified or confirmed the Management Contract. It is for the same reason that petitioner
corporation cannot be considered estopped from questioning its binding effect now that
respondent was invoking the same against it. In no way, then, can it be enforced against petitioner
corporation, much less, its provisions fixing respondents compensation as General Manager to
30% of petitioner corporations net profit. Consequently, such percentage cannot be the basis for
the computation of respondents separation pay. This finding, however, will not affect the
undisputed fact that respondent was, indeed, the General Manager of petitioner corporation from
its incorporation up to the time of his dismissal.
Accordingly, this Court finds it necessary to still remand the present case to the Labor Arbiter to
conduct further proceedings for the sole purpose of determining the compensation that respondent

36

was actually receiving during the period that he was the General Manager of petitioner
corporation, this, for the proper computation of his separation pay.
As regards petitioner Lucilas solidary liability, this Court affirms the same.
As a rule, corporation has a personality separate and distinct from its officers, stockholders and
members such that corporate officers are not personally liable for their official acts unless it is
shown that they have exceeded their authority. However, this corporate veil can be pierced when
the notion of the legal entity is used as a means to perpetrate fraud, an illegal act, as a vehicle for
the evasion of an existing obligation, and to confuse legitimate issues. Under the Labor Code, for
instance, when a corporation violates a provision declared to be penal in nature, the penalty shall
be imposed upon the guilty officer or officers of the corporation.
Based on the prevailing circumstances in this case, petitioner Lucila, being the President of
petitioner corporation, acted in bad faith and with malice in effecting respondents dismissal from
employment. Although petitioner corporation has a valid cause for dismissing respondent due to
cessation of business operations, however, the latters dismissal therefrom was done abruptly by
its President, petitioner Lucila. Respondent was not given the required one-month prior written
notice that petitioner corporation will already cease its business operations. As can be gleaned
from the records, respondent was dismissed outright by petitioner Lucila on the same day that
petitioner corporation decided to stop and cease its business operations. Worse, respondent was
not given separation pay considering that petitioner corporations cessation of business was not
due to business losses or financial reverses.
WHEREFORE, premises considered, the Decision and Resolution dated 20 June 2005 and 7 March
2006, respectively, of the Court of Appeals in CA-G.R. SP No. 76624 are hereby AFFIRMED with the
MODIFICATION finding respondents dismissal from employment legal but without proper
observance of due process. Accordingly, petitioner corporation, jointly and solidarily liable with
petitioner Lucila, is hereby ordered to pay respondent the following; (1) separation pay equivalent
to one month pay or at least one-half month pay for every year of service, whichever is higher, to
be computed from the commencement of employment until termination; and (2) nominal damages
in the amount of P50,000.00.
This Court, however, finds it proper to still remand the records to the Labor Arbiter to conduct
further proceedings for the sole purpose of determining the compensation that respondent was
actually receiving during the period that he was the General Manager of petitioner corporation for
the proper computation of his separation pay.
Costs against petitioners. SO ORDERED.

37