Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 182475

November 21, 2012

LENN MORALES, Petitioner,

vs.
METROPOLITAN BANK AND TRUST COMPANY, Respondent.
DECISION
PEREZ, J.:
Filed pursuant to Rule 45 of the 1997 Rules on Civil Procedure, the
Petition for Review on Certiorari at bench primarily assails the
Decision1 dated 20 September 2007 rendered by the then Nineteenth
Division of the Court of Appeals (CA) in CA-G.R. SP No. 02405,2 the
dispositive portion of which states:
WHEREFORE, the petition for certiorari filed by Morales is hereby xxx
DENIED for lack of merit. Accordingly, the assailed decision and
resolution of the NLRC dated June 28, 2006 and September 15, 2006,
are hereby UPHELD respectively.
SO ORDERED.3
The facts are not in dispute.
Sometime in August 1992, petitioner Lenn Morales was hired by
Solidbank as Teller for its Rizal Avenue Branch in Tacloban City. With said
banks merger with respondent Metropolitan Bank & Trust Company
(Metrobank ) in September 2000, the latter, as surviving entity, absorbed
Morales and assigned him to its Customer Service Relations-Reserve
Pool (CSR-RP) which was composed of employees who, with no
permanent places of assignment, acted as relievers whenever temporary
vacancies arise in other branches. Designated as reliever for Metrobanks
Main Branch in Tacloban City, Morales was likewise assigned to work in
the same capacity for the banks other Visayas Region III branches. From

a job with a grade four rank, Morales was subsequently promoted in April
20034 to the position of Customer Service Representative (CSR), with a
job grade 6 rank and a gross monthly salary of P16,250.00. It was while
occupying the latter position that Morales was informed by Federico
Mariano , the Senior Manager of Metrobanks Tacloban City Main Branch,
that he was covered by the banks Special Separation Program (SSP)
and that, in accordance therewith, his employment was going to be
terminated on the ground of redundancy.5
On 27 August 2003, Morales was furnished a copy of a memorandum of
the same date informing him that, after a review of its organizational
structure, Metrobank had found his services redundant and will consider
him separated effective 1 October 2003. Assured that his termination was
through no fault of his own but mainly due to business exigencies and
developments in the banking industry, Morales was notified that he shall
be paid the following: (a) a redundancy premium/separation pay, on top
of his entitlements under the banks retirement plan; (b) proportionate
13th month pay; (c) cash conversion of his outstanding vacation and sick
leave credits; and, if applicable, (d) the return of his Provident Fund
contributions; and, (e) cash surrender value of his Insurance. 6Having
signed a form on the same day signifying his unqualified and
unconditional acceptance of Metrobanks decision to terminate his
employment,7 Morales executed on 10 November 2003 a Release,
Waiver and Quitclaim acknowledging receipt of the sum of P158,496.95
as full payment of his monetary entitlements.8
On 20 February 2004, Morales filed against Metrobank a complaint for
illegal dismissal, separation pay, backwages, moral and exemplary
damages as well as attorneys fees.9 Together with a similar complaint
filed by one Raymundo Piczon , Morales complaint was docketed as
NLRC RAB Case No. 2-0046-04 before the Regional Arbitration Branch
No. VIII of the National Labor Relations Commission (NLRC). In support
of his complaint, Morales alleged that, despite being an organic member
of the Rizal Avenue Branch, he was assigned to Metrobanks Zamora St.
Branch in view of his having signed a petition against the driver of the
armored car who was eventually dismissed. With his actions suddenly
closely watched and blown out of proportion, Morales claimed that he
started receiving directives for him to explain his unauthorized absences
and out of town allowances which, far from being infractions, were simply
the results of miscommunication. Arbitrarily singled out for termination, he
was supposedly forced to sign the Release, Waiver and Quitclaim by
Mariano who embarrassed him by announcing that his services had

already been terminated and that he was no longer required to report for
work.10
In its position paper, Metrobank averred that it had adopted the SSP
since 1995 as a way of addressing worsening economic conditions and
stiff competition with strategies designed to make its operations efficient
but cost-effective. Towards said end, it claimed to have embarked on a
major component of SSP called the Headcount Rationalization Program
(HRP) which, taking into consideration the volume of its transactions vis-vis the massive computerization and automation of its operating
systems, targeted the reduction of its existing workforce by 10% by the
end of 2003. Having created and/or consolidated branches, centralized
loan processing and adopted a branch headcount reduction scheme,
Metrobank asserted that it identified 291 positions as superfluous,
utilizing as criteria such factors as performance, work attitude and cost.
Among the areas where the HRP was conducted was Visayas Region III
which was directed to reduce the manpower of its 13 branches spread
out in three provinces by 15 employees. Affected was its eight-man
reserve pool which was composed of former Solidbank employees who
acted as relievers whenever temporary vacancies occurred in the
Regions branches.11
Metrobank further asserted that the volume of the Regions transactions
required only six employees in the reserve pool, thereby rendering two
positions superfluous. As a member of the reserve pool, Morales
allegedly had a record of unauthorized absences as well as complaints
for undesirable and unprofessional conduct from various Branch Heads.
In view of the absence of redeployment opportunities for him, Metrobank
claimed Morales was included in the SSP and was eventually considered
for termination on the ground of redundancy. Aside from the fact that
Morales was duly informed of the managements decision more than one
month ahead of his actual severance from service, Metrobank claimed to
have served the Department of Labor and Employment (DOLE) the
required Establishment Termination Report on 29 August 2003. Likewise
accorded the separation benefits included in the SSP, Morales
supposedly expressed his unqualified and unconditional acceptance of
his termination and, upon receipt of his monetary entitlements, voluntarily
executed the aforesaid Release, Waiver and Quitclaim. Claiming good
faith in the implementation of its redundancy program, Metrobank prayed
for the dismissal of Morales complaint for lack of merit. 12
On 11 November 2005, Executive Labor Arbiter Jesselito Latoja rendered
a decision finding Morales termination from service illegal on the ground
that his promotion in April 2003 contradicted Metrobanks claim that his

poor work performance contributed to his inclusion in the SSP. Brushing

aside the Release, Waiver and Quitclaim for having been prepared by
Metrobank, the Labor Arbiter ruled that Morales was entitled to
reinstatement without loss of seniority rights, backwages assessed at
P390,005.00 at the time of the rendition of the decision, 13th month pay
in the sum of P32,500.50, quarterly bonus in the sum of P130,002.00 and
CBA signing bonus in the sum of P120,000.00. On the ground that
Morales dismissal from service was tainted with bad faith and malice, the
Labor Arbiter likewise held Metrobank liable to pay said employee
P100,000.00 in moral damages, P100,000.00 in exemplary damages and
attorneys fees which, at 10% of the total award, was computed at
P87,250.65. From the grand total of P959,757.15 in monetary awards,
the Labor Arbiter decreed the deduction of the sum of P158,496.95 which
Morales had acknowledged to have received by way of separation
benefits.13
On appeal, the foregoing decision was reversed and set aside in the 20
July 2006 Decision rendered by the Fourth Division of the NLRC in NLRC
Case No. V-000200-2006. Finding that Metrobank validly implemented
the HRP on a nationwide scale in connection with the SSP, the NLRC
ruled that Morales termination in accordance therewith belied the latters
claim that he was arbitrarily singled out for dismissal from service. Given
that the reserve pool in Visayas Region III was overstaffed, Morales was
legitimately terminated in view of his poor work performance and
negative attitude which, at one point, gravely jeopardized the operations
of the branch to which he was temporarily assigned. Applying the general
rule that the characterization of an employees services as redundant is a
management prerogative which should not be interfered with absent
showing of abuse, the NLRC also upheld the validity of the Release,
Waiver and Quitclaim on the ground that the P158,496.95 Morales
received represented a reasonable settlement of his claims. 14 Morales
motion for reconsideration of the decision was denied for lack of merit in
the NLRCs Resolution dated 15 September 2006. 15
Aggrieved, Morales filed the Rule 65 Petition for Certiorari docketed
before the CA Cebu City Station as CA-G.R. SP No. 02405, on the
ground that the NLRC gravely abused its discretion in reversing the
Labor Arbiters decision. Maintaining that Metrobanks claim of
redundancy was belied by its hiring of one Abigail Perez as replacement
for his position, Morales also argued that Metrobank did not comply with
the notice requirement for a termination of employment on the ground of
redundancy.16 On 20 September 2007, however, the CAs Nineteenth
Division rendered the herein assailed decision, denying the foregoing
petition for lack of merit. Upholding the validity of Morales termination

from employment, the CA discounted the grave abuse of discretion

imputed against the NLRC for ruling that Metrobanks redundancy
program legitimately entailed reduction of its workforce to make it more
responsive to the actual demands and necessities of its business.
Considering that Abigail Perez was hired as a clerk on a permanent
status for the banks Ormoc Branch, the CA also ruled that said employee
could not be considered as Morales replacement. Finding that Metrobank
complied with the noticerequirement under Article 283 of the Labor Code,
the CA ultimately sustained the validity of the Release, Waiver and
Quitclaim executed by Morales.17
Dissatisfied, Morales filed the Rule 45 petition for review at
bench,18 seeking the reversal of the CAs 20 September 2007 Decision on
the following grounds:
(a)
THE COURT OF APPEALS ERRONEOUSLY UPHELD THE DISMISSAL
OF HEREIN PETITIONER ON AUTHORIZED CAUSE OF
REDUNDANCY WHICH WAS MADE KNOWN TO PETITIONER ON THE
SAME DATE HE WAS INFORMED HE [WAS] NO LONGER REQUIRED
TO REPORT FOR OFFICE AND WITHOUT SUBJECTING OTHER
SIMILARLY SITUATED EMPLOYEES OF THE SAME POSITION AND
RESPONSIBILITIES TO THE STANDARD OF TERMINATION ON
REDUNDANCY
(b)
THE COURT OF APPEALS ERRONEOUSLY UPHELD THE DISMISSAL
OF HEREIN PETITIONER THOUGH THE DISMISSAL IS TAINTED
WITH ARBITRARINESS AND BAD FAITH AS FOUND BY THE LABOR
ARBITER AS THE HEREIN PETITIONER WAS EVEN PROMOTED FIVE
MONTHS BEFORE HIS TERMINATION CONTRARY TO THE CRITERIA
IN THE SSP OR HRP ON NON-PROMOTION WITHIN THE PERIOD OF
FIVE YEARS
(c)
THE COURT OF APPEALS ERRONEOUSLY UPHELD THE DISMISSAL
ON AMBIVALENT AND EQUIVOCAL PROGRAMS WHICH ON
ANALYSIS ARE ACTUALLY RETRENCHMENT PROGRAM[S] AND THE
REQUISITES FOR VALID TERMINATION BY RETRENCHMENT NOT
HAVING BEEN COMPLIED WITH

(d)
THE COURT OF APPEALS ERRONEOUSLY UPHELD THE VALIDITY
OF THE QUITCLAIM ALTHOUH IT IS APPARENT THAT THE
PETITIONER WAS COMPELLED TO ACCEDE TO IT BY ECONOMIC
REASONS.19
We find the petition bereft of merit.
One of the authorized causes for the dismissal of an
employee,20 redundancy exists when the service capability of the
workforce is in excess of what is reasonably needed to meet the
demands of the business enterprise.21 A position is redundant when it is
superfluous, and superfluity of a position or positions could be the result
of a number of factors, such as the overhiring of workers, a decrease in
the volume of business or the dropping of a particular line or service
previously manufactured or undertaken by the enterprise. 22 Time and
again, it has been ruled that an employer has no legal obligation to keep
more employees than are necessary for the operation of its
business.23 For the implementation of a redundancy program to be valid,
however, the employer must comply with the following requisites: (1)
written notice served on both the employees and the DOLE at least one
month prior to the intended date of termination of employment; (2)
payment of separation pay equivalent to at least one month pay for every
year of service; (3) good faith in abolishing the redundant positions; and
(4) fair and reasonable criteria in ascertaining what positions are to be
declared redundant and accordingly abolished.24
Contrary to the first and second errors Morales imputes against the CA,
our perusal of the record shows that Metrobank has more than amply
proven compliance with the third and fourth of the above-enumerated
requisites for the validity of his termination from service on the ground of
redundancy. Under the SSP which Metrobank adopted in 1995,
employees who voluntarily gave up their employment were paid the
amount of separation pay they were entitled under the law and a
premium equivalent to 50%-75% of their salaries. It appears that
employees "whose work evaluation showed consistent poor performance
and/or those who had not been promoted for five years" were also
considered primary candidates for optional separation from service. 25 In
order to meet the challenges of the business and to make its operations
efficient and cost effective, however, it was shown that Metrobank further

conducted a bank-wide operational review and study which resulted in

the adoption in March 2003 of the HRP, a major component of the SSP
which was designed to reduce its workforce by 10%. Entailing various
initiatives like conversion of regular branches into mini-branches,
consolidation of branches, centralization of loans processing and branch
headcount reduction, the HRP yielded 291 employees who could no
longer be redeployed, fifteen (15) of whom belonged to Visayas Region
III.26
In implementing a redundancy program, it has been ruled that the
employer is required to adopt a fair and reasonable criteria, taking into
consideration such factors as (a) preferred status; (b) efficiency; and (c)
seniority,27 among others. Consistent with this principle, Metrobank
established that, as a direct result of the adoption of the HRP, it was
determined that the volume of transactions in Visayas Region III required
the further reduction of its eight-man reserve pool by two employees. 28 As
these employees had no permanent place of assignment and merely
acted as relievers whenever temporary vacancies arise in other
branches, they were the most logical candidates for inclusion in the SSP.
Already lacking preferred status in Metrobanks hierarchy of positions,
Morales was included in the SSP because of his poor work performance
which reportedly caused complaints from the branches where he was
temporarily assigned as reliever.29 To our mind, the foregoing
circumstances contradict Morales claim that he was arbitrarily singled out
for termination by Metrobank which, having validly determined the
surplus in its manpower complement, appears to have appropriately
identified him as a candidate for the SSP on account of his work attitude.
As evidence of the bad faith which supposedly attended his termination
from service, Morales argues that his promotion in April 2003 should
have excluded him from the coverage of the SSP. Aside from the fact that
his promotion rendered his position less cost-effective, however, Morales
loses sight of the fact that it was precisely his work performance
subsequent to his promotion which was cited by Metrobank as reason for
his inclusion in the SSP. In his 19 May 2003 Memorandum, R.D.
Barrientos , the Branch Manager of Metrobanks Baybay Branch,
reported that Morales caused delay in the processing of over-the-counter
transactions on a busy Monday when he was absent himself without an
approved leave. Since it was Morales third absence while he was
assigned at said branch as reliever of an employee who was on maternity
leave, Barrientos even requested for another reliever on the ground that
the risk of losing clients as a consequence of Morales unpredictability
which was inimical to the banks interest.30 Despite being advised against
being absent from work on Mondays and Fridays in view of the expected

volume of transactions on said days,31 it appears, however, that Morales

obstinately went ahead with his planned absence and simply apprised a
colleague and the branch security guard of his decision not to report for
work on 19 May 2003.32
Given Morales previous record of not reporting for work for one whole
week without prior leave of absence while assigned as reliever in its
Borongan, Samar Branch,33 we find that Metrobank cannot be faulted for
including him in the list of employees covered by the SSP. The rule is
settled that "the determination that the employees services are no longer
necessary or sustainable and, therefore, properly terminable for being
redundant is an exercise of business judgment of the employer."34 "While
it is true that management may not, under the guise of invoking its
prerogative, ease out employees and defeat their constitutional right to
security of tenure,"35 the wisdom and soundness of such characterization
or decision is not subject to discretionary review unless a violation of law
or arbitrary or malicious action is shown.36 Against Morales bare
assertion that he was arbitrarily and maliciously terminated from service,
Metrobank was able to establish that its action was based on the fair
application of a criterion established in connection with the
implementation of a well-thought redundancy program. For these
reasons, we find that the CA cannot be faulted for upholding the NLRCs
finding that Morales termination pursuant to the SSP was valid.
Morales next insists that Metrobank failed to comply in good faith with the
notice requirement under Article 283 of the Labor Code which allows the
employer to terminate the employment of any employee due to
redundancy by serving a written notice on the worker and the DOLE at
least one (1) month before the intended date thereof. Intended to enable
the employee to prepare himself for the legal battle to protect his tenure
of employment and to find other means of employment and ease the
impact of the loss of his job and his income,37 said notice requirement is
also designed to allow the DOLE to ascertain the verity of the cause for
the termination.38
As correctly determined by the CA, Metrobanks compliance with this
requirement is evident from its service of the 27 August 2003 notice of
termination upon Morales on the same date, effective 1 October 2003 or
30 days after the date of said notice.39 On 29 August 2003, Metrobank
similarly served the DOLE with an Establishment Termination Report,
together with a list of the 43 employees about to be terminated on the
ground of redundancy, effective 1 October 2003.40

By and of themselves, the notices of termination Metrobank served to the

DOLE and Morales one month before their intended effectivity date
significantly belie the latters claim that he was told not to report for work
anymore immediately upon receipt thereof. As proof of the bad faith and
malice which supposedly attended his separation from service, Morales
asserted that Mariano caused him great embarrassment by announcing
that he was no longer required to report for work, within hearing distance
of his colleagues. For one who claims to have been immediately
terminated from employment, however, Morales quite distinctly indicated
in his 18 February 2004 complaint that he was dismissed on 30
September 2003.41 Reckoned from the service of notice of termination
upon Morales on 27 August 2003, said admitted date of dismissal clearly
confirms Metrobanks compliance with the above-discussed one-month
prior notice that the law requires for severance from service on the
ground of redundancy.
1wphi1

Neither are we inclined to entertain Morales belated argument that the

real cause for his termination was retrenchment to prevent losses and
that Metrobank failed to establish the requirements therefor. For one, said
theory contradicts Morales claim that he was dismissed from
employment for personal reasons, in a manner amounting to constructive
dismissal. For another, not having been raised before the Labor Arbiter,
the NLRC and the CA, it stands to reason that Morales theory of
termination to preserve the viability of Metrobanks business cannot be
entertained for the first time in connection with the petition at bench.
Consistent with the principle that issues not raised a quo cannot be
raised for the first time on appeal,42 points of law, theories and arguments
not brought to the attention of the CA need not and ordinarily will not
be considered by this Court.43 For a reviewing court to allow otherwise
would be offensive to the basic rules of fair play, justice and due
process.44
Morales, finally, argues that the CA erred in upholding the validity of the
10 November 2003 Release, Waiver and Quitclaim which he supposedly
signed out dire economic necessity. While "it may be accepted as ground
to annul a quitclaim if the consideration is unconscionably low and the
employee was tricked into accepting it, dire necessity is not, however, an
acceptable ground for annulling the release when it is not shown that the
employee has been forced to execute it."45 Not having sufficiently proved
that he was forced to sign said Release, Waiver and Quitclaim, Morales
cannot expediently argue that quitclaims are looked upon with disfavor
and considered ineffective to bar claims for the full measure of a workers
legal rights. This Court has held that not all quitclaims are per se invalid
or against public policy, except (1) where there is clear proof that the

waiver was wangled from an unsuspecting or gullible person, or (2)

where the terms of settlement are unconscionable on their face.46These
two instances are not present in this case.
WHEREFORE, premises considered, the petition is DENIED for lack of
merit.
SO ORDERED.
JOSE PORTUGAL PEREZ
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Senior Associate Justice
ARTURO D. BRION
MARIANO C. DEL CASTILLO
Associate Justice
Associate Justice
ESTELA M. PERLAS-BERNABE
Associate Justice
ATT E S TATI O N
I attest that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion of
the Court's Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
C E R TI F I C ATI O N
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice
Footnotes
1
Penned by Court of Appeals Associate Justice Pampio A.
Abarintos and concurred in by Associate Justices Priscilla
Baltazar-Padilla and Stephen C. Cruz.
2
CA rollo, 20 September 2007 Decision in CA-G.R. SP No.
02405, pp. 307-317.
3
Id. at 317.
4
Stated as April 2004 int p. 5 of Morales Rule 65 Petition for
Certiorari dated 19 December 2006.
5
CA rollo, pp. 4-5, 122 and 308.
6
Metrobanks 27 August 2003 Memorandum, id. at 174.
7
Morales 27 August 2003 Letter, id. at 176.

Morales 10 November 2003 Release, Waiver and Quitclaim, id.

at 178-179 .
9
Morales 18 February 2004 Complaint, id. at 79.
10
Id. at 30-33.
11
Metrobanks 24 September 2004 Position Paper, id. at 112-148.
12
Id.
13
Labor Arbiters 11 November 2005 Decision, id. at 15-25.
14
NLRCs 20 July 2006 Decision, id. at 27-50.
15
NLRCs 15 September 2006 Resolution, id. at 64-65.
16
Morales 19 December 2006 Petition for Certiorari, id. at 3-12.
17
CAs 20 September 2007 Decision, id. at 307-317.
18
Rollo, G.R. No. 182475, Morales 16 April 2008 Petition for
Review on Certiorari, pp. 3-17.
19
Id. at 9.
20
Dole Philippines, Inc. v. National Labor Relations Commission,
417 Phil. 428, 439 (2001).
21
Soriano, Jr. v. National Labor Relations Commission, G.R. No.
165594, 23 April 2007, 521 SCRA 526, 543.
22
Edge Apparel, Inc. v. NLRC, 349 Phil. 972, 982 (1998) citing
American Home Assurance Co. v. NLRC, 328 Phil. 606, 618
(1996).
23
Almodiel v. National Labor Relations Commission, G.R. No.
100641, 14 June 1993, 223 SCRA 341, 348.
24
Lambert Pawnbrokers and Jewelry Corporation v. Binamira,
G.R. No. 170464, 12 July 2010, 624 SCRA 705, 718.
25
CA rollo, CA-G.R. SP No. 02405, 26 July 2004 Affidavit of
Ricardo Villanueva, Metrobanks Head of Employee Relations
and Benefits Division, Human Resources Management Group
(HRMG), pp. 152-153.
26
26 July 2004 Affidavit of Crisostomo De Guzman, Metrobanks
Head of Organization, Planning and Placements Division-HRMG,
id. at 149-151.
27
Lopez Sugar Corp. v. Franco, 497 Phil. 806, 819 (2005).
28
CA rollo, CA-G.R. SP No. 02405, 27 July 2004 Affidavit of
Federico Mariano, Metrobanks Head of its Tacloban-Main
Branch, pp. 154-157.
29
Id.
30
Barrientos 19 May 2003 Memorandum, id. at 160.
31
CTY Banez 30 May 2003 E-mail, id. at 163.
32
Morales 29 May 2003 Memorandum, id. at 162.
33
Id. at 155; 168.
34
AMA Computer College, Inc. v. Garcia, G.R. No. 166703, 14
April 2008, 551 SCRA 254, 264.
35
Santos v. Court of Appeals, 413 Phil. 41, 56 (2001).
8

Smart Communications, Inc. v. Astorga, G.R. Nos. 148132,

151079 & 151372, 28 January 2008, 542 SCRA 434, 448.
37
Serrano v. NLRC, 380 Phil. 416, 458-459 (2000).
38
International Hardware, Inc. v. NLRC (Third Division), 257 Phil.
261, 264 (1989).
39
CA rollo, CA-G.R. SP No. 02405, Metrobanks 27 August 2003
Memorandum, p 164.
40
Id. at 181-183.
41
Id. at 79.
42
R.P. Dinglasan v. Construction, Inc. v. Atienza, G.R. No.
156104, 29 June 2004, 433 SCRA 263, 271.
43
Tolosa v. NLRC, 449 Phil. 271, 284 (2003).
44
Romago Electric Co., Inc. v. Court of Appeals, 388 Phil. 964,
977 (2000).
45
Coats Manila Bay, Inc. v. Ortega, G.R. No. 172628, 13 February
2009, 579 SCRA 300, 312.
46
Lacuesta v. Ateneo de Manila University, G.R. No. 152777, 9
December 2005, 477 SCRA 217, 226, citing Bogo Medellin
Sugarcane Planters Asso., Inc. v. NLRC, 357 Phil. 110, 126
(1998)
36

G.R. No. 182475

November 21, 2012

LENN MORALES, Petitioner, vs.

METROPOLITAN BANK AND TRUST COMPANY, Respondent.

PEREZ, J.:
FACTS:
Sometime in August 1992, petitioner Lenn Morales (Morales)
was hired by Solidbank as Teller for its Rizal Avenue Branch
in Tacloban City. With said banks merger with respondent
Metropolitan Bank & Trust Company (Metrobank), the latter
absorbed Morales and assigned him to its Customer Service
Relations-Reserve Pool (CSR-RP) which was composed of
employees who, with no permanent places of assignment,
acted as relievers whenever temporary vacancies arise in
other branches.
Morales was later-on promoted as a Customer Service
Representative (CSR). Federico Mariano, the Senior
Manager of Metrobank, informed Morales that he was
covered by the banks Special Separation Program (SSP) and
that, in accordance therewith, his employment was going to
be terminated on the ground of redundancy.
On 27 August 2003, Morales was furnished a copy of a
memorandum of the same date informing him that, after a
review of its organizational structure, Metrobank had found
his services redundant and will consider him separated
effective 1 October 2003. Assured that his termination was
through no fault of his own but mainly due to business
exigencies and developments in the banking industry,
Morales was notified that he shall be paid the following: (a) a
redundancy premium/separation pay, on top of his

entitlements under the banks retirement plan; (b)

proportionate 13th month pay; (c) cash conversion of his
outstanding vacation and sick leave credits; and, if applicable,
(d) the return of his Provident Fund contributions; and, (e)
cash surrender value of his Insurance. Morales then executed
Release, Waiver and Quitclaim acknowledging receipt of the
sum of P158,496.95 as full payment of his monetary
entitlements. However, Morales filed against Metrobank a
complaint for illegal dismissal.
The Labor Arbiter ruled that Morales was illegally dismissed.
The NLRC reversed the Labor Arbiter. On appeal, the Court
of Appeals sustained the NLRC.
ISSUE: Whether or not Morales was illegally dismissed?
HELD: The petition is bereft of merit.
LABOR LAW: redundancy; quitclaim
One of the authorized causes for the dismissal of an
employee, redundancy exists when the service capability of
the workforce is in excess of what is reasonably needed to
meet the demands of the business enterprise. For the
implementation of a redundancy program to be valid,
however, the employer must comply with the following
requisites: (1) written notice served on both the employees
and the DOLE at least one month prior to the intended date of
termination of employment; (2) payment of separation pay
equivalent to at least one month pay for every year of service;
(3) good faith in abolishing the redundant positions; and (4)
fair and reasonable criteria in ascertaining what positions are
to be declared redundant and accordingly abolished.
Contrary to the first and second errors Morales imputes
against the CA, our perusal of the record shows that
Metrobank has more than amply proven compliance with the

third and fourth of the above-enumerated requisites for the

validity of his termination from service on the ground of
redundancy. Under the SSP which Metrobank adopted in
1995, employees who voluntarily gave up their employment
were paid the amount of separation pay they were entitled
under the law and a premium equivalent to 50%-75% of their
salaries. It appears that employees "whose work evaluation
showed consistent poor performance and/or those who had
not been promoted for five years" were also considered
primary candidates for optional separation from service.
In implementing a redundancy program, it has been ruled that
the employer is required to adopt a fair and reasonable
criteria, taking into consideration such factors as (a) preferred
status; (b) efficiency; and (c) seniority, among others. As
these employees had no permanent place of assignment and
merely acted as relievers whenever temporary vacancies
arise in other branches, they were the most logical
candidates for inclusion in the SSP.
Morales next insists that Metrobank failed to comply in good
faith with the notice requirement under Article 283 of the
Labor Code which allows the employer to terminate the
employment of any employee due to redundancy by serving a
written notice on the worker and the DOLE at least one (1)
month before the intended date thereof. Intended to enable
the employee to prepare himself for the legal battle to protect
his tenure of employment and to find other means of
employment and ease the impact of the loss of his job and his
income, said notice requirement is also designed to allow the
DOLE to ascertain the verity of the cause for the termination.
As correctly determined by the CA, Metrobanks compliance
with this requirement is evident from its service of the 27
August 2003 notice of termination upon Morales on the same
date, effective 1 October 2003 or 30 days after the date of
said notice.

While it may be accepted as ground to annul a quitclaim if the

consideration is unconscionably low and the employee was
tricked into accepting it, dire necessity is not, however, an
acceptable ground for annulling the release when it is not
shown that the employee has been forced to execute it. This
Court has held that not all quitclaims are per se invalid or
against public policy, except (1) where there is clear proof
that the waiver was wangled from an unsuspecting or gullible
person, or (2) where the terms of settlement are
unconscionable on their face. These two instances are not
present in this case.
Petition is DENIED.

and was subsequently accepted to work as "CE/Road Engineer" for

private respondent Al-Khodari Establishment (AL-KHODARI) under a two
year contract with a basic salary of SR1,750.00 per month and food
allowance of SR200.00 with free accommodation.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 112096

January 30, 1996

MARCELINO B. AGOY, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, EUREKA
PERSONNEL MANAGEMENT SERVICES, INC., ET. AL., respondents.
DECISION
FRANCISCO, J.:
Initially, this suit was resolved in private respondents' favor with the
dismissal of petitioner's complaint for illegal dismissal against the former
by the Philippine Overseas Employment Administration (POEA)
Adjudication Office [POEA Case No. (L) 90-05-516). However, upon
appeal to the National Labor Relations Commission (NLRC), the decision
of the POEA was reversed and judgment was instead rendered in favor
of petitioner [NLRC CA No. 001713-91]. Still not satisfied, both parties
filed their respective motions for reconsideration. In a resolution dated
September 22, 1993, the NLRC decided both motions against petitioner
and in favor of private respondents.
Petitioner is now before this Court through the instant petition
for certiorari, assailing the aforementioned Resolution of the NLRC which
set aside its previous decision dated December 9, 1992 and reinstated
the decision of the POEA dated April 10, 1991 dismissing petitioner's
complaint for illegal dismissal. Grave abuse of discretion is imputed to
respondent NLRC consequent to the assailed resolution which petitioner
maintains was rendered with evident partiality and mental prejudice.
In his complaint filed with the POEA, petitioner Marcelino Agoy alleged
that he applied for overseas employment as civil engineer with private
respondent Eureka Personnel Management Services, Inc. (EUREKA),

On January 28, 1990, petitioner was deployed by respondent Eureka to

Jubail, Saudi Arabia through Exit Pass No. 2310220 P, mistakenly issued
in the name of Belleli Saudi Heavy Industries Ltd. as employer, under the
category of "Foreman" at a basic monthly salary of US$460.00, which
terms were allegedly different from the original contract.
Thereafter, petitioner was deployed to Al-Khodari's maintenance project
with the Royal Commission in Jubail, Saudi Arabia as "Road Foreman"
and not as "CE/Road Engineer" as initially agreed upon. Left with no
other choice, petitioner was forced to accept the position and started to
work on February 7, 1990.
Petitioner, having been accepted by the Royal Commission to work only
as a "Road Foreman", was later asked by respondent Al-Khodari to sign
a new contract at a reduced salary rate of SR1,200.00 or suffer
termination and repatriation. Complainant's refusal to sign the new
contract eventually resulted in his dismissal from employment on March
26, 1990. After being paid the remaining balance of his salary, petitioner
executed a Final Settlement4releasing respondent Al-Khodari from all
claims and liabilities. On April 5, 1990, petitioner received a letter dated
April 2, 1990 with subject "Termination of Services Within the Probation
Period" 5 which he was forced to sign and consent to.
Petitioner was finally repatriated to Manila on April 6, 1990. Thereafter, he
filed a complaint for illegal dismissal with claims for payment of salary for
the unexpired portion of his contract, salary differential and damages
against respondents Eureka and Al-Khodari.
Denying petitioner's claim of illegal dismissal, respondent Eureka alleged
that petitioner was actually hired by respondent Al-Khodari only as "Road
Foreman" with a monthly salary of SR1,750.00 equivalent to $460.00
because petitioner failed to qualify as "Road Engineer" during his
interview. Moreover, according to respondent Eureka, upon request of
petitioner, respondent Al-Khodari gave petitioner two chances to qualify
for the position of "Road Engineer", both of which he failed. As petitioner
refused to work as a "Road Foreman", Al-Khodari terminated his services
in accordance with paragraph 14 of the contract stipulating that the
employer has the right to dismiss the employee during the probationary

period. Respondent agency maintained that petitioner made no objection

to his dismissal as evidenced by the Final Settlement that he executed
and the Letter of Termination dated April 2, 1990 to which he affixed his
signature.6
In its decision dated April 10, 1991, the POEA dismissed petitioner's
complaint after finding that the evidence on record clearly indicated that
petitioner himself voluntarily consented to his termination and
repatriation. It also found as self-serving and hardly credible petitioner's
allegation that he was merely forced by his employer to indicate "agreed"
to his notice of termination, absent any clear and convincing proof to
corroborate the same. Moreover, the POEA upheld respondent
employer's right to dismiss petitioner within the probationary period on
the ground that he failed to meet its performance standard. 7
Petitioner appealed to the NLRC which reversed the decision of the
POEA and held private respondents liable for illegal dismissal. According
to the NLRC, petitioner's termination from service during the probationary
period has no factual and legal basis on account of the following:
. . . . In the first place, it was not proven what are the standards
being used to determine the performance of the complainant as
not satisfactory. Secondly, there is a presumption that
complainant is qualified to the position since he was hired by
Eureka and interviewed by a representative of Al-Khodari. Thirdly,
complainant should have passed the necessary trade test, or
else, he will not be hired. All these show that complainant
possessed all the qualifications to the job and in the absence of
showing how he really failed to the standards required to the
position, the act of relegating him to a lower position with a lower
salary other than what is provided for in the contract is considered
already as illegal dismissal.8
The NLRC also ruled that contrary to the findings of the POEA, petitioner
was forced to resign and execute all the necessary documents for his
repatriation as he was helpless in a foreign land because of threats to his
freedom or life in case he disagreed with his employer. Thus, the NLRC
declared as a nullity all documents releasing respondents from all
liabilities and claims for not having been voluntarily executed by
petitioner, and held respondents liable for the sum of SR39,674.00
representing petitioner's unpaid salaries under his contract.9

As earlier mentioned, both parties filed their respective Motions for

Reconsideration with private respondents assailing the reversal of the
POEA's decision, while petitioner, not content with the monetary award
granted by the NLRC, further claimed salary differentials, overtime pay,
moral damages, temperate damages, exemplary damages, nominal
damages, refund of placement fees, attorney's fees, cost of suit, fines for
alleged illegal exaction, misrepresentation and other recruitment
violations.
Resolving both motions, the NLRC set aside its decision and held in favor
of private respondents. The NLRC backtracked on its conclusion that
petitioner was presumed competent on the basis of a trade test and
declared that the same was without factual basis. After reviewing the
records, the NLRC found that no trade test was ever administered to
petitioner because he was hired as a licensed professional engineer and
not as an ordinary skilled worker to whom the trade test is normally
applied. Thus, it was ruled that petitioner's competence could be
determined only during the probationary period, and as it turned out,
petitioner failed to meet respondent employer's standard during the said
period thereby leading to his dismissal. 10
The NLRC also discarded petitioner's allegation that he was merely
forced to agree to his dismissal as the record is bereft of any evidence of
force and intimidation perpetrated by respondent employer. According to
the NLRC, petitioner failed to raise any objection to his dismissal despite
being given the opportunity to do so in the letter of termination dated April
2, 1990, and instead simply acknowledged receipt of the same and
affixed his signature thereto. The NLRC found merit in private
respondents' claim that as a civil engineer with outstanding credentials, it
was doubtful that petitioner would be intimidated and forced to sign his
notice of termination without making any objections. In arriving at this
conclusion, the NLRC took into account the additional documentary
evidence submitted by petitioner attesting to his claim of professional
excellence which should entitle him to the additional monetary awards
prayed for in his motion for reconsideration. 11
In assailing the NLRC resolution reversing its earlier decision in his favor,
petitioner asserts that its conclusion with respect to his competence is
clearly the result of a "biased negative emotional conception of the totality
of the facts." 12
This Court has consistently adhered to the rule that in reviewing
administrative decisions such as those rendered by the NLRC, the
findings of fact made therein are to be accorded not only great weight

and respect, but even finality, for as long as they are supported by
substantial evidence. 13 It is not the function of the Court to once again
review and weigh the conflicting evidence, determine the credibility of the
witnesses or otherwise substitute its own judgment for that of the
administrative agency on the sufficiency of the evidence. 14 Nevertheless,
when the inference made or the conclusion drawn on the basis of certain
state of facts is manifestly mistaken, the Court is not estopped from
exercising its power of review. 15
Public respondent NLRC premised the reversal of its decision and the
affirmation of the validity of petitioner's dismissal on the latter's alleged
failure to qualify for the position of Road Engineer as contracted for
during the probationary period.
Probationary employees, notwithstanding their limited tenure, are also
entitled to security of tenure. Thus, except for just cause as provided by
law or under the employment contract, a probationary employee cannot
be terminated. 16 As explicitly provided under Article 281 of the Labor
Code, a probationary employee may be terminated on two grounds: (a)
for just cause or (b) when he fails to qualify as a regular employee in
accordance with reasonable standards made known by the employer to
the employee at the time of his engagement. 17
Respondents' attempt to justify petitioner's dismissal based on the
aforecited second ground is unwarranted. The record is bereft of any
evidence to show that respondent employer ever conveyed to petitioneremployee the standards or requirements that he must comply with in
order to become a regular employee. In fact, petitioner has consistently
denied that he was even given the chance to qualify for the position for
which he was contracted.18 Private respondent Al-Khodari's general
averments regarding petitioner's failure to meet its standards for regular
employment, which were not even corroborated by any other evidence,
are insufficient to justify petitioner's dismissal.
Neither do we subscribe to the conclusion that petitioner voluntarily
consented to his dismissal despite his signature in the letter of
termination dated April 2, 1990, indicating assent to his termination from
service for failing to qualify for the position and releasing private
respondents from all claims and liabilities. In our jurisprudence,
quitclaims, waivers or releases are looked upon with disfavor, particularly
those executed by employees who are inveigled or pressured into signing
them by unscrupulous employers seeking to evade their legal
responsibilities.19 The fact that petitioner signed his notice of termination
and failed to make any outright objection thereto did not altogether mean

voluntariness on his part. Neither did the execution of a final settlement

and receipt of the amounts agreed upon foreclose his right to pursue a
legitimate claim for illegal dismissal. Expounding on the reasons therefor,
the following pronouncements are in point:
In labor jurisprudence, it is well established that quitclaims and/or
complete releases executed by the employees do not estop them
from pursuing their claims arising from the unfair labor practice of
the employer. The basic reason for this is that such quitclaims
and/or complete releases are against public policy and therefore,
null and void. The acceptance of termination pay does not divest
a laborer of the right to prosecute his employer for unfair labor
practice acts. (Cario vs. ACCFA, L-19808, September 29, 1966,
18 SCRA 183; Philippine Sugar Institute vs. CIR, L-13475,
September 29, 1960, 109 Phil. 452; Mercury Drug Co., Inc. vs.
CIR, L-23357, April 30, 1974, 56 SCRA 694, 704).
In the Cario case, supra, the Supreme Court, speaking thru Justice
Sanchez, said:
Acceptance of those benefits would not amount to estoppel. The
reason is plain. Employer and employee, obviously, do not stand
on the same footing. The employer drove the employee to the
wall. The latter must have to get hold of money. Because, out of
job, he had to face the harsh necessities of life. He thus found
himself in no position to resist money proffered. His, then, is a
case of adherence, not of choice. One thing sure, however, is that
petitioners did not relent their claim. They pressed it. They are
deemed not to have waived any of their rights. Renuntiation on
praesumitur. (Emphasis supplied)20
Moreover, it is noteworthy that petitioner lost no time in immediately
pursuing his claim against private respondents by filing his complaint for
illegal dismissal a month after being repatriated on April 2, 1990. This is
hardly expected from someone who voluntarily consented to his
dismissal, thus, completely negating the conclusion that petitioner's
consent was given freely and bolstering the claim that the same was
obtained through force and intimidation.
It must be emphasized that in termination cases like the one at bench,
the burden of proof rests on the employer to show that the dismissal is for
just cause, and failure to discharge the same would mean that the
dismissal is not justified and therefore illegal. 21

As already elaborated above, private respondents failed to justify

petitioner's dismissal, thereby rendering it illegal. Resultingly, it was grave
abuse of discretion on the part of the NLRC to reverse its previous
decision and uphold petitioner's dismissal despite convincing evidence to
the contrary.
Consequent to his illegal dismissal, petitioner is therefore entitled to the
amount of SR39,674.00 representing his salary for the unexpired
portion of his employment contract 22 as adjudged in the NLRC's
December 9, 1992 decision. However, anent petitioner's claim for
additional compensation (detailed and prayed for in his motion for
reconsideration), we find no reason to award the same for being
speculative and without any proper legal and factual basis.
ACCORDINGLY, the petition is hereby GRANTED. The assailed
Resolution of respondent NLRC dated September 22, 1993 is hereby
SET ASIDE and the Decision dated December 9, 1992 is REINSTATED.
SO ORDERED.
Narvasa, C.J., Davide, Jr., Melo and Panganiban, JJ., concur.
Footnotes
Annex A, Rollo, p. 39.
Annex E, Rollo, p. 87.
3
Annex C, Rollo, p. 58.
4
Annex O, Rollo, p, 120.
5
Annex Q, Rollo, p. 122.
6
Rollo, pp. 61-62.
7
Rollo, pp. 64-65.
8
Rollo, p. 92.
9
Rollo, pp. 93-94.
10
Rollo, pp. 47-49.
11
Rollo, pp. 49-50.
12
Rollo, p. 269.
13
Asian Construction and Development Corp. vs. NLRC, 187
SCRA 784, 787 (1990), Chua vs. NLRC, 182 SCRA 353, 357
(1990).
14
Mercado, Sr. vs. NLRC, 201 SCRA 332, 339
(1991) citing Feliciano Timbancaya vs. Vicente, 9 SCRA 852 and
Lao Tang Bun vs. Fabre, 81 Phil. 682.
1
2

Family Planning Organization of the Phils. vs. NLRC, 207

SCRA 415, 421 (1992).
16
Philippine Manpower Services, Inc. vs. NLRC, 224 SCRA 691,
698 (1993) citing A.M. Oreta & Co. vs. NLRC, et al. 176 SCRA
218.
17
Ibid, p. 700.
18
Rollo, p, 263.
19
Veloso, et al. vs. Department of Labor, 200 SCRA 201, 202
(1991).
20
Lopez Sugar Corporation vs. Federation of Free Workers, 189
SCRA 179, 192-193 (1990) citing AFP Mutual Benefit
Association, Inc. vs. AFP-MBAI-EU 97 SCRA 715 (1990).
21
Polymedic General Hospital vs. NLRC, 134 SCRA 420 (1985).
22
Philippine Manpower Services, Inc. vs. NLRC, supra.
15

G.R. No. 112096

January 30, 1996

MARCELINO B. AGOY, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, EUREKA
PERSONNEL MANAGEMENT SERVICES, INC., ET. AL., respondents.

Do probationary employees have security of tenure?

In the case of Agoy vs. National Labor Relations Commission (G.R. No.
112096, January 30, 1996), the Supreme Court held that probationary
employees, notwithstanding their limited tenure, are also entitled to security
of tenure. A probationary employee may be terminated on two grounds: (a)
for just cause or (b) when he fails to qualify as a regular employee in
accordance with reasonable standards made known by the employer to the
employee at the time of his engagement.
FACTS: Petitioner applied for overseas employment as civil engineer with
private respondent and was subsequently accepted to work in Saudi Arabia.
Petitioner was deployed as "Road Foreman" and not as "CE/Road Engineer"
as initially agreed upon. Left with no other choice, petitioner accepted the
position and started to work.
Petitioner was later asked by private respondent to sign a new contract at a
reduced salary or suffer termination and repatriation. Petitioner's refusal to
sign the new contract resulted in his termination from employment. Petitioner
then filed a complaint for illegal dismissal after he was repatriated to the
Philippines.
Respondent agency maintained that petitioner was not illegally dismissed
and that the latter made no objection to his dismissal as evidenced by the
Final Settlement that he executed and the Letter of Termination to which he
affixed his signature.
POEA dismissed petitioner's complaint after finding that the evidence on
record clearly indicated that petitioner himself voluntarily consented to his
termination and repatriation. NLRC reversed the decision of the POEA.

However, upon motions for reconsideration filed by petitioner and the private
respondent, the NLRC set aside its decision and held in favor of private
respondents. NLRC found that petitioner failed to meet respondent
employer's standard during the probationary period thereby leading to his
dismissal. NLRC also discarded petitioner's allegation that he was merely
forced to agree to his dismissal as the record is bereft of any evidence of
force and intimidation perpetrated by respondent employer.
ISSUE: Whether or not petitioner was illegally dismissed?
HELD: Yes. Probationary employees, notwithstanding their limited tenure,
are also entitled to security of tenure. A probationary employee may be
terminated on two grounds: (a) for just cause or (b) when he fails to qualify
as a regular employee in accordance with reasonable standards made
known by the employer to the employee at the time of his engagement.
Respondents' attempt to justify petitioner's dismissal based on the
aforequoted second ground is unwarranted. The record is bereft of any
evidence to show that respondent employer ever conveyed to petitioneremployee the standards or requirements that he must comply with in order to
become a regular employee. In fact, petitioner has consistently denied that
he was even given the chance to qualify for the position for which he was
contracted.
Neither do we subscribe to the conclusion that petitioner voluntarily
consented to his dismissal despite his signature in the letter of termination. In
our jurisprudence, quitclaims, waivers or releases are looked upon with
disfavor, particularly those executed by employees who are inveigled or
pressured into signing them by unscrupulous employers seeking to evade
their legal responsibilities. The fact that petitioner signed his notice of
termination and failed to make any outright objection thereto did not
altogether mean voluntariness on his part. Neither did the execution a of a
final settlement and receipt of the amounts agreed upon foreclose his right to
pursue a legitimate claim for illegal dismissal.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 187521

March 14, 2012

F.F. CRUZ & CO., INC., Petitioner,

vs.
HR CONSTRUCTION CORP., Respondent.
DECISION
REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court filed by petitioner F.F. Cruz & Co., Inc. (FFCCI) assailing the
Decision1 dated February 6, 2009 and Resolution2 dated April 13, 2009
issued by the Court of Appeals (CA) in CA-G.R. SP No. 91860.
The Antecedent Facts
Sometime in 2004, FFCCI entered into a contract with the Department of
Public Works and Highways (DPWH) for the construction of the
Magsaysay Viaduct, known as the Lower Agusan Development Project.
On August 9, 2004, FFCCI, in turn, entered into a Subcontract
Agreement3 with HR Construction Corporation (HRCC) for the supply of
materials, labor, equipment, tools and supervision for the construction of
a portion of the said project called the East Bank Levee and Cut-Off
Channel in accordance with the specifications of the main contract.
The subcontract price agreed upon by the parties amounted
to P31,293,532.72. Pursuant to the Subcontract Agreement, HRCC
would submit to FFCCI a monthly progress billing which the latter would
then pay, subject to stipulated deductions, within 30 days from receipt
thereof.

The parties agreed that the requests of HRCC for payment should
include progress accomplishment of its completed works as approved by
FFCCI. Additionally, they agreed to conduct a joint measurement of the
completed works of HRCC together with the representative of DPWH and
consultants to arrive at a common quantity.
Thereafter, HRCC commenced the construction of the works pursuant to
the Subcontract Agreement.
On September 17, 2004, HRCC submitted to FFCCI its first progress
billing in the amount of P2,029,081.59 covering the construction works it
completed from August 16 to September 15, 2004.4 However, FFCCI
asserted that the DPWH was then able to evaluate the completed works
of HRCC only until July 25, 2004. Thus, FFCCI only approved the gross
amount of P423,502.88 for payment. Pursuant to the Subcontract
Agreement, FFCCI deducted from the said gross amount P42,350.29 for
retention and P7,700.05 for expanded withholding tax leaving a net
payment in the amount of P373,452.54. This amount was paid by FFCCI
to HRCC on December 3, 2004.5
FFCCI and the DPWH then jointly evaluated the completed works of
HRCC for the period of July 26 to September 25, 2004. FFCCI claimed
that the gross amount due for the completed works during the said period
wasP2,008,837.52. From the said gross amount due, FFCCI deducted
therefrom P200,883.75 for retention andP36,524.07 for expanded
withholding tax leaving amount of P1,771,429.45 as the approved net
payment for the said period. FFCCI paid this amount on December 21,
2004.6
On October 29, 2004, HRCC submitted to FFCCI its second progress
billing in the amount of P1,587,760.23 covering its completed works from
September 18 to 25, 2004.7 FFCCI did not pay the amount stated in the
second progress billing, claiming that it had already paid HRCC for the
completed works for the period stated therein.
On even date, HRCC submitted its third progress billing in the amount
of P2,569,543.57 for its completed works from September 26 to October
25, 2004.8 FFCCI did not immediately pay the amount stated in the third
progress billing, claiming that it still had to evaluate the works
accomplished by HRCC.

On November 25, 2004, HRCC submitted to FFCCI its fourth progress

billing in the amount of P1,527,112.95 for the works it had completed
from October 26 to November 25, 2004.

On June 16, 2005, an Arbitral Tribunal was created composed of

Engineer Ricardo B. San Juan, Joven B. Joaquin and Attorney Alfredo F.
Tadiar, with the latter being appointed as the Chairman.

Subsequently, FFCCI, after it had evaluated the completed works of

HRCC from September 26 to November 25, 2004, approved the payment
of the gross amount of P1,505,570.99 to HRCC. FFCCI deducted
therefromP150,557.10 for retention and P27,374.02 for expanded
withholding tax leaving a net payment of P1,327,639.87, which amount
was paid to HRCC on March 11, 2005.9

In a Preliminary Conference held on July 5, 2005, the parties defined the

issues to be resolved in the proceedings before the CIAC as follows:

Meanwhile, HRCC sent FFCCI a letter10 dated December 13, 2004

demanding the payment of its progress billings in the total amount
of P7,340,046.09, plus interests, within three days from receipt thereof.
Subsequently, HRCC completely halted the construction of the
subcontracted project after taking its Christmas break on December 18,
2004.
On March 7, 2005, HRCC, pursuant to the arbitration clause in the
Subcontract Agreement, filed with the Construction Industry Arbitration
Commission (CIAC) a Complaint11 against FFCCI praying for the payment
of the following: (1) overdue obligation in the reduced amount
of P4,096,656.53 as of December 15, 2004 plus legal interest;
(2) P1,500,000.00 as attorneys fees; (3) P80,000.00 as acceptance fee
and representation expenses; and (4) costs of litigation.
In its Answer,12 FFCCI claimed that it no longer has any liability on the
Subcontract Agreement as the three payments it made to HRCC, which
amounted to P3,472,521.86, already represented the amount due to the
latter in view of the works actually completed by HRCC as shown by the
survey it conducted jointly with the DPWH. FFCCI further asserted that
the delay in the payment processing was primarily attributable to HRCC
inasmuch as it presented unverified work accomplishments contrary to
the stipulation in the Subcontract Agreement regarding requests for
payment.
Likewise, FFCCI maintained that HRCC failed to comply with the
condition stated under the Subcontract Agreement for the payment of the
latters progress billings, i.e. joint measurement of the completed works,
and, hence, it was justified in not paying the amount stated in HRCCs
progress billings.

1. What is the correct amount of [HRCCs] unpaid progress

billing?
2. Did [HRCC] comply with the conditions set forth in
subparagraph 4.3 of the Subcontract Agreement for the
submission, evaluation/processing and release of payment of its
progress billings?
3. Did [HRCC] stop work on the project?
3.1 If so, is the work stoppage justified?
3.2 If so, what was the percentage and value of [HRCCs]
work accomplishment at the time it stopped work on the
project?
4. Who between the parties should bear the cost of arbitration or
in what proportion should it be shared by the parties?13
Likewise, during the said Preliminary Conference, HRCC further reduced
the amount of overdue obligation it claimed from FFCCI
to P2,768,916.66. During the course of the proceedings before the CIAC,
HRCC further reduced the said amount to P2,635,397.77 the exact
difference between the total amount of HRCCs progress billings
(P6,107,919.63) and FFCCIs total payments in favor of the latter
(P3,472,521.86).
The CIAC Decision
On September 6, 2005, after due proceedings, the CIAC rendered a
Decision14 in favor of HRCC, the decretal portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the Claimant HR
CONSTRUCTION CORPORATION and AWARD made on its monetary
claim against Respondent F.F. CRUZ & CO., INC., as follows:

[P]2,239,452.63 as the balance of its unpaid billings and

101,161.57 as reimbursement of the arbitration costs.
[P]2,340,614.20 Total due the Claimant

Interest on the foregoing amount [P]2,239,452.63 shall be paid at the rate

of 6% per annum from the date of this Decision. After finality of this
Decision, interest at the rate of 12% per annum shall be paid thereon
until full payment of the awarded amount shall have been made x x x.
SO ORDERED.15
The CIAC held that the payment method adopted by FFCCI is actually
what is known as the "back-to-back payment scheme" which was not
agreed upon under the Subcontract Agreement. As such, the CIAC ruled
that FFCCI could not impose upon HRCC its valuation of the works
completed by the latter. The CIAC gave credence to HRCCs valuation of
its completed works as stated in its progress billings. Thus:
During the trial, [FFCCIs] Aganon admitted that [HRCCs]
accomplishments are included in its own billings to the DPWH together
with a substantial mark-up to cover overhead costs and profit. He further
admitted that it is only when DPWH approves its (Respondents) billings
covering [HRCCs] scope of work and pays for them, that [FFCCI] will in
turn pay [HRCC] for its billings on the sub-contracted works.
On clarificatory questioning by the Tribunal, [FFCCI] admitted that there
is no "back-to-back" provision in the sub-contract as basis for this
sequential payment arrangement and, therefore, [FFCCIs] imposition
thereof by withholding payment to [HRCC] until it is first paid by the
project owner on the Main Contract, clearly violates said sub-contract. It
[is] this unauthorized implementation of a back-to-back payment scheme
that is seen to be the reason for [FFCCIs] non-payment of the third
progress billings.
It is accordingly the holding of this Arbitral Tribunal that [FFCCI] is not
justified in withholding payment of [HRCCs] third progress billing for this
scheme that [HRCC] has not agreed to in the sub-contract agreement x x
x.

xxx
The total retention money deducted by [FFCCI] from [HRCCs] three
progress billings, amounts to [P]395,945.14 x x x. The retention money is
part of [HRCCs] progress billings and must, therefore, be credited to this
account. The two amounts (deductions and net payments) total
[P]3,868,467.00 x x x. This represents the total gross payments that
should be credited and deducted from the total gross billings to arrive at
what has not been paid to the [HRCC]. This results in the amount of
[P]2,239,452.63 ([P]6,107,919.63 - [P]3,868,467.00) as the correct
balance of [HRCCs] unpaid billings.16
Further, the CIAC ruled that FFCCI had already waived its right under the
Subcontract Agreement to require a joint measurement of HRCCs
completed works as a condition precedent to the payment of the latters
progress billings. Hence:
[FFCCI] admits that in all three instances where it paid [HRCC] for its
progress billings, it never required compliance with the aforequoted
contractual provision of a prior joint quantification. Such repeated
omission may reasonably be construed as a waiver by [FFCCI] of its
contractual right to require compliance of said condition and it is now too
late in the day to so impose it. Article 6 of the Civil Code expressly
provides that "rights may be waived unless the waiver is contrary to law,
public order, public policy, morals or good customs". The tribunal cannot
see any such violation in this case.
xxx
[FFCCIs] omission to enforce the contractually required condition of
payment, has led [HRCC] to believe it to be true that indeed [FFCCI] has
waived the condition of joint quantification and, therefore, [FFCCI] may
not be permitted to falsify such resulting position.17
Likewise, the CIAC held that FFCCIs non-payment of the progress
billings submitted by HRCC gave the latter the right to rescind the
Subcontract Agreement and, accordingly, HRCCs work stoppage was
justified. It further opined that, in effect, FFCCI had ratified the right of
HRCC to stop the construction works as it did not file any counterclaim
against HRCC for liquidated damages arising therefrom.
FFCCI then filed a petition for review with CA assailing the foregoing
disposition by the CIAC.

The CA Decision
On February 6, 2009, the CA rendered the herein assailed
Decision18 denying the petition for review filed by FFCCI. The CA agreed
with the CIAC that FFCCI had waived its right under the Subcontract
Agreement to require a joint quantification of HRCCs completed works.
The CA further held that the amount due to HRCC as claimed by FFCCI
could not be given credence since the same was based on a survey of
the completed works conducted without the participation of HRCC.
Likewise, being the main contractor, it ruled that it was the responsibility
of FFCCI to include HRCC in the joint measurement of the completed
works. Furthermore, the CA held that HRCC was justified in stopping its
construction works on the project as the failure of FFCCI to pay its
progress billings gave the former the right to rescind the Subcontract
Agreement.
FFCCI sought a reconsideration19 of the said February 6, 2009 Decision
but it was denied by the CA in its Resolution20 dated April 13, 2009.
Issues
In the instant petition, FFCCI submits the following issues for this Courts
resolution:
[I.]
x x x First, [d]oes the act of [FFCCI] in conducting a verification survey of
[HRCCs] billings in the latters presence amount to a waiver of the right
of [FFCCI] to verify and approve said billings? What, if any, is the legal
significance of said act?
[II.]
x x x Second, [d]oes the payment of [FFCCI] to [HRCC] based on the
results of the above mentioned verification survey result in the former
being obliged to accept whatever accomplishment was reported by the
latter?
[III.]

x x x Third, [d]oes the mere comparison of the payments made by

[FFCCI] with the contested progress billings of [HRCC] amount to an
adjudication of the controversy between the parties?

[IV.]
x x x Fourth, [d]oes the failure of [FFCCI] to interpose a counterclaim
against [HRCC] for liquidated damages due to the latters work stoppage,
amount to a ratification of such work stoppage?
[V.]
x x x Fifth, [d]id the [CA] disregard or overlook significant and material
facts which would affect the result of the litigation?21
In sum, the crucial issues for this Courts resolution are: first, what is the
effect of FFCCIs non-compliance with the stipulation in the Subcontract
Agreement requiring a joint quantification of the works completed by
HRCC on the payment of the progress billings submitted by the latter;
and second, whether there was a valid rescission of the Subcontract
Agreement by HRCC.
The Courts Ruling
The petition is not meritorious.
Procedural Issue:
Finality and Conclusiveness of the CIACs Factual Findings
Before we delve into the substantial issues raised by FFCCI, we shall first
address the procedural issue raised by HRCC. According to HRCC, the
instant petition merely assails the factual findings of the CIAC as affirmed
by the CA and, accordingly, not proper subjects of an appeal under Rule
45 of the Rules of Court. It likewise pointed out that factual findings of the
CIAC, when affirmed by the CA, are final and conclusive upon this Court.

Generally, the arbitral award of CIAC is final and may not be appealed
except on questions of law.

construction arbitrators are final and conclusive and not reviewable by

this Court on appeal. This rule, however, admits of certain exceptions.

Executive Order (E.O.) No. 100822 vests upon the CIAC original and
exclusive jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in the
Philippines. Under Section 19 of E.O. No. 1008, the arbitral award of
CIAC "shall be final and inappealable except on questions of law which
shall be appealable to the Supreme Court."23

In Spouses David v. Construction Industry and Arbitration

Commission,26 we laid down the instances when this Court may pass
upon the factual findings of the CIAC, thus:

In Hi-Precision Steel Center, Inc. v. Lim Kim Steel Builders, Inc.,24 we

explained raison d etre for the rule on finality of the CIACs arbitral award
in this wise:
Voluntary arbitration involves the reference of a dispute to an impartial
body, the members of which are chosen by the parties themselves, which
parties freely consent in advance to abide by the arbitral award issued
after proceedings where both parties had the opportunity to be heard.
The basic objective is to provide a speedy and inexpensive method of
settling disputes by allowing the parties to avoid the formalities, delay,
expense and aggravation which commonly accompany ordinary litigation,
especially litigation which goes through the entire hierarchy of courts.
Executive Order No. 1008 created an arbitration facility to which the
construction industry in the Philippines can have recourse. The Executive
Order was enacted to encourage the early and expeditious settlement of
disputes in the construction industry, a public policy the implementation of
which is necessary and important for the realization of national
development goals.
Aware of the objective of voluntary arbitration in the labor field, in the
construction industry, and in any other area for that matter, the Court will
not assist one or the other or even both parties in any effort to subvert or
defeat that objective for their private purposes. The Court will not review
the factual findings of an arbitral tribunal upon the artful allegation that
such body had "misapprehended the facts" and will not pass upon issues
which are, at bottom, issues of fact, no matter how cleverly disguised
they might be as "legal questions." The parties here had recourse to
arbitration and chose the arbitrators themselves; they must have had
confidence in such arbitrators. x x x25 (Citation omitted)
Thus, in cases assailing the arbitral award rendered by the CIAC, this
Court may only pass upon questions of law. Factual findings of

We reiterate the rule that factual findings of construction arbitrators are

final and conclusive and not reviewable by this Court on appeal, except
when the petitioner proves affirmatively that: (1) the award was procured
by corruption, fraud or other undue means; (2) there was evident
partiality or corruption of the arbitrators or of any of them; (3) the
arbitrators were guilty of misconduct in refusing to postpone the hearing
upon sufficient cause shown, or in refusing to hear evidence pertinent
and material to the controversy; (4) one or more of the arbitrators were
disqualified to act as such under section nine of Republic Act No. 876
and willfully refrained from disclosing such disqualifications or of any
other misbehavior by which the rights of any party have been materially
prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual, final and definite award upon the subject
matter submitted to them was not made. x x x27 (Citation omitted)
Issues on the proper interpretation of the terms of the Subcontract
Agreement involve questions of law.
A question of law arises when there is doubt as to what the law is on a
certain state of facts, while there is a question of fact when the doubt
arises as to the truth or falsity of the alleged facts. For a question to be
one of law, the same must not involve an examination of the probative
value of the evidence presented by the litigants or any of them. The
resolution of the issue must rest solely on what the law provides on the
given set of circumstances. Once it is clear that the issue invites a review
of the evidence presented, the question posed is one of fact. 28
On the surface, the instant petition appears to merely raise factual
questions as it mainly puts in issue the appropriate amount that is due to
HRCC. However, a more thorough analysis of the issues raised by
FFCCI would show that it actually asserts questions of law.
FFCCI primarily seeks from this Court a determination of whether amount
claimed by HRCC in its progress billing may be enforced against it in the
absence of a joint measurement of the formers completed works.
Otherwise stated, the main question advanced by FFCCI is this: in the

absence of the joint measurement agreed upon in the Subcontract

Agreement, how will the completed works of HRCC be verified and the
amount due thereon be computed?
The determination of the foregoing question entails an interpretation of
the terms of the Subcontract Agreement vis--vis the respective rights of
the parties herein. On this point, it should be stressed that where an
interpretation of the true agreement between the parties is involved in an
appeal, the appeal is in effect an inquiry of the law between the parties,
its interpretation necessarily involves a question of law.29
Moreover, we are not called upon to examine the probative value of the
evidence presented before the CIAC. Rather, what is actually sought
from this Court is an interpretation of the terms of the Subcontract
Agreement as it relates to the dispute between the parties.
First Substantive Issue: Effect of Non-compliance with the Joint
Quantification Requirement on the Progress Billings of HRCC

interpretations. Where the written terms of the contract are not

ambiguous and can only be read one way, the court will interpret the
contract as a matter of law. If the contract is determined to be ambiguous,
then the interpretation of the contract is left to the court, to resolve the
ambiguity in the light of the intrinsic evidence.32 (Emphasis supplied and
citation omitted)

Article 4 of the Subcontract Agreement, in part, contained the following

stipulations:
ARTICLE 4
SUBCONTRACT PRICE
4.1 The total SUBCONTRACT Price shall be THIRTY ONE MILLION

Basically, the instant issue calls for a determination as to which of the

parties respective valuation of accomplished works should be given
credence. FFCCI claims that its valuation should be upheld since the
same was the result of a measurement of the completed works
conducted by it and the DPWH. On the other hand, HRCC maintains that
its valuation should be upheld on account of FFCCIs failure to observe
the joint measurement requirement in ascertaining the extent of its
completed works.

TWO HUNDRED NINETY THREE THOUSAND FIVE HUNDRED

THIRTY TWO PESOS & 72/100 ONLY ([P]31,293,532.72) inclusive of
Value Added Tax x x x.

The terms of the Subcontract Agreement should prevail.

FFCCI shall pay [HRCC] within thirty (30) days upon receipt of the
[HRCCs] Monthly Progress Billings subject to deductions due to ten
percent (10%) retention, and any other sums that may be due and
recoverable by FFCCI from [HRCC] under this SUBCONTRACT. In all
cases, however, two percent (2%) expanded withholding tax on the
[HRCCs] income will be deducted from the monthly payments.

In resolving the dispute as to the proper valuation of the works

accomplished by HRCC, the primordial consideration should be the terms
of the Subcontract Agreement. It is basic that if the terms of a contract
are clear and leave no doubt upon the intention of the contracting parties,
the literal meaning of its stipulations shall control.30
In Abad v. Goldloop Properties, Inc., we stressed that:
31

A courts purpose in examining a contract is to interpret the intent of the

contracting parties, as objectively manifested by them. The process of
interpreting a contract requires the court to make a preliminary inquiry as
to whether the contract before it is ambiguous. A contract provision is
ambiguous if it is susceptible of two reasonable alternative

xxx
4.3 Terms of Payment

Requests for the payment by the [HRCC] shall include progress

accomplishment of completed works (unit of work accomplished x unit
cost) as approved by [FFCCI]. Cut-off date of monthly billings shall be
every 25th of the month and joint measurement shall be conducted with
the DPWHs representative, Consultants, FFCCI and [HRCC] to arrive at
a common/agreed quantity.33 (Emphasis supplied)

Pursuant to the terms of payment agreed upon by the parties, FFCCI

obliged itself to pay the monthly progress billings of HRCC within 30 days
from receipt of the same. Additionally, the monthly progress billings of
HRCC should indicate the extent of the works completed by it, the same
being essential to the valuation of the amount that FFCCI would pay to
HRCC.

Puwede ko po bang i-explain sandali lang po regarding lang po doon sa

quantification na iyon? Basically po as main contractor of DPWH, we are
the ones who [are] requesting for joint survey quantification with the
owner, DPWH. Ngayon po, although wala sa papel na nag-witness and
[HRCC] still the same po, nandoon din po sila during that time, kaya lang
ho . . .

The parties further agreed that the extent of HRCCs completed works
that would be indicated in the monthly progress billings should be
determined through a joint measurement conducted by FFCCI and
HRCC together with the representative of DPWH and the consultants.

MR. J. B. JOAQUIN:

It is the responsibility of FFCCI to call for the joint measurement of

HRCCs completed works.
It bears stressing that the joint measurement contemplated under the
Subcontract Agreement should be conducted by the parties herein
together with the representative of the DPWH and the consultants.
Indubitably, FFCCI, being the main contractor of DPWH, has the
responsibility to request the representative of DPWH to conduct the said
joint measurement.
On this score, the testimony of Engineer Antonio M. Aganon, Jr., project
manager of FFCCI, during the reception of evidence before the CIAC is
telling, thus:
MR. J. B. JOAQUIN:
Engr. Aganon, earlier there was a stipulation that in all the four billings,
there never was a joint quantification.
PROF. A. F. TADIAR:
He admitted that earlier. Pinabasa ko sa kanya.
ENGR. R. B. SAN JUAN:

Hindi pumirma?
ENGR. AGANON:
Hindi sila puwede pumirma kasi ho kami po ang contractor ng DPWH
hindi sila.34 (Emphasis supplied)
FFCCI had waived its right to demand for a joint measurement of HRCCs
completed works under the Subcontract Agreement.
The CIAC held that FFCCI, on account of its failure to demand the joint
measurement of HRCCs completed works, had effectively waived its
right to ask for the conduct of the same as a condition sine qua non to
HRCCs submission of its monthly progress billings.
We agree.
In People of the Philippines v. Donato,35 this Court explained the doctrine
of waiver in this wise:
Waiver is defined as "a voluntary and intentional relinquishment or
abandonment of a known existing legal right, advantage, benefit, claim or
privilege, which except for such waiver the party would have enjoyed; the
voluntary abandonment or surrender, by a capable person, of a right
known by him to exist, with the intent that such right shall be surrendered
and such person forever deprived of its benefit; or such conduct as
warrants an inference of the relinquishment of such right; or the
intentional doing of an act inconsistent with claiming it."

The joint quantification was done only between them and DPWH.
As to what rights and privileges may be waived, the authority is settled:
xxxx
ENGR. AGANON:

x x x the doctrine of waiver extends to rights and privileges of any

character, and, since the word waiver covers every conceivable right, it

is the general rule that a person may waive any matter which affects his
property, and any alienable right or privilege of which he is the owner or
which belongs to him or to which he is legally entitled, whether secured
by contract, conferred with statute, or guaranteed by
Progress Billing
1st Progress Billing dated September 17,
200437
2nd Progress Billing dated October 29, 200438
3rd Progress Billing dated October 29, 200439
4th Progress Billing dated November 25, 2004

Period Covered
August 16 to
September 15, 2004
September 18 to 25,
2004
September 26 to
October 25, 2004
October 26 to
November 25, 2004

Amount
P2,029,081.59
P1,587,760.23
P2,569,543.57
P1,527,112.95

constitution, provided such rights and privileges rest in the individual, are
intended for his sole benefit, do not infringe on the rights of others, and
further provided the waiver of the right or privilege is not forbidden by law,
and does not contravene public policy; and the principle is recognized
that everyone has a right to waive, and agree to waive, the advantage of
a law or rule made solely for the benefit and protection of the individual in
his private capacity, if it can be dispensed with and relinquished without
infringing on any public right, and without detriment to the community at
large. x x x36(Emphasis supplied and citations omitted)
Here, it is undisputed that the joint measurement of HRCCs completed
works contemplated by the parties in the Subcontract Agreement never
materialized. Indeed, HRCC, on separate occasions, submitted its
monthly progress billings indicating the extent of the works it had
completed sans prior joint measurement. Thus:

FFCCI did not contest the said progress billings submitted by HRCC
despite the lack of a joint measurement of the latters completed works as
required under the Subcontract Agreement. Instead, FFCCI proceeded to
conduct its own verification of the works actually completed by HRCC
and, on separate dates, made the following payments to HRCC:
Date of Payment

Period Covered

Amount

December 3, 200440

April 2 to July 25, 2004

December 21, 200441

July 26 to September 25, 2004

P1,771,429.45

March 11, 200542

September 26 to November 25, 2004

P1,327,639.87

P373,452.24

FFCCIs voluntary payment in favor of HRCC, albeit in amounts

substantially different from those claimed by the latter, is a glaring
indication that it had effectively waived its right to demand for the joint
measurement of the completed works. FFCCIs failure to demand a joint
measurement of HRCCs completed works reasonably justified the
inference that it had already relinquished its right to do so. Indeed, not
once did FFCCI insist on the conduct of a joint measurement to verify the
extent of HRCCs completed works despite its receipt of the four monthly
progress billings submitted by the latter.
FFCCI is already barred from contesting HRCCs valuation of the
completed works having waived its right to demand the joint
measurement requirement.
In view of FFCCIs waiver of the joint measurement requirement, the CA,
essentially echoing the CIACs disposition, found that FFCCI is obliged to
pay the amount claimed by HRCC in its monthly progress billings. The
CA reasoned thus:
Verily, the joint measurement that [FFCCI] claims it conducted without the
participation of [HRCC], to which [FFCCI] anchors its claim of full
payment of its obligations to [HRCC], cannot be applied, nor imposed, on
[HRCC]. In other words, [HRCC] cannot be made to accept a
quantification of its works when the said quantification was made without
its participation. As a consequence, [FFCCIs] claim of full payment
cannot be upheld as this is a result of a quantification that was made
contrary to the express provisions of the Subcontract Agreement.
The Court is aware that by ruling so, [FFCCI] would seem to be placed at
a disadvantage because it would result in [FFCCI] having to pay exactly
what [HRCC] was billing the former. If, on the other hand, the Court were
to rule otherwise[,] then [HRCC] would be the one at a disadvantage
because it would be made to accept payment that is less than what it was
billing.
Circumstances considered, however, the Court deems it proper to rule in
favor of [HRCC] because of the explicit provision of the Subcontract
Agreement that requires the participation of the latter in the joint
measurement. If the Court were to rule otherwise, then the Court would,
in effect, be disregarding the explicit agreement of the parties in their
contract.43

Essentially, the question that should be resolved is this: In view of

FFCCIs waiver of its right to demand a joint measurement of HRCCs
completed works, is FFCCI now barred from disputing the claim of HRCC
in its monthly progress billings?

HRCC had waived its right to rescind the Subcontract Agreement.

We rule in the affirmative.

Art. 1191. The power to rescind obligations is implied in reciprocal ones,

in case one of the obligors should not comply with what is incumbent
upon him.

As intimated earlier, the joint measurement requirement is a mechanism

essentially granting FFCCI the opportunity to verify and, if necessary,
contest HRCCs valuation of its completed works prior to the submission
of the latters monthly progress billings.
In the final analysis, the joint measurement requirement seeks to limit the
dispute between the parties with regard to the valuation of HRCCs
completed works. Accordingly, any issue which FFCCI may have with
regard to HRCCs valuation of the works it had completed should be
raised and resolved during the said joint measurement instead of raising
the same after HRCC had submitted its monthly progress billings. Thus,
having relinquished its right to ask for a joint measurement of HRCCs
completed works, FFCCI had necessarily waived its right to dispute
HRCCs valuation of the works it had accomplished.
Second Substantive Issue:
Validity of HRCCs Rescission of the Subcontract Agreement
Both the CA and the CIAC held that the work stoppage of HRCC was
justified as the same is but an exercise of its right to rescind the
Subcontract Agreement in view of FFCCIs failure to pay the formers
monthly progress billings. Further, the CIAC stated that FFCCI could no
longer assail the work stoppage of HRCC as it failed to file any
counterclaim against HRCC pursuant to the terms of the Subcontract
Agreement.
For its part, FFCCI asserted that the work stoppage of HRCC was not
justified and, in any case, its failure to raise a counterclaim against HRCC
for liquidated damages before the CIAC does not amount to a ratification
of the latters work stoppage.
The determination of the validity of HRCCs work stoppage depends on a
determination of the following: first, whether HRCC has the right to
extrajudicially rescind the Subcontract Agreement; and second, whether
FFCCI is already barred from disputing the work stoppage of HRCC.

The right of rescission is statutorily recognized in reciprocal obligations.

Article 1191 of the Civil Code pertinently reads:

The injured party may choose between the fulfillment and the rescission
of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with Articles 1385 and 1388
and the Mortgage Law.
The rescission referred to in this article, more appropriately referred to as
resolution is on the breach of faith by the defendant which is violative of
the reciprocity between the parties.44 The right to rescind, however, may
be waived, expressly or impliedly.45
While the right to rescind reciprocal obligations is implied, that is, that
such right need not be expressly provided in the contract, nevertheless
the contracting parties may waive the same.46
Contrary to the respective dispositions of the CIAC and the CA, we find
that HRCC had no right to rescind the Subcontract Agreement in the
guise of a work stoppage, the latter having waived such right. Apropos is
Article 11.2 of the Subcontract Agreement, which reads:
11.2 Effects of Disputes and Continuing Obligations
Notwithstanding any dispute, controversy, differences or arbitration
proceedings relating directly or indirectly to this SUBCONTRACT
Agreement and without prejudice to the eventual outcome thereof,
[HRCC] shall at all times proceed with the prompt performance of the
Works in accordance with the directives of FFCCI and this
SUBCONTRACT Agreement.47 (Emphasis supplied)

Hence, in spite of the existence of dispute or controversy between the

parties during the course of the Subcontract Agreement, HRCC had
agreed to continue the performance of its obligations pursuant to the
Subcontract Agreement. In view of the provision of the Subcontract
Agreement quoted above, HRCC is deemed to have effectively waived its
right to effect extrajudicial rescission of its contract with
FFCCI. Accordingly, HRCC, in the guise of rescinding the Subcontract
Agreement, was not justified in implementing a work stoppage.

WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
ARTURO D. BRION
JOSE PORTUGAL PEREZ
Associate Justice
Associate Justice

1wphi1

The costs of arbitration should be shared by the parties equally.

MARIA LOURDES P. A. SERENO

Associate Justice
ATT E S TATI O N

Section 1, Rule 142 of the Rules of Court provides:

Section 1. Costs ordinarily follow results of suit. Unless otherwise
provided in these rules, costs shall be allowed to the prevailing party as a
matter of course, but the court shall have power, for special reasons, to
adjudge that either party shall pay the costs of an action, or that the same
be divided, as may be equitable. No costs shall be allowed against the
Republic of the Philippines unless otherwise provided by law. (Emphasis
supplied)
Although, generally, costs are adjudged against the losing party, courts
nevertheless have discretion, for special reasons, to decree otherwise.
Here, considering that the work stoppage of HRCC is not justified, it is
only fitting that both parties should share in the burden of the cost of
arbitration equally. HRCC had a valid reason to institute the complaint
against FFCCI in view of the latters failure to pay the full amount of its
monthly progress billings. However, we disagree with the CIAC and the
CA that only FFCCI should shoulder the arbitration costs. The arbitration
costs should be shared equally by FFCCI and HRCC in view of the
latters unjustified work stoppage.
WHEREFORE, in consideration of the foregoing disquisitions, the
Decision dated February 6, 2009 and Resolution dated April 13, 2009 of
the Court of Appeals in CA-G.R. SP No. 91860 are
hereby AFFIRMED withMODIFICATION that the arbitration costs shall be
shared equally by the parties herein.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of
the Courts Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
C E R TI F I C ATI O N
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Courts Division.
RENATO C. CORONA
Chief Justice
Footnotes
1
Penned by Associate Justice Romeo F. Barza, with Associate
Justices Josefina Guevara-Salonga and Arcangelita M. RomillaLontok, concurring; rollo, pp. 47-69.
2
Id. at 78.
3
Id. at 85-92.
4
Id. at 93.
5
Id. at 109.
6
Id. at 111.
7
Id. at 94.
8
Id. at 95.
9
Id. at 113.
10
Id. at 96.

Id. at 79-84.
Id. at 97-105.
13
Id. at 124.
14
Id. at 116-135.
15
Id. at 134.
16
Id. at 127-128.
17
Id. at 130-131.
18
Supra note 1.
19
Rollo, pp. 70-77.
20
Supra note 2.
21
Rollo, pp. 21-22.
22
Creating an Arbitration Machinery in the Construction Industry
of the Philippines, otherwise known as the "Construction Industry
Arbitration Law".
23
SC Circular No. 1-91 and Revised Administrative Circular No. 195 provides that appeal from the arbitral award of the CIAC must
first be brought to the CA on questions of fact, law or mixed
questions of fact and law.
24
G.R. No. 110434, December 13, 1993, 228 SCRA 397.
25
Id. at 405.
26
479 Phil. 578 (2004).
27
Id. at 590-591.
28
Vda. De Formoso v. Philippine National Bank, G.R. No. 154704,
June 1, 2011.
29
See Philippine National Construction Corporation v. Court of
Appeals, G.R. No. 159417, January 25, 2007, 512 SCRA 684,
695.
30
Civil Code of the Philippines, Article 1370.
31
G.R. No. 168108, April 13, 2007, 521 SCRA 131.
32
Id. at 144.
33
Rollo, p. 87.
34
Id. at 330-331.
35
G.R. No. 79269, June 5, 1991, 198 SCRA 130.
36
Id. at 154.
37
Supra note 4.
38
Supra note 7.
39
Supra note 8.
40
Supra note 5.
41
Supra note 6.
42
Supra note 9.
43
Rollo, pp. 65-66.
44
Pryce Corp. v. Phil. Amusement and Gaming Corp., 497 Phil.
490, 505 (2005), citing the Concurring Opinion of Mr. Justice J.B.
L. Reyes in Universal Food Corp. v. CA, 144 Phil. 1, 21 (1970).
11

12

Francisco v. DEAC Construction, Inc., G.R. No. 171312,

February 4, 2008, 543 SCRA 644, 655.
46
Tolentino, Commentaries and Jurisprudence on the Civil Code
of the Philippines, Vol. IV (1991).
47
Rollo, p. 91.
45

under the Subcontract Agreement for the payment of the latters progress
billings, i.e. joint measurement of the completed works, and, hence, it
was justified in not paying the amount stated in HRCCs progress billings.

WAIVER OF RIGHTS
F.F. CRUZ & CO., INC. vs. HR CONSTRUCTION CORPORATION
G.R. No. 187521
March 14, 2012
Facts:
Sometime in 2004, FFCCI entered into a contract with the Department of
Public Works and Highways (DPWH) for the construction of the
Magsaysay Viaduct, known as the Lower Agusan Development Project.
On August 9, 2004, FFCCI, in turn, entered into a Subcontract Agreement
with HR Construction Corporation (HRCC) for the supply of materials,
labor, equipment, tools and supervision for the construction of a portion of
the said project called the East Bank Levee and Cut-Off Channel in
accordance with the specifications of the main contract. Pursuant to the
Subcontract Agreement, HRCC would submit to FFCCI a monthly
progress billing which the latter would then pay, subject to stipulated
deductions, within 30 days from receipt thereof.
The parties agreed that the requests of HRCC for payment should
include progress accomplishment of its completed works as approved by
FFCCI. Additionally, they agreed to conduct a joint measurement of the
completed works of HRCC together with the representative of DPWH and
consultants to arrive at a common quantity. Thereafter, HRCC
commenced the construction of the works pursuant to the Subcontract
Agreement. However, before the project was completed, HRCC pursuant
to the arbitration clause in the subcontract agreement filed with the
Construction Industry Arbitration Commission a complaint praying that
FFCI pay the overdue application plus legal interests they have not paid.
FFCCI maintained that HRCC failed to comply with the condition stated

Issue:
Whether or not FFCCI is already barred from contesting HRCCs
valuation of the completed works having waived its right to demand the
joint measurement requirement.
Ruling:
The Supreme Court held that FFCCI had waived its right to demand for a
joint measurement of HRCCs completed works under the Subcontract
Agreement. Further, on account of its failure to demand the joint
measurement of HRCCs completed works, had effectively waived its
right to ask for the conduct of the same as a condition sine qua non to
HRCCs submission of its monthly progress billings. Basically, the instant
issue calls for a determination as to which of the parties respective
valuation of accomplished works should be given credence. FFCCI
claims that its valuation should be upheld since the same was the result
of a measurement of the completed works conducted by it and the
DPWH.
On the other hand, HRCC maintains that its valuation should be upheld
on account of FFCCIs failure to observe the joint measurement
requirement in ascertaining the extent of its completed works. FFCCI
admits that in all three instances where it paid HRCC for its progress
billings, it never required compliance with the aforequoted contractual
provision of a prior joint quantification. Such repeated omission may
reasonably be construed as a waiver by FFCCI of its contractual right to
require compliance of said condition and it is now too late in the day to so
impose it. Article 6 of the Civil Code expressly provides that rights may
be waived unless the waiver is contrary to law, public order, public policy,
morals or good customs. The tribunal cannot see any such violation in
this case.

On July 10, 1997, Pagpalain filed a motion to dismiss the petition,

alleging that ILO-PHILS was not a legitimate labor organization due to its
failure to comply with the requirements for registration under the Labor
Code. Specifically, it claimed that the books of account submitted by ILOPHILS were not verified under oath by its treasurer and attested to by its
president, as required by Rule II, Book V of the Omnibus Rules
Implementing the Labor Code.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 133215 July 15, 1999

PAGPALAIN HAULERS, INC., petitioner,
vs.
The HONORABLE CRESENCIANO B. TRAJANO, in his official as
Secretary of Labor and Employment, the HONORABLE RENATO D.
PARUNGO, in his official capacity as the Med-Arbiter in DOLE Case
No. NCR-OD-M-9705-006, and the INTEGRATED LABOR
ORGANIZATION (ILO-PHILS) PAGPALAIN WORKERS UNION-ILOPHILS., respondent.

ROMERO, J.:
On May 14, 1997, respondent Integrated Labor Organization-Pagpalain
Haulers Worker's Union (hereafter referred to as ILO-PHILS), in a bid to
represent the rank-and-file drivers and helpers of petitioner Pagpalain
Haulers, Inc. (herafter referred to as Pagpalain), filed a petition for
certification election with the Department of Labor and Employment. ILOPHILS attached to the petition copies of its charter certificate, its
constitution and by-laws, its books of account, and a list of its officers and
their addresses.

In a reply dated August 4, 1997, ILO-PHILS dismissed Pagpalain's

claims, saying that Department Order No. 9, Series of 1997 had
dispensed with the requirement that a local or chapter of a national union
submit books of account in order to be registered with the Department of
Labor and Employment.
Finding in favor of ILO-PHILS, the Med-Arbiter, on August 27, 1997,
ordered the holding of certification elections among the rank-and-file of
Pagpalain Haulers. Pagpalain promptly appealed the decision to the
Secretary of Labor and Employment. It claimed that the Med-Arbiter had
gravely abused his discretion in allowing Department Order No. 9 to take
precedence over a ruling of the Supreme Court. Pagpalain
cited Protection Technology v. Secretary, Department of labor and
Employment 1 and Progressive Development Corporation v. Secretary of Labor 2 in support of
its contention.
Declaring Protection and Progressive to be inapplicable to the case
before him, the Secretary, on February 27, 1998, issued a resolution
dismissing Pagpalain's appeal. In his own words, "[i]n these
aforementioned cases, the Supreme Court premised its ruling on the
previous rules implementing the Labor Code, particularly Book V, that
provides the requirements for registration of a local for chapter of a
federation or national union. With the issuance of Department Order No.
09 amending the rules implementing Book V of the Code, the
requirement on books of account no longer exists." 3
Aggrieved by said resolution, Pagpalain now comes to this Court for relief
claiming that the Secretary of Labor acted without jurisdiction in issuing
the questioned resolution. In support of its proposition, it claims that:

1. DEPARTMENT ORDER NO. 9, SERIES OF 1997, ISSUED BY

PUBLIC RESPONDENT SECRETARY OF LABOR IS NULL AND
VOID FOR BEING CONTRARY TO PUBLIC POLICY LAID DOWN
BY THE SUPREME COURT IN PROTECTION TECHNOLOGY,
INC. V. SECRETARY OF LABOR (G.R. NO. 117211, 1 MARCH
1995) ANDPROGRESSIVE DEVELOPMENT CORP. V.
SECRETARY OF LABOR (G.R. NO. 96425, 4 FEBRUARY 1992);
2. DEPARTMENT ORDER NO. 9, SERIES OF 1997, OF PUBLIC
RESPONDENT SECRETARY OF LABOR CANNOT ALTER THE
REQUIREMENTS OF ARTICLES 241(H) AND (J) OF THE LABOR
CODE OF THE PHILIPPINES, NOR CAN IT PREVAIL OVER THE
RULINGS OF THE SUPREME COURT, WHICH FORM PART OF
THE LAW OF THE LAND.

Pagpalain's contentions are without merit.

Under Article 234 of the Labor Code, the requirements for registration of
a labor organization is as follows:
Art. 234. Requirements of registration. Any applicant labor
organization, association or group of unions or workers shall acquire
legal personality and shall be entitled to the rights and privileges
granted by law to legitimate labor organizations upon issuance of the
certificate of registration based on the following requirements:
(a) Fifty pesos (P50.00) registration fee;
(b) The names of its officers, their addresses, the principal
address of the labor organization, the minutes of the
organizational meetings and the list of the workers who
participated in such meetings;
(c) The names of all its members comprising at least twenty
percent (20%) of all the employees in the bargaining unit
where it seeks to operate;

(d) If the applicant union has been in existence for one or

more years, copies of its annual financial reports; and
(e) Four (4) copies of the constitution and by-laws of the
applicant union, minutes of its adoption or ratification, and the
list of the members who participated in it.
As can be gleaned from the above, the Labor Code does not require the
submission of books of account in order for a lobor organization to be
registered as a legitimate labor organization. The requirement that books
of account be submitted as a requisite can be found only in Book V of the
Omnibus Rules Implementing the Labor Code, prior to its amendment by
Department Order No. 9, Series of 1997. Specifically, the old Section
3(e), Rule II, of Book V provided that "[t]he local or chapter of a labor
federation or national union shall have and maintain a constitution and
by-laws, set of officers and books of accounts. For reporting purposes,
the procedure governing the reporting of independently registered
unions, federations or national unions shall be observed."
In Progressive Development Corporation, cited by Pagpalain, this Court
held that the above-mentioned "'procedure governing the reporting of
indepedently registered unions' refers to the certification and attestation
requirements contained in Article 235, paragraph 2." Article 235,
paragraph 2 provides that "[a]ll requisite documents and papers shall be
certified under oath by the secretary or the treasurer of the organizations,
as the case may be, and attested to by its president;" hence, in the
above-mentioned case, we ruled that in applications for registration by a
local or chapter of a federation or national union, the constitution and bylaws, set of officers and books of account submitted by said local or
chapter must be certified under oath by the secretary or treasurer and
attested to by its president.
1wphi1.nt

Three years, later, in Protection Technology v. Secretary of Labor, we

amplified our ruling in Progressive, saying that the non-submission of
books of acocunt certified by and attested to by the appropriate officer is
a ground for an employer to legitimately oppose a petition for certification
election filed by a local or chapter of a national union.

By virtue of Department Order No. 9, Series of 1997, however, the

documents needed to be submitted by a local or chapter have been
reduced to the following:
(a) A charter certificate issued by the federation or national union
indicating the creation or establishment of the local/chapter;
(b) The names of the local/chapter's officers, their addresses, and
the principal office of the local/chapter;
(c) The local/chapter's constitution and by-laws; provided that
where the local/chapter's constitution and by-laws is the same as
that of the federation or national union, this fact shall be indicated
accordingly.
All the foregoing supporting requirements shall be certified under oath by
the Secretary or Treasurer of the local/chapter and attested by its
President. 4
Since Department Order No. 9 has done away with the submission of
books of account as a requisite for registration, Pagpalain's only recourse
now is to have said order declared null and void. It premises its case on
the principles laid down in Progressive and Protection Technology. First,
Pagpalain maintains that Department Order No. 9 is illegal, allegedly
because it contravenes the above-mentioned rulings of this Court. Citing
Article 8 of the Civil Code, which provides that [j]udicial decisions
applying or interpreting the laws or the Constitution shall form a part of
the legal system of the Philippines," Pagpalain declares the two cases
part of the law of the land which, under the third paragraph of Article 7 of
the Civil Code, 5 may not be supplanted by mere regulation.
Second, it claims that dispensing with books of account contravenes
public policy, citing Protection Technology, as follows:
It is immaterial that the Union, having been organized for
less than a year before the application for registration with
the BLR, would have had no real opportunity to levy and
collect dues and fees from its members which need to be

recorded in the books of account. Such accounting books

can and must be submitted to the BLR, even if they
contain no detailed or extensive entries as yet. The point
to be stressed is that the applicant local or chapter must
demonstrate to the BLR that it is entitled to registered
status because it has in place a system for accounting for
members' contributions to its fund even before it actually
receives dues and fees from its members. The controlling
intention is to minimize the risk of fraud and diversion in
the course of the subsequent formation and growth of the
Union fund. [Emphasis petitioner's]
To buttress its argument, Pagpalain also cites Progressive, thus:
The employer naturally needs assurance that the union it
is dealing with is a bona fide organization, one which has
not submitted false statements or misrepresentations to
the Bureau. The inclusion of the certification and
attestation requirements will in a marked degree allay
these apprehensions of management. Not only is the
issuance of any false statement and misrepresentation a
ground for cancellation of registration (See Artide 239 (a),
(c) and (d)); it is also a ground for a criminal charge of
perjury.
The certification and attestation requirements are
preventive measures against the commission of fraud.
They likewise afford a measure of protection to
unsuspecting employees who may be lured into joining
unscrupulous or fly-by-night unions whose sole purpose
is to control union funds or to use the union for dubious
ends. [Emphasis petitioner's]
Finally, Pagpalain cites as indicative of public policy, the following
sections of Article 241 of the Labor Code:
The following are the rights and conditions of membership
in a labor organization:

xxx xxx xxx

(h) Every payment of fees, dues, or other contributions by
a member shall be evidenced by a receipt signed by the
officer or agent making the collection and entered into the
record of the organization to be kept and maintained for
the that purpose;
xxx xxx xxx
(j) Every income or revenue of the organization shall be
evidenced by a record showing its source, and every
expenditure of its funds shall be evidenced by a receipt
from the person to whom the payment is made, which
shall state the date, place and purpose of such
payment. Such record or receipt shall form part of the
financial records of the organizations. [Emphasis
petitioner's]
Under Article 8 of the Civil Code, "[j]udicial decisions applying or
interpreting the laws or the Constitution shall form a part of the legal
system of the Philippines." This does not mean, however, that courts can
create law. The courts exist for interpreting the law, not for enacting it. To
allow otherwise would be violative of the principle of separation of
powers, inasmuch as the sole function of our courts is to apply or
interpret the laws, particularly where gaps or lacunae exist or where
ambiguities becloud issues, but it will not arrogate unto itself the task of
legislating.
Consequently, Progressive and Protection Technology are not to be
deemed as laws on the registration of unions. They merely interpret and
apply the implementing rules of the Labor Code as to registration of
unions. It is this interpretation that forms part of the legal system of the
Philippines, for the inperpretation placed upon the written law by a
competent court has the force of law. 6 Progressive and Protection
Technology, however, applied and interpreted the then existing Book V of the
Omnibus Rules Implementing the Labor Code. Since Book V of the Omnibus
Rules, as amended by Department Order No. 9, no longer requires a local or
chapter to submit books of accounts as a prerequisites for registration, the

doctrines enunciated in the above-mentioned cases, with respect to books of

account, are already pass and therefore, no longer applicable. Hence,
Pagpalain cannot insist that ILO-PHILS comply with the requirements
prescribed in said rulings, for the current implementing rules have deleted the
same.

Neither can Pagpalain contend that Department Order No. 9 is an invalid

exercise of rule-making power by the Secretary of Labor. For an
administrative order to be valid, it must i) be issued on the authority of
law and (ii) it must not be contrary to the law and the Constitution. 7
Department Order No. 9 has been issued on authority of law. Under the
law, the Secretary is authorized to promulgate rules and regulations to
implement the Labor Code. Specifically, Article 5 of the Labor Code
provides that "[t]he Department of Labor and other government agencies
charged with the administration and enforcement of this Code or any of
its parts shall promulgate the necessary implementing rules and
regulations." Consonant with this article, the Secretary of Labor and
Employment promulgated the Omnibus Rules Implementing the Labor
Code. By virtue of this self-same authority, the Secretary amended the
above-mentioned omnibus rules by issuing Department Order No. 9,
Series of 1997.
Moreover, Pagpalain has failed to show that Department Order No. 9 is
contrary to the law or the Constitution. At the risk of being repetitious, the
Labor Code does not require a local or chapter to submit books of
account in order for it to be registered as a legitimate labor organization.
There is, thus, no inconsistency between the Labor Code and
Department Order No. 9. Neither has Pagpalain shown that said order
contravenes any provision of the Constitution.
Pagpalain cannot also allege that Department Order No. 9 is violative of
public policy. As adverted to earlier, the sole function of our courts is to
apply or interpret the laws. 8 It does not formulate public policy, which is the
province of the legislative and executive branches of government. It cannot,
thus, be said that the principles laid down by the court in Progressive and
Protection Technology constitute public policy on the matter. They do,
however, constitute the Court's interpretation of public policy, as formulated
by the executive department through its promulgation of rules implementing

the Labor Code. However, this public policy has itself been changed by the
executive department, through the amendments introduced in Book V of the
Omnibus Rules by Department Order No. 9. It is not for us to question this
change in policy, it being a well-established principle beyond question that it
is not within the province of the courts to pass judgment upon the policy of
legislative or executive action. 9 Notwithstanding the expanded judicial power
under Section 1, Article VIII of the Constitution, an inquiry on the abovestated policy would delve into matters of wisdom not within the powers of this
Court.

Furthermore, the controlling intention in requiring the submission of

books of account is the protection of labor through the minimization of the
risk of fraud and diversion in the handling of union funds. As correctly
pointed out by the Solicitor General, this intention can still be realized
through other provisions of the Labor Code. Article 241 of the Labor
Code, for instance:
Art. 241. Rights and conditions of membership in a labor organization
The following are the rights and conditions of membership in a
labor organization:
xxx xxx xxx
(b) The members shall be entitled to full and detailed reports
from their officers and representatives of all financial
transactions as provided for in the constitution and by-laws of
the organization;
xxx xxx xxx
(g) No officer, agent or member of a labor organization shall
collect any fees, dues, or other contributions in its behalf or
make any disbursement of its funds unless he is duly
authorized pursuant to its constitution and by-laws;
(h) Every payment of fees, dues, or other contributions by a
member shall be evidenced by a receipt signed by the officer or
agent making the collection and entered into the record of the
organization to be kept and maintained for the that purpose;

(i) The funds of the organization shall not be applied for any
purpose or object other than those expressly provided by its
constitution or by-laws or those expressly authorized by written
resolution adopted by the majority of the members at a general
meeting duly called for the purpose;
(j) Every income or revenue of the organization shall be
evidenced by a record showing its source, and every
expenditure of its funds shall be evidenced by a receipt from
the person to whom the payment is made, which shall state the
date, place and purpose of such payment. Such record or
receipt shall form part of the financial records of the
organization.
xxx xxx xxx
(l) The treasurer of any labor organization and every officer
thereof who is responsible for the account of such organization
or for the collection, management, disbursement, custody or
control of the fund, moneys and other properties of the
organization, shall render to the organization and to its
members a true and correct account of all the moneys received
and paid by him since he assumed office or since the last day
on which he rendered such account, and of all bonds, securities
and other properties of the organization entrusted to his
custody or under his control. The rendering of such account
shall be made:
(1) At least once a year within 30 days after the close of its
fiscal year;
(2) At such other times as may be required by a resolution of
the majority of the members of the organization;
(3) Upon vacating his office.
The account shall be duly audited and verified by affidavit and a
copy thereof shall be furnished the Secretary of Labor.

(m) The books of account and other records of the financial

activities of any labor organization shall be open to inspection
by any officer or member thereof during office hours;

3 Rollo, pp. 23-24.

4 Sec. 1, Rule VI, Book V, Omnibus Rules Implementing the
Labor Code.

xxx xxx xxx

Furthermore, Article 274 of the Labor Code empowers the Secretary of
Labor or his duly authorized representative to inquire into the financial
activities of legitimate labor organizations upon the filing of a complaint
under oath duly supported by the written consent of 20% of the total
membership of the labor organization concerned, as well as to examine
their books of accounts and other records to determine compliance or
non-compliance with the law. All of these provisions are designed to
safeguard the funds of a labor organization that they may not be
squandered or frittered away by its officers or by third persons to the
detriment of its members.

5 Administrative or executive acts, orders and regulations shall be

valid only when they are not contrary to the laws or the
Constitution.
6 People v. Jabinal, 55 SCRA 607 (1974).
7 De Leon, ADMINISTRATIVE LAW: Text and Cases, p. 90.
8 Tolentino, Civil Code of the Philippines: Vol. 1, citing 1 Camus
38.
9 Taada v. Cuenco, 103 Phil. 1031 (1957).

Lastly, Department Order No. 9 only dispenses with books of account as

a requirement for registration of a local or chapter of a national union or
federation. As provided by Article 241 (h) and (j), a labor organization
must still maintain books of account, but it need not submit the same as a
requirement for registration. Given the foregoing disquisition, we find no
cogent reason to declare Departmet Order No. 9 null and void, as well as
to reverse the assailed resolution of the Secretary of Labor.
1wphi1.nt

WHEREFORE, premises considered, the instant petition is hereby

DISMISSED for lack of merit and the resolution of the Secretary of Labor
dated February 27, 1998 AFFIRMED. Costs against petitioner.
SO ORDERED.
Vitug, Panganiba, Purisima and Gonzaga-Reyes, JJ., concur.
Footnotes
1 242 SCRA 99 (1995).
2 205 SCRA 802 (1992).

G.R. No. 133215 July 15, 1999

PAGPALAIN HAULERS, INC., petitioner,
vs.
The HONORABLE CRESENCIANO B. TRAJANO, in his official as
Secretary of Labor and Employment, the HONORABLE RENATO D.
PARUNGO, in his official capacity as the Med-Arbiter in DOLE Case
No. NCR-OD-M-9705-006, and the INTEGRATED LABOR
ORGANIZATION (ILO-PHILS) PAGPALAIN WORKERS UNION-ILOPHILS., respondent.
Facts: Respondent union, Integrated Labor Organization-Pagpalain
Haulers Workers Union (hereafter referred to as ILO-PHILS, filed a
petition for certification election with the Department of Labor and
Employment. ILO-PHILS attached to the petition copies of its charter
certificate, its constitution and by-laws, its books of account, and a list of
its officers and their addresses. Thereafter, petitioner Pagpalain filed a

motion to dismiss the petition on the ground that the books of account
submitted by ILO-PHILS were not verified under oath.

As can be gleaned from the above, the Labor Code does not require the
submission of books of account in order for a labor organization to be
registered as a legitimate labor organization.

Issue: WON respondent union is a legitimate union despite book of

accounts not verified under oath.
Held: YES. Under Article 234 of the Labor Code, the requirements for
registration of a labor organization are as follows:
(a) Fifty pesos (P50.00) registration fee;
b) The names of its officers, their addresses, the principal address of the
labor organization, the minutes of the organizational meetings and the list
of the workers who participated in such meetings;
(c) The names of all its members comprising at least twenty percent
(20%) of all the employees in the bargaining unit where it seeks to
operate;
(d) If the applicant union has been in existence for one or more years,
copies of its annual financial reports; and
(e) Four (4) copies of the constitution and by-laws of the applicant union,
minutes of its adoption or ratification, and the list of the members who
participated in it.