THIRD DIVISION For the resolution of the Court are three consolidated petitions for review

on certiorari under Rule 45 of the Rules of Court. G.R. No. 148132 assails
SMART COMMUNICATIONS, INC., G.R. No. 148132 the February 28, 2000 Decision[1] and the May 7, 2001 Resolution[2] of the Court of
Petitioner, Appeals (CA) in CA-G.R. SP. No. 53831. G.R. Nos. 151079 and 151372 question
the June 11, 2001 Decision[3] and the December 18, 2001Resolution[4] in CA-G.R. SP.
- versus - No. 57065.

REGINA M. ASTORGA, Regina M. Astorga (Astorga) was employed by respondent Smart

Respondent. Communications, Incorporated (SMART) on May 8, 1997 as District Sales Manager
x---------------------------------------------------x of the Corporate Sales Marketing Group/ Fixed Services Division (CSMG/FSD). She
SMART COMMUNICATIONS, INC., G.R. No. 151079 was receiving a monthly salary of P33,650.00. As District Sales Manager, Astorga
Petitioner, enjoyed additional benefits, namely, annual performance incentive equivalent to 30%
of her annual gross salary, a group life and hospitalization insurance coverage, and a
- versus - car plan in the amount of P455,000.00.[5]

REGINA M. ASTORGA, In February 1998, SMART launched an organizational realignment to

Respondent. achieve more efficient operations. This was made known to the employees
x---------------------------------------------------x on February 27, 1998.[6] Part of the reorganization was the outsourcing of the
REGINA M. ASTORGA, marketing and sales force. Thus, SMART entered into a joint venture agreement with
Petitioner, G.R. No. 151372 NTT of Japan, and formed SMART-NTT Multimedia, Incorporated (SNMI). Since
SNMI was formed to do the sales and marketing work, SMART abolished the
CSMG/FSD, Astorgas division.
Present:
To soften the blow of the realignment, SNMI agreed to absorb the CSMG
- versus - YNARES-SANTIAGO, personnel who would be recommended by SMART. SMART then conducted a
Chairperson, performance evaluation of CSMG personnel and those who garnered the highest
AUSTRIA-MARTINEZ, ratings were favorably recommended to SNMI. Astorga landed last in the
CORONA,* performance evaluation, thus, she was not recommended by SMART.SMART,
NACHURA, and nonetheless, offered her a supervisory position in the Customer Care Department, but
REYES, JJ. she refused the offer because the position carried lower salary rank and rate.
SMART COMMUNICATIONS, INC. and ANN
MARGARET V. SANTIAGO, Promulgated: Despite the abolition of the CSMG/FSD, Astorga continued reporting for
Respondents. work. But on March 3, 1998, SMART issued a memorandum advising Astorga of the
____________________ termination of her employment on ground of redundancy, effective April 3,
1998. Astorga received it on March 16, 1998.[7]
x------------------------------------------------------------------------------------x
The termination of her employment prompted Astorga to file a
Complaint[8] for illegal dismissal, non-payment of salaries and other benefits with
DECISION prayer for moral and exemplary damages against SMART and Ann Margaret V.
Santiago (Santiago). She claimed that abolishing CSMG and, consequently,
NACHURA, J.: terminating her employment was illegal for it violated her right to security of tenure.
She also posited that it was illegal for an employer, like SMART, to contract out
services which will displace the employees, especially if the contractor is an in-house
agency.[9]
 SMART responded that there was valid termination. It argued that Astorga BACKWAGES; (P33,650.00 x 4
was dismissed by reason of redundancy, which is an authorized cause for termination months) = P134,600.00
of employment, and the dismissal was effected in accordance with the requirements UNPAID SALARIES (February 15, 1998-
of the Labor Code. The redundancy of Astorgas position was the result of the April 3, 1998
abolition of CSMG and the creation of a specialized and more technically equipped February 15-28, 1998 = P 16,823.00
SNMI, which is a valid and legitimate exercise of management prerogative.[10] March 1-31, [1998] = P 33,650.00
April 1-3, 1998 = P 3,882.69
In the meantime, on May 18, 1998, SMART sent a letter to Astorga CAR MAINTENANCE ALLOWANCE
demanding that she pay the current market value of the Honda Civic Sedan which (P2,000.00 x 4) = P 8,000.00
was given to her under the companys car plan program, or to surrender the same to FUEL ALLOWANCE (300 liters/mo. x
the company for proper disposition.[11] Astorga, however, failed and refused to do 4 mos. at P12.04/liter) = P 14,457.83
either, thus prompting SMART to file a suit for replevin with the Regional Trial TOTAL = P211,415.52
Court of Makati (RTC) on August 10, 1998. The case was docketed as Civil Case
No. 98-1936 and was raffled to Branch 57.[12] xxxx

Astorga moved to dismiss the complaint on grounds of (i) lack of
jurisdiction; (ii) failure to state a cause of action; (iii) litis pendentia; and (iv) forum-
shopping. Astorga posited that the regular courts have no jurisdiction over the
complaint because the subject thereof pertains to a benefit arising from an
employment contract; hence, jurisdiction over the same is vested in the labor tribunal
and not in regular courts.[13]
3. Jointly and severally pay moral damages in the amount
of P500,000.00 x x x and exemplary damages in the amount
of P300,000.00. x x x
4. Jointly and severally pay 10% of the amount due as
attorneys fees.

Pending resolution of Astorgas motion to dismiss the replevin case, the
Labor Arbiter rendered a Decision[14] dated August 20, 1998, declaring Astorgas
dismissal from employment illegal. While recognizing SMARTs right to abolish any
of its departments, the Labor Arbiter held that such right should be exercised in good
faith and for causes beyond its control. The Arbiter found the abolition of CSMG
done neither in good faith nor for causes beyond the control of SMART, but a ploy to
terminate Astorgas employment. The Arbiter also ruled that contracting out the
functions performed by Astorga to an in-house agency like SNMI was illegal, citing
Section 7(e), Rule VIII-A of the Rules Implementing the Labor Code.
Accordingly, the Labor Arbiter ordered:
WHEREFORE, judgment is hereby rendered declaring
the dismissal of [Astorga] to be illegal and unjust. [SMART
and Santiago] are hereby ordered to:
1. Reinstate [Astorga] to [her] former position or to a
substantially equivalent position, without loss of seniority rights
and other privileges, with full backwages, inclusive of allowances
and other benefits from the time of [her] dismissal to the date of
reinstatement, which computed as of this date, are as follows:
(a) Astorga
SO ORDERED.[15]
Subsequently, on March 29, 1999, the RTC issued an Order[16] denying
Astorgas motion to dismiss the replevin case. In so ruling, the RTC ratiocinated that:
Assessing the [submission] of the parties, the Court finds
no merit in the motion to dismiss.
As correctly pointed out, this case is to enforce a right of
possession over a company car assigned to the defendant under a
car plan privilege arrangement. The car is registered in the name of
the plaintiff.Recovery thereof via replevin suit is allowed by Rule
60 of the 1997 Rules of Civil Procedure, which is undoubtedly
within the jurisdiction of the Regional Trial Court.
In the Complaint, plaintiff claims to be the owner of the
company car and despite demand, defendant refused to return said
car. This is clearly sufficient statement of plaintiffs cause of action.
Neither is there forum shopping. The element of litis
penden[t]ia does not appear to exist because the judgment in the
labor dispute will not constitute res judicata to bar the filing of this
case.

WHEREFORE, the Motion to Dismiss is hereby denied
for lack of merit.
SO ORDERED.[17]
Astorga filed a motion for reconsideration, but the RTC denied it on June 18, 1999.
[18]
Astorga elevated the denial of her motion via certiorari to the CA, which, in
its February 28, 2000 Decision,[19] reversed the RTC ruling. Granting the petition
and, consequently, dismissing the replevin case, the CA held that the case is
intertwined with Astorgas complaint for illegal dismissal; thus, it is the labor tribunal
that has rightful jurisdiction over the complaint. SMARTs motion for reconsideration
having been denied,[20] it elevated the case to this Court, now docketed as G.R. No.
148132.
Meanwhile, SMART also appealed the unfavorable ruling of the Labor
Arbiter in the illegal dismissal case to the National Labor Relations Commission
(NLRC). In its September 27, 1999Decision,[21] the NLRC sustained Astorgas
dismissal. Reversing the Labor Arbiter, the NLRC declared the abolition of CSMG
and the creation of SNMI to do the sales and marketing services for SMART a valid
organizational action. It overruled the Labor Arbiters ruling that SNMI is an in-house
agency, holding that it lacked legal basis. It also declared that contracting,
subcontracting and streamlining of operations for the purpose of increasing
efficiency are allowed under the law. The NLRC further found erroneous the Labor
Arbiters disquisition that redundancy to be valid must be impelled by economic
reasons, and upheld the redundancy measures undertaken by SMART.
The NLRC disposed, thus:
WHEREFORE, the Decision of the Labor Arbiter is
hereby reversed and set aside. [Astorga] is further ordered to
immediately return the company vehicle assigned to her. [Smart
and Santiago] are hereby ordered to pay the final wages of
[Astorga] after [she] had submitted the required supporting papers
therefor.
SO ORDERED.[22]
Astorga filed a motion for reconsideration, but the NLRC denied it
on December 21, 1999.[23]
Astorga then went to the CA via certiorari. On June 11, 2001, the CA
rendered a Decision[24] affirming with modification the resolutions of the NLRC. In
gist, the CA agreed with the NLRC that the reorganization undertaken by SMART
resulting in the abolition of CSMG was a legitimate exercise of management
prerogative. It rejected Astorgas posturing that her non-absorption into SNMI was
tainted with bad faith. However, the CA found that SMART failed to comply with
the mandatory one-month notice prior to the intended termination. Accordingly, the
CA imposed a penalty equivalent to Astorgas one-month salary for this non-
compliance. The CA also set aside the NLRCs order for the return of the company
vehicle holding that this issue is not essentially a labor concern, but is civil in nature,
and thus, within the competence of the regular court to decide. It added that the
matter had not been fully ventilated before the NLRC, but in the regular court.
Astorga filed a motion for reconsideration, while SMART sought partial
reconsideration, of the Decision. On December 18, 2001, the CA resolved the
motions, viz.:
WHEREFORE, [Astorgas] motion for reconsideration is hereby
PARTIALLY GRANTED. [Smart] is hereby ordered to pay
[Astorga] her backwages from 15 February 1998 to 06 November
1998. [Smarts] motion for reconsideration is outrightly DENIED.
SO ORDERED.[25]
Astorga and SMART came to us with their respective petitions for review
assailing the CA ruling, docketed as G.R Nos. 151079 and 151372. On February 27,
2002, this Court ordered the consolidation of these petitions with G.R. No. 148132.
[26]
In her Memorandum, Astorga argues:
I
THE COURT OF APPEALS ERRED IN UPHOLDING THE
VALIDITY OF ASTORGAS DISMISSAL DESPITE THE FACT
THAT HER DISMISSAL WAS EFFECTED IN CLEAR
VIOLATION OF THE CONSTITUTIONAL RIGHT TO
SECURITY OF TENURE, CONSIDERING THAT THERE WAS
NO GENUINE GROUND FOR HER DISMISSAL.
II
SMARTS REFUSAL TO REINSTATE ASTORGA DURING THE
PENDENCY OF THE APPEAL AS REQUIRED BY ARTICLE
223 OF THE LABOR CODE, ENTITLES ASTORGA TO HER
SALARIES DURING THE PENDENCY OF THE APPEAL.
III
THE COURT OF APPEALS WAS CORRECT IN HOLDING
THAT THE REGIONAL TRIAL COURT HAS NO
JURISDICTION OVER THE COMPLAINT FOR RECOVERY
OF A CAR WHICH ASTORGA ACQUIRED AS PART OF HER
EMPLOYEE (sic) BENEFIT.[27]
On the other hand, Smart in its Memoranda raises the following issues:
I
WHETHER THE HONORABLE COURT OF APPEALS HAS
DECIDED A QUESTION OF SUBSTANCE IN A WAY
PROBABLY NOT IN ACCORD WITH LAW OR WITH
APPLICABLE DECISION OF THE HONORABLE SUPREME
COURT AND HAS SO FAR DEPARTED FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE
POWER OF SUPERVISION WHEN IT RULED THAT SMART
DID NOT COMPLY WITH THE NOTICE REQUIREMENTS
PRIOR TO TERMINATING ASTORGA ON THE GROUND OF
REDUNDANCY.
II
WHETHER THE NOTICES GIVEN BY SMART TO ASTORGA
AND THE DEPARTMENT OF LABOR AND EMPLOYMENT
ARE SUBSTANTIAL COMPLIANCE WITH THE NOTICE
REQUIREMENTS BEFORE TERMINATION.
III
WHETHER THE RULE ENUNCIATED IN SERRANO VS.
NATIONAL LABOR RELATIONS COMMISSION FINDS
APPLICATION IN THE CASE AT BAR CONSIDERING THAT
IN THE SERRANO CASE THERE WAS ABSOLUTELY NO
NOTICE AT ALL.[28]
IV
WHETHER THE HONORABLE COURT OF APPEALS HAS
DECIDED A QUESTION OF SUBSTANCE IN A WAY
PROBABLY NOT IN ACCORD WITH LAW OR WITH
APPLICABLE DECISION[S] OF THE HONORABLE
SUPREME COURT AND HAS SO FAR DEPARTED FROM
THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE
POWER OF SUPERVISION WHEN IT RULED THAT THE
REGIONAL TRIAL COURT DOES NOT HAVE JURISDICTION
OVER THE COMPLAINT FOR REPLEVIN FILED BY SMART
TO RECOVER ITS OWN COMPANY VEHICLE FROM A
FORMER EMPLOYEE WHO WAS LEGALLY DISMISSED.
V
WHETHER THE HONORABLE COURT OF APPEALS HAS
FAILED TO APPRECIATE THAT THE SUBJECT OF THE
REPLEVIN CASE IS NOT THE ENFORCEMENT OF A CAR
PLAN PRIVILEGE BUT SIMPLY THE RECOVERY OF A
COMPANY CAR.
VI
WHETHER THE HONORABLE COURT OF APPEALS HAS
FAILED TO APPRECIATE THAT ASTORGA CAN NO
LONGER BE CONSIDERED AS AN EMPLOYEE OF SMART
UNDER THE LABOR CODE.[29]
The Court shall first deal with the propriety of dismissing the replevin case
filed with the RTC of Makati City allegedly for lack of jurisdiction, which is the
issue raised in G.R. No. 148132.
Replevin is an action whereby the owner or person entitled to repossession
of goods or chattels may recover those goods or chattels from one who has
wrongfully distrained or taken, or who wrongfully detains such goods or chattels. It
is designed to permit one having right to possession to recover property in specie
from one who has wrongfully taken or detained the property.[30] The term may refer
either to the action itself, for the recovery of personalty, or to the provisional remedy
traditionally associated with it, by which possession of the property may be obtained
by the plaintiff and retained during the pendency of the action.[31]
That the action commenced by SMART against Astorga in the RTC of
Makati City was one for replevin hardly admits of doubt.
 In reversing the RTC ruling and consequently dismissing the case for lack
of jurisdiction, the CA made the following disquisition, viz.:
[I]t is plain to see that the vehicle was issued to [Astorga]
by [Smart] as part of the employment package. We doubt that
[SMART] would extend [to Astorga] the same car plan privilege
were it not for her employment as district sales manager of the
company. Furthermore, there is no civil contract for a loan between
[Astorga] and [Smart]. Consequently, We find that the car plan
privilege is a benefit arising out of employer-employee
relationship. Thus, the claim for such falls squarely within the
original and exclusive jurisdiction of the labor arbiters and the
NLRC.[32]
We do not agree. Contrary to the CAs ratiocination, the RTC rightfully
assumed jurisdiction over the suit and acted well within its discretion in denying
Astorgas motion to dismiss. SMARTs demand for payment of the market value of the
car or, in the alternative, the surrender of the car, is not a labor, but a civil, dispute. It
involves the relationship of debtor and creditor rather than employee-employer
relations.[33] As such, the dispute falls within the jurisdiction of the regular courts.
In Basaya, Jr. v. Militante,[34] this Court, in upholding the jurisdiction of the
RTC over the replevin suit, explained:
Replevin is a possessory action, the gist of which is the right of
possession in the plaintiff. The primary relief sought therein is the
return of the property in specie wrongfully detained by another
person. It is an ordinary statutory proceeding to adjudicate rights to
the title or possession of personal property. The question of
whether or not a party has the right of possession over the property
involved and if so, whether or not the adverse party has wrongfully
taken and detained said property as to require its return to plaintiff,
is outside the pale of competence of a labor tribunal and beyond
the field of specialization of Labor Arbiters.
xxxx
The labor dispute involved is not intertwined with the
issue in the Replevin Case. The respective issues raised in each
forum can be resolved independently on the other. In fact in 18
November 1986, the NLRC in the case before it had issued an
Injunctive Writ enjoining the petitioners from blocking the free
ingress and egress to the Vessel and ordering the petitioners to
disembark and vacate. That aspect of the controversy is properly
settled under the Labor Code. So also with petitioners right to
picket. But the determination of the question of who has the better
right to take possession of the Vessel and whether petitioners can
deprive the Charterer, as the legal possessor of the Vessel, of that
right to possess in addressed to the competence of Civil Courts.
In thus ruling, this Court is not sanctioning split
jurisdiction but defining avenues of jurisdiction as laid down by
pertinent laws.
The CA, therefore, committed reversible error when it overturned the RTC ruling
and ordered the dismissal of the replevin case for lack of jurisdiction.
Having resolved that issue, we proceed to rule on the validity of Astorgas
dismissal.
Astorga was terminated due to redundancy, which is one of the authorized
causes for the dismissal of an employee. The nature of redundancy as an authorized
cause for dismissal is explained in the leading case of Wiltshire File Co., Inc. v.
National Labor Relations Commission,[35] viz:
x x x redundancy in an employers personnel force necessarily or
even ordinarily refers to duplication of work. That no other person
was holding the same position that private respondent held prior to
termination of his services does not show that his position had not
become redundant. Indeed, in any well organized business
enterprise, it would be surprising to find duplication of work and
two (2) or more people doing the work of one person. We believe
that redundancy, for purposes of the Labor Code, exists where the
services of an employee are in excess of what is reasonably
demanded by the actual requirements of the enterprise. Succinctly
put, a position is redundant where it is superfluous, and superfluity
of a position or positions may be the outcome of a number of
factors, such as overhiring of workers, decreased volume of
business, or dropping of a particular product line or service activity
previously manufactured or undertaken by the enterprise.
The characterization of an employees services as superfluous or no longer necessary
and, therefore, properly terminable, is an exercise of business judgment on the part
of the employer. The wisdom and soundness of such characterization or decision is
not subject to discretionary review provided, of course, that a violation of law or
arbitrary or malicious action is not shown.[36]
Astorga claims that the termination of her employment was illegal and
tainted with bad faith. She asserts that the reorganization was done in order to get rid
of her. But except for her barefaced allegation, no convincing evidence was offered
to prove it. This Court finds it extremely difficult to believe that SMART would
enter into a joint venture agreement with NTT, form SNMI and abolish CSMG/FSD
simply for the sole purpose of easing out a particular employee, such as
Astorga. Moreover, Astorga never denied that SMART offered her a supervisory
position in the Customer Care Department, but she refused the offer because the
position carried a lower salary rank and rate. If indeed SMART simply wanted to get
rid of her, it would not have offered her a position in any department in the
enterprise.
Astorga also states that the justification advanced by SMART is not true
because there was no compelling economic reason for redundancy. But contrary to
her claim, an employer is not precluded from adopting a new policy conducive to a
more economical and effective management even if it is not experiencing economic
reverses. Neither does the law require that the employer should suffer financial
losses before he can terminate the services of the employee on the ground of
redundancy. [37]
We agree with the CA that the organizational realignment introduced by
SMART, which culminated in the abolition of CSMG/FSD and termination of
Astorgas employment was an honest effort to make SMARTs sales and marketing
departments more efficient and competitive. As the CA had taken pains to elucidate:
x x x a careful and assiduous review of the records will yield no
other conclusion than that the reorganization undertaken by
SMART is for no purpose other than its declared objective as a
labor and cost savings device.Indeed, this Court finds no fault in
SMARTs decision to outsource the corporate sales market to SNMI
in order to attain greater productivity. [Astorga] belonged to the
Sales Marketing Group under the Fixed Services Division
(CSMG/FSD), a distinct sales force of SMART in charge of selling
SMARTs telecommunications services to the corporate
market. SMART, to ensure it can respond quickly, efficiently and
flexibly to its customers requirement, abolished CSMG/FSD and
shortly thereafter assigned its functions to newly-created SNMI
Multimedia Incorporated, a joint venture company of SMART and
NTT of Japan, for the reason that CSMG/FSD does not have the
necessary technical expertise required for the value added
services. By transferring the duties of CSMG/FSD to SNMI,
SMART has created a more competent and specialized
organization to perform the work required for corporate
accounts. It is also relieved SMART of all administrative costs
management, time and money-needed in maintaining the
CSMG/FSD. The determination to outsource the duties of the
CSMG/FSD to SNMI was, to Our mind, a sound business
judgment based on relevant criteria and is therefore a legitimate
exercise of management prerogative.
Indeed, out of our concern for those lesser circumstanced in life, this Court
has inclined towards the worker and upheld his cause in most of his conflicts with his
employer. This favored treatment is consonant with the social justice policy of the
Constitution. But while tilting the scales of justice in favor of workers, the
fundamental law also guarantees the right of the employer to reasonable returns for
his investment.[38] In this light, we must acknowledge the prerogative of the employer
to adopt such measures as will promote greater efficiency, reduce overhead costs and
enhance prospects of economic gains, albeit always within the framework of existing
laws. Accordingly, we sustain the reorganization and redundancy program
undertaken by SMART.
However, as aptly found by the CA, SMART failed to comply with the
mandated one (1) month notice prior to termination. The record is clear that Astorga
received the notice of termination only on March 16, 1998[39] or less than a month
prior to its effectivity on April 3, 1998. Likewise, the Department of Labor and
Employment was notified of the redundancy program only onMarch 6, 1998.[40]
Article 283 of the Labor Code clearly provides:
Art. 283. Closure of establishment and reduction of personnel. The
employer may also terminate the employment of any employee due
to the installation of labor saving devices, redundancy,
retrenchment to prevent losses or the closing or cessation of
operation of the establishment or undertaking unless the closing is
for the purpose of circumventing the provisions of this Title, by
serving a written notice on the workers and the Ministry of Labor
and Employment at least one (1) month before the intended date
thereof x x x.
SMARTs assertion that Astorga cannot complain of lack of notice because
the organizational realignment was made known to all the employees as early as
February 1998 fails to persuade.Astorgas actual knowledge of the reorganization
cannot replace the formal and written notice required by the law. In the written
notice, the employees are informed of the specific date of the termination, at least a
month prior to the effectivity of such termination, to give them sufficient time to find
other suitable employment or to make whatever arrangements are needed to cushion
the impact of termination. In this case, notwithstanding Astorgas knowledge of the
reorganization, she remained uncertain about the status of her employment until
SMART gave her formal notice of termination. But such notice was received by
Astorga barely two (2) weeks before the effective date of termination, a period very
much shorter than that required by law.

Be that as it may, this procedural infirmity would not render the termination
of Astorgas employment illegal. The validity of termination can exist independently
of the procedural infirmity of the dismissal.[41] In DAP Corporation v. CA,[42] we
found the dismissal of the employees therein valid and for authorized cause even if
the employer failed to comply with the notice requirement under Article 283 of the
Labor Code. This Court upheld the dismissal, but held the employer liable for non-
compliance with the procedural requirements.
The CA, therefore, committed no reversible error in sustaining Astorgas
dismissal and at the same time, awarding indemnity for violation of Astorga's
statutory rights.
However, we find the need to modify, by increasing, the indemnity awarded
by the CA to Astorga, as a sanction on SMART for non-compliance with the one-
month mandatory notice requirement, in light of our ruling in Jaka Food Processing
Corporation v. Pacot,[43] viz.:
[I]f the dismissal is based on a just cause under Article
282 but the employer failed to comply with the notice requirement,
the sanction to be imposed upon him should be tempered because
the dismissal process was, in effect, initiated by an act imputable to
the employee, and (2) if the dismissal is based on an authorized
cause under Article 283 but the employer failed to comply with the
notice requirement, the sanction should bestiffer because the
dismissal process was initiated by the employers exercise of his
management prerogative.
We deem it proper to increase the amount of the penalty on SMART to P50,000.00.
As provided in Article 283 of the Labor Code, Astorga is, likewise, entitled
to separation pay equivalent to at least one (1) month salary or to at least one (1)
months pay for every year of service, whichever is higher. The records show that
Astorgas length of service is less than a year. She is, therefore, also entitled to
separation pay equivalent to one (1) month pay.
Finally, we note that Astorga claimed non-payment of wages from February
15, 1998. This assertion was never rebutted by SMART in the proceedings a quo. No
proof of payment was presented by SMART to disprove the allegation. It is settled
that in labor cases, the burden of proving payment of monetary claims rests on the
employer.[44] SMART failed to discharge the onus probandi. Accordingly, it must be
held liable for Astorgas salary from February 15, 1998 until the effective date of her
termination, on April 3, 1998.
However, the award of backwages to Astorga by the CA should be deleted
for lack of basis. Backwages is a relief given to an illegally dismissed
employee. Thus, before backwages may be granted, there must be a finding of unjust
or illegal dismissal from work.[45] The Labor Arbiter ruled that Astorga was illegally
dismissed. But on appeal, the NLRC reversed the Labor Arbiters ruling and
categorically declared Astorgas dismissal valid. This ruling was affirmed by the CA
in its assailed Decision. Since Astorgas dismissal is for an authorized cause, she is
not entitled to backwages. The CAs award of backwages is totally inconsistent with
its finding of valid dismissal.
WHEREFORE, the petition of SMART docketed as G.R. No. 148132
is GRANTED. The February 28, 2000 Decision and the May 7, 2001 Resolution of
the Court of Appeals in CA-G.R. SP. No. 53831 are SET
ASIDE. The Regional Trial Court of Makati City, Branch 57 is DIRECTED to
proceed with the trial of Civil Case No. 98-1936 and render its Decision with
reasonable dispatch.
On the other hand, the petitions of SMART and Astorga docketed as G.R.
Nos. 151079 and 151372 are DENIED. The June 11, 2001 Decision and the
December 18, 2001 Resolution in CA-G.R. SP. No. 57065,
are AFFIRMED with MODIFICATION. Astorga is declared validly
dismissed. However, SMART is ordered to pay Astorga P50,000.00 as indemnity for
its non-compliance with procedural due process, her separation pay equivalent to one
(1) month pay, and her salary from February 15, 1998 until the effective date of her
termination on April 3, 1998. The award of backwages is DELETED for lack of
basis.
 THIRD DIVISION
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing the Decision[1] dated 21 January 2008 of the Court of Appeals in CA-G.R.
SP No. 100012, which affirmed the Decision[2] dated 18 October 2006, as modified
by the Resolution[3] dated 21 May 2007, of the National Labor Relations Commission
(NLRC) in NLRC NCR CA No. 045888-05.The NLRC effectively reversed the
G.R. No. 181393 Decision[4] dated 11 July 2005 of the Labor Arbiter in NLRC NCR Case No. 00-09-
GRANDTEQ INDUSTRIAL STEEL 10803-04, which entirely dismissed the Complaint filed by respondent Edna
PRODUCTS, INC. and ABELARDO M. Margallo (Margallo) against petitioners Grandteq Industrial Steel Products, Inc.
GONZALES, Present: (Grandteq) and Abelardo M. Gonzales (Gonzales); and, instead, ordered Grandteq
Petitioners, and Gonzales to refund to Margallo her car loan payments, as well as to pay the latter
sales commission and attorneys fees.

YNARES-SANTIAGO,
Grandteq is a domestic corporation engaged in the business of selling
Chairperson, welding electrodes, alloy steels, aluminum and copper alloys.[5] Gonzales is the
President/Owner of Grandteq.[6]Grandteq employed Margallo as Sales Engineer
beginning 3 August 1999.[7]
VELASCO, JR.,
- versus -
CHICO-NAZARIO,
Margallo claimed that on an unstated date, she availed herself of the car loan
NACHURA, and program offered to her by Grandteq as a reward for being Salesman of the Year. She
paid the down payment on a brand new Toyota Corolla,[8] amounting to P201,000.00,
PERALTA, JJ. out of her own pocket. The monthly amortization for the car was P10,302.00, of
which P5,302.00 was to be her share and P5,000.00 was to be the share of Grandteq.

EDNA MARGALLO,
Promulgated: On 29 December 2003, Margallo received a letter[9] signed by Gonzales and
Respondent.
Rolando de Leon (De Leon), Vice-President for Administration of Grandteq, which
reads:
July 28, 2009
Mrs. Edna E. Margallo
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
c/o Grandteq Industrial
Steel Products, Inc.
#2 Cooper St., cor. Benitez
DECISION
SFDM, Quezon City

Dear Mrs. Margallo:

CHICO-NAZARIO, J.:
This is to inform you that our records show the following:
1) That, last December 18, 2003, you instructed our
company driver and helper to load 4 pcs. tool steel to
be delivered at circle freight.
2) That together with Mr. Steve Rivera, on or about
12:00 noon, you went at (sic) Eagle Global Logistics
at Circle Freight, NAIA, Paraaque City to ship the
following items to Moog Control Corp. Phils. Branch
located at Baguio Ecozone, Baguio City, using the
Sales Invoice of JVM Industrial Supply and Allied
Services.
a) 2 pcs. tool steel 4140 x 2x 3
b) 2 pcs. tool steel 4140 1x 2 x 3
3) That you are working with JVM Industrial Supply
and Allied Services concurrent with your being
employed with Grandteq Industrial Steel Products,
Inc.
4) That JVM Industrial Supply and Allied Services are
supplying steel products to Moog Control Corp.
Phils. Branch which is also a client of Grandteq and
which you are the authorized salesman of the
company.
Because of this, you are given a (sic) twenty-four (24)
hours upon receipt of this letter to submit a written
explanation on why you should not be given a
disciplinary action for allegedly
violating/committing:
a) Moonlighting
b) Sabotage
c) Breach of trust and confidence (labor
code).
You are also invited to attend a meeting with
regards to the allegations on Jan. 5, 2004 at 10:00
a.m. You may bring with you a lawyer or any
representative to assist you on (sic) the said meeting.
Failure on your part to submit a written
explanation on the specified period and failure to attend
the hearing would mean that you are waiving your rights
to be heard and the appropriate action will be taken
against you.
Moreover, to protect the evidences and witnesses
against you, management has decided to place you under
preventive suspension effective December 29, 2003.
Very truly yours,
(Signed) (Signed)
Abelardo M. Gonzales Ronaldo A. de Leon
President VP Administration
Responding to the foregoing letter, Margallo wrote the following letter-
reply dated 30 December 2003:
December 30, 2003
To: Mr. Abelardo M. Gonzales
 President
Thru: Mr. Ronald A. de Leon
VP Administration
Dear Sir,
Last December 18, 2003, Mr. Steve D. Rivera instructed
me to tell to our delivery people to bring the said item to circle
freight. Which I did that (sic) I thought it was ok because it was
inside the company. Sir I was just following orders from Mr. D.
Rivera who is one of my boss (sic). Sir, what I did is the same
thing that Ive been doing with my other bosses. That i[f] they
instructed me to do things I immediately follow.Because I am only
an employee. Sir never that I work with JVM (sic).
Sir im (sic) sorry if I did wrong by not asking what to
do. Which I think an ordinary employee like me would do is to
follow orders from my superiors.
IM SO SORRY SIR IF I FAIL YOU.
(Signed)
Edna E. Margallo[10]
Margallo then averred that in January 2004, De Leon asked her to just
resign, promising that if she did, she would still be paid her commissions and other
benefits, as well as be reimbursed her car loan payments. Relying on De Leons
promise, Margallo tendered on 13 January 2004, her irrevocable resignation,
effective immediately.[11]
Margallo, however, alleged that she was never paid her money
claims. Grandteq failed to pay her commissions in the sum of P87,508.00, equivalent
to 5% of the total sales that she collected as of January 2004, which amounted
to P1,750,148.84. Grandteq likewise failed to refund the sales accommodations or
advances she gave her customers. In addition, after Margallos resignation, Grandteq
sold her car to Annaliza Estrella, another employee, for P550,000.00.[12] These events
prompted her to file before the Labor Arbiter a Complaint[13] against Grandteq and
Gonzales, for recovery of sales commission, cash incentive and car loan payment,
damages and attorney fees, which was docketed as NLRC Case No. 0009-108-03-04.
Grandteq and Gonzales opposed Margallos claims. They maintained that
Margallo was not entitled to sales commissions because the computation thereof,
according to company policy, should be based on actual collections within 180 days
from invoice date. All of Margallos credit sales transactions were unpaid,
outstanding, and past due. Margallo was also not entitled to any sales incentive,
because said benefit was intended for customers, and not for the sales personnel.
[14]
Grandteq and Gonzales further insisted that Margallo had no right to the refund of
her car loan payments under the car loan agreement she executed with Grandteq,
which expressly provided that in the event that Margallo resigned or was terminated
for cause during the effectivity of said agreement, her car loan payments would be
forfeited in favor of Grandteq, and Grandteq would regain possession of the car.
The Labor Arbiter rendered a Decision on 11 July 2005, dismissing all of
Margallos claims, thus:
WHEREFORE, premises considered, judgment is hereby
rendered dismissing the instant case for lack of merit.[15]
The Labor Arbiter held that Margallo was not able to prove by substantial
evidence her entitlement to the sales commission:
After a careful review of the records, this Office finds that
considering [Margallo] already receives a basic salary plus
allowances, her claim for sales commission is therefore an added
benefit wholly dependent upon her sales performance based on
existing company policy. As such, it is an affirmative allegation or
claim that is not normally included in the regular course of
business and for which law presumes that an employee is generally
not entitled to. Thus, it behooves, upon the employee to prove that
he is entitled to said affirmative allegations and the onus is upon
him to establish his right thereto (see Eternit Employees and
Workers Unions vs. De Veyra, 189 SCRA 752 and Nucum vs.
Inciong, 204 SCRA 697).
In the instant case, this Office finds [Margallo] to have failed
to substantially discharge her burden of proving that she is entitled
to the P87,508.00 in sales commissions since other than her bare
allegations, [Margallo] did not show any other proof, including
prior payment of said sales commissions, to justify her claim.
And, quite noteworthy too is that under the [Grandteq]s
policy, rules and regulations on the grant of sales commissions, the
computation thereof shall be based on actual collection against all
sales on credit and the validity of the said commission shall be 180
days from invoice dates; otherwise, the salesman shall not be
entitled thereto and forfeits any right to demand payment of the
commission thereon as the sales are considered bad debts as
uncollectible. Since the records of [Grandteq] showed that
[Margallo]s credit sales remain unpaid and outstanding for over
180 days, [Margallo] is therefore not entitled to sales commissions.
No denial whatsoever of the above-discussed company policy
was made by [Margallo] in her Reply.
Thus, having failed to establish entitlement to said sales
commission, the same is hereby denied.[16]
For a similar reason, the Labor Arbiter denied Margallos
claim for payment of cash incentive:
As regards to cash incentives, once again this Office finds
that the same is also an affirmative allegation and the burden of
proving entitlement thereto rests upon the employee. And having
failed to even mention how much of the alleged cash incentive she
is entitled to in Annexes A and 2-a of her position paper, the same
is hereby denied.[17]
Finally, the Labor Arbiter found that Margallo had no right to
the reimbursement of her car loan payments under her car loan
agreement with Grandteq:
And as regards of (sic) the car loan, the same should be
governed by the undisputed terms and conditions of the Agreement
between complainant and respondent company (Annex A of
respondents position paper). And page 2 of said Agreement clearly
stipulates that in case of resignation, all payments made by the
personnel shall be forfeited in favor of the company. Thus, the
claim for refund of the car loan should likewise be denied.[18]
Margallo filed an appeal with the NLRC, docketed as NLRC NCR CA No.
045888-05. Although the NLRC, in its Decision dated 18 October 2006, stated that it
merely modified the Decision dated 11 July 2005 of the Labor Arbiter, it effectively
reversed the same by granting Margallo her claims for sales commission,
reimbursement of her car loan payments, and attorneys fees. The fallo of the NLRC
Decision is quoted below:
WHEREFORE, the decision appealed from is hereby
MODIFIED. [Herein petitioners] Grandteq Industrial Products,
Inc. and/or its President/General Manager, [petitioner] Abelardo
M. Gonzales, are hereby ordered to refund to the [herein
respondent Margallo] her car loan payments amounting
to P217,815.94 and to pay her the amount of P10,870.79
representing her unpaid sales commissions plus ten percent (10%)
of the total monetary award as attorneys fees.[19]
In ordering that Grandteq and Gonzales reimburse the car loan payments
made by Margallo, the NLRC reasoned:
It is unlikely for an employee who has invested his time and
industry in a particular job to simply give it up after being accused
of violating company rules and regulations. It is more likely that he
did so upon the expectation that she would derive a certain benefit
from it. Thus, the claim that the [herein respondent Margalllo]
resigned because she was promised that she would be paid her
money claims if she did, is more credible than the contention that
she did so without any prodding from the [herein petitioners
Grandteq and Gonzales].
 It would therefore appear that the provision, in the agreement
(records, pp. 32-340) executed by the parties, that in case of
resignation of the PERSONNEL from the COMPANY, all
payments made by the PERSONNEL shall be forfeited in favor of
the COMPANY has been superseded by the above-mentioned
subsequent agreement between the parties.
Besides, it is uncontroverted that the car loan program was
offered to the complainant as a reward for being the Salesman of
the Year. Moreover, nowhere in their pleadings did the [petitioners
Grandteq and Gonzales] controvert the claim that the [respondent
Margallo] paid the down payment, entire first amortization,
insurance, and her share in the monthly amortizations for
seventeen months, or the total amount of P214,395.90 for the
car. It is also uncontroverted that after the [respondent Margallo]s
negotiated resignation, her car was resold to another employee for
the original price. Under the circumstances, the above-quoted
contractual provision is null and void for being contrary to morals,
good customs, and public policy. The law overrides contracts
which are prepared by employers to circumvent the rights of their
employees (Baguio Country Club vs. NLRC, 206 SCRA
643). Thus, the above-quoted contractual provision does not bar
the [respondent Margallo] from recovering her car loan payments
from the [petitioners Grandteq and Gonzales].[20]
As for Margallos other claims, the NLRC affirmed her entitlement to the
unpaid sales commission, but not to the cash incentive:
Insofar as the [respondent Margallo]s claim for unpaid sales
commission is concerned, it is noteworthy that in the list (records,
pp. 16-18) of sales she adduced in evidence, the column bearing
the heading collected indicates that, as of January 2004, the total
collections from her sales amount to only P217,815.94. Since it is
undisputed hat her sales commission are equivalent to 5% of her
collections, she may recover unpaid sales commissions amounting
to P10,890.79. Finally, since there is no showing that the
[respondent Margallo]s claim for cash incentive is based on a
particular contract or company practice, it was correctly dismissed
for lack of merit.[21]
Grandteq and Gonzales filed a Motion for Reconsideration,
[22]
while Margallo also filed an Omnibus Motion for Partial
Reconsideration and Issuance of Subpoena.[23] The NLRC denied
the Motions for Reconsideration of all parties in a Resolution
dated 21 May 2007, but modified the NLRC Decision dated 18
October 2006 by slightly reducing the amount of car loan
payments to be refunded to Margallo:
WHEREFORE, the Motions for Reconsideration are hereby
DENIED for lack of merit. However, the dispositive portion of this
Commissions (2nd Division) October 18, 2006 Decision is hereby
corrected to read:
WHEREFORE, the decision appealed from
is hereby MODIFIED. [Herein petitioners]
Grandteq Industrial Products, Inc. and/or its
President/General Manager, [petitioner]
Abelardo M. Gonzales, are hereby ordered to
refund to [herein respondent Margallo] her car
loan payments amounting to P214,395.90 and to
pay her the amount of P10,870.79 representing
her unpaid sales commissions plus ten percent
(10%) of the total monetary award as attorneys
fees.[24]
Grandteq and Gonzales elevated the case to the Court of Appeals by way of a
Petition for Certiorari, under Rule 65 of the Rules of Court, which was docketed as
CA-G.R. SP No. 100012.
In its Decision dated 21 January 2008, the Court of Appeals agreed with the
NLRC, dismissing the therein Petition of Grandteq and Gonzales in this wise:
WHEREFORE, premises considered, the Petition is
DENIED for lack of merit. Costs against petitioners.[25]
 Like the NLRC, the Court of Appeals found that Margallo had a right to be Assiduous, Grandteq and Gonzales are now before this
reimbursed her car loan payments, and the terms of the car loan agreement between Court via the Petition at bar.
Margallo and Grandteq should not be applied for being highly prejudicial to the
employees interest:
Grandteq and Gonzales assert that the Court of Appeals erred in declaring
the car loan agreement between Grandteq and Margallo, particularly the provision
Truly, the contracting parties may establish such stipulations, therein on the forfeiture of car loan payments in favor of Grandteq should Margallo
clauses, terms and conditions as they want, and their agreement resign from the company, as null and void.[28]
would have the force of law between them. However, those terms
and conditions agreed upon must not be contrary to law, morals,
customs, public policy or public order. Precisely, the law overrides The Court, however, is in agreement with the Court of Appeals and the NLRC.
such conditions which are prejudicial to the interest of the
worker. The law affords protection to an employee, and it will not Generally speaking, contracts are respected as the law between the contracting
countenance any attempt to subvert its spirit and intent. The sheer parties. The contracting parties may establish such stipulations, clauses, terms and
inequality that characterizes employer-employee relations, where conditions as they may deem convenient, provided they are not contrary to law,
the scales generally tip against the employee, often scarcely morals, good customs, public order or public policy.[29]
provides him real and better options. Moreover, in controversies
between a laborer and his master, doubts reasonably arising from
the evidence, or in the interpretation of agreements and writing
The questionable provision in the car loan agreement between Grandteq and
should be resolved in the formers favor.[26]
Margallo provides: In case of resignation, of the personnel from the company, all
The Court of Appeals likewise affirmed the order of the payments made by the personnel shall be forfeited in favor of the company.
[30]
NLRC that Grandteq and Gonzales pay Margallo her sales Connected thereto is the provision in the same car loan agreement, which reads:
commission, placing the burden upon the employer to prove that
the employees money claims had been paid:
1. The COMPANY shall have the right to regain the
With respect to the unpaid sales commissions
possession of the car before the expiration of the term of the loan
of P10,870.79 to be paid by petitioners in favor of private
in the event of any of the following:
respondent, it is incumbent upon petitioner employer to prove that
said money claim has been paid. This is in tune with the general
a. The PERSONNEL resigns from the COMPANY during
precept that: one who pleads payment has the burden of proving it,
the effectivity of this agreement.[31]
and even where the employees must allege nonpayment, the
general rule is that the burden rests on the defendant to prove
(payment), rather than on the plaintiff to prove non-payment. The
reason for the rule is that the pertinent personnel files, payrolls,
records, remittances and other similar documents which will show Said provisions plainly are contrary to the fundamental principles of justice
that overtime, differentials, service incentive leave and other and fairness. It must be remembered that Margallo herself paid for the down payment
claims of workers have been paid are not in the possession of the and her share in the monthly amortization of the car. However, she did not get to
worker but in the custody and absolute control of the employer. In leave with the car when she resigned from Grandteq. In effect, Margallo parted with
the present case, petitioners [Grandteq and Gonzales] failed to her hard-earned money for nothing, being left, as she is, with an empty bag. The
discharge the burden of proving that the amount of P10,870.79 inequitableness in the conduct of Grandteq and Gonzales is heightened by the fact
representing [herein respondent Margallo]s sales commissions has that after they regained possession of the car, they resold the same to another
already been paid to the latter. Thus, the NLRC (Second Division) employee under a similar contract bearing the same terms and conditions signed by
did not commit grave abuse of discretion in awarding said money Margallo.
claim in favor of [respondent Margallo].[27]
 The principle that no person may unjustly enrich oneself at the expense of
another (Nemo cum alteris detrimento locupletari potest) is embodied in Article 22
of the New Civil Code, to wit:
ART. 22. Every person who through an act of performance by
another, or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal ground,
shall return the same to him.
The above-quoted article is part of the chapter of the Civil Code on Human
Relations, the provisions of which were formulated as basic principles to be observed
for the rightful relationship between human beings and for the stability of the social
order; designed to indicate certain norms that spring from the fountain of good
conscience; [are] guides for human conduct that should run as golden threads
through society to the end that law may approach its supreme ideal, which is the
sway and dominance of justice. There is unjust enrichment when a person unjustly
retains a benefit at the loss of another, or when a person retains the money or
property of another against the fundamental principles of justice, equity and good
conscience.[32]
As can be gleaned from the foregoing, there is unjust enrichment when (1) a
person is unjustly benefited, and (2) such benefit is derived at the expense of or with
damages to another. The main objective of the principle of unjust enrichment is to
prevent one from enriching oneself at the expense of another. It is commonly
accepted that this doctrine simply means that a person shall not be allowed to profit
or enrich himself inequitably at anothers expense. One condition for invoking this
principle is that the aggrieved party has no other action based on a contract, quasi-
contract, crime, quasi-delict, or any other provision of law.
This is not a case of equity overruling or supplanting a positive provision of
law or judicial rule. Rather, equity is exercised in this case as the complement of
legal jurisdiction [that] seeks to reach and to complete justice where courts of law,
through the inflexibility of their rules and want of power to adapt their judgments to
the special circumstances of cases, are incompetent to do so.[33]
The principle against unjust enrichment obliges Grandteq and Gonzales to
refund to Margallo the car loan payments she had made, since she has not actually
acquired the car. To relieve Grandteq and Gonzales of their obligation to reimburse
Margallo would, indeed, be to sanction unjust enrichment in favor of the first two
and cause unjust poverty to the latter.[34]
The Court rigorously disapproves contracts that demonstrate a clear attempt to
exploit the employee and deprive him of the protection sanctioned by both the
Constitution and the Labor Code.
The Constitution and the Labor Code mandate the protection of
labor. Hence, as a matter of judicial policy, this Court has, in a number of instances,
leaned backwards to protect labor and the working class against the machinations
and incursions of their more financially entrenched employers.[35]
Although not strictly a labor contract, the car loan agreement herein involves a
benefit extended by the employers, Grandteq and Gonzales, to their employee,
Margallo. It should benefit, and not unduly burden, Margallo. The Court cannot, in
any way, uphold a car loan agreement that threatens the employee with the forfeiture
of all the car loan payments he/she had previously made, plus loss of the possession
of the car, should the employee wish to resign; otherwise, said agreement can then be
used by the employer as an instrument to either hold said employee hostage to the
job or punish him/her for resigning.
The Court further finds no error in the grant by the Court of Appeals and the
NLRC of Margallos claim for sales commission.
In cases involving money claims of employees, the employer has the burden
of proving that the employees did receive their wages and benefits and that the same
were paid in accordance with law.[36]
It is settled that once the employee has set out with particularity in his
complaint, position paper, affidavits and other documents the labor standard benefits
he is entitled to, and which the employer allegedly failed to pay him, it becomes the
employers burden to prove that it has paid these money claims. One who pleads
payment has the burden of proving it; and even where the employees must allege
nonpayment, the general rule is that the burden rests on the defendant to prove
payment, rather than on the plaintiff to prove nonpayment.[37]
Under the terms and conditions of Margallos employment with Grandteq, it
is provided that she will do field sales with commission on sales made after a months
training.[38] On this basis, Margallos entitlement to sales commission is unrebutted.
 Hence, it was actually the Labor Arbiter who erred in denying Margallos claim
for sales commission for failure to state the particulars to substantiate the
same. Grandteq and Gonzales have the burden of proof to show, by substantial
evidence, their claim that Margallo was not entitled to sales commissions because the
sales made by the latter remained outstanding and unpaid, rendering these sales as
bad debts and thus nullifying Margallos right to this monetary benefit. Grandteq and
Gonzales could have presented pertinent company records to prove this claim. It is a
rule that failure of employers to submit the necessary documents that are in their
possession as employers gives rise to the presumption that the presentation thereof is
prejudicial to its cause.[39]

WHEREFORE, premises considered, the Petition is DENIED for lack of

merit. The Decision dated 21 January 2008 of the Court of Appeals in CA-GR SP
No. 100012 is AFFIRMED. Costs against petitioners Grandteq Industrial Steel
Products, Inc. and Abelardo M. Gonzales.
SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 171212 August 4, 2014
INDOPHIL TEXTILE MILLS, INC., Petitioner,
vs.
ENGR. SALVADOR ADVIENTO, Respondents.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Revised
Rules of Court which seeks to review, reverse and set-aside the Decision 1 of the
Court of Appeals (CA), dated May 30, 2005, and its Resolution 2 dated January 10,
2006 in the case entitled Jndophil Textile Mills, Inc. v. Hon. Rolando R. Velasco and
Engr. Salvador Adviento, docketed as CA-G.R. SP No. 83099.
The facts are not disputed.
Petitioner Indophil Textile Mills, Inc. is a domestic corporation engaged in the
business of manufacturing thread for weaving. 3 On August 21, 1990, petitioner hired
respondent Engr. Salvador Adviento as Civil Engineer to maintain its facilities in
Lambakin, Marilao, Bulacan.4 On August 7, 2002, respondent consulted a physician
due to recurring weakness and dizziness. 5 Few days later, he was diagnosed with
Chronic Poly Sinusitis, and thereafter, with moderate, severe and persistent Allergic
Rhinitis.6 Accordingly, respondent was advised by his doctor to totally avoid house
dust mite and textile dust as it will transmute into health problems.7
Distressed, respondent filed a complaint against petitioner with the National Labor
Relations Commission (NLRC), San Fernando, Pampanga, for alleged illegal
dismissal and for the payment of backwages, separation pay, actual damages and
attorneys fees. The said case, docketed as NLRC Case No. RAB-III-05-5834-03, is
still pending resolution with the NLRC at the time the instant petition was filed. 8
Subsequently, respondent filed another Complaint 9 with the Regional Trial Court
(RTC) of Aparri, Cagayan, alleging that he contracted such occupational disease by
reason of the gross negligence of petitioner to provide him with a safe, healthy and
workable environment.
In his Complaint, respondent alleged that as part of his job description, he
conductsregular maintenance check on petitioners facilities including its dye house
area, which is very hot and emits foul chemical odor with no adequate safety
measures introduced by petitioner.10 According to respondent, the air washer
dampers and all roof exhaust vests are blown into open air, carrying dust
thereto.11 Concerned, respondent recommended to management to place roof
insulation to minimize, if not, eradicate the health hazards attendant in the work
place.12 However, said recommendation was turned down by management due to
high cost.13 Respondent further suggested to petitioners management that the
engineering office be relocated because ofits dent prone location, such that even if
the door of the office is sealed, accumulated dust creeps in outside the office. 14 This
was further aggravated by the installation of new filters fronting the
office.15 However, no action was taken by management. 16According to respondent,
these healthhazards have been the persistent complaints of most, if not all, workers
of petitioner.17 Nevertheless, said complaints fell on deaf ears as petitioner callously
ignored the health problems of its workers and even tended to be apathetic to their
plight, including respondent.18
Respondent averred that, being the only breadwinner in the family, he made several
attempts to apply for a new job, but to his dismay and frustration, employers who
knew ofhis present health condition discriminated against him and turned down his
application.19 By reason thereof, respondent suffered intense moral suffering, mental
anguish, serious anxiety and wounded feelings, praying for the recovery of the
following: (1) Five Million Pesos (P5,000,000.00) asmoral damages; (2) Two
Million Pesos (P2,000,000.00) as exemplary damages; and (3) Seven Million Three
Thousand and Eight Pesos (P7,003,008.00) as compensatory damages.20 Claiming to
be a pauper litigant, respondent was not required to pay any filing fee. 21
In reply, petitioner filed a Motion to Dismiss 22 on the ground that: (1) the RTC has no
jurisdiction over the subject matter of the complaint because the same falls under the
original and exclusive jurisdiction of the Labor Arbiter (LA) under Article 217(a)(4)
of the Labor Code; and (2) there is another action pending with the Regional
Arbitration Branch III of the NLRC in San Fernando City, Pampanga, involving the
same parties for the same cause.
On December 29, 2003, the RTC issued a Resolution 23 denying the aforesaid Motion
and sustaining its jurisdiction over the instant case. It held that petitioners alleged
failure to provide its employees with a safe, healthy and workable environment is an
act of negligence, a case of quasi-delict. As such, it is not within the jurisdiction of
the LA under Article 217 of the Labor Code. On the matter of dismissal based on lis
pendencia, the RTC ruled that the complaint before the NLRC has a different cause
of action which is for illegal dismissal and prayer for backwages, actual damages,
attorneys fees and separation pay due to illegal dismissal while in the present case,
the cause of action is for quasi-delict.24 The falloof the Resolution is quoted below:
WHEREFORE, finding the motion to dismiss to be without merit, the Court
deniesthe motion to dismiss.
SO ORDERED.25
On February 9, 2004, petitioner filed a motion for reconsideration thereto, which was
likewise denied in an Order issued on even date.
Expectedly, petitioner then filed a Petition for Certiorariwith the CA on the ground
that the RTC committed grave abuse of discretion amounting to lack or excess of
jurisdiction in upholding that it has jurisdiction over the subject matter of the
complaint despite the broad and clear terms of Article 217 of the Labor Code, as
amended.26
After the submission by the parties of their respective Memoranda, the CA rendered
a Decision27 dated May 30, 2005 dismissing petitioners Petition for lack of merit,
the dispositive portion of which states:
WHEREFORE, premises considered, petition for certiorari is hereby
DISMISSEDfor lack of merit. SO ORDERED.28
From the aforesaid Decision, petitioner filed a Motion for Reconsideration which
was nevertheless denied for lack of merit in the CAs Resolution 29 dated January 10,
2006. Hence, petitioner interposed the instant petition upon the solitary ground that
"THE HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION OF
SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW AND WITH
APPLICABLE DECISIONS OF THE HONORABLE SUPREME
COURT."30 Simply, the issue presented before us is whether or not the RTC has
jurisdiction over the subject matter of respondents complaint praying for moral
damages,exemplary damages, compensatory damages, anchored on petitioners
alleged gross negligence in failing to provide a safe and healthy working
environment for respondent.
The delineation between the jurisdiction of regular courts and labor courts over cases
involving workers and their employers has always been a matter of dispute. 31 It is up
to the Courts to lay the line after careful scrutiny of the factual milieu of each case.
Here, we find that jurisdiction rests on the regular courts.
In its attempt to overturn the assailed Decision and Resolution of the CA, petitioner
argues that respondentsclaim for damages is anchored on the alleged gross
negligence of petitioner as an employer to provide its employees, including herein
respondent, with a safe, healthy and workable environment; hence, it arose from an
employer-employee relationship.32 The fact of respondents employment
withpetitioner as a civil engineer is a necessary element of his cause ofaction because
without the same, respondent cannot claim to have a rightto a safe, healthy and
workable environment.33 Thus, exclusive jurisdiction over the same should be vested
in the Labor Arbiter and the NLRC pursuant to Article 217(a)(4) of the Labor Code
of the Philippines (Labor Code), as amended.34
We are not convinced.
The jurisdiction of the LA and the NLRC is outlined in Article 217 of the Labor
Code, as amended by Section 9 of Republic Act (R.A.) No. 6715, to wit:
ART. 217. Jurisdiction of Labor Arbiters and the Commission-- (a) Except as
otherwise provided under this Code the Labor Arbiter shall have original and
exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the
submission of the case by the parties for decision without extension, even in the
absence of stenographic notes, the following cases involving all workers, whether
agricultural or nonagricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that workers
may file involvingwages, rates of pay, hours of work and other terms and
conditions of employment;
4. Claims for actual, moral, exemplary and other forms of damages arising
from employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code including
questions involving the legality of strikes and lockouts; and
6. Except claims for Employees Compensation, Social Security, Medicare
and maternity benefits, all other claims, arising from employer-employee
relations, including those of persons in domestic or household
service,involving an amount exceeding five thousand pesos (P5,000.00)
regardless of whether accompanied with a claim for reinstatement.
x x x.35
While we have upheld the present trend to refer worker-employer controversies to
labor courts in light of the aforequoted provision, we have also recognized that not
all claims involving employees can be resolved solely by our labor courts,
specifically when the law provides otherwise. 36 For this reason, we have formulated
the "reasonable causal connection rule," wherein if there is a reasonable causal
connection between the claim asserted and the employer-employee relations, then the
case is within the jurisdiction of the labor courts; and in the absence thereof, it is the
regular courts that have jurisdiction.37 Such distinction is apt since it cannot be
presumed that money claims of workers which do not arise out of or in connection
with their employer-employee relationship, and which would therefore fall within the
general jurisdiction of the regular courts of justice, were intended by the legislative
authority to be taken away from the jurisdiction of the courts and lodged with Labor
Arbiters on an exclusive basis.38
In fact, as early as Medina vs. Hon. Castro-Bartolome, 39 in negating the jurisdiction
of the LA, although the parties involved were an employer and two employees, the
Court succinctly held that:
The pivotal question to Our mind iswhether or not the Labor Code has any relevance
to the reliefs sought by the plaintiffs. For if the Labor Code has no relevance, any
discussion concerning the statutes amending it and whether or not they have
retroactive effect is unnecessary.
It is obvious from the complaint that the plaintiffs have not alleged any unfair labor
practice. Theirs is a simple action for damages for tortious acts allegedly committed
by the defendants. Such being the case, the governing statute is the Civil Code and
not the Labor Code. It results that the orders under revieware based on a wrong
premise.40
Similarly, we ruled in the recent case of Portillo v. Rudolf Lietz, Inc. 41 that not all
disputes between an employer and his employees fall within the jurisdiction of the
labor tribunals suchthat when the claim for damages is grounded on the "wanton
failure and refusal" without just cause of an employee to report for duty despite
repeated notices served upon him of the disapproval of his application for leave
ofabsence, the same falls within the purview of Civil Law, to wit:
As early as Singapore Airlines Limited v. Pao, we established that not all disputes
between an employer and his employee(s) fall within the jurisdiction of the labor
tribunals. We differentiated between abandonment per seand the manner and
consequent effects of such abandonment and ruled that the first, is a labor case, while
the second, is a civil law case.
Upon the facts and issues involved, jurisdiction over the present controversy must be
held to belong to the civil Courts. While seemingly petitioner's claim for damages
arises from employer-employee relations, and the latest amendment to Article 217 of
the Labor Code under PD No. 1691 and BP Blg. 130 provides that all other
claimsarising from employer-employee relationship are cognizable by Labor Arbiters
[citation omitted], in essence, petitioner's claim for damages is grounded on the
"wanton failure and refusal"without just cause of private respondent Cruz to report
for duty despite repeated notices served upon him of the disapproval of his
application for leave of absence without pay. This, coupled with the further averment
that Cruz "maliciously and with bad faith" violated the terms and conditions of the
conversion training course agreement to the damage of petitioner removes the
present controversy from the coverage of the Labor Code and brings it within the
purview of Civil Law.
Clearly, the complaint was anchored not on the abandonment per seby private
respondent Cruz of his jobas the latter was not required in the Complaint to report
back to workbut on the manner and consequent effects of such abandonmentof
work translated in terms of the damages which petitioner had to suffer. x x x.42
Indeed, jurisprudence has evolved the rule that claims for damages under Article
217(a)(4) of the Labor Code, to be cognizable by the LA, must have a reasonable
causal connection withany of the claims provided for in that article. 43 Only if there is
such a connection with the other claims can a claim for damages be considered as
arising from employer-employee relations.44
In the case at bench, we find that such connection is nil.
True, the maintenance of a safe and healthy workplace is ordinarily a subject of labor
cases. More, the acts complained of appear to constitute matters involving employee-
employer relations since respondent used to be the Civil Engineer of petitioner.
However, it should be stressed that respondents claim for damages is specifically
grounded on petitioners gross negligenceto provide a safe, healthy and workable
environment for its employees a case of quasi-delict. This is easily ascertained from
a plain and cursory reading of the Complaint,45 which enumerates the acts and/or
omissions of petitioner relative to the conditions in the workplace, to wit:
1. Petitioners textile mills have excessive flying textile dust and waste in its
operations and no effort was exerted by petitioner to minimize or totally
eradicate it;
2. Petitioner failed to provide adequate and sufficient dust suction facilities;
 3. Textile machines are cleaned with air compressors aggravating the dusty
work place;
4. Petitioner has no physician specializing in respiratoryrelated illness
considering it is a textile company;
5. Petitioner has no device to detectthe presence or density of dust which is
airborne;
6. The chemical and color room are not equipped with proper safety
chemical nose mask; and
7. The power and boiler plant emit too much smoke with solid particles
blown to the air from the smoke stack of the power plant emitting a brown
rust color which engulfs the entire compound.46
In addition, respondent alleged that despite his earnest efforts to suggest to
management to place roof insulation to minimize, if not, eradicate the health hazards
attendant in the workplace, the same was not heeded.47
It is a basic tenet that jurisdiction over the subject matter is determined upon the
allegations made in the complaint, irrespective of whether or not the plaintiff is
entitled to recover upon the claim asserted therein, which is a matter resolved only
after and as a result of a trial. 48 Neither can jurisdiction of a court bemade to depend
upon the defenses made by a defendant in his answer or motion to dismiss. 49 In this
case, a perusal of the complaint would reveal that the subject matter is one of claim
for damages arising from quasi-delict, which is within the ambit of the regular court's
jurisdiction.
The pertinent provision of Article 2176 of the Civil Code which governs quasi-
delictprovides that: Whoever by act or omissioncauses damageto another, there being
fault or negligence, is obliged to pay for the damagedone. Such fault or negligence, if
there is no pre-existing contractual relation between the parties, is called quasi-
delict.50
Thus, to sustain a claim liability under quasi-delict, the following requisites must
concur: (a) damages suffered by the plaintiff; (b) fault or negligence of the
defendant, or someother person for whose acts he must respond; and (c) the
connection of causeand effect between the fault or negligence of the defendant and
the damages incurred by the plaintiff.51
In the case at bar, respondent alleges that due to the continued and prolonged
exposure to textile dust seriously inimical to his health, he suffered work-contracted
disease which is now irreversible and incurable, and deprived him of job
opportunities.52 Clearly, injury and damages were allegedly suffered by respondent,
an element of quasi-delict. Secondly, the previous contract of employment between
petitioner and respondent cannot be used to counter the element of "no pre-existing
contractual relation" since petitioners alleged gross negligence in maintaining a
hazardous work environment cannot be considered a mere breach of such contract of
employment, but falls squarely within the elements of quasi-delictunder Article 2176
of the Civil Code since the negligence is direct, substantive and
independent.53 Hence, we ruled in Yusen Air and Sea Services Phils., Inc. v.
Villamor54 that:
When, as here, the cause of action is based on a quasi-delictor tort, which has no
reasonable causal connection with any of the claims provided for in Article 217,
jurisdiction over the action is with the regular courts.55
It also bears stressing that respondent is not praying for any relief under the Labor
Code of the Philippines. He neither claims for reinstatement nor backwages or
separation pay resulting from an illegal termination. The cause of action herein
pertains to the consequence of petitioners omission which led to a work-related
disease suffered by respondent, causing harm or damage to his person. Such cause of
action is within the realm of Civil Law, and jurisdiction over the controversy belongs
to the regular courts.56
Our ruling in Portillo, is instructive, thus:
There is no causal connection between private respondents claim for damages and
the respondent employers claim for damages for the alleged "Goodwill Clause"
violation. Portillos claim for unpaid salaries did not have anything to do with her
alleged violation of the employment contract as, in fact, her separation from
employmentis not "rooted" in the alleged contractual violation. She resigned from
her employment. She was not dismissed. Portillos entitlementto the unpaid salaries
is not even contested. Indeed, Lietz Inc.s argument about legal compensation
necessarily admits that it owesthe money claimed by Portillo.57
Further, it cannot be gainsaid that the claim for damages occurred afterthe employer-
employee relationship of petitioner and respondent has ceased. Given that respondent
no longer demands for any relief under the Labor Code as well as the rules and
regulations pertinent thereto, Article 217(a)(4) of the Labor Code is inapplicable to
the instant case, as emphatically held in Portillo, to wit:
It is clear, therefore, that while Portillos claim for unpaid salaries is a money claim
that arises out ofor in connection with an employeremployee relationship, Lietz
Inc.s claim against Portillo for violation of the goodwill clause is a money claim
based on an act done after the cessation of the employment relationship. And, while
the jurisdiction over Portillos claim is vested in the labor arbiter, the jurisdiction
over Lietz Inc.s claim rests on the regular courts. Thus:
As it is, petitioner does not ask for any relief under the Labor Code. It merely seeks
to recover damages based on the parties' contract of employment as redress for
respondent's breach thereof. Such cause of action is within the realm of Civil Law,
and jurisdiction over the controversy belongs to the regular courts. More so must this
be in the present case, what with the reality that the stipulation refers to the post-
employment relations of the parties.58
Where the resolution of the dispute requires expertise, not in labor management
relations nor in wage structures and other terms and conditions of employment, but
rather in the application of the general civil law, such claim falls outside the area of
competence of expertise ordinarily ascribed to the LA and the NLRC.59
Guided by the aforequoted doctrines, we find no reason to reverse the findings of the
CA.1wphi1 The RTC has jurisdiction over the subject matter of respondent's
complaint praying for moral damages, exemplary damages, compensatory damages,
anchored on petitioner's alleged gross negligence in failing to provide a safe and
healthy working environment for respondent. WHEREFORE, the petition is
DENIED. The Decision of the Court of Appeals, dated May 30, 2005, and its
Resolution dated January 10, 2006 in CA-G.R. SP No. 83099 are hereby
AFFIRMED.
SO ORDERED.