G.R. Nos. 75700-01 August 30, 1990

LOPEZ SUGAR CORPORATION, petitioner, vs.FEDERATION OF FREE WORKERS, PHILIPPINE LABOR UNION ASSOCIATION (PLUA-NACUSIP) and NATIONAL LABOR RELATIONS COMMISSION, respondents.

Sicangco, Diaz, Ortiz and Lapak for petitioner.

Reynaldo J. Gulmatico for private respondents.

 

FELICIANO, J.:

petitioner Lopez Sugar Corporation filed with the Bacolod District Office of the then Ministry of Labor and Employment ("MOLE") a combined report on retirement and application for clearance to retrench, dated 28 December 1979, 1 affecting eighty six (86) of its employees allegedly to prevent losses due to major economic problems, and exercising its privilege under Article XI, Section 2 of its 1975-1977 Collective Bargaining Agreement ("CBA") entered into between petitioner and private respondent Philippine Labor Union Association ("PLUA-NACUSIP").

On the same day, private respondent Federation of Free Workers ("FFW"), as the certified bargaining agent of the rank-and-file employees of petitioner, filed with the Bacolod District Office of the MOLE a complaint dated 27 December 1979 for unfair labor practices and recovery of union dues docketed as NLRC Case No. A-198-80.

On 22 January 1980, another report on retirement affecting an additional twenty-five (25) employees effective 1 February 1980 was filed by petitioner. 2

On 3 March 1980, petitioner filed its Position Paper in NLRC Case No. A-217-80 contending that certain economic factors jeopardizing its very existence rendered the dismissals necessary. Petitioner explained:

for the past years the price of sugar has been very low. In order to survive, the Applicant has effected several forms of cost reduction. Now that there is hope in the price of sugar the applicant is again faced with two major economic problems, i.e., the stoppage of its railway operation and the spiralling cost of production.

The Applicant was forced to stop its railway operation because the owners of the land upon which the Applicant's railway lines traverse are no longer willing to allow the Applicant to make further use of portions of their lands. . . .

The other economic problem that confronted the Applicant is the rising cost of labor, materials, supplies, equipment, etc. These two major economic problems the rising cost of production and the stoppage of its railway facilities, put together pose a very serious threat against the economic survival of the Applicant. In view of this, the Applicant was constrained to touch on the last phase of its cost reduction program which is the reduction of its workforce.

 the Labor Arbiter denied petitioner's application for clearance to retrench its employees on the ground that for retrenchment to be valid, the employer's losses must be serious, actual and real and must be amply supported by sufficient and convincing evidence. The application to retire was also denied on the ground that petitioner's prerogative to so retire its employees was granted by the 1975-77 collective bargaining agreement which agreement had long ago expired. Petitioner was, therefore, ordered to reinstate twenty-seven retired or retrenched employees represented by private respondent Philippine Labor Union Association ("PLUA") and FFW and to pay them full backwages from the time of termination until actual reinstatement.

Both dissatisfied with the Labor Arbiter's decision, petitioner and respondent FFW appealed the case to public respondent NLRC. On appeal, the NLRC, finding no justifiable reason for disturbing the decision of the Labor Arbiter, affirmed that decision on 2 July 1986. 5

Petitioner argues that under the law, it has the right to reduce its workforce if made necessary by economic factors which would endanger its existence, and that for retrenchment to be valid, it is not necessary that losses be actually sustained. The existence of valid grounds to anticipate or expect losses would be sufficient justification to enable the employer to take the necessary actions to prevent any threat to its survival.

Upon the other hand the Solicitor General argued that the Decision rendered by the Labor Arbiter and affirmed by the NLRC is supported by substantial evidence on record; that, therefore, no grave abuse of discretion was committed by public respondent NLRC when it rendered that Decision.

Article 283 of the Labor Code provides:

Article 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 cricumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and Employer at least one (1) month before the intended date thereof. In case of termination due to the installation of labor saving devices or redundancy, the worker affected thereby shall be entitled to a se pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent lossesand in cases, of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year. (Emphasis supplied)

n ts ordinary connotation, he phrase "to revent losses" means hat retrenchment or termination of the services of some employees is authorized to be undertaken by the employer sometime before the losses anticipated are actually sustained or realized. It is not, in other words, the intention of the lawmaker to compel the employer to stay his hand and keep all his employees until sometime after losses shall have in fact materialized ; 7 if such an intent were expressly written into the law, that law may well be vulnerable to constitutional attack as taking property from one man to give to another. This is simple enough.

At the other end of the spectrum, it seems equally clear that not every asserted possibility of loss is sufficient legal warrant for reduction of personnel. In the nature of things, the possibility of incurring losses is constantly present, in greater or lesser degree, in the carrying on of business operations,

since some, indeed many, of the factors which impact upon the profitability or viability of such operations may be substantially outside the control of the employer.

Issue: Thus, the difficult question is determination of when, or under what circumstances, the employer becomes legally privileged to retrench and reduce the number of his employees.

Held: Firstly, the losses expected should be substantial and not merely de minimis in extent. If the loss purportedly sought to be forestalled by retrenchment is clearly shown to be insubstantial and inconsequential in character, the bona fide nature of the retrenchment would appear to be seriously in question. Secondly, the substantial loss apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith by the employer. There should, in other words, be a certain degree of urgency for the retrenchment, which is after all a drastic recourse with serious consequences for the livelihood of the employees retired or otherwise laid-off. Because of the consequential nature of retrenchment, it must, thirdly, be reasonably necessary and likely to effectively prevent the expected losses. The employer should have taken other measures prior or parallel to retrenchment to forestall losses, i.e., cut other costs than labor costs. An employer who, for instance, lays off substantial numbers of workers while continuing to dispense fat executive bonuses and perquisites or so-called "golden parachutes", can scarcely claim to be retrenching in good faith to avoid losses. To impart operational meaning to the constitutional policy of providing "full protection" to labor, the employer's prerogative to bring down labor costs by retrenching must be exercised essentially as a measure of last resort, after less drastic means — e.g., reduction of both management and rank-and-file bonuses and salaries, going on reduced time, improving manufacturing efficiencies, trimming of marketing and advertising costs, etc. — have been tried and found wanting.

Lastly, but certainly not the least important, alleged if already realized, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence. The reason for requiring this quantum of proof is readily apparent: any less exacting standard of proof would render too easy the abuse of this ground for termination of services of employees. In Garcia v. National Labor Relations Commissions, 8 the Court said:

. . . But it is essentially required that the alleged losses in business operations must be prove[n] (National Federation of Labor Unions [NAFLU] vs. Ople, 143 SCRA 124 [1986]). Otherwise, said ground for termination would be susceptible to abuse by scheming employers who might be merely feigning business losses or reverses in their business ventures in order to ease out employees. (Emphasis supplied) 9

Accordingly, in the instant case, despite the lapse of the formal effectivity of the CBA by virtue of its own provisions, the law considered the same as continuing in force and effect until a new CBA shall have been validly executed. Hence, petitioner acted within legal bounds when it decided to retire several employees in accordance with the CBA. That the employees themselves similarly acted in accordance with the CBA is plain from the record. Even after the expiration of the CBA, petitioner's employees continued to receive the benefits and enjoy the privileges granted therein. They continued to avail of vacation and sick leaves as computed in accordance with Articles VII and VIII of the CBA. They also continued to avail of medical and dental aid under Article IX, death aid and bereavement leave under Articles X and XIV, insurance coverage under Article XVI and housing allowance under Article XVIII. Seventeen (17) employees even availed of Section XI (dealing with retirement) when they voluntarily retired between 1 January 1978 and 31 December 1980 and received retirement pay computed on the basis of Section 3 of the same article. If the workers chose

to avail of the CBA despite its expiration, equity — if not the law-dictates that the employer should likewise be able to invoke the CBA.

The fact that several workers signed quitclaims will not by itself bar them from joining in the complaint. Quitclaims executed by laborers are commonly frowned upon as contrary to public policy and ineffective to bar claims for the full measure of the worker's legal rights. In AFP Mutual Benefit Association, Inc. v. AFP-MBAI-EU, 16 the Court held:

In labor jurisprudence, it is well establish 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 quitclaimants 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. (Cariño 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. vs. CIR, L-23357, April 30, 1974, 56 SCRA 694, 704)

In the Cariño 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. Renuntiatio non praesumitur (Emphasis supplied)

We conclude that because the attempted retrenchment on the part of the petitioner was legally ineffective, all retrenched employees should be reinstated and backwages paid them corresponding to a period of three (3) years without qualification or deduction, in accordance with the three-year rule laid down in a long line of cases. 17 In the case of employees who had received payments for which they had executed quitclaims, the amount of such payments shall be deducted from the backwages due to them. Where reinstatement is no longer possible because the positions they had previously filled are no longer in existence, petitioner shall pay backwages plus, in lieu of reinstatement, separation pay in the amount of one-month's pay for every year of service including the three (3) year-period of putative service for which backwages will be paid. Upon the other hand, we find valid the retirement of those employees who were retired by petitioner pursuant to the applicable provisions of the CBA.

WHEREFORE, the Petition for Certiorari is partially GRANTED due course and the Decision dated 2 July 1986 of the public respondent NLRC is hereby MODIFIED to the extent that it had affirmed that portion of the Decision of the Labor Arbiter dated 30 September 1983 ordering the reinstatement judgment of employees who had been retired by petitioner under the applicable provisions of the CBA. Except as so modified, the Decision of the NLRC is hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.

Fernan (Chairman), Gutierrez, Jr., Bidin and Cortes, JJ., concur.

FIRST DIVISION

G.R. No. 124950. May 19, 1998

ASIONICS PHILIPPINES, INC. and/or FRANK YIH, Petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, YOLANDA BOAQUINA, and JUANA GAYOLA, Respondents.

R E S O L U T I O N

VITUG, J.:

In this special civil action of certiorari, petitioners Asionics Philippines, Inc. (API), and its President and majority stockholder, Frank Yih, seek to annul and set aside the decision,1 dated 19 May 1996, of the National Labor Relations Commission ("NLRC") which has ordered, inter alia, that they grant separation pay, computed at one-half (1/2) month per year of service, to private respondents Yolanda Boaquina and Juana Gayola. Concomitantly being contested is the subsequent 16th April 1996 resolution2of the NLRC denying petitioners' motion for reconsideration.

API is a domestic corporation engaged in the business of assembling semi-conductor chips and other electronic products mainly for export. Yolanda Boaquina and Juana Gayola started working for API in 1979 and 1988, respectively, as material control clerk and as production operator. During the third quarter of 1992, API commenced negotiations with the duly recognized bargaining agent of its employees, the Federation of Free Workers ("FFW"), for a Collective Bargaining Agreement ("CBA"). A deadlock, however, ensued and the union decided to file a notice of strike. This event prompted the two customers of API, Indala and CP Clare Theta J, to thereupon refrain from sending to API additional kits or materials for assembly. API, given the circumstance that its assembly line had to thereby grind to a halt, was forced to suspend operations pursuant to Article 2863 of the Labor Code. Private respondents Boaquina and Gayola were among the employees asked to take a leave from work.

Upon the resolution of the bargaining deadlock in October of 1992, a CBA was concluded between API and FFW. The contract was signed on 30 October 1992 by the parties. Respondent Boaquina was directed to report back since her previous assignment pertained to the issuance of raw materials needed for the production of electronic items being ordered by Indala, one of API's client which promptly resumed its business with API. On the other hand, Juana Gayola, among other employees, could not be recalled forthwith because the CP Clare/Theta J account, where she was assigned as the production operator, had yet to renew its production orders.

Inasmuch as its business activity remained critical, API was constrained to implement a company-wide retrenchment affecting one hundred five (105) employees from a work force that otherwise totalled three hundred four (304). The selection was based on productivity/performance standards pursuant to the CBA. Yolanda Boaquina was one of those affected by the retrenchment and API, through its Personnel Manager Beatriz G. Torro, advised her of such fact in its letter of 29 December 1992. In that letter, Boaquina was informed that her services were to be dispensed with effective 31 January 19934 although she did not have to render any service for the month of January she being by then already considered to be on leave with pay. While Juana Gayola was not supposed to be affected by the retrenchment in view of her high performance rating, her services, nevertheless, were considered to have been ended on 04 September 19925 when she was ordered by API to take an indefinite leave of absence. She had not since been recalled.

Dissatisfied with their union (FFW), Boaquina and Gayola, together with some of other co-employees, joined the Lakas ng Manggagawa sa Pilipinas Labor Union ("Lakas Union") where they eventually became members of its Board of Directors.

On 06 January 1993, Lakas Union filed a notice of strike against API on the ground of unfair labor practice (ULP) allegedly committed by the latter, specifically, for union busting, termination of union officers/members, harassment and discrimination.6 A conciliation meeting was scheduled for 08 January 1993 by the National Conciliation and Mediation Board ("NCMB") to address the problem which

meeting, however, was reset to 14 January 1993 for failure of any representative or member of Lakas Union to appear. On 10 January 1993, Lakas Union staged a strike.

Claiming that the strike staged by Lakas Union was illegal, API on 11 January 1993, brought before the NLRC National Capital Region Arbitration a petition, docketed NLRC NCR Case No. 00-01-00402-93, for declaration of illegality of the strike. Lakas Union countered that their strike was valid and staged as a measure of self-preservation and as self-defense against the illegal dismissal of petitioners aimed at union busting in the guise of a retrenchment program.

On 23 June 1994, Labor Arbiter Villarente, Jr., to whose sala the case was raffled, promulgated a decision7 declaring the strike staged by Lakas Union to be illegal. He declared:

WHEREFORE, judgment is hereby rendered declaring that the strike staged by respondents Federation of Free Workers and the Lakas Manggagawa ng Pilipinas on January 10, 1993 and thereafter, was ILLEGAL.

Accordingly, all the registered officers of the two respondent-Unions at the time of the strike are hereby declared to have lost their employment status (aside from the fact that ten of them earlier mentioned had settled their cases amicably with petitioner).

Insofar as the striking members are concerned and who did not settle their cases amicably, their separation from the service of petitioner API is hereby declared VALID under the company-wide retrenchment program which was earlier made known to proper authorities.

SO ORDERED.8

Meanwhile, at the instance of several employees which included private respondents Boaquina and Gayola, a complaint for illegal dismissal, violation of labor standards and separation pay, as well as for recovery of moral and exemplary damages, was filed against API and/or Frank Yih before the NLRC National Capital Region Arbitration Branch. The illegal dismissal case, docketed NLRC NCR Case No. 00-05-03326 and No. 00-03-01952-93, was assigned to Labor Arbiter Potenciano S. Canizares, Jr.

On 22 June 1994, Labor Arbiter Canizares rendered his decision9 holding petitioners guilty of illegal dismissal. He ordered petitioners to pay private respondent Yolanda Boaquina separation pay of one-half (1/2) month pay for every year of service, plus overtime pay, and to reinstate private respondent Juana Gayola with full backwages from the time her salaries were withheld from her until her actual reinstatement.

The decision of Labor Arbiter Villarente, Jr., and that of Labor Arbiter Canizares were both appealed to the NLRC.

On 20 April 1995, the Third Division of NLRC promulgated its resolution10 which affirmed the finding of Labor Arbiter Villarente, Jr., that the strike staged by Lakas Union was illegal. On 19 March 1996, the same Third Division of NLRC, in the illegal dismissal case, rendered a decision11 modifying the decision of Labor Arbiter Canizares by declaring that private respondents were not illegally dismissed but were validly terminated due to the retrenchment policy implemented by API. Accordingly, private respondents were awarded separation pay and an additional one (1) month salary in favor of Juana Gayola by way of indemnity for petitioner API's failure to properly inform her of the retrenchment. The NLRC dismissed the claim of petitioners that private respondents should not be entitled to separation pay because of their involvement in the strike which was declared illegal .

On 01 April 1996, petitioners moved for a reconsideration of the 19th March 1996 NLRC decision; the motion, however, was denied by the NLRC in its resolution of 16 April 1996.

In this recourse, the following issues have been raised by petitioners; to wit:

"WHETHER OR NOT PRIVATE RESPONDENTS WHO ARE OFFICERS OF THE UNION ARE STILL ENTITLED TO SEPARATION PAY AND INDEMNITY DESPITE HAVING PARTICIPATED IN A STRIKE THAT HAS BEEN DECLARED ILLEGAL?

"WHETHER OR NOT A STOCKHOLDER/DIRECTOR/OFFICER OF A CORPORATION CAN BE HELD LIABLE FOR THE OBLIGATION OF THE CORPORATION ABSENT ANY PROOF AND FINDING OF BAD FAITH?12

The position advanced by petitioners on the first issue is bereft of merit. It is quite evident that the termination of employment of private respondents was due to the retrenchment policy adopted by API and not because of the former's union activities. In a letter, dated 29 December 1992, API itself advised respondent Boaquina that she was one of those affected by the retrenchment program of the company and that her services were to be deemed terminated effective 31 January 1993. In their pleadings submitted to Labor Arbiter Canizares, Jr., in connection with the illegal dismissal case, petitioners firmly averred that the services of private respondents were being dispensed with not by reason of their union activities but in view of the retrenchment policy of the company. The Solicitor-General correctly pointed out the admissions made by petitioners; thus:

The fact is, complainant Boaquina was in fact part of the first batch of retrenchees. She was duly notified of her retrenchment, as well as the proper labor authorities. Ms. Boaquina alleged in her position paper/affidavit that:

[O]n September 12, 1992, I was illegally laid-off for no reason that I know other than my union activities. I was recalled on October 6, 1992 and again I was laid-off in a memorandum of January 4, 1993 effective the end of said month.

Complainant Boaquina of course failed, obvious wittingly, to tell her story truthfully. In the first place, she was never terminated for her union activities. Asionics just concluded its CBA with the employees bargaining representative. Asionics were also too preoccupied with more earthshaking and exigent problems, principally that of getting the business back on its feet, to concern themselves with potential (whether real or imagined) entanglements/complications with the union, much less of one individual member. Moreover, for academic discussion, let us say that indeed complainant Boaquina was targeted for termination due to union activities. Under the circumstances, she would have just been terminated outright, without recall. The truth of the matter is, Boaquina was made to go on leave in September 1992 precisely because of the pull-out of CP Clare Theta-J which resulted in work shortage. If she was recalled before she was finally retrenched, it only shows that the company had been trying its best to accommodate the most possible number of employees in its payroll, even given that it was in dire financial straits. Of course, the company cannot just let the workers go to work and pay them their dues even though there is nothing to do.

Complainant Gayola on the other hand was separated from service owing to the fact that production totally ceased by virtue of the blockade caused by the strike and the pull-out of Asionics last customer. In short, the strike aggravated a bad situation by making it worse and eventually, the worst possible nightmare for any business enterprise. There being no work whatsoever to do, complainant Gayola, like the other employees, had to be terminated from work.13 (italized portions found in the text)

The decision of Labor Arbiter Villarente, Jr., declaring private respondents to have lost their employment status due to their participation in an illegal strike is of no really significance to petitioners. It should suffice to say, as so aptly observed by the NLRC, that the retrenchment of private respondents has, in fact, preceded the declaration of strike.

It is, instead, on the issue of joint and solidary liability of petitioner Frank Yih with API that the Court has decided to give due course to the instant petition. The court cannot agree with the Solicitor-General in suggesting that even if Frank Yih had no direct hand in the dismissal of the respondents he should be personally liable therefor on account alone of his being the President and majority stockholder of the company. The disquisition by the Court in Santos vs. NLRC14 is quite succinct and clear. Thus -

"A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. The rule is that obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can exist to warrant, albeit done sparingly, the disregard of its independent being and the lifting of the corporate veil. As a rule, this situation might arise when a corporation is used to evade a just and due obligation or to justify a wrong, to shield or perpetrate fraud, to carry out similar unjustifiable aims or intentions, or as a subterfuge to commit injustice and so circumvent the law."

"xxx xxx xxx"

It is true, there were various cases when corporate officers were themselves held by the Court to be personally accountable for the payment of wages and money claims to its employees. In A.C. Ransom Labor Union-CCLU vs. NLRC, for instance, the Court ruled that under the Minimum Wage Law, the responsible officer of an employer corporation could be held personally liable for nonpayment of backwages for `(i)f the policy of the law were otherwise, the corporation employer (would) have devious ways for evading payment of back wages. In the absence of a clear identification of the officer directly responsible for failure to pay the backwages, the Court considered the President of the corporation as such officer. The case was cited in Chua vs. NLRC in holding personally liable the vice-president of the company, being the highest and most ranking official of the corporation next to the President who was dismissed, for the latters claim for unpaid wages.

A review of the above exceptional cases would readily disclose the attendance of facts and circumstances that could rightly sanction personal liability on the part of the company officer. In A.C. Ransom, the corporate entity was a family corporation and execution against it could not be implemented because of the disposition posthaste of its leviable assets evidently in order to evade its just and due obligations. The doctrine of `piercing the veil of corporate fiction was this clearly appropriate. Chua likewise involved another family corporation, and this time the conflict was between two brothers occupying the highest ranking positions in the company. There were incontrovertible facts which pointed to extreme personal animosity that resulted, evidently in bad faith, in the easing out from the company of one of the brothers by the other.

The basic rule is still that which can deduced from the Courts pronouncement in Sunio vs. National Labor Relations Commission (127 SCRA 390), thus:

We come now to the personal liability of petitioner, Sunio, who was made jointly and severally responsible with petitioner company and CIPI for the payment of the backwages of private respondents. This is reversible error. The Assistant Regional Directors Decision failed to disclose the reason why he was made personally liable. Respondents, however, alleged as grounds thereof, his being the owner of one-half (1/2) interest of said corporation, and his alleged arbitrary dismissal of private respondents.

Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of petitioner corporation. There appears to be no evidence on record that he acted maliciously or in bad faith in terminating the services of private respondents. His act, therefore, was within the scope of his authority and was a corporate act.

It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. Petitioner Sunio, therefore, should not have been made personally answerable for the payment of private respondents back salaries.

The Court, to be sure, did appear to have deviated somewhat in Gudez vs. NLRC (183 SCRA 644), however, it should be clear from our recent pronouncement in Mam Realty Development Corporation and Manuel Centeno vs. NLRC (244 SCRA 797), that the Sunio doctrine still prevails.15

Nothing on record is shown to indicate that Frank Yih has acted in bad faith or with malice in carrying out the retrenchment program of the company. His having been held by the NLRC to be solidarily and personally liable with API is thus legally unjustified.

WHEREFORE, the questioned decision of the NLRC is MODIFIED insofar as it holds herein petitioner Frank Yih personally liable with Asionics Philippines, Inc., which portion of the decision is SET ASIDE; in all other respects, however, the questioned decision is AFFIRMED and remains unaffected. No costs.

SO ORDERED.

Davide, Jr., (Chairman), Bellosillo, Panganiban, and Quisumbing, JJ., concur.

THIRD DIVISION 

[G.R. No. 178083, July 23, 2008] 

FLIGHT ATTENDANTS AND STEWARDS ASSOCIATION OF THEPHILIPPINES (FASAP), PETITIONER, VS. PHILIPPINE AIRLINES, INC., PATRIA CHIONG AND COURT OF APPEALS,

RESPONDENTS. 

DECISION 

YNARES-SATIAGO, J.:

This petition for review on certiorari assails the Decision[1] of the Court of Appeals (CA) dated August 23, 2006 in CA-G.R. SP No. 87956 which affirmed the National Labor Relations Commission's (NLRC) decision setting aside the Labor Arbiter's findings of illegal retrenchment and ordering the reinstatement of the retrenched Philippine Airlines, Inc. (PAL) employee-members of petitioner Flight Attendants and Stewards Association of the Philippines (FASAP), with payment of backwages, moral and exemplary damages, and attorney's fees. Also assailed is the May 29, 2007 Resolution[2] denying the motion for reconsideration.

Petitioner FASAP is the duly certified collective bargaining representative of PAL flight attendants and stewards, or collectively known as PAL cabin crew personnel. Respondent PAL is a domestic corporation organized and existing under the laws of the Republic of the Philippines, operating as a common carrier transporting passengers and cargo through aircraft.

On June 15, 1998, PAL retrenched 5,000 of its employees, including more than 1,400 of its cabin crew personnel, to take effect on July 15, 1998. PAL adopted the retrenchment scheme allegedly to cut costs and mitigate huge financial losses as a result of a downturn in the airline industry brought about by the Asian financial crisis. During said period, PAL claims to have incurred P90 billion in liabilities, while its assets stood at P85 billion.[3]

In implementing the retrenchment scheme, PAL adopted its so-called "Plan 14" whereby PAL's fleet of aircraft would be reduced from 54 to 14, thus requiring the services of only 654 cabin crew personnel.[4] PAL admits that the retrenchment is wholly premised upon such reduction in fleet,[5] and to "the strike staged by PAL pilots since this action also translated into a reduction of flights."[6] PAL claims that the scheme resulted in "savings x x x amounting to approximately P24 million per month - savings that would greatly alleviate PAL's financial crisis."[7]

Prior to the full implementation of the assailed retrenchment program, FASAP and PAL conducted a series of consultations and meetings and explored all possibilities of cushioning the impact of the impending reduction in cabin crew personnel. However, the parties failed to agree on how the scheme would be implemented. Thus PAL unilaterally resolved to utilize the criteria set forth in Section 112 of the PAL-FASAP Collective Bargaining Agreement[8] (CBA) in retrenching cabin crew personnel: that is, that retrenchment

shall be based on the individual employee's efficiency ratingand seniority.

PAL determined the cabin crew personnel efficiency ratings through an evaluation of the individual cabin crew member's overall performance for the year 1997 alone.[9]Their respective performance during previous years, i.e., the whole duration of service with PAL of each cabin crew personnel, was not considered. The factors taken into account on whether the cabin crew member would be retrenched, demoted or retained were: 1) the existence of excess sick leaves; 2) the crew member's being physically overweight; 3) seniority; and 4) previous suspensions or warnings imposed.[10]

While consultations between FASAP and PAL were ongoing, the latter began implementing its retrenchment program by initially terminating the services of 140 probationary cabin attendants only to rehire them in April 1998. Moreover, their employment was made permanent and regular.[11]

On July 15, 1998, however, PAL carried out the retrenchment of its more than 1,400 cabin crew personnel.

Meanwhile, in June 1998, PAL was placed under corporate rehabilitation and a rehabilitation plan was approved per Securities and Exchange Commission (SEC) Order dated June 23, 1998 in SEC Case No. 06-98-6004.[12]

On September 4, 1998, PAL, through its Chairman and Chief Executive Officer (CEO) Lucio Tan, made an offer to transfer shares of stock to its employees and three seats in its Board of Directors, on the condition that all the existing Collective Bargaining Agreements (CBAs) with its employees would be suspended for 10 years, but it was rejected by the employees. On September 17, 1998, PAL informed its employees that it was shutting down its operations effective September 23, 1998,[13] despite the previous approval on June 23, 1998 of its rehabilitation plan.

On September 23, 1998, PAL ceased its operations and sent notices of termination to its employees. Two days later, PAL employees, through the Philippine Airlines Employees Association (PALEA) board, sought the intervention of then President Joseph E. Estrada. PALEA offered a 10-year moratorium on strikes and similar actions and a waiver of some of the economic benefits in the existing CBA. Lucio Tan, however, rejected this counter-offer.[14]

On September 27, 1998, the PALEA board again wrote the President proposing the following terms and conditions, subject to ratification by the general membership:

1. Each PAL employee shall be granted 60,000 shares of stock with a par value of P5.00, from Mr. Lucio Tan's shareholdings, with three (3) seats in the PAL Board and an additional seat from government shares as indicated by His Excellency;

2. Likewise, PALEA shall, as far as practicable, be granted adequate representation in committees or bodies which deal with matters affecting terms and conditions of employment;

3. To enhance and strengthen labor-management relations, the existing Labor-Management Coordinating Council shall be reorganized and revitalized, with adequate representation from both PAL management and PALEA;

4. To assure investors and creditors of industrial peace, PALEA agrees, subject to the ratification by the general membership, (to) the suspension of the PAL-PALEA CBA for a period of ten (10) years, provided the following safeguards are in place:

a. PAL shall continue recognizing PALEA as the duly certified bargaining agent of the regular rank-and-file ground employees of the Company;

b. The `union shop/maintenance of membership' provision under the PAL-PALEA CBA shall be respected.

c. No salary deduction, with full medical benefits.

5. PAL shall grant the benefits under the 26 July 1998 Memorandum of Agreement forged by and between PAL and PALEA, to those employees who may opt to retire or be separated from the company.

6. PALEA members who have been retrenched but have not received separation benefits shall be granted priority in the hiring/rehiring of employees.

7. In the absence of applicable Company rule or regulation, the provisions of the Labor Code shall apply.[15]

In a referendum conducted on October 2, 1998, PAL employees ratified the above proposal. On October 7, 1998, PAL resumed domestic operations and, soon after, international flights as well.[16]

Meanwhile, in November 1998, or five months after the June 15, 1998 mass dismissal of its cabin crew personnel, PAL began recalling to service those it had previously retrenched. Thus, in November 1998[17] and up to March 1999,[18] several of those retrenched were called back to service. To date, PAL claims to have recalled 820 of the retrenched cabin crew personnel.[19] FASAP, however, claims that only 80 were recalled as of January 2001.[20]

In December 1998, PAL submitted a "stand-alone" rehabilitation plan to the SEC by which it undertook a recovery on its own while keeping its options open for the entry of a strategic partner in the future. Accordingly, it submitted an amended rehabilitation plan to the SEC with a proposed revised business and financial restructuring plan, which required the infusion of US$200 million in new equity into the airline.

On May 17, 1999, the SEC approved the proposed "Amended and Restated Rehabilitation Plan" of PAL and appointed a permanent rehabilitation receiver for the latter.[21]

On June 7, 1999, the SEC issued an Order confirming its approval of the "Amended and Restated Rehabilitation Plan" of PAL. In said order, the cash infusion of US$200 million made by Lucio Tan on June 4, 1999 was acknowledged.[22]

On October 4, 2007, PAL officially exited receivership; thus, our ruling in Philippine Air Lines v. Kurangking[23] no longer applies.

On June 22, 1998, FASAP filed a Complaint[24] against PAL and Patria T. Chiong[25](Chiong) for unfair labor practice, illegal retrenchment with claims for reinstatement and payment of salaries, allowances and backwages of affected FASAP members, actual, moral and exemplary damages with a prayer to enjoin the retrenchment program then being implemented. Instead of a position paper, respondents filed a Motion to Dismiss and/or Consolidation with NCMB Case No. NS 12-514-97 pending with the Office of the Secretary of the Department of Labor and Employment and/or Suspension and Referral of Claims to the interim rehabilitation proceedings (motion to dismiss).[26]

On July 6, 1998, FASAP filed its Comment to respondents' motion to dismiss. On July 23, 1998, the Labor Arbiter issued an Order[27] denying respondents' motion to dismiss; granting a writ of preliminary injunction against PAL's implementation of its retrenchment program with respect to FASAP members; setting aside the respective notices of retrenchment addressed to the cabin crew; directing respondents to restore the said

retrenched cabin crew to their positions and PAL's payroll until final determination of the case; and directing respondents to file their position paper.

Respondents appealed to the NLRC which reversed the decision of the Labor Arbiter. The NLRC directed the lifting of the writ of injunction and to vacate the directive setting aside the notices of retrenchment and reinstating the dismissed cabin crew to their respective positions and in the PAL payroll.[28]

FASAP filed its Position Paper[29] on September 28, 1999. On November 8, 1999, respondents filed their Position Paper[30] with counterclaims against FASAP, to which FASAP filed its Reply.[31] Thereafter, the parties were directed to file their respective Memoranda.[32]

Meanwhile, instead of being dismissed in accordance with the Kurangking case, the FASAP case (NLRC-NCR Case No. 06-05100-98) was consolidated with the following cases:

1. Ramon and Marian Joy Camahort v. PAL, et al. (NLRC-NCR Case No. 00-07-05854-98);

2. Erlinda Arevalo and Chonas Santos v. PAL, et al. (NLRC-NCR Case No. 00-07-09793-98); and

3. Victor Lanza v. PAL, et al. (NLRC-NCR Case No.00-04-04254-99).

On July 21, 2000, Labor Arbiter Jovencio Ll. Mayor rendered a Decision,[33] the dispositive portion of which reads, as follows:WHEREFORE, premises considered, this Office renders judgment declaring that Philippine Airlines, Inc., illegally retrenched One Thousand Four Hundred (1,400) cabin attendants including flight pursers for effecting the retrenchment program in a despotic and whimsical manner. Philippine Airlines, Inc. is likewise hereby ordered to:

1. Reinstate the cabin attendants retrenched and/or demoted to their previous positions;

2. Pay the concerned cabin attendants their full backwages from the time they were illegally dismissed/retrenched up to their actual reinstatements;

3. Pay moral and exemplary damages in the amount of Five Hundred Thousand Pesos (P500,000.00); and

4. Ten (10%) per cent of the total monetary award as and by way of attorney's fees.

SO ORDERED.[34]

Respondents appealed to the NLRC. Meanwhile, FASAP moved for the implementation of the reinstatement aspect of the Labor Arbiter's decision. Despite respondents' opposition, the Labor Arbiter issued a writ of execution with respect to the reinstatement directive in his decision. Respondents moved to quash the writ, but the Labor Arbiter denied the same. Again, respondents took issue with the NLRC.

Meanwhile, on May 31, 2004, the NLRC issued its Decision[35] in the appeal with respect to the Labor Arbiter's July 21, 2000 decision. The dispositive portion thereof reads:WHEREFORE, premises considered, the Decision dated July 21, 2000 is hereby SET ASIDE and a new one entered DISMISSING the consolidated cases for lack of merit.

With respect to complainant Ms. Begonia Blanco, her demotion is hereby declared illegal and respondent PAL is ordered to pay her salary differential covering the period from the time she was downgraded in July 1998 up to the time she resigned in October 1999.

Respondent PAL is likewise ordered to pay the separation benefits to those complainants who have not

received their separation pay and to pay the balance to those who have received partial separation pay.

The Order of the Labor Arbiter dated April 6, 2000 is also SET ASIDE and the Writ of Execution dated November 13, 2000 is hereby quashed.

Annexes "A" and "B" are considered part of this Decision.

SO ORDERED.[36]

FASAP moved for reconsideration but it was denied; hence it filed an appeal to the Court of Appeals which was denied in the herein assailed Decision.

FASAP's motion for reconsideration was likewise denied; hence, the instant petition raising the following issues:WHETHER OR NOT THE COURT OF APPEALS DECIDED THE CASE A QUOIN A WAY CONTRARY TO LAW AND/OR APPLICABLE JURISPRUDENCE WHEN IT DENIED FASAP'S PETITION FOR CERTIORARI UNDER RULE 65 AND EFFECTIVELY VALIDATED THE RETRENCHMENT EXERCISED BY RESPONDENT PAL WHICH WAS INITIALLY DECLARED AS ILLEGAL BY THE LABOR ARBITER A QUO SINCE:FIRST, the record shows that PAL failed or neglected to adopt less drastic cost-cutting measures before resorting to retrenchment. No less than the Supreme Court held that resort to less drastic cost-cutting measures is an indispensable requirement for a valid retrenchment x x x.

SECOND, PAL arbitrarily and capriciously singled out the year 1997 as a reference in its alleged assessment of employee efficiency. With this, it totally disregarded the employee's performance during the years prior to 1997. This resulted in the unreasonable and unfair retrenchment or demotion of several flight pursers and attendants who showed impeccable service records during the years prior to 1997.

THIRD, seniority was totally disregarded in the selection of employees to be retrenched, which is a clear and willful violation of the CBA.

FOURTH, PAL maliciously represented in the proceedings below that it could only operate on a fleet of fourteen (14) planes in order to justify the retrenchment scheme. Yet, the evidence on record revealed that PAL operated a fleet of twenty two (22) planes. In fact, after having illegally retrenched the unfortunate flight attendants and pursers, PAL rehired those who were capriciously dismissed and even hired from the outside just to fulfill their manning requirements.

FIFTH, PAL did not use any fair and reasonable criteria in effecting retrenchment. If there really was any, the same was applied arbitrarily, if not discriminatorily.

FINALLY, and perhaps the worst transgression of FASAP's rights, PAL used retrenchment to veil its union-busting motives and struck at the heart of FASAP when it retrenched seven (7) of its twelve (12) officers and demoted three (3) others.[37] (Emphasis supplied)These issues boil down to the question of whether PAL's retrenchment scheme was justified.

It is a settled rule that in the exercise of the Supreme Court's power of review, the Court is not a trier of facts and does not normally undertake the re-examination of the evidence presented by the contending parties during trial. However, there are several exceptions to this rule[38] such as when the factual findings of the Labor Arbiter differ from those of the NLRC, as in the instant case, which opens the door to a review by this Court.[39]

Under the Labor Code, retrenchment or reduction of employees is authorized as follows: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. In case of termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.The law recognizes the right of every business entity to reduce its work force if the same is made necessary by compelling economic factors which would endanger its existence or stability.[40] Where appropriate and where conditions are in accord with law and jurisprudence, the Court has authorized valid reductions in the work force to forestall business losses, the hemorrhaging of capital, or even to recognize an obvious reduction in the volume of business which has rendered certain employees redundant.[41]

Nevertheless, while it is true that the exercise of this right is a prerogative of management, there must be faithful compliance with substantive and procedural requirements of the law and jurisprudence, for retrenchment strikes at the very heart of the worker's employment, the lifeblood upon which he and his family owe their survival. Retrenchment is only a measure of last resort, when other less drastic means have been tried and found to be inadequate.[42]

The burden clearly falls upon the employer to prove economic or business losses with sufficient supporting evidence. Its failure to prove these reverses or losses necessarily means that the employee's dismissal was not justified.[43] Any claim of actual or potential business losses must satisfy certain established standards, all of which must concur, before any reduction of personnel becomes legal.[44] These are:(1) That retrenchment is reasonably necessary and likely to prevent business losses which, if already incurred, are not merely de minimis, but substantial, serious, actual and real, or if only expected, are reasonably imminent as perceived objectively and in good faith by the employer;

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

(3) That the employer pays the retrenched employees separation pay equivalent to one (1) month pay or at least one-half (½) month pay for every year of service, whichever is higher;

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

(5) That the employer used fair and reasonable criteria in ascertaining who would be dismissed and who would be retained among the employees, such as status, efficiency, seniority, physical fitness, age, and financial hardship for certain workers.[45]

In view of the facts and the issues raised, the resolution of the instant petition hinges on a determination of the existence of the first, fourth and the fifth elements set forth above, as well as compliance therewith by PAL, taking to mind that the burden of proof in retrenchment cases lies with the employer in showing valid cause for dismissal;[46] that legitimate business reasons exist to justify retrenchment.[47]

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

The employer's prerogative to layoff employees is subject to certain limitations. InLopez Sugar Corporation v. Federation of Free Workers,[48] we held that:Firstly, the losses expected should be substantial and not merely de minimis in extent. If the loss purportedly sought to be forestalled by retrenchment is clearly shown to be insubstantial and inconsequential in

character, the bona fide nature of the retrenchment would appear to be seriously in question. Secondly, the substantial loss apprehended must be reasonably imminent, as such imminence can be perceived objectively and in good faith by the employer. There should, in other words, be a certain degree of urgency for the retrenchment, which is after all a drastic recourse with serious consequences for the livelihood of the employees retired or otherwise laid-off. Because of the consequential nature of retrenchment, it must, thirdly, be reasonably necessary and likely to effectively prevent the expected losses. The employer should have taken other measures prior or parallel to retrenchment to forestall losses, i.e., cut other costs than labor costs. An employer who, for instance, lays off substantial numbers of workers while continuing to dispense fat executive bonuses and perquisites or so-called "golden parachutes," can scarcely claim to be retrenching in good faith to avoid losses. To impart operational meaning to the constitutional policy of providing "full protection" to labor, the employer's prerogative to bring down labor costs by retrenching must be exercised essentially as a measure of last resort, after less drastic means - e.g., reduction of both management and rank-and-file bonuses and salaries, going on reduced time, improving manufacturing efficiencies, trimming of marketing and advertising costs, etc. - have been tried and found wanting.

Lastly, but certainly not the least important, alleged losses if already realized, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence.The law speaks of serious business losses or financial reverses. Sliding incomes or decreasing gross revenues are not necessarily losses, much less serious business losses within the meaning of the law. The fact that an employer may have sustained a net loss, such loss, per se, absent any other evidence on its impact on the business, nor on expected losses that would have been incurred had operations been continued, may not amount to serious business losses mentioned in the law. The employer must show that its losses increased through a period of time and that the condition of the company will not likely improve in the near future,[49] or that it expected no abatement of its losses in the coming years.[50] Put simply, not every loss incurred or expected to be incurred by a company will justify retrenchment.[51]

The employer must also exhaust all other means to avoid further losses without retrenching its employees.[52] Retrenchment is a means of last resort; it is justified only when all other less drastic means have been tried and found insufficient.[53]Even assuming that the employer has actually incurred losses by reason of the Asian economic crisis, the retrenchment is not completely justified if there is no showing that the retrenchment was the last recourse resorted to.[54] Where the only less drastic measure that the employer undertook was the rotation work scheme, or the three-day-work-per-employee-per-week schedule, and it did not endeavor at other measures, such as cost reduction, lesser investment on raw materials, adjustment of the work routine to avoid scheduled power failure, reduction of the bonuses and salaries of both management and rank-and-file, improvement of manufacturing efficiency, and trimming of marketing and advertising costs, the claim that retrenchment was done in good faith to avoid losses is belied.[55]

Alleged losses if already realized, and the expected imminent losses sought to be forestalled, must be proved by sufficient and convincing evidence. The reason for requiring this is readily apparent: any less exacting standard of proof would render too easy the abuse of this ground for termination of services of employees; scheming employers might be merely feigning business losses or reverses in order to ease out employees.[56]

In establishing a unilateral claim of actual or potential losses, financial statements audited by independent external auditors constitute the normal method of proof of profit and loss performance of a company.[57] The condition of business losses justifying retrenchment is normally shown by audited financial documents like yearly balance sheets and profit and loss statements as well as annual income tax returns. Financial statements must be prepared and signed by independent auditors; otherwise, they may be assailed as self-serving.[58] A Statement of Profit and Loss submitted to prove alleged losses, without the accompanying signature of a certified public accountant or audited by an independent auditor, is nothing but a self-serving document which ought to be treated as a mere scrap of paper devoid of any probative value.[59]

The audited financial statements should be presented before the Labor Arbiter who is in the position to evaluate evidence. They may not be submitted belatedly with the Court of Appeals, because the admission

of evidence is outside the sphere of the appellate court's certiorari jurisdiction. Neither can this Court admit in evidence audited financial statements, or make a ruling on the question of whether the employer incurred substantial losses justifying retrenchment on the basis thereof, as this Court is not a trier of facts.[60] Even so, this Court may not be compelled to accept the contents of said documents blindly and without thinking.[61]

The requirement of evidentiary substantiation dictates that not even the affidavit of the Assistant to the General Manager is admissible to prove losses, as the same is self-serving.[62] Thus, in Central Azucarera de la Carlota v. National Labor Relations Commission,[63] the Court ruled that the mere citation by the employer of the economic setback suffered by the sugar industry as a whole cannot, in the absence of adequate, credible and persuasive evidence, justify its retrenchment program,[64]thus:A litany of woes, from a labor strike way back in 1982 to the various crises endured by the sugar industry, droughts, the 1983 assassination of former Senator Benigno Aquino, Jr., high crop loan interests, spiraling prices of fertilizers and spare parts, the depression of sugar prices in the world market, cutback in the U.S. sugar quota, abandonment of productive areas because of the insurgency problem and the absence of fair and consistent government policies may have contributed to the unprecedented decline in sugar production in the country, but there is no solid evidence that they translated into specific and substantial losses that would necessitate retrenchment. Just exactly what negative effects were borne by petitioner as a result, petitioner failed to underscore.[65]

In Anino v. National Labor Relations Commission,[66] the Court also held that the employer's claim - that retrenchment was undertaken as a measure of self-preservation to prevent losses brought about by the continuing decline of nickel prices and export volume in the mining industry, as well as its allegation that the reduction of excise taxes on mining from 5% to 1% on a graduated basis as provided under Republic Act No. 7729 was a clear recognition by the government of the industry's worsening economic difficulties - was a bare claim in the absence of evidence of actual losses in its business operations.[67]

In the instant case, PAL failed to substantiate its claim of actual and imminent substantial losses which would justify the retrenchment of more than 1,400 of its cabin crew personnel. Although the Philippine economy was gravely affected by the Asian financial crisis, however, it cannot be assumed that it has likewise brought PAL to the brink of bankruptcy. Likewise, the fact that PAL underwent corporate rehabilitation does not automatically justify the retrenchment of its cabin crew personnel.

Records show that PAL was not even aware of its actual financial position when it implemented its retrenchment program. It initially decided to cut its fleet size to only 14 ("Plan 14") and based on said plan, it retrenched more than 1,400 of its cabin crew personnel. Later on, however, it abandoned its "Plan 14" and decided to retain 22 units of aircraft ("Plan 22"). Unfortunately, it has retrenched more than what was necessary. PAL admits that:[U]pon reconsideration and with some optimistic prospects for operations, the Company (PAL) decided not to implement "Plan 14" and instead implemented "Plan 22," which would involve a fleet of 22 planes. Since "Plan 14" was abandoned, the Company deemed it appropriate to recall back into employment employees it had previously retrenched. Thus, some of the employees who were initially laid off were recalled back to duty, the basis of which was passing the 1997 efficiency rating to meet the Company's operational requirements.[68]

PAL decided to adopt "Plan 14" on June 12, 1998. Three days after, or on June 15, 1998, it sent notices of retrenchment to its cabin crew personnel to take effect on July 15, 1998. However, after allegedly realizing that it was going to retain 22 of its aircraft instead of 14, and after more than 1,400 of its cabin crew have been fired - during the period from November 30, 1998 to December 15, 1998, it suddenly recalled to duty 202 of the retrenched cabin crew personnel.[69]

This only proves that PAL was not aware of the true state of its finances at the time it implemented the assailed massive retrenchment scheme. It embarked on the mass dismissal without first undertaking a well-considered study on the proposed retrenchment scheme. This view is underscored by the fact that previously, PAL terminated the services of 140 probationary cabin attendants, but rehired them almost immediately and even converted their employment into permanent and regular, even as a massive retrenchment was already looming in the horizon.

To prove that PAL was financially distressed, it could have submitted its audited financial statements but it failed to present the same with the Labor Arbiter. Instead, it narrated a litany of woes without offering any evidence to show that they translated into specific and substantial losses that would necessitate retrenchment, thus:

1. It is a matter of public knowledge that PAL had been suffering severe financial losses that reached its most critical condition in 1998 when its liabilities amounted to about P90,642,933,919.00, while its assets amounted to only about P85,109,075,351.00. The precarious situation prompted PAL to adopt cost-cutting measures to prevent it from becoming totally bankrupt, including the reduction of its flight fleet from 56 to 14 aircrafts and the retrenchment of unneeded employees.

x x x x

26. To save its business, PAL had every right to undergo a retrenchment program immediately. PAL did not need, by law, to justify or explain to FASAP the reasons for the retrenchment before it could implement it. Proof of actual financial losses incurred by the company is not a condition sine qua non for retrenchment.[70]

This bare and unilateral claim does not suffice. The Labor Arbiter's finding that PAL "amply satisfied the rules imposed by law and jurisprudence that sustain retrenchment," is without basis, absent the presentation of documentary evidence to that effect. In Saballa v. National Labor Relations Commission,[71] we ruled that where the decision of the Labor Arbiter did not indicate the specific bases for such crucial finding that the employer was suffering business reverses, the same was arbitrary. We ratiocinated therein that since the employer insisted that its critical financial condition was the central and pivotal reason for its retrenchment, there was no reason why it should have neglected or refused to submit its audited financial statements.

PAL's assertion - that its finances were gravely compromised as a result of the 1997 Asian financial crisis and the pilots' strike - lacks basis due to the non-presentation of its audited financial statements to prove actual or imminent losses. Also, the fact that PAL was placed under receivership did not excuse it from submitting to the labor authorities copies of its audited financial statements to prove the urgency, necessity and extent, of its retrenchment program. PAL should have presented its audited financial statements for the years immediately preceding and during which the retrenchment was carried out. Law and jurisprudence require that alleged losses or expected imminent losses must be proved by sufficient and convincing evidence.

Likewise, PAL has not shown to the Court's satisfaction that the pilots' strike had gravely affected its operations. It offered no proof to show the correlation between the pilots' strike and its alleged financial difficulties. In Guerrero v. National Labor Relations Commission,[72] the Court held that where the employer failed to prove its claim with competent evidence that the employees' strike paralyzed its operations and resulted in the withdrawal of its clients' orders, the retrenchment of its employees must be declared illegal.[73]

Moreover, as the Court ruled in the case of EMCO Plywood Corporation,[74] it must be shown that the employer resorted to other means but these proved to be insufficient or inadequate, such as cost reduction, lesser investment on raw materials, adjustment of the work routine to avoid scheduled power failure, reduction of the bonuses and salaries of both management and rank-and-file, improvement of manufacturing efficiency, and trimming of marketing and advertising costs. In the instant case, there is no proof that PAL engaged in cost-cutting measures other than a mere reduction in its fleet of aircraft and the retrenchment of 5,000 of its personnel.

The only manifestation of PAL's attempt at exhausting other possible measures besides retrenchment was when it conducted negotiations and consultations with FASAP which, however, ended nowhere. None of the plans and suggestions taken up during the meetings was implemented. On the other hand, PAL's September

4, 1998 offer of shares of stock to its employees was adopted belatedly, or only after its more than 1,400 cabin crew personnel were retrenched. Besides, this offer can hardly be considered to be borne of good faith, considering that it was premised on the condition that, if accepted, all existing CBAs between PAL and its employees would have to be suspended for 10 years. When the offer was rejected by the employees, PAL ceased its operations on September 23, 1998. It only resumed business when the CBA suspension clause was ratified by the employees in a referendum subsequently conducted.[75] Moreover, this stock distribution scheme does not do away with PAL's expenditures or liabilities, since it has for its sole consideration the commitment to suspend CBAs with its employees for 10 years. It did not improve the financial standing of PAL, nor did it result in corporate savings, vis-à-vis the financial difficulties it was suffering at the time.

Also, the claim that PAL saved P24 million monthly due to the implementation of the retrenchment program does not prove anything; it has not been shown to what extent or degree such savings benefited PAL, vis-à-vis its total expenditures or its overall financial position. Likewise, its claim that its liabilities reached P90 billion, while its assets amounted to P85 billion only - or a debt to asset ratio of more than 1:1 - may not readily be believed, considering that it did not submit its audited financial statements. All these allegations are self-serving evidence.

Interestingly, PAL submitted its audited financial statements only when the case was the subject of certiorari proceedings in the Court of Appeals by attaching in its Comment[76] a copy of its consolidated audited financial statements for the years 2002, 2003 and 2004.[77] However, these are not the financial statements that would have shown PAL's alleged precarious position at the time it implemented the massive retrenchment scheme in 1998. PAL should have submitted its financial statements for the years 1997 up to 1999; and not for the years 2002 up to 2004 because these financial statements cover a period markedly distant to the years in question, which make them irrelevant and unacceptable.

Neither could PAL claim to suffer from imminent or resultant losses had it not implemented the retrenchment scheme in 1998. It could not have proved that retrenchment was necessary to prevent further losses, because immediately thereafter - or in February 1999[78] - PAL was on the road to recovery; this is the airline's bare admission in its Comment to the instant petition.[79] During that period, it was recalling to duty cabin crew it had previously retrenched. In March 2000, PAL declared a net income of P44.2 million. In March 2001, it reported a profit of P419 million. In March 2003, it again registered a net income of P295 million.[80] All these facts are anathema to a finding of financial difficulties.

Finally, what further belied PAL's allegation that it was suffering from substantial actual and imminent losses was the fact that in December 1998, PAL submitted a "stand-alone" rehabilitation plan to the SEC, and on June 4, 1999, or less than a year after the retrenchment, the amount of US$200 million was invested directly into PAL by way of additional capital infusion for its operations.[81] These facts betray PAL's claim that it was in dire financial straits. By submitting a "stand-alone" rehabilitation plan, PAL acknowledged that it could undertake recovery on its own and that it possessed enough resources to weather the financial storm, if any.

Thus said, it was grave error for the Labor Arbiter, the NLRC and the Court of Appeals, to have simply assumed that PAL was in grievous financial state, without requiring the latter to substantiate such claim. It bears stressing that in retrenchment cases, the presentation of proof of financial difficulties through the required documents, preferably audited financial statements prepared by independent auditors, may not summarily be done away with.

That FASAP admitted and took for granted the existence of PAL's financial woes cannot excuse the latter from proving to the Court's satisfaction that indeed it was bleeding financially. It was the airline's obligation to prove that it was in such financial distress; that it was necessary to implement an appropriate retrenchment scheme; that it had to undergo a retrenchment program in proportion to or commensurate withthe extent of its financial distress; and that, it was carrying out the scheme in good faith and without undermining the security of tenure of its employees. The Court is mindful that the characterization of an employee's services as no longer necessary or sustainable, and therefore, properly terminable, is an exercise of business judgment on the part of the employer, and that the wisdom or

soundness of such characterization or decision is not subject to discretionary review, provided of course that violation of law or arbitrary or malicious action is not shown.[82]

The foregoing principle holds true with respect to PAL's claim in its Comment that the only issue is the manner by which its retrenchment scheme was carried out because the validity of the scheme has been settled in its favor.[83] Respondents might have confused the right to retrench with its actual retrenchment program, treating them as one and the same. The first, no doubt, is a valid prerogative of management; it is a right that exists for all employers. As to the second, it is always subject to scrutiny in regard to faithful compliance with substantive and procedural requirements which the law and jurisprudence have laid down. The right of an employer to dismiss an employee differs from and should not be confused with the manner in which such right is exercised.[84]

FOURTH ELEMENT: That the employer exercises its prerogative to retrench employees in good faith for the advancement of its interest and not to defeat or circumvent the employees' right to security of tenure.

Concededly, retrenchment to prevent losses is an authorized cause for terminating employment and the decision whether to resort to such move or not is a management prerogative. However, the right of an employer to dismiss an employee differs from and should not be confused with the manner in which such right is exercised. It must not be oppressive and abusive since it affects one's person and property.[85]

In Indino v. National Labor Relations Commission,[86] the Court held that it is almost an inflexible rule that employers who contemplate terminating the services of their workers cannot be so arbitrary and ruthless as to find flimsy excuses for their decisions. This must be so considering that the dismissal of an employee from work involves not only the loss of his position but more important, his means of livelihood. Applying this caveat, it is therefore incumbent for the employer, before putting into effect any retrenchment process on its work force, to show by convincing evidence that it was being wrecked by serious financial problems. Simply declaring its state of insolvency or its impending doom will not be sufficient. To do so would render the security of tenure of workers and employees illusory. Any employer desirous of ridding itself of its employees could then easily do so without need to adduce proof in support of its action. We can not countenance this. Security of tenure is a right guaranteed to employees and workers by the Constitution and should not be denied on the basis of mere speculation.

On the requirement that the prerogative to retrench must be exercised in good faith, we have ruled that the hiring of new employees and subsequent rehiring of "retrenched" employees constitute bad faith;[87] that the failure of the employer to resort to other less drastic measures than retrenchment seriously belies its claim that retrenchment was done in good faith to avoid losses;[88] and that the demonstrated arbitrariness in the selection of which of its employees to retrench is further proof of the illegality of the employer's retrenchment program, not to mention its bad faith.[89]

When PAL implemented Plan 22, instead of Plan 14, which was what it had originally made known to its employees, it could not be said that it acted in a manner compatible with good faith. It offered no satisfactory explanation why it abandoned Plan 14; instead, it justified its actions of subsequently recalling to duty retrenched employees by making it appear that it was a show of good faith; that it was due to its good corporate nature that the decision to consider recalling employees was made. The truth, however, is that it was unfair for PAL to have made such a move; it was capricious and arbitrary, considering that several thousand employees who had long been working for PAL had lost their jobs, only to be recalled but assigned to lower positions (i.e., demoted), and, worse, some as new hires, without due regard for their long years of service with the airline.

The irregularity of PAL's implementation of Plan 14 becomes more apparent when it rehired 140 probationary cabin attendants whose services it had previously terminated, and yet proceeded to terminate the services of its permanent cabin crew personnel.

In sum, we find that PAL had implemented its retrenchment program in an arbitrary manner and with evident bad faith, which prejudiced the tenurial rights of the cabin crew personnel.

Moreover, the management's September 4, 1998 offer to transfer PAL shares of stock in the name of its employees in exchange for the latter's commitment to suspend all existing CBAs for 10 years; the closure of its operations when the offer was rejected; and the resumption of its business after the employees relented; all indicate that PAL had not acted in earnest in regard to relations with its employees at the time.

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

In selecting employees to be dismissed, fair and reasonable criteria must be used, such as but not limited to: (a) less preferred status (e.g., temporary employee), (b) efficiency and (c) seniority.[90]

In Villena v. National Labor Relations Commission,[91] the Court considered seniority an important aspect for the validity of a retrenchment program. In Philippine Tuberculosis Society, Inc. v. National Labor Union,[92] the Court held that the implementation of a retrenchment scheme without taking seniority into account rendered the retrenchment invalid, even as against factors such as dependability, adaptability, trainability, job performance, discipline, and attitude towards work.

In the implementation of its retrenchment scheme, PAL evaluated the cabin crew personnel's performance during the year preceding the retrenchment (1997), based on the following set of criteria or rating variables found in the Performance Evaluation Form of the cabin crew personnel's Grooming and Appearance Handbook:

A. INFLIGHT PROFICIENCY EVALUATION - 30%

B. JOB PERFORMANCE - 35%· Special Award - +5· Commendations - +2· Appreciation - +1· Disciplinary Actions - Reminder (-3), Warning/Admonition & Reprimands (-5), Suspension (-20), Passenger Complaints (-30), Appearance (-10)

C. ATTENDANCE - 35%· Perfect Attendance - +2· Missed Assignment - -30· Sick Leaves in excess of allotment and other leaves in excess of allotment - -20· Tardiness - -10[93]

The appellate court held that there was no need for PAL to consult with FASAP regarding standards or criteria that the airline would utilize in the implementation of the retrenchment program; and that the criteria actually used which was unilaterally formulated by PAL using its Performance Evaluation Form in its Grooming and Appearance Handbook was reasonable and fair. Indeed, PAL was not obligated to consult FASAP regarding the standards it would use in evaluating the performance of the each cabin crew. However, we do not agree with the findings of the appellate court that the criteria utilized by PAL in the actual retrenchment were reasonable and fair.

This Court has repeatedly enjoined employers to adopt and observe fair and reasonable standards to effect retrenchment. This is of paramount importance because an employer's retrenchment program could be easily justified considering the subjective nature of this requirement. The adoption and implementation of unfair andunreasonable criteria could not easily be detected especially in the retrenchment of large

numbers of employees, and in this aspect, abuse is a very distinct and real possibility. This is where labor tribunals should exercise more diligence; this aspect is where they should concentrate when placed in a position of having to judge an employer's retrenchment program.

Indeed, the NLRC made a detailed listing of the retrenchment scheme based on the ICCD Masterank and Seniority 1997 Ratings. It found the following:

1. Number of employees retrenched due to inverse seniority rule and other reasons -- 4542. Number of employees retrenched due to excess sick leaves -- 2993. Number of employees who were retrenched due to excess sick leave and other reasons -- 614. Number of employees who were retrenched due to other reasons -- 1075. Number of employees who were demoted -- 552

Total -- 1,473.[94]

Prominent from the above data is the retrenchment of cabin crew personnel due to "other reasons" which, however, are not specifically stated and shown to be for a valid cause. This is not allowed because it has no basis in fact and in law.

Moreover, in assessing the overall performance of each cabin crew personnel, PAL only considered the year 1997. This makes the evaluation of each cabin attendant's efficiency rating capricious and prejudicial to PAL employees covered by it. By discarding the cabin crew personnel's previous years of service and taking into consideration only one year's worth of job performance for evaluation, PAL virtually did away with the concept of seniority, loyalty and past efficiency, and treated all cabin attendants as if they were on equal footing, with no one more senior than the other.

In sum, PAL's retrenchment program is illegal because it was based on wrongful premise (Plan 14, which in reality turned out to be Plan 22, resulting in retrenchment of more cabin attendants than was necessary) and in a set of criteria or rating variables that is unfair and unreasonable when implemented. It failed to take into account each cabin attendant's respective service record, thereby disregarding seniority and loyalty in the evaluation of overall employee performance.

Anent the claim of unfair labor practices committed against petitioner, we find the same to be without basis. Article 261 of the Labor Code provides that violations of a CBA, except those which are gross in character, shall no longer be treated as unfair labor practice and shall be resolved as grievances under the parties' CBA. Moreover, "gross violations of CBA" under the same Article referred to flagrant and/or malicious refusal to comply with the economic provisions of such agreement, which is not the issue in the instant case.

Also, we fail to see any specific instance of union busting, oppression or harassment and similar acts of FASAP's officers. The fact that majority of FASAP's officers were either retrenched or demoted does not prove restraint or coercion in their right to organize. Instead, we see a simple retrenchment scheme gone wrong for failure to abide by the stringent rules prescribed by law, and a failure to discharge the employer's burden of proof in such cases.

Quitclaims executed as a result of PAL's illegal retrenchment program are likewise annulled and set aside because they were not voluntarily entered into by the retrenched employees; their consent was obtained by fraud or mistake, as volition was clouded by a retrenchment program that was, at its inception, made without basis. The law looks with disfavor upon quitclaims and releases by employees pressured into signing by unscrupulous employers minded to evade legal responsibilities. As a rule, deeds of release or quitclaim cannot bar employees from demanding benefits to which they are legally entitled or from contesting the legality of their dismissal. The acceptance of those benefits would not amount to estoppel. The amounts already received by the retrenched employees as consideration for signing the quitclaims should, however, be deducted from their respective monetary awards.[95]

In Trendline Employees Association-Southern Philippines Federation of Labor v. NLRC,[96] we held that where the employer led its employees to believe that the employer was suffering losses and as a result thereof accept retrenchment by executing quitclaims and waivers, there was evident bad faith on the part of the employer justifying the setting aside of the quitclaims and waivers executed.

As to PAL's recall and rehire process (of retrenched cabin crew employees), the same is likewise defective. Considering the illegality of the retrenchment, it follows that the subsequent recall and rehire process is likewise invalid and without effect.

A corporate officer is not personally liable for the money claims of discharged corporate employees unless he acted with evident malice and bad faith in terminating their employment.[97] We do not see how respondent Patria Chiong may be held personally liable together with PAL, it appearing that she was merely acting in accordance with what her duties required under the circumstances. Being an Assistant Vice President for Cabin Services of PAL, she takes direct orders from superiors, or those who are charged with the formulation of the policies to be implemented.

With respect to moral damages, we have time and again held that as a general rule, a corporation cannot suffer nor be entitled to moral damages. A corporation, being an artificial person and having existence only in legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical suffering and mental anguish. Mental suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows, and griefs of life - all of which cannot be suffered by an artificial, juridical person.[98] The Labor Arbiter's award of moral damages was therefore improper.

WHEREFORE, the instant petition is GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 87956 dated August 23, 2006, which affirmed the Decision of the NLRC setting aside the Labor Arbiter's findings of illegal retrenchment and its Resolution of May 29, 2007 denying the motion for reconsideration, are REVERSED and SET ASIDE and a new one is rendered:

1. FINDING respondent Philippine Airlines, Inc. GUILTY of illegal dismissal;

2. ORDERING Philippine Air Lines, Inc. to reinstate the cabin crew personnel who were covered by the retrenchment and demotion scheme of June 15, 1998 made effective on July 15, 1998, without loss of seniority rights and other privileges, and to pay them full backwages, inclusive of allowances and other monetary benefits computed from the time of their separation up to the time of their actual reinstatement, provided that with respect to those who had received their respective separation pay, the amounts of payments shall be deducted from their backwages. Where reinstatement is no longer feasible because the positions previously held no longer exist, respondent Corporation shall pay backwages plus, in lieu of reinstatement, separation pay equal to one (1) month pay for every year of service;

3. ORDERING Philippine Airlines, Inc. to pay attorney's fees equivalent to ten percent (10%) of the total monetary award.

Costs against respondent PAL.

SO ORDERED.

CONSUELO YNARES-SANTIAGOAssociate Justice

WE CONCUR

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

MINITA V. CHICO-NAZARIO Associate Justice

ANTONIO EDUARDO B. NACHURAAssociate Justice

TERESITA J. LEONARDO-DE CASTROAssociate Justice

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

 

G.R. No. 115394 September 27, 1995

FE S. SEBUGUERO, CARLOS ONG, NENE MANAOG, JUANITO CUSTODIO, CRISANTA LACSAM, SATURNINO GURAL, WILMA BALDERA, LEONILA VALDEZ, FATIMA POTESTAD, EVANGELINE

AGNADO, RESTITUTO GLORIOSO, JANESE DE LOS REYES, RODOLFO SANCHEZ, WILMA ORBELLO, DAISY PASCUA, and ALEX MASAYA, Petitioners, vs. NATIONAL LABOR RELATIONS

COMMISSION, G.T.I. SPORTSWEAR CORPORATION and/or BENEDICTO YUJUICO, Respondents.

 

DAVIDE, JR., J.: chanrobles virtual law library

This is a special civil action for certiorari under Rule 65 of the Rules of Court to set aside for having been rendered with grave abuse of discretion the decision of 29 November 1993 1 and resolution of 9 February 1994 2 of public respondent National Labor Relations Commission (NLRC) in NLRC NCR CA Case No. 004673-93. The former modified the decision of 26 February 1993 of the Labor Arbiter 3 by setting aside the award of back wages, proportionate 13th month pay for 1991 and attorney's fees, while the latter denied the motion to reconsider the former. chanroblesvirtualawlibrary chanrobles virtual law library

The antecedent facts as disclosed by the decisions of the Labor Arbiter and the NLRC, as well as by the pleadings of the parties, are not complicated. chanroblesvirtualawlibrary chanrobles virtual law library

The petitioners were among the thirty-eight (38) regular employees of private respondent GTI Sportswear Corporation (hereinafter GTI), a corporation engaged in the manufacture and export of ready-to-wear garments, who were given "temporary lay-off" notices by the latter on 22 January 1991 due to alleged lack of work and heavy losses caused by the cancellation of orders from abroad and by the garments embargo of 1990.chanroblesvirtualawlibrary chanrobles virtual law library

Believing that their "temporary lay-off" was a ploy to dismiss them, resorted to because of their union activities and was in violation of their right to security of tenure since there was no valid ground therefor, the 38 laid-off employees filed with the Labor Arbiter's office in the National Capital Region complaints for illegal dismissal, unfair labor practice, underpayment of wages under Wage Orders Nos. 01 and 02, and non-payment of overtime pay and 13th month pay. 4

Private respondent GTI denied the claim of illegal dismissal and asserted that it was its prerogative to lay-off its employees temporarily for a period not exceeding six months to prevent losses due to lack of work or job orders from abroad, and that the lay-off affected both union and non-union members. It

justified its failure to recall the 38 laid-off employees after the lapse of six months because of the subsequent cancellations of job orders made by its foreign principals, a fact which was communicated to the petitioners and the other complainants who were all offered severance pay. Twenty-two (22) of the 38 complainants accepted the separation pay. The petitioners herein did not. chanroblesvirtualawlibrary chanrobles virtual law library

The cases then involving those who accepted the separation pay were pro tanto dismissed with prejudice.chanroblesvirtualawlibrary chanrobles virtual law library

In his decision of 26 February 1993 with respect to the claims of the petitioners, Labor Arbiter Pablo C. Espiritu, Jr. found for them and disposed as follows:

WHEREFORE, above premises considered, judgment is hereby rendered finding Respondent, G.T.I. Sportswear Corporation, liable for constructive dismissal, underpayment of wages under NCR 01 and 02, and 13th-month pay differentials and concomitantly, Respondent corporation is hereby ordered:

a. To pay the following complainants backwages from the time of their constructive dismissal (July 22, 1991) till promulgation considering that reinstatement is no longer decreed: . . . chanroblesvirtualawlibrary chanrobles virtual law library

b. To pay complainants separation pay of 1/2 month for every year of service in lieu of reinstatement in the following amounts: . . . chanroblesvirtualawlibrary chanrobles virtual law library

c. To pay complainants 13th-month pay differentials arising out of underpayment of wages and proportionate 13th-month pay for 1991 in the following amounts: . . . chanroblesvirtualawlibrary chanrobles virtual law library

d. To pay complainants underpayment of wages under NCR Wage 01 and NCR Wage 02 in the following amounts: . . .chanroblesvirtualawlibrary chanrobles virtual law library

e. To pay complainants the amount of P120,618.87 representing 10% attorney's fees based on the total judgment award of P1,326,807.63.

The claims for unfair labor practice, nonpayment of overtime pay, moral damages, and exemplary damages are hereby denied for lack of merit. chanroblesvirtualawlibrary chanrobles virtual law library

SO ORDERED. 5 chanrobles virtual law library

In support of the disposition, the Labor Arbiter made the following ratiocinations:

On the validity of the temporary lay-off, this Arbitration Branch finds that there was ample justification on the part of Respondent company to lay-off temporarily some of its employees to prevent losses as a result of the reduction of the garment quota allocated to Respondent company due to the garment embargo of 1990. In fact, in the months of March, April, and May of 1991 respondent company received several messages/correspondence from its foreign principals informing them (Respondent) that they are canceling/transferring some of their quotas/orders to other countries. The evidence presented by Respondent company proves this fact (Exhibits "12", "13", "14", "15", "15-A", "16", "17" and Annexes "5", "6", "7", showing the different documentary evidence on cancellation of orders and forced leave schedules of workers due to lack of work). This is sustainable, as in this case, where the Respondent found it unnecessary to continue employing some of its workers because of business recession, lack of materials to work on due to government controls (garments embargo) and due to the lack of the demand for export quota from its principal foreign buyers. chanroblesvirtualawlibrary chanrobles virtual law library

Although, as a general rule, Respondent company has the prerogative and right to resort to temporary lay-off, such right is likewise limited to a period of six (6) months applying Art. 286 of the Labor Code on suspension of employer-employee relationship not exceeding six (6) months. chanroblesvirtualawlibrary chanrobles virtual law library

In this case, respondent company was justified in the temporary lay-off of some of its employees. However, Respondent company should have recalled them after the end of the six month period or at the least reasonably informed them (complainants) that the Respondent company is still not in a

position to recall them due to the continuous drop of demand in the export market (locally or internationally), thereby extending the temporary lay-off with a definite period of recall and if the same cannot be met, then the company should implement retrenchment and pay its employees separation pay. Failing in this regard, respondent company chose not to recall nor send notice to the complainants after the lapse of the six (6) month period. Hence, there is in this complaint a clear case of constructive dismissal. While there is a valid reason for the temporary lay-off, the same is also limited to a duration of six months. Thereafter the employees, complainants herein, are entitled under the law (Art. 286) to be recalled back to work. As result thereof, the temporary lay-off of the complainants from January 22, 1991 (date of lay-off) to July 22, 1991 is valid, however, thereafter complainants are already entitled to backwages, in view of constructive dismissal, due to the fact that they were no longer recalled back to work. Complainants cannot be placed on temporary lay-off forever. The limited period of six (6) months is based provisionally too prevent circumvention on the right to security of tenure and to prevent grave abuse of discretion on the part of the employer. However, since during the trial it was proven, as testified by the Vice-President for marketing and personnel manager, that the lack of work and selection of personnel continued to persist and considering the antagonism and hostility displayed by both litigants, as observed by this Arbiter, during the trial of this case and in view of the strained relations between the parties, reinstatement of the complainants would not be prudent. (Divine Word High School vs. NLRC, G.R. 72207, 6 Aug. 1986; Esmalin vs. NLRC, G.R. 67880, 15 Sept. 1989; Hernandez vs. NLRC, G.R. 34302, 10 Aug. 1989). Hence, separation pay of 1/2 month for every year of service in lieu of reinstatement is in order. . . . chanroblesvirtualawlibrary chanrobles virtual law library

On the issue of monetary claims this Arbitration Branch finds that Respondent is liable for underpayment of wages under NCR Wage Order 01 and 02 considering that respondent failed to rebut the claims of the complainants. Respondent failed to show proof by means of payrolls to disprove the claim of the complainants. Complainants are also entitled to their proportionate 13th-month pay differentials as a result of the underpayment of wages under NCR-01 and 02 and likewise to their proportionate 13th-month pay for 1991 for the month of January 1991. . . . chanroblesvirtualawlibrary chanrobles virtual law library

However, complainants are entitled to reasonable attorney's fees considering they were forced to engage the services of counsel in order to fully ventilate their rights and grievances in accordance with the Labor Code as amended. 6

 chanrobles virtual law library

The Labor Arbiter found no sufficient evidence to prove the petitioners' charges of unfair labor practice, overtime pay, and for moral and exemplary damages. chanroblesvirtualawlibrary chanrobles virtual law library

Private respondent GTI seasonably appealed the aforesaid decision to the NLRC, which docketed the appeal as NLRC NCR CA Case No. 004673-93. chanroblesvirtualawlibrary chanrobles virtual law library

In its challenged decision, the NLRC concurred with the findings of the Labor Arbiter that there was a valid lay-off of the petitioners due to lack of work, but disagreed with the latter's ruling granting back wages after 22 July 1991. The NLRC justified its postulation as follows:

However, we cannot sustain the findings of the Labor Arbiter in awarding the complainants backwages after July 22, 1991 in view of constructive dismissal, it being acknowledged by him that ". . . during the trial it was proven, as testified by the Vice-President for marketing and personnel manager, that the lack of work and selection of personnel continued to persist . . ." Besides, it was not denied by the complainants that during the proceeding of the case, the respondents conveyed to the complainants the impossibility of having them recalled in view of the continued unavailability of work as the economic recession of the respondent's principal market persisted. In fact, the respondent company offered to complainants payment of their separation pay which offer [w]as accepted by 22 out of 38 complainants.chanroblesvirtualawlibrary chanrobles virtual law library

Having established lack of work, it necessarily follow[s] that retrenchment did take place and not constructive dismissal. Dismissal by its term, presuppose that there was still work available and that the employer terminated the services of the employee therefrom. The same cannot be said of the case at bar. The complainants did not question the evidence of lack of work on account of reduction of government quota or cancellation of orders. chanroblesvirtualawlibrary chanrobles virtual law library

Art. 286 of the Labor Code is precised [sic] in this regards when it provided that:

Art. 286. When employment not deemed terminated. - The bona fidesuspension of the operation of a business or undertaking for a period not exceeding six (6) months, . . . shall not terminate employment . . . .

It is only after the six months period that an employee can be presumed to have been terminated. 7 chanrobles virtual law library

It thus set aside the awards for back wages, proportionate 13th month pay for 1991, and for attorney's fees which it found to be without basis, and disposed as follows:

WHEREFORE, premises considered the decision of the Labor Arbiter dated February 26, 1993 is hereby modified by deleting the award of backwages, the proportionate 13th month pay for 1991 and attorney's fees for lack of legal basis and direct, the payment of separation pay equal to one-half month salary for every year of service as of July 22, 1991. 8

 chanrobles virtual law library

Unable to accept the NLRC judgment, the petitioners filed this special civil action for certiorari. They contend that the NLRC acted without or in excess of jurisdiction or with grave abuse of discretion when it: (a) ruled that there was a valid and legal reduction of business and in sustaining the theory of redundancy in justifying the dismissal of the petitioners; (b) failed to apply in full the provisions of law and of jurisprudence as to the full payment of back wages in cases of illegal dismissal; and (c) deleted the award of attorney's fees.chanroblesvirtualawlibrary chanrobles virtual law library

We gave due course to this petition after the filing of the separate comments to the petition by the public and private respondents and the petitioners' reply to the public respondent's comment. chanroblesvirtualawlibrary chanrobles virtual law library

The petitioners' first contention is based on a wrong premise or on a miscomprehension of the statement of the NLRC. What the NLRC sustained and affirmed is not redundancy, but retrenchment as a ground for termination of employment. They are not synonymous but distinct and separate grounds under Article 283 of the Labor Code, as amended. 9

Redundancy exists where the services of an employee are in excess of what is reasonably demanded by the actual requirements of the enterprise. 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. 10

Retrenchment, on the other hand, is used interchangeably with the term "lay-off." It is the termination of employment initiated by the employer through no fault of the employee's and without prejudice to the latter, resorted to by management during periods of business recession, industrial depression, or seasonal fluctuations, or during lulls occasioned by lack of orders, shortage of materials, conversion of the plant for a new production program or the introduction of new methods or more efficient machinery, or of automation. 11 Simply put, it is an act of the employer of dismissing employees because of losses in the operation of a business, lack of work, and considerable reduction on the volume of his business, a right consistently recognized and affirmed by this Court. 12

Article 283 of the Labor code which covers retrenchment, reads as follows:

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 servicing a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closure or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of

service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.

This provision, however, speaks of a permanent retrenchment as opposed to a temporary lay-off as is the case here. There is no specific provision of law which treats of a temporary retrenchment or lay-off and provides for the requisites in effecting it or a period or duration therefor. These employees cannot forever be temporarily laid-off. To remedy this situation or fill the hiatus, Article 286 may be applied but only by analogy to set a specific period that employees may remain temporarily laid-off or in floating status. 13 Six months is the period set by law that the operation of a business or undertaking may be suspended thereby suspending the employment of the employees concerned. The temporary lay-off wherein the employees likewise cease to work should also not last longer than six months. After six months, the employees should either be recalled to work or permanently retrenched following the requirements of the law, and that failing to comply with this would be tantamount to dismissing the employees and the employer would thus be liable for such dismissal.

To determine, therefore, whether the petitioners were validly retrenched or were illegally dismissed, we must determine whether there was compliance with the law regarding a valid retrenchment at anytime within the six month-period that they were temporarily laid-off. chanroblesvirtualawlibrary chanrobles virtual law library

Under the aforequoted Article 283 of the Labor Code, there are three basic requisites for a valid retrenchment:

(1) the retrenchment is necessary to prevent losses and such losses are proven;  chanrobles virtual law library

(2) written notice to the employees and to the Department of Labor and Employment at least one month prior to the intended date of retrenchment; and  chanrobles virtual law library

(3) payment of separation pay equivalent to one month pay or at least 1/2 month pay for every year of service, whichever is higher.

As for the first requisite, whether or not an employer would imminently suffer serious or substantial losses for economic reasons is essentially a question of fact for the Labor Arbiter and the NLRC to determine. 14 Here, both the Labor Arbiter and the NLRC found that the private respondent was suffering and would continue to suffer serious losses, thereby justifying the retrenchment of some of its employees, including the petitioners. We are not prepared to disregard this finding of fact. It is settled that findings of quasi-judicial agencies which have acquired expertise in the matters entrusted to their jurisdiction are accorded by this Court not only with respect but with finality if they are supported by substantial evidence. 15 The latter means that amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion. 16 In the instant case, no claim was made by any of the parties that such a finding was not supported by substantial evidence. Furthermore, the petitioners did not appeal the finding of the Labor Arbiter that their temporary lay-off to prevent losses was amply justified. They cannot now question this finding that there is a valid ground to lay-off or retrench them.chanroblesvirtualawlibrary chanrobles virtual law library

The requirement of notice to both the employees concerned and the Department of Labor and Employment (DOLE) is mandatory and must be written and given at least one month before the intended date of retrenchment. In this case, it is undisputed that the petitioners were given notice of the temporary lay-off. There is, however, no evidence that any written notice to permanently retrench them was given at least one month prior to the date of the intended retrenchment. The NLRC found that GTI conveyed to the petitioners the impossibility of recalling them due to the continued unavailability of work. 17 But what the law requires is a written notice to the employees concerned and that requirement is mandatory. 18 The notice must also be given at least one month in advance of the intended date of retrenchment to enable the employees to look for other means of employment and therefore to ease the impact of the loss of their jobs and the corresponding income. 19 That they were already on temporary lay-off at the time notice should have been given to them is not an excuse to forego the one-month written notice because by this time, their lay-off is to become permanent and they were definitely losing their employment.chanroblesvirtualawlibrary chanrobles virtual law library

There is also nothing in the records to prove that a written notice was ever given to the DOLE as required by law. GTI's position paper, 20 offer of exhibits, 21 Comment to the Petition, 22and Memorandum 23 in this case do not mention of any such written notice. The law requires two notices - one to the employee/s concerned and another to the DOLE - not just one. The notice to the DOLE is essential because the right to retrench is not an absolute prerogative of an employer but is subject to the requirement of law that retrenchment be done to prevent losses. The DOLE is the agency that will determine whether the planned retrenchment is justified and adequately supported by facts. 24

With respect to the payment of separation pay, the NLRC found that GTI offered to give the petitioners their separation pay but that the latter rejected such offer which was accepted only by 22 out of the 38 original complainants in this case. 25As to when this offer was made was not, however, proven. All that the parties, the Labor Arbiter and the NLRC stated in their respective pleadings and decisions was that the offer and payment were made during the pendency of the illegal dismissal case with the Labor Arbiter. But with or without this offer of separation pay, our conclusion would remain the same: that the retrenchment of the petitioners is defective in the face of our finding that the required notices to both the petitioners and the DOLE were not given. chanroblesvirtualawlibrary chanrobles virtual law library

The lack of written notice to the petitioners and to the DOLE does not, however, make the petitioners' retrenchment illegal such that they are entitled to the payment of back wages and separation pay in lieu of reinstatement as they contend. Their retrenchment, for not having been effected with the required notices, is merely defective. In those cases where we found the retrenchment to be illegal and ordered the employees' reinstatement and the payment of back wages, the validity of the cause for retrenchment, that is the existence of imminent or actual serious or substantial losses, was not proven. 26 But here, such a cause is present as found by both the Labor Arbiter and the NLRC. There is only a violation by GTI of the procedure prescribed in Article 283 of the Labor Code in effecting the retrenchment of the petitioners.chanroblesvirtualawlibrary chanrobles virtual law library

It is now settled that where the dismissal of an employee is in fact for a just and valid cause and is so proven to be but he is not accorded his right to due process, i.e., he was not furnished the twin requirements of notice and the opportunity to be heard, the dismissal shall be upheld but the employer must be sanctioned for non-compliance with the requirements of or for failure to observe due process. The sanction, in the nature of indemnification or penalty, depends on the facts of each case and the gravity of the omission committed by the employer and has ranged from P1,000.00 as in the cases of Wenphil vs. National Labor Relations Commission, 27 Seahorse Maritime Corp. vs. National Labor Relations Commission, 28 Shoemart, Inc. vs. National Labor Relations Commission, 29 Rubberworld (Phils.), Inc. vs. National Labor Relations Commission, 30 Pacific Mills, Inc. vs. Alonzo, 31 andAurelio vs. National Labor Relations Commission 32 to P10,000.00 in Reta vs. National Labor Relations Commission 33 and Alhambra Industries, Inc. vs. National Labor Relations Commission. 34 More recently, in Worldwide Papermills, Inc. vs. National Labor Relations Commission, 35 the sum of P5,000.00 was awarded to the employee as indemnification for the employer's failure to comply with the requirements of procedural due process. chanroblesvirtualawlibrary chanrobles virtual law library

Accordingly, we affirm the deletion by the NLRC of the award of back wages. But because the required notices of the petitioners' retrenchment were not served upon the petitioners and the DOLE, GTI must be sanctioned for such failure and thereby required to indemnify each of the petitioners the sum of P2,000.00 which we find to be just and reasonable under the circumstances of this case. chanroblesvirtualawlibrary chanrobles virtual law library

As for the award of the 13th-month pay made by the Labor Arbiter and deleted by the NLRC, we do not find anything in the decision of the NLRC to support the deletion of this award other than its opinion that there is lack of legal basis to support such an award, without, however, furnishing any explanation for this finding. Thus, the award of the 13th-month pay made and sufficiently justified by the Labor Arbiter must be reinstated as prayed for by the petitioners. chanroblesvirtualawlibrary chanrobles virtual law library

Also, the petitioners are entitled to an award for attorney's fees pursuant to paragraph 7, Article 2208 of the Civil Code which must, however, be reasonable. The award of P120,618.87, which is equivalent to ten percent (10%) of the amounts recovered, as attorney's fees should be reduced to P25,000.00, an amount we find to be reasonable. The ten percent (10%) attorney's fees provided for in Article 111 of the Labor Code and Section 11, Rule VIII, Book III of the Implementing Rules is the maximum; hence, any amount less than that may be awarded as the circumstances of the case may warrant. chanroblesvirtualawlibrary chanrobles virtual law library

WHEREFORE, the instant petition is partially GRANTED and the challenged decision of public respondent National Labor Relations Commission in NLRC NCR CA Case No. 004673-93 is modified by reversing and setting aside its deletion of the awards in the Labor Arbiter's decision of proportionate 13th month pay for 1991 and attorney's fees, the latter being reduced to P25,000.00. Separation pay equivalent to one-half (1/2) month pay for every year of service shall be computed from the dates of the commencement of the petitioners' respective employment until the end of their six-month temporary lay-off which is 22 July 1991. In addition, private respondent G.T.I. Sportswear Corporation is ordered to pay each of the petitioners the sum of P2,000.00 as indemnification for its failure to observe due process in effecting the retrenchment. chanroblesvirtualawlibrary chanrobles virtual law library

Costs against the private respondent. chanroblesvirtualawlibrary chanrobles virtual law library

SO ORDERED.

Padilla, Bellosillo and Kapunan, JJ., concur. chanrobles virtual law library

Hermosisima, Jr., J., is on leave.

BANCO FILIPINO SAVINGS AND MORTGAGE BANK (Represented by its liquidator, MS. CARLOTA P. VALENZUELA), petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION, Labor Arbiter EVANGELINE LUBATON and FORTUNATO DIZON, JR., respondents.

Sycip Salazar Hernandez & Gamaitan for petitioner.

Atienza, Tabora, Del Rosario & Castillo for private respondent.

 

MEDIALDEA, J.:

After BANCO FILIPINO SAVINGS AND MORTGAGE BANK was placed under receivership, and later ordered liquidated by the Monetary Board of the Central Bank, FORTUNATO M. DIZON. Jr., who was then holding the position of Executive Vice President and Chief Operating Officer of the bank, received a letter from the Central Bank appointed liquidator, MS. CARLOTA P. VALENZUELA, informing him that all management authority in the bank had been assumed by the Central Bank appointed liquidators and that his employment is being terminated.

Mr. Dizon filed with the liquidator a request for the payment to him of the cash equivalent of his vacation and sick leave credits and unexpended/unused reimbursable allowance. His claims were not paid by the liquidator upon counsel's advice that Dizon's claim should be treated as a claim of a creditor and should therefore be processed pursuant to the liquidation plan as approved by the Monetary Board. Subsequent demands for payment having been denied, Dizon filed on March 31, 1986 a complaint with the labor arbiter against the bank for recovery of unpaid salary, the cash equivalent of his accumulated vacation and sick leaves, termination pay under Article 283 of the Labor Code and moral damages and attorney's fees.

Representing the bank, the liquidator moved for the dismissal of the complaint refuting the legal and factual bases thereof as well as the jurisdiction of the labor arbiter to entertain Dizon's money claims because such pertains to the Regional Trial Court of Makati, Branch 146, acting as the liquidation court.

On November 14, 1986, the labor arbiter upheld her jurisdiction and promulgated a decision in favor of Dizon but withheld his demand for payment of moral damages and attorney's fees. Both parties appealed to the National Labor Relations Commission which increased the award due Dizon and further ordered payment of actual and moral damages and attorney's fees. The award of moral damages was later deleted in the resolution of February 24, 1988 of the Commission.

In this petition, the liquidator assails the foregoing decisions and resolution and prays that they be declared null and void on the following grounds: Firstly, she maintains that "[a]ll disputed claims against banks under liquidation pertain to the exclusive jurisdiction of the liquidation court (pursuant to section 29 of the Central Bank Act) and may not be adjudicated by the Labor Arbiters and the NLRC under Article 217 of the Labor Code," and cites the case of Hernandez v. Rural Bank of Lucena, Inc., No. L-29791, January 10, 1978, 81 SCRA 75. She argues that "[t]he general provisions of Article 217 conferring upon respondents Labor Arbiter and the NLRC jurisdiction over claims arising from an employment relationship cannot prevail over the explicit provisions of Section 29 of the Central Bank Act, which is a special law specifically vesting upon the liquidation court jurisdiction over all claims against liquidated banks." Secondly, the liquidator points out that "[t]he assailed decisions directing the payment of the claims outside of the liquidation process amount to an undue preference in favor of a particular creditor." She submits that "the statutory status of employees as preferred creditors with respect to 'wages due them for services rendered during the period prior to the bankruptcy or liquidation' does not in itself entitle them to advance paymentoutside of the liquidation proceedings and while said proceedings are in progress. The provision [Art. 110, Labor Code] entitles them only to preferential treatment over other creditors in the same liquidation proceedings to the proceeds of the assets of the employer after the distributable assets shall have been determined therein," and cites the case of Republic v. Peralta, No. 56568, May 20, 1987, 150 SCRA 37. She further argues that an action could not be maintained against an insolvent bank after it had been ordered liquidated citing Central Bank v. Morfe No. L-38427, March 12, 1975, 63 SCRA 114 and Central Bank, v. Court of Appeals, No. L-37859, July 26, 1988,163 SCRA 482.

It is common knowledge that the taking over of the management and assets of Banco Filipino by the Monetary Board of the Central Bank is being contested by some stockholders of the bank who insist that the bank is solvent and in sound financial condition and that its closure was illegal. The controversy has generated quite a number of cases in this Court and in one of them, G.R. No. 70054, entitled Banco Filipino Savings and Mortgage Bank v. The Monetary Board, et al., We adopted a resolution, dated August 29, 1985, enjoining the Monetary Board, its officers, and the Central Bank appointed receivers "from executing further acts of liquidation of a bank "save"acts such as receiving collectibles and receivables or paying off creditors claims and other transactions pertaining to normal operations of a bank," and later, further ordered that a hearing be conducted by the Regional Trial Court of Makati, Branch 146 to afford the former management/stockholders of the bank an opportunity to prove that the bank's closure was illegal. The temporary restraining order still stands and it appears that a report and recommendation on the hearing has yet to be filed. For the moment, therefore, the bank is not being liquidated and the possibility lurks that it might not be at all. Respondent Dizon, cognizant of these, argues that it is the labor arbiter and the NLRC which has jurisdiction over his money claims since there is no liquidation court to speak of.

We are of the opinion that it is the NLRC which has jurisdiction over Dizon's money claims. Section 29 of the Central Bank Act (Republic Act No. 265) before its amendment by Executive Order No. 289 (September, 1987,) reads, to wit:

Sec. 29. Proceedings upon insolvency. — ... If the Monetary Board shall determine and confirm within the said period that the bank or non-bank financial intermediary performing quasi-banking functions is insolvent or cannot resume business with

safety to its depositors, creditors and the general public, it shall, if the public interest requires, order its liquidation, indicate the manner of its liquidation and approve a liquidation plan. The Central Bank shall, by the Solicitor General, file a petition in the Court of First Instance reciting the proceedings which have been taken and praying the assistance of the court in the liquidation of such institution. The court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank or non-bank financial intermediary performing quasibanking function and enforce individual liabilities of the stockholders. and do all that is necessary to preserve the assets of such institution and to implement the liquidation plan approved by the Monetary Board. ... The liquidator shall with all convenient speed, convert the assets of the banking institution or non-bank financial intermediary performing quasi-banking functions to money or sell, assign or otherwise dispose of the same to creditors and other parties for the purpose of paying the debts of such institution and he may, in the name of the bank or non-bank financial intermediary performing quasi-banking functions, institute such actions as may be necessary in the appropriate court to collect and recover accounts and assets of such institution. [Emphasis supplied]

There is nothing in Section 29 which suggests that the jurisdiction of the liquidation court to adjudicate claims against the insolvent bank is exclusive. On the other hand, Article 217 of the Labor Code explicitly provides that labor arbiters have original and exclusive jurisdiction, over money claims of an employee against his employer, thus:

ART. 217. Jurisdiction of the Labor Arbiter and the Commission. (a) The Labor Arbiter shall have the original and exclusive jurisdiction to hear and decide ... the following cases involving all workers,...:

xxx xxx xxx

3. All money claims of workers, including those based on non-payment or underpayment of wages, overtime compensation, separation pay and other benefits provided by law or appropriate agreement, except claims for employee's compensation, social security, medicare and maternity benefits. [Emphasis supplied]

We do not think that this jurisdiction would be lost simply because a former employer had been placed under liquidation. The legislature deemed it wise to confer jurisdiction over labor disputes to a body exclusively of others and We are not prepared to divest such authority from the labor arbiter and the NLRC absent any clear provision of law to that effect.

The liquidator cites the case of Hernandez v. Rural Bank of Lucena, supra, where this Court, commenting on the original section 29 as embodied in R.A. No. 265, held that:

The fact that the insolvent bank is forbidden to do business, that its assets are turned over to the Superintendent of Banks, as a receiver, for conversion into cash, and that its liquidation is undertaken with judicial intervention means that, as far as lawful and practicable, all claims against the insolvent bank should be filed in the liquidation proceeding.

The judicial liquidation is intended to prevent multiplicity of actions against the insolvent bank. The lawmaking body contemplated that for convenience only one court, if possible, should pass upon the claims against the insolvent bank and that the liquidation court should assist the Superintendent or Banks and control his operations.

In the course of the liquidation, contentious cases might arise wherein a full-dress hearing would be required and legal issues would have to be resolved. Hence, it would be necessary in justice to all concerned that a Court of First Instance should assist and supervise the liquidation and should act as umpire and arbitrator in the allowance and disallowance of claims.

The judicial liquidation is a pragmatic arrangement designed to establish due process and orderliness in the liquidation of the bank to obviate the proliferation of litigations and to avoid injustice and arbitrariness. (Hernandez v. Rural Bank of Lucena, Inc. supra, pp. 87-88) [Emphasis supplied]

But it will be noted that even in the quoted opinion, consideration was given of the possibility or practicality of certain claims being adjudicated by other tribunals besides the liquidation court. Thus, in the later case ofCarandang v. Court of Appeals, No. L-44932, April 15, 1988, 160 SCRA 266, We upheld the jurisdiction of the then Court of First Instance of Laguna over that of the liquidation court, the Court of First Instance of Manila, considering that the cause of action of therein plaintiff was already fully litigated in the former court and to re-litigate would "mean more inconvenience to the parties, entailing waste of money and precious time." In other words, it is not a legal aberration that certain claims against an insolvent bank be litigated in another court where to do so would be more practical; and more so in this case where it is not legally possible to litigate Dizon's claims other than with the Labor Arbiter and the NLRC because of the express provision of the Labor Code.

Neither do We subscribe to the interpretation given by the bank in the case of Central Bank v. Morfe supra, which purportedly prohibits the filing of cases against a bank after it has been declared insolvent. That case simply ruled that judgments from suits filed after a bank has been declared insolvent "cannot be considered preferred and that Article 2244 (14) (b) [of the Civil Code] does not apply to judgments for the payment of the deposits in an insolvent savings bank which were obtained after the declaration of insolvency." Moreover, as in the other cited case ofCentral Bank v. Court of Appeals, supra, the case involves recovery of deposits.

Under normal circumstances the decision of the NLRC is immediately executory (See Article 223, Labor Code). The bank's liquidator, however, resists immediate payment to Dizon of his adjudicated money claims on the ground that it would amount to undue preference of credit. Dizon countered that under Article 110 of the Labor Code unpaid wages of laborers are indeed preferred. Moreover, Dizon reminded, this Court had temporarily enjoined the liquidation of the bank and, therefore, there is no liquidation proceeding where his claims may be paid.

Article 110 of the Labor Code before its amendment by Republic Act No. 6715 (March 2, 1989) reads as follows:

ART. 110. Worker Preference in case of Bankruptcy — In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer.

In Republic v. Peralta, supra the majority of this Court was of the opinion that the above quoted provision did not upgrade the worker's claim as absolutely preferred credit. There We explained that the provision did not alter Articles 2241 and 2242 of the Civil Code so much so that creditors with liens over a certain property are still given special preference over the proceeds of that property. And it is only after these specially preferred credits are satisfied may the ordinary preferred credits

enumerated in Article 2244 of the Civil Code be paid according to their order of priority. The significance of Article 110 in the scheme of concurrence and preference of credit is to raise the worker's money claim into first priority under Article 2244. (See also Development Bank of the Philippines v. NLRC, G.R. Nos. 82763-64, March 19, 1990).

Not being an absolutely preferred credit, as taxes are under Articles 2241 (1) and 2242 (1), Dizon's claims cannot be paid ahead of other credits and outside of the liquidation proceeding because the "free property" or the property left after the creditors mentioned in Articles 2241 and 2242 are paid has not yet been determined (See Barreto v. Villanueva, No. L-14938, December 29, 1962, 6 SCRA 928). In the words of Lipana v. Development Bank of Rizal, No. '73884, September 24, 1987, 154 SCRA 257, 261, "to execute the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other [depositors and] creditors."

Thus, Dizon's adjudicated claims should be submitted to the liquidators for processing. If, of course, it is later determined that Banco Filipino's liquidation is improper then the NLRC'S decision may be executed under normal procedure. If the contrary is proven, however, and the bank's liquidation should proceed, Dizon's established claims should be treated as an ordinary preferred credit enjoying first preference under Art. 2244 of the Civil Code.

In its petition, the bank did not raise any argument against the merit of Dizon's money claims. Thus, the comments of the public and private respondents thereto were directed on what was so far discussed. It would seem unfair, therefore, that the bank would subsequently assail the merits of the award in its memorandum leaving the respondents off-guard. In any event, We do not find the bank's foray on Dizon's money claims meritorious.

The bank argues that Dizon is not entitled to separation pay citing Article 283 of the Labor Code which reads to wit:

... In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business loses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.

It is the banks interpretation of the law that when an institution is closed due to serious business losses or financial reverses its workers are not entitled to separation pay. We disagree. We instead quote with approval the opinion of respondent Labor Arbiter, thus:

Article 283 (Art. 282) of the Labor Code enumerated the just causes for an employer to terminate an employee. If an employee is dismissed for just cause, he is not entitled to termination pay. However, in Article 284 (Art. 283), in case of closure of establishment, the employee is always given termination pay. The reason for the closure is taken into consideration only to determine whether to give one month or one-half month pay for every year of service. This provision is based on social justice and equity... (p. 41, Rollo)

Such was Our ruling in International Hardware, Inc. v. NLRC, G.R. No. 80770, August 10, 1989. As regards the commutation to cash of Dizon's accumulated vacation and sick leaves, both the Labor Arbiter and the NLRC found that this was authorized by the Collective Bargaining Agreement then existing before the bank's closure and which CBA the liquidators manifested to honor. This is a factual issue which We are not inclined to disturb. Also, since Dizon was forced to litigate, he is entitled to attorney's fees.

ACCORDINGLY, the decision under review is AFFIRMED save that the money due the private respondent should be presented to the liquidators for processing.

SO ORDERED.

Narvasa (Chairman), Cruz, Gancayco and Griño-Aquino, JJ., concur.

G.R. No. 89767 February 19, 1992

STATE INVESTMENT HOUSE, INC., petitioner, vs.COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, EDGAR OBLIMAR, ABE ESTRADA and the 2,081 complainants-laborers in NLRC Case No. 9-3296-84 represented by FLORANTE M. YAMBOT,respondents.

G. R. No. 96056 February 19, 1992

THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES, represented by the ASSET PRIVATIZATION TRUST, petitioner, vs.HONORABLE COURT OF APPEALS, HON. PEDRO N. LAGGUI, in his capacity as Presiding Judge of the Regional Trial Court, Branch 60, Makati, Metro Manila, BIENVENIDO HERMOGENES and SILVINO SANTOS, in their respective capacities as Labor Arbiter and Sheriff of the National Labor Relations Commission, ALFREDO ASIBAR, RICARDO ZURITA, FELIXBERTO ABARQUEZ, RODRIGO CELSO, and the other 31 complainants in NLRC Case No. NCR-9-3296-84, respondents.

G.R. No. 96437 February 19, 1992

PHOENIX IRON AND STEEL CORPORATION and WILFREDO LABAYEN, petitioners, vs.HON. COURT OF APPEALS, HON. EUTROPIO MIGRINO, in his capacity as the Presiding Judge of the Regional Trial Court of Pasig, Branch 151, and ALFREDO ASIBAR, respondents.

Jardeleza, Sobrevinas, Diaz, Hayudini & Bodegon for petitioner SIHI.

Florante M. Yambot for private respondents Laborers of Phil. Blooming Mills, Inc. and Zurita, et al.

Jose C. Sison, Florello E. Azura and Jose M. Suratos, Jr. for petitioner in G.R. No. 96056.

Jaime T. Capoquian for private respondent Alfredo Asibar.

Balgos and Perez for petitioning intervenors in G.R. 96056.

Feria, Feria, Lugtu and La'O for petitioners-movants in G.R. 96437

 

GUTIERREZ, JR., J.:

These consolidated petitions involve properties formerly owned by the Philippine Blooming Mills, Inc. (PBM) which is now under the rehabilitation and receivership of the Securities and Exchange Commission (SEC. Case No. 2250, "In the matter of the Petitioner for Suspension of Payments").

In G.R. No. 89767, the petitioner questions the decision of the Court of Appeals which affirmed the validity of the Order dated May 26, 1989 issued by the Securities and Exchange Commission (SEC) in SEC Case No. 2250 granting the respondents' motion for the issuance of a break-open Order for the purpose of implementing the Certificate of Sale of November 23, 1987 in NLRC Case No. 9-3296-84 covering certain PBM properties, located at the PBM Compound in Balintawak, Quezon City which were earlier sold at a public auction sale on the ground that the same properties already belonged to the petitioner before the auction sale.

In G.R. No. 96056, the petitioner questions the decision of the Court of Appeals which affirmed the earlier decision of the Regional Trial Court (RTC) of Makati, Branch 60 validating the auction sale of some PBM properties by respondent deputy sheriff Silvino Santos of the Department of Labor and Employment (DOLE) on the ground that the same properties already belonged to the government before the auction sale.

In G.R. No. 96437, the petitioner questions the decision and resolution of the Court of Appeals which also affirmed an earlier order of the Regional Trial Court of Pasig, Metro Manila, Branch 151. The Pasig RTC denied the petitioner's motion to dismiss a complaint (with application for a writ of preliminary attachment) seeking compliance with the provision of a deed of sale, the subject matter of which are some properties of the PBM bought by respondent Alfredo E. Asibar (also a respondent in G.R. No. 96056) as highest bidder in an auction sale executed between Asibar as vendor and petitioner Phoenix Iron and Steel Corporation (Piscor) as vendee on the ground that the complaint states no cause of action.

In 1981, the PBM stopped operations due to business losses and financial reverses. On April 1, 1982, the PBM filed with the SEC a petition seeking for a declaration of a state of suspension of payments. On April 6, 1982, the SEC assumed jurisdiction over the petition. On July 9, 1982, the SEC placed the PBM under rehabilitation receivership and appointed rehabilitation receivers. The employees of PBM then filed a complaint for illegal dismissal with money claims against PBM with the National Labor Relations Commission (NLRC). Those who filed belonged to the rank-and-file and managerial/technical employees identified and categorized by groups. Common claims of the employees were unpaid benefits under Wage Order No. 1, 15th month-pay, money value of unearned vacation and sick leaves and holiday pay. The case was docketed as NCR Case No. 3-1250-83.

On December 28, 1983, Labor Arbiter Bienvenido Hermogenes rendered a decision in favor of the employees. The employees were granted monetary benefits including separation pay.

On appeal, the Labor Arbiter's decision was modified by the NLRC, to wit:

WHEREFORE, except for the modification dismissing the claim for separation pay for lack of merit, the Decision appealed from is hereby AFFIRMED in all other respects. The injunction issued on 15 November 1984 is lifted. (Rollo — G.R. No. 79202, p. 18)

In G.R. No. 79202, we affirmed the NLRC decision in a resolution dated November 18, 1987. Thus, we dismissed the petition for certiorari filed by the employees questioning the deletion of the award of separation pay resulting from serious losses by PBM.

In the meantime, the employees of PBM numbering 2,081 filed another complaint for illegal dismissal and money claims with the NLRC. The case was docketed as NCR Case No. 9-3296-84.

On May 28, 1987, Labor Arbiter Bienvenido V. Hermogenes rendered a decision in favor of the employees including separation pay.

On appeal, the Labor Arbiter's decision was affirmed by the NLRC in a decision dated November 9, 1987. The NLRC ordered the remand of the records to the Labor Arbiter for the issuance of a writ of execution.

On November 13, 1987, the Labor Arbiter issued a writ of execution.

On November 17, 1987, Deputy Sheriff Silvino Santos of the NLRC issued a "Notice of Levy and Sale of Personal Properties On Execution" and scheduled a public auction of PBM properties to the highest bidder for cash on November 23, 1987.

On November 19, 1987, PBM filed with us a petition to review the decision of the NLRC on the ground that the November 9, 1987 decision did not take into account the fact that as found by this Court in G.R. No. 71318 the NLRC had already denied claims for separation pay of the employees. In addition, the petitioner prayed for the issuance of a temporary restraining order enjoining the scheduled sale of the properties. The petition was docketed as G.R. No. 80580.

In a resolution dated December 1, 1987, G.R. Nos. 79202 and 80580 were consolidated.

On May 2, 1988, we issued a resolution in the consolidated petitions, to wit:

On November 18, 1987, the Court issued a resolution dismissing the petition in G.R. No. 79202 for lack of merit. A motion for reconsideration was denied with finality on January 27, 1988. This Court has stated that in various and more appropriate cases involving consortiums of banks trying to recover even only a percentage of the loans extended to Philippine Blooming Mills (PBM), it was determined that PBM not only incurred serious losses but was in desperate straits leading to its collapse. This is a finding which remains beyond serious dispute and it is pointless for the petitioners to keep on reiterating the same arguments on this issue in any motion for reconsideration in this or other petitions.

Any claims of laborers, including those enjoying preference over other credits, will have to be submitted in the course of the bankruptcy, liquidation or rehabilitation proceedings.

xxx xxx xxx

In G.R. No. 80580, the Solicitor General has taken sides with the petitioner and adopted the petitioner's reply to the private respondents' comment. No explanation is given and no substantial distinctions are cited to explain why the National Labor Relations Commission should take an action in G.R. No. 80580 which is different from and conflicts with its stand in G.R. No. 79202. This being the case, the Court reiterates its ruling in G.R. No. 79202.

xxx xxx xxx

Considering the foregoing, the COURT RESOLVED to SET ASIDE the decision of the National Labor Relations Commission dated November 9, 1987 in G.R. No. 80580 and to permanently enjoin the sale of properties in NLRC Case No. NCR-9-3296-84 until after the Securities and Exchange Commission in SEC Case No. 2250 has determined the procedures for settling the many claims, including the money claims for workers and employees, against the Philippine Blooming Mills Co. Inc. (Rollo — G.R. No. 80580, pp. 309-310).

The petitioners filed separate motions for clarification of the resolution as regards the portion that permanently enjoins the sale of properties of PBM until after the SEC has determined the procedures for settling the various money claims against PBM.

It turned out that during the pendency of G.R. No. 80580, deputy sheriff Silvino Santos pushed through with the scheduled auction sale of PBM properties on November 23, 1987 in NCR Case No. 9-3296-84 as a result of which a certificate of sale dated November 23, 1987 was issued in favor of the highest bidder, Alfredo Asibar, the respondent in G.R. Nos. 96056 and 96437. We did not issue the prayed for temporary restraining order to enjoin the scheduled auction sale on November 23, 1987.

On November 21, 1988, we issued a resolution, the pertinent portion of which reads:

xxx xxx xxx

The respondents claim that the injunction should not cover properties already sold before May 2, 1988 or more particularly the certificate of sale of November 23, 1987. On the other hand, the petitioner states that the sale of properties in G.R. No. 71318 is not the same as the sale of properties in the instant case.

The issues raised by the respondents call for ascertainment of facts. This Court is not a trier of facts.The question of exactly what properties may no longer be included in the liquidation proceedings but should be given to the workers pursuant to the decision of the National Labor Relations Commission is, therefore, referred to the Securities and Exchange Commission which is directed to hold hearings on the matter. This petition has been decided. A motion for reconsideration has been denied with finality. Entry of judgment has been effected. No further motions of the same nature as the one before the Court will be entertained.

CONSIDERING THE FOREGOING, THE COURT RESOLVED to REFER the respondents' motion for clarification to the Securities and Exchange Commission for resolution. Counsel of the parties are warned to follow regular procedures regarding their respective claims and not indiscriminately pass on to this Court questions which call for determination or action by other agencies or Tribunals. (Rollo— G.R. No. 96056, pp. 345-346, Emphasis supplied)

II

G.R. NO. 89767

On July 20, 1983, the petitioner filed with the Regional Trial Court of Pasig a complaint for foreclosure of mortgage with receivership against PBM, Four Seas Trading Corporation (Four Seas) and Alfredo Ching. The case was docketed as C.C. No. 49997.

On August 29, 1986, the court rendered a partial summary judgment, the dispositive portion of which read:

WHEREFORE, premises considered, this Court hereby resolves to GRANT plaintiff SIHI's motion for Partial Summary Judgment dated January 15, 1986 and hereby orders defendants Philippine Blooming Mills Co., Inc. and Alfredo Ching to pay plaintiff State Investment House, Inc. jointly and severally their unpaid obligations in the undisputed amount of P53,000,000.00 plus the stipulated attorney's fees in the amount equivalent to 25% thereof, as well as the costs of suit; and in the event the said defendants are unable to satisfy said judgment within the period prescribed by law, this Court hereby orders plaintiff State Investment House, Inc., as the court-appointed receiver, to apply the proceeds of the Receiver's sale of the mortgaged steel inventories, including any earnings thereon, if any, in partial satisfaction of said judgment and the Branch Sheriff of this Court is likewise ordered to sell at public auction the real properties mortgages (Annexes "E", "E-1" to "E-9" and "F" and "F-1", Complaint) and that the proceeds thereof be applied in satisfaction of said judgment and costs of suit, accordingly. (Rollo, p. 5)

On October 5, 1987, the court issued an Order granting the petitioner's Motion to Order Sale of Mortgaged Real Properties. Accordingly, Deputy Sheriff Mario J. Tamang sold at public auction said mortgaged properties belonging to PBM and Four Seas. The highest bidder was the petitioner as evidence by two (2) separate certificates of sale executed by the sheriff in its favor on November 9, and 10, 1987, respectively.

In response to the notice of levy and sale of personal properties on execution issued by Deputy Sheriff Silvino Santos in connection with the writ of execution in NCR Case No. 9-3296-84, setting for sale at public auction, among others, some properties of PBM located at PBM Compound Balintawak, Quezon City, the petitioner filed in Civil Case No. 49997 a motion for issuance of a writ of preliminary injunction to restrain Silvino Santos from selling at public auction the said properties. The petitioner contended that the said properties are among the mortgaged properties of Four Seas which were sold to the petitioner on November 9 and 10, 1987.

On November 20, 1987, the court issued an Order temporarily enjoining Silvino Santos from selling at public auction the questioned properties. Despite this temporary restraining order, Silvino Santos proceeded with the auction sale prompting the petitioner to file a motion to cite the sheriff guilty of contempt of court and declaring null and void the certificate of sale executed by him covering the properties located at PBM compound in Balintawak, Quezon City. The lower court granted the motion.

Silvino Santos tried unsuccessfully to have the contempt order set aside in both the Court of Appeals and this Court. The case docketed as G.R. No. 85242 will be discussed later. Suffice it to say at this point that the Court dismissed the petition for certiorari questioning the affirmance by the Court of Appeals of the contempt Order issued by the Regional Trial Court of Pasig.

As a result of our Resolution dated November 21, 1988 issued in G.R. Nos. 79202 and 80580 the private respondents filed an urgent motion with the SEC in SEC Case No. 2250 seeking clarification on the question of the scope of injunction referred to said agency by the Court.

On February 9, 1989, the SEC issued an Order ruling that the said injunction "does not cover properties already sold before May 2, 1988 or more particularly, the certificate of sale on November 23, 1987 in NLRC Case No. NCR-9-3296-84" (p. 100, Rollo, G.R. No. 89767)

On May 26, 1989, the SEC issued another Order granting the private respondent's motion for the issuance of a break-open Order, the dispositive portion of which reads:

WHEREFORE, the Urgent Motion For The Issuance of a Break-Open Order dated April 12, 1989 should be, as it is hereby GRANTED, for the purpose of implementing and carrying into effect the Certificate of Sale of November 23, 1987 in NLRC Case No. 9-3296-84 involving the properties subject-matter of such sale located at the PBM Compound in Balintawak, Quezon City, and Manggahan, Pasig, Metro Manila (Rollo, p. 11)

The petitioner questioned the SEC Order by filing a petition for certiorari with the Court of Appeals.

In a decision dated June 29, 1989, the appellate court denied due course and dismissed the petition. A motion for reconsideration was denied.

Hence, this petition.

G.R. NO. 96056

One of the creditors of PBM was the Philippine National Bank (PNB). When PBM failed to pay its obligations secured by mortgages, PNB extrajudicially foreclosed the real estate mortgages executed in its favor. Thus, on November 2, 1983, the mortgaged properties — a) seven [7] registered lots in Rosario, Pasig, Metro Manila, and b) seven [7] buildings and machineries and equipment, were publicly auctioned by the Sheriff and sold to PNB. The lots were sold for P21,930,000.00 (Exhibits B, B-1, and B-2), the buildings for P4,192,250.00 (Exhibits C and C-1), and the machineries and equipment (Exhibits A to A-17), inclusive — for P76,720,800.00 (Exhibit A).

In accordance with Administrative Order No. 14 implementing Proclamation No. 50 of the President dated December 8, 1986 (Exhibit F-1-B), PNB transferred to the national government through the Asset Privatization Trust (APT) the assets acquired from PBM as evidenced by the deed of transfer dated June 5, 1987.

The APT in turn sold machineries and equipment for P45,000,000.00 to Phoenix Iron and Steel Corporation and the others for P65 million to Killer Realty.

When respondent sheriff Silvino Santos issued the notice of levy and sale of the personal properties of PBM, and scheduled the public auction sale on November 23, 1987 in NCR Case No. 9-3296-84, the PNB filed with the NLRC a "NOTICE OF THIRD PARTY CLAIM" on November 20, 1987 (Exhibit F-3).

As stated earlier, deputy sheriff Santos proceeded with the scheduled auction sale on November 23, 1987. The highest bidder was respondent Asibar. His bid was P5,950,000.00. On the same day, Santos issued the corresponding Certificate of Sale in favor of Asibar.

On November 24, 1987, Labor Arbiter Hermogenes issued a "break open" order, ordering the "Sheriff assigned in the case and his assistance (sic)" to gain access to the place (PBM Compound). Between November 24 and November 28, 1987, some persons hauled and carried away personal properties from the compound. The guards listed the properties and the lists were given to the guards' supervisor. (Rollo — G.R. No. 96056, p. 31)

On November 27, 1987, the national government through APT filed an action for damages with preliminary injunction and/or temporary restraining order against Labor Arbiter Hermogenes, Deputy Sheriff Silvino Santos, Asibar and all the complainants in NCR Case No. 9-3296-84 with the Regional Trial Court of Makati, Metro Manila. The case was raffled to Branch 60 and was docketed as Civil Case No. 18426.

After due trial, the trial court on December 29, 1989 rendered a decision dismissing the complaint, to wit:

xxx xxx xxx

WHEREFORE, the Court hereby renders judgment as follows:

The complaint dated November 25, 1987 is DISMISSED;

The Order dated December 16, 1987 (pp. 87-90, Records) as clarified in the Order dated July 19, 1988 granting the plaintiffs' application for a writ of preliminary injunction (pp. 286-289, Id.) is LIFTED and SET ASIDE; and

The COUNTERCLAIMS of the defendants (other than SILVINO SANTOS and BIENVENIDO HERMOGENES) are DISMISSED. (Rollo, P. 42)

A motion for reconsideration filed by the petitioner APT was denied.

Petitioner APT then filed a petition for certiorari and prohibition with the Court of Appeals. The appellate court, however, dismissed the petition.

Hence, the instant petition.

On November 29, 1990, we issued a temporary restraining order enjoining respondent Asibar from taking the machineries, engines, and equipment (foreclosed chattels of the Philippine Blooming Mills, Co., Inc.) which were transferred and assigned by the Philippine National Bank in favor of the National Government as well as those already sold by the National Government to Phoenix Iron and Steel Corporation.

On January 10, 1991 Phoenix Iron and Steel Corporation and the Rehabilitation Receivers of PBM filed a motion for intervention alleging that its intervention is imperative because its possession of the chattels sold to it by the National Government and which are being used in the rehabilitation of PBM are being threatened to be taken by the private respondent. We granted the motion in a Resolution dated January 24, 1991.

The petition was given due course in the Resolution dated April 16, 1991.

In another Resolution dated November 26, 1991, we granted the intervenors' motion for leave to submit Additional Comment And/Or Argument.

G.R. NO. 96437

On February 10, 1988, a Deed of Sale was executed between respondent Alfredo Asibar as vendor and petitioner Phoenix Iron and Steel Corporation (co- petitioner Wilfredo Labayen is the vice-president of the corporation) as vendee involving machineries and equipment inside all the buildings

at PBM compound in Manggahan, Pasig, Metro Manila. These properties were among the properties bought by Alfredo Asibar in the auction sale conducted by Deputy Sheriff Silvino Santos on November 23, 1987.

On December 26, 1988, respondent Asibar filed with the Regional Trial Court of Pasig, Metro Manila, Branch 151, a complaint with application for a writ of preliminary attachment, seeking the payment by the petitioners, jointly and severally of the amount of P8.5 million which he alleged was the balance already due at the time based on the terms of the contract, including penalty for late payment, moral, exemplary damages, litigation expenses, attorney's fees and costs of suit. The case was docketed as Civil Case No. 56806. On February 10, 1989, the petitioner filed a motion to dismiss on the ground that the complaint fails to state a cause of action.

On May 10, 1989, the trial court issued an order denying the motion. The petitioners were given ten (10) days from receipt within which to file their answers to the complaint.

The petitioners then filed with the Court of Appeals a petition for certiorari with prayer for the issuance of a writ of preliminary injunction questioning the May 10, 1989 order.

The Court of Appeals, however, dismissed the petition and ordered the return or remand of the records to the trial court for trial of the case on the merits.

A motion for reconsideration filed by the petitioners was denied. Hence, the instant petition.

On January 28, 1991, we issued a temporary restraining order enjoining the Regional Trial Court of Pasig, Metro Manila, Branch 151, from further proceeding with Civil Case No. 56806.

III

In G.R. No. 89767, the petitioner contends that:

a) By upholding the questioned Order of respondent SEC of 26 May 1989, the respondent Court of Appeals has in effect reversed the ruling of this Honorable Court in G.R. No. 85242.

b) By allowing respondent SEC to seize from petitioner SIHI the properties in dispute for the purpose of satisfying the money judgment obtained by the laborers of PBM despite the adverse claim of petitioner SIHI over the said properties, the respondent Court of Appeals has completely disregarded the right of petitioner SIHI to due process of law.

c) By permitting respondent SEC to execute the money judgment obtained against PBM by its laborers pending liquidation of PBM, the respondent Court of Appeals has in effect granted the PBM-Laborers undue preference contrary to the ruling of this Honorable Court. (Rollo, p. 16)

In G.R. NO. 96056, the petitioner raises the following issues:

I. WHETHER OR NOT THE CA ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN NOT FINDING THAT THE AUCTION SALE CONDUCTED BY SANTOS IS VOID.

II. WHETHER OR NOT THE CA ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN NOT FINDING THAT THE PROPERTIES SOLD TO ASIBAR ARE THE SAME AS THOSE FORECLOSED BY PNB AND NOW BELONGING TO THE NATIONAL GOVERNMENT. (Rollo — G.R. No. 96056, p.9)

These petitions are discussed jointly as the issues raised are interrelated.

In response to our directive in the November 21, 1988 resolution in G.R. No. 80580 which referred the respondents' motion for clarification as to whether or not the certificate of sale of November 23, 1987 is included in the order of permanent injunction to sell PBM properties in NLRC Case No. NCR-9-3296-84 until after the SEC in SEC Case No. 2250 (PBM liquidation proceedings) has determined the procedures for settling all the money claims against PBM ordered in the resolution dated December 2, 1987 in G.R. Nos. 79202 and 80580, the SEC issued an order dated February 9, 1989 in SEC Case No. 2250, to wit:

Acting upon the Urgent Motion To Resolve Clarification dated August 22, 1988 in G.R. No. 80580 which the Supreme Court referred to this Honorable Commission For Resolution, as per Order of the Supreme Court in its Resolution in G.R. No. 80580 dated November 21, 1988, filed by the counsel for the 2,081 laborers of PBM in NLRC Case No. NCR 9-3296-84, and considering the Manifestation dated February 2, 1989, filed by the petitioner and the rehabilitation receiver in the above-entitled case, the Hearing Panel hereby rules that the injunction issued therein, does not cover properties already sold before May 2, 1988 or more particularly the certificate of sale on November 23, 1987 in NLRC Case No. NCR-9-3296-84. (Rollo — G.R. No. 85242, p. 330; Emphasis Supplied)

Another order dated May 26, 1989, was issued in SEC Case No. 2250 involving PBM properties claimed by the State Investment House, Inc. wherein the SEC reiterated its February 9, 1989 clarificatory order regarding the certificate of sale dated November 23, 1987. This order was the subject matter in CA-G.R. SP No. 17698. The Court of Appeals affirmed the order prompting SIHI to challenge the appellate court's decision by filing a petition for certiorari with this Court. The case is docketed as G.R. No. 89767.

In G.R. No. 96056, the appellate court is of the view that the February 9, 1989 order of the SEC clarified the issue as to what properties are excluded from the liquidation proceedings but which should be given to the workers pursuant to the decision of the NLRC in Case No. NCR 9-3296-84 by ruling that "the hearing Panel hereby rules that the injunction issued therein does not cover properties already sold before May 2, 1988 more particularly the certificate of sale in November 23, 1987 in NLRC Case No. NCR 9-3296-84" (Rollo — G.R. No. 96056, p.25). With this finding, the appellate court, among others, dismissed the petition.

In this regard, we take note of another case (G.R. No. 85242 entitled "Sheriff Silvino Santos, et al. v. Court of Appeals, et al."). In this petition, SIHI filed an action before the Regional Trial Court of Pasig, Metro Manila, Branch 168 presided by Judge Benjamin Pelayo, to enjoin the implementation of a writ of execution issued in NLRC Case NCR No. 9-3296-84. Specifically, SIHI asked the court to enjoin Deputy Sheriff Silvino Santos from selling at the public auction sale on November 23, 1987 PBM properties which were allegedly owned by SIHI.

On November 20, 1987, Judge Pelayo issued an order, enjoining Sheriff Santos to desist from selling the properties being claimed by SIHI.

Sheriff Santos, however, ignored the order and went ahead with the November 23, 1987 auction sale. Judge Pelayo, then issued another order dated February 22, 1988 nullifying the sale and finding Sheriff Santos guilty of contempt.

Sheriff Santos then filed a petition for certiorari and prohibition with preliminary injunction with the Court of Appeals alleging that Judge Pelayo committed grave abuse of discretion and lack of jurisdiction in blocking the NLRC's writ of execution. The petition was dismissed.

Ricardo Zurita and 2,080 other laborers (complainants in NLRC Case No. 9-3296-84) in whose favor the writ of execution was issued by the NLRC filed with the Court a motion for leave to intervene as co-petitioners.

In a resolution dated March 15, 1989, we denied the petition for lack of merit. We stated:

xxx xxx xxx

Insofar as the money claims of the co-petitioners-intervenors are concerned., the law on the case is that announced in G.R. No. 71318, Philippine Blooming Mills, Co., Inc. v. National Labor Relations Commission, et al., January 20, 1986, where this Court ruled:

Considering all the foregoing, the Court Resolved to DISMISS the petition insofar as it seeks to nullify the decision of the National Labor Relations Commission on benefits due the respondent laborers and to restrain the disposition of properties in the satisfaction of the various obligations of the petitioner. However, the awards made by the Commission shall be referred to the Securities and Exchange Commission to determine the preference or priority under the law in the settlement of all claims. The restraining order dated July 22, 1985 which reads in part:

xxx xxx xxx

ENJOINING the respondents from enforcing the alias writ of execution and the sale of the properties of petitioner, and if already enforced, from turning over to the private respondents the proceeds of the auction sale in NLRC Case No. 3-1250-83, entitled "Pedro Ablaza, et al., Complainants, v. Philippine Blooming Mills Company, Inc., Respondent" of the National Labor Relations Commission, Ministry of Labor and Employment.'

is clarified as not covering the certificate of sale issued on July 19, 1985. However, all proceeds of that sale and earlier sales must be turned over to the Securities and Exchange Commission to be distributed according to law. This Court's temporary restraining order shall be lifted and set aside once the Securities and Exchange Commission has taken over the control of funds and assets as above indicated."

Any execution of the NLRC decision awarding benefits to the PBM workers and any disposition of PBM properties arising from the NLRC awards must be referred to the Securities and Exchange Commission pursuant to the above resolution.

Any attempt to execute on properties not belonging to PBM is properly a concern of civil courts and not of the NLRC. Either way, the action of the petitioner sheriff is premature or improper. (Rollo — G.R. No. 85242, pp. 271-272; Emphasis supplied)

xxx xxx xxx

The petitioner sheriff filed a motion for reconsideration. The movant-intervenors also filed a separate motion for reconsideration with clarification. The movant-intervenors specifically mentioned the February 9, 1989 order of the SEC in SEC Case No. 2250 clarifying the issue as to whether or not the certificate of sale dated November 23, 1987 in NLRC Case NCR No. 9-3296-84 is included in the permanent injunction of the sale of PBM properties under the resolution dated November 21, 1988 in G.R. No. 80580. The movant-intervenors contended:

It is an admitted fact that the properties subject of this controversy are included in the certificate of sale of November 23, 1987 and not by another execution which, this Honorable Court might misunderstand, and which the same was already clarified by this Honorable Court through its delegated authority, the Honorable Securities and Exchange Commission. It is very apparent and very important then, that in so far as the certificate of sale of November 23, 1987 is concerned, (which includes subject properties in controversy) be finally laid to rest as this Honorable Court said in that particular resolution . . . (Rollo — G.R. No. 85242, p. 306)

We denied the motions. We said in our resolution dated April 5, 1989:

The motion for reconsideration cites the Court's resolution dated March 15, 1989 out of context. The movant-intervenors play up paragraph 2, page 3 of the resolution but ignore the first paragraph on the same page which is more important.

The resolution of this Court rules that if, as the petitioners and the movant-intervenors insist, the disputed properties really belong to the Philippine Blooming Mills, then the execution must be referred to the Securities and Exchange Commission pursuant to the earlier resolution of this Court. On the other hand, if the properties belong to persons other than the Philippine Blooming Mills, the National Labor Relations Commission has no jurisdiction because the matters falls within the jurisdiction of the civil courts.

Therefore, if the movant-intervenors are correct and the disputed properties belong to the Philippine Blooming Mills, their action is premature and must await a determination by the Securities and Exchange Commission pursuant to the earlier resolutions in the Philippine Blooming Mills cases. Once the SEC has decided the cases, the execution shall issue from it and not from the NLRC.

The Court further reiterates its resolution in G.R. No. 80580 and G.R. No. 79202 that the claims of the Philippine Blooming Mills laborers are not denied. The Court simply rules that all valid claims including those of the laborers must be submitted in the course of bankruptcy, liquidation and rehabilitation proceedings. This is a function of the Securities and Exchange Commission for appropriate action. (Rollo — G.R. No. 85242, p. 335; Emphasis supplied).

xxx xxx xxx

From the different resolutions in all the cases involving PBM properties in relation to SEC Case No. 2250 (liquidation proceedings of PBM) we reiterate the following: 1) all PBM properties including the proceeds of the various sales undertaken by the NLRC to implement its final decision in NCR 9-3296-84 should be turned over to the SEC for disposition according to law, and 2) for purposes of executing the NLRC final decision awarding monetary benefits to the former workers of PBM, the NLRC has no jurisdiction over properties belonging to persons other than PBM.

As far as the Sheriff's sale dated November 23, 1987 is concerned, the SEC issued the Order dated February 9, 1989, pursuant to our directive in our resolution of November 21, 1988 clarifying that the injunction against the sale of PBM properties does not include the November 23, 1987 certificate of sale. However, it does not necessarily follow from the auction sale of PBM properties conducted by Sheriff Santos resulting in the issuance of the certificate of sale dated November 23, 1987 in favor of the highest bidder, respondent Asibar, that all properties sold therein fall within the clarificatory order of the Securities and Exchange Commission (SEC). A distinction as to the ownership of these properties must be made. Thus, if some properties were sold which belonged to other persons over whom the NLRC does not have jurisdiction, necessarily, such properties must be considered not to fall within the February 9, 1989 order of the SEC. These should be returned to their rightful owners.

Under these circumstances, the pivotal issue to be resolved hinges on whether or not the disputed properties sold by Sheriff Santos belong to petitioner SIHI in G.R. No. 89767 and APT in G.R. No. 96056.

In G.R. No. 89767, the questioned Order dated May 26, 1989 of the SEC which was affirmed by the Court of Appeals states:

We found the grounds invoked by SIHI in its comment untenable and without merit. Firstly, the urgent motion for a break-open order is but an implementation of our final order of February 9, 1989 wherein it clearly states that "the injunction issued therein, does not cover properties already sold before May 2, 1988 or more particularly the certificate of sale on November 23, 1987 in NLRC Case No. NCR-9-3296-84;" secondly, this Commission is legally authorized and duly empowered by the Supreme Court pursuant to its Resolutions dated November 21, 1988 (G.R. No. 80580 and 79202) and April 5, 1989 (G.R. No. 86242) to determine the valid claims of subject laborers in all these cases; and thirdly, it is the function of this Commission to implement the Certificate of Sale on November 23, 1987 in NLRC Case No. NCR.-9-3296-84 for the reason above-stated and to issue forthwith any writ of execution, if necessary, to fully satisfy the valid claims of these complainants-laborers, as clearly mandated in the aforestated Resolution of the Supreme Court. (Emphasis supplied, Rollo, p. 32)

In affirming the Order, the appellate court said:

The SEC issued the "Break-Open Order" contained in the Order now being assailed for the purpose of implementing and carrying into effect the certificate of sale of properties involved in NLRC Case No. 9-3296-84 wherein the claims against PBM of private respondents — The 2,081 complainantsformer PBM laborers — were resolved. The authority of the SEC to act on this particular matter emanates from the Supreme Court Resolutions of November 21, 1988, March 15, 1989 and April 5, 1989. The first above-named Resolution was issued by the Supreme Court upon private respondents' motion for clarification of the scope of the injunction which the

Court issued to stop the enforcement of the writ of execution already mentioned, which had been issued by the NLRC, against properties foreclosed by PBM creditors. In very certain terms, the Supreme Court in said Order states that it "cannot supervise the liquidation of PBM assets and declare what portion goes to laborers, what portion to creditor banks, etc." and that this is a function of the SEC; referred to the SEC the question of exactly what properties should be given to the workers pursuant to the decision of the NLRC; and directed the SEC "to hold hearings on the matter." The other two Resolutions (of March 15, 1989 and April 5, 1989) were issued by the Supreme Court precisely on the petition for review of the order of the RTC of Pasig in C.C. No. 49997, inter alia declaring null and void the certificate of sale executed by the NLRC Deputy sheriff covering the properties located at the PBM compound in Balintawak, Quezon City. In the March 15, 1989 order, the Supreme Court categorically stated that "any execution of the NLRC decision awarding benefits to the PBM workers and any disposition of PBM properties arising from the NLRC awards must be referred to the Securities and Exchange Commission." And in reiteration of said pronouncement, the Supreme Court in the April 5, 1989 Order, explicitly "REFERRED" the matter to the SEC "for appropriate action" after stating that all valid claims against PBM including those of the laborers "must be submitted" in the course of the bankruptcy, liquidation and rehabilitation proceedings" which is a function of the Securities and Exchange Commission. (Rollo, pp. 33-34)

Obviously, the SEC's May 26, 1989 Order has for its basis, the certificate of sale covering the Balintawak properties of PBM issued by Sheriff Silvino Santos as a result of the auction sale Santos held on November 23, 1989 pursuant to the writ of execution issued by the NLRC in NCR Case No. 9-3296-84. It is to be noted, however, that the certificate of sale issued to the highest bidder on the Balintawak properties of PBM was declared null and void in Civil Case No. 49997 and such declaration was affirmed by us in G.R. No. 85242.

Under these circumstances, the SEC had no authority to order the implementation of a certificate of sale which was earlier declared null and void. True, the SEC pursuant to our Resolution in the other related PBM cases has jurisdiction over all properties of the PBM which should be distributed among valid claimants including the private respondents in the liquidation proceedings. Such jurisdiction, however, does not include the power to reverse and set aside our own resolutions. It cannot issue a "break-open order" arbitrarily and to the prejudice of third persons seize PBM properties which were earlier in the lawful possession of third persons.

In the instant case, the Balintawak properties of PBM covered by the certificate of sale were earlier sold to the petitioner in an auction sale involving the said properties. Thus, in Civil Case No. 49997, the trial court issued an Order dated May 3, 1988, the pertinent portion of which reads:

In the light of the foregoing facts, the pertinent question is whether plaintiff, as purchaser at the auction sale of the aforementioned mortgaged properties, acquired valid titles not only to the land, subject of the mortgage of defendant Four Seas Trading Corporation, but also to all the buildings, improvements and machineries existing thereon. The answer to this question is determinative of the question of whether this court had the jurisdiction to issue the restraining order, and subsequently the writ of preliminary injunction, under consideration whereby this court enjoined Sheriff Santos from proceeding with the execution sale of the buildings, machineries and equipment located on the land of defendant Four Seas Trading Corporation in satisfaction of the judgment rendered against defendant Philippine Blooming Mills Co., Inc. in NLRC Case no. NCR-9-3296-84.

It is an admitted fact that the land, on which the buildings, machineries and equipment in question are located, are registered land in the name of defendant Four Seas Trading Corporation. It is also an admitted fact that no reservation of title in the name of defendant Philippine Blooming Mills Co., Inc. is noted in the certificates of title of defendant Four Seas Trading Corporation with respect to the buildings, machineries and equipment existing on the land covered by the said titles.

Such being the case, this court finds no cogent reason to disturb its findings contained in its Order, dated December 10, 1987, ordering the issuance of a writ of preliminary injunction against Sheriff Santos. For under the law and existing jurisprudence, plaintiff, as an innocent mortgagee and purchaser for value, acquires good and valid titles to the properties in question.

As long as this decision is not set aside or modified in proper legal proceedings, the SEC has no jurisdiction over the Balintawak properties, much less, to issue a break-open Order to implement a voided certificate of sale covering the said properties.

The trial court has the competence to identify and to secure properties and interests therein held by the judgment debtor for the satisfaction of a money judgment rendered against him. (Section 15, Rule 39, Revised Rules of Court). The exercise of its authority is premised on one important factor: that the properties levied upon, or sought to be levied upon, are properties unquestionably owned by the judgment debtor and are not exempt by law from execution, For the power of the Court in the execution of its judgment extends only over properties belonging to the judgment debtor. (See Reyes v. Grey, 21 Phil. 73 [1911], Misut v. West Coast San Francisco Life Insurance Co., 41 Phil. 258. [1920], Herald Publishing Co. v. Ramos, 88 Phil. 94 [1951]; and Bayer Philippines, Inc. v. Agana, 63 SCRA 355 [1975]; Consolidated Bank and Trust Corp. v. Court of Appeals, 193 SCRA 158 [1991])

In G.R. No. 96056 the petitioner contends that the appellate court committed grave abuse of discretion amounting to lack of jurisdiction in dismissing its petition for certiorari accusing the trial court of grave abuse of discretion in ruling that there is no identity between the PBM properties sold to the petitioner's predecessor PNB in 1983 and the PBM properties sold to respondent Asibar in the auction sale of November 23, 1987 on the ground that the appellate court did not consider the petitioner's allegations and evidence.

Petitioner APT contends that what took place was a simulated auction sale of properties already owned by PNB and transferred to the APT and that the Sheriff sold for P5,950,000.00 properties for which PNB had bid P76,720,800.00.

The petitioner claims that the Certificate of Sale (Exhibit "A", Annex "C", Petition) issued in favor of PNB shows that the chattels which were sold later by Sheriff Santos to Asibar in the questioned auction sale are housed at the following: (1) Oxygen Plant No. 2; (2) Carpentry Shop; (3) Electrical Shop and Instrumentation Building; (4) Machine Shop; (5) Scale house; (6) Wire Drawing Plant; (7) Nail Plant; (8) Bolt and Nut Making Plant; (9) Motorpool and Rebuilding Section; (10) Repair and Shifting Maintenance Section; (11) General Utility and Fire Section; (12) Oxygen Plant No. 1; (13) Topy Mill (Rolling Mill # 1); (14) Rolling Mill # 2; (15) Rolling Mill No. 3; (16) Wire Rod Mill; (17) Open Hearth Furnace; (18) and those at Building Nos. 24, 25, 26, 28 , 31, and 33 (Electric Arc Furnace), 34, 35, and 37 (Bailing Press Machine Building, Press Machine Building, Scale House No. 2 and Pump House No. 2). According to the petitioner, all the buildings, plants, shops, sections, and mills acquired in 1983 are located at the PBM Compound, Pasig, Metro Manila. All these chattels were

transferred, assigned and conveyed by PNB in favor of the national government thru the Deed of Transfer dated February 27, 1987.

The petitioner claims that the Certificate of Sale issued to Asibar by Sheriff Santos conclusively shows that chattels inside nine (9) buildings which PNB bought, namely: Oxygen Plant No. 2, Carpentry Shop, Electrical Shop and Instrumentation Building, Machine Shop, Scale House, Wire Drawing Plant, Nail Plant, Bolt and Nut Making Plant, Motorpool and Rebuilding Section, Repair and Shifting Maintenance Section, General Utility and Fire Section, Oxygen Plant No. 1, Topy Mill (Rolling Mill No. 1), Rolling Mill No. 2, Rolling Mill No. 3, Wire Rod Mill, Open Hearth Furnace, and Bailing Press Machine Building all located at PBM compound, Manggahan, Pasig, Metro Manila were also sold to Asibar by Sheriff Santos.

It is to be noted that the appellate court's decision has no specific findings of facts regarding the issue as to whether or not the properties sold to Asibar are different from the properties previously sold to the PNB. Instead, the decision in a sweeping statement stated that the lower court did not commit grave abuse of discretion as the trial court's findings are duly supported by substantial evidence.

The lower court said:

PROPERTIESSOLD TO PNB

13. The plaintiff does not question in this case the auction sale of PBM's properties in Balintawak, Quezon City to ASIBAR. What it questions only is the auction sale of PBM's properties located in its Compound in Manggahan, Pasig. It is therefore necessary to determine what are the properties sold to PNB per the certificates of sales (Exhs. A to A-147 inclusive; and Exhs. C and CO1) and the properties of PBM at its Manggahan, Pasig, Compound sold to Asibar per the certificate of sale (Exhs. H, G-1 to H-4 or Exhs. 1, 1-A to 1-E- Asibar)

14. The properties which PNB bought are:

14.1. The machineries and equipments in sixteen (16) Buildings — Building Nos. 6 (Exhs. A-20 to A-32); 10 (Exh. A-32), 12 (Exhs. A-33 to A-43), 13 (Exhs. A-6; Exhs. A-43 to A-59), 16 (A-43 to A-59), 21 (Exhs. A-59 to A-85), 22 (Exhs. A-86 to A-108), 24 (Exhs. A-108 to A-112), 25 (Exhs. A-109 to A-112), 26 (Exhs. A-112-A to A-114), 28 (Exh. A-114) 13 (Exhs. A-114 and A-115), 33 (Exhs. A-125 to A-133); A-138 to A-140), 34 (Exhs. A-132 and A-133), 35 (Exhs. A-140 to A-147) and 37 (Exhs. A-134 to A-138) per Exhs. A, A-1 to A-147.

14.2. Four (4) buildings (sic) erected on the lots covered by TCT Nos. 43445, 853, 30196 and 32897, Registry of Deeds of Rizal; namely: (a) a CANTEEN 2-storey semi-concrete; (b) one-storey electrical shop; (c) OPEN WAREHOUSE and carpentry shop; and (d) scale house (wood and masonry) per Exhs. C and C-1.

PROPERTIES SOLDTO ASIBAR

15. On the other hand, Asibar bought the following properties per Exhs. 1 to 1-E-Asibar or Exhs. H to H-4;

15.1. Thirty four (34) buildings and fixtures, embedded pipes and metals obtained from the total demolition thereof;

15.2. The mill plant machineries, equipment, materials supplies, and all movable properties found in each of the thirty-four (34) buildings; and

15.3. Scrap iron and other metals, discarded or detached machine or equipment parts found in open areas and diggings.

NO IDENTITYOF PROPERTIES SOLD TOPNB AND TO ASIBAR

16. The question then is: were the properties sold to PNB as described in paragraph 14, the same properties sold to Asibar as described in paragraph 15 hereof? The evidence does not show that the properties sold to PNB are the same properties sold to Asibar. This is clear from the following considerations.

16.1. Exhs. A and A-1 to A-177 do not show that the material and equipments found in the sixteen (16) buildings are located at the PBM Compound in Manggahan, Pasig. They do not state where these buildings are located. Exh. A simply states that the auction sale of the properties listed in the"attached Annexes" took place on November 23, 1983 at 10:00 o' clock in the morning "at the compound of the mortgagors, located at Barrio Rosario, PBM Compound, Pasig, Metro Manila." Exh. T however shows that PBM has machineries and equipments in 12 buildings, namely Building Nos. 6, 12, 14 , 16, 18, 20, 21, 22, 23, 25, 26 and 31, at the PBM Compound in Manggahan, Pasig. Even if it were assumed that the twelve (12) buildings are the same buildings bearing the same number referred to in Exhs. A to A-147 the fact remains that the machineries and the equipments found in these twelve (12) buildings have not been shown to be the same machineries and equipments that may be found in the thirty four (34) buildings described in Exhs. 1-C and 1-D-Asibar. For there is even no proof that the twelve (12) buildings are among the thirty-four (34) buildings listed in Exhibits 1-C and 1-D-Asibar.

16.2. The four (4) buildings sold to PNB under Exhibits C and C-1 have not been shown to be among the same thirty-four (34) buildings. These four (4) buildings are (note: not legible) lots covered by TCT Nos. 43445, 853, 30196 and of Deeds of Rizal. This then suggests that the (not legible) the Province of Rizal. However, their . . . (not legible) Rizal has not been established much less does the evidence show that they are within the PBM Compound in Manggahan, Pasig, or that they are among the said thirty-four (34) buildings.

16.2.1. True it is that among the thirty-four (34) are: (a) scale house (No. 5, Exh. 1-C-Asibar); (b) a canteen (No. 27, Exh. 1-D-Asibar); (c) a carpentry/electrical shop (No. 30, Exh. 1-D-Asibar). However there is absolutely no proof that they are the same four (4) buildings described in Exhs. C and C-1.

16.3. PNB did not acquire any "scrap iron and other metals, discarded or detached machine parts found in open areas and diggings" from PBM. They are not among the properties which PNB acquired under the certificates of sale (Exhs. A, A-1 to A-147), B and B-1, C and C-1). PNB did not transfer any such property to the RP under the

deed of transfer (Exhs. D to D-3). Obviously, these properties belonged to PBM when they were sold to Asibar.

17. In brief, RP failed to prove by any competent and satisfactory evidence that the properties which it acquired from PNB are the same properties levied upon and sold at public auction to ASIBAR. (Rollo— G.R. No. 96056, pp. 31-33; Decision-Civil Case No. 18426, pp. 5-7)

In an order dated June 6, 1990, the trial court amended "14.2" and "16.2" of the decision to read as follows:

xxx xxx xxx

14.2. Seven (7) buildings erected on the lots covered by TCT Nos. 43445, 853, 30196 and 32897, Registry of Deed of Rizal, namely: (a) a CANTEEN 2-storey semi-concrete; (b) one-storey electrical shop; (c) OPEN WAREHOUSE and carpentry shop; (d) scale house (wood and masonry); (e) Wire and Nail Plant (industrial) one-storey steel frame with an area of 6,489 erected on the lots covered by TCT Nos. 43445, 43338, 853 and 30196, land records of Rizal; (f) office building (commercial two-storey, wood and masonry, with an area of 240 square meters, first floor erected a lot covered by TCT No. 32343, Land records of Rizal; and (g) Mess Hall and dormitory, with a total area of 250 square meters, erected on the same above-mentioned lot (TCT No. 322843-Rizal) per Exhs. C and C-1.

19.3 The first sentence of paragraph 16.2 of the DECISION is AMENDED to read as follows:

16.2. The seven (7) buildings sold to PNB under Exhs. C and C-1 have not been shown to be among the said thirty-four (34) buildings.

xxx xxx xxx

(Rollo — G.R. No. 96056, p. 237)

Obviously, the trial court assumed that there are two (2) PBM compounds in Pasig, Metro Manila, one at Manggahan and one at Rosario. Under this premise, the trial court ruled that since the petitioner did not adduce evidence to prove that the buildings housing the chattels sold to PNB are located at the PBM Compound in Manggahan where the building machinery and equipment sold to Asibar were located, then there is no identity of properties between those sold earlier to PNB and later to Asibar. Such conclusion has no factual basis.

Asibar, himself, in his "Answer with Counterclaim" never raised the issue as regards the location of the buildings, machinery and equipment sold to him. Under his Answer with Counterclaim, captioned as "SPECIAL AND AFFIRMATIVE DEFENSES" Asibar alleged:

Assuming without admitting that the plaintiff's acquisition of the properties of the PBM in the alleged auction sale on November 23, 1983 by virtue of a foreclosure proceedings under a mortgage contract is true, its ownership is only limited to its rights as mortgagee and subject to other superior liens. It cannot affect the lien of the defendants Ricardo Zurita, et al. (complainants in NLRC Case No. 9-3296-84) over the properties of PBM already attached and existing to it at the time of the

foreclosure and/or the plaintiff's acquisition of the PBM properties being said lien is a laborer's lien;

10. The lien of the defendants Ricardo Zurita, et al. and other laborers numbering 2,081 in all, complainants in the NLRC Case No. 9-3296-84 was already attached and existing over the PBM properties since 1981 the time when the said laborers were illegally dismissed or when PBM ceased its operations allegedly due to bankruptcy, and at the time when the PNB or the plaintiff allegedly acquired the PBM properties;

11. Said lien of the defendants Ricardo Zurita, et al. (complainants in NLRC Case No. NCR-9-3296-84) is superior and enjoys preference over the lien of the plaintiff as mortgagee and constitute an automatic first lien above all other earlier encumbrances on the PBM properties pursuant to the doctrine laid down by the Supreme Court in G.R. No. 68819-20, Ferrer, et al, v. Romillo, Jr., et al. promulgated on February 7, 1985; PCIB v. NAMAWU, 115 SCRA 873 and G.R. No. L-39742, Air Manila, Inc., et al. v. CIR;

12. The judgment award to the defendants Ricardo Zurita, et al. in NLRC Case No. NCR. 9-3296-84 which is in the nature of separation pay from PBM a corporation that had ceased operation due to bankruptcy, is superior to the rights of PNB as mortgagee and that of the plaintiff who just step into the shoes of the former over the properties of PBM pursuant to the doctrine laid down by the Supreme Court in G.R. No. 75161-62, PNB v. Delta Workers Union, et al., promulgated on April 1, 1987, that the rights of workers to separation pay from a bankrupt corporation is superior to a mortgagee's credit in the foreclosed property and considering further that Art. 110 of the Labor Code is constitutional because Police Power prevails over non-impairment of the obligation and contract clause in the Constitution;

13. So that what the PNB can rightfully claim on the PBM properties is only the residue after the lien of the laborers of PBM (defendants Ricardo Zurita, et al., complainants against the PBM in NLRC Case No. NCR 9-3296-84) has been fully satisfied. Thus, this residue, if there is any, is the only thing that the plaintiff can rightfully claim, and it cannot further claim that the properties are already exempt from execution the fact that the plaintiff is the government as it merely steps into the shoes of the PNB. It is elementary that water cannot rise higher than its source;

14. Herein defendant being the purchaser of the properties of PBM transferred on account of the exercise of a superior and automatic first lien above all earlier encumbrances attached to the properties, evidenced by a certificate of sale, is therefore the rightful and legal owner of the properties subject hereof over and above and superior and paramount from the claim of ownership of the plaintiff; (Rollo, p. 215-217)

In fine, Asibar's defense to the complaint of the petitioner centered on his allegation that his right to the properties is superior to the right of the petitioner. The issue as to the proper disposition of the PBM properties has already been decided earlier by this court in the other PBM cases. The jurisprudence on the matter is now final and Asibar cannot resurrect the issue as to which is superior, the PNB foreclosure and purchase of the properties in 1983 or the claims of various creditors, including the workers, which we decided in 1985.

Moreover, it is worthy to note that respondent Sheriff Santos in itemizing the properties which he sold during the auction sale identified them as "Properties Located at PBM Compound, Pasig Metro Manila" (p. 194, Rollo, G.R. No. 96056) which signifies that there is only one PBM compound in Pasig, Metro Manila.

That there is only one PBM compound in Pasig is confirmed by the certification of Mayor Mario S. Raymundo of Pasig (Annex "B", Additional Argument filed by intervenor Phoenix Inc. and Steel Corporation [PISCOR]), to wit:

C E R T I F I C A T I O N

TO WHOM IT MAY CONCERN:

THIS IS TO CERTIFY that since 1981 up to the present time there is only one facility referred to as the Philippine Blooming Mills (P.B.M.) Compound in the Municipality of Pasig, Metro Manila.

The above-mentioned facility is located at the boundary of Barangay Rosario and Manggahan. And, therefore, the P.B.M. Compound is sometimes part of the Barangay Manggahan. In any case, there is only one facility known as the P.B.M. Compound in the Municipality of Pasig.

This certification is issued at the request of the Phoenix Iron and Steel Corporation (PISCOR) for location reference purposes.

Given this 5th day of March 1991 at Pasig, Metro Manila.

(Sgd.) MARIO

S. RAYMUNDOMunici

pal Mayor

(Rollo — G.R. No. 96056, p. 797)

Another certification issued by the Assessor's Office through Senior Taxmapper Bonifacio C. Maceda, Jr. clears the confusion as regards the address of the PBM Compound in Pasig which is referred to as Manggahan by some and Rosario by others, to wit:

October 30, 1991

TO WHOM IT MAY CONCERN:

This is to certify that as per Real Property Tax Records of this office, the properties of the former facility known as the Philippine Blooming Mills Co., Inc., located in the

Municipality of Pasig, are officially part of Manggahan and not part of Rosario based on the Tax Declaration of the said property.

Furthermore, although the Pasig facility of the Philippine Blooming Mills Co., Inc. since existence carried the address of Rosario; the tax mapping of the Municipality of Pasig initiated by this office in the period between 1987-1988 officially pegged the boundary of Rosario and Manggahan to be the point where the Litton Mills property end and where the former Philippine Blooming Mills Co., Inc. begins.

This certification is issued for whatever purpose it may serve.

(Sgd.) BONIFACIO

C. MACE

DA, JR.Sr.

Taxmapper

(Rollo — G.R. No. 96056, p. 798)

Any doubts regarding the existence of only one PBM Compound located at Pasig instead of two (2) as implied by the trial court is dispelled by Volume 2 of the 1989-1990 Metro Manila Citiguide (The Encyclopedic Map of Metro Manila) where Map 130 shows the PBM Compound, and Map 131 a portion thereof which indicates that the PBM compound in Pasig is only one and not made of two (2) parts, one in Rosario and another in Manggahan. (Annex "D", Additional Argument filed by PISCOR).

The location of the PBM Compound was never in issue before the trial court. It appears from the records that it was assumed to be a matter known to all the parties, that the parties were aware of the exact whereabouts of the compound in Pasig.

From the sole fact that some documents bore the address PBM, Rosario, Pasig, while other documents carried the address PBM, Manggahan, Pasig, the trial court jumped to the conclusion that there are two (2) PBM compounds in the same town, in two barangays adjacent to each other, with each compound containing identical sets of buildings and the buildings containing identical but separate sets of extremely expensive machineries and equipment.

It was relatively easy for the trial court, if it wanted to decide the case on matter not fully litigated by the parties, to ascertain the correct factual bases for its conclusion.

The PBM compound is at the boundary of the two barangays. This explains why in some documents, it used Rosario as an address while in others it used Manggahan. It is not logical for a steel company to establish two huge industrial complexes in two adjacent barangays of the same town and to treat them, as the trial court did, as two separate and distinct industrial complexes. The court should have received evidence to clearly establish what now appears from the records of these and earlier cases to be a wrong conclusion.

The chattels are clearly identified and numbered in the PNB and APT records of ownership. Conveniently for the private respondent, properties acquired by PNB for P76,720,800.00 in the 1983 were sold to Asibar for only P5,950,000.00 as scrap and machineries in lots, each lot being the contents of one entire building, with no specifying details and no identification as to what types of machineries, serial numbers, etc. were sold for a nominal sum.

The well-entrenched principle that findings of facts of the Court of Appeals are conclusive and binding upon this Court is not without exceptions. Such exceptions include the following: when the findings are not supported by the record, glaringly erroneous as to constitute grave abuse of discretion or when the findings are grounded entirely on speculation, surmise or conjecture. (See Chan v. Court of Appeals, 33 SCRA 737 [1970]; Baniqued v. Court of Appeals, 127 SCRA 596 [1984]; Moran, Jr. v. Court of Appeals, 133 SCRA 88 [1984]; Collector of Customs of Manila v. Intermediate Appellate Court, 137 SCRA 3 [1985]; Premier Insurance and Surety Corporation v. Intermediate Appellate Court, 141 SCRA 423 [1986]; Director of Lands, et al. v. Funtilar, et al., 142 SCRA 57 [1986]; Manlapaz v. Court of Appeals, 147 SCRA 236 [1987]; Chua Giok Ong v. Court of Appeals, 149 SCRA 115 [1987] Francisco v. Mandi, 152 SCRA 711 [1987]; Knecht v. Court of Appeals, 158 SCRA 80 [1988]; Garcia v. Court of Appeals, 33 SCRA 623 [1970]; Tolentino v. De Jesus, 56 SCRA 167 [1974]; Ramos v. Court of Appeals, 63 SCRA 331 [1975]; Rizal Cement Co., Inc. v. Villareal, 135 SCRA 15 [1985]; Municipality of Meycauayan v. Intermediate Appellate Court, 157 SCRA 640 [1988]; Remalante v. Tibe, et al., 158 SCRA 138 [1988]; Bunag v. Court of Appeals, 158 SCRA 306 [1988]; Santa Ana, Jr. v. Hernandez, 18 SCRA 973 [1986]; Joaquin v. Navarro, 93 Phil. 257 [1953]; Cruz v. Court of Appeals, G.R. No. 85685, September 11, 1991)

Certainly, the trial court's ruling that there is no identity as between the PBM properties sold to PNB and those sold to Asibar because the petitioners did not prove the location of the same, whether they are at the PBM compound located at Manggahan or at the PBM Compound located at Rosario on the premise that there are two (2) PBM Compounds in Pasig is patently and glaringly erroneous amounting to a grave abuse of discretion.

Moreover, the trial court's finding that the petitioner failed to show that the machineries and equipment sold to PNB found inside twelve (12) buildings inside the PBM compound are the same as those sold to Asibar found in the thirty four (34) buildings and that the twelve (12) buildings are the same twelve buildings forming part of thirty four (34 buildings) in which machineries and equipment were sold to Asibar is patently erroneous and not supported by the record.

The record shows that the petitioner mentions at least nine (9) buildings which are among the thirty four (34) buildings and that the machineries and equipment inside the said nine buildings were also sold to Asibar as indicated by Exhibits 1 to 1-"D", Annex "D" Petition). These are: (1) Scale House which is Bid Item No. 5; (2) Machine Shop which is Bid Item No. 8; (3) Open Hearth Furnace which is Bid Item No. 12; (4) Oxygen Plant which is Bid Item No. 14; (5) Rolling Mills which is Bid Item No. 19; (6) Boiling Press Machine Building which is Bid Item No. 24; (7) Carpentry and Electrical Shop which is Bid Item No. 30; (8) Nail Plant which is Bid Item No. 30; and (9) Motor Pool which is Bid Item No. 33. The certificate of sale (Annex "C" Petition) issued to PNB indicates that the chattels inside these buildings found at PBM Compound, Barrio Rosario, Pasig Metro Manila were sold to PNB. The certificate of sale describes with particularity the chattels found in these buildings. For example, citing only one building:

Nail Plant

Nail Making Machine "Yamamura" built 1950, weight 420, type YA, 500 rpm, Serial No. 244.

9 Nail Making Machine "Yamamura" built 1950, weight 550, type YB, 400 rpm, Serial Nos. 252, 246, 245, 217, 218, 251, 250, and 249. (Rollo — G.R. No. 96056, p.80)

xxx xxx xxx

On the other hand, the certificate of sale issued to Asibar by Sheriff Santos referred to the chattels found in the thirty four (34) buildings which include the aforesaid nine (9) buildings sold to Asibar as follows:

. . . building materials and fixtures including imbedded pipes and metals and all kinds of materials obtained from the total demolition of each buildings, structure, or bid item described below; and all MILL/PLANT MACHINERY, EQUIPMENT, MATERIALS AND SUPPLIES and all movable properties found inside each building/structure described below.

Undoubtedly, the foregoing description of properties includes all chattels found inside the thirty four (34) buildings including those already sold to PNB in the nine (9) buildings.

Under these circumstances, the appellate court committed a reversible error in ruling that the lower court did not commit a grave abuse of discretion in its finding that there is no identity of PBM properties sold to PNB and Asibar.

With these findings, the inevitable conclusion is that the auction sale conducted by Sheriff Santos is null and void. As discussed earlier the NLRC has no jurisdiction over PBM properties which are already owned by third persons. As revealed by the records, the questioned PBM properties which were levied under a writ of execution dated November 13, 1987 issued in NLRC Case NO. 9-3296-84 and subsequently sold in a public auction sale were already owned by PNB as evidenced by a certificate of sale dated November 23, 1983. The validity of the sale was not challenged by the respondents at the time of the said properties' levy. We ruled in a long line of cases that the power of the court to execute its judgment extends only to properties unquestionably owned by the judgment debtor. (See Consolidated Bank and Trust Corporation(solid Bank) supra.

IV

The main issue in G.R. No. 96437 centers on whether or not the complaint filed by respondent Asibar against the petitioner states a cause of action.

In the lower court, the petitioner contended that the complaint is premature since paragraph 2 of the Deed of Sale states that the balance shall be payable only upon the dismissal of Civil Case No. 18426 (subject of the petition in G.R. No. 96056) and the same shall be secured within two (2) weeks from the signing of the Deed of Sale on February 10, 1988. In other words, the balance would be paid only when it is finally ascertained as to who between the APT and Asibar owns the properties sold by the latter. According to the petitioner, the private respondent still has to present proof of the dismissal of Civil Case No. 18426. Hence, the petitioner argues that based on the Deed of Sale, the contract between the two (2) parties, the private respondent possessed no demandable right arising from the Deed of Sale.

The appellate court dismissed the petition on the ground that it has become moot and academic in view of the December 29, 1989 decision of the Regional Trial Court of Makati, Branch 60 in Civil Case No. 18426. The dispositive portion of the decision reads:

WHEREFORE, the Court hereby renders judgment as follows:

The COMPLAINT dated November 25, 1987 is DISMISSED;

The Order dated December 16, 1987 (pp. 87-90, Records) as clarified in the Order dated July 19, 1988 granting the plaintiffs application for a writ of preliminary injunction (pp. 288-289, Id.) is LIFTED and SET ASIDE; and

The COUNTERCLAIMS of the defendants (other than SILVINO SANTOS and BIENVENIDO HERMOGENES) are DISMISSED. (Rollo — G.R. No. 96056, p. 42)

The appellate court ruled that the decision dismissing Civil Case No. 18426 and lifting the injunction rendered the petition moot and academic.

The petitioner now contends that the appellate court committed grave abuse of discretion in dismissing its petition for certiorari for being moot and academic. It argues that the dismissal of Civil Case No. 18426 provided in the Deed of Sale refers to a decision which is final and executory considering that Civil Case No. 18426 is for the annulment of the auction sale and certificate of sale from which respondent Asibar derived the properties which he sold to the petitioner. Until, therefore, the sale of these properties are declared valid by a final and executory decision, the respondent has no right and interest in the same properties which he could transfer and sell to the petitioner.

The well-settled rule is that when a party files a motion to dismiss the complaint for lack of cause of action he is deemed to hypothetically admit the allegations thereof. (Nicanor G. De Guzman, Jr. v. Court of Appeals, G.R. Nos. 92029-30, December 20, 1990)

It is clear from the Deed of Sale which was attached to the complaint and in fact the basis for the complaint, that the vendee, the petitioner herein, is obligated under that contract to pay the amount of P9,500,000.00 as follows:

xxx xxx xxx

b. Fourteen (14) days from the date Civil Case No. 18426 pending in Branch 60, is dismissed, the VENDEE shall pay the amount of Four Million Pesos (P4,000,000.00) to the VENDOR;

xxx xxx xxx

. . . In the event the restraining order is lifted, the payments under the above-schedule shall be resumed; (pp. 1-4, Deed of Sale, Annex "B", Petition)

When, therefore, the trial court rendered its decision and dismissed Civil Case No. 18426 and at the same time lifted the injunction issued therein, the vendor, respondent Asibar, acquired a demandable right against the petitioners in relation to their contract, the Deed of Sale.

The cause of action must always consist of two elements: (1) the plaintiff's primary right and the defendant's corresponding primary duty, whatever may be the subject to which they relate — person, character, property or contract; and (2) the delict or wrongful act or omission of the defendant, by which the primary right and duty have been violated. The cause of action is determined not by the prayer of the complaint

but by the facts alleged. (R.C.L. 489 21; Section 126, C.C.P.I.; Cagibao v. Lim, 50 Phil. 844 [1924]; See Martin, supra) (De Guzman, Jr. v. Hon. Court of Appeals, et al. supra)

Under the facts as they then stood, the Court of Appeals did not commit grave abuse of discretion in dismissing the petition for being moot and academic.

Whether or not the Regional Trial Court's dismissal of Civil Case No. 18426 refers to a dismissal that is final and executory was a defense which should be raised in the answer and determined in the course of the proceedings of the case.

However, the issue in G.R. No. 96437 are inextricably intertwined with the issues in G.R. No. 96056. Since we have found that the Sheriff's sale to Asibar was null and void, it follows that Asibar could not have sold to Phoenix Iron and Steel Corporation the properties which did not lawfully belong to him.

This case started as a complaint seeking the payment to Asibar by petitioner Phoenix Iron and Steel Corporation (PISCOR) and Wilfredo Labayen, vice-president of PISCOR of the alleged balance based on the deed of sale executed by respondent Asibar in favor of PISCOR. The deed of sale covers PBM properties which Asibar acquired in the auction sale which is the subject matter in G.R. No. 96056 to wit:

WHEREAS, the VENDOR is the purchaser at an auction sale conducted in NLRC Case No. 9-3296-84 of machineries and equipment located inside all the buildings in the realty covered by TCT No. (11486) 41183, per certificate of sale dated November 23, 1987, executed and issued by Silvino S. Santos, as an incident in the execution of the decision in the aforementioned case entitled Ricardo Zurita, et al. v. Philippine Blooming Mills, Co., Inc., (PBM) and BPI Investment Corporation, . . . (Rollo— G.R. No. 96437, p. 38)

Considering our ruling in G.R. No. 96056 where we annulled that auction sale of February 23, 1987 conducted by Sheriff Silvino Santos, respondent Asibar has no rights and/or interest over the PBM properties, the same properties of which are concededly subject of the deed of sale between Asibar as vendor and petitioner PISCOR as vendee. In view of this development Asibar's complaint against the petitioner to recover the payment of the balance of the consideration agreed upon by the parties in the deed of sale has no more legal basis and should now be dismissed.

WHEREFORE, the Court renders judgment as follows:

1. In G.R. No. 89767, the petition is GRANTED. The questioned decision and resolution of the Court of Appeals are hereby reversed and set aside. The May 26, 1989 Order of the Securities and Exchange Commission is declared null and void;

2. In G.R. No. 96056, the petition is GRANTED. The questioned decision of the Court of Appeals is hereby SET ASIDE. The questioned auction sale conducted by Sheriff Silvino Santos is declared null and void and the certificate of sale issued to respondent Alfredo Asibar is cancelled. The Temporary Restraining Order issued on November 29, 1990 is made PERMANENT; and

3. In G.R. No. 96437, the petition is declared MOOT and ACADEMIC. The Regional Trial Court of Pasig Branch 151 is ordered to DISMISS Civil Case No. 56806.

SO ORDERED.

Narvasa, C.J., Melencio-Herrera, Cruz, Paras, Feliciano, Bidin, Griño-Aquino, Medialdea, Regalado, Davide, Jr., Romero and Nocon, JJ., concur.

Padilla, J., took no part.

[G.R. No. 148340.  January 26, 2004]

J.A.T. GENERAL SERVICES and JESUSA ADLAWAN TOROBU, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION and JOSE F. MASCARINAS, respondents.

D E C I S I O N

QUISUMBING, J.:

For review are the Decision[1] dated February 27, 2001 of the Court of Appeals in CA-G.R. SP No. 60337, and its Resolution[2] dated May 28, 2001, denying the motion for reconsideration.  The Court of Appeals dismissed the petition for certiorari filed by petitioners and affirmed the Resolution[3] of the National Labor Relations Commission (NLRC), Third Division, which affirmed the Decision[4] of Labor Arbiter Jose G. De Vera in NLRC-NCR Case No. 00-03-02279-98, which found petitioners liable for illegal dismissal and ordered petitioners to pay private respondent Jose Mascarinas separation pay, backwages, legal holiday pay, service incentive leave pay and 13 th month pay in the aggregate sum of P85,871.00.

The facts, as culled from the records, are as follows:

Petitioner Jesusa Adlawan Trading & General Services (JAT) is a single proprietorship engaged in the business of selling second-hand heavy equipment.  JAT is owned by its namesake, co-petitioner Jesusa Adlawan Torobu.  Sometime in April 1997, JAT hired private respondent Jose F. Mascarinas as helper tasked to coordinate with the cleaning and delivery of the heavy equipment sold to customers.  Initially, private respondent was hired as a probationary employee and was paid P165 per day that was increased to P180 in July 1997 and P185 in January 1998.

In October 1997, the sales of heavy equipment declined because of the Asian currency crisis.  Consequently, JAT temporarily suspended its operations. It advised its employees, including private respondent, not to report for work starting on the first week of March 1998.  JAT indefinitely closed shop effective May 1998.

A few days after, private respondent filed a case for illegal dismissal and underpayment of wages against petitioners before the NLRC.

In his Complaint, private respondent alleged that he started as helper mechanic of JAT on January 6, 1997 with an initial salary rate of P165.00 per day, which was increased toP180.00 per day after six (6) months in employment.  He related that he was one of those retrenched from employment by JAT and was allegedly required to sign a piece of paper which he refused, causing his termination from employment.

On December 14, 1998, JAT filed an Establishment Termination Report with the Department of Labor and Employment (DOLE), notifying the latter of its decision to close its business operations due to business losses and financial reverses.

After due proceedings, the Labor Arbiter rendered a decision on March 25, 1999, finding the dismissal of herein private respondent unjustified and ordering JAT to pay private respondent separation pay and backwages, among others.  The decretal portion of the decision reads as follows:

WHEREFORE, all the foregoing premises being considered, judgment is hereby rendered ordering the respondents [herein petitioners] to pay complainant the aggregate sum of P85,871.00.

SO ORDERED.[5]

The Labor Arbiter ruled that (1) private respondent Jose F. Mascarinas’  dismissal was unjustified because of petitioners’ failure to serve upon the private respondent and the DOLE the required written notice of termination at least one month prior to the effectivity thereof and to submit proof showing that petitioners suffered a business slowdown in operations and sales effective January 1998; (2) private respondent may recover backwages from March 1, 1998 up to March 1, 1999 or P66,924.00[6] and separation pay, in lieu of reinstatement, at the rate of one (1) month pay for every year of service, or P10,296.00;[7] (3) the payrolls submitted by JAT showed that effective May 1, 1997, private respondent’s wages did not conform to the prevailing minimum wage, hence, private respondent is entitled to salary differentials from May 1, 1997 to January 6, 1998, in the amount ofP1,066.00;[8] (4) that private respondent be awarded legal holiday pay in the amount of P1,850.00,[9] service incentive leave pay in the amount of P925.00[10] and 13th month pay for 1997 in the amount of P4,810.00.[11]

On appeal, the NLRC affirmed the decision of the labor arbiter. [12]  The NLRC found that the financial statements submitted on appeal were questionable, unreliable and inconsistent with petitioners’ allegations in the pleadings, particularly as to the date of the alleged closure of operation; hence, they cannot be used to support private respondent’s dismissal.  The NLRC also affirmed the monetary awards because petitioners failed to prove the payment of benefits claimed by private respondent.

Dissatisfied, petitioners filed a Petition for Certiorari under Rule 65 before the Court of Appeals, which the latter dismissed.  The decretal portion of the decision reads as follows:

WHEREFORE, foregoing premises considered, the instant petition, having no merit in fact and in law, is hereby DENIED DUE COURSE, and ordered DISMISSED, and

the assailed decision of the National Labor Relations Commission AFFIRMED, with costs to petitioners.

SO ORDERED.[13]

The Court of Appeals affirmed the findings of the NLRC, particularly on the illegal dismissal of the private respondent.  The appellate court held that the petitioners failed to prove by clear and convincing evidence their compliance with the requirements for valid retrenchment.  It cited the findings of the NLRC on the belated submission of the financial statements during appeal that could not be given sufficient weight, and that the petitioners’ late submission of notice of closure is indicative of their bad faith.

Petitioners filed a Motion of Reconsideration, which was denied by the Court of Appeals.

Hence, the present petition alleging that the:

A.   THE LOWER COURT (sic) ERRED IN RULING THAT A NOTICE TO THE DEPARTMENT OF LABOR AND EMPLOYMENT (DOLE) IS NECESSARY IN CASE OF TEMPORARY SUSPENSION OF BUSINESS;

B.   THE LOWER COURT (sic) ERRED IN RULING THAT PRIVATE RESPONDENT IS ENTITLED TO BACKWAGES DESPITE THE FACT THAT PRIVATE RESPONDENT WAS NOT DISMISSED FROM SERVICE AT THE TIME THE COMPLAINT WAS FILED;

C.  THE LOWER COURT (sic) ERRED IN RULING THAT THE EMPLOYER HAS THE BURDEN OF PROVING THE EXISTENCE OF AN EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PARTIES;

D.  ASSUMING ARGUENDO THAT THE NOTICE TO THE LABOR DEPARTMENT FAILED TO COMPLY WITH THE ONE-MONTH PERIOD, THE LOWER COURT (sic) ERRED IN AWARDING BACKWAGES AND/OR SEPARATION PAY TO PRIVATE RESPONDENT EVEN FOR PERIOD AFTER PETITIONERS FILED A NOTICE OF ACTUAL CLOSURE OF THE COMPANY BEFORE THE LABOR DEPARTMENT.[14]

The relevant issues for our resolution are: (a) whether or not private respondent was illegally dismissed from employment due to closure of petitioners’ business, and (b) whether or not private respondent is entitled to separation pay, backwages and other monetary awards.

On the first issue, the petitioners claim that the Court of Appeals erroneously concluded that they are liable for illegal dismissal because of non-compliance of the

procedural and substantive requirements of terminating employment due to retrenchment and cessation of business.  They argued that there was no closure but only suspension of operation in good faith in March 1998, when private respondent claimed to have been illegally dismissed, due to the decline in sales and heavy losses incurred in its business arising from the 1997 Asian financial crisis.  Petitioners assert that under Article 286 of the Labor Code, a bona fide suspension of the operation of a business for a period not exceeding six (6) months shall not terminate employment and no notice to an employee is required.  However, petitioners relate that JAT was compelled to permanently close its operation eight (8) months later or on November 1998, when the hope of recovery became nil but only after sending notices to all its workers and DOLE.  Thus, petitioners argue that it cannot be held liable for illegal dismissal in March 1998 since there was no termination of employment during suspension of operations and a notice to employee is not required, unlike in the case of permanent closure of business operation.

We need not belabor the issue of notice requirement for a suspension of operation of business under Article 286[15] of the Labor Code.  This matter is not pertinent to, much less determinative of, the disposition of this case.  Suffice it to state that there is no termination of employment during the period of suspension, thus the procedural requirement for terminating an employee does not come into play yet.  Rather, the issue demanding a sharpened focus here concerns the validity of dismissal resulting from the closure of JAT.

A brief discussion on the difference between retrenchment and closure of business as grounds for terminating an employee is necessary.  While the Court of Appeals defined the issue to be the validity of dismissal due to alleged closure of business, it cited jurisprudence relating to retrenchment to support its resolution and conclusion.  While the two are often used interchangeably and are interrelated, they are actually two separate and independent authorized causes for termination of employment.  Termination of an employment may be predicated on one without need of resorting to the other.

Closure of business, on one hand, is the reversal of fortune of the employer whereby there is a complete cessation of business operations and/or an actual locking-up of the doors of establishment, usually due to financial losses.  Closure of business as an authorized cause for termination of employment aims to prevent further financial drain upon an employer who cannot pay anymore his employees since business has already stopped. On the other hand, retrenchment is reduction of personnel usually due to poor financial returns so as to cut down on costs of operations in terms of salaries and wages to prevent bankruptcy of the company.  It is sometimes also referred to as down-sizing.  Retrenchment is an authorized cause for termination of employment which the law accords an employer who is not making good in its operations in order to cut back on expenses for salaries and wages by laying off some employees.  The purpose of retrenchment is to save a financially ailing business establishment from eventually collapsing.[16]

In the present case, we find the issues and contentions more centered on closure of business operation rather than retrenchment.  Closure or cessation of operation of the

establishment is an authorized cause for terminating an employee under Article 283 of the Labor Code, to wit:

ART. 283.  Closure of establishment and reduction of personnel. – The employer may also terminate the employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Department of Labor and Employment at least one (1) month before the intended date thereof. …  In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or to at least one-half (1/2) month pay for every year of service, whichever is higher.  A fraction of at least six (6) months shall be considered one (1) whole year.

However, the burden of proving that such closure is bona fide falls upon the employer.[17] In the present case, JAT justifies its closure of business due to heavy losses caused by declining sales.  It belatedly submitted its 1997 Income Statement [18] and Comparative Statement of Income and Capital for 1997 and 1998 [19] to the NLRC to prove that JAT suffered losses starting 1997.  However, as noted earlier, these were not given much evidentiary weight by the NLRC as well as the Court of Appeals, to wit:

The financial statements submitted by the respondents on appeal are questionable for the following reasons: (1) the figures in Annexes “D-2” and “E” of the appeal memorandum (which both refer to 1997) do not tally; (2) they (the respondents) allegedly closed on March 1, 1998.  Yet, their 1998 financial statement (Annex “E”) indicates operations up to and ending December 31, 1998.  In view of the foregoing, the above-mentioned financial statements do not justify the complainant’s dismissal. …[20]

The foregoing findings of the Court of Appeals is conclusive on us.  We see no cogent reason to set it aside.   While business reverses or losses are recognized by law as an authorized cause for terminating employment, it is an essential requirement that alleged losses in business operations must be proven convincingly.  Otherwise, said ground for termination would be susceptible to abuse by scheming employers, who might be merely feigning business losses or reverses in their business ventures in order to ease out employees.[21]  In this case, the financial statements were not only belatedly submitted but were also bereft of necessary details on the extent of the alleged losses incurred, if any.  The income statements only indicated a decline in sales in 1998 as compared to 1997.  These fell short of the stringent requirement of the law that the employer prove sufficiently and convincingly its allegation of substantial losses.  While the comparative income statement shows a net loss of P207,091 in 1998, the income statement of 1997 still shows JAT posting a net income of P19,361.  Both statements

need interpretation as to their impact on the company’s termination of certain personnel as well as business closure.

Having concluded that private respondent was not validly dismissed resulting from closure of business operations due to substantial losses, we now proceed to determine whether or not private respondent was validly dismissed on the ground of closure or cessation of operations for reasons other than substantial business losses.

A careful examination of Article 283 of the Labor Code shows that closure or cessation of business operation as a valid and authorized ground of terminating employment is not limited to those resulting from business losses or reverses.  Said provision in fact provides for the payment of separation pay to employees terminated because of closure of businessnot due to losses, thus implying that termination of employees other than closure of business due to losses may be valid.

Hence, in one case,[22] we emphasized that:

…Art. 283 governs the grant of separation benefits “in case of closures or cessation of operation” of business establishments “NOT due to serious business losses or financial reverses x  x  x.”  Where, however, the closure was due to business losses–as in the instant case, in which the aggregate losses amounted to over P20 billion–the Labor Code does not impose any obligation upon the employer to pay separation benefits, for obvious reasons.  There is no need to belabor this point.  Even the public respondents, in their Comment filed by the Solicitor General, impliedly concede this point.

In another case,[23] we held more emphatically that:

In any case, Article 283 of the Labor Code is clear that an employer may close or cease his business operations or undertaking even if he is not suffering from serious business losses or financial reverses, as long as he pays his employees their termination pay in the amount corresponding to their length of service.  It would, indeed, be stretching the intent and spirit of the law if we were to unjustly interfere in management’s prerogative to close or cease its business operations just because said business operation or undertaking is not suffering from any loss.

In the present case, while petitioners did not sufficiently establish substantial losses to justify closure of the business, its income statement shows declining sales in 1998, prompting the petitioners to suspend its business operations sometime in March 1998, eventually leading to its permanent closure in December 1998.  Apparently, the petitioners saw the declining sales figures and the unsustainable business environment with no hope of recovery during the period of suspension as indicative of bleak business prospects, justifying a permanent closure of operation to save its business from further collapse.  On this score, we agree that undue interference with an employer’s judgment in the conduct of his business is uncalled for.   Even as the law is solicitous of the welfare of employees, it must also protect the right of an employer to exercise what is

clearly a management prerogatives.  As long as the company’s exercise of the same is in good faith to advance its interest and not for the purpose of defeating or circumventing the rights of employees under the law or a valid agreement such exercise will be upheld.[24]

In the event, under Article 283 of the Labor Code, three requirements are necessary for a valid cessation of business operations, namely: (a) service of a written notice to the employees and to the DOLE at least one (1) month before the intended date thereof; (b) the cessation of business must be bona fide in character; and (c) payment to the employees of termination pay amounting to at least one-half (1/2) month pay for every year of service, or one (1) month pay, whichever is higher.[25]

The closure of business operation by petitioners, in our view, is not tainted with bad faith or other circumstance that arouses undue suspicion of malicious intent.   The decision to permanently close business operations was arrived at after a suspension of operation for several months precipitated by a slowdown in sales without any prospects of improving. There were no indications that an impending strike or any labor-related union activities precipitated the sudden closure of business.  Further, contrary to the findings of the Labor Arbiter, petitioners had notified private respondent [26] and all other workers through written letters dated November 25, 1998 of its decision to permanently close its business and had submitted a termination report to the DOLE. [27]  Generally, review of labor cases elevated to this Court on a petition for review on certiorari is confined merely to questions of law.  But in certain cases, we are constrained to analyze or weigh the evidence again if the findings of fact of the labor tribunals and the appellate court are in conflict, or not supported by evidence on record or the judgment is based on a misapprehension of facts.[28]

In this case, we are persuaded that the closure of JAT’s business is not unjustified.  Further we hold that private respondent was validly terminated, because the closure of business operations is justified.

Nevertheless in this case, we must stress that the closure of business operation is allowed under the Labor Code, provided   separation pay be paid to the terminated employee.  It is settled that in case of closure or cessation of operation of a business establishment not due to serious business losses or financial reverses, the employees are always given separation benefits.[29] The amount of separation pay must be computed from the time private respondent commenced employment with petitioners until the time the latter ceased operations.[30]

Considering that private respondent was not illegally dismissed, however, no backwages need to be awarded.  Backwages in general are granted on grounds of equity for earnings which a worker or employee has lost due to illegal dismissal. [31] It is well settled that backwages may be granted only when there is a finding of illegal dismissal.[32]

The other monetary awards to private respondent are undisputed by petitioners and unrefuted by any contrary evidence.  These awards, namely legal holiday pay, service incentive leave pay and 13th month pay, should be maintained.

WHEREFORE, the petition is given due course.  The assailed Resolutions of the Court of Appeals in CA-G.R. SP No. 60337 are AFFIRMED with the MODIFICATION that the award of P66,924.00 as backwages is deleted.  The award of separation pay amounting to P10,296.00 and the other monetary awards, namely salary differentials in the amount ofP1,066.00, legal holiday pay in the amount of P1,850.00, service incentive leave pay in the amount of P925.00 and 13th month pay in the amount of P4,910, or a total of P29,047.00 are maintained.  No pronouncement as to costs.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.