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LEGAL NOTE 0122: WHAT IS THE JURISDICTION OF HLURB?

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May 28, 2012

LEGAL NOTE 0122: WHAT IS THE JURISDICTION OF HLURB?

SOURCE: PHILIP L. GO, PACIFICO Q. LIM AND ANDREW Q. LIM VS. DISTINCTION PROPERTIES DEVELOPMENT AND CONSTRUCTION, INC. (G.R. NO. 194024, 25 APRIL 2012, MENDOZA, J.) SUBJECT/S: HOW JURISDICTION IS DETERMINED; HLURB JURISDICTION; INDISPENSABLE PARTY; DERIVATIVE SUIT; EXHAUSTION OF ADMINISTRATIVE REMEDY; GIVING RESPECT AND FINALITY TO HLURB DECISION (BRIEF TITLE: LIM VS. DISTINCTION PROPERTIES).

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WHAT CONFERS JURISDICTION OVER A SUBJECT MATTER?

IT IS THE LAW.

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HOW IS JURISDICTION DETERMINED?

BY THE ALLEGATIONS IN THE COMPLAINT?

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WHAT IS A COMPLAINT?

A COMPLAINT COMPRISE A CONCISE STATEMENT OF THE ULTIMATE FACTS CONSTITUTING PLAINTIFF’S CAUSE OF ACTION.

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IN DETERMINING JURISDICTION WHAT THEREFORE MUST BE CONSIDERED?

THE ALLEGATIONS OF THE COMPLAINT AND THE RELIEF SOUGHT.

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IN THE CASE OF HLURB, WHAT DETERMINES JURISDICTION?

THE NATURE OF THE CAUSE OF ACTION, THE SUBJECT MATTER OR PROPERTY INVOLVED AND THE PARTIES.

Basic as a hornbook principle is that jurisdiction over the subject matter of a case is conferred by law and determined by the allegations in the complaint which comprise a concise statement of the ultimate facts constituting the plaintiff’s cause of action. The nature of an action, as well as which court or body has jurisdiction over it, is determined based on the allegations contained in the complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein. The averments in the complaint and the character of the relief sought are the ones to be consulted. Once vested by the allegations in the complaint, jurisdiction also remains vested irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein.[1][17] Thus, it was ruled that the jurisdiction of the HLURB to hear and decide cases is determined by the nature of the cause of action, the subject matter or property involved and the parties.[2][18]

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HOW DO YOU DETERMINE THE EXTENT TO WHICH AN ADMINISTRATIVE AGENCY MAY EXERCISE ITS POWERS?

BASED ON THE PROVISIONS OF THE STATUTE CREATING IT.

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IN THE CASE OF HLURB, WHAT LAWS DETERMINE THE EXTENT OF ITS POWERS TO HEAR CASES?

PD 957 WHICH GRANTED HLURB EXCLUSIVE JURISDICTION TO REGULATE THE REAL ESTATE TRADE AND BUSINESS.

THIS POWER WAS EXPANDED BY PD 1344 TO THE FOLLOWING CASES:

(A) UNSOUND REAL ESTATE BUSINESS PRACTICES;

(B) CLAIMS INVOLVING REFUND AND ANY OTHER CLAIMS FILED BY SUBDIVISION LOT OR CONDOMINIUM UNIT BUYER AGAINST THE PROJECT OWNER, DEVELOPER, DEALER, BROKER OR SALESMAN; AND

(C) CASES INVOLVING SPECIFIC PERFORMANCE OF CONTRACTUAL AND STATUTORY OBLIGATIONS FILED BY BUYERS OF SUBDIVISION LOT OR CONDOMINIUM UNIT AGAINST THE OWNER, DEVELOPER, DEALER, BROKER OR SALESMAN.

Generally, the extent to which an administrative agency may exercise its powers depends largely, if not wholly, on the provisions of the statute creating or empowering such agency.[3][19] With respect to the HLURB, to determine if said agency has jurisdiction over petitioners’ cause of action, an examination of the laws defining the HLURB’s jurisdiction and authority becomes imperative. P.D. No. 957,[4][20] specifically Section 3, granted the National Housing Authority (NHA) the “exclusive jurisdiction to regulate the real estate trade and business.” Then came P.D. No. 1344[5][21] expanding the jurisdiction of the NHA (now HLURB), as follows:

SECTION 1. In the exercise of its functions to regulate the real estate trade and business and in addition to its powers provided for in Presidential Decree No. 957, the National Housing Authority shall have exclusive jurisdiction to hear and decide cases of the following nature:

(a) Unsound real estate business practices;

(b) Claims involving refund and any other claims filed by subdivision lot or condominium unit buyer against the project owner, developer, dealer, broker or salesman; and

(c) Cases involving specific performance of contractual and statutory obligations filed by buyers of subdivision lot or condominium unit against the owner, developer, dealer, broker or salesman.

This provision must be read in light of the law’s preamble, which explains the reasons for enactment of the law or the contextual basis for its interpretation.[6][22] A statute derives its vitality from the purpose for which it is enacted, and to construe it in a manner that disregards or defeats such purpose is to nullify or destroy the law.[7][23] P.D. No. 957, as amended, aims to protect innocent subdivision lot and condominium unit buyers against fraudulent real estate practices.[8][24]

The HLURB is given a wide latitude in characterizing or categorizing acts which may constitute unsound business practice or breach of contractual obligations in the real estate trade. This grant of expansive jurisdiction to the HLURB does not mean, however, that all cases involving subdivision lots or condominium units automatically fall under its jurisdiction. The CA aptly quoted the case of Christian General Assembly, Inc. v. Ignacio,[9][25] wherein the Court held that:

The mere relationship between the parties, i.e., that of being subdivision owner/developer and subdivision lot buyer, does not automatically vest jurisdiction in the HLURB. For an action to fall within the exclusive jurisdiction of the HLURB, the decisive element is the nature of the action as enumerated in Section 1 of P.D. 1344. On this matter, we have consistently held that the concerned administrative agency, the National Housing Authority (NHA) before and now the HLURB, has jurisdiction over complaints aimed at compelling the subdivision developer to comply with its contractual and statutory obligations.[10][26] [Emphases supplied]

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IN THIS CASE CERTAIN CONDO OWNERS SUED THE DEVELOPER AND SOUGHT TO INVALIDATE THE CONTRACT BETWEEN THE DEVELOPER AND THE CONDOMINIUM CORPORATION WHICH CONVERTED SOME SALEABLE UNITS INTO COMMON AREAS. ONE GROUND RAISED WAS THAT THE AGREEMENT WAS NOT DULY APPROVED BY THE CONDOMINIUM CORPORATION. HAS HLURB JURISDICTION OVER THE CASE?

NO.

FIRST, THE CONDOMIUM CORPORATION, AN INDISPENSABLE PARTY WAS NOT IMPLEADED.

SECOND, THIS IS A DERIVATIVE SUIT. IT IS A SUIT BY MEMBERS OF A CORPORATION AGAINST THE CORPORATION ITSELF. THIS FALLS UNDER THE JURISDICTION OF SEC, NOW WITH THE COURTS.

In this case, the complaint filed by petitioners alleged causes of action that apparently are not cognizable by the HLURB considering the nature of the action and the reliefs sought. A perusal of the complaint discloses that petitioners are actually seeking to nullify and invalidate the duly constituted acts of PHCC – the April 29, 2005 Agreement[11][27] entered into by PHCC with DPDCI and its Board Resolution[12][28] which authorized the acceptance of the proposed offsetting/settlement of DPDCI’s indebtedness and approval of the conversion of certain units from saleable to common areas. All these were approved by the HLURB. Specifically, the reliefs sought or prayers are the following:

Ordering the respondent to restore the gym to its original location;

Ordering the respondent to restore the hallway at the second floor;

Declaring the conversion/alteration of 22 storage units and Units GF4-A and BAS as illegal, and consequently, ordering respondent to continue paying the condominium dues for these units, with interest and surcharge;

Ordering the respondent to pay the sum of PHP998,190.70, plus interest and surcharges, as condominium dues in arrears and turnover the administration office to PHCC without any charges pursuant to the representation of the respondent in the brochures it circulated to the public;

Ordering the respondent to refund to the PHCC the amount of PHP1,277,500.00, representing the cost of the deep well, with interests and surcharges;

Ordering the respondent to pay the complainants moral/exemplary damages in the amount of PHP100,000.00; and

Ordering the respondent to pay the complainant attorney’s fees in the amount of PHP100,000.00, and PHP3,000.00 for every hearing scheduled by the Honorable Office.[13][29]

As it is clear that the acts being assailed are those of PHHC, this case cannot prosper for failure to implead the proper party, PHCC.

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WHAT IS AN INDISPENSABLE PARTY?

IT IS ONE WHO HAS SUCH AN INTEREST IN THE CONTROVERSY OR SUBJECT MATTER THAT A FINAL ADJUDICATION CANNOT BE MADE, IN HIS ABSENCE, WITHOUT INJURING OR AFFECTING THAT INTEREST.[14][30]

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WHAT HAPPENS IF AN INDISPENSABLE PART IS NOT IMPLEADED?

THE CASE MUST BE DISMISSED.

An indispensable party is defined as one who has such an interest in the controversy or subject matter that a final adjudication cannot be made, in his absence, without injuring or affecting that interest.[15][30] In the recent case of Nagkakaisang Lakas ng Manggagawa sa Keihin (NLMK-OLALIA-KMU) v. Keihin Philippines Corporation,[16][31] the Court had the occasion to state that:

Under Section 7, Rule 3 of the Rules of Court, “parties in interest without whom no final determination can be had of an action shall be joined as plaintiffs or defendants.” If there is a failure to implead an indispensable party, any judgment rendered would have no effectiveness. It is “precisely ‘when an indispensable party is not before the court (that) an action should be dismissed.’ The absence of an indispensable party renders all subsequent actions of the court null and void for want of authority to act, not only as to the absent parties but even to those present.” The purpose of the rules on joinder of indispensable parties is a complete determination of all issues not only between the parties themselves, but also as regards other persons who may be affected by the judgment. A decision valid on its face cannot attain real finality where there is want of indispensable parties.[17][32] (Underscoring supplied)

Similarly, in the case of Plasabas v. Court of Appeals,[18][33] the Court held that a final decree would necessarily affect the rights of indispensable parties so that the Court could not proceed without their presence. In support thereof, the Court in Plasabas cited the following authorities, thus:

“The general rule with reference to the making of parties in a civil action requires the joinder of all indispensable parties under any and all conditions, their presence being a sine qua non of the exercise of judicial power. (Borlasa v. Polistico, 47 Phil. 345, 348) For this reason, our Supreme Court has held that when it appears of record that there are other persons interested in the subject matter of the litigation, who are not made parties to the action, it is the duty of the court to suspend the trial until such parties are made either plaintiffs or defendants. (Pobre, et al. v. Blanco, 17 Phil. 156). x x x Where the petition failed to join as party defendant the person interested in sustaining the proceeding in the court, the same should be dismissed. x x x When an indispensable party is not before the court, the action should be dismissed. (People, et al. v. Rodriguez, et al., G.R. Nos. L-14059-62, September 30, 1959) (sic)

“Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants. (Sec. 7, Rule 3, Rules of Court). The burden of procuring the presence of all indispensable parties is on the plaintiff. (39 Amjur [sic] 885). The evident purpose of the rule is to prevent the multiplicity of suits by requiring the person arresting a right against the defendant to include with him, either as co-plaintiffs or as co-defendants, all persons standing in the same position, so that the whole matter in dispute may be determined once and for all in one litigation. (Palarca v. Baginsi, 38 Phil. 177, 178).

From all indications, PHCC is an indispensable party and should have been impleaded, either as a plaintiff or as a defendant,[19][34] in the complaint filed before the HLURB as it would be directly and adversely affected by any determination therein. To belabor the point, the causes of action, or the acts complained of, were the acts of PHCC as a corporate body. Note that in the judgment rendered by the HLURB, the dispositive portion in particular, DPDCI was ordered (1) to pay ₱998,190.70, plus interests and surcharges, as condominium dues in arrears and turnover the administration office to PHCC; and (2) to refund to PHCC ₱1,277,500.00, representing the cost of the deep well, with interests and surcharges. Also, the HLURB declared as illegal the agreement regarding the conversion of the 22 storage units and Units GF4-A and BAS, to which agreement PHCC was a party.

Evidently, the cause of action rightfully pertains to PHCC. Petitioners cannot exercise the same except through a derivative suit. In the complaint, however, there was no allegation that the action was a derivative suit. In fact, in the petition, petitioners claim that their complaint is not a derivative suit.[20][35] In the cited case of Chua v. Court of Appeals,[21][36] the Court ruled:

For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit. It is a condition sine qua non that the corporation be impleaded as a party because not only is the corporation an indispensable party, but it is also the present rule that it must be served with process. The judgment must be made binding upon the corporation in order that the corporation may get the benefit of the suit and may not bring subsequent suit against the same defendants for the same cause of action. In other words, the corporation must be joined as party because it is its cause of action that is being litigated and because judgment must be a res adjudicata against it. (Underscoring supplied)

Without PHCC as a party, there can be no final adjudication of the HLURB’s judgment. The CA was, thus, correct in ordering the dismissal of the case for failure to implead an indispensable party.

To justify its finding of contractual violation, the HLURB cited a provision in the MDDR, to wit:

Section 13. Amendment. After the corporation shall have been created, organized and operating, this MDDR may be amended, in whole or in part, by the affirmative vote of Unit owners constituting at least fifty one (51%) percent of the Unit shares in the Project at a meeting duly called pursuant to the Corporation By Laws and subject to the provisions of the Condominium Act.

This citation, however, is misplaced as the above-quoted provision pertains to the amendment of the MDDR. It should be stressed that petitioners are not asking for any change or modification in the terms of the MDDR. What they are really praying for is a declaration that the agreement regarding the alteration/conversion is illegal. Thus, the Court sustains the CA’s finding that:

There was nothing in the records to suggest that DPDCI sought the amendment of a part or the whole of such MDDR. The cited section is somewhat consistent only with the principle that an amendment of a corporation’s Articles of Incorporation must be assented to by the stockholders holding more than 50% of the shares. The MDDR does not contemplate, by such provision, that all corporate acts ought to be with the concurrence of a majority of the unit owners.[22][37]

Moreover, considering that petitioners, who are members of PHCC, are ultimately challenging the agreement entered into by PHCC with DPDCI, they are assailing, in effect, PHCC’s acts as a body corporate. This action, therefore, partakes the nature of an “intra-corporate controversy,” the jurisdiction over which used to belong to the Securities and Exchange Commission (SEC), but transferred to the courts of general jurisdiction or the appropriate Regional Trial Court (RTC), pursuant to Section 5b of P.D. No. 902-A,[23][38] as amended by Section 5.2 of Republic Act (R.A.) No. 8799.[24][39]

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WHAT IS AN INTRACORPORATE CONTROVERSY?

ONE WHICH “PERTAINS TO ANY OF THE FOLLOWING RELATIONSHIPS: (1) BETWEEN THE CORPORATION, PARTNERSHIP OR ASSOCIATION AND THE PUBLIC; (2) BETWEEN THE CORPORATION, PARTNERSHIP OR ASSOCIATION AND THE STATE IN SO FAR AS ITS FRANCHISE, PERMIT OR LICENSE TO OPERATE IS CONCERNED; (3) BETWEEN THE CORPORATION, PARTNERSHIP OR ASSOCIATION AND ITS STOCKHOLDERS, PARTNERS, MEMBERS OR OFFICERS; AND (4) AMONG THE STOCKHOLDERS, PARTNERS OR ASSOCIATES THEMSELVES.”[25][40]

An intra-corporate controversy is one which “pertains to any of the following relationships: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the State in so far as its franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers; and (4) among the stockholders, partners or associates themselves.”[26][40]

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IN CASE OF DISPUTE ON THE LEGALITY OF ASSESSMENT OF CONDO DUES BY UNIT OWNERS AND THE CONDO CORPORATION WHO HAS JURISDICTION?

THE COURT.

Based on the foregoing definition, there is no doubt that the controversy in this case is essentially intra-corporate in character, for being between a condominium corporation and its members-unit owners. In the recent case of Chateau De Baie Condominium Corporation v. Sps. Moreno,[27][41] an action involving the legality of assessment dues against the condominium owner/developer, the Court held that, the matter being an intra-corporate dispute, the RTC had jurisdiction to hear the same pursuant to R.A. No. 8799.

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PETITIONER ARGUED THAT THE RESPONDENTS SHOULD HAVE APPEALED FIRST TO THE HLURB BOARD OF COMMISSIONERS FOLLOWING THE RULE ON EXHAUSTION OF ADMINISTRATIVE REMEDY. IS THEIR CONTENTION CORRECT?

NO. THE CIRCUMSTANCES PREVAILING WARRANTED A RELAXATION OF THE RULE. THERE ARE EXEPTIONS TO THE RULE.

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WHAT ARE THESE EXCEPTIONS?

(A) WHERE THERE IS ESTOPPEL ON THE PART OF THE PARTY INVOKING THE DOCTRINE;

(B) WHERE THE CHALLENGED ADMINISTRATIVE ACT IS PATENTLY ILLEGAL, AMOUNTING TO LACK OF JURISDICTION;

(C) WHERE THERE IS UNREASONABLE DELAY OR OFFICIAL INACTION THAT WILL IRRETRIEVABLY PREJUDICE THE COMPLAINANT;

(D) WHERE THE AMOUNT INVOLVED IS RELATIVELY SO SMALL AS TO MAKE THE RULE IMPRACTICAL AND OPPRESSIVE;

(E) WHERE THE QUESTION INVOLVED IS PURELY LEGAL AND WILL ULTIMATELY HAVE TO BE DECIDED BY THE COURTS OF JUSTICE;

(F) WHERE JUDICIAL INTERVENTION IS URGENT;

(G) WHERE THE APPLICATION OF THE DOCTRINE MAY CAUSE GREAT AND IRREPARABLE DAMAGE;

(H) WHERE THE CONTROVERTED ACTS VIOLATE DUE PROCESS;

(I) WHERE THE ISSUE OF NON-EXHAUSTION OF ADMINISTRATIVE REMEDIES HAS BEEN RENDERED MOOT;

(J) WHERE THERE IS NO OTHER PLAIN, SPEEDY AND ADEQUATE REMEDY;

(K) WHERE STRONG PUBLIC INTEREST IS INVOLVED; AND (L) IN QUO WARRANTO PROCEEDINGS.[28][44] [UNDERSCORING SUPPLIED]

IN THIS CASE THE CHALLEGED DECISION IS PATENTLY ILLEGAL AND THE QUESTION INVOLVED IS PURELY LEGAL.

As to the alleged failure to comply with the rule on exhaustion of administrative remedies, the Court again agrees with the position of the CA that the circumstances prevailing in this case warranted a relaxation of the rule.

The doctrine of exhaustion of administrative remedies is a cornerstone of our judicial system. The thrust of the rule is that courts must allow administrative agencies to carry out their functions and discharge their responsibilities within the specialized areas of their respective competence.[29][42] It has been held, however, that the doctrine of exhaustion of administrative remedies and the doctrine of primary jurisdiction are not ironclad rules. In the case of Republic of the Philippines v. Lacap,[30][43] the Court enumerated the numerous exceptions to these rules, namely: (a) where there is estoppel on the part of the party invoking the doctrine; (b) where the challenged administrative act is patently illegal, amounting to lack of jurisdiction; (c) where there is unreasonable delay or official inaction that will irretrievably prejudice the complainant; (d) where the amount involved is relatively so small as to make the rule impractical and oppressive; (e) where the question involved is purely legal and will ultimately have to be decided by the courts of justice; (f) where judicial intervention is urgent; (g) where the application of the doctrine may cause great and irreparable damage; (h) where the controverted acts violate due process; (i) where the issue of non-exhaustion of administrative remedies has been rendered moot; (j) where there is no other plain, speedy and adequate remedy; (k) where strong public interest is involved; and (l) in quo warranto proceedings.[31][44] [Underscoring supplied]

The situations (b) and (e) in the foregoing enumeration obtain in this case.

The challenged decision of the HLURB is patently illegal having been rendered in excess of jurisdiction, if not with grave abuse of discretion amounting to lack or excess of jurisdiction. Also, the issue on jurisdiction is purely legal which will have to be decided ultimately by a regular court of law. As the Court wrote in Vigilar v. Aquino:[32][45]

It does not involve an examination of the probative value of the evidence presented by the parties. There is a question of law when the doubt or difference arises as to what the law is on a certain state of facts, and not as to the truth or the falsehood of alleged facts. Said question at best could be resolved only tentatively by the administrative authorities. The final decision on the matter rests not with them but with the courts of justice. Exhaustion of administrative remedies does not apply, because nothing of an administrative nature is to be or can be done. The issue does not require technical knowledge and experience but one that would involve the interpretation and application of law.

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BUT THE HLURB DECISION MUST BE GIVEN RESPECT AND FINALITY BECAUSE HLURB IS A SPECIALIZED AGENCY. IS THIS CORRECT?

NO. BECAUSE THE HLURB DECISION IS PATENTLY ILLEGAL.

Finally, petitioners faulted the CA in not giving respect and even finality to the findings of fact of the HLURB. Their reliance on the case of Dangan v. NLRC,[33][46] reiterating the well-settled principles involving decisions of administrative agencies, deserves scant consideration as the decision of the HLURB in this case is manifestly not supported by law and jurisprudence.

Petitioners, therefore, cannot validly invoke DPDCI’s failure to fulfill its obligation on the basis of a plain draft leaflet which petitioners were able to obtain, specifically Pacifico Lim, having been a president of DPDCI. To accord petitioners the right to demand compliance with the commitment under the said brochure is to allow them to profit by their own act. This, the Court cannot tolerate.

In sum, inasmuch as the HLURB has no jurisdiction over petitioners’ complaint, the Court sustains the subject decision of the CA that the HLURB decision is null and void ab initio. This disposition, however, is without prejudice to any action that the parties may rightfully file in the proper forum.

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Republic of the Philippines

Supreme Court

BaguioCity

THIRD DIVISION

PHILIP L. GO, PACIFICO Q. LIM and ANDREW Q. LIM

Petitioners,

– versus –

DISTINCTION PROPERTIES DEVELOPMENT AND CONSTRUCTION, INC.

Respondent.

G.R. No. 194024

Present:

VELASCO, JR., J., Chairperson,

PERALTA,

ABAD,

MENDOZA, and

PERLAS-BERNABE, JJ.

Promulgated:

April 25, 2012

X ————————————————————————————– X

D E C I S I O N

MENDOZA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure assailing the March 17, 2010 Decision[34][1] and October 7, 2010 Resolution[35][2] of the Court of Appeals (CA) in CA-G.R. SP No. 110013 entitled “Distinction Properties Development & Construction, Inc. v. Housing Land Use Regulatory Board (NCR), Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim.”

Factual and Procedural Antecedents:

Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim (petitioners) are registered individual owners of condominium units in Phoenix Heights Condominium located atH. Javier/Canley Road, Bo. Bagong Ilog,PasigCity, MetroManila.

Respondent Distinction Properties Development and Construction, Inc. (DPDCI) is a corporation existing under the laws of thePhilippines with principal office atNo. 1020 Soler Street, Binondo,Manila. It was incorporated as a real estate developer, engaged in the development of condominium projects, among which was the Phoenix Heights Condominium.

In February 1996, petitioner Pacifico Lim, one of the incorporators and the then president of DPDCI, executed a Master Deed and Declaration of Restrictions (MDDR)[36][3] of Phoenix Heights Condominium, which was filed with the Registry of Deeds. As the developer, DPDCI undertook, among others, the marketing aspect of the project, the sale of the units and the release of flyers and brochures.

Thereafter, Phoenix Heights Condominium Corporation (PHCC) was formally organized and incorporated. Sometime in 2000, DPDCI turned over to PHCC the ownership and possession of the condominium units, except for the two saleable commercial units/spaces:

G/F Level BAS covered by Condominium Certificate of Title (CCT) No. 21030 utilized as the PHCC’s administration office, and

G/F Level 4-A covered by CCT No. PT-27396/C-136-II used as living quarters by the building administrator.

Although used by PHCC, DPDCI was assessed association dues for these two units.

Meanwhile, in March 1999, petitioner Pacifico Lim, as president of DPDCI, filed an Application for Alteration of Plan[37][4] pertaining to the construction of 22 storage units in the spaces adjunct to the parking area of the building. The application, however, was disapproved as the proposed alteration would obstruct light and ventilation.

In August 2004, through its Board,[38][5] PHCC approved a settlement offer from DPDCI for the set-off of the latter’s association dues arrears with the assignment of title over CCT Nos. 21030 and PT-27396/C-136-II and their conversion into common areas. Thus, CCT Nos. PT-43400 and PT-43399 were issued by the Registrar of Deeds of Pasig City in favor of PHCC in lieu of the old titles. The said settlement between the two corporations likewise included the reversion of the 22 storage spaces into common areas. With the conformity of PHCC, DPDCI’s application for alteration (conversion of unconstructed 22 storage units and units GF4-A and BAS from saleable to common areas) was granted by the Housing and Land Use Regulatory Board (HLURB).[39][6]

In August 2008, petitioners, as condominium unit-owners, filed a complaint[40][7] before the HLURB against DPDCI for unsound business practices and violation of the MDDR. The case was docketed as REM- 080508-13906. They alleged that DPDCI committed misrepresentation in their circulated flyers and brochures as to the facilities or amenities that would be available in the condominium and failed to perform its obligation to comply with the MDDR.

In defense, DPDCI denied that it had breached its promises and representations to the public concerning the facilities in the condominium. It alleged that the brochure attached to the complaint was “a mere preparatory draft” and not the official one actually distributed to the public, and that the said brochure contained a disclaimer as to the binding effect of the supposed offers therein. Also, DPDCI questioned the petitioners’ personality to sue as the action was a derivative suit.

After due hearing, the HLURB rendered its decision[41][8] in favor of petitioners. It held as invalid the agreement entered into between DPDCI and PHCC, as to the alteration or conversion of the subject units into common areas, which it previously approved, for the reason that it was not approved by the majority of the members of PHCC as required under Section 13 of the MDDR. It stated that DPDCI’s defense, that the brochure was a mere draft, was against human experience and a convenient excuse to avoid its obligation to provide the facility of the project. The HLURB further stated that the case was not a derivative suit but one which involved contracts of sale of the respective units between the complainants and DPDCI, hence, within its jurisdiction pursuant to Section 1, Presidential Decree (P.D.) No. 957 (The Subdivision and Condominium Buyers’ Protective Decree), as amended. The decretal portion of the HLURB decision reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

Ordering respondent to restore/provide proper gym facilities, to restore the hallway at the mezzanine floor.

Declaring the conversion/alteration of 22 storage units and Units GF4-A and BAS as illegal, and consequently, and ordering respondent to continue paying the condominium dues for these units, with interest and surcharge.

3. Ordering the Respondent to pay the sum of Php998,190.70, plus interests and surcharges, as condominium dues in arrears and turnover the administration office to PHCC without any charges pursuant to the representation of the respondent in the brochures it circulated to the public with a corresponding credit to complainants’ individual shares as members of PHCC entitled to such refund or reimbursements.

4. Ordering the Respondent to refund to the PHCC the amount of Php1,277,500.00, representing the cost of the deep well, with interests and surcharges with a corresponding credit to complainants’ individual shares as members of PHCC entitled to such refund or reimbursements.

Ordering the Respondent to pay the complainants moral and exemplary damages in the amount of ₱10,000.00 and attorney’s fees in the amount of ₱10,000.00.

All other claims and counterclaims are hereby dismissed accordingly.

IT IS SO ORDERED.[42][9]

Aggrieved, DPDCI filed with the CA its Petition for Certiorari and Prohibition[43][10] dated August 11, 2009, on the ground that the HLURB decision was a patent nullity constituting an act without or beyond its jurisdiction and that it had no other plain, speedy and adequate remedy in the course of law.

On March 17, 2010, the CA rendered the assailed decision which disposed of the case in favor of DPDCI as follows:

WHEREFORE, in view of the foregoing, the petition is GRANTED. Accordingly, the assailed Decision of the HLURB in Case No. REM-0800508-13906 is ANNULLED and SET ASIDE and a new one is entered DISMISSING the Complaint a quo.

IT IS SO ORDERED.[44][11]

The CA ruled that the HLURB had no jurisdiction over the complaint filed by petitioners as the controversy did not fall within the scope of the administrative agency’s authority under P.D. No. 957. The HLURB not only relied heavily on the brochures which, according to the CA, did not set out an enforceable obligation on the part of DPDCI, but also erroneously cited Section 13 of the MDDR to support its finding of contractual violation.

The CA held that jurisdiction over PHCC, an indispensable party, was neither acquired nor waived by estoppel. Citing Carandang v. Heirs of De Guzman,[45][12] it held that, in any event, the action should be dismissed because the absence of PHCC, an indispensable party, rendered all subsequent actuations of the court void, for want of authority to act, not only as to the absent parties but even as to those present.

Finally, the CA held that the rule on exhaustion of administrative remedies could be relaxed. Appeal was not a speedy and adequate remedy as jurisdictional questions were continuously raised but ignored by the HLURB. In the present case, however, “[t]he bottom line is that the challenged decision is one that had been rendered in excess of jurisdiction, if not with grave abuse of discretion amounting to lack or excess of jurisdiction.”[46][13]

Petitioners filed a motion for reconsideration[47][14] of the said decision. The motion, however, was denied by the CA in its Resolution dated October 7, 2010.

Hence, petitioners interpose the present petition before this Court anchored on the following

GROUNDS

(1)

THE COURT OF APPEALS ERRED IN HOLDING THAT THE HLURB HAS NO JURISDICTION OVER THE INSTANT CASE;

(2)

THE COURT OF APPEALS ALSO ERRED IN FINDING THAT PHCC IS AN INDISPENSABLE PARTY WHICH WARRANTED THE DISMISSAL OF THE CASE BY REASON OF IT NOT HAVING BEEN IMPLEADED IN THE CASE;

(3)

THE COURT OF APPEALS HAS LIKEWISE ERRED IN RELAXING THE RULE ON NON-EXHAUSTION OF ADMINISTRATIVE REMEDIES BY DECLARING THAT THE APPEAL MAY NOT BE A SPEEDY AND ADEQUATE REMEDY WHEN JURISDICTIONAL QUESTIONS WERE CONTINUOUSLY RAISED BUT IGNORED BY THE HLURB; and

(4)

THAT FINALLY, THE COURT A QUO ALSO ERRED IN NOT GIVING DUE RESPECT OR EVEN FINALITY TO THE FINDINGS OF THE HLURB.[48][15]

Petitioners contend that the HLURB has jurisdiction over the subject matter of this case. Their complaint with the HLURB clearly alleged and demanded specific performance upon DPDCI of the latter’s contractual obligation under their individual contracts to provide a back-up water system as part of the amenities provided for in the brochure, together with an administration office, proper gym facilities, restoration of a hallway, among others. They point out that the violation by DPDCI of its obligations enumerated in the said complaint squarely put their case within the ambit of Section 1, P.D. No. 957, as amended, enumerating the cases that are within the exclusive jurisdiction of the HLURB. Likewise, petitioners argue that the case was not a derivative suit as they were not suing for and in behalf of PHCC. They were suing, in their individual capacities as condominium unit buyers, their developer for breach of contract. In support of their view that PHCC was not an indispensable party, petitioners even quoted the dispositive portion of the HLURB decision to show that complete relief between or among the existing parties may be obtained without the presence of PHCC as a party to this case. Petitioners further argue that DPDCI’s petition before the CA should have been dismissed outright for failure to comply with Section 1, Rule XVI of the 2004 Rules of Procedure of the HLURB providing for an appeal to the Board of Commissioners by a party aggrieved by a decision of a regional officer.

DPDCI, in its Comment,[49][16] strongly objects to the arguments of petitioners and insists that the CA did not err in granting its petition. It posits that the HLURB has no jurisdiction over the complaint filed by petitioners because the controversies raised therein are in the nature of “intra-corporate disputes.” Thus, the case does not fall within the jurisdiction of the HLURB under Section 1, P.D. No. 957 and P.D. No. 1344. According to DPDCI, petitioners sought to address the invalidation of the corporate acts duly entered and executed by PHCC as a corporation of which petitioners are admittedly members of, and not the acts pertaining to their ownership of the units. Such being the case, PHCC should have been impleaded as a party to the complaint. Its non-inclusion as an indispensable party warrants the dismissal of the case. DPDCI further avers that the doctrine of exhaustion is inapplicable inasmuch as the issues raised in the petition with the CA are purely legal; that the challenged administrative act is patently illegal; and that the procedure of the HLURB does not provide a plain, speedy and adequate remedy and its application may cause great and irreparable damage. Finally, it claims that the decision of the HLURB Arbiter has not attained finality, the same having been issued without jurisdiction.

Essentially, the issues to be resolved are: (1) whether the HLURB has jurisdiction over the complaint filed by the petitioners; (2) whether PHCC is an indispensable party; and (3) whether the rule on exhaustion of administrative remedies applies in this case.

The petition fails.

Basic as a hornbook principle is that jurisdiction over the subject matter of a case is conferred by law and determined by the allegations in the complaint which comprise a concise statement of the ultimate facts constituting the plaintiff’s cause of action. The nature of an action, as well as which court or body has jurisdiction over it, is determined based on the allegations contained in the complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein. The averments in the complaint and the character of the relief sought are the ones to be consulted. Once vested by the allegations in the complaint, jurisdiction also remains vested irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein.[50][17] Thus, it was ruled that the jurisdiction of the HLURB to hear and decide cases is determined by the nature of the cause of action, the subject matter or property involved and the parties.[51][18]

Generally, the extent to which an administrative agency may exercise its powers depends largely, if not wholly, on the provisions of the statute creating or empowering such agency.[52][19] With respect to the HLURB, to determine if said agency has jurisdiction over petitioners’ cause of action, an examination of the laws defining the HLURB’s jurisdiction and authority becomes imperative. P.D. No. 957,[53][20] specifically Section 3, granted the National Housing Authority (NHA) the “exclusive jurisdiction to regulate the real estate trade and business.” Then came P.D. No. 1344[54][21] expanding the jurisdiction of the NHA (now HLURB), as follows:

(a) Unsound real estate business practices;

(b) Claims involving refund and any other claims filed by subdivision lot or condominium unit buyer against the project owner, developer, dealer, broker or salesman; and

(c) Cases involving specific performance of contractual and statutory obligations filed by buyers of subdivision lot or condominium unit against the owner, developer, dealer, broker or salesman.

This provision must be read in light of the law’s preamble, which explains the reasons for enactment of the law or the contextual basis for its interpretation.[55][22] A statute derives its vitality from the purpose for which it is enacted, and to construe it in a manner that disregards or defeats such purpose is to nullify or destroy the law.[56][23] P.D. No. 957, as amended, aims to protect innocent subdivision lot and condominium unit buyers against fraudulent real estate practices.[57][24]

In this case, the complaint filed by petitioners alleged causes of action that apparently are not cognizable by the HLURB considering the nature of the action and the reliefs sought. A perusal of the complaint discloses that petitioners are actually seeking to nullify and invalidate the duly constituted acts of PHCC – the April 29, 2005 Agreement[60][27] entered into by PHCC with DPDCI and its Board Resolution[61][28] which authorized the acceptance of the proposed offsetting/settlement of DPDCI’s indebtedness and approval of the conversion of certain units from saleable to common areas. All these were approved by the HLURB. Specifically, the reliefs sought or prayers are the following:

Ordering the respondent to restore the gym to its original location;

Ordering the respondent to restore the hallway at the second floor;

Declaring the conversion/alteration of 22 storage units and Units GF4-A and BAS as illegal, and consequently, ordering respondent to continue paying the condominium dues for these units, with interest and surcharge;

Ordering the respondent to pay the sum of PHP998,190.70, plus interest and surcharges, as condominium dues in arrears and turnover the administration office to PHCC without any charges pursuant to the representation of the respondent in the brochures it circulated to the public;

Ordering the respondent to refund to the PHCC the amount of PHP1,277,500.00, representing the cost of the deep well, with interests and surcharges;

Ordering the respondent to pay the complainants moral/exemplary damages in the amount of PHP100,000.00; and

Ordering the respondent to pay the complainant attorney’s fees in the amount of PHP100,000.00, and PHP3,000.00 for every hearing scheduled by the Honorable Office.[62][29]

As it is clear that the acts being assailed are those of PHHC, this case cannot prosper for failure to implead the proper party, PHCC.

An indispensable party is defined as one who has such an interest in the controversy or subject matter that a final adjudication cannot be made, in his absence, without injuring or affecting that interest.[63][30] In the recent case of Nagkakaisang Lakas ng Manggagawa sa Keihin (NLMK-OLALIA-KMU) v. Keihin Philippines Corporation,[64][31] the Court had the occasion to state that:

Similarly, in the case of Plasabas v. Court of Appeals,[66][33] the Court held that a final decree would necessarily affect the rights of indispensable parties so that the Court could not proceed without their presence. In support thereof, the Court in Plasabas cited the following authorities, thus:

From all indications, PHCC is an indispensable party and should have been impleaded, either as a plaintiff or as a defendant,[67][34] in the complaint filed before the HLURB as it would be directly and adversely affected by any determination therein. To belabor the point, the causes of action, or the acts complained of, were the acts of PHCC as a corporate body. Note that in the judgment rendered by the HLURB, the dispositive portion in particular, DPDCI was ordered (1) to pay ₱998,190.70, plus interests and surcharges, as condominium dues in arrears and turnover the administration office to PHCC; and (2) to refund to PHCC ₱1,277,500.00, representing the cost of the deep well, with interests and surcharges. Also, the HLURB declared as illegal the agreement regarding the conversion of the 22 storage units and Units GF4-A and BAS, to which agreement PHCC was a party.

Evidently, the cause of action rightfully pertains to PHCC. Petitioners cannot exercise the same except through a derivative suit. In the complaint, however, there was no allegation that the action was a derivative suit. In fact, in the petition, petitioners claim that their complaint is not a derivative suit.[68][35] In the cited case of Chua v. Court of Appeals,[69][36] the Court ruled:

Without PHCC as a party, there can be no final adjudication of the HLURB’s judgment. The CA was, thus, correct in ordering the dismissal of the case for failure to implead an indispensable party.

To justify its finding of contractual violation, the HLURB cited a provision in the MDDR, to wit:

Moreover, considering that petitioners, who are members of PHCC, are ultimately challenging the agreement entered into by PHCC with DPDCI, they are assailing, in effect, PHCC’s acts as a body corporate. This action, therefore, partakes the nature of an “intra-corporate controversy,” the jurisdiction over which used to belong to the Securities and Exchange Commission (SEC), but transferred to the courts of general jurisdiction or the appropriate Regional Trial Court (RTC), pursuant to Section 5b of P.D. No. 902-A,[71][38] as amended by Section 5.2 of Republic Act (R.A.) No. 8799.[72][39]

Based on the foregoing definition, there is no doubt that the controversy in this case is essentially intra-corporate in character, for being between a condominium corporation and its members-unit owners. In the recent case of Chateau De Baie Condominium Corporation v. Sps. Moreno,[74][41] an action involving the legality of assessment dues against the condominium owner/developer, the Court held that, the matter being an intra-corporate dispute, the RTC had jurisdiction to hear the same pursuant to R.A. No. 8799.

The doctrine of exhaustion of administrative remedies is a cornerstone of our judicial system. The thrust of the rule is that courts must allow administrative agencies to carry out their functions and discharge their responsibilities within the specialized areas of their respective competence.[75][42] It has been held, however, that the doctrine of exhaustion of administrative remedies and the doctrine of primary jurisdiction are not ironclad rules. In the case of Republic of the Philippines v. Lacap,[76][43] the Court enumerated the numerous exceptions to these rules, namely: (a) where there is estoppel on the part of the party invoking the doctrine; (b) where the challenged administrative act is patently illegal, amounting to lack of jurisdiction; (c) where there is unreasonable delay or official inaction that will irretrievably prejudice the complainant; (d) where the amount involved is relatively so small as to make the rule impractical and oppressive; (e) where the question involved is purely legal and will ultimately have to be decided by the courts of justice; (f) where judicial intervention is urgent; (g) where the application of the doctrine may cause great and irreparable damage; (h) where the controverted acts violate due process; (i) where the issue of non-exhaustion of administrative remedies has been rendered moot; (j) where there is no other plain, speedy and adequate remedy; (k) where strong public interest is involved; and (l) in quo warranto proceedings.[77][44] [Underscoring supplied]

The situations (b) and (e) in the foregoing enumeration obtain in this case.

Finally, petitioners faulted the CA in not giving respect and even finality to the findings of fact of the HLURB. Their reliance on the case of Dangan v. NLRC,[79][46] reiterating the well-settled principles involving decisions of administrative agencies, deserves scant consideration as the decision of the HLURB in this case is manifestly not supported by law and jurisprudence.

WHEREFORE, the petition is DENIED.

SO ORDERED.

JOSE CATRAL MENDOZA Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice

Chairperson

DIOSDADO M. PERALTA ROBERTO A. ABAD

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE

Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

PRESBITERO J. VELASCO, JR.

Associate Justice

Chairperson, Third Division

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

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice

[1][17] City of Dumaguete v. Philippine Ports Authority, G.R. No. 168973, August 24, 2011, citing Gomez v. Montalban, G.R. No. 174414, March 14, 2008, 548 SCRA 693, 705-706.

[2][18] Peralta v. De Leon, G.R. No. 187978, November 24, 2010, 636 SCRA 232, citing De los Santos v. Sarmiento, G.R. No. 154877, March 27, 2007, 519 SCRA 62, 73.

[3][19]Peralta v. De Leon, G.R. No. 187978,November 24, 2010, 636 SCRA 232, 242.

[4][20] Regulating theSale of Subdivision Lots and Condominiums, Providing Penalties for Violations Thereof.

[5][21] Empowering the National Housing Authority to Issue Writ of Execution in the Enforcement of Its Decision under Presidential Decree No. 957.

[6][22] Lim v. Ruby Shelter Builders and Realty Development Corporation, G.R. No. 182707, September 1, 2010, 629 SCRA 740, 743.

[7][23] Luzon Development Bank v. Enriquez, G.R. Nos. 168646 & 168666, January 12, 2011, 639 SCRA 332, 337-338, citing Pilipinas Kao, Inc. v. Court of Appeals, 423 Phil. 834, 858 (2001).

[8][24] Id. at 350, citing Metropolitan Bank and Trust Company, Inc. v. SLGT Holdings, Inc., G.R. Nos. 175181-175182, 175354 &175387-175388, September 14, 2007, 533 SCRA 516, 526.

[9][25] G.R. No. 164789,August 27, 2009, 597 SCRA 266.

[10][26] Christian General Assembly, Inc. v. Ignacio, G.R. No. 164789, August 27, 2009, 597 SCRA 266, 281-282, citing Roxas v. Court of Appeals, 439 Phil. 966, 976-977 (2002).

[11][27] Rollo, pp. 89-91.

[12][28]Id. at 144-145.

[13][29] Rollo, pp. 76-77.

[14][30] Fort Bonifacio Development Corporation v. Hon. Sorongon, G.R. No. 176709, May 8, 2009, 587 SCRA 613, 622-623, citing Moldes v. Villanueva, G.R. No. 161955, 31 August 2005, 48 SCRA 697, 707.

[15][30] Fort Bonifacio Development Corporation v. Hon. Sorongon, G.R. No. 176709, May 8, 2009, 587 SCRA 613, 622-623, citing Moldes v. Villanueva, G.R. No. 161955, 31 August 2005, 48 SCRA 697, 707.

[16][31] G.R. No. 171115,August 9, 2010, 627 SCRA 179.

[17][32]Nagkakaisang Lakas ng Manggagawa sa Keihin (NLMK-OLALIA-KMU) v. Keihin Philippines Corporation, G.R. No. 171115, August 9, 2010, 627 SCRA 179, 186-187.

[18][33] G.R. No. 166519,March 31, 2009, 582 SCRA 686.

[19][34] Section 7, Rule 3, Rules of Court

[20][35] Rollo, p. 20

[21][36] 485 Phil. 644, 655-656 (2004).

[22][37]Id. at 46.

[23][38] Reorganization of the Securities and Exchange Commission with Additional Power and Placing the said Agency under the Administrative Supervision of the Office of the President.

[24][39] The Securities Regulation Code.

[25][40] Yujuico v. Quiambao, G.R. No. 168639,January 29, 2007, 513 SCRA 243, 254.

[26][40] Yujuico v. Quiambao, G.R. No. 168639,January 29, 2007, 513 SCRA 243, 254.

[27][41] G.R. No. 186271,February 23, 2011.

[28][44] Vigilar v. Aquino, G.R. No. 180388,January 18, 2011, 639 SCRA 772, 777.

[29][42] Universal Robina Corporation v. Laguna Lake Development Authority, G.R. No. 191427, May 30, 2011, citing Caballes v. Perez-Sison, G.R. No. 131759, March 23, 2004, 426 SCRA 98.

[30][43] G.R. No. 158253,March 2, 2007, 517 SCRA 255.

[31][44] Vigilar v. Aquino, G.R. No. 180388,January 18, 2011, 639 SCRA 772, 777.

[32][45] G.R. No. 180388, January 18, 2011, 639 SCRA 772, 778, citing Republic of the Philippines v. Lacap, G.R. No. 158253, March 2, 2007, 517 SCRA 255.

[33][46] G.R. No. 63127-28, 212 Phil. 653 (1984).

[34][1] Rollo, pp. 37-52. Penned by Associate Justice Apolinario D. Bruselas, Jr. with Associate Justice Noel G. Tijam and Associate Justice Rodil V. Zalameda, concurring.

[35][2]Id. at 69-70.

[36][3]Id. at 103.

[37][4]Id. at 141.

[38][5]Id. at 144-145.

[39][6]Id. at 175.

[40][7] Annex “D” of Petition, id. at 71.

[41][8] DatedMay 25, 2009, Annex “H” of Petition, id. at 189-194.

[42][9] Rollo, pp. 193-194.

[43][10] Annex “I” of Petition, id. at 195.

[44][11] Rollo, p. 52.

[45][12] G.R. No. 160347,November 29, 2006, 508 SCRA 469.

[46][13] Rollo, pp. 51-52.

[47][14] Annex “B” of Petition, id. at 53-67.

[48][15] Rollo, p. 12.

[49][16] DatedJanuary 16, 2011, id. at 335-348.

[50][17] City of Dumaguete v. Philippine Ports Authority, G.R. No. 168973, August 24, 2011, citing Gomez v. Montalban, G.R. No. 174414, March 14, 2008, 548 SCRA 693, 705-706.

[51][18] Peralta v. De Leon, G.R. No. 187978, November 24, 2010, 636 SCRA 232, citing De los Santos v. Sarmiento, G.R. No. 154877, March 27, 2007, 519 SCRA 62, 73.

[52][19]Peralta v. De Leon, G.R. No. 187978,November 24, 2010, 636 SCRA 232, 242.

[53][20] Regulating theSale of Subdivision Lots and Condominiums, Providing Penalties for Violations Thereof.

[54][21] Empowering the National Housing Authority to Issue Writ of Execution in the Enforcement of Its Decision under Presidential Decree No. 957.

[55][22] Lim v. Ruby Shelter Builders and Realty Development Corporation, G.R. No. 182707, September 1, 2010, 629 SCRA 740, 743.

[56][23] Luzon Development Bank v. Enriquez, G.R. Nos. 168646 & 168666, January 12, 2011, 639 SCRA 332, 337-338, citing Pilipinas Kao, Inc. v. Court of Appeals, 423 Phil. 834, 858 (2001).

[57][24] Id. at 350, citing Metropolitan Bank and Trust Company, Inc. v. SLGT Holdings, Inc., G.R. Nos. 175181-175182, 175354 &175387-175388, September 14, 2007, 533 SCRA 516, 526.

[58][25] G.R. No. 164789,August 27, 2009, 597 SCRA 266.

[59][26] Christian General Assembly, Inc. v. Ignacio, G.R. No. 164789, August 27, 2009, 597 SCRA 266, 281-282, citing Roxas v. Court of Appeals, 439 Phil. 966, 976-977 (2002).

[60][27] Rollo, pp. 89-91.

[61][28]Id. at 144-145.

[62][29] Rollo, pp. 76-77.

[63][30] Fort Bonifacio Development Corporation v. Hon. Sorongon, G.R. No. 176709, May 8, 2009, 587 SCRA 613, 622-623, citing Moldes v. Villanueva, G.R. No. 161955, 31 August 2005, 48 SCRA 697, 707.

[64][31] G.R. No. 171115,August 9, 2010, 627 SCRA 179.

[65][32]Nagkakaisang Lakas ng Manggagawa sa Keihin (NLMK-OLALIA-KMU) v. Keihin Philippines Corporation, G.R. No. 171115, August 9, 2010, 627 SCRA 179, 186-187.

[66][33] G.R. No. 166519,March 31, 2009, 582 SCRA 686.

[67][34] Section 7, Rule 3, Rules of Court

[68][35] Rollo, p. 20

[69][36] 485 Phil. 644, 655-656 (2004).

[70][37]Id. at 46.

[71][38] Reorganization of the Securities and Exchange Commission with Additional Power and Placing the said Agency under the Administrative Supervision of the Office of the President.

[72][39] The Securities Regulation Code.

[73][40] Yujuico v. Quiambao, G.R. No. 168639,January 29, 2007, 513 SCRA 243, 254.

[74][41] G.R. No. 186271,February 23, 2011.

[75][42] Universal Robina Corporation v. Laguna Lake Development Authority, G.R. No. 191427, May 30, 2011, citing Caballes v. Perez-Sison, G.R. No. 131759, March 23, 2004, 426 SCRA 98.

[76][43] G.R. No. 158253,March 2, 2007, 517 SCRA 255.

[77][44] Vigilar v. Aquino, G.R. No. 180388,January 18, 2011, 639 SCRA 772, 777.

[78][45] G.R. No. 180388, January 18, 2011, 639 SCRA 772, 778, citing Republic of the Philippines v. Lacap, G.R. No. 158253, March 2, 2007, 517 SCRA 255.

[79][46] G.R. No. 63127-28, 212 Phil. 653 (1984).

Comment

LEGAL NOTE 0121: WHAT IS THE DEGREE OF DILIGENCE REQUIRED OF BANKS?

Filed under: LEGAL NOTES — Leave a comment

May 12, 2012

LEGAL NOTE 0121: WHAT IS THE DEGREE OF DILIGENCE REQUIRED OF BANKS?

SOURCE: PHILIPPINE NATIONAL BANK VS. SPOUSES CHEAH CHEE CHONG AND OFELIA CAMACHO CHEAH (G.R. NO. 170865) SPOUSES CHEAH CHEE CHONG AND OFELIA CAMACHO CHEAH VS. PHILIPPINE NATIONAL BANK (G.R. NO. 170892) (25 APRIL 2012, DEL CASTILLO, J). SUBJECT: PROXIMATE CAUSE; SOLUTIO INDEBITI; CONTRIBUTORY NEGLIGENCE; DUTY OF COLLECTING BANK; DEGREE OF DILIGENCE REQUIRED OF BANKS. (BRIEF TITLE: PNB VS. SPOUSES CHONG ET AL.)

======================

PNB RECEIVED FOREIGN CHECKS. THE RULE REQUIRES A 15-DAY CLEARING. BUT PNB ALLOWED THE CHECKS TO BE CLEARED BEFORE THE END OF THE 15 DAY PERIOD? WHOSE FAULT IS IT?

FAULT OF PNB. PNB’S DISREGARD OF ITS PREVENTIVE AND PROTECTIVE MEASURE AGAINST THE POSSIBILITY OF BEING VICTIMIZED BY BAD CHECKS HAD BROUGHT UPON ITSELF THE INJURY OF LOSING A SIGNIFICANT AMOUNT OF MONEY.

Here, while PNB highlights Ofelia’s fault in accommodating a stranger’s check and depositing it to the bank, it remains mum in its release of the proceeds thereof without exhausting the 15-day clearing period, an act which contravened established banking rules and practice.

It is worthy of notice that the 15-day clearing period alluded to is construed as 15 banking days. As declared by Josephine Estella, the Administrative Service Officer who was the bank’s Remittance Examiner, what was unusual in the processing of the check was that the “lapse of 15 banking days was not observed.”^{^[1]}^[35] Even PNB’s agreement with Philadelphia National Bank^{^[2]}^[36] regarding the rules on the collection of the proceeds of US dollar checks refers to “business/ banking days.” Ofelia deposited the subject check on November 4, 1992. Hence, the 15^th banking day from the date of said deposit should fall on November 25, 1992. However, what happened was that PNB Buendia Branch, upon calling up Ofelia that the check had been cleared, allowed the proceeds thereof to be withdrawn on November 17 and 18, 1992, a week before the lapse of the standard 15-day clearing period.

This Court already held that the payment of the amounts of checks without previously clearing them with the drawee bank especially so where the drawee bank is a foreign bank and the amounts involved were large is contrary to normal or ordinary banking practice.^{^[3]}^[37] Also, in Associated Bank v. Tan,^{^[4]}^[38] wherein the bank allowed the withdrawal of the value of a check prior to its clearing, we said that “[b]efore the check shall have been cleared for deposit, the collecting bank can only ‘assume’ at its own risk x x x that the check would be cleared and paid out.” The delay in the receipt by PNB Buendia Branch of the November 13, 1992 SWIFT message notifying it of the dishonor of the subject check is of no moment, because had PNB Buendia Branch waited for the expiration of the clearing period and had never released during that time the proceeds of the check, it would have already been duly notified of its dishonor. Clearly, PNB’s disregard of its preventive and protective measure against the possibility of being victimized by bad checks had brought upon itself the injury of losing a significant amount of money.

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WHAT KIND OF DILIGENCE IS REQUIRED OF BANKS?

MORE THAN THAT OF A ROMAN PATER FAMILIAS OR A GOOD FATHER OF A FAMILY. THE HIGHEST DEGREE OF DILIGENCE IS EXPECTED.”^{^[5]}^[39]

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WHAT IS THE DUTY OF A COLLECTING BANK?

WITH REGARD TO COLLECTION OR ENCASHMENT OF CHECKS, SUFFICE IT TO SAY THAT THE LAW IMPOSES ON THE COLLECTING BANK THE DUTY TO SCRUTINIZE DILIGENTLY THE CHECKS DEPOSITED WITH IT FOR THE PURPOSE OF DETERMINING THEIR GENUINENESS AND REGULARITY. “THE COLLECTING BANK, BEING PRIMARILY ENGAGED IN BANKING, HOLDS ITSELF OUT TO THE PUBLIC AS THE EXPERT ON THIS FIELD, AND THE LAW THUS HOLDS IT TO A HIGH STANDARD OF CONDUCT.”^{^[6]}^[41]

It bears stressing that “the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected.”^{^[7]}^[39] PNB miserably failed to do its duty of exercising extraordinary diligence and reasonable business prudence. The disregard of its own banking policy amounts to gross negligence, which the law defines as “negligence characterized by the want of even slight care, acting or omitting to act in a situation where there is duty to act, not inadvertently but wilfully and intentionally with a conscious indifference to consequences in so far as other persons may be affected.”^{^[8]}^[40] With regard to collection or encashment of checks, suffice it to say that the law imposes on the collecting bank the duty to scrutinize diligently the checks deposited with it for the purpose of determining their genuineness and regularity. “The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct.”^{^[9]}^[41] A bank is expected to be an expert in banking procedures and it has the necessary means to ascertain whether a check, local or foreign, is sufficiently funded.

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PNB OBLIGES CHEA TO RETURN THE MONEY UNDER THE PRINCIPLE OF SOLUTION INDEBITI.

WHAT IS SOLUTION INDEBITI?

IF SOMETHING IS RECEIVED WHEN THERE IS NO RIGHT TO DEMAND IT, AND IT WAS UNDULY DELIVERED THROUGH MISTAKE, THE OBLIGATION TO RETURN IT ARISES. (ART. 2154, CIVIL CODE)

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WHAT ARE THE REQUISITES OF SOLUTIO INDEBITI?

(A) THAT HE WHO PAID WAS NOT UNDER OBLIGATION TO DO SO; AND

(B) THAT THE PAYMENT WAS MADE BY REASON OF AN ESSENTIAL MISTAKE OF FACT.^{^[10]}^[43]

ARE SPOUSES CHEAH OBLIGATED TO RETURN THE MONEY WITHDRAWN UNDER THE PRINCIPLE OF SOLUTIO INDEBITI?

NO. IN THE FIRST PLACE, THE GROSS NEGLIGENCE OF PNBCAN NEVER BE EQUATED WITH A MERE MISTAKE OF FACT, WHICH MUST BE SOMETHING EXCUSABLE AND WHICH REQUIRES THE EXERCISE OF PRUDENCE. NO RECOVERY IS DUE IF THE MISTAKE DONE IS ONE OF GROSS NEGLIGENCE.

Incidentally, PNB obliges the spouses Cheah to return the withdrawn money under the principle of solutio indebiti, which is laid down in Article 2154 of the Civil Code:^{^[11]}^[42]

Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.

“[T]he indispensable requisites of the juridical relation known as solutio indebiti, are, (a) that he who paid was not under obligation to do so; and (b) that the payment was made by reason of an essential mistake of fact.^{^[12]}^[43]

In the case at bench, PNB cannot recover the proceeds of the check under the principle it invokes. In the first place, the gross negligence of PNB, as earlier discussed, can never be equated with a mere mistake of fact, which must be something excusable and which requires the exercise of prudence. No recovery is due if the mistake done is one of gross negligence.

XXXXXXXXXXXXX

A STRANGER GAVE THE CHEAH SPOUSES A CHECK FOR US$300,000.00. THEY WENT TO THE BANK AND DEPOSITED IT. BEFORE THE 15 DAY CLEARING PERIOD THEY WERE INFORMED BY PNB THAT THE CHECK HAS ALREADY BEEN CLEARED. THEY WENT TO THE BANK AND ENCASHED IT. ARE THEY LIABLE TO RETURN THE MONEY.

YES, BECAUSE THEY ARE GUILTY OF CONTRIBUTORY NEGLIGENCE. SPOUSES LEAH SHOULD HAVE BEEN MORE DILIGENT BECAUSE THE ONE WHO GAVE HER THE CHECK WAS A STRANGER. ALSO, WHE THE BANK CALLED HER UP AND INFORM HER THAT THE BANK WAS CLEARED BEFORE THE 15 DAY PERIOD SHE SHOULD HAVE FIRST VERIFIED THE REGULARITY OF SUCH HASTY CLEARANCE CONSIDERING THAT IF SOMETHING GOES WRONG WITH THE TRANSACTION, IT IS SHE AND HER HUSBAND WHO WOULD BE PUT AT RISK AND NOT THE ACCOMMODATED PARTY.

XXXXXXXXXXXXXXXX

WHAT IS CONTRIBUTORY NEGLIGENCE?

“CONTRIBUTORY NEGLIGENCE IS CONDUCT ON THE PART OF THE INJURED PARTY, CONTRIBUTING AS A LEGAL CAUSE TO THE HARM HE HAS SUFFERED, WHICH FALLS BELOW THE STANDARD TO WHICH HE IS REQUIRED TO CONFORM FOR HIS OWN PROTECTION.”^{^[13]}^[44]

The spouses Cheah are guilty of contributory negligence and are bound to share the loss with the bank

“Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the harm he has suffered, which falls below the standard to which he is required to conform for his own protection.”^{^[14]}^[44]

The CA found Ofelia’s credulousness blameworthy. We agree. Indeed, Ofelia failed to observe caution in giving her full trust in accommodating a complete stranger and this led her and her husband to be swindled. Considering that Filipina was not personally known to her and the amount of the foreign check to be encashed was $300,000.00, a higher degree of care is expected of Ofelia which she, however, failed to exercise under the circumstances. Another circumstance which should have goaded Ofelia to be more circumspect in her dealings was when a bank officer called her up to inform that the Bank of America check has already been cleared way earlier than the 15-day clearing period. The fact that the check was cleared after only eight banking days from the time it was deposited or contrary to what Garin told her that clearing takes 15 days should have already put Ofelia on guard. She should have first verified the regularity of such hasty clearance considering that if something goes wrong with the transaction, it is she and her husband who would be put at risk and not the accommodated party. However, Ofelia chose to ignore the same and instead actively participated in immediately withdrawing the proceeds of the check. Thus, we are one with the CA in ruling that Ofelia’s prior consultation with PNB officers is not enough to totally absolve her of any liability. In the first place, she should have shunned any participation in that palpably shady transaction.

In any case, the complaint against the spouses Cheah could not be dismissed. As PNB’s client, Ofelia was the one who dealt with PNB and negotiated the check such that its value was credited in her and her husband’s account. Being the ones in privity with PNB, the spouses Cheah are therefore the persons who should return to PNB the money released to them.

All told, the Court concurs with the findings of the CA that PNB and the spouses Cheah are equally negligent and should therefore equally suffer the loss. The two must both bear the consequences of their mistakes.

======================

Republic of thePhilippines

Supreme Court

BaguioCity

FIRST DIVISION

PHILIPPINE NATIONAL BANK,		G.R. No. 170865
Petitioner,

– versus –

SPOUSES CHEAH CHEE CHONG
and OFELIA CAMACHO CHEAH,
Respondents.

x – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – x

SPOUSES CHEAH CHEE CHONG		G.R. No. 170892
and OFELIA CAMACHO CHEAH,
Petitioners,		Present:

		CORONA, C.J., Chairperson,
		LEONARDO-DE CASTRO,
– versus –		BERSAMIN,
		DELCASTILLO, and
		VILLARAMA, JR., JJ.

PHILIPPINE NATIONAL BANK,		Promulgated:
Respondent.		April 25, 2012

x – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – x

D E C I S I O N

DEL CASTILLO, J.:

Law favoreth diligence, and therefore, hateth folly and negligence.—Wingate’s Maxim.

In doing a friend a favor to help the latter’s friend collect the proceeds of a foreign check, a woman deposited the check in her and her husband’s dollar account. The local bank accepted the check for collection and immediately credited the proceeds thereof to said spouses’ account even before the lapse of the clearing period. And just when the money had been withdrawn and distributed among different beneficiaries, it was discovered that all along, to the horror of the woman whose intention to accommodate a friend’s friend backfired, she and her

bank had dealt with a rubber check.

These consolidated^{^[15]}^[1] Petitions for Review on Certiorari filed by the Philippine National Bank (PNB)^{^[16]}^[2] and by the spouses Cheah Chee Chong and Ofelia Camacho Cheah (spouses Cheah)^{^[17]}^[3] both assail the August 22, 2005 Decision^{^[18]}^[4] and December 21, 2005 Resolution^{^[19]}^[5]of the Court of Appeals (CA) in CA-G.R. CV No. 63948 which declared both parties equally negligent and, hence, should equally suffer the resulting loss. For its part, PNB questions why it was declared blameworthy together with its depositors, spouses Cheah, for the amount wrongfully paid the latter, while the spouses Cheah plead that they be declared entirely faultless.

Factual Antecedents

On November 4, 1992, Ofelia Cheah (Ofelia) and her friend Adelina Guarin (Adelina) were having a conversation in the latter’s office when Adelina’s friend, Filipina Tuazon (Filipina), approached her to ask if she could have Filipina’s check cleared and encashed for a service fee of 2.5%. The check is Bank of America Check No. 190^{^[20]}^[6] under the account of Alejandria Pineda and Eduardo Rosales and drawn by Atty. Eduardo Rosales against Bank of America Alhambra Branch inCalifornia,USA, with a face amount of $300,000.00, payable to cash. Because Adelina does not have a dollar account in which to deposit the check, she asked Ofelia if she could accommodate Filipina’s request since she has a joint dollar savings account with her Malaysian husband Cheah Chee Chong (Chee Chong) under Account No. 265-705612-2 with PNB Buendia Branch.

Ofelia agreed.

That same day, Ofelia and Adelina went to PNB Buendia Branch. They met with Perfecto Mendiola of the Loans Department who referred them to PNB Division Chief Alberto Garin (Garin). Garin discussed with them the process of clearing the subject check and they were told that it normally takes 15 days.^{^[21]}^[7] Assured that the deposit and subsequent clearance of the check is a normal transaction, Ofelia deposited Filipina’s check. PNB then sent it for clearing through its correspondent bank, Philadelphia National Bank. Five days later, PNB received a credit advice^{^[22]}^[8] from Philadelphia National Bank that the proceeds of the subject check had been temporarily credited to PNB’s account as of November 6, 1992. On November 16, 1992, Garin called up Ofelia to inform her that the check had already been cleared.^{^[23]}^[9] The following day, PNB Buendia Branch, after deducting the bank charges, credited $299,248.37 to the account of the spouses Cheah.^{^[24]}^[10] Acting on Adelina’s instruction to withdraw the credited amount, Ofelia that day personally withdrew $180,000.00.^{^[25]}^[11] Adelina was able to withdraw the remaining amount the next day after having been authorized by Ofelia.^{^[26]}^[12] Filipina received all the proceeds.

In the meantime, the Cable Division of PNB Head Office in Escolta, Manila received on November 16, 1992 a SWIFT^{^[27]}^[13] message from Philadelphia National Bank dated November 13, 1992 with Transaction Reference Number (TRN) 46506218, informing PNB of the return of the subject check for insufficient funds.^{^[28]}^[14] However, the PNB Head Office could not ascertain to which branch/office it should forward the same for proper action. Eventually, PNB Head Office sent Philadelphia National Bank a SWIFT message informing the latter that SWIFT message with TRN 46506218 has been relayed to PNB’s various divisions/departments but was returned to PNB Head Office as it seemed misrouted. PNB Head Office thus requested for Philadelphia National Bank’s advice on said SWIFT message’s proper disposition.^{^[29]}^[15] After a few days, PNB Head Office ascertained that the SWIFT message was intended for PNB Buendia Branch.

PNB Buendia Branch learned about the bounced check when it received on November 20, 1992 a debit advice,^{^[30]}^[16] followed by a letter^{^[31]}^[17] on November 24, 1992, from Philadelphia National Bank to which the November 13, 1992 SWIFT message was attached. Informed about the bounced check and upon demand by PNB Buendia Branch to return the money withdrawn, Ofelia immediately contacted Filipina to get the money back. But the latter told her that all the money had already been given to several people who asked for the check’s encashment. In their effort to recover the money, spouses Cheah then sought the help of the National Bureau of Investigation. Said agency’s Anti-Fraud and Action Division was later able to apprehend some of the beneficiaries of the proceeds of the check and recover from them $20,000.00. Criminal charges were then filed against these suspect beneficiaries.^{^[32]}^[18]

Meanwhile, the spouses Cheah have been constantly meeting with the bank officials to discuss matters regarding the incident and the recovery of the value of the check while the cases against the alleged perpetrators remain pending. Chee Chong in the end signed a PNB drafted^{^[33]}^[19] letter^{^[34]}^[20] which states that the spouses Cheah are offering their condominium units as collaterals for the amount withdrawn. Under this setup, the amount withdrawn would be treated as a loan account with deferred interest while the spouses try to recover the money from those who defrauded them. Apparently, Chee Chong signed the letter after the Vice President and Manager of PNB Buendia Branch, Erwin Asperilla (Asperilla), asked the spouses Cheah to help him and the other bank officers as they were in danger of losing their jobs because of the incident. Asperilla likewise assured the spouses Cheah that the letter was a mere formality and that the mortgage will be disregarded once PNB receives its claim for indemnity from Philadelphia National Bank.

Although some of the officers of PNB were amenable to the proposal,^{^[35]}^[21] the same did not materialize. Subsequently, PNB sent a demand letter to spouses Cheah for the return of the amount of the check,^{^[36]}^[22] froze their peso and dollar deposits in the amounts of P275,166.80 and $893.46,^{^[37]}^[23] and filed a complaint^{^[38]}^[24] against them for Sum of Money with Branch 50 of the Regional Trial Court (RTC) of Manila, docketed as Civil Case No. 94-71022. In said complaint, PNB demanded payment of around P8,202,220.44, plus interests^{^[39]}^[25] and attorney’s fees, from the spouses Cheah.

As their main defense, the spouses Cheah claimed that the proximate cause of PNB’s injury was its own negligence of paying a US dollar denominated check

without waiting for the 15-day clearing period, in violation of its bank practice as mandated by its own bank circular, i.e., PNB General Circular No. 52-101/88.^{^[40]}^[26] Because of this, spouses Cheah averred that PNB is barred from claiming what it had lost. They further averred that it is unjust for them to pay back the amount disbursed as they never really benefited therefrom. As counterclaim, they prayed for the return of their frozen deposits, the recoupment of P400,000.00 representing the amount they had so far spent in recovering the value of the check, and payment of moral and exemplary damages, as well as attorney’s fees.

Ruling of the Regional Trial Court

The RTC ruled in PNB’s favor. The dispositive portion of its Decision^{^[41]}^[27] dated May 20, 1999 reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Philippine National Bank [and] against defendants Mr. Cheah Chee Chong and Ms. Ofelia Camacho Cheah, ordering the latter to pay jointly and severally the herein plaintiffs’ bank the amount:

of US$298,950.25 or its peso equivalent based on Central Bank Exchange Rate prevailing at the time the proceeds of the BA Check No. 190 were withdrawn or the prevailing Central Bank Rate at the time the amount is to be reimbursed by the defendants to plaintiff or whatever is lower. This is without prejudice however, to the rights of the defendants (accommodating parties) to go against the group of Adelina Guarin, Atty. Eduardo Rosales, Filipina Tuazon, etc., (Beneficiaries- accommodated parties) who are privy to the defendants.

No pronouncement as to costs.

No other award of damages for non[e] has been proven.

SO ORDERED.^{^[42]}^[28]

The RTC held that spouses Cheah were guilty of contributory negligence.

Because Ofelia trusted a friend’s friend whom she did not know and considering the amount of the check made payable to cash, the RTC opined that Ofelia showed lack of vigilance in her dealings. She should have exercised due care by investigating the negotiability of the check and the identity of the drawer. While the court found that the proximate cause of the wrongful payment of the check was PNB’s negligence in not observing the 15-day guarantee period rule, it ruled that spouses Cheah still cannot escape liability to reimburse PNB the value of the check as an accommodation party pursuant to Section 29 of the Negotiable Instruments Law.^{^[43]}^[29] It likewise applied the principle of solutio indebiti under the Civil Code. With regard to the award of other forms of damages, the RTC held that each party must suffer the consequences of their own acts and thus left both parties as they are.

Unwilling to accept the judgment, the spouses Cheah appealed to the CA.

Ruling of the Court of Appeals

While the CA recognized the spouses Cheah as victims of a scam who nevertheless have to suffer the consequences of Ofelia’s lack of care and prudence in immediately trusting a stranger, the appellate court did not hold PNB scot-free. It ruled in its August 22, 2005 Decision,^{^[44]}^[30] viz:

As both parties were equally negligent, it is but right and just that both parties should equally suffer and shoulder the loss. The scam would not have been possible without the negligence of both parties. As earlier stated, the complaint of PNB cannot be dismissed because the Cheah spouses were negligent and Ms. Cheah took an active part in the deposit of the check and the withdrawal of the subject amounts. On the other hand, the Cheah spouses cannot entirely bear the loss because PNB allowed her to withdraw without waiting for the clearance of the check. The remedy of the parties is to go after those who perpetrated, and benefited from, the scam.

WHEREFORE, the May 20, 1999 Decision of the Regional Trial Court, Branch 5,Manila, in Civil Case No. 94-71022, is hereby REVERSED and SET ASIDE and another one entered DECLARING both parties equally negligent and should suffer and shoulder the loss.

Accordingly, PNB is hereby ordered to credit to the peso and dollar accounts of the Cheah spouses the amount due to them.

SO ORDERED.^{^[45]}^[31]

In so ruling, the CA ratiocinated that PNB Buendia Branch’s non-receipt of the SWIFT message from Philadelphia National Bank within the 15-day clearing period is not an acceptable excuse. Applying the last clear chance doctrine, the CA held that PNB had the last clear opportunity to avoid the impending loss of the money and yet, it glaringly exhibited its negligence in allowing the withdrawal of funds without exhausting the 15-day clearing period which has always been a standard banking practice as testified to by PNB’s own officers, and as provided in its own General Circular No. 52/101/88. To the CA, PNB cannot claim from spouses Cheah even if the latter are accommodation parties under the law as the bank’s own negligence is the proximate cause of the damage it sustained. Nevertheless, it also found Ofelia guilty of contributory negligence. Thus, both parties should be made equally responsible for the resulting loss.

Both parties filed their respective Motions for Reconsideration^{^[46]}^[32] but same were denied in a Resolution^{^[47]}^[33] dated December 21, 2005.

Hence, these Petitions for Review on Certiorari.

Our Ruling

The petitions for review lack merit. Hence, we affirm the ruling of the CA.

PNB’s act of releasing the proceeds of the check prior to the lapse of the 15-day clearing period was the proximate cause of the loss.

“Proximate cause is ‘that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury and without which the result would not have occurred.’ x x x To determine the proximate cause of a controversy, the question that needs to be asked is: If the event did not happen, would the injury have resulted? If the answer is no, then the event is the proximate cause.”^{^[48]}^[34]

It is worthy of notice that the 15-day clearing period alluded to is construed as 15 banking days. As declared by Josephine Estella, the Administrative Service Officer who was the bank’s Remittance Examiner, what was unusual in the processing of the check was that the “lapse of 15 banking days was not observed.”^{^[49]}^[35] Even PNB’s agreement with Philadelphia National Bank^{^[50]}^[36] regarding the rules on the collection of the proceeds of US dollar checks refers to “business/ banking days.” Ofelia deposited the subject check on November 4, 1992. Hence, the 15^th banking day from the date of said deposit should fall on November 25, 1992. However, what happened was that PNB Buendia Branch, upon calling up Ofelia that the check had been cleared, allowed the proceeds thereof to be withdrawn on November 17 and 18, 1992, a week before the lapse of the standard 15-day clearing period.

This Court already held that the payment of the amounts of checks without previously clearing them with the drawee bank especially so where the drawee bank is a foreign bank and the amounts involved were large is contrary to normal or ordinary banking practice.^{^[51]}^[37] Also, in Associated Bank v. Tan,^{^[52]}^[38] wherein the bank allowed the withdrawal of the value of a check prior to its clearing, we said that “[b]efore the check shall have been cleared for deposit, the collecting bank can only ‘assume’ at its own risk x x x that the check would be cleared and paid out.” The delay in the receipt by PNB Buendia Branch of the November 13, 1992 SWIFT message notifying it of the dishonor of the subject check is of no moment, because had PNB Buendia Branch waited for the expiration of the clearing period and had never released during that time the proceeds of the check, it would have already been duly notified of its dishonor. Clearly, PNB’s disregard of its preventive and protective measure against the possibility of being victimized by bad checks had brought upon itself the injury of losing a significant amount of money.

It bears stressing that “the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected.”^{^[53]}^[39] PNB miserably failed to do its duty of exercising extraordinary diligence and reasonable business prudence. The disregard of its own banking policy amounts to gross negligence, which the law defines as “negligence characterized by the want of even slight care, acting or omitting to act in a situation where there is duty to act, not inadvertently but wilfully and intentionally with a conscious indifference to consequences in so far as other persons may be affected.”^{^[54]}^[40] With regard to collection or encashment of checks, suffice it to say that the law imposes on the collecting bank the duty to scrutinize diligently the checks deposited with it for the purpose of determining their genuineness and regularity. “The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct.”^{^[55]}^[41] A bank is expected to be an expert in banking procedures and it has the necessary means to ascertain whether a check, local or foreign, is sufficiently funded.

Incidentally, PNB obliges the spouses Cheah to return the withdrawn money under the principle of solutio indebiti, which is laid down in Article 2154 of the Civil Code:^{^[56]}^[42]

Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.

The spouses Cheah are guilty of contributory negligence and are bound to share the loss with the bank

“Contributory negligence is conduct on the part of the injured party,

contributing as a legal cause to the harm he has suffered, which falls below the standard to which he is required to conform for his own protection.”^{^[58]}^[44]

WHEREFORE, premises considered, the Petitions for Review on Certiorari in G.R. No. 170865 and in G.R. No. 170892 are both DENIED. The assailed August 22, 2005 Decision and December 21, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 63948 are hereby AFFIRMED in toto.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

RENATO C. CORONA

Chief Justice

Chairperson

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

LUCAS P. BERSAMIN

Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

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

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice

[1][35] TSN,July 5, 1995, p. 26.

[2][36] Records, pp. 281-285.

[3][37] Banco Atlantico v. Auditor General, 171 Phil. 298, 304 (1978).

[4][38] 487 Phil. 512, 525 (2004).

[5][39] Philippine Savings Bank v. Chowking Food Corporation, G.R. No. 177526, July 4, 2008, 557 SCRA 318, 330, citing Bank of the Philippine Islands v. Court of Appeals, 383 Phil. 538, 554 (2000); Philippine Bank of Commerce v. Court of Appeals, 336 Phil. 667, 681 (1997) and Philippine Commercial International Bank v. Court of Appeals, 403 Phil. 361, 388 (2001).

[6][41] Metropolitan Bank and Trust Company v. Philippine Bank of Communications, G.R. Nos. 141408 and 141429, October 18, 2007, 536 SCRA 556, 563, citing Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corporation, 241 Phil. 187, 200 (1988).

[7][39] Philippine Savings Bank v. Chowking Food Corporation, G.R. No. 177526, July 4, 2008, 557 SCRA 318, 330, citing Bank of the Philippine Islands v. Court of Appeals, 383 Phil. 538, 554 (2000); Philippine Bank of Commerce v. Court of Appeals, 336 Phil. 667, 681 (1997) and Philippine Commercial International Bank v. Court of Appeals, 403 Phil. 361, 388 (2001).

[8][40] Victoriano v. People, G.R. Nos. 171322-24, November 30, 2006, 509 SCRA 483, 493, citing Fonacier v. Sandiganbayan, G.R. Nos. 50691, 52263, 52766, 52821, 53350, 53397, 53415 and 53520, December 5, 1994, 238 SCRA 655, 687-688.

[9][41] Metropolitan Bank and Trust Company v. Philippine Bank of Communications, G.R. Nos. 141408 and 141429, October 18, 2007, 536 SCRA 556, 563, citing Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corporation, 241 Phil. 187, 200 (1988).

[10][43] City of Cebu v. Judge Piccio, 110 Phil. 558, 563 (1960).

[11][42] N.B. Solutio indebiti also covers mistake in law under Article 2155 of the Civil Code.

[12][43] City of Cebu v. Judge Piccio, 110 Phil. 558, 563 (1960).

[13][44] Valenzuela v. Court of Appeals, 323 Phil. 374, 388 (1996).

[14][44] Valenzuela v. Court of Appeals, 323 Phil. 374, 388 (1996).

[15][1] Consolidated pursuant to our Resolution dated April 26, 2006, rollo (G.R. No. 170865), p. 392 and rollo (G.R. No. 170892), p. 95.

[16][2] Docketed as G.R. No. 170865, rollo, pp. 105-129.

[17][3] Docketed as G.R. No. 170892, id. at 11-39.

[18][4] CA rollo, pp. 172-188; penned by Associate Justice Jose Catral Mendoza (now a member of this Court) and concurred in by Presiding Justice Romeo A. Brawner and Associate Justice Mario L. Guariña III.

[19][5] Id. at 261; penned by Associate Justice Jose Catral Mendoza and concurred in by Associate Justices Mario L. Guariña III and Celia C. Librea-Leagogo.

[20][6] Records, p. 199.

[21][7] TSN,July 3, 1998, pp. 14-17.

[22][8] Records, p. 200.

[23][9] TSN,July 3, 1998, pp. 18-19;July 24, 1998, pp. 32-33.

[24][10] Records, pp. 201 and 425.

[25][11] Id. at 202.

[26][12] Id. at 206.

[27][13] Stands for ‘Society for Worldwide Interbank Financial Telecommunication.’ It is an international transaction processing system owned by and serving the financial community worldwide. It handles financial messages such as: a. customer transfers or payment orders; b. bank transfers; c. foreign exchange confirmation; d. debit confirmation; e. credit confirmation; f. statement of account; g. collections; h. documentary credits; i. syndications; j. traveler’s checks; See Joint Affidavit of Gregorio SC Termulo and Leoncio M. David, Assistant Department Manager II and Division Chief III of the Cable Division, International Department of PNB, id. at 312-315.

[28][14] Id. at 316.

[29][15] Id. at 317.

[30][16] Id. at 384.

[31][17] Id. at 386-387.

[32][18] Based on the records of the case at bar, upon the NBI’s investigation, the withdrawn money was divided among Transmedian Management (Adelina Guarin’s office), Nilo Montalban, Patricio Valleser, and Lucresio Semblante, who all received a part of the proceeds as commissions, while the rest of the amount was divided between Felix Sajot and Eduardo Rosales, id. at 276-277. The NBI, suspecting a conspiracy among the bank officers and the beneficiaries, filed an estafa case against Adelina Guarin and PNB officials Lorenzo Bal, Ponciano Felix, Teresita Gregorio, and Domingo Posadas before the Office of the Ombudsman, but this was dismissed, id. at 402-407. Criminal case for estafa was likewise filed by the Makati Prosecutor against Filipina Tuazon, Nilo Montalban, Patricio Vallaser, Lucresio Semblante, Eduardo Rosales and Felix Sajot before the Regional Trial Court of Makati, id. at 426-427.

[33][19] TSN,July 3, 1998, pp. 43-48;July 24, 1998, p. 9.

[34][20] Records, pp. 207-208.

[35][21] Id. at 388-395.

[36][22] Id. at 399.

[37][23] Under Account Nos. 265-560184-0 and 265-705612-2.

[38][24] Records, pp. 1-9.

[39][25] Converted to peso at a rate of $1 = P27.695. The amount recovered was deducted from the $300,000, then computed at an interest rate of 7.5% per annum.

[40][26] Said Circular datedAugust 31, 1988, states:

The existing cash letter services of our foreign correspondents [sic] bank make it possible for PNB to obtain immediate credit, subject to final payment for US dollar denominated checks withdrawn on banks in theU.S.A.negotiated with us by clients. The guarantee period ‘and’ notice of non-payment by telex features under such clearing item is made known to PNB within 15 days from date of receipts of checks by our collecting agent bank. Records, p. 525 as incorporated in the RTC Decision, p. 20.

[41][27] Id. at 506-541; penned by Judge Urbano Victorio, Sr.

[42][28] Id. at 540-541.

[43][29] Sec. 29. Liability of accommodation party. – An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party.

[44][30] Supra note 4.

[45][31] CA rollo, pp. 187-188.

[46][32] See PNB’s Motion for Reconsideration, id. at 194-207 and the spouses Cheah’s Motion for Reconsideration, id. at 208-231.

[47][33] Supra note 5.

[48][34] Allied Banking Corporation v. Lim Sio Wan, G.R. No. 133179,March 27, 2008, 549 SCRA 504, 518.

[49][35] TSN,July 5, 1995, p. 26.

[50][36] Records, pp. 281-285.

[51][37] Banco Atlantico v. Auditor General, 171 Phil. 298, 304 (1978).

[52][38] 487 Phil. 512, 525 (2004).

[53][39] Philippine Savings Bank v. Chowking Food Corporation, G.R. No. 177526, July 4, 2008, 557 SCRA 318, 330, citing Bank of the Philippine Islands v. Court of Appeals, 383 Phil. 538, 554 (2000); Philippine Bank of Commerce v. Court of Appeals, 336 Phil. 667, 681 (1997) and Philippine Commercial International Bank v. Court of Appeals, 403 Phil. 361, 388 (2001).

[54][40] Victoriano v. People, G.R. Nos. 171322-24, November 30, 2006, 509 SCRA 483, 493, citing Fonacier v. Sandiganbayan, G.R. Nos. 50691, 52263, 52766, 52821, 53350, 53397, 53415 and 53520, December 5, 1994, 238 SCRA 655, 687-688.

[55][41] Metropolitan Bank and Trust Company v. Philippine Bank of Communications, G.R. Nos. 141408 and 141429, October 18, 2007, 536 SCRA 556, 563, citing Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corporation, 241 Phil. 187, 200 (1988).

[56][42] N.B. Solutio indebiti also covers mistake in law under Article 2155 of the Civil Code.

[57][43] City of Cebu v. Judge Piccio, 110 Phil. 558, 563 (1960).

[58][44] Valenzuela v. Court of Appeals, 323 Phil. 374, 388 (1996).

Comment

LEGAL NOTE 0120: WHEN IS SEPARATION PAY GIVEN TO AN EMPLOYEE DESPITE HIS DISMISSAL FROM EMPLOYMENT?

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May 9, 2012

LEGAL NOTE 0120: WHEN IS SEPARATION PAY GIVEN TO AN EMPLOYEE DESPITE HIS DISMISSAL FROM EMPLOYMENT?

SOURCE: C. ALCANTARA & SONS, INC. VS. COURT OF APPEALS, LABOR ARBITER ANTONIO M. VILLANUEVA, LABOR ARBITER ARTURO L. GAMOLO, SHERIFF OF NLRC RAB-XI-DAVAO CITY, NAGKAHIUSANG MAMUMUO SA ALSONS-SPFL (NAMAAL-SPFL), FELIXBERTO IRAG, JOSHUA BARREDO, ERNESTO CUARIO, EDGAR MONDAY, EDILBERTO DEMETRIA, HERMINIO ROBILLO, ROMULO LUNGAY, MATROIL DELOS SANTOS, BONERME MATURAN, RAUL CANTIGA, EDUARDO CAMPUSO, RUDY ANADON, GILBERTO GABRONINO, BONIFACIO SALVADOR, CIRILO MINO, ROBERTO ABONADO, WARLITO MONTE, PEDRO ESQUIERDO, ALFREDO TROPICO, DANILO MEJOS, HECTOR ESTUITA, BARTOLOME CASTILLANES, EDUARDO CAPUYAN, SATURNINO CAGAS, ALEJANDRO HARDER, EDUARDO LARENA, JAIME MONTEDERAMOS, ERMELANDO BASADRE, REYNALDO LIMPAJAN, ELPIDIO LIBRANZA, TEDDY SUELO, JOSE AMOYLIN, TRANQUILINO ORALLO, CARLOS BALDOS, MANOLITO SABELLANO, CARMELITO TOBIAS, PRIMITIVO GARCIA, JUANITO ALDEPOLLA, LUDIVICO ABAD, WENCISLAO INGHUG, RICARDO ALTO, EPIFANIO JARABAY, FELICIANO AMPER, ALEXANDER JUDILLA, ROBERTO ANDRADE, ALFREDO LESULA, JULIO ANINO, BENITO MAGPUSAO, PEDRO AQUINO, EDDIE MANSANADES, ROMEO ARANETA, ARGUILLAO MANTICA, CONSTANCIO ARNAIZ, ERNESTO HOTOY, JUSTINO ASCANO, RICARDO MATURAN, EDILBERTO YAMBAO, ANTONIO MELARGO, JESUS BERITAN, ARSENIO MELICOR, DIOSDADO BONGABONG, LAURO MONTENEGRO, CARLITO BURILLO, LEO MORA, PABLO BUTIL, ARMANDO GUCILA, JEREMIAH CAGARA, MARIO NAMOC, CARLITO CAL, GERWINO NATIVIDAD, ROLANDO CAPUYAN, EDGARDO ORDIZ, LEONARDO CASURRA, PATROCINIO ORTEGA, FILEMON CESAR, MARIO PATAN, ROMEO COMPRADO, JESUS PATOC, RAMON CONSTANTINO, ALBERTO PIELAGO, SAMUEL DELA LLANA, NICASIO PLAZA, ROSALDO DAGONDON, TITO GUADES, BONIFACIO DINAGUDOS, PROCOPIO RAMOS, JOSE EBORAN, ROSENDO SAJOL, FRANCISCO EMPUERTO, PATRICIO SALOMON, NESTOR ENDAYA, MARIO SALVALEON, ERNESTO ESTILO, BONIFACIO SIGUE, VICENTE FABROA, JAIME SUCUAHI, CELSO HUISO, ALEX TAUTO-AN, SATURNINO YAGON, CLAUDIO TIROL, SULPECIO GAGNI, JOSE TOLERO, FERVIE GALVEZ, ALFREDO TORALBA AND EDUARDO GENELSA (G.R. NO. 155109, MARCH 14, 2012, PERALTA, J.:) AND RELATED CASES (G.R. NO. 155135, G.R. NO. 179220) SUBJECT/S: ILLEGAL STRIKES; LIABILITY OF STRIKING UNION OFFICERS AND MEMBERS; WHEN SEPARATION PAY IS GRANTED AS FORM OF FINANCIAL ASSISTANCE (BRIEF TITLE: C. ALCANTARA & SONS VS. C.A. ET AL.)

=================

DISPOSITIVE:

WHEREFORE, premises considered, the motion for reconsideration of the Union, its officers and members are DENIED for lack of merit, while the motion for partial reconsideration filed by C. Alcantara & Sons, Inc. is PARTLY GRANTED. The Decision of the Court dated September 29, 2010 is hereby PARTLY RECONSIDERED by deleting the award of separation pay.

SO ORDERED.

DIOSDADO M. PERALTA

Associate Justice

=================

SUBJECTS/DOCTRINES/DIGEST

CA AWARDED THE WORKERS SEPARATION PAY AS FORM OF FINANCIAL ASSISTANCE. IS THIS VALID?

NO. SEPARATION PAY MAY BE GIVEN AS A FORM OF FINANCIAL ASSISTANCE WHEN A WORKER IS DISMISSED IN CASES SUCH AS THE INSTALLATION OF LABOR-SAVING DEVICES, REDUNDANCY, RETRENCHMENT TO PREVENT LOSSES, CLOSING OR CESSATION OF OPERATION OF THE ESTABLISHMENT, OR IN CASE THE EMPLOYEE WAS FOUND TO HAVE BEEN SUFFERING FROM A DISEASE SUCH THAT HIS CONTINUED EMPLOYMENT IS PROHIBITED BY LAW.^{^[1]}^[36]

WHY?

IT IS A STATUTORY RIGHT DEFINED AS THE AMOUNT THAT AN EMPLOYEE RECEIVES AT THE TIME OF HIS SEVERANCE FROM THE SERVICE AND IS DESIGNED TO PROVIDE THE EMPLOYEE WITH THE WHEREWITHAL DURING THE PERIOD THAT HE IS LOOKING FOR ANOTHER EMPLOYMENT.^{^[2]}^[37] IT IS ORIENTED TOWARDS THE IMMEDIATE FUTURE, THE TRANSITIONAL PERIOD THE DISMISSED EMPLOYEE MUST UNDERGO BEFORE LOCATING A REPLACEMENT JOB.^{^[3]}^[38]

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HOW ABOUT IF THE CAUSES ARE JUST CAUSES?

THE EMPLOYEE IS NOT ENTITLED TO SUCH SEPARATION PAY AS FORM OF FINANCIAL EXCEPTION BECAUSE LAWBREAKERS SHOULD NOT BENEFIT FROM THEIR ILLEGAL ACTS.^{^[4]}^[39]

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IS THIS RULE ABSOLUTE?

NO THERE IN AN EXCEPTION. WHERE THE EMPLOYEE IS VALIDLY DISMISSED FOR CAUSES OTHER THAN SERIOUS MISCONDUCT OR THOSE REFLECTING ON HIS MORAL CHARACTER. THE REASON IS SOCIAL JUSTICE.

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GIVE EXAMPLES WHEN SEPARATION PAY WAS GRANTED DESPITE DISMISSAL FROM THE SERVICE?

INDEED, WE APPLIED SOCIAL JUSTICE AND EQUITY CONSIDERATIONS IN SEVERAL CASES TO JUSTIFY THE AWARD OF FINANCIAL ASSISTANCE. IN PIÑERO V. NATIONAL LABOR RELATIONS COMMISSION,^{^[5]}^[46] THE COURT DECLARED THE STRIKE TO BE ILLEGAL FOR FAILURE TO COMPLY WITH THE PROCEDURAL REQUIREMENTS. WE, LIKEWISE, SUSTAINED THE DISMISSAL OF THE UNION PRESIDENT FOR PARTICIPATING IN SAID ILLEGAL STRIKE. CONSIDERING, HOWEVER, THAT HIS INFRACTION IS NOT SO REPREHENSIBLE AND UNSCRUPULOUS AS TO WARRANT COMPLETE DISREGARD OF HIS LONG YEARS OF SERVICE, AND CONSIDERING FURTHER THAT HE HAS NO PREVIOUS DEROGATORY RECORDS, WE GRANTED FINANCIAL ASSISTANCE TO SUPPORT HIM IN THE TWILIGHT OF HIS LIFE AFTER LONG YEARS OF SERVICE.^{^[6]}^[47] THE SAME COMPASSION WAS ALSO APPLIED IN APARENTE, SR. V. NLRC^{^[7]}^[48] WHERE THE EMPLOYEE WAS DECLARED TO HAVE BEEN VALIDLY TERMINATED FROM SERVICE AFTER HAVING BEEN FOUND GUILTY OF DRIVING WITHOUT A VALID DRIVER’S LICENSE, WHICH IS A CLEAR VIOLATION OF THE COMPANY’S RULES AND REGULATIONS.^{^[8]}^[49] WE, LIKEWISE, AWARDED FINANCIAL ASSISTANCE IN SALAVARRIA V. LETRAN COLLEGE^{^[9]}^[50] TO THE LEGALLY DISMISSED TEACHER FOR VIOLATION OF SCHOOL POLICY BECAUSE SUCH INFRACTION NEITHER AMOUNTED TO SERIOUS MISCONDUCT NOR REFLECTED THAT OF A MORALLY DEPRAVED PERSON.

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GIVE EXAMPLES WHEN SEPARATION PAY WAS NOT GIVEN.

WE HAD THE OCCASION TO RESOLVE THE SAME ISSUE IN TOYOTA MOTOR PHILS. CORP. WORKERS ASSOCIATION (TMPCWA) V. NATIONAL LABOR RELATIONS COMMISSION.^{^[10]}^[43] FOLLOWING THE DECLARATION THAT THE STRIKE STAGED BY THE UNION MEMBERS IS ILLEGAL, THE UNION OFFICERS AND MEMBERS WERE CONSIDERED VALIDLY DISMISSED FROM EMPLOYMENT FOR COMMITTING ILLEGAL ACTS DURING THE ILLEGAL STRIKE. THE COURT AFFIRMED THE CA’S CONCLUSION THAT THE COMMISSION OF ILLEGAL ACTS DURING THE ILLEGAL STRIKE CONSTITUTED SERIOUS MISCONDUCT.^{^[11]}^[44] HENCE, THE AWARD OF SEPARATION PAY TO THE UNION OFFICIALS AND MEMBERS WAS NOT SUSTAINED.^{^[12]}^[45]

. . . . .

HOWEVER, IN A NUMBER OF CASES CITED IN TOYOTA MOTOR PHILS. CORP. WORKERS ASSOCIATION (TMPCWA) V. NATIONAL LABOR RELATIONS COMMISSION,^{^[13]}^[51] WE REFRAINED FROM AWARDING SEPARATION PAY OR FINANCIAL ASSISTANCE TO UNION OFFICERS AND MEMBERS WHO WERE SEPARATED FROM SERVICE DUE TO THEIR PARTICIPATION IN OR COMMISSION OF ILLEGAL ACTS DURING THE STRIKE.^{^[14]}^[52] IN PILIPINO TELEPHONE CORPORATION V. PILIPINO TELEPHONE EMPLOYEES ASSOCIATION (PILTEA),^{^[15]}^[53] THE STRIKE WAS FOUND TO BE ILLEGAL BECAUSE OF PROCEDURAL INFIRMITIES AND FOR DEFIANCE OF THE SECRETARY OF LABOR’S ASSUMPTION ORDER. HENCE, WE UPHELD THE UNION OFFICERS’ DISMISSAL WITHOUT GRANTING FINANCIAL ASSISTANCE. IN SUKHOTAI CUISINE AND RESTAURANT V. COURT OF APPEALS,^{^[16]}^[54] AND MANILA DIAMOND HOTEL AND RESORT, INC. (MANILA DIAMOND HOTEL) V. MANILA DIAMOND HOTEL EMPLOYEES UNION,^{^[17]}^[55] THE UNION OFFICERS AND MEMBERS WHO PARTICIPATED IN AND COMMITTED ILLEGAL ACTS DURING THE ILLEGAL STRIKE WERE DEEMED TO HAVE LOST THEIR EMPLOYMENT STATUS AND WERE NOT AWARDED FINANCIAL ASSISTANCE.

IN TELEFUNKEN SEMICONDUCTORS EMPLOYEES UNION V. COURT OF APPEALS,^{^[18]}^[56] THE COURT HELD THAT THE STRIKERS’ OPEN AND WILLFUL DEFIANCE OF THE ASSUMPTION ORDER OF THE SECRETARY OF LABOR CONSTITUTE SERIOUS MISCONDUCT AND REFLECTIVE OF THEIR MORAL CHARACTER, HENCE, GRANTING OF FINANCIAL ASSISTANCE TO THEM CANNOT BE JUSTIFIED. IN CHUA V. NATIONAL LABOR RELATIONS COMMISSION,^{^[19]}^[57] WE DISALLOWED THE AWARD OF FINANCIAL ASSISTANCE TO THE DISMISSED EMPLOYEES FOR THEIR PARTICIPATION IN THE UNLAWFUL AND VIOLENT STRIKE WHICH RESULTED IN MULTIPLE DEATHS AND EXTENSIVE PROPERTY DAMAGE BECAUSE IT CONSTITUTES SERIOUS MISCONDUCT ON THEIR PART.

Finally, as regards the separation pay as a form of financial assistance awarded by the Court, we find it necessary to reconsider the same and delete the award pursuant to prevailing jurisprudence.

Separation pay may be given as a form of financial assistance when a worker is dismissed in cases such as the installation of labor-saving devices, redundancy, retrenchment to prevent losses, closing or cessation of operation of the establishment, or in case the employee was found to have been suffering from a disease such that his continued employment is prohibited by law.^{^[20]}^[36] It is a statutory right defined as the amount that an employee receives at the time of his severance from the service and is designed to provide the employee with the wherewithal during the period that he is looking for another employment.^{^[21]}^[37] It is oriented towards the immediate future, the transitional period the dismissed employee must undergo before locating a replacement job.^{^[22]}^[38] As a general rule, when just causes for terminating the services of an employee exist, the employee is not entitled to separation pay because lawbreakers should not benefit from their illegal acts.^{^[23]}^[39] The rule, however, is subject to exceptions.^{^[24]}^[40] The Court, in Philippine Long Distance Telephone Co. v. NLRC,^{^[25]}^[41] laid down the guidelines when separation pay in the form of financial assistance may be allowed, to wit:

We hold that henceforth separation pay shall be allowed as a measure of social justice only in those instances where the employee is validly dismissed for causes other than serious misconduct or those reflecting on his moral character. Where the reason for the valid dismissal is, for example, habitual intoxication or an offense involving moral turpitude, like theft or illicit sexual relations with a fellow worker, the employer may not be required to give the dismissed employee separation pay, or financial assistance, or whatever other name it is called, on the ground of social justice.

A contrary rule would, as the petitioner correctly argues, have the effect, of rewarding rather than punishing the erring employee for his offense. And we do not agree that the punishment is his dismissal only and that the separation pay has nothing to do with the wrong he has committed x x x.^{^[26]}^[42]

We had the occasion to resolve the same issue in Toyota Motor Phils. Corp. Workers Association (TMPCWA) v. National Labor Relations Commission.^{^[27]}^[43] Following the declaration that the strike staged by the Union members is illegal, the Union officers and members were considered validly dismissed from employment for committing illegal acts during the illegal strike. The Court affirmed the CA’s conclusion that the commission of illegal acts during the illegal strike constituted serious misconduct.^{^[28]}^[44] Hence, the award of separation pay to the Union officials and members was not sustained.^{^[29]}^[45]

Indeed, we applied social justice and equity considerations in several cases to justify the award of financial assistance. In Piñero v. National Labor Relations Commission,^{^[30]}^[46] the Court declared the strike to be illegal for failure to comply with the procedural requirements. We, likewise, sustained the dismissal of the Union president for participating in said illegal strike. Considering, however, that his infraction is not so reprehensible and unscrupulous as to warrant complete disregard of his long years of service, and considering further that he has no previous derogatory records, we granted financial assistance to support him in the twilight of his life after long years of service.^{^[31]}^[47] The same compassion was also applied in Aparente, Sr. v. NLRC^{^[32]}^[48] where the employee was declared to have been validly terminated from service after having been found guilty of driving without a valid driver’s license, which is a clear violation of the company’s rules and regulations.^{^[33]}^[49] We, likewise, awarded financial assistance in Salavarria v. Letran College^{^[34]}^[50] to the legally dismissed teacher for violation of school policy because such infraction neither amounted to serious misconduct nor reflected that of a morally depraved person.

However, in a number of cases cited in Toyota Motor Phils. Corp. Workers Association (TMPCWA) v. National Labor Relations Commission,^{^[35]}^[51] we refrained from awarding separation pay or financial assistance to Union officers and members who were separated from service due to their participation in or commission of illegal acts during the strike.^{^[36]}^[52] In Pilipino Telephone Corporation v. Pilipino Telephone Employees Association (PILTEA),^{^[37]}^[53] the strike was found to be illegal because of procedural infirmities and for defiance of the Secretary of Labor’s assumption order. Hence, we upheld the Union officers’ dismissal without granting financial assistance. In Sukhotai Cuisine and Restaurant v. Court of Appeals,^{^[38]}^[54] and Manila Diamond Hotel and Resort, Inc. (Manila Diamond Hotel) v. Manila Diamond Hotel Employees Union,^{^[39]}^[55] the Union officers and members who participated in and committed illegal acts during the illegal strike were deemed to have lost their employment status and were not awarded financial assistance.

In Telefunken Semiconductors Employees Union v. Court of Appeals,^{^[40]}^[56] the Court held that the strikers’ open and willful defiance of the assumption order of the Secretary of Labor constitute serious misconduct and reflective of their moral character, hence, granting of financial assistance to them cannot be justified. In Chua v. National Labor Relations Commission,^{^[41]}^[57] we disallowed the award of financial assistance to the dismissed employees for their participation in the unlawful and violent strike which resulted in multiple deaths and extensive property damage because it constitutes serious misconduct on their part.

Here, not only did the Court declare the strike illegal, rather, it also found the Union officers to have knowingly participated in the illegal strike. Worse, the Union members committed prohibited acts during the strike. Thus, as we concluded in Toyota, Telefunken, Chua and the other cases cited above, we delete the award of separation pay as a form of financial assistance.

===================

Republic of thePhilippines

Supreme Court

Manila

SPECIAL SECOND DIVISION

C. ALCANTARA & SONS, INC.,

Petitioner,

– versus –

COURT OF APPEALS, LABOR ARBITER ANTONIO M. VILLANUEVA, LABOR ARBITER ARTURO L. GAMOLO, SHERIFF OF NLRC RAB-XI-DAVAO CITY, NAGKAHIUSANG MAMUMUO SA ALSONS-SPFL (NAMAAL-SPFL), FELIXBERTO IRAG, JOSHUA BARREDO, ERNESTO CUARIO, EDGAR MONDAY, EDILBERTO DEMETRIA, HERMINIO ROBILLO, ROMULO LUNGAY, MATROIL DELOS SANTOS, BONERME MATURAN, RAUL CANTIGA, EDUARDO CAMPUSO, RUDY ANADON, GILBERTO GABRONINO, BONIFACIO SALVADOR, CIRILO MINO, ROBERTO ABONADO, WARLITO MONTE, PEDRO ESQUIERDO, ALFREDO TROPICO, DANILO MEJOS, HECTOR ESTUITA, BARTOLOME CASTILLANES, EDUARDO CAPUYAN, SATURNINO CAGAS, ALEJANDRO HARDER, EDUARDO LARENA, JAIME MONTEDERAMOS, ERMELANDO BASADRE, REYNALDO LIMPAJAN, ELPIDIO LIBRANZA, TEDDY SUELO, JOSE AMOYLIN, TRANQUILINO ORALLO, CARLOS BALDOS, MANOLITO SABELLANO, CARMELITO TOBIAS, PRIMITIVO GARCIA, JUANITO ALDEPOLLA, LUDIVICO ABAD, WENCISLAO INGHUG, RICARDO ALTO, EPIFANIO JARABAY, FELICIANO AMPER, ALEXANDER JUDILLA, ROBERTO ANDRADE, ALFREDO LESULA, JULIO ANINO, BENITO MAGPUSAO, PEDRO AQUINO, EDDIE MANSANADES, ROMEO ARANETA, ARGUILLAO MANTICA, CONSTANCIO ARNAIZ, ERNESTO HOTOY, JUSTINO ASCANO, RICARDO MATURAN, EDILBERTO YAMBAO, ANTONIO MELARGO, JESUS BERITAN, ARSENIO MELICOR, DIOSDADO BONGABONG, LAURO MONTENEGRO, CARLITO BURILLO, LEO MORA, PABLO BUTIL, ARMANDO GUCILA, JEREMIAH CAGARA, MARIO NAMOC, CARLITO CAL, GERWINO NATIVIDAD, ROLANDO CAPUYAN, EDGARDO ORDIZ, LEONARDO CASURRA, PATROCINIO ORTEGA, FILEMON CESAR, MARIO PATAN, ROMEO COMPRADO, JESUS PATOC, RAMON CONSTANTINO, ALBERTO PIELAGO, SAMUEL DELA LLANA, NICASIO PLAZA, ROSALDO DAGONDON, TITO GUADES, BONIFACIO DINAGUDOS, PROCOPIO RAMOS, JOSE EBORAN, ROSENDO SAJOL, FRANCISCO EMPUERTO, PATRICIO SALOMON, NESTOR ENDAYA, MARIO SALVALEON, ERNESTO ESTILO, BONIFACIO SIGUE, VICENTE FABROA, JAIME SUCUAHI, CELSO HUISO, ALEX TAUTO-AN, SATURNINO YAGON, CLAUDIO TIROL, SULPECIO GAGNI, JOSE TOLERO, FERVIE GALVEZ, ALFREDO TORALBA and EDUARDO GENELSA,

Respondents.

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NAGKAHIUSANG MAMUMUO SA ALSONS-SPFL (NAMAAL-SPFL), FELIXBERTO IRAG, JOSHUA BARREDO, ERNESTO CUARIO, EDGAR MONDAY, EDILBERTO DEMETRIA, HERMINIO ROBILLO, ROMULO LUNGAY, MATROIL DELOS SANTOS, BONERME MATURAN, RAUL CANTIGA, EDUARDO CAMPUSO, RUDY ANADON, GILBERTO GABRONINO, BONIFACIO SALVADOR, CIRILO MINO, ROBERTO ABONADO, WARLITO MONTE, PEDRO ESQUIERDO, ALFREDO TROPICO, DANILO MEJOS, HECTOR ESTUITA, BARTOLOME CASTILLANES, EDUARDO CAPUYAN, SATURNINO CAGAS, ALEJANDRO HARDER, EDUARDO LARENA, JAIME MONTEDERAMOS, ERMELANDO BASADRE, REYNALDO LIMPAJAN, ELPIDIO LIBRANZA, TEDDY SUELO, JOSE AMOYLIN, TRANQUILINO ORALLO, CARLOS BALDOS, MANOLITO SABELLANO, CARMELITO TOBIAS, PRIMITIVO GARCIA, JUANITO ALDEPOLLA, LUDIVICO ABAD, WENCISLAO INGHUG, RICARDO ALTO, EPIFANIO JARABAY, FELICIANO AMPER, ALEXANDER JUDILLA, ROBERTO ANDRADE, ALFREDO LESULA, JULIO ANINO, BENITO MAGPUSAO, PEDRO AQUINO, EDDIE MANSANADES, ROMEO ARANETA, ARGUILLAO MANTICA, CONSTANCIO ARNAIZ, ERNESTO HOTOY, JUSTINO ASCANO, RICARDO MATURAN, EDILBERTO YAMBAO, ANTONIO MELARGO, JESUS BERITAN, ARSENIO MELICOR, DIOSDADO BONGABONG, LAURO MONTENEGRO, CARLITO BURILLO, LEO MORA, PABLO BUTIL, ARMANDO GUCILA, JEREMIAH CAGARA, MARIO NAMOC, CARLITO CAL, GERWINO NATIVIDAD, ROLANDO CAPUYAN, JUANITO NISNISAN, AURELIO CARIN, PRIMO OPLIMO, ANGELITO CASTANEDA, EDGARDO ORDIZ, LEONARDO CASURRA, PATROCINIO ORTEGA, FILEMON CESAR, MARIO PATAN, ROMEO COMPRADO, JESUS PATOC, RAMON CONSTANTINO, MANUEL PIAPE, ROY CONSTANTINO, ALBERTO PIELAGO, SAMUEL DELA LLANA, NICASIO PLAZA, ROSALDO DAGONDON, TITO GUADES, BONIFACIO DINAGUDOS, PROCOPIO RAMOS, JOSE EBORAN, ROSENDO SAJOL, FRANCISCO EMPUERTO, PATRICIO SALOMON, NESTOR ENDAYA, MARIO SALVALEON, ERNESTO ESTILO, BONIFACIO SIGUE, VICENTE FABROA, JAIME SUCUAHI, CELSO HUISO, ALEX TAUTO-AN, SATURNINO YAGON, CLAUDIO TIROL, SULPECIO GAGNI, JOSE TOLERO, FERVIE GALVEZ, ALFREDO TORALBA and EDUARDO GENELSA,

Petitioners,

– versus –

C. ALCANTARA & SONS, INC., EDITHA I. ALCANTARA, ATTY. NELIA A. CLAUDIO, CORNELIO E. CAGUIAT, JESUS S. DELA CRUZ, ROLANDO Z. ANDRES and JOSE MA. MANUEL YRASUEGUI,

Respondents.

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NAGKAHIUSANG MAMUMUO SA ALSONS-SPFL (NAMAAL-SPFL), AND ITS MEMBERS whose names are listed below,

Petitioners,

– versus –

C. ALCANTARA & SONS, INC.,

Respondent.

1. G.R. No. 155109

G.R. No. 155135

G.R. No. 179220

CARPIO, J., Chairperson,

VELASCO, JR.,

PERALTA,

MENDOZA, and

REYES, JJ.

Promulgated:

March 14, 2012

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RESOLUTION

PERALTA, J.:

For resolution are the (1) Motion for Partial Reconsideration^{^[42]}^[1] filed by C. Alcantara & Sons, Inc. (CASI) and (2) Motion for Reconsideration^{^[43]}^[2] filed by Nagkahiusang Mamumuo sa Alsons-SPFL (the Union) and the Union officers^{^[44]}^[3] and their striking members^{^[45]}^[4] of the Court’s Decision^{^[46]}^[5] dated September 29, 2010. In a Resolution^{^[47]}^[6] dated December 13, 2010, the parties were required to submit their respective Comments. After several motions for extension, the parties submitted the required comments. Hence, this resolution.

For a proper perspective, we state briefly the facts of the case.

The negotiation between CASI and the Union on the economic provisions of the Collective Bargaining Agreement (CBA) ended in a deadlock prompting the Union to stage a strike,^{^[48]}^[7] but the strike was later declared by the Labor Arbiter (LA) to be illegal having been staged in violation of the CBA’s no strike-no lockout provision.^{^[49]}^[8] Consequently, the Union officers were deemed to have forfeited their employment with the company and made them liable for actual damages plus interest and attorney’s fees, while the Union members were ordered to be reinstated without backwages there being no proof that they actually committed illegal acts during the strike.^{^[50]}^[9]

Notwithstanding the provision of the Labor Code mandating that the reinstatement aspect of the decision be immediately executory, the LA refused to reinstate the dismissed Union members. On November 8, 1999, the NLRC affirmed the LA decision insofar as it declared the strike illegal and ordered the Union officers dismissed from employment and liable for damages but modified the same by considering the Union members to have been validly dismissed from employment for committing prohibited and illegal acts.^{^[51]}^[10]

On petition for certiorari, the Court of Appeals (CA) annulled the NLRC decision and reinstated that of the LA. Aggrieved, CASI, the Union and the Union officers and members elevated the matter to this Court. The cases were docketed as G.R. Nos. 155109 and 155135.^{^[52]}^[11]

During the pendency of the cases, the affected Union members (who were ordered reinstated) filed with the LA a motion for reinstatement pending appeal and the computation of their backwages. Instead of reinstating the Union members, the LA awarded separation pay and other benefits.^{^[53]}^[12] On appeal, the NLRC denied the Union members’ claim for separation pay, accrued wages and other benefits.^{^[54]}^[13] When elevated to the CA, the appellate court held that reinstatement pending appeal applies only to illegal dismissal cases under Article 223 of the Labor Code and not to cases under Article 263.^{^[55]}^[14] Hence, the petition by theUnion and its officers and members in G.R. No. 179220.

G.R. Nos. 155109, 155135, and 179220 were consolidated. On September 29, 2010, the Court rendered a decision the dispositive portion of which reads:

WHEREFORE, the Court DENIES the petition of the Nagkahiusang Mamumuo sa Alsons-SPFL and its officers and members in G.R. No. 155135 for lack of merit, and REVERSES and SETS ASIDE the decision of the Court of Appeals in CA-G.R. SP 59604 dated March 20, 2002. The Court, on the other hand, GRANTS the petition of C. Alcantara & Sons, Inc. in G.R. 155109 and REINSTATES the decision of the National Labor Relations Commission in NLRC CA M-004996-99 dated November 8, 1999.

Further, the Court PARTIALLY GRANTS the petition of the Nagkahiusang Mamumuo sa Alsons-SPFL and their dismissed members in G.R. No. 179220 and ORDERS C. Alcantara & Sons, Inc. to pay the terminated Union members backwages for four (4) months and nine (9) days and separation pays equivalent to one-half month salary for every year of service to the company up to the date of their termination, with interest of 12% per annum from the time this decision becomes final and executory until such backwages and separation pays are paid. The Court DENIES all other claims.

SO ORDERED.^{^[56]}^[15]

The Court agreed with the CA on the illegality of the strike as well as the termination of the Union officers, but disagreed with the CA insofar as it affirmed the reinstatement of the Union members. The Court, instead, sustained the dismissal not only of the Union officers but also the Union members who, during the illegal strike, committed prohibited acts by threatening, coercing, and intimidating non-striking employees, officers, suppliers and customers; obstructing the free ingress to and egress from the company premises; and resisting and defying the implementation of the writ of preliminary injunction issued against the strikers.^{^[57]}^[16]

The Court further held that the terminated Union members, who were ordered reinstated by the LA, should have been immediately reinstated due to the immediate executory nature of the reinstatement aspect of the LA decision. In view, however, of CASI’s failure to reinstate the dismissed employees, the Court ordered CASI to pay the terminated Union members their accrued backwages from the date of the LA decision until the eventual reversal by the NLRC of the order of reinstatement.^{^[58]}^[17] In addition to the accrued backwages, the Court awarded separation pay as a form of financial assistance to the Union members equivalent to one-half month salary for every year of service to the company up to the date of their termination.^{^[59]}^[18]

Not satisfied, CASI filed a Motion for Partial Reconsideration of the above decision based on the following grounds:

IT IS RESPECTFULLY SUBMITTED THAT A PRECEDENT SETTING RULING OF THIS HONORABLE COURT IN ESCARIO V. NLRC [G.R. No. 160302, 27 SEPTEMBER 2010] – PARTICULARLY ON THE PROPER APPLICATION OF ARTICLES 264 AND 279 OF THE LABOR CODE – SUPPORTS THE AFFIRMATION AND NOT THE REVERSAL OF THE FINDINGS OF THE COURT OF APPEALS [“CA”], AND NEGATES THE ENTITLEMENT TO ACCRUED WAGES OF THE UNION MEMBERS WHO COMMITTED ILLEGAL ACTS DURING THE ILLEGAL STRIKE, NOTWITHSTANDING THAT THE LABOR ARBITER AWARDED THE SAME.

II.

IT IS RESPECTFULY SUBMITTED THAT THIS HONORABLE COURT ERRED WHEN IT RESOLVED TO GRANT SEPARATION PAY TO THE UNION MEMBERS WHO COMMITTED ILLEGAL ACTS DURING THE ILLEGAL STRIKE CONSIDERING THAT JURISPRUDENCE CITED TO JUSTIFY THE GRANT OF SEPARATION PAY DO NOT APPLY TO THE PRESENT CASE AS IT APPLIES ONLY TO DISMISSALS FOR A JUST CAUSE.^{^[60]}^[19]

The Union, its officers and members likewise filed their separate motion for reconsideration assailing the Court’s conclusions that: (1) the strike is illegal; (2) that the officers of the Union and its appointed shop stewards automatically forfeited their employment status when they participated in the strike; (3) that the Union members committed illegal acts during the strike and are deemed to have lost their employment status; and (4) that CASI is entitled to actual damages and attorney’s fees.^{^[61]}^[20] They also fault the Court in not finding that: (1) CASI and its officers are guilty of acts of unfair labor practice or violation of Article 248 of the Labor Code; (2) the lockout declared by the company is illegal; (3) CASI and its officers committed acts of discrimination; (4) CASI and its officers violated Article 254 of the Labor Code; and (5) CASI and its officers are liable for actual, moral, and exemplary damages to the Union, its officers and members.^{^[62]}^[21]

Simply stated, CASI only questions the propriety of the award of backwages and separation pay, while the Union, its officers and members seek the reversal of the Court’s conclusions on the illegality of the strike, the validity of the termination of the Union officers and members, and the award of actual damages and attorney’s fees as well as the denial of their counterclaims against CASI.

After a careful review of the records of the case, we find it necessary to reconsider the Court’s September 29, 2010 decision, but only as to the award of separation pay.

The LA, the NLRC, the CA and the Court are one in saying that the strike staged by the Union, participated in by the Union officers and members, is illegal being in violation of the no strike-no lockout provision of the CBA which enjoined both the Union and the company from resorting to the use of economic weapons available to them under the law and to instead take recourse to voluntary arbitration in settling their disputes.^{^[63]}^[22] We, therefore, find no reason to depart from such conclusion.

Article 264 (a) of the Labor Code lays down the liabilities of the Union officers and members participating in illegal strikes and/or committing illegal acts, to wit:

ART. 264. PROHIBITED ACTIVITIES

(a) x x x

Any worker whose employment has been terminated as a consequence of an unlawful lockout shall be entitled to reinstatement with full backwages. Any Union officer who knowingly participates in an illegal strike and any worker or Union officer who knowingly participates in the commission of illegal acts during a strike may be declared to have lost his employment status: Provided, That mere participation of a worker in a lawful strike shall not constitute sufficient ground for termination of his employment, even if a replacement had been hired by the employer during such lawful strike.

Thus, the above-quoted provision sanctions the dismissal of a Union officer who knowingly participates in an illegal strike or who knowingly participates in the commission of illegal acts during a lawful strike.^{^[64]}^[23] In this case, the Union officers were in clear breach of the above provision of law when they knowingly participated in the illegal strike.^{^[65]}^[24]

As to the Union members, the same provision of law provides that a member is liable when he knowingly participates in the commission of illegal acts during a strike. We find no reason to reverse the conclusion of the Court that CASI presented substantial evidence to show that the striking Union members committed the following prohibited acts:

a. They threatened, coerced, and intimidated non-striking employees, officers, suppliers and customers;

b. They obstructed the free ingress to and egress from the company premises; and

c. They resisted and defied the implementation of the writ of preliminary injunction issued against the strikers.^{^[66]}^[25]

The commission of the above prohibited acts by the striking Union members warrants their dismissal from employment.

As clearly narrated earlier, the LA found the strike illegal and sustained the dismissal of the Union officers, but ordered the reinstatement of the striking Union members for lack of evidence showing that they committed illegal acts during the illegal strike. This decision, however, was later reversed by the NLRC. Pursuant to Article 223^{^[67]}^[26] of the Labor Code and well-established jurisprudence,^{^[68]}^[27] the decision of the LA reinstating a dismissed or separated employee, insofar as the reinstatement aspect is concerned, shall immediately be executory, pending appeal.^{^[69]}^[28] The employee shall either be admitted back to work under the same terms and conditions prevailing prior to his dismissal or separation, or, at the option of the employee, merely reinstated in the payroll.^{^[70]}^[29] It is obligatory on the part of the employer to reinstate and pay the wages of the dismissed employee during the period of appeal until reversal by the higher court.^{^[71]}^[30] If the employer fails to exercise the option of re-admitting the employee to work or to reinstate him in the payroll, the employer must pay the employee’s salaries during the period between the LA’s order of reinstatement pending appeal and the resolution of the higher court overturning that of the LA.^{^[72]}^[31] In this case, CASI is liable to pay the striking Union members their accrued wages for four months and nine days, which is the period from the notice of the LA’s order of reinstatement until the reversal thereof by the NLRC.^{^[73]}^[32]

Citing Escario v. National Labor Relations Commission (Third Division),^{^[74]}^[33] CASI claims that the award of the four-month accrued salaries to the Union members is not sanctioned by jurisprudence. In Escario, the Court categorically stated that the strikers were not entitled to their wages during the period of the strike (even if the strike might be legal), because they performed no work during the strike. The Court further held that it was neither fair nor just that the dismissed employees should litigate against their employer on the latter’s time.^{^[75]}^[34] In this case, however, the four-month accrued salaries awarded to the Union members are not the backwages referred to in Escario. To be sure, the awards were not given as their salaries during the period of the strike. Rather, they constitute the employer’s liability to the employees for its failure to exercise the option of actual reinstatement or payroll reinstatement following the LA’s decision to reinstate the Union members as mandated by Article 223 of the Labor Code adequately discussed earlier. In other words, such monetary award refers to the Union members’ accrued salaries by reason of the reinstatement order of the LA which is self-executory pursuant to Article 223.^{^[76]}^[35] We, therefore, sustain the award of the four-month accrued salaries.

Finally, as regards the separation pay as a form of financial assistance awarded by the Court, we find it necessary to reconsider the same and delete the award pursuant to prevailing jurisprudence.

Separation pay may be given as a form of financial assistance when a worker is dismissed in cases such as the installation of labor-saving devices, redundancy, retrenchment to prevent losses, closing or cessation of operation of the establishment, or in case the employee was found to have been suffering from a disease such that his continued employment is prohibited by law.^{^[77]}^[36] It is a statutory right defined as the amount that an employee receives at the time of his severance from the service and is designed to provide the employee with the wherewithal during the period that he is looking for another employment.^{^[78]}^[37] It is oriented towards the immediate future, the transitional period the dismissed employee must undergo before locating a replacement job.^{^[79]}^[38] As a general rule, when just causes for terminating the services of an employee exist, the employee is not entitled to separation pay because lawbreakers should not benefit from their illegal acts.^{^[80]}^[39] The rule, however, is subject to exceptions.^{^[81]}^[40] The Court, in Philippine Long Distance Telephone Co. v. NLRC,^{^[82]}^[41] laid down the guidelines when separation pay in the form of financial assistance may be allowed, to wit:

We had the occasion to resolve the same issue in Toyota Motor Phils. Corp. Workers Association (TMPCWA) v. National Labor Relations Commission.^{^[84]}^[43] Following the declaration that the strike staged by the Union members is illegal, the Union officers and members were considered validly dismissed from employment for committing illegal acts during the illegal strike. The Court affirmed the CA’s conclusion that the commission of illegal acts during the illegal strike constituted serious misconduct.^{^[85]}^[44] Hence, the award of separation pay to the Union officials and members was not sustained.^{^[86]}^[45]

Indeed, we applied social justice and equity considerations in several cases to justify the award of financial assistance. In Piñero v. National Labor Relations Commission,^{^[87]}^[46] the Court declared the strike to be illegal for failure to comply with the procedural requirements. We, likewise, sustained the dismissal of the Union president for participating in said illegal strike. Considering, however, that his infraction is not so reprehensible and unscrupulous as to warrant complete disregard of his long years of service, and considering further that he has no previous derogatory records, we granted financial assistance to support him in the twilight of his life after long years of service.^{^[88]}^[47] The same compassion was also applied in Aparente, Sr. v. NLRC^{^[89]}^[48] where the employee was declared to have been validly terminated from service after having been found guilty of driving without a valid driver’s license, which is a clear violation of the company’s rules and regulations.^{^[90]}^[49] We, likewise, awarded financial assistance in Salavarria v. Letran College^{^[91]}^[50] to the legally dismissed teacher for violation of school policy because such infraction neither amounted to serious misconduct nor reflected that of a morally depraved person.

However, in a number of cases cited in Toyota Motor Phils. Corp. Workers Association (TMPCWA) v. National Labor Relations Commission,^{^[92]}^[51] we refrained from awarding separation pay or financial assistance to Union officers and members who were separated from service due to their participation in or commission of illegal acts during the strike.^{^[93]}^[52] In Pilipino Telephone Corporation v. Pilipino Telephone Employees Association (PILTEA),^{^[94]}^[53] the strike was found to be illegal because of procedural infirmities and for defiance of the Secretary of Labor’s assumption order. Hence, we upheld the Union officers’ dismissal without granting financial assistance. In Sukhotai Cuisine and Restaurant v. Court of Appeals,^{^[95]}^[54] and Manila Diamond Hotel and Resort, Inc. (Manila Diamond Hotel) v. Manila Diamond Hotel Employees Union,^{^[96]}^[55] the Union officers and members who participated in and committed illegal acts during the illegal strike were deemed to have lost their employment status and were not awarded financial assistance.

In Telefunken Semiconductors Employees Union v. Court of Appeals,^{^[97]}^[56] the Court held that the strikers’ open and willful defiance of the assumption order of the Secretary of Labor constitute serious misconduct and reflective of their moral character, hence, granting of financial assistance to them cannot be justified. In Chua v. National Labor Relations Commission,^{^[98]}^[57] we disallowed the award of financial assistance to the dismissed employees for their participation in the unlawful and violent strike which resulted in multiple deaths and extensive property damage because it constitutes serious misconduct on their part.

SO ORDERED.

DIOSDADO M. PERALTA

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Associate Justice

Chairperson

PRESBITERO J. VELASCO, JR. JOSE CATRAL MENDOZA

Associate Justice Associate Justice

BIENVENIDO L. REYES

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO

Associate Justice

Special Second Division, Chairperson

CERTIFICATION

RENATO C. CORONA

Chief Justice

[1][36] Gold City Integrated Port Service, Inc. v. NLRC, 315 Phil. 698, 711 (1995).

[2][37] Id. at 712 .

[3][38] Id.

[4][39] Toyota Motor Phils. Corp. Workers Association (TMPCWA) v. National Labor Relations Commission, supra note 23, at 219.

[5][46] 480 Phil. 534 (2004).

[6][47] Id. at 543-544.

[7][48] 387 Phil. 96 (2000).

[8][49] Id.

[9][50] G.R. No. 110396, September 25, 1998, 296 SCRA 184.

[10][43] Supra note 23.

[11][44] Id.

[12][45] Id. at 227.

[13][51] Supra note 23.

[14][52] Id. at 225.

[15][53] G.R. Nos. 160058 & 160094, June 22, 2007, 525 SCRA 361.

[16][54] G.R. No. 150437, July 17, 2006, 495 SCRA 336.

[17][55] G.R. No. 158075, June 30, 2006, 494 SCRA 195.

[18][56] 401 Phil. 776 (2000).

[19][57] G.R. No. 105775, February 8, 1993, 218 SCRA 545.

[20][36] Gold City Integrated Port Service, Inc. v. NLRC, 315 Phil. 698, 711 (1995).

[21][37] Id. at 712 .

[22][38] Id.

[23][39] Toyota Motor Phils. Corp. Workers Association (TMPCWA) v. National Labor Relations Commission, supra note 23, at 219.

[24][40] Id. at 220.

[25][41] 247 Phil. 641 (1988).

[26][42] Id. at 649.

[27][43] Supra note 23.

[28][44] Id.

[29][45] Id. at 227.

[30][46] 480 Phil. 534 (2004).

[31][47] Id. at 543-544.

[32][48] 387 Phil. 96 (2000).

[33][49] Id.

[34][50] G.R. No. 110396, September 25, 1998, 296 SCRA 184.

[35][51] Supra note 23.

[36][52] Id. at 225.

[37][53] G.R. Nos. 160058 & 160094, June 22, 2007, 525 SCRA 361.

[38][54] G.R. No. 150437, July 17, 2006, 495 SCRA 336.

[39][55] G.R. No. 158075, June 30, 2006, 494 SCRA 195.

[40][56] 401 Phil. 776 (2000).

[41][57] G.R. No. 105775, February 8, 1993, 218 SCRA 545.

[42][1] Rollo (G.R. No. 155109), pp. 1485-1499.

[43][2] Id. at 1501-1651.

[44][3] The officers of the Union are the following: Felixberto Irag, Joshua Barredo, Edilberto Demetria, Romulo Lungay, Bonerme Maturan, Eduardo Campuso, Gilberto Gabronino, Cirilo Mino, Roberto Abonado, Fructoso Cabahog, Alfredo Tropico, Hector Estuita, Eduardo Capuyan, Alejandro Harder, Jaime Montederamos, Reynaldo Limpajan, Ernesto Cuario, Edgar Monday, Herminio Robillo, Matroil delos Santos, Raul Cantiga, Rudy Anadon, Bonifacio Salvador, Florente Seno, Warlito Monte, Pedro Esquierdo, Danilo Mejos, Bartolome Castillanes, Saturnino Cagas, Eduardo Larena, Ermelando Basadre, Elpidio Libranza.Teddy Suelo, Tranquilino Orallo, Manolito Sabellano, Primitivo Garcia, Jose Amoylin, Carlos Baldos, Carmelito Tobias and Juanito Aldepolla.

[45][4] These are Ludivicio Abad, Ricardo Alto, Feliciano Amper, Roberto Andrade, Julio Anino, Pedro Aquino, Romeo Araneta, Constancio Arnaiz, Justino Ascano, Ernesto Baino, Jesus Beritan, Diosdado Bongabong, Carilito Cal, Rolando Capuyan, Aurelio Carin, Angelito Castañeda, Leonaro Casurra, Filemon Cesar, Romeo Comprado, Ramon Constantino, Roy Constantino, Samuel dela Llana, Rosaldo Dagondon, Bonifacio Dinagudos, Jose Eboran, Francisco Empuerto, Nestor Endaya, Ernesto Estilo, Vicente Fabroa, Ramon Fernando, Samson Fulgueras, Sulpecio Gagni, Fervie Galvez, Eduardo Genelsa, Tito Guades, Armando Gucila, Ernesto Hotoy, Wencislao Inghug, Epifanio Jarabay, Alexander Judilla, Alfredo Lesula, Benito Magpusao, Eddie Mansanades, Arguilao Mantica, Silverio Maranian, Ricardo Maturan, Antonio Melargo, Arsenio Melicor, Lauro Montenegro, Leo Mora, Ronaldo Naboya, Mario Namoc, Gerwino Natividad, Juanito Nisnisan, Primo Oplimo, Edgardo Ordiz, Patrocino Ortega, Mario Patan, Jesus Patoc, Manuel Piape, Alberto Pielago, Nicasio Plaza, Fausto Quibod, Procopio Ramos, Rosendo Sajol, Patricio Solomon, Mario Salvaleon, Bonifacio Sigue, Jaime Sucuahi, Alex Tauto-an, Claudio Tirol, Jose Tolero, Alfredo Toralba, Eusebio Tumulak, Hermes Villacarlos, Saturnino Yagon and Edilberto Yambao.

[46][5] Rollo (G.R. No. 155109), pp. 1467-1484.

[47][6] Id. at 1654-1655.

[48][7] Id. at 1473.

[49][8] The LA decision was rendered on June 29, 1999; id. at 1474.

[50][9] Rollo (G.R. No. 155109), p. 1474.

[51][10] Id. at 1475.

[52][11] Id.

[53][12] Id.

[54][13] Id. at 1475-1476.

[55][14] Id. at 1476.

[56][15] Id. at 1482-1483.

[57][16] Id. at 1478-1479.

[58][17] Id. at 1480-1481.

[59][18] Id. at 1481-1482.

[60][19] Id. at 1486.

[61][20] Id. at 1511-1513.

[62][21] Id. at 1513-1515.

[63][22] Id. at 1477.

[64][23] Toyota Motor Phils. Corp. Workers Association (TMPCWA) v. National Labor Relations Commission, G.R. Nos. 158786 & 158789, October 19, 2007, 537 SCRA 171, 207.

[65][24] Id.

[66][25] Rollo (G.R. No. 155109), p. 1479.

[67][26] Article 223 – Appeal — x x x

In any event, the decision of the Labor Arbiter reinstating a dismissed or separated employee, insofar as the reinstatement aspect is concerned, shall immediately be executory, even pending appeal. The employee shall either be admitted back to work under the same terms and conditions prevailing prior to his dismissal or separation or, at the option of the employer, merely reinstated in the payroll. The posting of a bond by the employer shall not stay the execution for reinstatement provided herein.

x x x.

[68][27] Islriz Trading/Victor Hugo Lu v. Capada, G.R. No. 168501, January 31, 2011, 641 SCRA 9; Garcia v. Philippine Airlines, Inc., G.R. No. 164856, January 20, 2009, 576 SCRA 479.

[69][28] Garcia v. Philippine Airlines, Inc., supra, at 489.

[70][29] Id.

[71][30] Id. at 493.

[72][31] Islriz Trading/Victor Hugo Lu v. Capada, supra note 27, at 24; College of Immaculate Conception v. National Labor Relations Commission, G.R. No.167563, March 22, 2010, 616 SCRA 299, 309; Garcia v. Philippine Airlines, Inc., supra note 27, at 493.

[73][32] Rollo (G.R. No. 155109), p. 1481.

[74][33] G.R. No. 160302, September 27, 2010, 631 SCRA 261.

[75][34] Id. at 274.

[76][35] Islriz Trading/Victor Hugo Lu v. Capada, supra note 27, at 16.

[77][36] Gold City Integrated Port Service, Inc. v. NLRC, 315 Phil. 698, 711 (1995).

[78][37] Id. at 712 .

[79][38] Id.

[80][39] Toyota Motor Phils. Corp. Workers Association (TMPCWA) v. National Labor Relations Commission, supra note 23, at 219.

[81][40] Id. at 220.

[82][41] 247 Phil. 641 (1988).

[83][42] Id. at 649.

[84][43] Supra note 23.

[85][44] Id.

[86][45] Id. at 227.

[87][46] 480 Phil. 534 (2004).

[88][47] Id. at 543-544.

[89][48] 387 Phil. 96 (2000).

[90][49] Id.

[91][50] G.R. No. 110396, September 25, 1998, 296 SCRA 184.

[92][51] Supra note 23.

[93][52] Id. at 225.

[94][53] G.R. Nos. 160058 & 160094, June 22, 2007, 525 SCRA 361.

[95][54] G.R. No. 150437, July 17, 2006, 495 SCRA 336.

[96][55] G.R. No. 158075, June 30, 2006, 494 SCRA 195.

[97][56] 401 Phil. 776 (2000).

[98][57] G.R. No. 105775, February 8, 1993, 218 SCRA 545.

Comment

J.A.B. Bulao & Associates

Category: LEGAL NOTES

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