THIRD DIVISION

G.R. No. 116347 October 3, 1996

NATIVIDAD PONDOC, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION (Fifth Division, Cagayan de Oro City)
and EMILIO PONDOC, respondents.

 DAVIDE, JR., J.:p

The novel issue that confronts us in this case is whether the Fifth Division of the National Labor Relations
Commission (NLRC) can validly defeat a final judgment of the Labor Arbiter in favor of the complainant in
a labor case by: (a) entertaining a petition for injunction and damages, and an appeal from the Labor
Arbiter's denial of a claim for set-off based on an alleged indebtedness of the laborer and order of
execution of the final judgment; and, (b) thereafter, by receiving evidence and adjudging recovery on such
indebtedness and authorizing it to offset the Labor Arbiter's final award.

The petitioner takes the negative view. In its Manifestation and Motion in Lieu of Comment, the Office of
the Solicitor General joins her in her plea, hence we required the NLRC to file its own comment.

We resolved to give due course to the petition after the filing by the NLRC and the private respondent of
their separate comments.

Petitioner Natividad Pondoc was the legitimate wife of Andres Pondoc. Atter her death on 5 December
1994, she was substituted by Hipolito Pondoc, her only legitimate son.

The Office of the Solicitor General summarized the factual antecedents of this case in its Manifestation
and Motion in Lieu of Comment:

Private respondent Eulalio Pondoc is the owner-proprietor of Melleonor General Merchandise and
Hardware Supply located at Poblacion, Sindangan, Zamboanga del Norte. Respondent is engaged,
among others, in the business of buying and selling copra, rice, corn, "binangkol," junk iron and empty
bottles. He has in his employ more than twenty (20) regular workers (Records, pp. 9-11)

Records disclose that Andres Pondoc was employed by Eulalio Pondoc as a laborer from October 1990
up to December 1991, receiving a wage rate of P20.00 per day. He was required to work twelve (12)
hours a day from 7:00 AM to 8:00 PM, Monday to Sunday. Despite working on his rest days and holidays,
he was not paid his premium pay as required by law (Ibid).

Consequently, on May 14, 1992, Natividad Pondoc, on behalf of her husband, filed a complaint for salary
differential, overtime pay, 13th month pay, holiday pay and other money claims before the Sub-Regional
Arbitration Branch No. 9 of the NLRC, docketed as Sub-RAB Case No. 09-05-10102-92 (Records, p.1).

In his position paper, private respondent questioned, among others, the existence of [an] employer-
employee relationship between them. He further averred that Melleonor General Merchandise and
Hardware Supply is a fictitious establishment (Records, pp. 64-68).

On June 17, 1993, Labor Arbiter Esteban Abecia rendered a Decision finding the existence of [an]
employer-employee relationship between the parties. The dispositive portion of the Decision reads:

WHEREFORE, judgment is hereby rendered: (a) ordering respondent Eulalio Pondoc to pay complainant
the following claims:

(1) Salary differential for

reason of underpayment P35,776.00;
—————

(2) Regular holiday and

premium pay for holiday services 902.00;
————

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 (3) Premium pay for rest day
services 3,840.00;
————

(4) 13th month pay 3,600.00

————

or the total amount of FORTY-FOUR [sic] THOUSAND AND ONE HUNDRED EIGHTEEN PESOS
(P44,118.00).

Other claims are denied for lack of merit.

SO ORDERED (Records, pp. 323-324).

On his last day to perfect an appeal, private respondent filed a Manifestation before the Labor Arbiter
praying that his liabilities be set-off against petitioner's alleged indebtedness to him (Records, pp. 325-
327). The Labor Arbiter denied, however, the compensation, and, instead, issued a writ of execution as
prayed for by petitioner (Records, p. 328).

Before the execution order could be implemented, however, private respondent was able to obtain a
restraining order from the NLRC, where he filed a Petition for "Injunction and Damages," docketed as
NLRC Case No. ICM-000065.

On February 28, 1994, public respondent NLRC allowed compensation between petitioner's monetary
award and her alleged indebtedness to private respondent. It disposed:

WHEREFORE, the appealed order is hereby vacated and set aside. A new one is entered declaring the
setting-off of complainant's indebtedness which allegedly amounted to P41,051.35 against the
complainant's monetary award in the amount of P44,118.00. The additional amount of P5,000.00 which
complainant allegedly got from respondent on 10 July 1993 could not be credited in view of appellant's
failure to submit evidence to prove that complainant was really paid P5,000.00.

Accordingly, respondent Eulalio Pondoc is hereby directed to pay complainant Natividad Pondoc the
amount of P3,066.65.

The Temporary restraining order issued herein is hereby made permanent.

SO ORDERED (Annex "D" of Petition).

Her motion for reconsideration of the judgment having been denied by the NLRC, the petitioner instituted
this special civil action for certiorari under Rule 65 of the Rules of Court wherein she prays this Court
annul the challenged decision of the NLRC, Fifth Division (Cagayan de Oro City), in NLRC Case No. IC
No. M-000065, and direct the enforcement of the writ of execution in NLRC Case No. SRAB-09-05-
10102-92, on the ground that the NLRC, Fifth Division, acted without or in excess of jurisdiction or with
grave abuse of discretion when it proceeded to determine the alleged indebtedness of the petitioner and
set-off the same against the liabilities of the private respondent. The petitioner asserts that the decision of
the Labor Arbiter in NLRC Case No. SRAB-09-05-10102-92 was already final and executory when the
private respondent tried to defeat the judgment by asserting an alleged indebtedness of Andres Pondoc
as a set-off, a claim not pleaded before the Labor Arbiter at any time before judgment, hence deemed
waived. Moreover the indebtedness "did not evolve out [sic] employer-employee relationship, hence,
purely civil in aspect."

The Office of the Solicitor General agreed with the petitioner and stressed further that the asserted
indebtedness was never proven to have arisen out of or in connection with the employer-employee
relationship between the private respondent and the late Andres Pondoc, or to have any causal
connection thereto. Accordingly, both the Labor Arbiter and the NLRC did not have jurisdiction over the
private respondent's claim.

As expected, the private respondent and the NLRC prayed for the dismissal of this case.

We rule for the petitioner.

The proceedings before the NLRC were fatally flawed.

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In the first place, the NLRC should not have entertained the private respondent's separate or independent
petition for "Injunction and Damages" (NLRC IC No. M-000065). It was obvious that the petition was a
scheme to defeat or obstruct the enforcement of the judgment in NLRC Case No. SRAB-09-05-10102-92
where, in fact, a writ of execution had been issued. Article 218(e) of the Labor Code does not provide
blanket authority to the NLRC or any of its divisions to issue writs of injunction, while Rule XI of the New
Rules of Procedure of the NLRC makes injunction only an ancillary remedy in ordinary labor disputes
such as the one brought by the petitioner in NLRC Case No. SRAB-09-05-10102-92. This is clear from
Section 1 of the said Rule which pertinently provides as follows:

Sec. 1. Injunction in Ordinary Labor Disputed. — A preliminary injunction or a restraining order may be
granted by the Commission through its divisions pursuant to the provisions of paragraph (e) of Article
218 of the Labor Code, as amended, when it is established on the bases of the sworn allegations in the
petition that the acts complained of, involving or arising from any labor dispute before the Commission,
which, if not restrained or performed forthwith, may cause grave or irreparable damage to any party or
render ineffectual any decision in favor of such party.

xxx xxx xxx

The foregoing ancillary power may be exercised by the Labor Arbiters only as an incident to the cases
pending before them in order to preserve the rights of the parties during the pendency of the case, but
excluding labor disputes involving strike or lockout. (emphasis supplied).

Hence, a petition or motion for preliminary injunction should have been filed in the appeal interposed by
the private respondent, i.e., in NLRC Case No. SRAB-09-05-10102-92. This matter, however, became
academic when the NLRC consolidated the two cases as shown by the captions in its challenged
decision of 28 February 1994 and resolution of 6 May 1994.

Secondly, the appeal of the private respondent in NLRC Case No. SRAB-09-05-10102-92 was not from
the decision therein, but from the order of the Labor Arbiter denying the set-off insisted upon by the
private respondent and directing the execution of the judgment. Therefore, the private respondent
admitted the final and executory character of the judgment.

The Labor Arbiter, in denying the set-off, reasoned "[i]t could have been considered if it was presented
before the decision of this case." While this is correct, there are stronger reasons why the set-off should,
indeed, be denied. As correctly contended by the Office of the Solicitor General, there is a complete want
of evidence that the indebtedness asserted by the private respondent against Andres Pondoc arose out of
or was incurred in connection with the employer-employee relationship between them. The Labor Arbiter
did not then have jurisdiction over the claim as under paragraph (a) of Article 217 of the Labor Code,
Labor Arbiters have exclusive and original jurisdiction only in the following cases:

1. Unfair labor practice cases;

2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases
that workers may file involving wages, rates of pay, hours of
work and other terms and conditions of employment;
4. Claim for actual, moral, exemplary and other forms of
damages arising from employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code,
including questions involving the legality of strikes and
lockouts; and
6. Except claims for Employees Compensation, Social
Security, Medicare and maternity benefits, all other claims,
arising from employer-employee relations, including those
of persons in domestic or household service, involving an
amount exceeding five thousand pesos (P5,000.00)
regardless of whether accompanies with a claim for
reinstatement.

On the other hand, under paragraph (b) thereof, the NLRC has exclusive appellate jurisdiction
over all cases decided by the Labor Arbiters. This simply means that the NLRC does not have
original jurisdiction over the cases enumerated in paragraph (a) and that if a claim does not fall
within the exclusive original jurisdiction of the Labor Arbiter, the NLRC cannot have appellate
jurisdiction thereon.

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The conclusion then is inevitable that the NLRC was without jurisdiction, either original or appellate, to
receive evidence on the alleged indebtedness, render judgment thereon, and direct that its award be set-
off against the final judgment of the Labor Arbiter.

Finally, even assuming arguendo that the claim for the alleged indebtedness fell within the exclusive
original jurisdiction of the Labor Arbiter, it was deemed waived for not having been pleaded as an
affirmative defense or barred for not having been set up as a counterclaim before the Labor Arbiter at any
appropriate time prior to the rendition of the decision in NLRC Case No. SRAB-09-05-10102-92. Under
the Rules of Court, which is applicable in a suppletory character in labor cases before the Labor Arbiters
or the NLRC pursuant to Section 3, Rule I of the New Rules of Procedure of the NLRC, defenses which
are not raised either in a motion to dismiss or in the answer are deemed waived and counterclaims not
set up in the answer are barred. Set-off or compensation is one of the modes of extinguishing obligations
and extinguishment is an affirmative defense and a ground for a motion to dismiss.

We do not then hesitate to rule that the NLRC acted without jurisdiction or with grave abuse of discretion
in entertaining an independent action for injunction and damages (NLRC IC No. M-000065), in receiving
evidence and rendering judgment on the alleged indebtedness of Andres Pondoc, and in ordering such
judgment to offset the final award of the Labor Arbiter in NLRC Case No. SRAB-09-05-10102-92.

WHEREFORE, the instant petition is GRANTED and the challenged decision of 28 February 1994 and
resolution of 6 May 1994 of the National Labor Relations Commission in NLRC Case No. IC No. M-
000065 and NLRC Case No. SRAB-09-05-10102-92 are ANNULLED and SET ASIDE. The judgment of
the Labor Arbiter in NLRC Case No. SRAB-09-05-10102-92 should forthwith be enforced without any
further delay, the award therein bearing interest at the rate of twelve per centum (12%) per annum from
the finality of such judgment until it shall have been fully paid.

Costs against the private respondent.

SO ORDERED.

Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.