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Abacan, Jr. vs. Northwestern University, Inc.
*

G.R. No. 140777. April 8, 2005.

ANTONIO ABACAN, JR., RUFO C. VENUS, JR.,

ENRIQUETO I. MAGPANTAY and MARIETA Y.
PALANCA, petitioners, vs. NORTHWESTERN
UNIVERSITY, INC., respondent.

Actions; Pleadings and Practice; The elementary test for

failure to state a cause of action is whether the complaint alleges
facts which if true would justify the relief demanded, and for
which purpose only ultimate facts and not legal conclusions or
evidentiary facts are considered in applying the test.—It is settled
that the existence of a cause of action is determined by the
allegations in the complaint. In resolving a motion to dismiss
based on the failure to state a cause of action, only the facts
alleged in the complaint must be considered. The test is whether
the court can render a valid judgment on the complaint based on
the facts alleged and the prayer asked for. Indeed, the elementary
test for failure to state a cause of action is whether the complaint
alleges facts which if true would justify the relief demanded. Only
ultimate facts and not legal conclusions or evidentiary facts,
which should not be alleged in the complaint in the first place, are
considered for purposes of applying the test.

Same; Same; Certiorari; Motions for Reconsideration; The

filing of a motion for reconsideration is a prerequisite to the filing
of a special civil action for certiorari; Exceptions.—It is settled
that the filing of a motion for reconsideration is a prerequisite to
the filing of a special civil action for certiorari. This is to give the
lower court the opportunity to correct itself. It is also the rule that
since an order denying a motion to dismiss is only interlocutory,
which is neither appealable until final judgment nor could it
generally be assailed on certiorari, the remedy of the aggrieved
party is to file an answer and interpose as defenses the objections
raised in his motion to dismiss. However, the following have been
recognized as exceptions to the general rule: (a) where the order is
a patent nullity, as where the court a quo has no jurisdiction; (b)
where the questions raised in the certiorari proceedings have been
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duly raised and passed upon by the lower court, or are the same as
those raised and passed upon in the

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* SECOND DIVISION.

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Abacan, Jr. vs. Northwestern University, Inc.

lower court; (c) where there is an urgent necessity for the

resolution of the question and any further delay would prejudice
the interests of the Government or of the petitioner or the subject
matter of the action is perishable; (d) where, under the
circumstances, a motion for reconsideration would be useless; (e)
where petitioner was deprived of due process and there is extreme
urgency for relief; (f) where, in a criminal case, relief from an
order of arrest is urgent and the granting of such relief by the
trial court is improbable; (g) where the proceedings in the lower
court are a nullity for lack of due process; (h) where the
proceeding was ex parte or in which the petitioner had no
opportunity to object; and (i) where the issue raised is one purely
of law or where public interest is involved.

Same; Administrative Law; Securities and Exchange

Commission (SEC); Prejudicial Questions; Words and Phrases;
Generally, a prejudicial question comes into play in a situation
where a civil action and a criminal action are both pending and
there exists in the former an issue which must be preemptively
resolved before the criminal action may proceed, because
howsoever the issue in the civil action is resolved would be
determinative juris et de jure of the guilt or innocence of the
accused in the criminal case; Considering the rationale behind the
principle of prejudicial question, being to avoid two conflicting
decisions, prudence dictates that the principle underlying the
doctrine be applied to a case where the question of which between
two factions are the de jure board of directors of an educational
corporation is lodged before the SEC while the complaint before
the court alleges that one faction wrongfully withdrew an amount
from the account of the corporation with its depository bank.—
Technically, there would be no prejudicial question to speak of in
this case, if we are to consider the general rule that a prejudicial
question comes into play in a situation where a civil action and a
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criminal action are both pending and there exists in the former an
issue which must be preemptively resolved before the criminal
action may proceed, because howsoever the issue in the civil
action is resolved would be determinative juris et de jure of the
guilt or innocence of the accused in the criminal case. However,
considering the rationale behind the principle of prejudicial
question, being to avoid two conflicting decisions, prudence
dictates that we apply the principle underlying the doctrine to the
case at bar. A prejudicial question is that which arises in a case,
the resolution of which is a logical antecedent of the issue
involved therein and the cognizance of which

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Abacan, Jr. vs. Northwestern University, Inc.

pertains to another tribunal. The prejudicial question must be

determinative of the case before the court but the jurisdiction to
try and resolve it must be lodged in another court or tribunal. In
the present case, the question of which between the Castro and
the Nicolas factions are the de jure board of directors of NUI is
lodged before the SEC. The complaint before the RTC of Laoag
meanwhile alleges that petitioners, together with their co-
defendants, comprised of the “Castro faction,” wrongfully
withdrew the amount of P1.4 M from the account of NUI with
Metrobank. Moreover, whether or not Roy Nicolas of the “Nicolas
faction” is a duly elected member of the Board of NUI and thus
with capacity to institute the herein complaint in behalf of the
NUI depends on the findings of the SEC in the case pending
before it. It would finally determine whether Castro, et al. legally
withdrew the subject amount from the bank and whether Nicolas
lawfully initiated the complaint in behalf of herein respondent
NUI. It is petitioners’ claim, and we agree, that the presence or
absence of their liability for allowing the withdrawal of P1.4 M
from the account of NUI with Metrobank in favor of the “Castro
faction” is reliant on the findings of the SEC as to which of the
two factions is the de jure board. Since the determination of the
SEC as to which of the two factions is the de jure board of NUI is
crucial to the resolution of the case before the RTC, we find that
the trial court should suspend its proceedings until the SEC
comes out with its findings.

PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.

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The facts are stated in the opinion of the Court.

Alfonso M. Cruz for petitioners.
Tan, Acut & Madrid for respondent.

AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari seeking

1 the
annulment of the Court of Appeals (CA’s) Decision dated
July

_______________

1 Penned by Associate Justice Jose L. Sabio, Jr., and concurred in by

Associate Justices Hector L. Hofileña and Omar U. Amin; Rollo, pp. 104-
107.

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2

22, 1999 and the Resolution dated November 12, 1999,

denying the motion for reconsideration.
The facts are as follows:
Two opposing factions within respondent
Northwestern University, Inc. (NUI), the “Castro” and
the “Nicolas”
3 factions, seek control as the legitimate board
thereof. These two factions are parties to Securities 4 and
Exchange Commission (SEC) Case No. 12-96-5469 which
is an action filed by the “Nicolas faction” to nullify the
election of the directors of NUI belonging
5 to the “Castro
faction” and SEC Case No. 12-96-5511 which is a counter-
suit initiated by the “Castro faction” seeking the
nullification of several
6 board resolutions passed by the
“Nicolas faction.” On December 19, 1996, SEC Hearing
Officer Rolando G. Andaya, Jr., pursuant to SEC Case No.
12-96-5511, issued an Order authorizing the “Castro
faction” and the Metropolitan Bank (Metrobank) Laoag
City branch to withdraw the amount 7of P2,555,274.99 from
the account of NUI with8 said bank. Metrobank complied
and released P1.4 M in favor of the “Castro faction.” The
“Nicolas faction” then initiated a criminal complaint for
estafa against the “Castro faction” as well as the petitioners
herein who are officers of Metrobank, to wit: Antonio
Abacan, Jr., President; Rufo C.

_______________

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2 Rollo, p. 119.
3 Id., p. 10.
4 Entitled “Northwestern University, Inc., Ben A. Nicolas, Wilfred A.
Nicolas, Alva B. Caday, Adriano D. Lucas, and Purificacion N. Aurelio
versus Ernesto B. Asuncion, Jose G. Castro, Mariel S. Hernando, Virginio
C. Rasos, Gervacio A. Velasco, Romulo P. Felipe, Emilio A. Lorenzo,
Bernadette C. Ligot, Ronald A. Daoang, Jesus G. Bautista, and Juanito B.
Chua.”
5 Entitled “Jose G. Castro, et al. vs. NUI, Ben A. Nicolas, Wilfred A.
Nicolas, Alva B. Caday, Adriano D. Lucas, Romulo Felipe and Purificacion
N. Aurello.”
6 Rollo, pp. 13-15.
7 Id., p. 45.
8 P1.6 M in the Order of the Regional Trial Court, dated April 28, 1998;
Rollo, pp. 73-75.

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Abacan, Jr. vs. Northwestern University, Inc.

Venus, Jr. and Enriqueto I. Magpantay, legal officers; and

Marieta Y. Palanca, assistant branch manager of its Laoag
City branch. The criminal case9 was later dismissed insofar
as petitioners are concerned.
On July 16, 1997, NUI, through Roy A. Nicolas of the
“Nicolas faction,” filed a complaint, docketed as Civil Case
No. 11296-14, before the Regional Trial Court (RTC) of
Laoag, for damages with application for attachment
against petitioners together with the employees of NUI
belonging to the “Castro faction,” namely: Jose G. Castro,
Ernesto B. Asuncion, Gervacio A. Velasco, Mariel S.
Hernando and Virginio C. Rasos as well as their counsel,
Edgar S. Asuncion, and SEC Hearing Officer Rolando G.
Andaya, Jr. NUI claims that between December 16 and
December 20, 1996, defendants from the “Castro faction,”
acting together, and helping one another, with herein
petitioners taking undue and unlawful advantage of their
respective positions in Metrobank, withdrew and released
to themselves, for their own personal gain and benefit,
corporate funds of NUI deposited with said bank in the
sum of P1.4 M without the knowledge, consent or approval
of NUI to the grave and serious damage and prejudice of
the latter. NUI also claims that defendants have not
accounted for 10the said amount despite several demands for
them to do so.
On September 15, 1997, defendant, herein petitioner,
Marieta Y. Palanca filed a motion to dismiss alleging that:
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(1) the complaint fails to state a cause of action against her

since she is not a real party in interest; (2) plaintiff has no
legal capacity to sue; and (3) the complaint is dismissible
under Section 5, Rule 7 of the New Rules of Civil
11 Procedure
on the certification against forum shopping. She likewise
pointed out that SEC Case No. 12-96-5469 must take
precedence over

_______________

9 Id., pp. 12-15.

10 Rollo, pp. 40-41.
11 Id., p. 64.

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the civil case since it 12is a logical antecedent to the issue of

standing in said case.
On April 28, 1998, the RTC issued an Order, denying
Palanca’s motion and ordering 13her and her co-defendants to
file their respective answers. Pertinent portions of the
Order read as follows:

“At first impression, the controversy commenced by the complaint

appears to be one involving an intra-corporate dispute. A closer
scrutiny of the allegations in the complaint, however, shows
otherwise. Considering the doctrine that a motion to dismiss
hypothetically admits the allegations in the complaint, what is
admitted is that the action is one for a sum of money. The Court
examined Exhibit “C” of movant and found out that it refers to a
case in the Securities and Exchange Commission docketed as Sec.
Case No. 12-96-5511 where the petitioners in said SEC case (some
are defendants in the instant case) were “authorized to withdraw
from Metrobank (Laoag City Branch) the amount of
P2,555,274.99 from the Bank account of Northwestern
University, Inc. . . .” On the other hand, the herein complaint
avers that plaintiff Northwestern University,
14 Inc. seeks
recovery of the amount of P1,600,000.00 allegedly withdrawn by
the herein defendants during the period from December 16 to
December 20, 1996 from the corporate funds of plaintiff deposited
with Metrobank Laoag City Branch under Current Account No. 7-
140-525096 and Savings Account No. 3-140-52509. The SEC
Order (Exhibit “C”) was issued December 19, 1996. There is,
therefore, an inference that the withdrawal referred to in the
complaint as having been effected between December 16 to 20,

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1996, could possibly be the withdrawal in consequence of the SEC

Order of December 19, 1996. However, the inference remains as
such and cannot ripen to a legal conclusion because the evidence
on hand does not sufficiently preponderate to warrant such a
conclusion. In the first place, there is no evidence adduced that
the purported withdrawal, if ever made, was drawn against the
current/savings accounts mentioned in the complaint. In the
second place, the amount authorized to be withdrawn was
P2,555,274.99 while the amount sought to be recovered is

_______________

12 Id., p. 67.
13 Id., p. 77.
14 P1.4 M in the Complaint; Rollo, p. 41.

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Abacan, Jr. vs. Northwestern University, Inc.
15

P1,600,000.00. The Court cannot rely on inference or speculation

to cogently resolve a matter. While it appears that movants
are invoking the issue of forum shopping, they cannot
overcome the issues raised in the complaint, which as
earlier stated, have been hypothetically admitted, and
which issues have to be joined by the filing of the answer
by the defendants. The Court notes that in the instant
case, plaintiff is a corporation and is not a respondent in
SEC Case No. 12-96-5511. Moreover, the issues raised
therein and in the instant case are entirely different.
There is also no showing that there is legal basis to pierce
the veil of corporate fiction. In the other case (SEC Case
No. 12-96-5469), while it appears that Northwestern
University, Inc. is one of the plaintiffs therein, the
complaint refers to a declaration of nullity of the special
stockholders meeting of 3 October 1996 of the election of
directors and of the October 3, 1996 amended by-laws, and
is essentially an action for damages. The complaint in this
case, for a sum of money, is also far removed from the
nature of the action in the said SEC Case. Thus, it is clear
that there are genuine issues to be tried in this case, which
calls for a trial on the merits. The motion to dismiss must,
perforce, be denied.” (Emphasis supplied)
...
As above shown, the alleged fraud is stated in generalities. In
this jurisdiction, fraud is never presumed (Benitez vs. IAC, 154
SCRA 41).

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Instead of filing their answers or a motion for

reconsideration of the said Order, herein petitioners
Abacan, Magpantay, Venus and Palanca went to the CA
on a petition
16 for certiorari and prohibition raising the same
issues.
On July 22, 1999, the CA rendered the herein assailed
decision which dismissed the petition explaining thus:

“A careful review and consideration of the records of the case,

reveal that petitioner failed to comply with a condition sine qua
non

_______________

15 Ibid.
16 Id., p. 86.

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for the filing of the Petition, which is to file a motion for

reconsideration. In Tan vs. CA, 275 SCRA 568 the Supreme Court
specifically ruled that: The special civil action of certiorari will not
lie unless a motion for reconsideration is first filed before the
respondent court to allow it an opportunity to correct its errors.
In filing this instant petition before Us, petitioners in its
petition, while admitting failure to file a Motion for
Reconsideration, justified the same, when it alleged thus:

13.01 Under the circumstances, the filing of a motion for reconsideration

may be dispensed with. All issues are essentially legal and have been
squarely raised and passed upon by the lower court. [Klaveness Maritime
Agency, Inc. vs. Palmos, 232 SCRA 448.]

Regrettably, however, the case relied upon by petitioner, a

1994 decision, is the exception to the rule, and not applicable to
the case at Bench. In the said case the Supreme Court said and
We quote “a prior Motion for Reconsideration is not indispensable
for commencement of certiorari proceedings if the errors sought to
be corrected in said proceedings had been duly heard and passed
upon or were similar to the issue/s resolved by the tribunal or
agency below.” (italics for emphasis) A reading of the Order of
public respondent clearly shows that no hearing on the issues was
had. The penultimate paragraph of the Order of public respondent
judge states:

WHEREFORE, in view of the foregoing, the Court hereby denies:

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1. The motion to dismiss;

2. The application for a writ of preliminary attachment; and
3. The appointment of a special sheriff.

Defendant Jose G. Castro is hereby given eleven (11) days from receipt
of a copy of this denial within which to file his answer; defendant
Marietta [sic] Young Palanca and the other de-fendants who have not
filed their answer are given five (5) days from receipt of the Order to file
their respective answers.
SO ORDERED.”

As it was, the only thing resolved by the court a quo was in

relation to the motion to dismiss the application for a writ of
prelimi-

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Abacan, Jr. vs. Northwestern University, Inc.

nary attachment and the appointment of a special sheriff.

Petitioner has not filed any answer which would outline the
issues that he would want the court a quo to resolve.
Under such situation, therefore, since no proceedings were
done to hear and pass upon the issues to be raised by petitioner,
then the general rule that a motion for reconsideration must first
be filed before a petition under Sec. 1 of Rule 65 must be applied.
Having failed
17 to do so, petitioners’ petition must be, as it is hereby
DENIED.

A motion for reconsideration was thereafter filed by

petitioners
18 but was denied by the CA on November 12,
1999.
Hence the present petition.
Petitioners argue that: (1) following 19the case of
Klaveness Maritime Agency, Inc. vs. Palmos, prior resort
to a motion for reconsideration before the filing of a petition
for certiorari or prohibition is not a mandatory rule and
may be dispensed with in this case since the issues
involved herein are purely legal and have already been
passed upon; (2) it is contrary to the policy against judicial
delay and multiplicity of suits for a higher court to remand
the case to the trial court when the former is in a position
to resolve the dispute based on the records before it; (3) the
impleaded bank officers are not real parties-in-interest
since they are not privy to the contract of deposit between
NUI and Metrobank, and they merely complied with the
SEC Order authorizing the release of funds from the
account of NUI with Metrobank; (4) the “Nicolas faction”
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has no legal capacity to sue in behalf of NUI not being the

de jure board of trustees; and (5) intra-corporate case No.
12-96-5469, lodged before the SEC, must take precedence
20

over the damage suit pending before the trial court.

_______________

17 Rollo, pp. 105-107.

18 Id., p. 119.
19 G.R. Nos. 102310-12, May 20, 1994, 232 SCRA 448.
20 Rollo, pp. 19-20, 22-32.

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Petitioners then prayed for the dismissal of the complaint

in Civil Case No. 11296-14 against them, or in the
alternative, to hold in abeyance the proceedings therein
until 21after the final determination of SEC Case No. 12-96-
5469.
NUI in its Comment contends that: the Klaveness case
does not apply in the case at bar since the issues raised
herein are dependent upon facts the proof of which have
neither been entered into the records of the case nor
admitted by the parties; petitioners cannot, on their bare
and self-serving representation that reconsideration is
unnecessary, unilaterally disregard what the law requires
and deny the trial court its right to review its
pronouncements before being hailed to a higher court to
account therefor; and contrary to petitioners’ assertion, no
hearing for the presentation of evidence was had before the
trial court on the22 factual matters raised in petitioners’
motion to dismiss.
NUI further argues: it did not fail to state a cause of
action; the complaint alleged that petitioners acted in
connivance with their co-defendants and as joint
tortfeasors, are solidarily liable with their principal for the
wrongful act; as officers and employees of the bank, they
are also considered agents thereof who are liable for fraud
and negligence; the complaint charged the perpetration of
the unlawful and unjust deprivation by the petitioners of
NUI’s right to its property for which petitioners may be
held liable for damages making them real parties-in-
interest; petitioners, as officers and employees of
Metrobank had an obligation to protect the funds of NUI
and it was the petitioners’ act of conniving to unlawfully
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withdraw NUI’s funds which violated NUI’s legal right,

thus entitling the latter to sue for such tortuous act; it is
also not true that petitioners could not be held liable for
damages since they merely complied with the order of the
SEC; as pointed out in the Order dated April 28, 1998, the
amount allegedly author-

_______________

21 Id., p. 35.
22 Id., pp. 138-145.

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Abacan, Jr. vs. Northwestern University, Inc.

ized to be withdrawn was P2,555,274.99 while the amount

sought to be recovered in the complaint was P1.6 M; it
cannot be inferred conclusively therefore that the amount
subject of the complaint refers to the same amount
authorized by the SEC to be withdrawn; in any case, such
argument is more a subject of defense
23 rather than a proper
ground for a motion to dismiss.
NUI disagrees with the contention of petitioners that it
has no legal capacity to sue, stating that NUI had already
conducted subsequent elections wherein Roy A. Nicolas was
elected as member of the board 24 of directors and
concurrently the administrator of NUI.
NUI further avers that: there is no merit to the claim of
petitioners that there exists a prejudicial question which
should prompt the trial court to suspend its proceedings;
the rule on prejudicial question finds no application
between the civil complaint below and the case before the
SEC as the rule presupposes the pendency of a civil action
and a criminal action; and even assuming arguendo that
the issues pending before the SEC bear a similarity to the
cause of action below, the complaint of NUI can stand and
proceed separately from the SEC case 25 inasmuch as there is
no identity in the reliefs prayed for.
Evaluating the issues raised, it is clear that the only
questions that need to be answered in order to resolve the
present petition are the following: (1) Whether the
complaint states a cause of action; (2) Whether a motion for
reconsideration of the order of the RTC dismissing a motion
to dismiss prior to the filing of a petition for certiorari
before the CA is dispensable; and (3) Whether the

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proceedings in Civil Case No. 11296-14 must be held in

abeyance pending resolution of SEC Case No. 12-96-5469.

_______________

23 Rollo, pp. 146-150.

24 Id., pp. 151-152.
25 Id., pp. 155-156.

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First issue. Whether the complaint states a cause of action

against petitioners. We rule in the affirmative.
It is settled that the existence of a cause of action is
determined by the allegations in the complaint. In
resolving a motion to dismiss based on the failure to state a
cause of action, only the facts alleged in the complaint must
be considered. The test is whether the court can render a
valid judgment on the complaint
26 based on the facts alleged
and the prayer asked for. Indeed, the elementary test for
failure to state a cause of action is whether the complaint
alleges facts which if true would justify the relief
demanded. Only ultimate facts and not legal conclusions or
evidentiary facts, which should not be alleged in the
complaint in the first
27 place, are considered for purposes of
applying the test.
In this case the complaint alleges that:

...
10. Between December 16 and December 20, 1996, the
defendants, acting together and helping one another, with
defendants Andaya, Abacan, Magpantay, Venus and Palanca
taking undue and unlawful advantage of their respective
positions, withdrew and released to themselves, for their own
personal gain and benefit, the corporate funds of plaintiff
deposited with Metrobank Laoag City Branch under Current
Account No. 7-140-525096 and Savings Account No. 3 140 52509
in the sum of P1,400,000.00 without the knowledge, consent or
approval of plaintiff 28to the grave and serious damage and
prejudice of the latter.

From this statement alone, it is clear that a cause of action

is present in the complaint filed a quo. NUI has specifically
alleged an act, that is, the undue withdrawal of funds from
its

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_______________

26 Peltan Development, Inc. vs. Court of Appeals, G.R. No. 117029,

March 19, 1997, 270 SCRA 82, 91.
27 G & S Transport Corp. vs. Court of Appeals, G.R. No. 120287, May
28, 2002, 382 SCRA 262, 274.
28 Rollo, p. 41.

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Abacan, Jr. vs. Northwestern University, Inc.

account with Metrobank, which the petitioners and the

other defendants committed, to the prejudice of NUI’s
rights.
Petitioners argue that as mere officers and employees of
Metrobank, they are not privy to the contract of deposit
between their bank and NUI, thus they cannot be held
liable for any erroneous withdrawal made in NUI’s account
with their bank. They also do not stand to be benefited or
injured by the judgment, i.e., they are not real parties-in-
interest, thus the complaint a quo is dismissible on the
ground of failure to state a cause of action.
We are not persuaded.
As aptly explained by respondent NUI in its comment,
petitioners are being sued and held liable for their alleged
participation in the wrongdoing of the other defendants.
The complaint is not based on the contract of deposit
between Metrobank and NUI but on the alleged tortuous
act of defendants of wrongfully withdrawing NUI’s funds.
As contracts are not the only sources of obligations,
petitioners cannot escape responsibility on the bare
assertion that the have no contract with NUI.
Second issue. Whether a motion for reconsideration is
dispensable in the case at bar. We rule in the affirmative.
Indeed, it is settled that the filing of a motion for
reconsideration is a prerequisite to the filing of a special
civil action for certiorari. This
29 is to give the lower court the

opportunity to correct itself. It is also the rule that since

an order denying a motion to dismiss is only interlocutory,
which is neither appealable until final judgment nor could
it generally be assailed on certiorari, the remedy of the
aggrieved party is to

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29 Republic of the Philippines vs. Express Telecommunications Co., Inc.,
G.R. No. 147096, January 15, 2002, 373 SCRA 316, 343.

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file an answer and interpose 30as defenses the objections

raised in his motion to dismiss.
However, the following have been recognized as
exceptions to the general rule:

(a) where the order is a patent nullity, as where the

court a quo has no jurisdiction;
(b) where the questions raised in the certiorari
proceedings have been duly raised and passed
upon by the lower court, or are the same as
those raised and passed upon in the lower
court;
(c) where there is an urgent necessity for the
resolution of the question and any further delay
would prejudice the interests of the Government or
of the petitioner or the subject matter of the action
is perishable;
(d) where, under the circumstances, a motion for
reconsideration would be useless;
(e) where petitioner was deprived of due process and
there is extreme urgency for relief;
(f) where, in a criminal case, relief from an order of
arrest is urgent and the granting of such relief by
the trial court is improbable;
(g) where the proceedings in the lower court are a
nullity for lack of due process;
(h) where the proceeding was ex parte or in which the
petitioner had no opportunity to object; and
(i) where the issue raised is one
31 purely of law or where
public interest is involved. (Emphasis supplied)

Circumstances (b) and (d) above are present in this case.

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30 La Tondeña Distillers, Inc. vs. Judge Bernardo T. Ponferrada, et al.,

G.R. No. 109656, November 21, 1996, 264 SCRA 540, 543.

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31 Abraham vs. National Labor Relations Commission, G.R. No.
143823, March 6, 2001, 353 SCRA 739, 744.

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32

In Klaveness Maritime Agency, Inc. vs. Palmos, which is

being invoked by petitioners, we held that:

. . . A prior motion for reconsideration is not indispensable for

commencement of certiorari proceedings if the errors sought to be
corrected in such proceedings had been duly heard and passed
upon, or were similar to the issues already resolved by the
tribunal or agency below. Accordingly, the Court has excused the
non-filing of a motion for reconsideration when such a motion
would be basically pro forma in nature and content, and where, as
in the present
33 Petition, the questions raised are essentially legal
in nature.

We agree with the argument of petitioners that a motion

for reconsideration of the order of the trial court, prior to
the filing of their petition for certiorari before the CA, was
dispensable since the questions involved are essentially
legal in nature and the errors sought to be corrected had
already been heard and passed upon. One of the errors
sought to be corrected is the ruling of the trial court that
there exists a cause of action against petitioners. This issue
that was raised in the motion to dismiss has been heard
and passed upon by the trial court.
The other crucial issue that has been raised in the
motion to dismiss and duly passed upon by the trial court is
the question whether the case before the trial court should
be held in abeyance until resolution of SEC Case No. 12-96-
5469. Palanca pointed out in her motion that said SEC
case, which is an action to nullify the election of the
directors of NUI belonging to the “Castro faction,” must
take precedence over Civil Case No. 11296-14 before the
trial court since it is determinative of whether or not Roy
Nicolas has the legal standing to file the suit in behalf of
NUI. The trial court ruled in the negative and held that the
civil and the SEC cases can proceed independently of each
other since they involve different parties and issues. Thus,
inasmuch as this issue has already

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32 See footnote 19.
33 Id., p. 452.

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been raised and passed upon in the trial court, we agree

with petitioners that motion for reconsideration in this
instance may be dispensed with.
Third issue. Whether the proceedings in Civil Case No.
11296-14 must be held in abeyance pending resolution of
SEC Case No. 12-96-5469. We rule in the affirmative.
Petitioners argue that SEC Case No. 12-96-5469, which
is an action to nullify the election of the directors of NUI
belonging to the “Castro faction,” is a necessary and logical
antecedent of the issue of whether the withdrawal of P1.4
M or P1.6 M, as the case may be, as well as the institution
of this suit for the recovery thereof was authorized by the
NUI.
Technically, there would be no prejudicial question to
speak of in this case, if we are to consider the general rule
that a prejudicial question comes into play in a situation
where a civil action and a criminal action are both pending
and there exists in the former an issue which must be
preemptively resolved before the criminal action may
proceed, because howsoever the issue in the civil action is
resolved would be determinative juris et de jure 34of the guilt
or innocence of the accused in the criminal case. However,
considering the rationale behind the principle of prejudicial 35

question, being to avoid two conflicting decisions,

prudence dictates that we apply the principle underlying
the doctrine to the case at bar.
A prejudicial question is that which arises in a case, the
resolution of which is a logical antecedent of the issue
involved therein and36 the cognizance of which pertains to
another tribunal. The prejudicial question must be
determina-

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34 Manalo vs. Court of Appeals, G.R. No. 141297, October 8, 2001, 366
SCRA 752, 765.
35 Tuanda vs. Sandiganbayan, G.R. No. 110544, October 17, 1995, 249
SCRA 342, 351.
36 Quiambao vs. Osorio, No. L-48157, March 16, 1988, 158 SCRA 674,
678.
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tive of the case before the court but the jurisdiction to try
37

and resolve it must be lodged in another court or tribunal.

In the present case, the question of which between the
Castro and the Nicolas factions are the de jure board of
directors of NUI is lodged before the SEC. The complaint
before the RTC of Laoag meanwhile alleges that
petitioners, together with their co-defendants, comprised of
the “Castro faction,” wrongfully withdrew the amount of
P1.4 M from the account of NUI with Metrobank.
Moreover, whether or not Roy Nicolas of the “Nicolas
faction” is a duly elected member of the Board of NUI and
thus with capacity to institute the herein complaint in
behalf of the NUI depends on the findings of the SEC in the
case pending before it. It would finally determine whether
Castro, et al. legally withdrew the subject amount from the
bank and whether Nicolas lawfully initiated the complaint
in behalf of herein respondent NUI. It is petitioners’ claim,
and we agree, that the presence or absence of their liability
for allowing the withdrawal of P1.4 M from the account of
NUI with Metrobank in favor of the “Castro faction” is
reliant on the findings of the SEC as to which of the two
factions is the de jure board. Since the determination of the
SEC as to which of the two factions is the de jure board of
NUI is crucial to the resolution of the case before the RTC,
we find that the trial court should suspend its proceedings
until the SEC comes out with its findings.
We apply 38 by analogy our pronouncement in Quiambao
vs. Osorio, to wit:

Faced with these distinct possibilities, the more prudent course

for the trial court to have taken is to hold the ejectment
proceedings in abeyance until after a determination of the
administrative case. Indeed, logic and pragmatism, if not
jurisprudence, dictate such move. To allow the parties to undergo
trial notwithstanding the

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37 People vs. Consing, G.R. No. 148193, January 16, 2003, 395 SCRA 366, 369.
38 No. L-48157, March 16, 1988, 158 SCRA 674.

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Abacan, Jr. vs. Northwestern University, Inc.

possibility of petitioner’s right of possession being upheld in the

pending administrative case is to needlessly require not only the
parties but the court as well to expend time, effort and money in
what may turn out to be a sheer exercise in futility. Thus, 1 Am.
Jur. 2d tells us:

The court in which an action is pending may, in the exercise of a sound

discretion, upon proper application for a stay of that action, hold the
action in abeyance to abide the outcome of another pending in another
court, especially where the parties and the issues are the same, for there
is power inherent in every court to control the disposition of causes on its
dockets with economy of time and effort for itself, for counsel, and for
litigants. Where the rights of parties to the second action cannot be
properly determined until the questions raised in the first action are
settled the second action should be stayed.

While this rule is properly applicable to instances involving

two [2] court actions, the existence in the instant case of the same
considerations of identities of parties and issues, economy of time
and effort for the court, the counsels and the parties as well as the
need to resolve the parties’ right of possession before the
ejectment case may be properly determined,39 justifies the rule’s
analogous application to the case at bar.

WHEREFORE, the petition is GRANTED. The Court of

Appeals Decision dated July 22, 1999 and Resolution dated
November 12, 1999 are SET ASIDE. The RTC of Laoag
City, Branch 14, is hereby DIRECTED to suspend further
proceedings in Civil Case No. 11296-14 until after a final
determination is made in SEC Case No. 12-96-5469.
No costs.
SO ORDERED.

Puno (Chairman), Callejo, Sr., Tinga and Chico-

Nazario, JJ., concur.

Petition granted, judgment and resolution set aside.

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39 Id., pp. 678-679.

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F.F. Marine Corporation vs. National Labor Relations

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Notes.—Prejudicial question principles are applicable to

administrative proceedings. (Quiambao vs. Osorio, 158
SCRA 674 [1988])
The rules of procedure, including the rule on prejudicial
questions, were conceived to afford parties an expeditious
and just disposition of cases, and the Supreme Court will
not countenance their misuse and abuse to frustrate or
delay the delivery of justice, and to allow in the instant
case the civil action raising the alleged prejudicial question
may give rise to the evils of forum shopping. (First
Producers Holdings Corporation vs. Co, 336 SCRA 551
[2000])
A party who raises a prejudicial question is deemed to
have hypothetically admitted that all the essential
elements of a crime have been adequately alleged in the
information, considering that the prosecution has not yet
presented a single evidence on the indictment or may not
yet have rested its case. (Marbella-Bobis vs. Bobis, 336
SCRA 747 [2000])

——o0o——
*

G.R. No. 152039. April 8, 2005.

F.F. MARINE CORPORATION and/or MR. ERIC A. CRUZ,

petitioners, vs. THE HONORABLE SECOND DIVISION
NATIONAL LABOR RELATIONS COMMISSION and
RICARDO M. MAGNO, respondents.

Labor Law; Retrenchment; Employment to the common man is

his very life and blood which must be protected against concocted
causes to legitimize an otherwise irregular termination of
employment—imagined or undocumented business losses present
the least propitious scenario to justify retrenchment.—This Court
is not oblivi-

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* SECOND DIVISION.

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ous of the significant role played by the corporate sector in the

country’s economic and social progress. Implicit in turn in the
success of the corporate form in doing business is the ethos of
business autonomy which allows freedom of business
determination with minimal governmental intrusion to ensure
economic independence and development in terms defined by
businessmen. Yet, this vast expanse of management choices
cannot be an unbridled prerogative that can rise above the
constitutional protection to labor. Employment is not merely a
lifestyle choice to stave off boredom. Employment to the common
man is his very life and blood which must be protected against
concocted causes to legitimize an otherwise irregular termination
of employment. Imagined or undocumented business losses
present the least propitious scenario to justify retrenchment.

Same; Same; Requisites; Management Prerogatives; Words

and Phrases; Retrenchment is the termination of employment
initiated by the employer through no fault of the employees and
without prejudice to the latter, resorted to by management during
periods of business recession, industrial depression, or seasonal
fluctuations or during lulls occasioned by lack of order, shortage of
materials, conversion of the plant for a new production program or
the introduction of new methods of more efficient machinery, or of
automation; Retrenchment is a valid management prerogative,
subject, however, to faithful compliance with the substantive and
procedural requirements laid down by law and jurisprudence.—
Retrenchment is the termination of employment initiated by the
employer through no fault of the employees and without prejudice
to the latter, resorted to by management during periods of
business recession, industrial depression, or seasonal fluctuations
or during lulls occasioned by lack of orders, shortage of materials,
conversion of the plant for a new production program or the
introduction of new methods or more efficient machinery, or of
automation. Retrenchment is a valid management prerogative. It
is, however, subject to faithful compliance with the substantive
and procedural requirements laid down by law and jurisprudence.
There are three (3) basic requisites for a valid retrenchment to
exist, to wit: (a) the retrenchment is necessary to prevent losses
and such losses are proven; (b) written notice to the employees
and to the DOLE at least one (1) month prior to the intended date
of retrenchment; and (c) payment of separation pay equivalent to
one (1) month pay or at least one-half (1/2) month pay for every
year of service, whichever is higher.

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Same; Same; An employer’s failure to adduce financial

statements duly audited by independent external auditors casts
doubt on its claim of losses for financial statements are easy prey
to manipulation and concoction; Financial statements audited by
independent external auditors constitute the normal method of
proof of the profit and loss performance of a company.—
Petitioners’ failure to adduce financial statements duly audited by
independent external auditor casts doubt on their claim of losses
for financial statements are easy prey to manipulation and
concoction. This Court has ruled that financial statements
audited by independent external auditors constitute the normal
method of proof of the profit and loss performance of a company.
Even this, however, is not a hard and fast rule as the norm does
not compel this Court to accept the contents of the said documents
blindly and without thinking. A careful examination of financial
statements may be resorted to especially if on their face relevant
facts appear to have been ignored that will warrant a contrary
conclusion.

Same; Same; Certiorari; Evidence; Consideration of new

evidence not presented before the Labor Arbiter or the National
Labor Relations Commission is unmistakably outside the sphere of
the Court of Appeals’ certiorari jurisdiction.—Petitioners had
called upon the Court of Appeals to consider alleged new evidence
not presented before the Labor Arbiter or the NLRC, a course of
action unmistakably outside the sphere of that court’s certiorari
jurisdiction. This Court itself was confronted with the same
situation in Matugas v. Commission on Elections, et al., as
petitioner therein asked the Court to consider documents which
were not presented in evidence before the poll body. The Court
rejected petitioner’s stance, holding that the “cause of action”
sought is “clearly beyond the courts’ certiorari powers.”

Same; Same; Same; Decisions of the NLRC are reviewable

only by the Court of Appeals via the special civil action of
certiorari under Rule 65.—Considering the foregoing
disquisitions, we fail to see any reason to reverse the legal
conclusions made by the Court of Appeals. It is worthy of note
that decisions of the NLRC are reviewable only by the Court of
Appeals via the special civil action of certiorari under Rule 65 of

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the Rules of Court. This mode of review may be availed of only in

case a tribunal, board or officer exercising judicial or quasi-
judicial functions has acted without or in excess of jurisdic-

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tion, or with grave abuse of discretion amounting to a lack or

excess of jurisdiction, and there is no appeal, or any plain, speedy,
and adequate remedy in the ordinary course of law. The sole office
of the writ of certiorari is the correction of errors of jurisdiction
including the commission of grave abuse of discretion amounting
to lack of jurisdiction and does not include correction of public
respondents’ evaluation of the evidence and the factual findings
based thereon.

Same; Same; Retrenchment is only a measure of last resort

when other less drastic means have been tried and found to be
inadequate.—Petitioners failed to act in consonance with the rule
that retrenchment shall be a remedy of last resort. Even
assuming that the corporation has actually incurred losses by
reason of the Asian economic crisis, the retrenchment is not
perfectly justified as there was no showing that the retrenchment
was the last recourse resorted to by petitioners. Although
petitioners allege in their petition before this Court that they had
undertaken cost-cutting measures before they resorted to
retrenchment, their contention does not inspire belief for the
evidence shows that the petition for certiorari filed by petitioners
with the Court of Appeals is bereft of any allegation of prior resort
to cost-cutting measures other than retrenchment. Well-
established is the rule that retrenchment is only a measure of last
resort when other less drastic means have been tried and found to
be inadequate.

Same; Same; Where the ground for retrenchment availed by

an employer was not sufficiently and convincingly established, the
retrenchment is illegal and of no effect.—Considering that the
ground for retrenchment availed of by petitioners was not
sufficiently and convincingly established, the retrenchment is
hereby declared illegal and of no effect. The quitclaims executed
by retrenched employees in favor of petitioners were therefore not
voluntarily entered into by them. Their consent was similarly
vitiated by mistake or fraud. The law looks with disfavor upon
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quitclaims and releases by employees pressured into signing by

unscrupulous employers minded to evade legal responsibilities. As
a rule, deeds of release or quitclaim cannot bar employees from
demanding benefits to which they are legally entitled or from
contesting the legality of their dismissal. The acceptance of those
benefits would not amount to estoppel. The amounts already
received by the retrenched employees as consideration for signing
the quitclaims should, however, be deducted from their

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respective monetary awards. Sad to say, among the retrenched

employees, only Magno filed an action for illegal dismissal.

Same; Same; Reinstatement; A person illegally dismissed is

entitled to reinstatement but in the event that reinstatement is no
longer feasible, or if the employee decides not to be reinstated, the
employer shall pay him separation pay in lieu of reinstatement.—
It is well-settled that when a person is illegally dismissed, he is
entitled to reinstatement without loss of seniority rights and
other privileges and to his full backwages. In the event, however,
that reinstatement is no longer feasible, or if the employee decides
not to be reinstated, the employer shall pay him separation pay in
lieu of reinstatement. Such a rule is likewise observed in the case
of a strained employer-employee relationship or when the work or
position formerly held by the dismissed employee no longer exists.
In sum, an illegally dismissed employee is entitled to: (1) either
reinstatement if viable or separation pay if reinstatement is no
longer viable, and (2) back-wages.

PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.

The facts are stated in the opinion of the Court.

Antonio H. Abad & Associates for petitioners.
Simeon M. Cayco for private respondent.

TINGA, J.:

Before this
1 Court is a Rule 45 petition assailing the
Decision dated 31 January 2002
2 of the Court of Appeals
which affirmed the Resolution dated 11 October 2000 of
the National Labor Relations
3
Commission (NLRC) that in
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turn reversed the Decision dated 6 August 1999 of Labor

Arbiter

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1 Rollo, pp. 44-56. Decision penned by Justice Andres B. Reyes, Jr. and
concurred in by Justices Conrado M. Vasquez, Jr. and Amelita G.
Tolentino.
2 Id., at pp. 102-115.
3 Id., at pp. 122-129.

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Salimathar V. Nambi. The Labor Arbiter had upheld the

validity of the retrenchment program undertaken by
petitioner corporation.
The factual antecedents of the case follow.
Petitioner F.F. Marine Corporation (FFMC) is a
corporation duly organized and existing under Philippine
laws, with Eric A. Cruz as its president. It is engaged in
ship-repair, dry-docking and dredging services, and has a
total of 419 employees including
4 private respondent
Ricardo M. Magno (Magno). Magno, who began working
for FFMC on 7 February 1990, was eventually assigned as
Lead Electrician at the Marine Dredging with a monthly
salary of P8,500.00.
On 26 October 1998, petitioners filed with the
Department of Labor and Employment (DOLE) a notice
that petitioner corporation was undertaking a
retrenchment program to curb the serious business5
reverses brought about by the Asian economic crisis.
Petitioners likewise stated in the notice that they had
already closed down their dry docking and ship repair
division on 30 August 1998 and that their dredging services
were heavily affected by the economic6 slowdown being
experienced by the construction industry. They manifested
that the
7 retrenchment program would start on 1 November
1998. The affected employees 8 were to remain employed
only until 16 December 1998.
Pursuant to the retrenchment program, petitioners
served the affected employees a personal notice of
retrenchment, stating that their employment would end at
the close of business hours of 16 December 1998. However,
petitioners paid them in advance of their payroll from 16
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November to 16 December 1998 to spare them from

reporting for work during

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4 Id., at p. 124.
5 Ibid.
6 Id., at p. 125.
7 Id., at p. 58.
8 Id., at p. 59.

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the period. They were also paid separation pay equivalent

to one-half (1/2) month basic pay per year of service, plus
the proportionate 13th month pay.
On 11 December 1998 and in compliance with its notice
to the DOLE dated 26 October 1998, petitioners filed with
the DOLE, an “Establishment Termination Report” for the
retrenchment of twenty-one (21) affected employees,
including Magno.
In view of the retrenchment, Magno received his
separation pay equivalent to nine (9) years and
proportionate 13th month pay in the total amount of
P46,182.41. After receiving the above separation pay,
Magno executed
9 a release and quit-claim in favor of
petitioners.
However, on 12 January 1999, Magno filed a complaint
for illegal dismissal, moral and exemplary damages and
attorney’s fees, with prayer for reinstatement
10 and payment
of backwages against petitioners. Magno claimed that he
was beguiled into accepting the separation pay since
petitioners terminated his services on the pretext that the
dredging machine where he was assigned was temporarily
stalled in Zambales. Magno eventually learned that the
company had been adducing to others a different reason
11 for
retrenchment, primarily the Asian financial crisis.
On 6 August 1999, after the contending parties
submitted their responsive pleadings, Labor Arbiter
Salimathar V. Nambi promulgated 12 a Decision upholding
the validity of re-trenchment. The dispositive portion
thereof reads:

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“WHEREFORE, premises considered, the complaint for illegal

dismissal is hereby DISMISSED for lack of merit. Consequently,
complainant’s claim for backwages, separation pay differential,
damages and attorney’s fees [is] likewise dismissed.

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9 Supra note 6.
10 Rollo, p. 46.
11 Id., at p. 45.
12 Id., at pp. 47-49.

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13

SO ORDERED.”

Magno appealed the Labor Arbiter’s Decision to the NLRC

which, on 11 October 2000, issued a Resolution reversing
14

the findings and conclusions of the Labor Arbiter. The

NLRC deemed the petitioners as having been unable to
establish proof of actual losses, due to the absence of
financial reports of independent external auditors that
would15 confirm the losses sustained for the years 1996 and
1997. The decretal text of the issuance reads:

“WHEREFORE, premises considered, Complainant’s appeal is

GRANTED. The Labor Arbiter’s decision in the above-entitled
case is hereby ANNULLED and SET ASIDE. A new one is
entered declaring Complainant’s dismissal as illegal.
Respondent F.F. Marine Corporation is ordered to pay
Complainant:

1. full backwages from December 16, 1998 up to the finality

of this decision;
2. separation pay equivalent to Complainant’s one (1) month
pay for every year of service, computed from his first day
of employment on February 7, 1990 up to the finality of
this decision, the total amount from which shall be
deducted his advanced separation pay of P38,250.00; and
3. attorney’s fees equivalent to ten percent (10%) of his
total monetary award.
16

SO ORDERED.”

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After the denial of their Motion for Reconsideration,

petitioners elevated the case to the Court of Appeals by
way of Petition for Certiorari. Before the appellate court,
petitioners presented financial reports prepared by
independent external auditors Banaria, Banaria and
Company, auditing FFMC’s

_______________

13 Id., at p. 129.
14 Id., at pp. 49-52.
15 Id., at pp. 64-66.
16 Id., at p. 69.

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balance sheets and income statements for the years 1996

and 1997. Petitioners alleged that these reports could not
be submitted earlier as they had not been completed during17

the pendency of the proceedings before the Labor Arbiter.

The appellate court eventually dismissed the petition
and affirmed the resolution of the NLRC. Material to the
resolution of the case was the issue of admissibility and
competency as evidence of the 31 December 1997 and 1996
Financial Statements of petitioners. The Court of Appeals
noted that these financial statements were submitted to it
only and at that on the pretext that they had not yet been
completed by the independent auditor when the case was
still pending before the Labor Arbiter. However, the
appellate court ruled that a perusal of the certification
issued by Banaria, Banaria and Company regarding the
Financial Statements reveals that the same were executed
on 30 March 1998 or nine (9) months prior to the filing of
the complaint for illegal dismissal on 12 January 1999.
Thus, the financial statements could have been offered as
evidence before the Labor Arbiter and the NLRC. Thus, the
Court of Appeals reproached petitioners for having
suppressed material evidence.
Accordingly, the appellate court found that petitioners
failed to substantiate 18 the substantive requirements of a
valid retrenchment. The fact that Magno executed a
quitclaim in favor of petitioners, according to the Court of
Appeals, did not bar19 him from filing the instant complaint
for illegal dismissal.
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Aggrieved by the decision of the appellate court,

petitioners went to this Court via the present petition for
review.
As grounds for appeal, petitioners allege that the
appellate court gravely erred in: (a) finding that petitioners
failed to substantiate the substantive requirements of a
valid re-

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17 Id., at p. 87.
18 Id., at p. 55.
19 Ibid.

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trenchment and (b) affirming the NLRC’s 20 award of

separation pay and attorney’s fees to Magno.
Petitioners argue that retrenchment programs
undertaken by corporations are purely business decisions
properly within the reasonable exercise of management
prerogative. As a recognized management prerogative,
petitioners’ assessment of the necessity of retrenchment
cannot be substituted with the NLRC’s own perception,
much less opinion, as to the thrust and direction of
petitioners’ business. It is only subject to faithful
compliance with the substantive and procedural 21

requirements laid down by law and jurisprudence. They

assert that they complied with both the substantive and
procedural requirements of a valid retrenchment as they
were able to show that the expected losses 22were not merely
de minimis but substantial and imminent. They point out
that in 1994 and 1995, they earned minimal 23 profits of only
P77,609.79 and P155,339.96, respectively.
They further stress that the corporation had been beset
with financial problems as early as 1996 when the company
had incurred losses in the amount of P18,005,918.08. On
the other hand, the losses for the years 1997 and 199824 are
P21,316,072.89 and P21,234,582.25, respectively. These
losses resulted to a total deficit
25 of P39,146,167.82 in 1997
and continued to increase. Thus, petitioners insist that
the retrenchment program was necessary to prevent
additional losses. Petitioners also allege that the

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corporation initially explored ways of minimizing its losses

26

by taking necessary measures to cut operational expenses.

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20 Id., at p. 19.
21 Id., at pp. 20-21.
22 Id., at p. 23.
23 Id., at pp. 23-24.
24 Id., at pp. 24-25.
25 Id., at p. 25.
26 Id., at p. 26.

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They also contend that the appellate court gravely erred in

placing too much emphasis on the late presentation of the
1996-1997 Financial Statements so as to completely
disregard other documentary evidence submitted by
petitioners. The documentary evidence submitted by
petitioners before the Labor Arbiter, consisting of the
Statements of Retained Earnings and Balance Sheets for
the periods covering 1993 to 1997, were sufficient to prove
that petitioner corporation was
27 experiencing losses prior to
the retrenchment program. They also allege that having
freely entered into the subject quit-claim, Magno was
bound by the terms thereof and may not later be disowned
simply because of change of mind. Thus, they should not be
held liable for the claims of Magno for 28 backwages,
separation pay, damages nor attorney’s fees.
The petition suffers from lack of merit.
This Court is not oblivious of the significant role played
by the corporate sector in the country’s economic and social
progress. Implicit in turn in the success of the corporate
form in doing business is the ethos of business autonomy
which allows freedom of business determination with
minimal governmental intrusion to ensure economic
independence and development in terms defined by
businessmen. Yet, this vast expanse of management
choices cannot be an unbridled prerogative that can rise
above the constitutional protection to labor. Employment is
not merely a lifestyle choice to stave off boredom.
Employment to the common man is his very life and blood
which must be protected against concocted causes to
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legitimize an otherwise irregular termination of

employment. Imagined or undocumented business losses
present the least propitious scenario to justify
retrenchment.
Retrenchment is the termination of employment
initiated by the employer through no fault of the employees
and without prejudice to the latter, resorted to by
management during

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27 Id., at p. 29.
28 Id., at p. 36.

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periods of business recession, industrial depression, or

seasonal fluctuations or during lulls occasioned by lack of
orders, shortage of materials, conversion of the plant for a
new production program or the introduction of new 29

methods or more efficient machinery, or of automation.

Retrenchment is a valid management prerogative. It is,
however, subject to faithful compliance with the
substantive and procedural requirements laid down by law
and jurisprudence.
There are three (3) basic requisites for a valid
retrenchment to exist, to wit: (a) the retrenchment is
necessary to prevent losses and such losses are proven; (b)
written notice to the employees and to the DOLE at least
one (1) month prior to the intended date of retrenchment;
and (c) payment of separation pay equivalent to one (1)
month pay or at least one-half (1/2) 30 month pay for every

year of service, whichever is higher.

Jurisprudential standards to justify retrenchment have
been reiterated by this Court in a long line of cases to
forestall management abuse of this prerogative, viz.:

. . . . Firstly, the losses expected should be substantial and not

merely de minimis in extent. If the loss purportedly sought to be
forestalled by retrenchment is clearly shown to be insubstantial
and inconsequential in character, the bona fide nature of the
retrenchment would appear to be seriously in question. Secondly,
the substantial loss apprehended must be reasonably imminent,
as such imminence can be perceived objectively and in good faith

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by the employer. There should, in other words, be a certain degree

of urgency for the retrenchment, which is after all a drastic
recourse with serious consequences for the livelihood of the
employees retired or otherwise laid-off. Because of the
consequential nature of retrenchment, it must, thirdly, be
reasonably necessary and likely to effec-

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29 Polymart Paper Industries, Inc. v. National Labor Relations Commission, 355

Phil. 592; 294 SCRA 159 (1998), citing Uichico v. National Labor Relations
Commission, G.R. No. 121434, June 2, 1997, 273 SCRA 35.
30 Id., at pp. 167-168.

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tively prevent the expected losses. The employer should have

taken other measures prior or parallel to retrenchment to
forestall losses, i.e., cut other costs than labor costs. An employer
who, for instance, lays off substantial numbers of workers while
continuing to dispense fat executive bonuses and perquisites or
so-called “golden parachutes,” can scarcely claim to be retrenching
in good faith to avoid losses. To impart operational meaning to the
constitutional policy of providing “full protection” to labor, the
employer’s prerogative to bring down labor costs by
retrenching must be exercised essentially as a measure of
last resort, after less drastic means—e.g., reduction of both
management and rank-and-file bonuses and salaries, going on
reduced time, improving manufacturing efficiencies, trimming of
marketing and advertising costs, etc.—have been tried and found
wanting.
Lastly, but certainly not the least important, alleged losses if
already realized, and the expected imminent losses sought
to be forestalled, must be proved by sufficient and
convincing evidence. The reason for requiring this quantum of
proof is readily apparent: any less exacting standard of proof
would render too easy31the abuse of this ground for termination of
services of employees. (emphasis supplied)

Retrenchment is one of the economic grounds to dismiss

employees. It is resorted to by an employer primarily to
avoid or minimize business
32 losses. The law recognizes this
under Article 283 of the Labor Code. However, the
employer bears

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31 EMCO Plywood Corporation, et al. v. Perferio Abelgas, et al., G.R. No.

148532, 14 April 2004, 427 SCRA 496; See also Polymart Paper Industries,
Inc. v. National Labor Relations Commission, supra note 29; Lopez Sugar
Corporation v. Federation of Free Workers, G.R. Nos. 75700-01, 30 August
1990, 189 SCRA 179, 186-187.
32 ART. 283. Closure of establishment and reduction of per-sonnel.—The
employer may also terminate the employment of any employee due to the
installation of labor saving devices, redundancy, retrenchment to prevent
losses or the closing or cessation of operation of the establishment or
undertaking unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the worker and the
Ministry of Labor and Employment at least one (1) month before the
intended date thereof. In

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the burden to prove his allegation of economic or business

reverses. The employer’s failure to prove it necessarily
33

means that the employee’s dismissal was not justified.

In the case at bar, petitioners seek to justify the
retrenchment on the ground of serious business losses
brought about by the Asian economic crisis. To prove their
claim, petitioners adduced before the Labor Arbiter the
1994 and 1995 Financial Statements. Said Financial
Statements, however, were prepared only by petitioners’
accountant, Rosalie Bengzon, 34 and approved by the
manager Bernadette Rosales. They were not audited by
an independent external auditor. The financial statements
show that in 1994 and 1995, petitioner corporation earned
an income of only P77,609.79 and P155,339.96,
respectively. In contrast, the 1996 35and 1997 Financial
Statements, however, showed losses of P18,005,918.08,
and P21,316,072.89, respectively.
It was only before the Court of Appeals that the
financial statements for the years 1996 and 1997 as
audited by36 an independent external auditor were
introduced. They were not presented before the Labor
Arbiter and the NLRC although they were executed on 30
March 1998, several months

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case of termination due to the installation of labor saving devices or

redundancy, the worker affected thereby shall be entitled to a separation
pay equivalent to at least his one (1) month pay or to at least one (1)
month pay for every year of service, whichever is higher. In case of
retrenchment to prevent losses and in cases of closures or cessation of
operations of establishment or undertaking not due to serious business
losses or financial reverses, the separation pay shall be equivalent to one
(1) month pay or at least one-half (1/2) month pay for every year of service,
whichever is higher. A fraction of at least six (6) months shall be
considered one (1) whole year.
33 Precision Electronics Corporation v. National Labor Relations
Commission, G.R. No. 86657, October 23, 1989, 178 SCRA 667.
34 Rollo, p. 64; see also pp. 139-140.
35 Loss before other income.
36 Id., at pp. 53-54.

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prior to the filing of the complaint

37 for illegal dismissal by
Magno on 12 January 1999.
Petitioners’ failure to adduce financial statements duly
audited by independent external auditor casts doubt on
their claim of losses for financial statements are easy prey
to manipulation and concoction. This Court has ruled that
financial statements audited by independent external
auditors constitute the normal method 38 of proof of the profit
and loss performance of a company. Even this, however, is
not a hard and fast rule as the norm does not compel this
Court to accept the contents
39 of the said documents blindly
and without thinking. A careful examination of financial
statements may be resorted to especially if on their face
relevant facts appear to have been ignored that will
warrant a contrary conclusion.
Petitioners had called upon the Court of Appeals to
consider alleged new evidence not presented before the
Labor Arbiter or the NLRC, a course of action
unmistakably outside the sphere of that court’s certiorari
jurisdiction. This Court itself was confronted with the same
40

situation in Matugas v. Commission on Elections, et al., as

petitioner therein asked the Court to consider documents
which were not presented in evidence before the poll body.
The Court rejected petitioner’s stance, holding that the
“cause of action” 41sought is “clearly beyond the courts’
certiorari powers.”
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In the case at bar, petitioner did not file a motion for

leave to present the alleged new evidence as they simply
attached the additional financial statements to their
petition. Signifi-

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37 Rollo, p. 54.
38 Polymart Paper Industries, Inc. v. National Labor Relations
Commission, supra note 29; Lopez Sugar Corporation v. Federation of Free
Workers, supra note 31.
39 Philippine Tobacco Flue-Curing And Redrying Corporation v.
National Labor Relations Commission, 360 Phil. 218; 300 SCRA 37 (1998).
40 G.R. No. 151944, 20 January 2004, 420 SCRA 365.
41 Id., at p. 376.

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cantly in that regard, the financial statements do not

constitute newly discovered evidence as they had already
been prepared by the independent auditors eight (8)
months before the filing of the case with the Labor Arbiter.
That must have been the reason why petitioners opted not
to avail of the prescribed manner for introducing newly
discovered evidence.
In the Matugas case, this Court pointedly ruled, thus:

The rule in appellate procedure is that a factual question may not

be raised for the first time on appeal, and documents forming no
part of the proofs before the appellate court will not be considered
in disposing of the issues of an action. This is true whether the
decision elevated for review originated from a regular court or an
administrative agency or quasi-judicial body, and whether it was
rendered in a civil case, a special proceeding, or a criminal case.
Piecemeal presentation of evidence is simply not in accord with
orderly justice.
The same rules apply with greater force in certiorari
proceedings. Indeed, it would be absurd to hold public respondent
guilty of grave abuse of discretion for not considering evidence not
presented before it. The patent unfairness of petitioner’s plea,
prejudicing as it would public and private respondents alike,
militates against
42 the admission and consideration of the subject
documents.

43

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Petitioners cite Cañete v. NLRC where the Court upheld

the NLRC’s consideration of documents submitted to it by
the respondent therein for the first time on appeal. The
holding is clearly not apropos since the documents were
presented to the NLRC, unlike in this case where the new
financial statements were submitted for the first time
before the Court of Appeals. That was why this Court in
Cañete ratiocinated that the petitioner therein had the
opportunity to rebut the truth of the additional documents.
The same cannot be said of the private respondent in this
case.
Considering the foregoing disquisitions, we fail to see
any reason to reverse the legal conclusions made by the
Court of

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42 Id., at pp. 377-378.

43 320 Phil. 313; 250 SCRA 259 (1995).

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Appeals. It is worthy of note that decisions of the NLRC are

reviewable only by the Court of Appeals via the special civil 44

action of certiorari under Rule 65 of the Rules of Court.

This mode of review may be availed of only in case a
tribunal, board or officer exercising judicial or quasi-
judicial functions has acted without or in excess of
jurisdiction, or with grave abuse of discretion amounting to
a lack or excess of jurisdiction, and there is no appeal, or
any plain, speedy,
45 and adequate remedy in the ordinary
course of law. The sole office of the writ of certiorari is the
correction of errors of jurisdiction including the commission
of grave abuse of discretion amounting to lack of
jurisdiction and does not include correction of public
respondents’ evaluation 46 of the evidence and the factual

findings based thereon.

The appellate court’s affirmance of the decision of the
NLRC is principally anchored on the ground that
petitioners failed to adduce the 1996 and 1997 Financial
Statements audited by an independent external auditor
before the Labor Arbiter and the NLRC. By merely
upholding the evidentiary weight accorded to financial
statements duly audited by independent external auditors,
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grave abuse of discretion on the part of the NLRC is hardly

imaginable as it is unfounded.
It is essentially required that the alleged losses in
business operations must be proven. Otherwise, said
ground for termination would be susceptible to abuse by
scheming employers

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44 St. Martin Funeral Homes v. National Labor Relations Commission,

356 Phil. 811; 295 SCRA 494 (1998).
45 Section 1 of Rule 65, Rules of Court; Microsoft Corporation v. Best
Deal Computer Center Corporation, 438 Phil. 408; 398 SCRA 615 (2002);
Manila Midtown Hotel and Land Corporation v. National Labor Relations
Commission, 351 Phil. 500; 288 SCRA 259 (1998); Abad v. National Labor
Relations Commission, G.R. No. 108996, February 20, 1998, 286 SCRA
355.
46 Building Care Corporation v. National Labor Relations Commission,
335 Phil. 113; 268 SCRA 666 (1997); Salas v. Castro, G.R. No. 100416,
December 2, 1992, 216 SCRA 198.

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who might be merely feigning business losses or reverses in 47

their business ventures in order to ease out employees.

The employer bears the burden of proving the existence or
the imminence of substantial losses with clear and
satisfactory evidence that there are legitimate business
reasons justifying a retrenchment. Should the employer
48 fail
to do so, the dismissal shall be deemed unjustified.
Moreover, petitioners failed to act in consonance with
the rule that retrenchment shall be a remedy of last resort.
Even assuming that the corporation has actually incurred
losses by reason of the Asian economic crisis, the
retrenchment is not perfectly justified as there was no
showing that the retrenchment was the last recourse
resorted to by petitioners. Although petitioners allege in
their petition before this Court that they had undertaken
cost-cutting measures before they resorted to
retrenchment, their contention does not inspire belief for
the evidence shows that the petition for certiorari filed by
petitioners with the Court of Appeals is bereft of any
allegation of prior resort
49 to cost-cutting measures other
than retrenchment. Well-established is the rule that
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retrenchment is only a measure of last resort when other

less drastic50 means have been tried and found to be
inadequate.
Considering that the ground for retrenchment availed of
by petitioners was not sufficiently and convincingly
established, the retrenchment is hereby declared illegal
and of no effect. The quitclaims executed by retrenched
employees in favor of petitioners were therefore not
voluntarily entered into by

_______________

47 Garcia v. National Labor Relations Commission, 153 SCRA 639

(1987); National Federation of Labor Unions (NAFLU) v. Ople, 143 SCRA
124; Polymart Paper Industries, supra note 29.
48 EMCO Plywood Corporation, supra note 31.
49 Rollo, pp.72-97.
50 EMCO Plywood Corporation, supra note 31; Polymart Paper
Industries, Inc., supra note 29 citing Somerville Stainless Steel
Corporation v. National Labor Relations Commission, G.R. No. 125887,
March 11, 1998, 287 SCRA 420.

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them. Their consent was similarly vitiated by mistake or

fraud. The law looks with disfavor upon quitclaims and
releases by employees pressured into signing by
unscrupulous 51employers minded to evade legal
responsibilities. As a rule, deeds of release or quitclaim
cannot bar employees from demanding benefits to which
they are legally entitled or from contesting the legality of
their dismissal. The acceptance of those benefits would not
amount to estoppel. The amounts already received by the
retrenched employees as consideration for signing the
quitclaims should, however,52 be deducted from their
respective monetary awards. Sad to say, among the
retrenched employees, only Magno filed an action for illegal
dismissal.
Undoubtedly, Magno was illegally dismissed but it must
be emphasized that Magno prayed for the payment of
separation pay in lieu of reinstatement on the 53 ground of

strained relations between him and petitioners.

It is well-settled that when a person is illegally
dismissed, he is entitled to reinstatement without loss of
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seniority rights
54 and other privileges and to his full
backwages. In the event, however, that reinstatement is
no longer feasible, or if the employee decides not to be
reinstated, the employer
55 shall pay him separation pay in
lieu of reinstatement. Such a rule is

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51 Ibid.
52 Ibid.
53 Rollo, p. 65.
54 Article 279 of the Labor Code provides: Security of Tenure.—In cases
of regular employment, the employer shall not terminate the services of
an employee except for a just cause or when authorized by this Title. An
employee who is unjustly dismissed from work shall be entitled to
reinstatement without loss of seniority rights and other privileges and to
his full backwages, inclusive of allowances, and to his other benefits or
their monetary equivalent computed from the time his compensation was
withheld from him up to the time of his actual reinstatement.
55 Torillo v. Leogardo, 274 Phil. 758; 197 SCRA 471 (1991); Starlite
Plastic Industrial Corporation v. National Labor Relations

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likewise observed in the case of a strained employer-

employee relationship or when the work or position 56

formerly held by the dismissed employee no longer exists.

In sum, an illegally dismissed employee is entitled to: (1)
either reinstatement if viable or separation pay 57 if
reinstatement is no longer viable, and (2) backwages.
As to the amount of separation pay, this Court has ruled
that separation pay may be computed at one (1) month pay,
or one (1/2)
58 month pay for every year of service, whichever

is higher. It is noteworthy that the separation pay being

awarded in the instant case is due to illegal dismissal;
hence, it is different from the amount of separation pay
provided for in Article 283 in case of retrenchment to
prevent losses or in case of closure or cessation of the
employer’s business, in either of which the separation pay
is equivalent to at least one (1) month or one-half (1/2) 59

month pay for every year of service, whichever is higher.

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Commission, G.R. No. 78491, 16 March 1989, 171 SCRA 315; Pepsi-
Cola Bottling Co., et al. v. National Labor Relations Commission, et al.,
G.R. No. 101900, 23 June 1992, 210 SCRA 277; Quezon Electric
Cooperative v. National Labor Relations Commission, et al., G.R. Nos.
79718-22, 12 April 1989, 172 SCRA 89; Carandang v. Dulay, et al., G.R.
No. 90492, 20 August 1990, 188 SCRA 792; De Vera v. National Labor
Relations Commission, G.R. No. 93212, 22 November 1990, 191 SCRA 632.
56 Bongar v. National Labor Relations Commission, 356 Phil. 28; 294
SCRA 536 (1998).
57 Ibid.
58 Philippine Tobacco Flue-Curing and Redrying Corporation v.
National Labor Relations Commission, supra note 39; Gaco v. National
Labor Relations Commission, et al., G.R. No. 104690, 23 February 1994,
230 SCRA 260; Pure Foods Corporation v. National Labor Relations
Commission, G.R. No. 78591, 21 March 1989, 171 SCRA 415; Grolier
International Inc. v. Amansec, G.R. No. 83523, 31 August 1989, 177 SCRA
196.
59 Philippine Tobacco Flue-Curing And Redrying Corporation v.
National Labor Relations Commission, supra note 39.

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60

Evidently, Magno is entitled to (a) full backwages from 16

December 1998 until the finality of this decision; (b)
separation pay equivalent to his one (1) month pay for
every year of service, computed from his first day of
employment on 7 February 1990 up to finality of this
decision less the advanced separation pay of P38,250.00;
and (c) attorney’s fees equivalent to ten percent (10%) of his
total monetary award.
WHEREFORE, foregoing premises considered, the
petition is DENIED and the challenged Decision and
Resolution of the Court of Appeals are AFFIRMED. Costs
against petitioners.
SO ORDERED.

Puno (Chairman), Austria-Martinez, Callejo, Sr.

and Chico-Nazario, JJ., concur.

Petition denied, challenged decision and resolution

affirmed.

Notes.—Abandonment must not be confused with

retrenchment although they both lead to the severance of
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8/5/24, 12:21 AM SUPREME COURT REPORTS ANNOTATED VOLUME 455

the employer-employee relationship. (Trendline Employees

Association-Southern Philippines Federation of Labor
[TEA-SPFL] vs. National Labor Relations Commission, 272
SCRA 172 [1997])

_______________

60 An unqualified award of backwages means that the employee is paid

at the wage rate at the time of his dismissal. Evangelista v. National
Labor Relations Commission, 319 Phil. 299; 249 SCRA 194 (1995).
The base figure to be used in the computation of backwages due to the
employee should include not just the basic salary, but also the regular
allowances that he had been receiving such as the emergency living
allowances and the 13th-month pay mandated under the law. Paramount
Vinyl Product Corporation v. National Labor Relations Commission, G.R.
No. 81200, October 17, 1990, 190 SCRA 525.

175

VOL. 455, APRIL 8, 2005 175

Swagman Hotels and Travel, Inc. vs. Court of Appeals

The phrase “closure or cessation of operation of an

establishment or undertaking” in Article 283 of the Labor
Code applies in cases of both complete and partial cessation
of the business operation. (Philippine Tobacco Flue-Curing
& Redrying Corporation vs. National Labor Relations
Commission, 300 SCRA 37 1998])

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