G.R. No. 84484 November 15, 1989
The Company may terminate the contract at will,
INSULAR LIFE ASSURANCE CO., LTD., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and MELECIO BASIAO,
respondents.
Tirol & Tirol for petitioner.
Enojas, Defensor & Teodosio Cabado Law Offices for private respondent.
NARVASA, J.:
On July 2, 1968, Insular Life Assurance Co., Ltd. (hereinafter simply called the Company) and
Melecio T. Basiao entered into a contract 1 by which:
1. Basiao was "authorized to solicit within the Philippines applications for
insurance policies and annuities in accordance with the existing rules and
regulations" of the Company;
2. he would receive "compensation, in the form of commissions ... as
provided in the Schedule of Commissions" of the contract to "constitute a
part of the consideration of ... (said) agreement;" and
3. the "rules in ... (the Company's) Rate Book and its Agent's Manual, as
well as all its circulars ... and those which may from time to time be
promulgated by it, ..." were made part of said contract.
The contract also contained, among others, provisions governing the relations of the parties,
the duties of the Agent, the acts prohibited to him, and the modes of termination of the
agreement, viz.:
RELATION WITH THE COMPANY. The Agent shall be free to exercise
his own judgment as to time, place and means of soliciting insurance.
Nothing herein contained shall therefore be construed to create the
relationship of employee and employer between the Agent and the
Company. However, the Agent shall observe and conform to all rules and
regulations which the Company may from time to time prescribe.
ILLEGAL AND UNETHICAL PRACTICES. The Agent is prohibited
from giving, directly or indirectly, rebates in any form, or from making
any misrepresentation or over-selling, and, in general, from doing or
committing acts prohibited in the Agent's Manual and in circulars of the
Office of the Insurance Commissioner.
TERMINATION.
without any previous notice to the Agent, for or on account of ...
(explicitly specified causes). ...
Either party may terminate this contract by giving to the other notice in
writing to that effect. It shall become ipso facto cancelled if the Insurance
Commissioner should revoke a Certificate of Authority previously issued
or should the Agent fail to renew his existing Certificate of Authority upon
its expiration. The Agent shall not have any right to any commission on
renewal of premiums that may be paid after the termination of this
agreement for any cause whatsoever, except when the termination is due
to disability or death in line of service. As to commission corresponding to
any balance of the first year's premiums remaining unpaid at the
termination of this agreement, the Agent shall be entitled to it if the
balance of the first year premium is paid, less actual cost of collection,
unless the termination is due to a violation of this contract, involving
criminal liability or breach of trust.
ASSIGNMENT. No Assignment of the Agency herein created or of
commissions or other compensations shall be valid without the prior
consent in writing of the Company. ...
Some four years later, in April 1972, the parties entered into another contract — an Agency
Manager's Contract — and to implement his end of it Basiao organized an agency or office to
which he gave the name M. Basiao and Associates, while concurrently fulfilling his
commitments under the first contract with the Company. 2
In May, 1979, the Company terminated the Agency Manager's Contract. After vainly seeking
a reconsideration, Basiao sued the Company in a civil action and this, he was later to claim,
prompted the latter to terminate also his engagement under the first contract and to stop
payment of his commissions starting April 1, 1980. 3
Basiao thereafter filed with the then Ministry of Labor a complaint 4 against the Company and
its president. Without contesting the termination of the first contract, the complaint sought to
recover commissions allegedly unpaid thereunder, plus attorney's fees. The respondents
disputed the Ministry's jurisdiction over Basiao's claim, asserting that he was not the
Company's employee, but an independent contractor and that the Company had no obligation
to him for unpaid commissions under the terms and conditions of his contract. 5
The Labor Arbiter to whom the case was assigned found for Basiao. He ruled that the
underwriting agreement had established an employer-employee relationship between him and
the Company, and this conferred jurisdiction on the Ministry of Labor to adjudicate his claim.
Said official's decision directed payment of his unpaid commissions "... equivalent to the
balance of the first year's premium remaining unpaid, at the time of his termination, of all the
insurance policies solicited by ... (him) in favor of the respondent company ..." plus 10%
attorney's fees. 6
This decision was, on appeal by the Company, affirmed by the National Labor Relations
Commission. 7 Hence, the present petition for certiorari and prohibition.
The chief issue here is one of jurisdiction: whether, as Basiao asserts, he had become the
Company's employee by virtue of the contract invoked by him, thereby placing his claim for
unpaid commissions within the original and exclusive jurisdiction of the Labor Arbiter under
the provisions of Section 217 of the Labor Code, 8 or, contrarily, as the Company would have
it, that under said contract Basiao's status was that of an independent contractor whose claim
was thus cognizable, not by the Labor Arbiter in a labor case, but by the regular courts in an
ordinary civil action.
The Company's thesis, that no employer-employee relation in the legal and generally accepted
sense existed between it and Basiao, is drawn from the terms of the contract they had entered
into, which, either expressly or by necessary implication, made Basiao the master of his own
time and selling methods, left to his judgment the time, place and means of soliciting
insurance, set no accomplishment quotas and compensated him on the basis of results
obtained. He was not bound to observe any schedule of working hours or report to any regular
station; he could seek and work on his prospects anywhere and at anytime he chose to, and
was free to adopt the selling methods he deemed most effective.
Without denying that the above were indeed the expressed implicit conditions of Basiao's
contract with the Company, the respondents contend that they do not constitute the decisive
determinant of the nature of his engagement, invoking precedents to the effect that the critical
feature distinguishing the status of an employee from that of an independent contractor
is control, that is, whether or not the party who engages the services of another has the power
to control the latter's conduct in rendering such services. Pursuing the argument, the
respondents draw attention to the provisions of Basiao's contract obliging him to "... observe
and conform to all rules and regulations which the Company may from time to time
prescribe ...," as well as to the fact that the Company prescribed the qualifications of
applicants for insurance, processed their applications and determined the amounts of insurance
cover to be issued as indicative of the control, which made Basiao, in legal contemplation, an
employee of the Company. 9
It is true that the "control test" expressed in the following pronouncement of the Court in the
1956 case of Viana vs. Alejo Al-Lagadan10
... In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employees' conduct —
although the latter is the most important element (35 Am. Jur. 445). ...
has been followed and applied in later cases, some fairly recent.  11 Indeed, it is without
question a valid test of the character of a contract or agreement to render service. It should,
however, be obvious that not every form of control that the hiring party reserves to himself
over the conduct of the party hired in relation to the services rendered may be accorded the
effect of establishing an employer-employee relationship between them in the legal or
technical sense of the term. A line must be drawn somewhere, if the recognized distinction
between an employee and an individual contractor is not to vanish altogether. Realistically, it
would be a rare contract of service that gives untrammelled freedom to the party hired and
eschews any intervention whatsoever in his performance of the engagement.
Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be
employed in attaining it, and those that control or fix the methodology and bind or restrict the
party hired to the use of such means. The first, which aim only to promote the result, create no
employer-employee relationship unlike the second, which address both the result and the
means used to achieve it. The distinction acquires particular relevance in the case of an
enterprise affected with public interest, as is the business of insurance, and is on that account
subject to regulation by the State with respect, not only to the relations between insurer and
insured but also to the internal affairs of the insurance company. 12 Rules and regulations
governing the conduct of the business are provided for in the Insurance Code and enforced by
the Insurance Commissioner. It is, therefore, usual and expected for an insurance company to
promulgate a set of rules to guide its commission agents in selling its policies that they may
not run afoul of the law and what it requires or prohibits. Of such a character are the rules
which prescribe the qualifications of persons who may be insured, subject insurance
applications to processing and approval by the Company, and also reserve to the Company the
determination of the premiums to be paid and the schedules of payment. None of these really
invades the agent's contractual prerogative to adopt his own selling methods or to sell
insurance at his own time and convenience, hence cannot justifiably be said to establish an
employer-employee relationship between him and the company.
There is no dearth of authority holding persons similarly placed as respondent Basiao to be
independent contractors, instead of employees of the parties for whom they worked.
In Mafinco Trading Corporation vs. Ople, 13 the Court ruled that a person engaged to sell soft
drinks for another, using a truck supplied by the latter, but with the right to employ his own
workers, sell according to his own methods subject only to prearranged routes, observing no
working hours fixed by the other party and obliged to secure his own licenses and defray his
own selling expenses, all in consideration of a peddler's discount given by the other party for
at least 250 cases of soft drinks sold daily, was not an employee but an independent contractor.
In Investment Planning Corporation of the Philippines us. Social Security System 14 a case
almost on all fours with the present one, this Court held that there was no employer-employee
relationship between a commission agent and an investment company, but that the former was
an independent contractor where said agent and others similarly placed were: (a) paid
compensation in the form of commissions based on percentages of their sales, any balance of
commissions earned being payable to their legal representatives in the event of death or
registration; (b) required to put up performance bonds; (c) subject to a set of rules and
regulations governing the performance of their duties under the agreement with the company
and termination of their services for certain causes; (d) not required to report for work at any
time, nor to devote their time exclusively to working for the company nor to submit a record
of their activities, and who, finally, shouldered their own selling and transportation expenses.
More recently, in Sara vs. NLRC, 15 it was held that one who had been engaged by a rice miller
to buy and sell rice and palay without compensation except a certain percentage of what he
was able to buy or sell, did work at his own pleasure without any supervision or control on the
part of his principal and relied on his own resources in the performance of his work, was a
plain commission agent, an independent contractor and not an employee.
The respondents limit themselves to pointing out that Basiao's contract with the Company
bound him to observe and conform to such rules and regulations as the latter might from time
to time prescribe. No showing has been made that any such rules or regulations were in fact
promulgated, much less that any rules existed or were issued which effectively controlled or
restricted his choice of methods — or the methods themselves — of selling insurance. Absent
such showing, the Court will not speculate that any exceptions or qualifications were imposed
on the express provision of the contract leaving Basiao "... free to exercise his own judgment
as to the time, place and means of soliciting insurance."
The Labor Arbiter's decision makes reference to Basiao's claim of having been connected with
the Company for twenty-five years. Whatever this is meant to imply, the obvious reply would
be that what is germane here is Basiao's status under the contract of July 2, 1968, not the
length of his relationship with the Company.
The Court, therefore, rules that under the contract invoked by him, Basiao was not an
employee of the petitioner, but a commission agent, an independent contractor whose claim
for unpaid commissions should have been litigated in an ordinary civil action. The Labor
Arbiter erred in taking cognizance of, and adjudicating, said claim, being without jurisdiction
to do so, as did the respondent NLRC in affirming the Arbiter's decision. This conclusion
renders it unnecessary and premature to consider Basiao's claim for commissions on its merits.
WHEREFORE, the appealed Resolution of the National Labor Relations Commission is set
aside, and that complaint of private respondent Melecio T. Basiao in RAB Case No. VI-0010-
83 is dismissed. No pronouncement as to costs.
SO ORDERED.
G.R. No. 167622               June 29, 2010
GREGORIO V. TONGKO, Petitioner,
vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A.
VERGEL DE DIOS, Respondents.
RESOLUTION
BRION, J.:
This resolves the Motion for Reconsideration1 dated December 3, 2008 filed by respondent
The Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) to set aside our Decision of
November 7, 2008. In the assailed decision, we found that an employer-employee relationship
existed between Manulife and petitioner Gregorio Tongko and ordered Manulife to pay
Tongko backwages and separation pay for illegal dismissal.
The following facts have been stated in our Decision of November 7, 2008, now under
reconsideration, but are repeated, simply for purposes of clarity.
The contractual relationship between Tongko and Manulife had two basic phases. The first or
initial phase began on July 1, 1977, under a Career Agent’s Agreement (Agreement) that
provided:
It is understood and agreed that the Agent is an independent contractor and nothing contained
herein shall be construed or interpreted as creating an employer-employee relationship
between the Company and the Agent.
xxxx
a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and
other products offered by the Company, and collect, in exchange for provisional receipts
issued by the Agent, money due to or become due to the Company in respect of applications or
policies obtained by or through the Agent or from policyholders allotted by the Company to
the Agent for servicing, subject to subsequent confirmation of receipt of payment by the
Company as evidenced by an Official Receipt issued by the Company directly to the
policyholder.
xxxx
The Company may terminate this Agreement for any breach or violation of any of the
provisions hereof by the Agent by giving written notice to the Agent within fifteen (15) days
from the time of the discovery of the breach. No waiver, extinguishment, abandonment,
withdrawal or cancellation of the right to terminate this Agreement by the Company shall be
construed for any previous failure to exercise its right under any provision of this Agreement.
Either of the parties hereto may likewise terminate his Agreement at any time without cause,
by giving to the other party fifteen (15) days notice in writing. 2
Tongko additionally agreed (1) to comply with all regulations and requirements of Manulife,
and (2) to maintain a standard of knowledge and competency in the sale of Manulife’s
products, satisfactory to Manulife and sufficient to meet the volume of the new business,
required by his Production Club membership.3
The second phase started in 1983 when Tongko was named Unit Manager in Manulife’s Sales
Agency Organization. In 1990, he became a Branch Manager. Six years later (or in 1996),
Tongko became a Regional Sales Manager.4
Tongko’s gross earnings consisted of commissions, persistency income, and management
overrides. Since the beginning, Tongko consistently declared himself self-employed in his
income tax returns. Thus, under oath, he declared his gross business income and deducted his
business expenses to arrive at his taxable business income. Manulife withheld the
corresponding 10% tax on Tongko’s earnings.5
In 2001, Manulife instituted manpower development programs at the regional sales
management level. Respondent Renato Vergel de Dios wrote Tongko a letter dated November
6, 2001 on concerns that were brought up during the October 18, 2001 Metro North Sales
Managers Meeting. De Dios wrote:
The first step to transforming Manulife into a big league player has been very clear – to
increase the number of agents to at least 1,000 strong for a start. This may seem diametrically
opposed to the way Manulife was run when you first joined the organization. Since then,
however, substantial changes have taken place in the organization, as these have been
influenced by developments both from within and without the company.
xxxx
The issues around agent recruiting are central to the intended objectives hence the need for a
Senior Managers’ meeting earlier last month when Kevin O’Connor, SVP-Agency, took to the
floor to determine from our senior agency leaders what more could be done to bolster
manpower development. At earlier meetings, Kevin had presented information where
evidently, your Region was the lowest performer (on a per Manager basis) in terms of
recruiting in 2000 and, as of today, continues to remain one of the laggards in this area.
While discussions, in general, were positive other than for certain comments from your end
which were perceived to be uncalled for, it became clear that a one-on-one meeting with you
was necessary to ensure that you and management, were on the same plane. As gleaned from
some of your previous comments in prior meetings (both in group and one-on-one), it was not
clear that we were proceeding in the same direction.
Kevin held subsequent series of meetings with you as a result, one of which I joined briefly. In
those subsequent meetings you reiterated certain views, the validity of which we challenged
and subsequently found as having no basis.
With such views coming from you, I was a bit concerned that the rest of the Metro North
Managers may be a bit confused as to the directions the company was taking. For this reason, I
sought a meeting with everyone in your management team, including you, to clear the air, so
to speak.
This note is intended to confirm the items that were discussed at the said Metro North
Region’s Sales Managers meeting held at the 7/F Conference room last 18 October.
xxxx
Issue # 2: "Some Managers are unhappy with their earnings and would want to revert to the
position of agents."
This is an often repeated issue you have raised with me and with Kevin. For this reason, I
placed the issue on the table before the rest of your Region’s Sales Managers to verify its
validity. As you must have noted, no Sales Manager came forward on their own to confirm
your statement and it took you to name Malou Samson as a source of the same, an allegation
that Malou herself denied at our meeting and in your very presence.
This only confirms, Greg, that those prior comments have no solid basis at all. I now believe
what I had thought all along, that these allegations were simply meant to muddle the issues
surrounding the inability of your Region to meet its agency development objectives!
Issue # 3: "Sales Managers are doing what the company asks them to do but, in the process,
they earn less."
xxxx
All the above notwithstanding, we had your own records checked and we found that you made
a lot more money in the Year 2000 versus 1999. In addition, you also volunteered the
information to Kevin when you said that you probably will make more money in the Year
2001 compared to Year 2000. Obviously, your above statement about making "less money"
did not refer to you but the way you argued this point had us almost believing that you were
spouting the gospel of truth when you were not. x x x
xxxx
All of a sudden, Greg, I have become much more worried about your ability to lead this group
towards the new direction that we have been discussing these past few weeks, i.e., Manulife’s
goal to become a major agency-led distribution company in the Philippines. While as you
claim, you have not stopped anyone from recruiting, I have never heard you proactively push
for greater agency recruiting. You have not been proactive all these years when it comes to
agency growth.
xxxx
I cannot afford to see a major region fail to deliver on its developmental goals next year and
so, we are making the following changes in the interim:
1. You will hire at your expense a competent assistant who can unload you of much of the
routine tasks which can be easily delegated. This assistant should be so chosen as to
complement your skills and help you in the areas where you feel "may not be your cup of tea."
You have stated, if not implied, that your work as Regional Manager may be too taxing for
you and for your health. The above could solve this problem.
xxxx
2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the
North Star Branch (NSB) in autonomous fashion. x x x
I have decided to make this change so as to reduce your span of control and allow you to
concentrate more fully on overseeing the remaining groups under Metro North, your Central
Unit and the rest of the Sales Managers in Metro North. I will hold you solely responsible for
meeting the objectives of these remaining groups.
xxxx
The above changes can end at this point and they need not go any further. This, however, is
entirely dependent upon you. But you have to understand that meeting corporate objectives by
everyone is primary and will not be compromised. We are meeting tough challenges next year,
and I would want everybody on board. Any resistance or holding back by anyone will be dealt
with accordingly.6
Subsequently, de Dios wrote Tongko another letter, dated December 18, 2001, terminating
Tongko’s services:
It would appear, however, that despite the series of meetings and communications, both one-
on-one meetings between yourself and SVP Kevin O’Connor, some of them with me, as well
as group meetings with your Sales Managers, all these efforts have failed in helping you align
your directions with Management’s avowed agency growth policy.
xxxx
On account thereof, Management is exercising its prerogative under Section 14 of your Agents
Contract as we are now issuing this notice of termination of your Agency Agreement with us
effective fifteen days from the date of this letter. 7
Tongko responded by filing an illegal dismissal complaint with the National Labor Relations
Commission (NLRC) Arbitration Branch. He essentially alleged – despite the clear terms of
the letter terminating his Agency Agreement – that he was Manulife’s employee before he was
illegally dismissed.8
Thus, the threshold issue is the existence of an employment relationship. A finding that none
exists renders the question of illegal dismissal moot; a finding that an employment relationship
exists, on the other hand, necessarily leads to the need to determine the validity of the
termination of the relationship.
A. Tongko’s Case for Employment Relationship
Tongko asserted that as Unit Manager, he was paid an annual over-rider not exceeding
₱50,000.00, regardless of production levels attained and exclusive of commissions and
bonuses. He also claimed that as Regional Sales Manager, he was given a travel and
entertainment allowance of ₱36,000.00 per year in addition to his overriding commissions; he
was tasked with numerous administrative functions and supervisory authority over Manulife’s
employees, aside from merely selling policies and recruiting agents for Manulife; and he
recommended and recruited insurance agents subject to vetting and approval by Manulife. He
further alleges that he was assigned a definite place in the Manulife offices when he was not in
the field – at the 3rd Floor, Manulife Center, 108 Tordesillas corner Gallardo Sts., Salcedo
Village, Makati City – for which he never paid any rental. Manulife provided the office
equipment he used, including tables, chairs, computers and printers (and even office
stationery), and paid for the electricity, water and telephone bills. As Regional Sales Manager,
Tongko additionally asserts that he was required to follow at least three codes of conduct. 9
B. Manulife’s Case – Agency Relationship with Tongko
Manulife argues that Tongko had no fixed wage or salary. Under the Agreement, Tongko was
paid commissions of varying amounts, computed based on the premium paid in full and
actually received by Manulife on policies obtained through an agent. As sales manager,
Tongko was paid overriding sales commission derived from sales made by agents under his
unit/structure/branch/region. Manulife also points out that it deducted and withheld a 10% tax
from all commissions Tongko received; Tongko even declared himself to be self-employed
and consistently paid taxes as such—i.e., he availed of tax deductions such as ordinary and
necessary trade, business and professional expenses to which a business is entitled.
Manulife asserts that the labor tribunals have no jurisdiction over Tongko’s claim as he was
not its employee as characterized in the four-fold test and our ruling in  Carungcong v.
National Labor Relations Commission.10
The Conflicting Rulings of the Lower Tribunals
The labor arbiter decreed that no employer-employee relationship existed between the parties.
However, the NLRC reversed the labor arbiter’s decision on appeal; it found the existence of
an employer-employee relationship and concluded that Tongko had been illegally dismissed.
In the petition for certiorari with the Court of Appeals (CA), the appellate court found that the
NLRC gravely abused its discretion in its ruling and reverted to the labor arbiter’s decision
that no employer-employee relationship existed between Tongko and Manulife.
Our Decision of November 7, 2008
In our Decision of November 7, 2008, we reversed the CA ruling and found that an
employment relationship existed between Tongko and Manulife. We concluded that Tongko is
Manulife’s employee for the following reasons:
1. Our ruling in the first Insular 11 case did not foreclose the possibility of an
insurance agent becoming an employee of an insurance company; if evidence exists
showing that the company promulgated rules or regulations that effectively
controlled or restricted an insurance agent’s choice of methods or the methods
themselves in selling insurance, an employer-employee relationship would be
present. The determination of the existence of an employer-employee relationship is
thus on a case-to-case basis depending on the evidence on record.
2. Manulife had the power of control over Tongko, sufficient to characterize him as
an employee, as shown by the following indicators:
2.1 Tongko undertook to comply with Manulife’s rules, regulations and
other requirements, i.e., the different codes of conduct such as the Agent
Code of Conduct, the Manulife Financial Code of Conduct, and the
Financial Code of Conduct Agreement;
2.2 The various affidavits of Manulife’s insurance agents and managers,
who occupied similar positions as Tongko, showed that they performed
administrative duties that established employment with Manulife; 12 and
2.3 Tongko was tasked to recruit some agents in addition to his other
administrative functions. De Dios’ letter harped on the direction Manulife
intended to take, viz., greater agency recruitment as the primary means to
sell more policies; Tongko’s alleged failure to follow this directive led to
the termination of his employment with Manulife.
The Motion for Reconsideration
Manulife disagreed with our Decision and filed the present motion for reconsideration on the
following GROUNDS:
1. The November 7[, 2008] Decision violates Manulife’s right to due process by: (a)
confining the review only to the issue of "control" and utterly disregarding all the
other issues that had been joined in this case; (b) mischaracterizing the divergence of
conclusions between the CA and the NLRC decisions as confined only to that on
"control"; (c) grossly failing to consider the findings and conclusions of the CA on
the majority of the material evidence, especially [Tongko’s] declaration in his
income tax returns that he was a "business person" or "self-employed"; and (d)
allowing [Tongko] to repudiate his sworn statement in a public document.
2. The November 7[, 2008] Decision contravenes settled rules in contract law and
agency, distorts not only the legal relationships of agencies to sell but also
distributorship and franchising, and ignores the constitutional and policy context of
contract law vis-à-vis labor law.
3. The November 7[, 2008] Decision ignores the findings of the CA on the three
elements of the four-fold test other than the "control" test, reverses well-settled
doctrines of law on employer-employee relationships, and grossly misapplies the
"control test," by selecting, without basis, a few items of evidence to the exclusion
of more material evidence to support its conclusion that there is "control."
4. The November 7[, 2008] Decision is judicial legislation, beyond the scope
authorized by Articles 8 and 9 of the Civil Code, beyond the powers granted to this
Court under Article VIII, Section 1 of the Constitution and contravenes through
judicial legislation, the constitutional prohibition against impairment of contracts
under Article III, Section 10 of the Constitution.
5. For all the above reasons, the November 7[, 2008] Decision made unsustainable
and reversible errors, which should be corrected, in concluding that Respondent
Manulife and Petitioner had an employer-employee relationship, that Respondent
Manulife illegally dismissed Petitioner, and for consequently ordering Respondent
Manulife to pay Petitioner backwages, separation pay, nominal damages and
attorney’s fees.13
THE COURT’S RULING
A. The Insurance and the Civil Codes; the Parties’ Intent and Established
Industry Practices
We cannot consider the present case purely from a labor law perspective, oblivious that the
factual antecedents were set in the insurance industry so that the Insurance Code primarily
governs. Chapter IV, Title 1 of this Code is wholly devoted to "Insurance Agents and Brokers"
and specifically defines the agents and brokers relationship with the insurance company and
how they are governed by the Code and regulated by the Insurance Commission.
The Insurance Code, of course, does not wholly regulate the "agency" that it speaks of, as
agency is a civil law matter governed by the Civil Code. Thus, at the very least, three sets of
laws – namely, the Insurance Code, the Labor Code and the Civil Code – have to be
considered in looking at the present case. Not to be forgotten, too, is the Agreement (partly
reproduced on page 2 of this Dissent and which no one disputes) that the parties adopted to
govern their relationship for purposes of selling the insurance the company offers. To forget
these other laws is to take a myopic view of the present case and to add to the uncertainties
that now exist in considering the legal relationship between the insurance company and its
"agents."
The main issue of whether an agency or an employment relationship exists depends on the
incidents of the relationship. The Labor Code concept of "control" has to be compared and
distinguished with the "control" that must necessarily exist in a principal-agent relationship.
The principal cannot but also have his or her say in directing the course of the principal-agent
relationship, especially in cases where the company-representative relationship in the
insurance industry is an agency.
a. The laws on insurance and agency
The business of insurance is a highly regulated commercial activity in the country, in terms
particularly of who can be in the insurance business, who can act for and in behalf of an
insurer, and how these parties shall conduct themselves in the insurance business. Section 186
of the Insurance Code provides that "No person, partnership, or association of persons shall
transact any insurance business in the Philippines except as agent of a person or corporation
authorized to do the business of insurance in the Philippines." Sections 299 and 300 of the
Insurance Code on Insurance Agents and Brokers, among other provisions, provide:
Section 299. No insurance company doing business in the Philippines, nor any agent thereof,
shall pay any commission or other compensation to any person for services in obtaining
insurance, unless such person shall have first procured from the Commissioner a license to act
as an insurance agent of such company or as an insurance broker as hereinafter provided.
No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the
Philippines or any agent thereof, without first procuring a license so to act from the
Commissioner x x x The Commissioner shall satisfy himself as to the competence and
trustworthiness of the applicant and shall have the right to refuse to issue or renew and to
suspend or revoke any such license in his discretion.1avvphi1.net
Section 300. Any person who for compensation solicits or obtains insurance on behalf of any
insurance company or transmits for a person other than himself an application for a policy or
contract of insurance to or from such company or offers or assumes to act in the negotiating of
such insurance shall be an insurance agent within the intent of this section and shall thereby
become liable to all the duties, requirements, liabilities and penalties to which an insurance
agent is subject.
The application for an insurance agent’s license requires a written examination, and the
applicant must be of good moral character and must not have been convicted of a crime
involving moral turpitude.14 The insurance agent who collects premiums from an insured
person for remittance to the insurance company does so in a fiduciary capacity, and an
insurance company which delivers an insurance policy or contract to an authorized agent is
deemed to have authorized the agent to receive payment on the company’s behalf. 15 Section
361 further prohibits the offer, negotiation, or collection of any amount other than that
specified in the policy and this covers any rebate from the premium or any special favor or
advantage in the dividends or benefit accruing from the policy.
Thus, under the Insurance Code, the agent must, as a matter of qualification, be licensed and
must also act within the parameters of the authority granted under the license and under the
contract with the principal. Other than the need for a license, the agent is limited in the way he
offers and negotiates for the sale of the company’s insurance products, in his collection
activities, and in the delivery of the insurance contract or policy. Rules regarding the desired
results (e.g., the required volume to continue to qualify as a company agent, rules to check on
the parameters on the authority given to the agent, and rules to ensure that industry, legal and
ethical rules are followed) are built-in elements of control specific to an insurance agency and
should not and cannot be read as elements of control that attend an employment relationship
governed by the Labor Code.
On the other hand, the Civil Code defines an agent as a "person [who] binds himself to render
some service or to do something in representation or on behalf of another, with the consent or
authority of the latter."16 While this is a very broad definition that on its face may even
encompass an employment relationship, the distinctions between agency and employment are
sufficiently established by law and jurisprudence.
Generally, the determinative element is the control exercised over the one rendering service.
The employer controls the employee both in the results and in the means and manner of
achieving this result. The principal in an agency relationship, on the other hand, also has the
prerogative to exercise control over the agent in undertaking the assigned task based on the
parameters outlined in the pertinent laws.
Under the general law on agency as applied to insurance, an agency must be express in light of
the need for a license and for the designation by the insurance company. In the present case,
the Agreement fully serves as grant of authority to Tongko as Manulife’s insurance
agent.17 This agreement is supplemented by the company’s agency practices and usages, duly
accepted by the agent in carrying out the agency. 18 By authority of the Insurance Code, an
insurance agency is for compensation,19 a matter the Civil Code Rules on Agency presumes in
the absence of proof to the contrary. 20 Other than the compensation, the principal is bound to
advance to, or to reimburse, the agent the agreed sums necessary for the execution of the
agency.21 By implication at least under Article 1994 of the Civil Code, the principal can
appoint two or more agents to carry out the same assigned tasks, 22 based necessarily on the
specific instructions and directives given to them.
With particular relevance to the present case is the provision that "In the execution of the
agency, the agent shall act in accordance with the instructions of the principal." 23 This
provision is pertinent for purposes of the necessary control that the principal exercises over the
agent in undertaking the assigned task, and is an area where the instructions can intrude into
the labor law concept of control so that minute consideration of the facts is necessary. A
related article is Article 1891 of the Civil Code which binds the agent to render an account of
his transactions to the principal.
B. The Cited Case
The Decision of November 7, 2008 refers to the first Insular and Grepalife cases to establish
that the company rules and regulations that an agent has to comply with are indicative of an
employer-employee relationship.24 The Dissenting Opinions of Justice Presbitero Velasco, Jr.
and Justice Conchita Carpio Morales also cite Insular Life Assurance Co. v. National Labor
Relations Commission (second Insular case)25 to support the view that Tongko is Manulife’s
employee. On the other hand, Manulife cites the Carungcong case and AFP Mutual Benefit
Association, Inc. v. National Labor Relations Commission (AFPMBAI case) 26 to support its
allegation that Tongko was not its employee.
A caveat has been given above with respect to the use of the rulings in the cited cases because
none of them is on all fours with the present case; the uniqueness of the factual situation of the
present case prevents it from being directly and readily cast in the mold of the cited cases.
These cited cases are themselves different from one another; this difference underscores the
need to read and quote them in the context of their own factual situations.
The present case at first glance appears aligned with the facts in the Carungcong, the
Grepalife, and the second Insular Life cases. A critical difference, however, exists as these
cited cases dealt with the proper legal characterization of a subsequent management contract
that superseded the original agency contract between the insurance company and its agent.
Carungcong dealt with a subsequent Agreement making Carungcong a New Business
Manager that clearly superseded the Agreement designating Carungcong as an agent
empowered to solicit applications for insurance. The Grepalife case, on the other hand, dealt
with the proper legal characterization of the appointment of the Ruiz brothers to positions
higher than their original position as insurance agents. Thus, after analyzing the duties and
functions of the Ruiz brothers, as these were enumerated in their contracts, we concluded that
the company practically dictated the manner by which the Ruiz brothers were to carry out their
jobs. Finally, the second Insular Life case dealt with the implications of de los Reyes’
appointment as acting unit manager which, like the subsequent contracts in the Carungcong
and the Grepalife cases, was clearly defined under a subsequent contract. In all these cited
cases, a determination of the presence of the Labor Code element of control was made on the
basis of the stipulations of the subsequent contracts.
In stark contrast with the Carungcong, the Grepalife, and the second Insular Life cases, the
only contract or document extant and submitted as evidence in the present case is the
Agreement – a pure agency agreement in the Civil Code context similar to the original
contract in the first Insular Life case and the contract in the AFPMBAI case. And while
Tongko was later on designated unit manager in 1983, Branch Manager in 1990, and Regional
Sales Manager in 1996, no formal contract regarding these undertakings appears in the records
of the case. Any such contract or agreement, had there been any, could have at the very least
provided the bases for properly ascertaining the juridical relationship established between the
parties.
These critical differences, particularly between the present case and the Grepalife and the
second Insular Life cases, should therefore immediately drive us to be more prudent and
cautious in applying the rulings in these cases.
C. Analysis of the Evidence
c.1. The Agreement
The primary evidence in the present case is the July 1, 1977 Agreement that governed and
defined the parties’ relations until the Agreement’s termination in 2001. This Agreement stood
for more than two decades and, based on the records of the case, was never modified or
novated. It assumes primacy because it directly dealt with the nature of the parties’
relationship up to the very end; moreover, both parties never disputed its authenticity or the
accuracy of its terms.
By the Agreement’s express terms, Tongko served as an "insurance agent" for Manulife, not
as an employee. To be sure, the Agreement’s legal characterization of the nature of the
relationship cannot be conclusive and binding on the courts; as the dissent clearly stated, the
characterization of the juridical relationship the Agreement embodied is a matter of law that is
for the courts to determine. At the same time, though, the characterization the parties gave to
their relationship in the Agreement cannot simply be brushed aside because it embodies their
intent at the time they entered the Agreement, and they were governed by this understanding
throughout their relationship. At the very least, the provision on the absence of employer-
employee relationship between the parties can be an aid in considering the Agreement and its
implementation, and in appreciating the other evidence on record.
The parties’ legal characterization of their intent, although not conclusive, is critical in this
case because this intent is not illegal or outside the contemplation of law, particularly of the
Insurance and the Civil Codes. From this perspective, the provisions of the Insurance Code
cannot be disregarded as this Code (as heretofore already noted) expressly envisions a
principal-agent relationship between the insurance company and the insurance agent in the
sale of insurance to the public.1awph!1 For this reason, we can take judicial notice that as a
matter of Insurance Code-based business practice, an agency relationship prevails in the
insurance industry for the purpose of selling insurance. The Agreement, by its express terms,
is in accordance with the Insurance Code model when it provided for a principal-agent
relationship, and thus cannot lightly be set aside nor simply be considered as an agreement that
does not reflect the parties’ true intent. This intent, incidentally, is reinforced by the system of
compensation the Agreement provides, which likewise is in accordance with the production-
based sales commissions the Insurance Code provides.
Significantly, evidence shows that Tongko’s role as an insurance agent never changed during
his relationship with Manulife. If changes occurred at all, the changes did not appear to be in
the nature of their core relationship. Tongko essentially remained an agent, but moved up in
this role through Manulife’s recognition that he could use other agents approved by Manulife,
but operating under his guidance and in whose commissions he had a share. For want of a
better term, Tongko perhaps could be labeled as a "lead agent" who guided under his wing
other Manulife agents similarly tasked with the selling of Manulife insurance.
Like Tongko, the evidence suggests that these other agents operated under their own agency
agreements. Thus, if Tongko’s compensation scheme changed at all during his relationship
with Manulife, the change was solely for purposes of crediting him with his share in the
commissions the agents under his wing generated. As an agent who was recruiting and guiding
other insurance agents, Tongko likewise moved up in terms of the reimbursement of expenses
he incurred in the course of his lead agency, a prerogative he enjoyed pursuant to Article 1912
of the Civil Code. Thus, Tongko received greater reimbursements for his expenses and was
even allowed to use Manulife facilities in his interactions with the agents, all of whom were, in
the strict sense, Manulife agents approved and certified as such by Manulife with the
Insurance Commission.
That Tongko assumed a leadership role but nevertheless wholly remained an agent is the
inevitable conclusion that results from the reading of the Agreement (the only agreement on
record in this case) and his continuing role thereunder as sales agent, from the perspective of
the Insurance and the Civil Codes and in light of what Tongko himself attested to as his role as
Regional Sales Manager. To be sure, this interpretation could have been contradicted if other
agreements had been submitted as evidence of the relationship between Manulife and Tongko
on the latter’s expanded undertakings. In the absence of any such evidence, however, this
reading – based on the available evidence and the applicable insurance and civil law
provisions – must stand, subject only to objective and evidentiary Labor Code tests on the
existence of an employer-employee relationship.
In applying such Labor Code tests, however, the enforcement of the Agreement during the
course of the parties’ relationship should be noted. From 1977 until the termination of the
Agreement, Tongko’s occupation was to sell Manulife’s insurance policies and products. Both
parties acquiesced with the terms and conditions of the Agreement. Tongko, for his part,
accepted all the benefits flowing from the Agreement, particularly the generous commissions.
Evidence indicates that Tongko consistently clung to the view that he was an independent
agent selling Manulife insurance products since he invariably declared himself a business or
self-employed person in his income tax returns. This consistency with, and action made
pursuant to the Agreement were pieces of evidence that were never mentioned nor
considered in our Decision of November 7, 2008. Had they been considered, they could, at
the very least, serve as Tongko’s admissions against his interest. Strictly speaking, Tongko’s
tax returns cannot but be legally significant because he certified under oath the amount he
earned as gross business income, claimed business deductions, leading to his net taxable
income. This should be evidence of the first order that cannot be brushed aside by a mere
denial. Even on a layman’s view that is devoid of legal considerations, the extent of his annual
income alone renders his claimed employment status doubtful. 27
Hand in hand with the concept of admission against interest in considering the tax returns, the
concept of estoppel – a legal and equitable concept 28 – necessarily must come into play.
Tongko’s previous admissions in several years of tax returns as an independent agent, as
against his belated claim that he was all along an employee, are too diametrically opposed to
be simply dismissed or ignored. Interestingly, Justice Velasco’s dissenting opinion states that
Tongko was forced to declare himself a business or self-employed person by Manulife’s
persistent refusal to recognize him as its employee. 29 Regrettably, the dissent has shown no
basis for this conclusion, an understandable omission since no evidence in fact exists on
this point in the records of the case. In fact, what the evidence shows is Tongko’s full
conformity with, and action as, an independent agent until his relationship with Manulife took
a bad turn.
Another interesting point the dissent raised with respect to the Agreement is its conclusion that
the Agreement negated any employment relationship between Tongko and Manulife so that
the commissions he earned as a sales agent should not be considered in the determination of
the backwages and separation pay that should be given to him. This part of the dissent is
correct although it went on to twist this conclusion by asserting that Tongko had dual roles in
his relationship with Manulife; he was an agent, not an employee, in so far as he sold
insurance for Manulife, but was an employee in his capacity as a manager. Thus, the dissent
concluded that Tongko’s backwages should only be with respect to his role as Manulife’s
manager.
The conclusion with respect to Tongko’s employment as a manager is, of course, unacceptable
for the legal, factual and practical reasons discussed in this Resolution. In brief, the factual
reason is grounded on the lack of evidentiary support of the conclusion that Manulife
exercised control over Tongko in the sense understood in the Labor Code. The legal reason,
partly based on the lack of factual basis, is the erroneous legal conclusion that Manulife
controlled Tongko and was thus its employee. The practical reason, on the other hand, is the
havoc that the dissent’s unwarranted conclusion would cause the insurance industry that, by
the law’s own design, operated along the lines of principal-agent relationship in the sale of
insurance.
c.2. Other Evidence of Alleged Control
A glaring evidentiary gap for Tongko in this case is the lack of evidence on record showing
that Manulife ever exercised means-and-manner control, even to a limited extent, over Tongko
during his ascent in Manulife’s sales ladder. In 1983, Tongko was appointed unit manager.
Inexplicably, Tongko never bothered to present any evidence at all on what this designation
meant. This also holds true for Tongko’s appointment as branch manager in 1990, and as
Regional Sales Manager in 1996. The best evidence of control – the agreement or directive
relating to Tongko’s duties and responsibilities – was never introduced as part of the records
of the case. The reality is, prior to de Dios’ letter, Manulife had practically left Tongko alone
not only in doing the business of selling insurance, but also in guiding the agents under his
wing. As discussed below, the alleged directives covered by de Dios’ letter, heretofore quoted
in full, were policy directions and targeted results that the company wanted Tongko and the
other sales groups to realign with in their own selling activities. This is the reality that the
parties’ presented evidence consistently tells us.
What, to Tongko, serve as evidence of labor law control are the codes of conduct that
Manulife imposes on its agents in the sale of insurance. The mere presentation of codes or of
rules and regulations, however, is not per se indicative of labor law control as the law and
jurisprudence teach us.
As already recited above, the Insurance Code imposes obligations on both the insurance
company and its agents in the performance of their respective obligations under the Code,
particularly on licenses and their renewals, on the representations to be made to potential
customers, the collection of premiums, on the delivery of insurance policies, on the matter of
compensation, and on measures to ensure ethical business practice in the industry.
The general law on agency, on the other hand, expressly allows the principal an element of
control over the agent in a manner consistent with an agency relationship. In this sense, these
control measures cannot be read as indicative of labor law control. Foremost among these are
the directives that the principal may impose on the agent to achieve the assigned tasks, to the
extent that they do not involve the means and manner of undertaking these tasks. The law
likewise obligates the agent to render an account; in this sense, the principal may impose on
the agent specific instructions on how an account shall be made, particularly on the matter of
expenses and reimbursements. To these extents, control can be imposed through rules and
regulations without intruding into the labor law concept of control for purposes of
employment.
From jurisprudence, an important lesson that the first Insular Life case teaches us is that a
commitment to abide by the rules and regulations of an insurance company does not ipso facto
make the insurance agent an employee. Neither do guidelines somehow restrictive of the
insurance agent’s conduct necessarily indicate "control" as this term is defined in
jurisprudence. Guidelines indicative of labor law "control," as the first Insular Life case
tells us, should not merely relate to the mutually desirable result intended by the
contractual relationship; they must have the nature of dictating the means or methods to
be employed in attaining the result, or of fixing the methodology and of binding or restricting
the party hired to the use of these means. In fact, results-wise, the principal can impose
production quotas and can determine how many agents, with specific territories, ought to be
employed to achieve the company’s objectives. These are management policy decisions that
the labor law element of control cannot reach. Our ruling in these respects in the first Insular
Life case was practically reiterated in Carungcong. Thus, as will be shown more fully below,
Manulife’s codes of conduct, 30 all of which do not intrude into the insurance agents’ means
and manner of conducting their sales and only control them as to the desired results and
Insurance Code norms, cannot be used as basis for a finding that the labor law concept of
control existed between Manulife and Tongko.
The dissent considers the imposition of administrative and managerial functions on Tongko as
indicative of labor law control; thus, Tongko as manager, but not as insurance agent, became
Manulife’s employee. It drew this conclusion from what the other Manulife managers
disclosed in their affidavits (i.e., their enumerated administrative and managerial functions)
and after comparing these statements with the managers in Grepalife. The dissent compared
the control exercised by Manulife over its managers in the present case with the control the
managers in the Grepalife case exercised over their employees by presenting the following
matrix:31
Duties of Manulife’s Manager Duties of Grepalife’s Managers/Supervisors
- to render or recommend prospective - train understudies for the position of district manager
agents to be licensed, trained and
contracted to sell Manulife products
and who will be part of my Unit
- to coordinate activities of the agents - properly account, record and document the
under [the managers’] Unit in [the company’s funds, spot-check and audit the work of the
agents’] daily, weekly and monthly zone supervisors, x x x follow up the submission of
selling activities, making sure that their weekly remittance reports of the debit agents and zone
respective sales targets are met; supervisors
- to conduct periodic training sessions - direct and supervise the sales activities of the debit
for [the] agents to further enhance their agents under him, x x x undertake and discharge the
sales skill; and functions of absentee debit agents, spot-check the
record of debit agents, and insure proper
- to assist [the] agents with their sales documentation of sales and collections of debit agents.
activities by way of joint fieldwork,
consultations and one-on-one
evaluation and analysis of particular
accounts
Aside from these affidavits however, no other evidence exists regarding the effects of
Tongko’s additional roles in Manulife’s sales operations on the contractual relationship
between them.
To the dissent, Tongko’s administrative functions as recruiter, trainer, or supervisor of other
sales agents constituted a substantive alteration of Manulife’s authority over Tongko and the
performance of his end of the relationship with Manulife. We could not deny though that
Tongko remained, first and foremost, an insurance agent, and that his additional role as
Branch Manager did not lessen his main and dominant role as insurance agent; this role
continued to dominate the relations between Tongko and Manulife even after Tongko assumed
his leadership role among agents. This conclusion cannot be denied because it proceeds from
the undisputed fact that Tongko and Manulife never altered their July 1, 1977 Agreement, a
distinction the present case has with the contractual changes made in the second Insular Life
case. Tongko’s results-based commissions, too, attest to the primacy he gave to his role as
insurance sales agent.
The dissent apparently did not also properly analyze and appreciate the great qualitative
difference that exists between:
 the Manulife managers’ role is to coordinate activities of the agents under the
managers’ Unit in the agents’ daily, weekly, and monthly selling activities, making
sure that their respective sales targets are met.
 the District Manager’s duty in Grepalife is to properly account, record, and
document the company's funds, spot-check and audit the work of the zone
supervisors, conserve the company's business in the district through
"reinstatements," follow up the submission of weekly remittance reports of the debit
agents and zone supervisors, preserve company property in good condition, train
understudies for the position of district managers, and maintain his quota of sales
(the failure of which is a ground for termination).
 the Zone Supervisor’s (also in Grepalife) has the duty to direct and supervise the
sales activities of the debit agents under him, conserve company property through
"reinstatements," undertake and discharge the functions of absentee debit agents,
spot-check the records of debit agents, and insure proper documentation of sales
and collections by the debit agents.
These job contents are worlds apart in terms of "control." In Grepalife, the details of how to do
the job are specified and pre-determined; in the present case, the operative words are the "sales
target," the methodology being left undefined except to the extent of being "coordinative." To
be sure, a "coordinative" standard for a manager cannot be indicative of control; the standard
only essentially describes what a Branch Manager is – the person in the lead who orchestrates
activities within the group. To "coordinate," and thereby to lead and to orchestrate, is not so
much a matter of control by Manulife; it is simply a statement of a branch manager’s role in
relation with his agents from the point of view of Manulife whose business Tongko’s sales
group carries.
A disturbing note, with respect to the presented affidavits and Tongko’s alleged administrative
functions, is the selective citation of the portions supportive of an employment relationship
and the consequent omission of portions leading to the contrary conclusion. For example, the
following portions of the affidavit of Regional Sales Manager John Chua, with counterparts in
the other affidavits, were not brought out in the Decision of November 7, 2008, while the
other portions suggesting labor law control were highlighted. Specifically, the following
portions of the affidavits were not brought out:32
1.a. I have no fixed wages or salary since my services are compensated by way of
commissions based on the computed premiums paid in full on the policies obtained
thereat;
1.b. I have no fixed working hours and employ my own method in soliticing
insurance at a time and place I see fit;
1.c. I have my own assistant and messenger who handle my daily work load;
1.d. I use my own facilities, tools, materials and supplies in carrying out my business
of selling insurance;
xxxx
6. I have my own staff that handles the day to day operations of my office;
7. My staff are my own employees and received salaries from me;
xxxx
9. My commission and incentives are all reported to the Bureau of Internal Revenue
(BIR) as income by a self-employed individual or professional with a ten (10)
percent creditable withholding tax. I also remit monthly for professionals.
These statements, read with the above comparative analysis of the Manulife and
the Grepalife cases, would have readily yielded the conclusion that no employer-employee
relationship existed between Manulife and Tongko.
Even de Dios’ letter is not determinative of control as it indicates the least amount of intrusion
into Tongko’s exercise of his role as manager in guiding the sales agents. Strictly viewed, de
Dios’ directives are merely operational guidelines on how Tongko could align his operations
with Manulife’s re-directed goal of being a "big league player." The method is to expand
coverage through the use of more agents. This requirement for the recruitment of more agents
is not a means-and-method control as it relates, more than anything else, and is directly
relevant, to Manulife’s objective of expanded business operations through the use of a bigger
sales force whose members are all on a principal-agent relationship. An important point to
note here is that Tongko was not supervising regular full-time employees of Manulife engaged
in the running of the insurance business; Tongko was effectively guiding his corps of sales
agents, who are bound to Manulife through the same Agreement that he had with Manulife, all
the while sharing in these agents’ commissions through his overrides. This is the lead agent
concept mentioned above for want of a more appropriate term, since the title of Branch
Manager used by the parties is really a misnomer given that what is involved is not a specific
regular branch of the company but a corps of non-employed agents, defined in terms of
covered territory, through which the company sells insurance. Still another point to consider is
that Tongko was not even setting policies in the way a regular company manager does;
company aims and objectives were simply relayed to him with suggestions on how these
objectives can be reached through the expansion of a non-employee sales force.
Interestingly, a large part of de Dios’ letter focused on income, which Manulife demonstrated,
in Tongko’s case, to be unaffected by the new goal and direction the company had set. Income
in insurance agency, of course, is dependent on results, not on the means and manner of
selling – a matter for Tongko and his agents to determine and an area into which Manulife had
not waded. Undeniably, de Dios’ letter contained a directive to secure a competent assistant at
Tongko’s own expense. While couched in terms of a directive, it cannot strictly be understood
as an intrusion into Tongko’s method of operating and supervising the group of agents within
his delineated territory. More than anything else, the "directive" was a signal to Tongko that
his results were unsatisfactory, and was a suggestion on how Tongko’s perceived weakness in
delivering results could be remedied. It was a solution, with an eye on results, for a
consistently underperforming group; its obvious intent was to save Tongko from the result that
he then failed to grasp – that he could lose even his own status as an agent, as he in fact
eventually did.
The present case must be distinguished from the second Insular Life case that showed the
hallmarks of an employer-employee relationship in the management system established. These
were: exclusivity of service, control of assignments and removal of agents under the private
respondent’s unit, and furnishing of company facilities and materials as well as capital
described as Unit Development Fund. All these are obviously absent in the present case. If
there is a commonality in these cases, it is in the collection of premiums which is a basic
authority that can be delegated to agents under the Insurance Code.
As previously discussed, what simply happened in Tongko’s case was the grant of an
expanded sales agency role that recognized him as leader amongst agents in an area that
Manulife defined. Whether this consequently resulted in the establishment of an
employment relationship can be answered by concrete evidence that corresponds to the
following questions:
 as lead agent, what were Tongko’s specific functions and the terms of his additional
engagement;
 was he paid additional compensation as a so-called Area Sales Manager, apart from
the commissions he received from the insurance sales he generated;
 what can be Manulife’s basis to terminate his status as lead agent;
 can Manulife terminate his role as lead agent separately from his agency contract;
and
 to what extent does Manulife control the means and methods of Tongko’s role as
lead agent?
The answers to these questions may, to some extent, be deduced from the evidence at hand, as
partly discussed above. But strictly speaking, the questions cannot definitively and concretely
be answered through the evidence on record. The concrete evidence required to settle these
questions is simply not there, since only the Agreement and the anecdotal affidavits have been
marked and submitted as evidence.
Given this anemic state of the evidence, particularly on the requisite confluence of the factors
determinative of the existence of employer-employee relationship, the Court cannot
conclusively find that the relationship exists in the present case, even if such relationship only
refers to Tongko’s additional functions. While a rough deduction can be made, the answer will
not be fully supported by the substantial evidence needed.
Under this legal situation, the only conclusion that can be made is that the absence of evidence
showing Manulife’s control over Tongko’s contractual duties points to the absence of any
employer-employee relationship between Tongko and Manulife. In the context of the
established evidence, Tongko remained an agent all along; although his subsequent duties
made him a lead agent with leadership role, he was nevertheless only an agent whose basic
contract yields no evidence of means-and-manner control.
This conclusion renders unnecessary any further discussion of the question of whether an
agent may simultaneously assume conflicting dual personalities. But to set the record straight,
the concept of a single person having the dual role of agent and employee while doing the
same task is a novel one in our jurisprudence, which must be viewed with caution especially
when it is devoid of any jurisprudential support or precedent. The quoted portions in Justice
Carpio-Morales’ dissent,33 borrowed from both the Grepalife and the second Insular Life
cases, to support the duality approach of the Decision of November 7, 2008, are regrettably far
removed from their context – i.e., the cases’ factual situations, the issues they decided and the
totality of the rulings in these cases – and cannot yield the conclusions that the dissenting
opinions drew.
The Grepalife case dealt with the sole issue of whether the Ruiz brothers’ appointment as zone
supervisor and district manager made them employees of Grepalife. Indeed, because of the
presence of the element of control in their contract of engagements, they were
considered Grepalife’s employees. This did not mean, however, that they were simultaneously
considered agents as well as employees of Grepalife; the Court’s ruling never implied that this
situation existed insofar as the Ruiz brothers were concerned. The Court’s statement – the
Insurance Code may govern the licensing requirements and other particular duties of insurance
agents, but it does not bar the application of the Labor Code with regard to labor standards and
labor relations – simply means that when an insurance company has exercised control over its
agents so as to make them their employees, the relationship between the parties, which was
otherwise one for agency governed by the Civil Code and the Insurance Code, will now be
governed by the Labor Code. The reason for this is simple – the contract of agency has been
transformed into an employer-employee relationship.
The second Insular Life case, on the other hand, involved the issue of whether the labor bodies
have jurisdiction over an illegal termination dispute involving parties who had two contracts –
first, an original contract (agency contract), which was undoubtedly one for agency, and
another subsequent contract that in turn designated the agent acting unit manager (a
management contract). Both the Insular Life and the labor arbiter were one in the position that
both were agency contracts. The Court disagreed with this conclusion and held that insofar as
the management contract is concerned, the labor arbiter has jurisdiction. It is in this light that
we remanded the case to the labor arbiter for further proceedings. We never said in this case
though that the insurance agent had effectively assumed dual personalities for the simple
reason that the agency contract has been effectively superseded by the management contract.
The management contract provided that if the appointment was terminated for any reason
other than for cause, the acting unit manager would be reverted to agent status and assigned to
any unit.
The dissent pointed out, as an argument to support its employment relationship conclusion,
that any doubt in the existence of an employer-employee relationship should be resolved in
favor of the existence of the relationship. 34 This observation, apparently drawn from Article 4
of the Labor Code, is misplaced, as Article 4 applies only when a doubt exists in the
"implementation and application" of the Labor Code and its implementing rules; it does not
apply where no doubt exists as in a situation where the claimant clearly failed to substantiate
his claim of employment relationship by the quantum of evidence the Labor Code requires.
On the dissent’s last point regarding the lack of jurisprudential value of our November 7, 2008
Decision, suffice it to state that, as discussed above, the Decision was not supported by the
evidence adduced and was not in accordance with controlling jurisprudence. It should,
therefore, be reconsidered and abandoned, but not in the manner the dissent suggests as the
dissenting opinions are as factually and as legally erroneous as the Decision under
reconsideration.
In light of these conclusions, the sufficiency of Tongko’s failure to comply with the guidelines
of de Dios’ letter, as a ground for termination of Tongko’s agency, is a matter that the labor
tribunals cannot rule upon in the absence of an employer-employee relationship. Jurisdiction
over the matter belongs to the courts applying the laws of insurance, agency and contracts.
WHEREFORE, considering the foregoing discussion, we REVERSE our Decision of
November 7, 2008, GRANT Manulife’s motion for reconsideration and,
accordingly, DISMISS Tongko’s petition. No costs.
SO ORDERED.
G.R. No.187691
OLYMPIA HOUSING, INC., Petitioner,
vs.
ALLAN LAPASTORA and IRENE UBALUBAO, Respondents.
DECISION
REYES, J.:
This is a Petition for Review on Certiorari1 filed under Rule 45 of the Rules of Court,
assailing the Decision2 dated April 28, 2009 of the Court of Appeals (CA) in CA-G.R. SP No.
103699, which affirmed the Decision dated December 28, 2007 and Resolution 3 dated
February 29, 2008 of the National Labor Relations Commission (NLRC) in NLRC NCR Case
No. 30-03-00976-00.
The instant case stemmed from a complaint for illegal dismissal, payment of backwages and
other benefits, and regularization of employment filed by Allan Lapastora (Lapastora) and
Irene Ubalubao (Ubalubao) against Olympic Housing, Inc. (OHI), the entity engaged in the
management of the Olympia Executive Residences (OER), a condominium hotel building
situated in Makati City, owned by a Philippine-registered corporation known as the Olympia
Condominium Corporation (OCC). The complaint, which was docketed as NLRC NCR Case
No. 30-03-00976-00 (NLRC NCR CA No. 032043-02), likewise impleaded as defendants the
part owner of OHI, Felix Limcaoco (Limcaoco), and Fast Manpower and Allied Services
Company, Inc. (Fast Manpower). Lapastora and Ubalubao alleged that they worked as room
attendants of OHI from March 1995 and June 1997, respectively, until they were placed on
floating status on February 24, 2000, through a memorandum sent by Fast Manpower. 4
To establish employer-employee relationship with OHI, Lapastora and Ubalubao alleged that
they were directly hired by the company and received salaries directly from its operations
clerk, Myrna Jaylo (Jaylo). They also claimed that OHI exercised control over them as they
were issued time cards, disciplinary action reports and checklists of room assignments. It was
also OHI which terminated their employment after they petitioned for regularization. Prior to
their dismissal, they were subjected to investigations for their alleged involvement in the theft
of personal items and cash belonging to hotel guests and were summarily dismissed by OHI
despite lack of evidence.5
For their part, OHI and Limcaoco alleged that Lapastora and Ubalubao were not employees of
the company but of Fast Manpower, with which it had a contract of services, particularly, for
the provision of room attendants. They claimed that Fast Manpower is an independent
contractor as it (1) renders janitorial services to various establishments in Metro Manila, with
500 janitors under its employ; (2) maintains an office where janitors assemble before they are
dispatched to their assignments; (3) exercises the right to select, refuse or change personnel
assigned to OHI; and (4) supervises and pays the wages of its employees. 6
Reinforcing OHI’s claims, Fast Manpower reiterated that it is a legitimate manpower agency
and that it had a valid contract of services with OHI, pursuant to which Lapastora and
Ubalubao were deployed as room attendants. Lapastora and Ubalubao were, however, found
to have violated house rules and regulations and were reprimanded accordingly. It denied the
employees’ claim that they were dismissed and maintained they were only placed on floating
status for lack of available work assignments.7
Subsequently, on August 22, 2000, a memorandum of agreement was executed, stipulating the
transfer of management of the OER from OHI to HSAI-Raintree, Inc. (HSAI-Raintree).
Thereafter, OHI informed the Department of Labor and Employment (DOLE) of its cessation
of operations due to the said change of management and issued notices of termination to all its
employees. This occurrence prompted some union officers and members to file a separate
complaint for illegal dismissal and unfair labor practice against OHI, OCC and HSAI-
Raintree, docketed as NLRC NCR CN 30-11-04400-00 (CA No. 032193-02), entitled Malonie
D. Ocampo, et al. v. Olympia Housing, Inc., et al. (Ocampo v. OHI). This complaint was,
however, dismissed for lack of merit. The complainants therein appealed the said ruling to the
NLRC.8
Meanwhile, on May 10, 2002, the Labor Arbiter (LA) rendered a Decision 9 in the instant case,
holding that Lapastora and Ubalubao were regular employees of OHI and that they were
illegally dismissed. The dispositive portion of the decision reads as follows:
WHEREFORE, finding complainants to have been illegally dismissed and as regular
employees of [OHI] the latter is ordered to reinstate complainants to their former position or
substantially equal position without loss of seniority rights and benefits. [OHI] is further
ordered to pay complainants backwages, service incentive leave pay and attorney’s fees as
follows:
1. Backwages:
[Lapastora] - P171,616.60 and
[Ubalubao] - P170,573.44 from February 24, 2000 to date of decision
which shall further be adjusted until their actual reinstatement.
2. P3,305.05 - ILP for Lapastora
3. P3,426.04 - SILP for Ubalubao
4. 10% of the money awards as attorney’s fees.
Other claims are dismissed for lack of merit.
The claim against [Limcaoco] is hereby dismissed for lack of merit.
SO ORDERED.10
In ruling for the existence of employer-employee relationship, the LA held that OHI exercised
control and supervision over Lapastora and Ubalubao through its supervisor, Anamie Lat. The
LA likewise noted that documentary evidence consisting of time cards, medical cards and
medical examination reports all indicated OHI as employer of the said employees.
Moreover, the affidavit of OHI’s housekeeping coordinator, Jaylo, attested to the fact that OHI
is the one responsible for the selection of employees for its housekeeping department. OHI
also paid the salaries of the housekeeping staff by depositing them to their respective ATM
accounts. That there is a contract of services between OHI and Fast Manpower did not rule out
the existence of employer-employee relationship between the former and Lapastora and
Ubalubao as it appears that the said contract was a mere ploy to circumvent the application of
pertinent labor laws particularly those relating to security of tenure. The LA pointed out that
the business of OHI necessarily requires the services of housekeeping aides, room boys,
chambermaids, janitors and gardeners in its daily operations, which is precisely the line of
work being rendered by Lapastora and Ubalubao.11
Both parties appealed to the NLRC. OHI asseverated that the reinstatement of Lapastora and
Ubalubao was no longer possible in view of the transfer of the management of the OER to
HSAI-Raintree.12
On December 28, 2007, the NLRC rendered a decision, dismissing the appeal for lack of
merit, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the appeals of both the respondents and the
complainants are DISMISSED, and the Decision of the [LA] is hereby AFFIRMED. All other
claims are dismissed for lack of merit.13
The NLRC held that OHI is the employer of Lapastora and Ubalubao since Fast Manpower
failed to establish the fact that it is an independent contractor. Further, it ruled that the
memorandum of agreement between OCC and HSAI-Raintree did not render the reinstatement
of Lapastora and Ubalubao impossible since a change in the management does not
automatically result in a change of personnel especially when the memorandum itself did not
include a provision on that matter.14
Unyielding, OHI filed its Motion for Reconsideration 15 but the NLRC denied the same in a
Resolution16 dated February 29, 2008.
In the meantime, in Ocampo v. OHI, the NLRC rendered a Decision 17 dated November 22,
2002, upholding the validity of the cessation of OHI’s operations and the consequent
termination of all its employees. It stressed that the cessation of business springs from the
management’s prerogative to do what is necessary for the protection of its investment,
notwithstanding adverse effect on the employees. The discharge of employees for economic
reasons does not amount to unfair labor practice. 18 The said ruling of the NLRC was elevated
on petition for certiorari to the CA, which dismissed the same in Resolutions dated November
28, 200319 and June 23, 2004.20 The mentioned resolutions were appealed to this Court and
were docketed as G.R. No. 164160, which was, however, denied in the Resolution 21 dated July
26, 2004 for failure to comply with procedural rules and lack of reversible error on the part of
the CA.
Ruling of the CA
OHI, upon receipt of the adverse decision in NLRC NCR Case No. 30-03-00976-00, filed a
Petition for Certiorari22 with the CA, praying that the Decision dated December 28, 2007 and
Resolution dated February 29, 2008 of the NLRC be set aside. It pointed out that in the related
case of Ocampo v. OHI, the NLRC took into consideration the supervening events which
transpired after the supposed termination of Lapastora and Ubalubao, particularly OHI’s
closure of business on October 1, 2000. The NLRC then likewise upheld the validity of the
closure of business and the consequent termination of employees in favor of OHI, holding that
the measures taken by the company were proper exercises of management prerogative. OHI
argued that since the said disposition of the NLRC in Ocampo v. OHI was affirmed by both
the CA and the Supreme Court, the principle of stare decisis becomes applicable and the
issues that had already been resolved in the said case may no longer be relitigated. 23 At any
rate, OHI argued that it could not be held liable for illegal dismissal since Lapastora and
Ubalubao were not its employees.24
On April 28, 2009, the CA rendered a Decision 25 dismissing the petition, the dispositive
portion of which reads as follows:
WHEREFORE, the petition for certiorari is DISMISSED. The NLRC’s Decision dated
December 28, 2007 and Resolution dated February 29, 2008 in NLRC NCR Case No. 30-03-
00976-00 (NLRC NCR CA No. 032043-02) are AFFIRMED.
SO ORDERED.26
The CA ruled that OHI’s cessation of operations on October 1, 2000 is not a supervening
event because it transpired long before the promulgation of the LA’s Decision dated May 10,
2002 in the instant case. In the same manner, the ruling of the NLRC in Ocampo v. OHI does
not constitute stare decisis to the present petition because of the apparent dissimilarities in the
attendant circumstances. For instance, Ocampo v. OHI was founded on the union members’
allegation that OHI’s claim of substantial financial losses to support closure of business lacked
evidence, while in the instant case, Lapastora and Ubalubao claimed illegal dismissal on
account of their being placed on floating status after they were implicated in a theft case. The
differences in the facts and issues in the two cases rule out the invocation of the doctrine. The
CA added that the prevailing jurisprudence is that the NLRC decision upholding the validity
of the closure of business and retrenchment of employees resulting therefrom will not preclude
it from decreeing the illegality of an employee’s dismissal. Considering that OHI failed to
prove that the memorandum of agreement between OCC and HSAI-Raintree had any effect on
the employment of Lapastora and Ubalubao or that there is any other valid or authorized cause
for their termination from employment, the CA concluded that they were unlawfully
dismissed.27
Unyielding, OHI filed the instant petition, reiterating its arguments before the CA. It added
that, even assuming that the facts warrant a finding of illegal dismissal, the cessation of
operations of the company is a supervening event that should limit the award of backwages to
Lapastora and Ubalubao until October 1, 2000 only and justify the deletion of the order of
reinstatement. After all, it complied with the notice requirements of the DOLE for a valid
closure of business.28
On April 4, 2011, Ubalubao, on her own behalf, filed a Motion to Dismiss/Withdraw
Complaint and Waiver,29 stating that she has decided to accept the financial assistance in the
amount of ₱50,000.00 offered by OHI, in lieu of all the monetary claims she has against the
company, as full and complete satisfaction of any judgment that may be subsequently rendered
in her favor. She likewise informed the Court that she had willingly and knowingly executed a
quitclaim and waiver agreement, releasing OHI from any liability. She thus prayed for the
dismissal of the complaint she filed against OHI.
In a Resolution  dated January 16, 2012, the Court granted Ubalubao’s motion and considered
30
the case closed and terminated as to her part, leaving Lapastora as the lone respondent in the
present petition.
Ruling of the Court
Lapastora was illegally dismissed
Indisputably, Lapastora was a regular employee of OHI. As found by the LA, he has been
under the continuous employ of OHI since March 3, 1995 until he was placed on floating
status in February 2000. His uninterrupted employment by OHI, lasting for more than a year,
manifests the continuing need and desirability of his services, which characterize regular
employment. Article 280 of the Labor Code provides as follows:
Art. 280. Regular and casual employment. The provisions of written agreement to the
contrary notwithstanding and regardless of the oral agreement of the parties, an employment
shall be deemed to be regular where the employee has been engaged to perform activities
which are usually necessary or desirable in the usual business or trade of the employer, except
where the employment has been fixed for a specific project or undertaking, the completion or
termination of which has been determined at the time of the engagement of the employee or
where the work or services to be performed is seasonal in nature and the employment is for the
duration of the season.
An employment shall be deemed to be casual if it is not covered by the preceding
paragraph: Provided, That, any employee who has rendered at least one year of service,
whether such service is continuous or broken, shall be considered a regular employee with
respect to the activity in which he is employed and his employment shall continue while such
activity exists.
Based on records, OHI is engaged in the business of managing residential and commercial
condominium units at the OER. By the nature of its business, it is imperative that it maintains
a pool of housekeeping staff to ensure that the premises remain an uncluttered place of
comfort for the occupants. It is no wonder why Lapastora, among several others, was
continuously employed by OHI precisely because of the indispensability of their services to its
business. The fact alone that Lapastora was allowed to work for an unbroken period of almost
five years is all the same a reason to consider him a regular employee.
The attainment of a regular status of employment guarantees the employee’s security of tenure
that he cannot be unceremoniously terminated from employment. "To justify fully the
dismissal of an employee, the employer must, as a rule, prove that the dismissal was for a just
cause and that the employee was afforded due process prior to dismissal. As a complementary
principle, the employer has the onus of proving with clear, accurate, consistent, and
convincing evidence the validity of the dismissal." 31
OHI miserably failed to discharge its burdens thus making Lapastora’s termination illegal.
On the substantive aspect, it appears that OHI failed to prove that Lapastora’s dismissal was
grounded on a just or authorized cause. While it claims that it had called Lapastora’s attention
several times for tardiness, unexplained absences and loitering, it does not appear from the
records that the latter had been notified of the company’s dissatisfaction over his performance
and that he was made to explain his supposed infractions. It does not even show from the
records that Lapastora was ever disciplined because of his alleged tardiness. In the same
manner, allegations regarding Lapastora’s involvement in the theft of personal items and cash
belonging to hotel guests remained unfounded suspicions as they were not proven despite
OHI’s probe into the incidents.
On the procedural aspect, OHI admittedly failed to observe the twin notice rule in termination
cases. As a rule, the employer is required to furnish the concerned employee two written
notices: (1) a written notice served on the employee specifying the ground or grounds for
termination, and giving to said employee reasonable opportunity within which to explain his
side; and (2) a written notice of termination served on the employee indicating that upon due
consideration of all the circumstances, grounds have been established to justify his
termination.32 In the present case, Lapastora was not informed of the charges against him and
was denied the opportunity to disprove the same. He was summarily terminated from
employment.
OHI argues that no formal notices of investigation, notice of charges or termination was issued
to Lapastora since he was not an employee of the company but of Fast Manpower.
The issue of employer-employee relationship between OHI and Lapastora had been
deliberated and ruled upon by the LA and the NLRC in the affirmative on the basis of the
evidence presented by the parties. The LA ruled that Lapastora was under the effective control
and supervision of OHI through the company supervisor. She gave credence to the pertinent
records of Lapastora’s employment, i.e., timecards, medical records and medical
examinations, which all indicated OHI as his employer. She likewise noted Fast Manpower’s
failure to establish its capacity as independent contractor based on the standards provided by
law.
That there is an existing contract of services between OHI and Fast Manpower where both
parties acknowledged the latter as the employer of the housekeeping staff, including
Lapastora, did not alter established facts proving the contrary. The parties cannot evade the
application of labor laws by mere expedient of a contract considering that labor and
employment are matters imbued with public interest. It cannot be subjected to the agreement
of the parties but rather on existing laws designed specifically for the protection of labor.
Thus, it had been repeatedly stressed in a number of jurisprudence that "[a] party cannot
dictate, by the mere expedient of a unilateral declaration in a contract, the character of its
business, i.e., whether as labor-only contractor or as job contractor, it being crucial that its
character be measured in terms of and determined by the criteria set by statute." 33
The Court finds no compelling reason to deviate from the findings of the LA and NLRC,
especially in this case when the same was affirmed by the CA. It is settled that findings of fact
made by LAs, when affirmed by the NLRC, are entitled not only to great respect but even
finality and are binding on this Court especially when they are supported by substantial
evidence.34
The principle of stare decisis is not applicable
Still, OHI argues that the legality of the closure of its business had been the subject of the
separate case of Ocampo v. OHI, where the NLRC upheld the validity of the termination of all
the employees of OHI due to cessation of operations. It asserts that since the ruling was
affirmed by the CA and, eventually by this Court, the principle of stare decisis becomes
applicable. Considering the closure of its business, Lapastora can no longer be reinstated and
should instead be awarded backwages up to the last day of operations of the company only,
specifically on October 1, 2000.35
In Ting v. Velez-Ting,36 the Court elaborated on the principle of stare decisis, thus:
The principle of stare decisis enjoins adherence by lower courts to doctrinal rules established
by this Court in its final decisions. It is based on the principle that once a question of law has
been examined and decided, it should be deemed settled and closed to further argument.
Basically, it is a bar to any attempt to relitigate the same issues, necessary for two simple
reasons: economy and stability. In our jurisdiction, the principle is entrenched in Article 8 of
the Civil Code.37 (Citations omitted)
Verily, the import of the principle is that questions of law that have been decided by this Court
and applied in resolving earlier cases shall be deemed the prevailing rule which shall be
binding on future cases dealing on the same intricacies. Apart from saving the precious time of
the Court, the application of this principle is essential to the consistency of the rulings of the
Court which is significant in its role as the final arbiter of judicial controversies.
The CA correctly ruled that the principle of stare decisis finds no relevance in the present
case. To begin with, there is no doctrine of law that is similarly applicable in both the present
case and in Ocampo v. OHI. While both are illegal dismissal cases, they are based on
completely different sets of facts and involved distinct issues. In the instant case, Lapastora
cries illegal dismissal after he was arbitrarily placed on a floating status on mere suspicion that
he was involved in theft incidents within the company premises without being given the
opportunity to explain his side or any formal investigation of his participation. On the other
hand, in Ocampo v. OHI, the petitioners therein questioned the validity of OHI’s closure of
business and the eventual termination of all the employees. Thus, the NLRC ruled upon both
cases differently.
Nonetheless, the Court finds the recognition of the validity of OHI’s cessation of business in
the Decision dated November 22, 2002 of the NLRC, which was affirmed by the CA and this
Court, a supervening event which inevitably alters the judgment award in favor of Lapastora.
The NLRC noted that OHI complied with all the statutory requirements, including the filing of
a notice of closure with the DOLE and furnishing written notices of termination to all
employees effective 30 days from receipt. 38 OHI likewise presented financial statements
substantiating its claim that it is operating at a loss and that the closure of business is
necessary to avert further losses.39 The action of the OHI, the NLRC held, is a valid exercise
of management prerogative.
Thus, while the finding of illegal dismissal in favor of Lapastora subsists, his reinstatement
was rendered a legal impossibility with OHI’s closure of business.1âwphi1 In Galindez v.
Rural Bank of Llanera, Inc.,40 the Court noted:
Reinstatement presupposes that the previous position from which one had been removed still
exists or there is an unfilled position more or less of similar nature as the one previously
occupied by the employee. Admittedly, no such position is available. Reinstatement therefore
becomes a legal impossibility. The law cannot exact compliance with what is impossible. 41
Considering the impossibility of Lapastora’s reinstatement, the payment of separation pay, in
lieu thereof, is proper. The amount of separation pay to be given to Lapastora must be
computed from March 1995, the time he commenced employment with OHI, until the time
when the company ceased operations in October 2000. 42 As a twin relief, Lapastora is likewise
entitled to the payment of backwages, computed from the time he was unjustly dismissed, or
from February 24, 2000 until October 1, 2000 when his reinstatement was rendered impossible
without fault on his part.43
Finally, for OHI’s failure to prove the fact of payment, the Court sustains the award for the
payment of service incentive leave pay and 13 th month pay. The rule, as stated in Mantle
Trading Services, Inc. and/or Del Rosario v. NLRC, et al.,44 is that "the burden rests on the
employer to prove payment, rather than on the employee to prove nonpayment. The reason for
the rule is that the pertinent personnel files, payrolls, records, remittances and other similar
documents — which will show that overtime, differentials, service incentive leave and other
claims of workers have been paid — are not in the possession of the employee but in the
custody and absolute control of the employer." 45 Considering that OHI did not dispute
Lapastora’s claim for nonpayment of the mentioned benefits and opted to disclaim employer-
employee relationship, the presumption is that the said claims were not paid.
The award for attorney’s fees of 10% of the monetary awards is likewise sustained considering
that Lapastora was forced to litigate and, thus, incurred expenses to protect his rights and
interests.46
WHEREFORE, the Decision dated April 28, 2009 of the Court of Appeals in CA-G.R. SP
No. 103699 is AFFIRMED with MODIFICATION in that OHI is hereby ORDERED to
pay Allan Lapastora the following: (1) separation pay, in lieu of reinstatement, computed from
the time of his employment until the time of its closure of business, or from March 1995 to
October 2000; (2) backwages, computed from the time of illegal dismissal until cessation of
business, or from February 24, 2000 to October 1, 2000; (3) service incentive leave pay and
13th month pay; and (4) attorney's fees.
SO ORDERED.
ECONOMIC TEST/TWO-TIERED TEST
G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,
vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO
S.CANILAO, and SEGUNDINA NOGUERA, respondents-appellees.
SARMIENTO , J.:
The petitioners invoke the provisions on human relations of the Civil Code in this appeal by
certiorari. The facts are beyond dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the
appellees) entered into on Oct. 19, 1960 by and between Mrs. Segundina
Noguera, party of the first part; the Tourist World Service, Inc.,
represented by Mr. Eliseo Canilao as party of the second part, and
hereinafter referred to as appellants, the Tourist World Service, Inc. leased
the premises belonging to the party of the first part at Mabini St., Manila
for the former-s use as a branch office. In the said contract the party of the
third part held herself solidarily liable with the party of the part for the
prompt payment of the monthly rental agreed on. When the branch office
was opened, the same was run by the herein appellant Una 0. Sevilla
payable to Tourist World Service Inc. by any airline for any fare brought
in on the efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3%
was to be withheld by the Tourist World Service, Inc.
On or about November 24, 1961 (Exhibit 16) the Tourist World Service,
Inc. appears to have been informed that Lina Sevilla was connected with a
rival firm, the Philippine Travel Bureau, and, since the branch office was
anyhow losing, the Tourist World Service considered closing down its
office. This was firmed up by two resolutions of the board of directors of
Tourist World Service, Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the
first abolishing the office of the manager and vice-president of the Tourist
World Service, Inc., Ermita Branch, and the second,authorizing the
corporate secretary to receive the properties of the Tourist World Service
then located at the said branch office. It further appears that on Jan. 3,
1962, the contract with the appellees for the use of the Branch Office
premises was terminated and while the effectivity thereof was Jan. 31,
1962, the appellees no longer used it. As a matter of fact appellants used it
since Nov. 1961. Because of this, and to comply with the mandate of the
Tourist World Service, the corporate secretary Gabino Canilao went over
to the branch office, and, finding the premises locked, and, being unable to
contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect
the interests of the Tourist World Service. When neither the appellant Lina
Sevilla nor any of her employees could enter the locked premises, a
complaint wall filed by the herein appellants against the appellees with a
prayer for the issuance of mandatory preliminary injunction. Both
appellees answered with counterclaims. For apparent lack of interest of the
parties therein, the trial court ordered the dismissal of the case without
prejudice.
The appellee Segundina Noguera sought reconsideration of the order
dismissing her counterclaim which the court a quo, in an order dated June
8, 1963, granted permitting her to present evidence in support of her
counterclaim.
On June 17,1963, appellant Lina Sevilla refiled her case against the herein
appellees and after the issues were joined, the reinstated counterclaim of
Segundina Noguera and the new complaint of appellant Lina Sevilla were
jointly heard following which the court a quo ordered both cases dismiss
for lack of merit, on the basis of which was elevated the instant appeal on
the following assignment of errors:
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE
NATURE OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S
COMPLAINT.
II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT
MRS. LINA 0. SEVILA'S ARRANGEMENT (WITH APPELLEE
TOURIST WORLD SERVICE, INC.) WAS ONE MERELY OF
 EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO HOLD
THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS
VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-
APPELLANT MRS. LINA O. SEVILLA IS ESTOPPED FROM
DENYING THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-
APPELLEE TOURIST WORLD SERVICE, INC. EVEN AS AGAINST
THE LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT
APPELLEES HAD NO RIGHT TO EVICT APPELLANT MRS. LINA
O. SEVILLA FROM THE A. MABINI OFFICE BY TAKING THE LAW
INTO THEIR OWN HANDS.
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL
APPELLEE NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA
O. SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI
PREMISES.
VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT
APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS
GUARANTOR FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the issues to be resolved are:
1. Whether the appellee Tourist World Service unilaterally disco the
telephone line at the branch office on Ermita;
2. Whether or not the padlocking of the office by the Tourist World
Service was actionable or not; and
3. Whether or not the lessee to the office premises belonging to the
appellee Noguera was appellees TWS or TWS and the appellant.
In this appeal, appealant Lina Sevilla claims that a joint bussiness venture
was entered into by and between her and appellee TWS with offices at the
Ermita branch office and that she was not an employee of the TWS to the
end that her relationship with TWS was one of a joint business venture
appellant made declarations showing:
1. Appellant Mrs. Lina 0. Sevilla, a prominent figure
and wife of an eminent eye, ear and nose specialist as
well as a imediately columnist had been in the travel
business prior to the establishment of the joint
business venture with appellee Tourist World Service,
Inc. and appellee Eliseo Canilao, her compadre, she
being the godmother of one of his children, with her
own clientele, coming mostly from her own social
circle (pp. 3-6 tsn. February 16,1965).
2. Appellant Mrs. Sevilla was signatory to a lease
agreement dated 19 October 1960 (Exh. 'A') covering
the premises at A. Mabini St., she expressly
warranting and holding [sic] herself 'solidarily' liable
with appellee Tourist World Service, Inc. for the
prompt payment of the monthly rentals thereof to
other appellee Mrs. Noguera (pp. 14-15, tsn. Jan.
18,1964).
3. Appellant Mrs. Sevilla did not receive any salary
from appellee Tourist World Service, Inc., which had
its own, separate office located at the Trade &
Commerce Building; nor was she an employee
thereof, having no participation in nor connection with
said business at the Trade & Commerce Building (pp.
16-18 tsn Id.).
4. Appellant Mrs. Sevilla earned commissions for her
own passengers, her own bookings her own business
(and not for any of the business of appellee Tourist
World Service, Inc.) obtained from the airline
companies. She shared the 7% commissions given by
the airline companies giving appellee Tourist World
Service, Lic. 3% thereof aid retaining 4% for herself
(pp. 18 tsn. Id.)
5. Appellant Mrs. Sevilla likewise shared in the
expenses of maintaining the A. Mabini St. office,
paying for the salary of an office secretary, Miss
Obieta, and other sundry expenses, aside from
desicion the office furniture and supplying some of
fice furnishings (pp. 15,18 tsn. April 6,1965), appellee
Tourist World Service, Inc. shouldering the rental and
other expenses in consideration for the 3% split in the
co procured by appellant Mrs. Sevilla (p. 35 tsn Feb.
16,1965).
6. It was the understanding between them that
appellant Mrs. Sevilla would be given the title of
branch manager for appearance's sake only (p. 31 tsn.
Id.), appellee Eliseo Canilao admit that it was just a
title for dignity (p. 36 tsn. June 18, 1965- testimony of
appellee Eliseo Canilao pp. 38-39 tsn April 61965-
testimony of corporate secretary Gabino Canilao (pp-
2-5, Appellants' Reply Brief)
 Upon the other hand, appellee TWS contend that the appellant was an
employee of the appellee Tourist World Service, Inc. and as such was
designated manager.1
xxx xxx xxx
The trial court2 held for the private respondent on the premise that the private respondent,
Tourist World Service, Inc., being the true lessee, it was within its prerogative to terminate the
lease and padlock the premises. 3 It likewise found the petitioner, Lina Sevilla, to be a mere
employee of said Tourist World Service, Inc. and as such, she was bound by the acts of her
employer. 4 The respondent Court of Appeal 5 rendered an affirmance.
The petitioners now claim that the respondent Court, in sustaining the lower court, erred.
Specifically, they state:
I THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE
PREMISES BY TOURIST WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND
CONSENT OF THE APPELLANT LINA SEVILLA ... WITHOUT NOTIFYING MRS.
LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND WITHOUT INFORMING
COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE THE
PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE
SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO
PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE
CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST
WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF
DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE
PROCESS WHICH ADHERES TO THE RULE OF LAW.
II THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE
SHE HAD "OFFERED TO WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS
AND COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE WITHDRAWN."
(ANNEX "A" P. 8)
III THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-
APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21
OF THE CIVIL CODE ON RELATIONS.
IV THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF
YET NOT RESOLVING HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH
TOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH AN
INTEREST WHICH COULD NOT BE TERMINATED OR REVOKED UNILATERALLY
BY TOURIST WORLD SERVICE INC.6
As a preliminary inquiry, the Court is asked to declare the true nature of the relation between
Lina Sevilla and Tourist World Service, Inc. The respondent Court of see fit to rule on the
question, the crucial issue, in its opinion being "whether or not the padlocking of the premises
by the Tourist World Service, Inc. without the knowledge and consent of the appellant Lina
Sevilla entitled the latter to the relief of damages prayed for and whether or not the evidence
for the said appellant supports the contention that the appellee Tourist World Service, Inc.
unilaterally and without the consent of the appellant disconnected the telephone lines of the
Ermita branch office of the appellee Tourist World Service, Inc. 7 Tourist World Service, Inc.,
insists, on the other hand, that Lina SEVILLA was a mere employee, being "branch manager"
of its Ermita "branch" office and that inferentially, she had no say on the lease executed with
the private respondent, Segundina Noguera. The petitioners contend, however, that relation
between the between parties was one of joint venture, but concede that "whatever might have
been the true relationship between Sevilla and Tourist World Service," the Rule of Law
enjoined Tourist World Service and Canilao from taking the law into their own hands, 8 in
reference to the padlocking now questioned.
The Court finds the resolution of the issue material, for if, as the private respondent, Tourist
World Service, Inc., maintains, that the relation between the parties was in the character of
employer and employee, the courts would have been without jurisdiction to try the case, labor
disputes being the exclusive domain of the Court of Industrial Relations, later, the Bureau Of
Labor Relations, pursuant to statutes then in force. 9
In this jurisdiction, there has been no uniform test to determine the evidence of an employer-
employee relation. In general, we have relied on the so-called right of control test, "where the
person for whom the services are performed reserves a right to control not  only the end to be
achieved but also the means to be used in reaching such end." 10 Subsequently, however, we
have considered, in addition to the standard of right-of control, the existing economic
conditions prevailing between the parties, like the inclusion of the employee in the payrolls, in
determining the existence of an employer-employee relationship. 11
The records will show that the petitioner, Lina Sevilla, was not subject to control by the
private respondent Tourist World Service, Inc., either as to the result of the enterprise or as to
the means used in connection therewith. In the first place, under the contract of lease covering
the Tourist Worlds Ermita office, she had bound herself in solidum as and for rental payments,
an arrangement that would be like claims of a master-servant relationship. True the respondent
Court would later minimize her participation in the lease as one of mere guaranty, 12 that does
not make her an employee of Tourist World, since in any case, a true employee cannot be
made to part with his own money in pursuance of his employer's business, or otherwise,
assume any liability thereof. In that event, the parties must be bound by some other relation,
but certainly not employment.
In the second place, and as found by the Appellate Court, '[w]hen the branch office was
opened, the same was run by the herein appellant Lina O. Sevilla payable to Tourist World
Service, Inc. by any airline for any fare brought in on the effort of Mrs. Lina Sevilla.  13 Under
these circumstances, it cannot be said that Sevilla was under the control of Tourist World
Service, Inc. "as to the means used." Sevilla in pursuing the business, obviously relied on her
own gifts and capabilities.
It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained
4% in commissions from airline bookings, the remaining 3% going to Tourist World. Unlike
an employee then, who earns a fixed salary usually, she earned compensation in fluctuating
amounts depending on her booking successes.
The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist
World's employee. As we said, employment is determined by the right-of-control test and
certain economic parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence,
accepting Lina Sevilla's own, that is, that the parties had embarked on a joint venture or
otherwise, a partnership. And apparently, Sevilla herself did not recognize the existence of
such a relation. In her letter of November 28, 1961, she expressly 'concedes your [Tourist
World Service, Inc.'s] right to stop the operation of your branch office 14 in effect, accepting
Tourist World Service, Inc.'s control over the manner in which the business was run. A joint
venture, including a partnership, presupposes generally a of standing between the joint co-
venturers or partners, in which each party has an equal proprietary interest in the capital or
property contributed 15 and where each party exercises equal rights in the conduct of the
business.16 furthermore, the parties did not hold themselves out as partners, and the building
itself was embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct
partnership name.
It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man
the private respondent, Tourist World Service, Inc.'s Ermita office, she must have done so
pursuant to a contract of agency. It is the essence of this contract that the agent renders
services "in representation or on behalf of another. 18 In the case at bar, Sevilla solicited airline
fares, but she did so for and on behalf of her principal, Tourist World Service, Inc. As
compensation, she received 4% of the proceeds in the concept of commissions. And as we
said, Sevilla herself based on her letter of November 28, 1961, pre-assumed her principal's
authority as owner of the business undertaking. We are convinced, considering the
circumstances and from the respondent Court's recital of facts, that the ties had contemplated a
principal agent relationship, rather than a joint managament or a partnership..
But unlike simple grants of a power of attorney, the agency that we hereby declare to be
compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one
coupled with an interest, the agency having been created for mutual interest, of the agent and
the principal. 19 It appears that Lina Sevilla is a bona fide travel agent herself, and as such, she
had acquired an interest in the business entrusted to her. Moreover, she had assumed a
personal obligation for the operation thereof, holding herself solidarily liable for the payment
of rentals. She continued the business, using her own name, after Tourist World had stopped
further operations. Her interest, obviously, is not to the commissions she earned as a result of
her business transactions, but one that extends to the very subject matter of the power of
management delegated to her. It is an agency that, as we said, cannot be revoked at the
pleasure of the principal. Accordingly, the revocation complained of should entitle the
petitioner, Lina Sevilla, to damages.
As we have stated, the respondent Court avoided this issue, confining itself to the telephone
disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the
Court of Appeals that there is 'no evidence showing that the Tourist World Service, Inc.
disconnected the telephone lines at the branch office. 20 Yet, what cannot be denied is the fact
that Tourist World Service, Inc. did not take pains to have them reconnected. Assuming,
therefore, that it had no hand in the disconnection now complained of, it had clearly condoned
it, and as owner of the telephone lines, it must shoulder responsibility therefor.
The Court of Appeals must likewise be held to be in error with respect to the padlocking
incident. For the fact that Tourist World Service, Inc. was the lessee named in the lease con-
tract did not accord it any authority to terminate that contract without notice to its actual
occupant, and to padlock the premises in such fashion. As this Court has ruled, the petitioner,
Lina Sevilla, had acquired a personal stake in the business itself, and necessarily, in the
equipment pertaining thereto. Furthermore, Sevilla was not a stranger to that contract having
been explicitly named therein as a third party in charge of rental payments (solidarily with
Tourist World, Inc.). She could not be ousted from possession as summarily as one would
eject an interloper.
The Court is satisfied that from the chronicle of events, there was indeed some malevolent
design to put the petitioner, Lina Sevilla, in a bad light following disclosures that she had
worked for a rival firm. To be sure, the respondent court speaks of alleged business losses to
justify the closure '21 but there is no clear showing that Tourist World Ermita Branch had in
fact sustained such reverses, let alone, the fact that Sevilla had moonlit for another company.
What the evidence discloses, on the other hand, is that following such an information (that
Sevilla was working for another company), Tourist World's board of directors adopted two
resolutions abolishing the office of 'manager" and authorizing the corporate secretary, the
respondent Eliseo Canilao, to effect the takeover of its branch office properties. On January 3,
1962, the private respondents ended the lease over the branch office premises, incidentally,
without notice to her.
It was only on June 4, 1962, and after office hours significantly, that the Ermita office was
padlocked, personally by the respondent Canilao, on the pretext that it was necessary to
Protect the interests of the Tourist World Service. " 22 It is strange indeed that Tourist World
Service, Inc. did not find such a need when it cancelled the lease five months earlier. While
Tourist World Service, Inc. would not pretend that it sought to locate Sevilla to inform her of
the closure, but surely, it was aware that after office hours, she could not have been anywhere
near the premises. Capping these series of "offensives," it cut the office's telephone lines,
paralyzing completely its business operations, and in the process, depriving Sevilla
articipation therein.
This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish
Sevillsa it had perceived to be disloyalty on her part. It is offensive, in any event, to
elementary norms of justice and fair play.
We rule therefore, that for its unwarranted revocation of the contract of agency, the private
respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil
Code, moral damages may be awarded for "breaches of contract where the defendant acted ...
in bad faith. 23
We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury
done to Lina Sevilla from its brazen conduct subsequent to the cancellation of the power of
attorney granted to her on the authority of Article 21 of the Civil Code, in relation to Article
2219 (10) thereof —
ART. 21. Any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.24
 ART. 2219. Moral damages25 may be recovered in the following and
analogous cases:
xxx xxx xxx
(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and
35.
The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for
the same damages in a solidary capacity.
Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has
been shown that she had connived with Tourist World Service, Inc. in the disconnection and
padlocking incidents. She cannot therefore be held liable as a cotortfeasor.
The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as
exemplary damages, 25 and P5,000.00 as nominal 26 and/or temperate27 damages, to be just,
fair, and reasonable under the circumstances.
WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution
issued on July 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET
ASIDE. The private respondent, Tourist World Service, Inc., and Eliseo Canilao, are
ORDERED jointly and severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00
as and for moral damages, the sum of P10,000.00, as and for exemplary damages, and the sum
of P5,000.00, as and for nominal and/or temperate damages.
Costs against said private respondents.
SO ORDERED.
G.R. No. 170087 August 31, 2006
ANGELINA FRANCISCO, Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, KASEI CORPORATION,
SEIICHIRO TAKAHASHI, TIMOTEO ACEDO, DELFIN LIZA, IRENE
BALLESTEROS, TRINIDAD LIZA and RAMON ESCUETA, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to annul and
set aside the Decision and Resolution of the Court of Appeals dated October 29, 2004 1 and
October 7, 2005, 2 respectively, in CA-G.R. SP No. 78515 dismissing the complaint for
constructive dismissal filed by herein petitioner Angelina Francisco. The appellate court
reversed and set aside the Decision of the National Labor Relations Commission (NLRC)
dated April 15, 2003, 3 in NLRC NCR CA No. 032766-02 which affirmed with modification
the decision of the Labor Arbiter dated July 31, 2002, 4 in NLRC-NCR Case No. 30-10-0-489-
01, finding that private respondents were liable for constructive dismissal.
In 1995, petitioner was hired by Kasei Corporation during its incorporation stage. She was
designated as Accountant and Corporate Secretary and was assigned to handle all the
accounting needs of the company. She was also designated as Liaison Officer to the City of
Makati to secure business permits, construction permits and other licenses for the initial
operation of the company. 5
Although she was designated as Corporate Secretary, she was not entrusted with the corporate
documents; neither did she attend any board meeting nor required to do so. She never prepared
any legal document and never represented the company as its Corporate Secretary. However,
on some occasions, she was prevailed upon to sign documentation for the company. 6
In 1996, petitioner was designated Acting Manager. The corporation also hired Gerry Nino as
accountant in lieu of petitioner. As Acting Manager, petitioner was assigned to handle
recruitment of all employees and perform management administration functions; represent the
company in all dealings with government agencies, especially with the Bureau of Internal
Revenue (BIR), Social Security System (SSS) and in the city government of Makati; and to
administer all other matters pertaining to the operation of Kasei Restaurant which is owned
and operated by Kasei Corporation. 7
For five years, petitioner performed the duties of Acting Manager. As of December 31, 2000
her salary was P27,500.00 plus P3,000.00 housing allowance and a 10% share in the profit of
Kasei Corporation. 8
In January 2001, petitioner was replaced by Liza R. Fuentes as Manager. Petitioner alleged
that she was required to sign a prepared resolution for her replacement but she was assured
that she would still be connected with Kasei Corporation. Timoteo Acedo, the designated
Treasurer, convened a meeting of all employees of Kasei Corporation and announced that
nothing had changed and that petitioner was still connected with Kasei Corporation as
Technical Assistant to Seiji Kamura and in charge of all BIR matters. 9
Thereafter, Kasei Corporation reduced her salary by P2,500.00 a month beginning January up
to September 2001 for a total reduction of P22,500.00 as of September 2001. Petitioner was
not paid her mid-year bonus allegedly because the company was not earning well. On October
2001, petitioner did not receive her salary from the company. She made repeated follow-ups
with the company cashier but she was advised that the company was not earning well. 10
On October 15, 2001, petitioner asked for her salary from Acedo and the rest of the officers
but she was informed that she is no longer connected with the company. 11
Since she was no longer paid her salary, petitioner did not report for work and filed an action
for constructive dismissal before the labor arbiter.
Private respondents averred that petitioner is not an employee of Kasei Corporation. They
alleged that petitioner was hired in 1995 as one of its technical consultants on accounting
matters and act concurrently as Corporate Secretary. As technical consultant, petitioner
performed her work at her own discretion without control and supervision of Kasei
Corporation. Petitioner had no daily time record and she came to the office any time she
wanted. The company never interfered with her work except that from time to time, the
management would ask her opinion on matters relating to her profession. Petitioner did not go
through the usual procedure of selection of employees, but her services were engaged through
a Board Resolution designating her as technical consultant. The money received by petitioner
from the corporation was her professional fee subject to the 10% expanded withholding tax on
professionals, and that she was not one of those reported to the BIR or SSS as one of the
company’s employees. 12
Petitioner’s designation as technical consultant depended solely upon the will of management.
As such, her consultancy may be terminated any time considering that her services were only
temporary in nature and dependent on the needs of the corporation.
To prove that petitioner was not an employee of the corporation, private respondents
submitted a list of employees for the years 1999 and 2000 duly received by the BIR showing
that petitioner was not among the employees reported to the BIR, as well as a list of payees
subject to expanded withholding tax which included petitioner. SSS records were also
submitted showing that petitioner’s latest employer was Seiji Corporation. 13
The Labor Arbiter found that petitioner was illegally dismissed, thus:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. finding complainant an employee of respondent corporation;
2. declaring complainant’s dismissal as illegal;
3. ordering respondents to reinstate complainant to her former position without loss of
seniority rights and jointly and severally pay complainant her money claims in accordance
with the following computation:
a. Backwages 10/2001 – 07/2002 275,000.00
(27,500 x 10 mos.)
b. Salary Differentials (01/2001 – 09/2001) 22,500.00
c. Housing Allowance (01/2001 – 07/2002) 57,000.00
d. Midyear Bonus 2001 27,500.00
e. 13th Month Pay 27,500.00
f. 10% share in the profits of Kasei
Corp. from 1996-2001 361,175.00
g. Moral and exemplary damages 100,000.00
h. 10% Attorney’s fees 87,076.50
P957,742.50
If reinstatement is no longer feasible, respondents are ordered to pay complainant separation
pay with additional backwages that would accrue up to actual payment of separation pay.
SO ORDERED. 14
On April 15, 2003, the NLRC affirmed with modification the Decision of the Labor Arbiter,
the dispositive portion of which reads:
PREMISES CONSIDERED, the Decision of July 31, 2002 is hereby MODIFIED as follows:
1) Respondents are directed to pay complainant separation pay computed at one month per
year of service in addition to full backwages from October 2001 to July 31, 2002;
2) The awards representing moral and exemplary damages and 10% share in profit in the
respective accounts of P100,000.00 and P361,175.00 are deleted;
3) The award of 10% attorney’s fees shall be based on salary differential award only;
4) The awards representing salary differentials, housing allowance, mid year bonus and 13th
month pay are AFFIRMED.
SO ORDERED. 15
On appeal, the Court of Appeals reversed the NLRC decision, thus:
WHEREFORE, the instant petition is hereby GRANTED. The decision of the National Labor
Relations Commissions dated April 15, 2003 is hereby REVERSED and SET ASIDE and a
new one is hereby rendered dismissing the complaint filed by private respondent against Kasei
Corporation, et al. for constructive dismissal.
SO ORDERED. 16
The appellate court denied petitioner’s motion for reconsideration, hence, the present recourse.
The core issues to be resolved in this case are (1) whether there was an employer-employee
relationship between petitioner and private respondent Kasei Corporation; and if in the
affirmative, (2) whether petitioner was illegally dismissed.
Considering the conflicting findings by the Labor Arbiter and the National Labor Relations
Commission on one hand, and the Court of Appeals on the other, there is a need to reexamine
the records to determine which of the propositions espoused by the contending parties is
supported by substantial evidence. 17
We held in Sevilla v. Court of Appeals 18 that in this jurisdiction, there has been no uniform
test to determine the existence of an employer-employee relation. Generally, courts have relied
on the so-called right of control test where the person for whom the services are performed
reserves a right to control not only the end to be achieved but also the means to be used in
reaching such end. In addition to the standard of right-of-control, the existing economic
conditions prevailing between the parties, like the inclusion of the employee in the payrolls,
can help in determining the existence of an employer-employee relationship.
However, in certain cases the control test is not sufficient to give a complete picture of the
relationship between the parties, owing to the complexity of such a relationship where several
positions have been held by the worker. There are instances when, aside from the employer’s
power to control the employee with respect to the means and methods by which the work is to
be accomplished, economic realities of the employment relations help provide a
comprehensive analysis of the true classification of the individual, whether as employee,
independent contractor, corporate officer or some other capacity.
The better approach would therefore be to adopt a two-tiered test involving: (1) the putative
employer’s power to control the employee with respect to the means and methods by which
the work is to be accomplished; and (2) the underlying economic realities of the activity or
relationship.
This two-tiered test would provide us with a framework of analysis, which would take into
consideration the totality of circumstances surrounding the true nature of the relationship
between the parties. This is especially appropriate in this case where there is no written
agreement or terms of reference to base the relationship on; and due to the complexity of the
relationship based on the various positions and responsibilities given to the worker over the
period of the latter’s employment.
The control test initially found application in the case of Viaña v. Al-Lagadan and Piga,   and
19
lately in Leonardo v. Court of Appeals, 20 where we held that there is an employer-employee
relationship when the person for whom the services are performed reserves the right to control
not only the end achieved but also the manner and means used to achieve that end.
In Sevilla v. Court of Appeals, 21 we observed the need to consider the existing economic
conditions prevailing between the parties, in addition to the standard of right-of-control like
the inclusion of the employee in the payrolls, to give a clearer picture in determining the
existence of an employer-employee relationship based on an analysis of the totality of
economic circumstances of the worker.
Thus, the determination of the relationship between employer and employee depends upon the
circumstances of the whole economic activity, 22 such as: (1) the extent to which the services
performed are an integral part of the employer’s business; (2) the extent of the worker’s
investment in equipment and facilities; (3) the nature and degree of control exercised by the
employer; (4) the worker’s opportunity for profit and loss; (5) the amount of initiative, skill,
judgment or foresight required for the success of the claimed independent enterprise; (6) the
permanency and duration of the relationship between the worker and the employer; and (7) the
degree of dependency of the worker upon the employer for his continued employment in that
line of business. 23
The proper standard of economic dependence is whether the worker is dependent on the
alleged employer for his continued employment in that line of business. 24 In the United States,
the touchstone of economic reality in analyzing possible employment relationships for
purposes of the Federal Labor Standards Act is dependency. 25 By analogy, the benchmark of
economic reality in analyzing possible employment relationships for purposes of the Labor
Code ought to be the economic dependence of the worker on his employer.
By applying the control test, there is no doubt that petitioner is an employee of Kasei
Corporation because she was under the direct control and supervision of Seiji Kamura, the
corporation’s Technical Consultant. She reported for work regularly and served in various
capacities as Accountant, Liaison Officer, Technical Consultant, Acting Manager and
Corporate Secretary, with substantially the same job functions, that is, rendering accounting
and tax services to the company and performing functions necessary and desirable for the
proper operation of the corporation such as securing business permits and other licenses over
an indefinite period of engagement.
Under the broader economic reality test, the petitioner can likewise be said to be an employee
of respondent corporation because she had served the company for six years before her
dismissal, receiving check vouchers indicating her salaries/wages, benefits, 13th month pay,
bonuses and allowances, as well as deductions and Social Security contributions from August
1, 1999 to December 18, 2000. 26 When petitioner was designated General Manager,
respondent corporation made a report to the SSS signed by Irene Ballesteros. Petitioner’s
membership in the SSS as manifested by a copy of the SSS specimen signature card which
was signed by the President of Kasei Corporation and the inclusion of her name in the on-line
inquiry system of the SSS evinces the existence of an employer-employee relationship
between petitioner and respondent corporation. 27
It is therefore apparent that petitioner is economically dependent on respondent corporation for
her continued employment in the latter’s line of business.
In Domasig v. National Labor Relations Commission, 28 we held that in a business
establishment, an identification card is provided not only as a security measure but mainly to
identify the holder thereof as a bona fide employee of the firm that issues it. Together with the
cash vouchers covering petitioner’s salaries for the months stated therein, these matters
constitute substantial evidence adequate to support a conclusion that petitioner was an
employee of private respondent.
We likewise ruled in Flores v. Nuestro 29 that a corporation who registers its workers with the
SSS is proof that the latter were the former’s employees. The coverage of Social Security Law
is predicated on the existence of an employer-employee relationship.
Furthermore, the affidavit of Seiji Kamura dated December 5, 2001 has clearly established
that petitioner never acted as Corporate Secretary and that her designation as such was only
for convenience. The actual nature of petitioner’s job was as Kamura’s direct assistant with
the duty of acting as Liaison Officer in representing the company to secure construction
permits, license to operate and other requirements imposed by government agencies. Petitioner
was never entrusted with corporate documents of the company, nor required to attend the
meeting of the corporation. She was never privy to the preparation of any document for the
corporation, although once in a while she was required to sign prepared documentation for the
company. 30
The second affidavit of Kamura dated March 7, 2002 which repudiated the December 5, 2001
affidavit has been allegedly withdrawn by Kamura himself from the records of the
case. 31 Regardless of this fact, we are convinced that the allegations in the first affidavit are
sufficient to establish that petitioner is an employee of Kasei Corporation.
Granting arguendo, that the second affidavit validly repudiated the first one, courts do not
generally look with favor on any retraction or recanted testimony, for it could have been
secured by considerations other than to tell the truth and would make solemn trials a mockery
and place the investigation of the truth at the mercy of unscrupulous witnesses. 32 A
recantation does not necessarily cancel an earlier declaration, but like any other testimony the
same is subject to the test of credibility and should be received with caution. 33
Based on the foregoing, there can be no other conclusion that petitioner is an employee of
respondent Kasei Corporation. She was selected and engaged by the company for
compensation, and is economically dependent upon respondent for her continued employment
in that line of business. Her main job function involved accounting and tax services rendered
to respondent corporation on a regular basis over an indefinite period of engagement.
Respondent corporation hired and engaged petitioner for compensation, with the power to
dismiss her for cause. More importantly, respondent corporation had the power to control
petitioner with the means and methods by which the work is to be accomplished.
The corporation constructively dismissed petitioner when it reduced her salary by P2,500 a
month from January to September 2001. This amounts to an illegal termination of
employment, where the petitioner is entitled to full backwages. Since the position of petitioner
as accountant is one of trust and confidence, and under the principle of strained relations,
petitioner is further entitled to separation pay, in lieu of reinstatement. 34
A diminution of pay is prejudicial to the employee and amounts to constructive dismissal.
Constructive dismissal is an involuntary resignation resulting in cessation of work resorted to
when continued employment becomes impossible, unreasonable or unlikely; when there is a
demotion in rank or a diminution in pay; or when a clear discrimination, insensibility or
disdain by an employer becomes unbearable to an employee. 35 In Globe Telecom, Inc. v.
Florendo-Flores, 36 we ruled that where an employee ceases to work due to a demotion of rank
or a diminution of pay, an unreasonable situation arises which creates an adverse working
environment rendering it impossible for such employee to continue working for her employer.
Hence, her severance from the company was not of her own making and therefore amounted
to an illegal termination of employment.
In affording full protection to labor, this Court must ensure equal work opportunities
regardless of sex, race or creed. Even as we, in every case, attempt to carefully balance the
fragile relationship between employees and employers, we are mindful of the fact that the
policy of the law is to apply the Labor Code to a greater number of employees. This would
enable employees to avail of the benefits accorded to them by law, in line with the
constitutional mandate giving maximum aid and protection to labor, promoting their welfare
and reaffirming it as a primary social economic force in furtherance of social justice and
national development.
WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of
Appeals dated October 29, 2004 and October 7, 2005, respectively, in CA-G.R. SP No. 78515
are ANNULLED and SET ASIDE. The Decision of the National Labor Relations
Commission dated April 15, 2003 in NLRC NCR CA No. 032766-02, is REINSTATED. The
case is REMANDED to the Labor Arbiter for the recomputation of petitioner Angelina
Francisco’s full backwages from the time she was illegally terminated until the date of finality
of this decision, and separation pay representing one-half month pay for every year of service,
where a fraction of at least six months shall be considered as one whole year.
SO ORDERED.
BROADCAST-TALENTS-PERFORMERS
G.R. No. 167648             January 28, 2008
TELEVISION AND PRODUCTION EXPONENTS, INC. and/or ANTONIO P.
TUVIERA, petitioners,
vs.
ROBERTO C. SERVAÑA, respondent.
DECISION
TINGA, J.:
This petition for review under Rule 45 assails the 21 December 2004 Decision 1 and 8 April
2005 Resolution2 of the Court of Appeals declaring Roberto Servaña (respondent) a regular
employee of petitioner Television and Production Exponents, Inc. (TAPE). The appellate court
likewise ordered TAPE to pay nominal damages for its failure to observe statutory due process
in the termination of respondent’s employment for authorized cause.
TAPE is a domestic corporation engaged in the production of television programs, such as the
long-running variety program, "Eat Bulaga!". Its president is Antonio P. Tuviera (Tuviera).
Respondent Roberto C. Servaña had served as a security guard for TAPE from March 1987
until he was terminated on 3 March 2000.
Respondent filed a complaint for illegal dismissal and nonpayment of benefits against TAPE.
He alleged that he was first connected with Agro-Commercial Security Agency but was later
on absorbed by TAPE as a regular company guard. He was detailed at Broadway Centrum in
Quezon City where "Eat Bulaga!" regularly staged its productions. On 2 March 2000,
respondent received a memorandum informing him of his impending dismissal on account of
TAPE’s decision to contract the services of a professional security agency. At the time of his
termination, respondent was receiving a monthly salary of P6,000.00. He claimed that the
holiday pay, unpaid vacation and sick leave benefits and other monetary considerations were
withheld from him. He further contended that his dismissal was undertaken without due
process and violative of existing labor laws, aggravated by nonpayment of separation pay. 3
In a motion to dismiss which was treated as its position paper, TAPE countered that the labor
arbiter had no jurisdiction over the case in the absence of an employer-employee relationship
between the parties. TAPE made the following assertions: (1) that respondent was initially
employed as a security guard for Radio Philippines Network (RPN-9); (2) that he was tasked
to assist TAPE during its live productions, specifically, to control the crowd; (3) that when
RPN-9 severed its relationship with the security agency, TAPE engaged respondent’s services,
as part of the support group and thus a talent, to provide security service to production staff,
stars and guests of "Eat Bulaga!" as well as to control the audience during the one-and-a-half
hour noontime program; (4) that it was agreed that complainant would render his services until
such time that respondent company shall have engaged the services of a professional security
agency; (5) that in 1995, when his contract with RPN-9 expired, respondent was retained as a
talent and a member of the support group, until such time that TAPE shall have engaged the
services of a professional security agency; (6) that respondent was not prevented from seeking
other employment, whether or not related to security services, before or after attending to his
"Eat Bulaga!" functions; (7) that sometime in late 1999, TAPE started negotiations for the
engagement of a professional security agency, the Sun Shield Security Agency; and (8) that on
2 March 2000, TAPE issued memoranda to all talents, whose functions would be rendered
redundant by the engagement of the security agency, informing them of the management’s
decision to terminate their services.4
TAPE averred that respondent was an independent contractor falling under the talent group
category and was working under a special arrangement which is recognized in the industry. 5
Respondent for his part insisted that he was a regular employee having been engaged to
perform an activity that is necessary and desirable to TAPE’s business for thirteen (13) years. 6
On 29 June 2001, Labor Arbiter Daisy G. Cauton-Barcelona declared respondent to be a
regular employee of TAPE. The Labor Arbiter relied on the nature of the work of respondent,
which is securing and maintaining order in the studio, as necessary and desirable in the usual
business activity of TAPE. The Labor Arbiter also ruled that the termination was valid on the
ground of redundancy, and ordered the payment of respondent’s separation pay equivalent to
one (1)-month pay for every year of service. The dispositive portion of the decision reads:
WHEREFORE, complainant’s position is hereby declared redundant. Accordingly,
respondents are hereby ordered to pay complainant his separation pay computed at
the rate of one (1) month pay for every year of service or in the total amount
of P78,000.00.7
On appeal, the National Labor Relations Commission (NLRC) in a Decision 8 dated 22 April
2002 reversed the Labor Arbiter and considered respondent a mere program employee, thus:
We have scoured the records of this case and we find nothing to support the Labor
Arbiter’s conclusion that complainant was a regular employee.
xxxx
The primary standard to determine regularity of employment is the reasonable
connection between the particular activity performed by the employee in relation to
the usual business or trade of the employer. This connection can be determined by
considering the nature and work performed and its relation to the scheme of the
particular business or trade in its entirety. x x x Respondent company is engaged in
the business of production of television shows. The records of this case also show
that complainant was employed by respondent company beginning 1995 after
respondent company transferred from RPN-9 to GMA-7, a fact which complainant
does not dispute. His last salary was P5,444.44 per month. In such industry, security
services may not be deemed necessary and desirable in the usual business of the
employer. Even without the performance of such services on a regular basis,
respondent’s company’s business will not grind to a halt.
xxxx
Complainant was indubitably a program employee of respondent company. Unlike
[a] regular employee, he did not observe working hours x x x. He worked for other
companies, such as M-Zet TV Production, Inc. at the same time that he was working
for respondent company. The foregoing indubitably shows that complainant-
appellee was a program employee. Otherwise, he would have two (2) employers at
the same time.9
Respondent filed a motion for reconsideration but it was denied in a Resolution 10 dated 28
June 2002.
Respondent filed a petition for certiorari with the Court of Appeals contending that the NLRC
acted with grave abuse of discretion amounting to lack or excess of jurisdiction when it
reversed the decision of the Labor Arbiter. Respondent asserted that he was a regular
employee considering the nature and length of service rendered. 11
Reversing the decision of the NLRC, the Court of Appeals found respondent to be a regular
employee. We quote the dispositive portion of the decision:
IN LIGHT OF THE FOREGOING, the petition is hereby GRANTED. The
Decision dated 22 April 2002 of the public respondent NLRC reversing the Decision
of the Labor Arbiter and its Resolution dated 28 June 2002 denying petitioner’s
motion for reconsideration are REVERSED and SET ASIDE. The Decision dated
29 June 2001 of the Labor Arbiter is REINSTATED with MODIFICATION in
that private respondents are ordered to pay jointly and severally petitioner the
amount of P10,000.00 as nominal damages for non-compliance with the statutory
due process.
SO ORDERED.12
Finding TAPE’s motion for reconsideration without merit, the Court of Appeals issued a
Resolution13 dated 8 April 2005 denying said motion.
TAPE filed the instant petition for review raising substantially the same grounds as those in its
petition for certiorari before the Court of Appeals. These matters may be summed up into one
main issue: whether an employer-employee relationship exists between TAPE and respondent.
On 27 September 2006, the Court gave due course to the petition and considered the case
submitted for decision.14
At the outset, it bears emphasis that the existence of employer-employee relationship is
ultimately a question of fact. Generally, only questions of law are entertained in appeals by
certiorari to the Supreme Court. This rule, however, is not absolute. Among the several
recognized exceptions is when the findings of the Court of Appeals and Labor Arbiters, on one
hand, and that of the NLRC, on the other, are conflicting, 15 as obtaining in the case at bar.
Jurisprudence is abound with cases that recite the factors to be considered in determining the
existence of employer-employee relationship, namely: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power
to control the employee with respect to the means and method by which the work is to be
accomplished.16 The most important factor involves the control test. Under the control test,
there is an employer-employee relationship when the person for whom the services are
performed reserves the right to control not only the end achieved but also the manner and
means used to achieve that end.17
In concluding that respondent was an employee of TAPE, the Court of Appeals applied the
"four-fold test" in this wise:
First. The selection and hiring of petitioner was done by private respondents. In
fact, private respondents themselves admitted having engaged the services of
petitioner only in 1995 after TAPE severed its relations with RPN Channel 9.
By informing petitioner through the Memorandum dated 2 March 2000, that his
services will be terminated as soon as the services of the newly hired security
agency begins, private respondents in effect acknowledged petitioner to be their
employee. For the right to hire and fire is another important element of the
employer-employee relationship.
Second. Payment of wages is one of the four factors to be considered in determining
the existence of employer-employee relation. . . Payment as admitted by private
respondents was given by them on a monthly basis at a rate of P5,444.44.
Third. Of the four elements of the employer-employee relationship, the "control
test" is the most important. x x x
The bundy cards representing the time petitioner had reported for work are evident
proofs of private respondents’ control over petitioner more particularly with the time
he is required to report for work during the noontime program of "Eat Bulaga!" If it
were not so, petitioner would be free to report for work anytime even not during the
noontime program of "Eat Bulaga!" from 11:30 a.m. to 1:00 p.m. and still gets his
compensation for being a "talent." Precisely, he is being paid for being the security
of "Eat Bulaga!" during the above-mentioned period. The daily time cards of
petitioner are not just for mere record purposes as claimed by private respondents. It
is a form of control by the management of private respondent TAPE. 18
TAPE asseverates that the Court of Appeals erred in applying the "four-fold test" in
determining the existence of employer-employee relationship between it and respondent. With
respect to the elements of selection, wages and dismissal, TAPE proffers the following
arguments: that it never hired respondent, instead it was the latter who offered his services as a
talent to TAPE; that the Memorandum dated 2 March 2000 served on respondent was for the
discontinuance of the contract for security services and not a termination letter; and that the
talent fees given to respondent were the pre-agreed consideration for the services rendered and
should not be construed as wages. Anent the element of control, TAPE insists that it had no
control over respondent in that he was free to employ means and methods by which he is to
control and manage the live audiences, as well as the safety of TAPE’s stars and guests. 19
The position of TAPE is untenable. Respondent was first connected with Agro-Commercial
Security Agency, which assigned him to assist TAPE in its live productions. When the
security agency’s contract with RPN-9 expired in 1995, respondent was absorbed by TAPE or,
in the latter’s language, "retained as talent." 20 Clearly, respondent was hired by TAPE.
Respondent presented his identification card 21 to prove that he is indeed an employee of
TAPE. It has been in held that in a business establishment, an identification card is usually
provided not just as a security measure but to mainly identify the holder thereof as a  bona
fide employee of the firm who issues it.22
Respondent claims to have been receiving P5,444.44 as his monthly salary while TAPE
prefers to designate such amount as talent fees. Wages, as defined in the Labor Code, are
remuneration or earnings, however designated, capable of being expressed in terms of money,
whether fixed or ascertained on a time, task, piece or commission basis, or other method of
calculating the same, which is payable by an employer to an employee under a written or
unwritten contract of employment for work done or to be done, or for service rendered or to be
rendered. It is beyond dispute that respondent received a fixed amount as monthly
compensation for the services he rendered to TAPE.
The Memorandum informing respondent of the discontinuance of his service proves that
TAPE had the power to dismiss respondent.
Control is manifested in the bundy cards submitted by respondent in evidence. He was
required to report daily and observe definite work hours. To negate the element of control,
TAPE presented a certification from M-Zet Productions to prove that respondent also worked
as a studio security guard for said company. Notably, the said certificate categorically stated
that respondent reported for work on Thursdays from 1992 to 1995. It can be recalled that
during said period, respondent was still working for RPN-9. As admitted by TAPE, it
absorbed respondent in late 1995.23
TAPE further denies exercising control over respondent and maintains that the latter is an
independent contractor.24 Aside from possessing substantial capital or investment, a legitimate
job contractor or subcontractor carries on a distinct and independent business and undertakes
to perform the job, work or service on its own account and under its own responsibility
according to its own manner and method, and free from the control and direction of the
principal in all matters connected with the performance of the work except as to the results
thereof.25 TAPE failed to establish that respondent is an independent contractor. As found by
the Court of Appeals:
We find the annexes submitted by the private respondents insufficient to prove that
herein petitioner is indeed an independent contractor. None of the above conditions
exist in the case at bar. Private respondents failed to show that petitioner has
substantial capital or investment to be qualified as an independent contractor. They
likewise failed to present a written contract which specifies the performance of a
specified piece of work, the nature and extent of the work and the term and duration
of the relationship between herein petitioner and private respondent TAPE. 26
TAPE relies on Policy Instruction No. 40, issued by the Department of Labor, in classifying
respondent as a program employee and equating him to be an independent contractor.
Policy Instruction No. 40 defines program employees as—
x x x those whose skills, talents or services are engaged by the station for a
particular or specific program or undertaking and who are not required to observe
 normal working hours such that on some days they work for less than eight (8) hours
and on other days beyond the normal work hours observed by station employees and
are allowed to enter into employment contracts with other persons, stations,
advertising agencies or sponsoring companies. The engagement of program
employees, including those hired by advertising or sponsoring companies, shall be
under a written contract specifying, among other things, the nature of the work to be
performed, rates of pay and the programs in which they will work. The contract shall
be duly registered by the station with the Broadcast Media Council within three (3)
days from its consummation.27
TAPE failed to adduce any evidence to prove that it complied with the requirements laid down
in the policy instruction. It did not even present its contract with respondent. Neither did it
comply with the contract-registration requirement.
Even granting arguendo that respondent is a program employee, stills, classifying him as an
independent contractor is misplaced. The Court of Appeals had this to say:
We cannot subscribe to private respondents’ conflicting theories. The theory of
private respondents that petitioner is an independent contractor runs counter to their
very own allegation that petitioner is a talent or a program employee. An
independent contractor is not an employee of the employer, while a talent or
program employee is an employee. The only difference between a talent or program
employee and a regular employee is the fact that a regular employee is entitled to all
the benefits that are being prayed for. This is the reason why private respondents try
to seek refuge under the concept of an independent contractor theory. For if
petitioner were indeed an independent contractor, private respondents will not be
liable to pay the benefits prayed for in petitioner’s complaint. 28
More importantly, respondent had been continuously under the employ of TAPE from 1995
until his termination in March 2000, or for a span of 5 years. Regardless of whether or not
respondent had been performing work that is necessary or desirable to the usual business of
TAPE, respondent is still considered a regular employee under Article 280 of the Labor Code
which provides:
Art. 280. Regular and Casual Employment.—The provisions of written agreement to
the contrary notwithstanding and regardless of the oral agreement of the parties, an
employment shall be deemed to be regular where the employee has been engaged to
perform activities which are usually necessary or desirable in the usual business or
trade of the employer, except where the employment has been fixed for a specific
project or undertaking the completion or termination of which has been determined
at the time of engagement of the employee or where the work or service to be
performed is seasonal in nature and employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered by the preceding
paragraph. Provided, that, any employee who has rendered at least one year of
service, whether such service is continuous or broken, shall be considered a regular
employee with respect to the activity in which he is employed and his employment
shall continue while such activity exists.
As a regular employee, respondent cannot be terminated except for just cause or when
authorized by law.29 It is clear from the tenor of the 2 March 2000 Memorandum that
respondent’s termination was due to redundancy. Thus, the Court of Appeals correctly
disposed of this issue, viz:
Article 283 of the Labor Code provides that the employer may also terminate the
employment of any employee due to the installation of labor saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation of operation
of the establishment or undertaking unless the closing is for the purpose of
circumventing the provisions of this Title, by serving a written notice on the workers
and the Ministry of Labor and Employment at least one (1) month before the
intended date thereof. In case of termination due to the installation of labor saving
devices or redundancy, the worker affected thereby shall be entitled to a separation
pay equivalent to at least his one (1) month pay or to at least one (1) month pay for
every year or service, whichever is higher.
xxxx
We uphold the finding of the Labor Arbiter that "complainant [herein petitioner]
was terminated upon [the] management’s option to professionalize the security
services in its operations. x x x" However, [we] find that although petitioner’s
services [sic] was for an authorized cause, i.e., redundancy, private respondents
failed to prove that it complied with service of written notice to the Department of
Labor and Employment at least one month prior to the intended date of
retrenchment. It bears stressing that although notice was served upon petitioner
through a Memorandum dated 2 March 2000, the effectivity of his dismissal is
fifteen days from the start of the agency’s take over which was on 3 March 2000.
Petitioner’s services with private respondents were severed less than the month
requirement by the law.
Under prevailing jurisprudence the termination for an authorized cause requires
payment of separation pay. Procedurally, if the dismissal is based on authorized
causes under Articles 283 and 284, the employer must give the employee and the
Deparment of Labor and Employment written notice 30 days prior to the effectivity
of his separation. Where the dismissal is for an authorized cause but due process was
not observed, the dismissal should be upheld. While the procedural infirmity cannot
be cured, it should not invalidate the dismissal. However, the employer should be
liable for non-compliance with procedural requirements of due process.
xxxx
Under recent jurisprudence, the Supreme Court fixed the amount of P30,000.00 as
nominal damages. The basis of the violation of petitioners’ right to statutory due
process by the private respondents warrants the payment of indemnity in the form of
nominal damages. The amount of such damages is addressed to the sound discretion
of the court, taking into account the relevant circumstances. We believe this form of
damages would serve to deter employer from future violations of the statutory due
process rights of the employees. At the very least, it provides a vindication or
recognition of this fundamental right granted to the latter under the Labor Code and
 its Implementing Rules. Considering the circumstances in the case at bench, we
deem it proper to fix it at P10,000.00.30
In sum, we find no reversible error committed by the Court of Appeals in its assailed decision.
However, with respect to the liability of petitioner Tuviera, president of TAPE, absent any
showing that he acted with malice or bad faith in terminating respondent, he cannot be held
solidarily liable with TAPE.31 Thus, the Court of Appeals ruling on this point has to be
modified.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED
with MODIFICATION in that only petitioner Television and Production Exponents, Inc. is
liable to pay respondent the amount of P10,000.00 as nominal damages for non-compliance
with the statutory due process and petitioner Antonio P. Tuviera is accordingly absolved from
liability.
SO ORDERED.
G.R. No. 164652              June 8, 2007
THELMA DUMPIT-MURILLO, petitioner,
vs.
COURT OF APPEALS, ASSOCIATED BROADCASTING COMPANY, JOSE JAVIER
AND EDWARD TAN, respondents.
DECISION
QUISUMBING, J.:
This petition seeks to reverse and set aside both the Decision 1 dated January 30, 2004 of the
Court of Appeals in CA-G.R. SP No. 63125 and its Resolution 2 dated June 23, 2004 denying
the motion for reconsideration. The Court of Appeals had overturned the Resolution 3 dated
August 30, 2000 of the National Labor Relations Commission (NLRC) ruling that petitioner
was illegally dismissed.
The facts of the case are as follows:
On October 2, 1995, under Talent Contract No. NT95-1805, 4 private respondent Associated
Broadcasting Company (ABC) hired petitioner Thelma Dumpit-Murillo as a newscaster and
co-anchor for Balitang-Balita, an early evening news program. The contract was for a period
of three months. It was renewed under Talent Contracts Nos. NT95-1915, NT96-3002, NT98-
4984 and NT99-5649.5 In addition, petitioner’s services were engaged for the program "Live
on Five." On September 30, 1999, after four years of repeated renewals, petitioner’s talent
contract expired. Two weeks after the expiration of the last contract, petitioner sent a letter to
Mr. Jose Javier, Vice President for News and Public Affairs of ABC, informing the latter that
she was still interested in renewing her contract subject to a salary increase. Thereafter,
petitioner stopped reporting for work. On November 5, 1999, she wrote Mr. Javier another
letter,6 which we quote verbatim:
xxxx
Dear Mr. Javier:
On October 20, 1999, I wrote you a letter in answer to your query by way of a marginal note
"what terms and conditions" in response to my first letter dated October 13, 1999. To date, or
for more than fifteen (15) days since then, I have not received any formal written reply. xxx
In view hereof, should I not receive any formal response from you until Monday, November 8,
1999, I will deem it as a constructive dismissal of my services.
xxxx
A month later, petitioner sent a demand letter 7 to ABC, demanding: (a) reinstatement to her
former position; (b) payment of unpaid wages for services rendered from September 1 to
October 20, 1999 and full backwages; (c) payment of 13th month pay, vacation/sick/service
incentive leaves and other monetary benefits due to a regular employee starting March 31,
1996. ABC replied that a check covering petitioner’s talent fees for September 16 to October
20, 1999 had been processed and prepared, but that the other claims of petitioner had no basis
in fact or in law.
On December 20, 1999, petitioner filed a complaint 8 against ABC, Mr. Javier and Mr. Edward
Tan, for illegal constructive dismissal, nonpayment of salaries, overtime pay, premium pay,
separation pay, holiday pay, service incentive leave pay, vacation/sick leaves and 13th month
pay in NLRC-NCR Case No. 30-12-00985-99. She likewise demanded payment for moral,
exemplary and actual damages, as well as for attorney’s fees.
The parties agreed to submit the case for resolution after settlement failed during the
mandatory conference/conciliation. On March 29, 2000, the Labor Arbiter dismissed the
complaint.9
On appeal, the NLRC reversed the Labor Arbiter in a Resolution dated August 30, 2000. The
NLRC held that an employer-employee relationship existed between petitioner and ABC; that
the subject talent contract was void; that the petitioner was a regular employee illegally
dismissed; and that she was entitled to reinstatement and backwages or separation pay, aside
from 13th month pay and service incentive leave pay, moral and exemplary damages and
attorney’s fees. It held as follows:
WHEREFORE, the Decision of the Arbiter dated 29 March 2000 is
hereby REVERSED/SET ASIDE and a NEW ONE promulgated:
1) declaring respondents to have illegally dismissed complainant from her regular work
therein and thus, ordering them to reinstate her in her former position without loss of seniority
right[s] and other privileges and to pay her full backwages, inclusive of allowances and other
benefits, including 13th month pay based on her said latest rate of ₱28,000.00/mo. from the
date of her illegal dismissal on 21 October 1999 up to finality hereof, or at complainant’s
option, to pay her separation pay of one (1) month pay per year of service based on said latest
monthly rate, reckoned from date of hire on 30 September 1995 until finality hereof;
2) to pay complainant’s accrued SILP [Service Incentive Leave Pay] of 5 days pay per year
and 13th month pay for the years 1999, 1998 and 1997 of ₱19,236.00 and ₱84,000.00,
respectively and her accrued salary from 16 September 1999 to 20 October 1999 of
₱32,760.00 plus legal interest at 12% from date of judicial demand on 20 December 1999 until
finality hereof;
3) to pay complainant moral damages of ₱500,000.00, exemplary damages of ₱350,000.00
and 10% of the total of the adjudged monetary awards as attorney’s fees.
Other monetary claims of complainant are dismissed for lack of merit.
SO ORDERED. 10
After its motion for reconsideration was denied, ABC elevated the case to the Court of
Appeals in a petition for certiorari under Rule 65. The petition was first dismissed for failure
to attach particular documents,11 but was reinstated on grounds of the higher interest of
justice.12
Thereafter, the appellate court ruled that the NLRC committed grave abuse of discretion, and
reversed the decision of the NLRC.13 The appellate court reasoned that petitioner should not be
allowed to renege from the stipulations she had voluntarily and knowingly executed by
invoking the security of tenure under the Labor Code. According to the appellate court,
petitioner was a fixed-term employee and not a regular employee within the ambit of Article
28014 of the Labor Code because her job, as anticipated and agreed upon, was only for a
specified time.15
Aggrieved, petitioner now comes to this Court on a petition for review, raising issues as
follows:
I. THIS HONORABLE COURT CAN REVIEW THE FINDINGS OF THE HONORABLE
COURT OF APPEALS, THE DECISION OF WHICH IS NOT IN ACCORD WITH LAW
OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT[;]
II. THE PRO-FORMA TALENT CONTRACTS, AS CORRECTLY FOUND BY THE NLRC
– FIRST DIVISION, ARE "ANTI-REGULARIZATION DEVICES" WHICH MUST BE
STRUCK DOWN FOR REASONS OF PUBLIC POLICY[;]
III. BY REASON OF THE CONTINUOUS AND SUCCESSIVE RENEWALS OF THE
THREE-MONTH TALENT CONTRACTS, AN EMPLOYER-EMPLOYEE
RELATIONSHIP WAS CREATED AS PROVIDED FOR UNDER ARTICLE 280 OF THE
LABOR CODE[;]
IV. BY THE CONSTRUCTIVE DISMISSAL OF HEREIN PETITIONER, AS A REGULAR
EMPLOYEE, THERE WAS A DENIAL OF PETITIONER’S RIGHT TO DUE PROCESS
THUS ENTITLING HER TO THE MONEY CLAIMS AS STATED IN THE
COMPLAINT[.]16
The issues for our disposition are: (1) whether or not this Court can review the findings of the
Court of Appeals; and (2) whether or not under Rule 45 of the Rules of Court the Court of
Appeals committed a reversible error in its Decision.
On the first issue, private respondents contend that the issues raised in the instant petition are
mainly factual and that there is no showing that the said issues have been resolved arbitrarily
and without basis. They add that the findings of the Court of Appeals are supported by
overwhelming wealth of evidence on record as well as prevailing jurisprudence on the
matter.17
Petitioner however contends that this Court can review the findings of the Court of Appeals,
since the appellate court erred in deciding a question of substance in a way which is not in
accord with law or with applicable decisions of this Court. 18
We agree with petitioner. Decisions, final orders or resolutions of the Court of Appeals in any
case — regardless of the nature of the action or proceeding involved — may be appealed to
this Court through a petition for review. This remedy is a continuation of the appellate process
over the original case, 19 and considering there is no congruence in the findings of the NLRC
and the Court of Appeals regarding the status of employment of petitioner, an exception to the
general rule that this Court is bound by the findings of facts of the appellate court, 20 we can
review such findings.
On the second issue, private respondents contend that the Court of Appeals did not err when it
upheld the validity of the talent contracts voluntarily entered into by petitioner. It further
stated that prevailing jurisprudence has recognized and sustained the absence of employer-
employee relationship between a talent and the media entity which engaged the talent’s
services on a per talent contract basis, citing the case of Sonza v. ABS-CBN Broadcasting
Corporation.21
Petitioner avers however that an employer-employee relationship was created when the private
respondents started to merely renew the contracts repeatedly fifteen times or for four
consecutive years.22
Again, we agree with petitioner. The Court of Appeals committed reversible error when it held
that petitioner was a fixed-term employee. Petitioner was a regular employee under
contemplation of law. The practice of having fixed-term contracts in the industry does not
automatically make all talent contracts valid and compliant with labor law. The assertion that a
talent contract exists does not necessarily prevent a regular employment status. 23
Further, the Sonza case is not applicable. In Sonza, the television station did not instruct Sonza
how to perform his job. How Sonza delivered his lines, appeared on television, and sounded
on radio were outside the television station’s control. Sonza had a free hand on what to say or
discuss in his shows provided he did not attack the television station or its interests. Clearly,
the television station did not exercise control over the means and methods of the performance
of Sonza’s work.24 In the case at bar, ABC had control over the performance of petitioner’s
work. Noteworthy too, is the comparatively low ₱28,000 monthly pay of petitioner 25 vis the
₱300,000 a month salary of Sonza, 26 that all the more bolsters the conclusion that petitioner
was not in the same situation as Sonza.
The contract of employment of petitioner with ABC had the following stipulations:
xxxx
1. SCOPE OF SERVICES – TALENT agrees to devote his/her talent, time, attention and best
efforts in the performance of his/her duties and responsibilities as Anchor/Program
Host/Newscaster of the Program, in accordance with the direction of ABC and/or its
authorized representatives.
1.1. DUTIES AND RESPONSIBILITIES – TALENT shall:
a. Render his/her services as a newscaster on the Program;
b. Be involved in news-gathering operations by conducting interviews on- and off-the-air;
c. Participate in live remote coverages when called upon;
d. Be available for any other news assignment, such as writing, research or camera work;
e. Attend production meetings;
f. On assigned days, be at the studios at least one (1) hour before the live telecasts;
g. Be present promptly at the studios and/or other place of assignment at the time designated
by ABC;
h. Keep abreast of the news;
i. Give his/her full cooperation to ABC and its duly authorized representatives in the
production and promotion of the Program; and
j. Perform such other functions as may be assigned to him/her from time to time.
xxxx
1.3 COMPLIANCE WITH STANDARDS, INSTRUCTIONS AND OTHER RULES AND
REGULATIONS – TALENT agrees that he/she will promptly and faithfully comply with the
requests and instructions, as well as the program standards, policies, rules and regulations of
ABC, the KBP and the government or any of its agencies and instrumentalities. 27
xxxx
In Manila Water Company, Inc. v. Pena,  we said that the elements to determine the existence
28
of an employment relationship are: (a) the selection and engagement of the employee, (b) the
payment of wages, (c) the power of dismissal, and (d) the employer’s power to control. The
most important element is the employer’s control of the employee’s conduct, not only as to the
result of the work to be done, but also as to the means and methods to accomplish it. 29
The duties of petitioner as enumerated in her employment contract indicate that ABC had
control over the work of petitioner. Aside from control, ABC also dictated the work
assignments and payment of petitioner’s wages. ABC also had power to dismiss her. All these
being present, clearly, there existed an employment relationship between petitioner and ABC.
Concerning regular employment, the law provides for two kinds of employees, namely: (1)
those who are engaged to perform activities which are usually necessary or desirable in the
usual business or trade of the employer; and (2) those who have rendered at least one year of
service, whether continuous or broken, with respect to the activity in which they are
employed.30 In other words, regular status arises from either the nature of work of the
employee or the duration of his employment. 31 In Benares v. Pancho,32 we very succinctly
said:
…[T]he primary standard for determining regular employment is the reasonable connection
between the particular activity performed by the employee vis-à-vis the usual trade or business
of the employer. This connection can be determined by considering the nature of the work
performed and its relation to the scheme of the particular business or trade in its entirety. If the
employee has been performing the job for at least a year, even if the performance is not
continuous and merely intermittent, the law deems repeated and continuing need for its
performance as sufficient evidence of the necessity if not indispensability of that activity to the
business. Hence, the employment is considered regular, but only with respect to such activity
and while such activity exists.33
In our view, the requisites for regularity of employment have been met in the instant case.
Gleaned from the description of the scope of services aforementioned, petitioner’s work was
necessary or desirable in the usual business or trade of the employer which includes, as a pre-
condition for its enfranchisement, its participation in the government’s news and public
information dissemination. In addition, her work was continuous for a period of four years.
This repeated engagement under contract of hire is indicative of the necessity and desirability
of the petitioner’s work in private respondent ABC’s business. 34
The contention of the appellate court that the contract was characterized by a valid fixed-
period employment is untenable. For such contract to be valid, it should be shown that the
fixed period was knowingly and voluntarily agreed upon by the parties. There should have
been no force, duress or improper pressure brought to bear upon the employee; neither should
there be any other circumstance that vitiates the employee’s consent. 35 It should satisfactorily
appear that the employer and the employee dealt with each other on more or less equal terms
with no moral dominance being exercised by the employer over the employee. 36 Moreover,
fixed-term employment will not be considered valid where, from the circumstances, it is
apparent that periods have been imposed to preclude acquisition of tenurial security by the
employee.37
In the case at bar, it does not appear that the employer and employee dealt with each other on
equal terms. Understandably, the petitioner could not object to the terms of her employment
contract because she did not want to lose the job that she loved and the workplace that she had
grown accustomed to,38 which is exactly what happened when she finally manifested her
intention to negotiate. Being one of the numerous newscasters/broadcasters of ABC and
desiring to keep her job as a broadcasting practitioner, petitioner was left with no choice but to
affix her signature of conformity on each renewal of her contract as already prepared by
private respondents; otherwise, private respondents would have simply refused to renew her
contract. Patently, the petitioner occupied a position of weakness vis-à-vis the employer.
Moreover, private respondents’ practice of repeatedly extending petitioner’s 3-month contract
for four years is a circumvention of the acquisition of regular status. Hence, there was no valid
fixed-term employment between petitioner and private respondents.
While this Court has recognized the validity of fixed-term employment contracts in a number
of cases, it has consistently emphasized that when the circumstances of a case show that the
periods were imposed to block the acquisition of security of tenure, they should be struck
down for being contrary to law, morals, good customs, public order or public policy. 39

As a regular employee, petitioner is entitled to security of tenure and can be dismissed only for
just cause and after due compliance with procedural due process. Since private respondents
did not observe due process in constructively dismissing the petitioner, we hold that there was
an illegal dismissal.

WHEREFORE, the challenged Decision dated January 30, 2004 and Resolution dated June
23, 2004 of the Court of Appeals in CA-G.R. SP No. 63125, which held that the petitioner was
a fixed-term employee, are REVERSED and SET ASIDE. The NLRC decision
is AFFIRMED.

Costs against private respondents.

SO ORDERED.
G.R. No. 228334
SPS. TEDY GARCIA AND PILAR GARCIA, Petitioner
vs.
LORETA T. SANTOS, WINSTON SANTOS AND CONCHITA TAN, Respondents
DECISION
CAGUIOA, J.:
Before the Court is a Petition for Review on Certiorari1 (Petition) under Rule, 45 of the Rules
of Court filed by petitioners Tedy Garcia (Tedy) and Pilar Garcia (Pilar) (collectively the Sps.
Garcia), assailing the Decision2 dated June 30, 2016 (assailed Decision) and Resolution 3 dated
October 5, 2016 (assailed Resolution) of the Court of Appeals, 4 (CA, Special 18th Division) in
CA-G.R. CEB-CV No. 05701.
The Facts and Antecedent Proceedings
As narrated by the CA in its assailed Decision and as culled from the records of the instant
case, the essential facts and antecedent proceedings of the case are as follows:
The instant case stems from a Complaint5 for "[easements of light, air and view, lateral
support, and intermediate distances and damages with prayer for writ of preliminary injunction
and/or issuance of temporary restraining order]" (Complaint) filed on February 18, 2009 by
the Sps. Garcia against the respondents Spouses Loreta and Winston Santos (the Sps. Santos)
and respondent Conchita Tan (Tan) before the Regional Trial Court of Iloilo City, Branch 31
(RTC). The case was docketed as Civil Case No. 09-30023.
As alleged in the Complaint, the Sps. Garcia are the registered owners of Lot 2, Blk. 1, San
Jose Street, Southville Subdivision, Molo, Iloilo City (subject property), covered by Transfer
Certificate of Title (TCT) No. T- 130666.6
The subject property, which has been occupied by the Sps. Garcia for about eleven (11) years,
has a one-storey residential house erected thereon and was purchased by them from the Sps.
Santos in October 1998. At the time of the purchase of the subject property from the Sps.
Santos, the one-storey house was already constructed. Also, at the time of the acquisition of
the subject property, the adjoining lot, Lot 1, which is owned by the Sps. Santos, was an idle
land without any improvements. Lot 1 is covered by TCT No. T-114137, 7 registered under the
name of the Sps. Santos. Lot 1 remained empty until the Sps. Santos started the construction
of a two-storey residential house therein on January 24, 2009. Upon inquiry from the
construction workers, Tedy was erroneously informed that Tan was the new owner of Lot 1.
As further alleged in the Complaint, the building constructed on Lot 1 is taller than the Sps.
Garcia's one-storey residential house. As such, the Sps. Santos' building allegedly obstructed
the Sps. Garcia's right to light, air, and view. The Sps. Garcia bemoaned how, prior to the
construction on Lot 1, they received enough bright and natural light from their windows. The
construction allegedly rendered the Sps. Garcia's house dark such that they are unable to do
their normal undertakings in the bedroom, living room and other areas of the house without
switching on their lights. The Sps. Garcia likewise alleged that the said structure constructed
on Lot 1 is at a distance of less than three meters away from the boundary line, in alleged
violation of their easement. Furthermore, the Sps. Santos allegedly m de excavations on Lot 1
without providing sufficient lateral support to the concrete perimeter fence of the Sps. Garcia.
Hence, in their Complaint, aside from asking for damages, the Sps. Garcia prayed that: the
RTC declare them as having acquired the easement of light, air, and view against Lot 1; the
respondents be prohibited from constructing any structure on Lot 1 taller than the Sps. Garcia's
one-storey residential house; the respondents be prohibited from building any structure on Lot
1 at a distance of less than three meters from the boundary line; and the respondents be
prohibited from making excavations on Lot 1 that deprive sufficient lateral support to the
fence located on the subject property.
On February 19, 2009, the RTC issued an Order 8 granting a Temporary Restraining Order
(TRO) enjoining the Sps. Santos from further undertaking further construction work on Lot 1.
The TRO was eventually lifted on March 20, 2009.9
In their Amended Answer with Counterclaim 10 dated February 27, 2009, the respondents
asserted that Tan was incorrectly impleaded, denying that Tan is involved whatsoever in the
matter at hand, with the latter not being the registered owner of Lot 1.
Further, the respondents argued that the Sps. Garcia failed to allege how they acquired the
easement of light and view either by prescription or title. The respondents maintained that the
mere presence of windows on the one-storey house of the Sps. Garcia in itself does not give
rise to an easement by title, stressing that there was no tenement standing on Lot 1 at the time
of the construction of the one-storey house standing on the subject property. The respondents
also argued that the Sps. Garcia also failed to acquire an easement by prescription because
they never alleged that they made a formal prohibition of the construction of a taller structure
on Lot 1.
With respect to the Sps. Garcia's claims on easement of lateral and subjacent support, the
respondents maintained that such claims are baseless because the excavation works were all
made within Lot 1 and were not deep enough to deprive the Sps. Garcia subjacent and lateral
support. Moreover, these excavations were already finished without causing any damage to the
Sps. Garcia's house.
The trial then ensued, with the Sps. Garcia presenting their testimonial and documentary
evidence.
The Sps. Santos' Demurrer to Evidence (CA-G.R. SP No. 06176)
After the Sps. Garcia rested their case, the Sps. Santos filed a Motion to Dismiss (By Way of
Demurrer to Evidence)11 which the RTC denied in its Order12 dated April 28, 2011.
The Sps. Santos then assailed the RTC's denial of their demurrer to evidence by filing a
petition for certiorari13 under Rule 65 of the Rules of Court before the CA. The petition was
raffled to the Twentieth Division and was docketed as CA-G.R. SP No. 06176.
In its Decision14 dated May 20, 2013, the CA, Twentieth Division denied
the certiorari petition of the Sps. Santos for failing to prove that the RTC committed grave
abuse of discretion in denying the respondents' demurrer to evidence.
The respondents filed a Motion for Reconsideration  dated June 17, 2013, which was denied
15
by the CA, Special Former Twentieth Division in its Resolution 16 dated February 22, 2016. On
March 31, 2016, the Decision dated May 20, 2013 rendered by the CA, Twentieth Division
became final and executory.17
Afterwards, the trial ensued before the RTC, with the Sps. Santos presenting their evidence.
The Ruling of the RTC
In its Decision18 dated May 28, 2015, the RTC ruled in favor of the Sps. Santos and dismissed
the Complaint. The dispositive portion of the aforesaid Decision reads:
WHEREFORE, EVERYTHING CONSIDERED, the herein complaint is
hereby DISMISSED, the counterclaims are likewise dismissed.
Costs de oficio.
SO ORDERED.19
In sum, the RTC held that the Sps. Garcia never acquired any easement of light and view
either by title or by prescription.
Hence, the Sps. Garcia appealed the RTC's Decision before the CA, Special 18th
Division.20 The appeal was docketed as CA-G.R. CEB-CV No. 05701.
The Ruling of the CA, Special 18th Division
In its assailed Decision, the CA, Special 18th Division denied the appeal for lack of merit, the
dispositive portion of which reads:
WHEREFORE, the appeal is DENIED. The 28 May 2015 Decision of the Regional Trial
Court of Iloilo City, Branch 31 in Civil Case No. 09-30023 is AFFIRMED.
SO ORDERED.21
Agreeing in toto with the RTC, the CA held that the Sps. Garcia never acquired an easement
of light and view under the pertinent provisions of the Civil Code.
The Sps. Garcia filed a Motion for Reconsideration 22 dated August 4, 2016, which was denied
by the CA, Former Special 18th Division in its assailed Resolution.
Hence, the instant Petition for Review on Certiorari filed by the Sps. Garcia under Rule 45 of
the Rules of Court.
The respondents filed their Comment (To the Petition dated October 28, 2016) 23 dated June
20, 2017, to which the Sps. Garcia responded with their Reply24 dated November 9, 2017.
Issues
Stripped to its core, the instant Petition presents two main issues for the Court's disposition:
(1) whether, in view of the CA, Twentieth Division's final and executory Decision dated May
20, 2013 in CA-G.R. SP No. 06176, the doctrine of the law of the case finds application; and
(2) whether the Sps. Garcia have acquired an easement of light and view with respect to Lot 1
owned by the Sps. Santos.
The Court's Ruling
In deciding the merits of the instant Petition, the Court shall resolve the issues in seriatim.
I. The doctrine of the law of the case not applicable in the instant case
In the instant Petition, the Sps. Garcia make the argument that the doctrine of the law of the
case applies in the instant case, considering that the CA, Twentieth Division's final and
executory Decision dated May 20, 2013 in CA-G.R. SP No. 06176 expressly and categorically
found that ''[t]here is an acquired easement of light, air and view in favor of [the Sps.
Garcia]"25 based on Article 624 of the Civil Code26 and the decided cases of Amor v.
Florentino27 and Gargantos v. Tan Yanon,28 and that "the contention of [the respondents] that
the mere opening of windows and doors does not constitute an easement is therefore
refuted."29
The argument is unmeritorious.
The doctrine of the law of the case states that whatever has once been irrevocably established
as the controlling legal rule of decision between the same parties in the same case continues to
be the law of the case, whether correct on general principles or not, so long as the facts on
which such decision was predicated continue to be the facts of the case before the court. 30
Citing Mercury Group of Co., Inc. v. Home Dev't Mutual Fund,31 the CA, Special 18th
Division was correct in explaining that the aforesaid doctrine applies only when there has been
a prior decision on the merits:
"Law of the case" has been defined as the opinion delivered on a former appeal. . . . It is a
rule of general application that the decision of an appellate court in a case is the law to
the case on the points presented throughout all the subsequent proceedings in the case in
both the trial and appellate courts and no question necessarily involved and decided on that
appeal will be considered on a second appeal or writ of error in the same case, provided the
facts and issues are substantially the same as those on which the first question rested and,
according to some authorities, provided the decision is on the merits. x x x32
The CA, Twentieth Division's final and executory Decision dated May 20, 2013 relied upon
by the Sps. Garcia was not a final and executory decision on the merits of the case as it dealt
solely on the issue of whether the RTC committed grave abuse of discretion in denying the
respondents' demurrer to evidence.
In fact, the CA, Twentieth Division was unequivocal in explaining that it discussed "the issue
on easement of light, air and view not so much to address the merit of the petition but to
illustrate the extent by which [the Sps. Garcia] have relentlessly pursued their claim." 33
Hence, the first issue posed by the Sps. Garcia is denied.
II. The easement of light and view imposed on Lot 1 acquired by the Sps. Garcia
Having disposed of the first issue, the Court shall now decide whether the Sps. Garcia have
indeed acquired an easement of light and view, imposing a burden on Lot 1 not to obstruct the
subject property's free access to light and view. The Court notes that the issues surrounding the
alleged easement of lateral and subjacent support were no longer pursued by the Sps. Garcia in
the instant Petition. Hence, the Court's Decision shall focus exclusively on the easement of
light and view purportedly acquired by the Sps. Garcia as against the Sps. Santos' Lot 1.
Considering that the jurisprudence on the concept of easements of light and view is not in
abundance, this is an opportune time for the Court to explain clearly and resolutely the rules
regarding the acquisition of an easement of light and view vis-a-vis several parcels of land
owned by separate owners that were previously owned by a single owner, and the distances
that must be observed in relation thereto.
The Concept of Easements and the Easement of Light and View
According to Article 613 of the Civil Code, an easement or servitude is an encumbrance
imposed upon an immovable for the benefit of another immovable belonging to a different
owner. The immovable in favor of which the easement is established is called the dominant
estate; that which is subject thereto, the servient estate.
As defined by jurisprudence, an easement is "a real right on another's property, corporeal and
immovable, whereby the owner of the latter must refrain from doing or allowing somebody
else to do or something to be done on his property, for the benefit of another person or
tenement. Easements are established either by law or by the will of the owner. The former are
called legal, and the latter, voluntary easements." 34 An easement has been described as "a real
right which burdens a thing with a prestation consisting of determinate servitudes for the
exclusive enjoyment of a person who is not its owner or of a tenement belonging to another." 35
Legal easements are ones imposed by law, and which have, for their object, either public use
or interest of private persons, 36 as opposed to voluntary easements that are established by the
agreements of the parties. The different legal easements are: (a) easement relating to waters;
(b) right of way; (c) party wall; (d) light and view; (e) drainage; (f) intermediate distances; (g)
easement against nuisance; and (h) lateral and subjacent support. 37
The legal easement called easement of light and view refers to an easement whereby the
dominant estate enjoys the right to have free access to light, a little air, and a view overlooking
the adjoining estate, i.e., the servient estate.38
The easement of light and view has two components. The easement of light or jus
luminum has the purpose of admitting light and a little air, as in the case of small windows, not
more than 30 centimeters square, at the height of the ceiling joists or immediately under the
ceiling.39 On the other hand, the easement of view or servidumbre prospectus40 has the
principal purpose of affording view, as in the case of full or regular windows overlooking the
adjoining estate.41
Explained otherwise, the easement of light is the right to make openings under certain
conditions in order to receive light from another's tenement while the easement of view is the
right to make openings or windows, to enjoy the view through the estate of another and the
power to prevent all constructions or works which would obstruct such view or make the same
difficult.42 The easement of view is broader than the easement of light because the latter is
always included in the former.43
As held by jurisprudence, the easement of light and view is intrinsically intertwined with the
easement of the servient estate not to build higher or altius non tollendi. These two necessarily
go together "because an easement of light and view requires that the owner of the servient
estate shall not build to a height that will obstruct the window." 44
In the instant case, the Sps. Garcia assert that since they have acquired by title an easement of
light and view, the owner of the adjacent servient estate, i.e., the Sps. Santos, is proscribed
from building a structure that obstructs the window of their one-storey house.
Classification of Easements as Positive and Negative Easements
Article 616 of the Civil Code states that easements may be classified into positive and
negative easements. A positive easement is one which imposes upon the owner of the servient
estate the obligation of allowing something to be done or of doing it himself. On the other
hand, a negative easement is that which prohibits the owner of the servient estate from doing
something which he could lawfully do if the easement did not exist.
What is the significance of determining whether an easement is positive or negative? Such
determination is consequential in determining how an easement is acquired.1âшphi1
According to Article 621 of the Civil Code, in order to acquire easements by prescription in
positive easements, the prescriptive period shall commence from the day on which the owner
of the dominant estate, or the person who may have made use of the easement, commenced to
exercise it upon the servient estate.
With respect to negative easements, the prescriptive period shall commence from the day on
which the owner of the dominant estate forbade, by an instrument acknowledged before a
notary public, the owner of the servient estate, from executing an act which would be lawful
without the easement.

Easement of Light and View as a Positive and Negative Easement
How then is an easement of light and view classified? Is it a positive or a negative easement?
The answer is it may be both; an easement of light and view may either be positive or
negative.
As a general rule, an easement of light and view is a positive one if the window or opening is
situated in a party wall, while it is a negative one if the window or opening is thru one's own
wall, i.e., thru a wall of the dominant estate. 45 However, "[e]ven if the window is on one's own
wall, still the easement would be positive if the window is on a balcony or projection
extending over into the adjoining land."46
In the instant case, it is not disputed that the windows and other openings, which are allegedly
now prevented from receiving light and view due to the structure built by the Sps. Santos on
Lot 1, are made in the wall of Sps. Garcia's one-storey-house. There is no party wall alleged to
be co-owned by the parties.
In the very early case of Cortes v. Yu-Tibo,47 the Court held that the easement of light and
view in the case of windows opened in one's own wall is negative. As such easement is a
negative one, it cannot be acquired by prescription except where sufficient time of possession
has elapsed after the owner of the dominant estate, by a formal act, has prohibited the owner
of the servient estate from doing something which would be lawful but for the easement. 48
The phrase "formal act" would require not merely any writing, but one executed in due form
and/or with solemnity.49 This is expressly stated in Article 668 of the Civil Code which states
that the period of prescription for the acquisition of an easement of light and view shall be
counted: (1) from the time of the opening of the window, if it is through a party wall; or
(2) from the time of the formal prohibition upon the proprietor of the adjoining land or
tenement, if the window is through a wall on the dominant estate.
It is from these legal premises that the RTC and CA, Special 18th Division based their
holdings that the Sps. Garcia "never acquired an easement of light and view under Article 668
of the Civil Code for failure to serve a notarial prohibition." 50 It is not disputed that the Sps.
Garcia never sent the Sps. Santos any formal notice or notarial prohibition enjoining the latter
from constructing any building of higher height on Lot 1. Hence, the RTC and CA, Special
18th Division made the conclusion that the Sps. Garcia failed to acquire an easement of light
and view in relation to the adjacent Lot 1.
Nevertheless, the Court finds that the aforesaid holding of the RTC and CA, Special 18th
Division is incorrect in view of Article 624 of the Civil Code.
Article 624 - The Existence of an Apparent Sign of Easement between Two Estates formerly
owned by a Single Owner considered a Title to Easement of Light and View
While it is a general rule that a window or opening situated on the wall of the dominant estate
involves a negative easement, and, thus, may only be acquired by prescription, tacked from the
time of the formal prohibition upon the proprietor of the servient estate, it is not true that all
windows or openings situated on the wall of the dominant estate may only be acquired through
prescription.
Aside from prescription, easements may likewise be acquired through title.51 The term "title"
does not necessarily mean a document. Instead, it refers to a juridical act or law sufficient to
create the encumbrance.52 One such legal proviso which grants title to an easement is found
in Article 624 of the Civil Code.
Article 624 of the Civil Code reads:
x x x. The existence of an apparent sign of easement between two estates, established or
maintained by the owner of both, shall be considered, should either of them be alienated, as a
title in order that the easement may continue actively and passively, unless, at the time the
ownership of the two estates is divided, the contrary should be provided in the title of
conveyance of either of them, or the sign aforesaid should be removed before the execution of
the deed. This provision shall also apply in case of the division of a thing owned in common
by two or more persons.
The aforesaid article is based on Article 541 of the Spanish Civil Code, which reads:
x x x. The existence of an apparent sign of an easement between two estates established by the
owner of both shall be considered, should one of them be alienated, as a title for the active and
passive continuation of the easement, unless, at the time of the division of the ownership of the
two properties, the contrary should be expressed in the deed of conveyance of either of them,
or the sign is obliterated before the execution of the instrument.
The mode of acquiring an easement under Article 624 is a "legal presumption or apparent
sign."53 Article 624 finds application in situations wherein two or more estates were previously
owned by a singular owner, or even a single estate but with two or more portions being owned
by a singular owner.54 Originally, there is no true easement that exists as there is only one
owner. Hence, at the outset, no other owner is imposed with a burden. 55 Subsequently, one
estate or a portion of the estate is alienated in favor of another person, wherein, in that estate
or portion of the estate, an apparent visible sign of an easement exists. According to Article
624, there arises a title to an easement of light and view, even in the absence of any
formal act undertaken by the owner of the dominant estate, if this apparent visible sign,
such as the existence of a door and windows, continues to remain and subsist, unless, at
the time the ownership of the two estates is divided, (1) the contrary should be provided in the
title of conveyance of either of them, or (2) the sign aforesaid should be removed before the
execution of the deed.
This is precisely the situation that has occurred in the instant case. Prior to the purchase of the
subject property by the Sps. Garcia in 1998, the subject property and its adjoining lot,  i.e., Lot
1, were both owned by singular owners, i.e., the Sps. Santos. On the subject property, a one-
storey house laden with several windows and openings was built and the windows and
openings remained open. Then on October 1998, the subject property, together with the one-
storey structure, was alienated in favor of the Sps. Garcia, while the Sps. Santos retained the
adjoining Lot 1.
Jurisprudence has recognized that Article 624 is an exception carved out by the Civil Code
that must be taken out of the coverage of the general rule that an easement of light and view in
the case of windows opened in one's own wall is a negative easement that may only be
acquired by prescription, tacked from a formal prohibition relayed to the owner of the servient
estate.
As explained in Amor v. Florentino, the very decision in Cortes v. YuTibo, while holding that
the easement of light and view in situations involving openings situated on the wall of the
dominant estate is a negative easement that may only be acquired by prescription tacked from
formal prohibition, "distinguishes that case from the situation foreseen in article 541 [now
Article 624 of the Civil Code]."56
In Cortes v. Yu-Tibo, there were two different owners of two separate houses from the
beginning, which is a situation different from that presented under Article 624 where there is
only one original owner of the two structures. Cortes v. Yu-Tibo itself explicitly differentiates
the situation presented therein and the special situation contemplated under then Article 541 of
the Spanish Civil Code, which is now Article 624 of the Civil Code, wherein no formal act is
needed to acquire easement of light and view:
x x x It is true that the supreme court of Spain, in its decisions of February 7 and May 5, 1896,
has classified as positive easements of lights which were the object of the suits in which these
decisions were rendered in cassation, and from these it might be believed at first glance[,] that
the former holdings of the supreme court upon this subject had been overruled. But this is not
so, as a matter of fact, inasmuch as there is no conflict between these decisions and the former
decisions above cited.
In the first of the suits referred to, the question turned upon two houses which had
formerly belonged to the same owner, who established a service of light on one of them
for the benefit of the other. These properties were subsequently conveyed to two different
persons, but at the time of the separation of the property nothing was said as to the
discontinuance of the easement, nor were the windows which constituted the visible sign
thereof removed. The new owner of the house subject to the easement endeavored to free it
from the incumbrance, notwithstanding the fact that the easement had been in existence for
thirty-five years, and alleged that the owner of the dominant estate had not performed any act
of opposition which might serve as a starting point for the acquisition of a prescriptive title.
The supreme court, in deciding this case, on the 7th of February, 1896, held that the easement
in this particular case was positive, because it consisted in the active enjoyment of the
light. This doctrine is doubtless based upon article 541 of the Code, which is of the
following tenor: "The existence of apparent sign of an easement between two tenements,
established by the owner of both of them, shall be considered, should one be sold, as a title for
the active and passive continuance of the easement, unless, at the time of the division of the
ownership of both tenements, the contrary should be expressed in the deed of conveyance of
either of them, or such sign is taken away before the execution of such deed."
The word "active" used in the decision quoted in classifying the particular enjoyment of
light referred to therein, presupposes on the part of the owner of the dominant estate a
right to such enjoyment arising, in the particular case passed upon by that decision, from
the voluntary act of the original owner of the two houses, by which he imposed upon one
of them an easement for the benefit of the other. It is well known that easements are
established, among other cases, by the will of the owners. (Article 536 of the Code) It was an
act which was, in fact, respected and acquiesced in by the new owner of the servient estate,
since he purchased it without making any stipulation against the easement existing thereon,
but, on the contrary, acquiesced in the continuance of the apparent sign thereof. As is stated in
the decision itself, "It is a principle of law that upon a division of a tenement among various
persons—in the absence of any mention in the contract of a mode of enjoyment different from
that to which the former owner was accustomed—such easements as may be necessary for the
continuation of such enjoyment are understood to subsist." It will be seen, then, that the phrase
"active enjoyment" involves an idea directly opposed to the enjoyment which is the result of a
mere tolerance on the part of the adjacent owner, and which, as it is not based upon an
absolute, enforceable right, may be considered as of a merely passive character. Therefore,
the decision in question is not in conflict with the former rulings of the supreme court of
Spain upon the subject, inasmuch as it deals with an easement of light established by the
owner of the servient estate, and which continued in force after the estate was sold, in
accordance with the special provisions of article 541 of the Civil Code.57
Application of the Court's Decisions in Amor v. Florentino, and Gargantos v. Tan Yanon to
the Instant Case
The rulings of the Court in Amor v. Florentino and Gargantos v. Tan Yanon, which involve
situations that are almost completely analogous to the instant case, are enlightening.
In these cases, like the case at hand, several properties were once owned by a single owner,
wherein in one of the properties, a structure with windows and other openings was put up.
Subsequently, the adjacent property was transferred to a different owner, wherein a structure
was built thereon obstructing the windows and other openings found on the adjacent lot.
In Amor v. Florentino, one Maria Florentino (Maria) owned a house and a camarin or
warehouse located in Vigan, Ilocos Sur. The house had, on the north side, three windows on
the upper storey, and a fourth one on the ground floor. Through these windows, the house
received light and air from the adjacent lot where the camarin stood.
On September 6, 1885, Maria made a will, devising the house and the land on which it was
situated to Gabriel Florentino, one of the respondents therein, and to Jose Florentino, father of
the other respondents therein. In said will, the testatrix also devised the warehouse and the lot
where it was situated to Maria Encarnacion Florentino (Maria Encarnacion). Upon the death of
the testatrix in 1892, nothing was said or done by the devisees in regard to the windows in
question. On July 14, 1911, Maria Encarnacion sold her lot and the warehouse thereon to the
petitioner therein, Severo Amor (Amor). In January 1938, therein Amor destroyed the old
warehouse and started to build instead a two-storey house.
In deciding the case, the Court first explained that easements may be acquired either through
title or prescription and enumerated the different acts by which an easement may be acquired
by virtue of title, namely: (1) a deed of recognition by the owner of the servient estate; (2) a
final judgment; and (3) an apparent sign between two estates, established by the owner of
both, referring to Article 541 (now Article 624) of the Civil Code. Citing decisions of the
Supreme Tribunal of Spain, the Court explained that "under article 541 [now Article 624] of
the Civil Code, the visible and permanent sign of an easement 'is the title that
characterizes its existence' ('es el titulo caracteristico de su existencia.')"58
Applying Article 541 (now Article 624) of the Civil Code, the Court held that the existence of
the four windows constructed on the subject house was an apparent sign of an easement
of light and view, the subsistence of which after the lots were segregated to different owners
created an easement of light and view by title without the need of any formal notice to the
servient estate. The Court explained that the moment of the constitution of the easement of
light and view, together with that of altius non tollendi, was the time of the transfer of the
other property adjacent to the lot where the windows were located, which, in that case,
was the death of the original owner of both properties:
It will thus be seen that under article 541 the existence of the apparent sign in the instant
case, to wit, the four windows under consideration, had for all legal purposes the same
character and effect as a title of acquisition of the easement of light and view  by the
respondents upon the death of the original owner, Maria Florentino. Upon the
establishment of that easement of light and view, the concomitant and concurrent easement
of altius non tollendi was also constituted, the heir of the camarin and its lot, Maria
Encarnacion Florentino, not having objected to the existence of the windows. The theory of
article 541, of making the existence of the apparent sign equivalent to a title, when nothing to
the contrary is said or done by the two owners, is sound and correct, because as it happens in
this case, there is an implied contract between them that the easements in question should
be constituted.
Analyzing article 541 further, it seems that its wording is not quite felicitous when it says that
the easement should continue. Sound juridical thinking rejects such an idea because, properly
speaking, the easement is not created till the division of the property, inasmuch as a predial or
real easement is one of the rights in another's property, or jura in re aliena and nobody can
have an easement over his own property, nemini sua res servit. In the instant case, therefore,
when the original owner, Maria Florentino, opened the windows which received light and air
from another lot belonging to her, she was merely exercising her right of dominion.
Consequently, the moment of the constitution of the easement of light and view, together with
that of altius non tollendi, was the time of the death of the original owner of both properties.
At that point, the requisite that there must be two proprietors — one of the dominant estate and
another of the servient estate was — fulfilled. 59
Subsequently, in 1960, the Court rendered its Decision in the case of Gargantos v. Tan Yanon.
In the said case, the late Francisco Sanz (Sanz) was the former owner of a parcel of land with
the buildings and improvements thereon, situated in the poblacion of Romblon. He subdivided
the lot into three (3) and then sold each portion to different persons. One portion was
purchased by Guillermo Tengtio who subsequently sold it to Vicente Uy Veza. Another
portion, with the house of strong materials thereon, was sold in 1927 to Tan Yanon, the
respondent therein. This house had on its northeastern side, doors and windows overlooking
the third portion, which, together with the camarin and small building thereon, after passing
through several hands, was finally acquired by Juan Gargantos (Gargantos), the petitioner
therein. In 1955, Gargantos tore down the roof of the camarin and constructed a combined
residential house and warehouse on his lot.
The Court held that Article 538 (now Article 621) of the Civil Code and the doctrine in Cortes
v. Yu-Tibo that the easement of light and view in situations involving openings situated on the
wall of the dominant estate is a negative easement that may only be acquired by prescription
tacked from formal prohibition "[is] not applicable herein because the two estates, that now
owned by petitioner, and that owned by respondent, were formerly owned by just one person,
Francisco Sanz."60
The Court further explained that the existence of the doors and windows on the northeastern
side of the house was equivalent to a title, for the visible and permanent sign of an easement
was the title that characterized its existence:
x x x It was Sanz who introduced improvements on both properties. On that portion presently
belonging to respondent, he constructed a house in such a way that the northeastern side
thereof extends to the wall of the camarin on the portion now belonging to petitioner. On said
northeastern side of the house, there are windows and doors which serve as passages for light
and view. These windows and doors were in existence when respondent purchased the house
and lot from Sanz. The deed of sale did not provide that the easement of light and view would
not be established. This then is precisely the case covered by Article 541, O.C.C. (now
Article 624, N.C.C.) which provides that the existence of an apparent sign of easement
between two estates, established by the proprietor of both, shall be considered, if one of
them is alienated, as a title so that the easement will continue actively and passively,
unless at the time the ownership of the two estates is divided, the contrary is stated in the
deed of alienation of either of them, or the sign is made to disappear before the
instrument is executed. The existence of the doors and windows on the northeastern side
of the aforementioned house, is equivalent to a title, for the visible and permanent sign of
an easement is the title that characterizes its existence (Amor vs. Florentino, 74 Phil., 403).
It should be noted, however, that while the law declares that the easement is to "continue" the
easement actually arises for the first time only upon alienation of either estate, inasmuch as
before that time there is no easement to speak of, there being but one owner of both estates
(Article 530, O.C.C., now Article 613, N.C.C.).61
From Amor v. Florentino and Gargantos v. Tan Yanon, read together with Cortes v. Yu-Tibo,
it has been jurisprudentially established that, in a situation wherein Article 624 of the Civil
Code applies, there arises an easement if an apparent sign of the existence of an easement,  i.e.,
the existence of windows and openings on the dominant estate, continues to remain even
after the transfer of the property to the new owner, unless such apparent sign is removed
or if there is an agreement to the contrary.62
To reiterate, such is exactly the situation attendant in the instant case. Lot 1 and the subject
property were once owned by one owner, i.e., the Sps. Santos. On the subject property, a one-
storey house with windows and other openings that accept light and view from Lot 1, which
was idle at that time, was built. Subsequently, in 1998, the subject property was alienated in
favor of the Sps. Garcia. It is undisputed that the windows and other openings on the one-
storey house subsisted and remained open. It is also not disputed that there was no agreement
made by the parties whatsoever to the effect that the windows and openings of the Sps.
Garcia's house should be closed or removed.
Hence, in accordance with Article 624 of the Civil Code, from the time the Sps. Santos
transferred the subject property to the Sps. Garcia, there arose by title an easement of light and
view, placing a burden on the servient estate, i.e., Lot 1, to allow the Sps. Garcia's residence
unobstructed access to light and view, subject to certain limitations as will be discussed
hereunder.
The core of the RTC and CA, Special 18th Division's Decisions dismissing the Sps. Garcia's
Complaint centers on the argument that the cases of Amor v. Florentino, and Gargantos v. Tan
Yanon are not applicable to the instant case because in the latter, "the previous owner only
made improvements on the [subject property] of [the Sps. Garcia] at the time of the transfer of
the alleged dominant estate to [the Sps. Garcia.] This takes the instant case out of the factual
milieu of Amor and Gargantos."63 According to the CA, Special 18th Division, "[t]he rulings
in Amor and Gargantos appear to be premised on the fact that the previous owner made
improvements on both properties prior to the transfer of one of these properties." 64
After a close reading of Amor v. Florentino and Gargantos v. Tan Yanon, the Court holds that
the RTC and CA, Special 18th Division were mistaken in not applying the aforesaid cases to
the instant case.
First and foremost, the subject Civil Code provision dealt with by these two cases, i.e., Article
624 (formerly Article 541) of the Civil Code, merely states that what is involved in this
particular situation is "an apparent sign of easement between two estates."65
There is nothing in the aforesaid provision that requires the presence or establishment of
structures or improvements on both estates at the time the ownership of the two estates is
divided. The conclusion of the CA, Special 18th Division that Article 624 applies only when
the (future) servient estate has an improvement thereon at the time of the transfer of the
ownership of either or both of the estates finds no textual support. What the law merely states
is that there must be two estates that were once owned by one owner, regardless of the
existence of improvements in the (future) servient estate. What law requires is that, at the time
the ownership of the estates is divided, there must be an apparent sign of easement that exists,
such as a window, door, or other opening, in the dominant estate.
As exhaustively explained by recognized Civil Law Commentator, former CA Justice Eduardo
P. Caguioa, the existence of an easement of light and view under Article 624 is established as
long as (1) there exists an apparent sign of servitude between two estates; (2) the sign of the
easement must be established by the owner of both tenements; (3) either or both of the estates
are alienated by the owner; and (4) at the time of the alienation nothing is stated in the
document of alienation contrary to the easement nor is the sign of the easement removed
before the execution of the document:
x x x In this case[,] the owner of two estates has established an apparent sign of the easement
between two estates. It is apparent inasmuch as since it is the owner establishing it in his own
property in favor of an estate belonging to himself there is no easement but merely an exercise
of the right of ownership. Should, however, one or both of the estates be alienated or after
partition in case of a property owned in common, then that sign established by the owner will
constitute a title for the establishment of the easement, both actively or passively, except in
case the contrary should be provided in the document of conveyance of either estate or in case
before the alienation is made the sign is removed by the owner. Hence, in order that this article
will apply[,] the following are the requisites: (1) That there exist an apparent sign of
servitude between two estates; (2) That the sign of the easement be established by the
owner of both tenements because the article will not apply when the easement is
established by a person different from the owner; (3) That either or both of the estates
are alienated by the owner; and (4) That at the time of the alienation nothing is stated in
the document of alienation contrary to the easement nor is the sign of the easement
removed before the execution of the document.66
It is evident that the prior existence of another structure or building in the other estate, in
addition to the apparent sign of easement existing on the dominant estate, is not a requirement
for the application of Article 624. What is clear from the foregoing is that the hallmark of an
easement of light and view established by an apparent sign of easement under Article 624 is
the existence of an apparent sign of servitude between two estates, such as a window, door, or
any other opening, that was established by the common owner of both estates prior to the
division of ownership of these estates.
Second, upon close reading of Amor v. Florentino and Gargantos v. Tan Yanon, there is no
holding whatsoever by the Court that the application of Article 624 (formerly Article 541) is
restricted to situations wherein the servient estate previously contained improvements or
structures. The RTC and CA, Special 18th Division failed to explain the rationale for making a
differentiation as to situations wherein the servient estate was idle at the time of the division of
the ownership of the two estates. Instead, the RTC and CA, Special 18th Division merely
nitpicked this singular factual difference and concluded, without sufficient explanation, that
the factual milieu of the instant case differs from those of Amor v. Florentino and Gargantos
v. Tan Yanon.
It must be stressed that the presence of a minor factual difference does not preclude the
application of judicial precedent.1âшphi1 It must be explained how the factual difference in a
case makes the doctrine established in the decided case inapplicable therein. In the instant
case, the cases of Amor v. Florentino and Gargantos v. Tan Yanon clearly and plainly explain
that there arises an easement if an apparent sign of the existence of an easement, i.e., the
existence of windows and openings on the dominant estate, continues to remain even after the
transfer of the property to the new owner, without making any holding whatsoever that there
should have been a prior structure that was put up on the servient estate. The fact that the
existence of windows, doors, and other openings on the dominant estate is the apparent sign of
an existing easement is not hinged whatsoever on the presence of structures on the adjacent
servient estate. In short, the fact in the aforesaid cases that the servient estates therein had
existing structures prior to the division of ownership is not a significant fact that is
determinative of the holdings of the Court.
In fact, the Court notes that in Amor v. Florentino, the improvement originally constructed on
the servient estate, i.e., the warehouse, was actually totally demolished and that, after the
transfer of ownership of the dominant estate, a new two-storey house was thereafter built in its
stead. This does not differ substantially from a situation wherein new constructions are done in
the servient estate that was previously completely empty.
Further, in Gargantos v. Tan Yanon, the Court, in applying Article 624 of the Civil Code, held
that "[b]y reason of this easement, petitioner cannot construct on his land any building." 67 The
Court did not say that the petitioner therein was barred only from adding or increasing the
height of existing structures or improvements.
Hence, considering the foregoing discussion, the RTC and CA, Special 18th Division
committed an error in holding that the Sps. Garcia failed to acquire an easement of light and
view in the instant case. By virtue of Article 624 of the Civil Code and applicable
jurisprudence, the Court holds that the Sps. Garcia have acquired an easement of light and
view by title despite the lack of any formal notice or prohibition made upon the owner of the
servient estate.
The Three-Meter Distance Rule
Now that the existence of an easement of light and view has been established in favor of the
Sps. Garcia, the Court shall now delve on whether to grant Sps. Garcia's prayer that
"respondents should therefore remove from Lot 1 their building or structure which blocks or
impedes petitioners' air, light and view."68
The Court answers the question with a qualified yes.
Based on Articles 66969 and 670 of the Civil Code, there are two kinds of windows: (1) regular
or full70 or direct view71 windows, and (2) restricted, 72 or oblique or side view73 windows. As
for openings, they may be direct views — those openings which are made on a wall parallel or
almost parallel to the line that divides the estates, in such a way that the neighboring tenement
can be seen without putting out or turning the head, or oblique views — those openings in a
wall which form an angle to the boundary line, and therefore of necessity requires in order to
see the neighboring tenement to thrust the head out of the opening and look to the right or
left.74 In the case at hand, the openings found on the property of the Sps. Garcia offer a direct
view of the property of the respondents Sps. Santos.
In relation to direct view windows or openings, the Civil Code provides two distance rules or
distances that must be observed before they can be made or established.1âшphi1
Firstly, there is the two-meter distance rule under Article 670 of the Civil Code, which
provides: "[n]o windows, apertures, balconies, or other similar projections which afford a
direct view upon or towards an adjoining land or tenement can be made, without leaving a
distance of two meters between the wall in which they are made and such contiguous
property." This Article is to be read in conjunction with Article 671 as the latter provides the
mechanism by which the two-meter distance is to be measured, to wit: "[t]he distances x x x
shall be measured in cases of direct views from the outer line of the wall when the openings do
not project, from the outer line of the latter when they do, and in cases of oblique views from
the dividing line between the two properties."
Hence, under Article 670, which is the general rule, when a window or any similar opening
affords a direct view of an adjoining land, the distance between the wall in which such
opening is made and the border of the adjoining land should be at least two meters.
Similarly, Republic Act No. 6541 as revised by Presidential Decree No. 1096 or the National
Building Code of the Philippines provides the same two-meter distance requirement pursuant
to Section 708(a), which provides that: "[t]he dwelling shall occupy not more than ninety
percent of a comer lot and eighty percent of an inside lot, and subject to the provisions on
Easement of Light and View of the Civil Code of the Philippines, shall be at least 2 meters
from the property line."
Secondly, the three-meter distance rule is embodied in Article 673 of the Civil Code, which
states that whenever by any title a right has been acquired to have direct views, balconies or
belvederes overlooking an adjoining property, the owner of the servient estate cannot build
thereon at less than a distance of three meters, not two meters, from the property line, to
be measured in the manner provided in Article 671. Article 673 of the Civil Code reads:
ART. 673. Whenever by any title a right has been acquired to have direct views, balconies or
belvederes overlooking an adjoining property, the owner of the servient estate cannot build
thereon at less than a distance of three meters to be measured in the manner provided in
Article 671. Any stipulation permitting distances less than those prescribed in Article 670 is
void.
Article 673 is the exception to the general rule. In a situation wherein an easement is
established or recognized by title or prescription, affording the dominant estate the right to
have a direct view overlooking the adjoining property, i.e., the servient estate, which is the
exact situation in the instant case, the two-meter requirement under Article 670 is not
applicable. Instead, Article 673 is the applicable rule as it contemplates the exact circumstance
attendant in the instant case, i.e., wherein an easement of view is created by virtue of law.
This provision has already been previously applied to easements of light and view acquired
under Article 624. In Gargantos v. Tan Yanon, the Court held that since "[therein] respondent
Tan Yanon's property has an easement of light and view against petitioner's property[, b]y
reason of this easement [under Article 624], [therein Gargantos] cannot construct on his land
any building unless he erects it at a distance of not less than three meters from the
boundary line separating the two estates."75
To reiterate, as Article 673 states a special rule covering a situation wherein a dominant estate
has acquired a right "to have direct views, balconies or belvederes, overlooking the adjoining
property, the owner of the servient estate may not build on his own property except at a
distance of at least three meters from the boundary line," 76 the two-meter distance as provided
in Article 670 is not enough. The distance between the structures erected on the servient estate
and the boundary line of the adjoining estate must be at least three meters.
In the instant case, the records show that Roberto Planton Baradas (Baradas), the construction
project engineer who supervised the construction of the Sps. Santos' house located on Lot 1,
testified that "[t]here is a distance of two meters between [the Sps. Garcia's] fence and the wall
of [the respondents] spouses Santos."77 Simply stated, the distance between the structure
erected by the Sps. Santos on Lot 1 and the boundary line is only two meters, which is less
than the three-meter distance required under Article 673.
Therefore, considering that the Sps. Garcia have acquired by title an easement of light and
view in accordance with Article 624 of the Civil Code, the Sps. Santos should necessarily
demolish or renovate portions of their residential building so that the three-meter
distance rule as mandated under Article 673 of the Civil Code is observed.
WHEREFORE, the instant appeal is hereby GRANTED. The Decision dated June 30, 2016
and Resolution dated October 5, 2016 of the Court of Appeals in CA-G.R. CEB-CV No.
05701 are hereby REVERSED AND SET ASIDE. Necessarily, the Decision dated May 28,
2015 rendered by the Regional Trial Court of Iloilo City, Branch 31 is likewise REVERSED
AND SET ASIDE.
The Court declares the EXISTENCE OF AN EASEMENT OF LIGHT AND VIEW in
favor of the petitioners Sps. Tedy and Pilar Garcia. The respondents Sps. Loreta and Winston
Santos are hereby ordered to REMOVE from Lot 1 such portions of their building or structure
in order to comply with the three-meter rule as mandated under Article 673 of the Civil Code.

No pronouncement as to costs. SO ORDERED.