COMPROMISE AGREEMENT THAT IS LESS THAN 10% OF THE AWARD IS UNCONSCIOUNABLE

Compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. It is an agreement between two or more persons, who, for preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner which they agree on, and which everyone of them prefers to the hope of gaining, balanced by the danger of losing.

Sara Lee Philippines, Inc. vs. Emilinda D. Macatlang, et al.
G.R. No. 180147/G.R. No. 180148/G.R. No. 180149/G.R. No. 180150/G.R. No. 180319 & G.R. No. 180685, January 14, 2015

Judgment on compromise; Reduction of bond; Provisional bond; Judicial courtesy; Compromise agreement; Forum shopping; Material dates; Verification and certification against forum shopping; McBurnie ruling

Facts:

Six (6) consolidated petitions for review on certiorari were filed before the SC pertaining to the ₱3,453,664,710.66 (₱3.45 Billion) appeal bond equivalent to the monetary award adjudged by the labor arbiter in the cases. The first 5 petitions seek a relaxation of the rule while the last petition urges its strict interpretation.

SLPI is a domestic corporation engaged in the manufacture and distribution of personal care products and is a subsidiary of SLC.

Aris is a domestic corporation engaged in the business of producing gloves and other apparel. FAPI is a corporation engaged in the manufacture of knitted products. SLC, a corporation duly organized and existing under the laws of the United States of America, is a stockholder of Aris. It exercised control over Aris, FAPI, and SLPI which were all its subsidiaries or affiliates. Cruz was the external counsel of Aris at the time of its closure. When Aris filed for its dissolution, Cruz became the Vice-President and Director of Aris. All of them are referred to in this digest as corporations.

The petition is filed by Emilinda D. Macatlang and 5,983 other former employees of Aris. Emilinda D. Macatlang allegedly represents the employees whose employment was terminated upon the closure of Aris.

Aris Philippines, Inc. (Aris) permanently ceased operations on 9 October 1995 displacing 5,984 rank-and-file employees. On 26 October 1995, Fashion Accessories Phils. Inc. (FAPI) was incorporated prompting former Aris employees to file a case for illegal dismissal on the allegations that FAPI was a continuing business of Aris. Sara Lee Corporation (SLC), Sala Lee Philippines Inc. (SLP) and Cesar Cruz were impleaded as defendants being major stockholders of FAPI and officers of Aris, respectively.

The complaints alleged that FAPI is engaged in the manufacture and exportation of the same articles manufactured by Aris; that there was a mass transfer of Aris’ equipment and employees to FAPI’s plant in Muntinlupa, Rizal; that contractors of Aris continued as contractors of FAPI; and that the export quota of Aris was transferred to FAPI.12 Essentially, the complainants insisted that FAPI was organized by the management of Aris to continue the same business of Aris, thereby intending to defeat their right to security of tenure. They likewise impleaded in their subsequent pleadings that SLC and SLP are the major stockholders of FAPI, and Cruz as Vice-President and Director of Aris.

Aris countered that it had complied with all the legal requirements for a valid closure of business operations. It is not, in any way, connected with FAPI, which is a separate and distinct corporation. The contracts of Aris with its contractors were already terminated. There is no truth to the claim that its export quota with Garments and Textile Export Board was transferred to FAPI because the export quota is non-transferable.

LA Ruling:

The Labor Arbiter found the dismissal of 5,984 Aris employees illegal and awarded them monetary benefits amounting to P3,453,664,710.86. The judgment award is composed of separation pay of one month for every year of service, backwages, moral and exemplary damages and attorney’s fees.

The Corporations filed a Notice of Appeal with Motion to Reduce Appeal Bond.

The 5,984 former Aris employees, represented by Emilinda Macatlang (Macatlang petition), filed a petition for review before the Court of Appeals insisting that the appeal was not perfected due to failure of the Corporations to post the correct amount of the bond which is equivalent to the judgment award.

FAPI, for its part, claimed that its total assets would not be enough to answer for even a small portion of the award. To compel it to post a bond might result in complete stoppage of operations. FAPI also cited the possibility that the assailed decision once reviewed will be reversed and set aside. The Corporations posted a total of ₱4.5 Million.

The NLRC granted the reduction of the appeal bond and ordered the Corporations to post an additional P4.5 Million bond.

NLRC Ruling:

Emilinda D. Macatlang, et al., filed a petition for certiorari before the Court of Appeals, docketed as CA-G.R. SP No. 96363. They charged the NLRC with grave abuse of discretion in giving due course to the appeal of petitioners despite the gross insufficiency of the cash bond. They declared that the appeal bond must be equivalent to the amount of the award. Another petition, this time by Pacita Abelardo, et al., was also filed before the Court of Appeals and docketed as CA-G.R. SP No. 95919.

The Corporations filed a Motion to Dismiss the petition in CA-G.R. SP No. 95919 on the grounds of forum-shopping, absence of authorization from the employees for Emilinda D. Macatlang to file said petition, and for failure to state the material dates.

While the case was pending, the NLRC set aside the Decision of the labor arbiter and remanded the case to the “forum of origin for further proceedings.

CA Ruling:

The Court of Appeals proceeded to reverse and set aside the NLRC Resolution and ordered the posting of an additional appeal bond of ₱1 Billion. All parties filed their Motion for Reconsideration but were later denied by the CA.

Six petitions for review were filed.

The Corporations argue that the CA committed serious error in not dismissing Emilinda D. Macatlang, et al.’s petition due to the filing of two (2) separate petitions for certiorari. These two petitions, the Corporations aver, raise identical causes of action, subject matters and issues, which are clearly violative of the rule against forum-shopping. Moreover, the petitioners in the Abelardo petition consist of 411 employees, all of whom are also petitioners in the Macatlang petition.

The Corporations question the authority of Emilinda D. Macatlang to file and sign the verification and certification of non-forum shopping because the 5 September 1998 Resolution did not make any specific reference or authority that Emilinda D. Macatlang can sign the verification and certification against forum shopping on behalf of the other complainants. The Corporations claim that the Macatlang’s petition failed to state the material dates, such as when the NLRC order and resolution were received and when the motion for reconsideration thereof was filed.

The Corporations impute another error on the Court of Appeals when it did not dismiss the petition for being moot and academic despite the fact that on 19 December 2006, the NLRC had already set aside the decision of the Labor Arbiter. They defend the validity of the NLRC resolution in the absence of a temporary restraining order or writ of preliminary injunction issued by the Court of Appeals.

The Corporations assail the CA in directing the posting of an additional appeal bond of ₱1 Billion. They contend that the CA overlooked the fact that Macatlang, et al., had already received their separation pay of ₱419 Million and ₱15 Million Benevolent Fund which went to the union. The CA also failed to exclude the amount awarded to complainants as damages which under the NLRC Rules have to be excluded. The Corporations seek a liberal interpretation to the requirement of posting of appeal bond in that the NLRC has the power and authority to set a reduced amount of appeal bond.

Guide to Valid Dismissal of Employees Second Edition

On the other hand, Emilinda D. Macatlang, et al., assert that the appeal of the Corporations had not been perfected in accordance with Article 223 of the Labor Code when they failed to post the amount equivalent to the monetary award in the judgment appealed from amounting to ₱3.45 Billion. Emilinda D. Macatlang, et al., submit that the ₱1 Billion bond is not equivalent to the monetary award of ₱3.45 Billion. More importantly, Emilinda D. Macatlang, et al., accused the Court of Appeals of extending the period of appeal by prescribing an additional amount to be paid within a reasonable period of time, which period it likewise determined, in contravention of Article 223 of the Labor Code. Emilinda D. Macatlang, et al., expound that the filing of a bond outside the period of appeal, even with the filing of a motion to reduce bond, would not stop the running of the period of appeal. Emilinda D. Macatlang, et al., opine that the Court of Appeals has not been conferred the power to legislate hence it should have strictly followed Article 223 of the Labor Code, as the same was clear.

Issue/s:

Whether or not there is forum shopping

Whether or not Macatlang is duly authorized to sign the VCAFS

Whether or not the petition should be dismissed for failure to state material dates

Whether or not the service of summons by publication on SLC is defective

Whether the subsequent NLRC ruling on the merits during the pendency of the petition questioning an interlocutory order renders the instant petition moot and academic.

SC Ruling:

The SC held that at first glance there is identity of parties in both petitions which is indicative of forum-shopping. The Macatlang petition consists of 5,984 dismissed employees of Aris while the Abelardo petition has 411 dismissed employees, all of which were already included as petitioners in the Macatlang petition. With respect to these 411 petitioners, they could be declared guilty of forum shopping when they filed the Abelardo petition despite the pendency of the Macatlang petition.

The SC held that the act of 411 employees should not prejudice the rights of the 5,573 other complainants in the Macatlang petition. Forum shopping happens when there is identity of the parties or at least such as to represent the same interest in both actions. The 411 petitioners of the Abelardo petition are not representative of the interest of all petitioners in Macatlang petition. First, the number is barely sufficient to comprise the majority of petitioners in Macatlang petition. Second, it would be the height of injustice to dismiss the Macatlang petition which evidently enjoys the support of an overwhelming majority due to the mistake committed by petitioners in the Abelardo petition.

In the absence of substantial similarity between the parties in Macatlang and Abelardo petitions, the petitioners in Macatlang petition did not commit forum shopping.

Macatlang was assigned by the complainants as their attorney-in-fact to perform the following acts: 1) to represent them in the case/cases filed against Aris, FAPI, SLC, and SLPI; sign any complaint, pleadings, or any other documents pertinent or related to the instant case brought before the NLRC, Court of Appeals, and Supreme Court; 2) to enter into any compromise agreement or settlement; and 3) to receive the full payment as a consequence of any settlement. The first act necessarily encompasses the authority to sign any document related to NLRC NCR No. 00-04-03677-98.

The petition for review on certiorari is one of these documents. Supreme Court Circular Nos. 28-91 and 04-94 require a Certification of Non-Forum Shopping in any initiatory pleading filed before the Supreme Court and the Court of Appeals while Section 1, Rule 45 of the Rules of Civil Procedure requires the petition for review on certiorari to be verified, thereby making the verification and certification of non-forum shopping essential elements of a petition for review on certiorari, which Macatlang herself was authorized under the Resolusyon to sign.

Section 3, Rule 46 of the Rules of Court mandates that in a petition for certiorari before the Court of Appeals, the material dates showing when notice of the judgment or final order or resolution assailed was received, when the motion for reconsideration was filed, and when notice of the denial thereof was received, must be indicated. Under the same rule, failure to state the material dates shall be a ground for dismissal of the petition. The rationale for the requirement is to enable the appellate court to determine whether the petition was filed within the period fixed in the rules. However, the strict requirements of the law may be dispensed with in the interest of justice.

Failure to state the material dates is not fatal to his cause of action, provided the date of his receipt, i.e., 9 May 2006, of the RTC Resolution dated 18 April 2006 denying his Motion for Reconsideration is duly alleged in his Petition. In the recent case of Great Southern Maritime Services Corporation vs. Acuña, it was held that “the failure to comply with the rule on a statement of material dates in the petition may be excused since the dates are evident from the records.” The more material date for purposes of appeal to the Court of Appeals is the date of receipt of the trial court’s order denying the motion for reconsideration. The other material dates may be gleaned from the records of the case if reasonably evident.

Appeal is not a constitutional right, but a mere statutory privilege. Hence, parties who seek to avail themselves of it must comply with the statutes or rules allowing it. In case of a judgment involving a monetary award, an appeal by the employer may be perfected only upon the posting of a cash or surety bond issued by a reputable bonding company duly accredited by the Commission in the amount equivalent to the monetary award in the judgment appealed from.

The requisites for perfection of appeal as embodied in Article 223, as amended, are: 1) payment of appeal fees; 2) filing of the memorandum of appeal; and 3) payment of the required cash or surety bond. These requisites must be satisfied within 10days from receipt of the decision or order appealed from.

Appeal bond is not required or deferred in the following cases:

1. When the labor arbiter does not state the judgment award (YBL vs. NLRC)
2. Failure of the Labor Arbiter to state e exact amount of back wages and separation pay due (Blancaflor vs. NLRC)
3. The amount thereof was not included in the decision of the labor arbiter (Taberrah vs. NLRC and National Federation of Labor Union vs. Hon. Ladrido, Orozco vs. The Fifth Division of the Court of Appeals)
4. Judgment award is based on a patently erroneous computation (Erectors, Inc. vs. NLRC)
5. Erroneous wage and that a big portion of the award had already prescribed, the non-posting of appeal bond was excused (Star Angel Handicraft vs. NLRC).
6. Deferred posting of the surety bond in view of the alleged erroneous computation by the labor arbiter of the monetary award ( Postigo vs. Phil. Tuberculosis Society, Inc.)

In sum, the NLRC may dispense of the posting of the bond when the judgment award is: (1) not stated or (2) based on a patently erroneous computation. Sans these two (2) instances, the appellant is generally required to post a bond to perfect his appeal.

The requirement that the employer post a cash or surety bond to perfect its/his appeal is apparently intended to assure the workers that if they prevail in the case, they will receive the money judgment in their favor upon the dismissal of the employer’s appeal. It was intended to discourage employers from using an appeal to delay, or even evade, their obligation to satisfy their employees’ just and lawful claims.

Upon the other hand, the Court relaxed the rule respecting the bond requirement to perfect appeal in cases where: (1) there was substantial compliance with the Rules, (2) surrounding facts and circumstances constitute meritorious grounds to reduce the bond, (3) a liberal interpretation of the requirement of an appeal bond would serve the desired objective of resolving controversies on the merits, or (4) the appellants, at the very least, exhibited their willingness and/or good faith by posting a partial bond during the reglementary period.

No motion to reduce bond shall be entertained except on meritorious grounds, and only upon the posting of a bond in a reasonable amount in relation to the monetary award.

The grounds to be cited in the motion to reduce must be valid and acceptable. For instance, in Pasig Cylinder, Mfg., Corp. vs. Rollo, we found as acceptable reason for reducing the appeal bond the downscaling of their operations considered together with the amount of the monetary award appealed. In University Plans Incorporated vs. Solano, the fact of receivership was considered as a meritorious ground in reducing the appeal bond.

In the of McBurnie vs. Ganzon, it was held that merit may pertain to an appellant’s lack of financial capability to pay the full amount of the bond, the merits of the main appeal such as when there is a valid claim that there was no illegal dismissal to justify the award, the absence of an employer-employee relationship, prescription of claims, and other similarly valid issues that are raised in the appeal. For the purpose of determining a ‘meritorious ground,’ the NLRC is not precluded from receiving evidence, or from making a preliminary determination of the merits of the appellant’s contentions.

In order to toll the running of the period to appeal once the motion for reduction is filed, McBurnie has set a parameter on what amount is reasonable for such purpose:

To ensure that the provisions of Section 6, Rule VI of the NLRC Rules of Procedure that give parties the chance to seek a reduction of the appeal bond are effectively carried out, without however defeating the benefits of the bond requirement in favor of a winning litigant, all motions to reduce bond that are to be filed with the NLRC shall be accompanied by the posting of a cash or surety bond equivalent to 10% of the monetary award that is subject of the appeal, which shall provisionally be deemed the reasonable amount of the bond in the meantime that an appellant’s motion is pending resolution by the Commission. In conformity with the NLRC Rules, the monetary award, for the purpose of computing the necessary appeal bond, shall exclude damages and attorney’s fees. Only after the posting of a bond in the required percentage shall an appellant’s period to perfect an appeal under the NLRC Rules be deemed suspended.

While McBurnie has effectively addressed the preliminary amount of the bond to be posted in order to toll the running of the period to appeal, there is no hard and fast rule in determining whether the additional bond to be posted is reasonable in relation to the judgment award.

The SC sustained the CA in so far as it increases the amount of the required appeal bond. But reduces the amount of the appeal bond to ₱725 Million. This directive already considers that the award if not illegal, is extraordinarily huge and that no insurance company would be willing to issue a bond for such big money. The amount of ₱725 Million is approximately 25% of the basis above calculated. It is a balancing of the constitutional obligation of the state to afford protection to labor which, specific to this case, is assurance that in case of affirmance of the award, recovery is not negated and on the other end of the spectrum, the opportunity of the employer to appeal.

The corporations filed an MR arguing that the Court failed to consider the ruling in McBurnie vs. Ganzon which purportedly required only the posting of a bond equivalent to 10% of the monetary award. The MR sought to admit the confession of judgment.

SC Ruling on the MR:

The SC denied the MR and the confession of judgment.

The SC held that the Corporations gravely misappreciated the ruling in McBurnie. The 10% requirement pertains to the reasonable amount which the NLRC would accept as the minimum of the bond that should accompany the motion to reduce bond in order to suspend the period to perfect an appeal under the NLRC rules. The 10% is based on the judgment award and should in no case be construed as the minimum amount of bond to be posted in order to perfect appeal. There is no room for a different interpretation when McBurnie made it clear that the percentage of bond set is provisional.

The Corporations argue that there was no legal impediment for the NRLC to issue its 19 December 2006 Resolution vacating the Labor Arbiter’s Decision as no TRO or injunction was issued by the Court of Appeals. The Corporations assert that the rule on judicial courtesy remains the exception rather than the rule.

The SC did not agree citing the case of Trajano vs. Uniwide Sales Warehouse Club, which gave a brief discourse on judicial courtesy, which concept was first introduced in Eternal Gardens Memorial Park Corp. vs. Court of Appeals. This principle justifies the suspension of the proceedings before the lower court even without an injunctive writ or order from the higher court.

In that case, the SC pronounced that due respect for the Supreme Court and practical and ethical considerations should have prompted the appellate court to wait for the final determination of the petition for certiorari before taking cognizance of the case and trying to render moot exactly what was before the SC.

The SC subsequently reiterated the concept of judicial courtesy in Joy Mart Consolidated Corp. vs. Court of Appeals.

The Corporations’ argument is specious. Judicial courtesy indeed applies if there is a strong probability that the issues before the higher court would be rendered moot as a result of the continuation of the proceedings in the lower court. This is the exception contemplated in the aforesaid ruling and the SC held that it obtains in this case. The 19 December 2006 ruling of the NLRC would moot the appeal filed before the higher courts because the issue involves the appeal bond which is an indispensable requirement to the perfection of the appeal before the NLRC. Unless this issue is resolved, the NLRC should be precluded from ruling on the merits on the case. This is the essence of judicial courtesy.

The corporations filed a Motion for Leave to Admit Confession of Judgment to buy peace.

A confession of judgment is an acknowledgment that a debt is justly due and cuts off all defenses and right of appeal. It is used as a shortcut to a judgment in a case where the defendant concedes liability. It is seen as the written authority of the debtor and a direction for entry of judgment against the debtor.

A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. It is an agreement between two or more persons, who, for preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner which they agree on, and which everyone of them prefers to the hope of gaining, balanced by the danger of losing.

A compromise must not be contrary to law, morals, good customs and public policy; and must have been freely and intelligently executed by and between the parties.

Article 227 of the Labor Code of the Philippines authorizes compromise agreements voluntarily agreed upon by the parties, in conformity with the basic policy of the State “to promote and emphasize the primacy of free collective bargaining and negotiations, including voluntary arbitration, mediation and conciliation, as modes of settling labor or industrial disputes.”

A compromise agreement is valid as long as the consideration is reasonable and the employee signed the waiver voluntarily, with a full understanding of what he was entering into.

The SC observed that the compromise agreement shows a gross disparity between the amount offered by the Corporations compared to the judgment award. The judgment award is P3,453,664,710.86 or each employee is slated to receive P577,149.85. On the other hand, the P342,284,800.00 compromise is to be distributed among 5,984 employees which would translate to only P57,200.00 per employee. From this amount, P8,580.00 as attorney’s fees will be deducted, leaving each employee with a measly P48,620.00. The compromised amount roughly comprises only 10% of the judgment award.

In Arellano vs. Powertech Corporation, the SC voided the P150,000.00 compromise for the P2.5 Million judgment on appeal to the NLRC. The Court noted that the compromise is a mere 6% of the contingent sum that may be received by petitioners and the minuscule amount is certainly questionable because it does not represent a true and fair amount which a reasonable agent may bargain for his principal. In Mindoro Lumber and Hardware vs. Bacay, the SC found that the private respondents’ individual claims, ranging from P6,744.20 to P242,626.90, are grossly disproportionate to what each of them actually received under the Sama-samang Salaysay sa Pag-uurong ng Sakdal. The amount of the settlement is indubitably unconscionable; hence, ineffective to bar the workers from claiming the full measure of their legal rights.

Accepting an outrageously low amount of consideration as compromise defeats the complainants’ legitimate claim. Not all quitclaims are per se invalid as against public policy. But, where there is clear proof that the waiver was wrangled from an unsuspecting or gullible person, or the terms of settlement are unconscionable on its face, then the law will step in to annul the questionable transaction.

In fine, the SC held that it would not hesitate to strike down a compromise agreement which is unconscionable and against public policy.