MANILA WATER COMPANY, INC., petitioner, vs. HERMINIO D.

PENA,
ESTEBAN B. BALDOZA, JORGE D. CANONIGO, JR., IKE S.
DELFIN, RIZALINO M. INTAL,
REY
T. MANLEGRO,
JOHN
L. MARTEJA, MARLON B. MORADA, ALLAN D. ESPINA,
EDUARDO ONG, AGNESIO D. QUEBRAL, EDMUNDO B. VICTA,
VICTOR C. ZAFARALLA, EDILBERTO C. PINGUL and FEDERICO
M. RIVERA, respondents.
DECISION
YNARES-SANTIAGO, J.:

This petition assails the decision of the Court of Appeals dated November
29, 2002, in CA-G.R. SP No. 67134, which reversed the decision of the
National Labor Relations Commission and reinstated the decision of the Labor
Arbiter with modification.
[1]

Petitioner Manila Water Company, Inc. is one of the two private

concessionaires contracted by the Metropolitan Waterworks and Sewerage
System (MWSS) to manage the water distribution system in the East Zone of
Metro Manila, pursuant to Republic Act No. 8041, otherwise known as
the National Water Crisis Act of 1995. Under the Concession Agreement,
petitioner undertook to absorb former employees of the MWSS whose names
and positions were in the list furnished by the latter, while the employment of
those not in the list was terminated on the day petitioner took over the
operation of the East Zone, which was on August 1, 1997. Private
respondents, being contractual collectors of the MWSS, were among the 121
employees not included in the list; nevertheless, petitioner engaged their
services without written contract from August 1, 1997 to August 31,
1997. Thereafter, on September 1, 1997, they signed a three-month contract
to perform collection services for eight branches of petitioner in the East Zone.
[2]

Before the end of the three-month contract, the 121 collectors

incorporated the Association Collectors Group, Inc. (ACGI), which was
contracted
by
petitioner
to
collect
charges
for
the Balara Branch. Subsequently, most of the 121 collectors were asked by
the petitioner to transfer to the First Classic Courier Services, a newly
registered corporation. Only private respondents herein remained
with ACGI. Petitioner continued to transact with ACGI to do its collection
needs until February 8, 1999, when petitioner terminated its contract
with ACGI.
[3]

[4]

Private respondents filed a complaint for illegal dismissal and money

claims against petitioner, contending that they were petitioners employees as
all the methods and procedures of their collections were controlled by the
latter.
On the other hand, petitioner asserts that private respondents were
employees of ACGI, an independent contractor. It maintained that it had no
control and supervision over private respondents manner of performing their
work except as to the results. Thus, petitioner did not have an employeremployee relationship with the private respondents, but only a service
contractor-client relationship with ACGI.
On May 31, 2000, Labor Arbiter Eduardo J. Carpio rendered a decision
finding the dismissal of private respondents illegal. He held that private
respondents were regular employees of petitioner not only because the tasks
performed by them were controlled by it but, also, the tasks were obviously
necessary and desirable to petitioners principal business. The dispositive
portion of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered, finding that
complainants were employees of respondent [petitioner herein], that they were
illegally dismissed, and respondent [petitioner herein] is hereby ordered to pay their
separation pay based on the following computed amounts:
HERMINIO D. PENA P15,000.00
ESTEBAN BALDOZA P12,000.00
JORGE D. CANONIGO, JR. P16,000.00
IKE S. DELFIN P12,000.00
RIZALINO M. INTAL P16,000.00
REY T. MANLEGRO P16,000.00
JOHN L. MARTEJA P12,000.00
MARLON B. MORADA P16,000.00
ALLAN D. ESPINA P14,000.00
EDUARDO ONG P15,000.00
AGNESIO D. QUEBRAL P16,000.00
EDMUNDO B. VICTA P13,000.00
VICTOR P. ZAFARALLA P15,000.00
EDILBERTO C. PINGUL P19,500.00
FEDERICO M. RIVERA P15,000.00
------------------------------TOTAL P222,500.00

Respondent [petitioner herein] is further directed to pay ten (10%) percent of the total
award as attorneys fee or the sum of P22,250.00.
SO ORDERED.

[5]

Both parties appealed to the NLRC, which reversed the decision of the
Labor Arbiter and ruled that the documentary evidence, e.g., letters and
memoranda by the petitioner to ACGI regarding the poor performance of the
collectors, did not constitute proof of control since these documents merely
identified the erring collectors; the appropriate disciplinary actions were left to
the corporation to impose. Further, there was no evidence showing that the
incorporation of ACGI was irregular.
[6]

Private respondents 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.
The Court of Appeals reversed the decision of the NLRC and reinstated
with modification the decision of the Labor Arbiter. It held that petitioner
deliberately prevented the creation of an employment relationship with the
private respondents; and that ACGI was not an independent contractor. It
likewise denied petitioners motion for reconsideration.
[7]

[8]

Hence, this petition for review raising the following errors:

THE HONORABLE COURT OF APPEALS IN RENDERING THE ASSAILED
DECISION AND RESOLUTION COMMITTED GRAVE REVERSIBLE ERRORS:
A. IN GOING BEYOND ITS JURISDICTION AND PROCEEDING TO GIVE DUE
COURSE TO RESPONDENTS PETITION FOR CERTIORARI UNDER RULE 65
OF THE RULES OF COURT, NOTWITHSTANDING THE ABSENCE OF ANY
PROOF OF GRAVE ABUSE OF DISCRETION ON THE PART OF THE NATIONAL
LABOR RELATIONS COMMISSION WHEN IT RENDERED THE DECISION
ASSAILED BY HEREIN RESPONDENTS.
B. WHEN IT MANIFESTLY OVERLOOKED THE EVIDENCE PRESENTED BY THE
PETITIONER COMPANY AND RULING THAT THE PETITIONERS DEFENSE OF
LACK OF EMPLOYER-EMPLOYEE RELATIONS IS WITHOUT MERIT.
C. IN CONCLUDING THAT PETITIONER COMPANY REQUIRED RESPONDENTS
TO INCORPORATE THE ASSOCIATED COLLECTORS GROUP, INC. [ACGI]
NOTWITHSTANDING ABSENCE OF ANY SPECIFIC EVIDENCE IN SUPPORT OF
THE SAME.
D. IN
FINDING
PETITIONER
COMPANY
GUILTY
OF
BAD
FAITH
NOTWITHSTANDING ABSENCE OF ANY SPECIFIC EVIDENCE IN SUPPORT OF

THE SAME, AND AWARDING MORAL AND EXEMPLARY DAMAGES TO HEREIN

RESPONDENTS.[9]

The pivotal issue to be resolved in this petition is whether or not there

exists an employer-employee relationship between petitioner and private
respondents. Corollary thereto is the issue of whether or not private
respondents were illegally dismissed by petitioner.
The issue of whether or not an employer-employee relationship exists in a
given case is essentially a question of fact. As a rule, the Supreme Court is
not a trier of facts, and this applies with greater force in labor cases. Hence,
factual findings of quasi-judicial bodies like the NLRC, particularly when they
coincide with those of the Labor Arbiter and if supported by substantial
evidence, are accorded respect and even finality by this Court. However, a
disharmony between the factual findings of the Labor Arbiter and the National
Labor Relations Commission opens the door to a review thereof by this
Court. Factual findings of administrative agencies are not infallible and will be
set aside when they fail the test of arbitrariness. Moreover, when the findings
of the National Labor Relations Commission contradict with those of the labor
arbiter, this Court, in the exercise of its equity jurisdiction, may look into the
records of the case and reexamine the questioned findings.
[10]

[11]

[12]

The resolution of the foregoing issues initially boils down to a

determination of the true status of ACGI, i.e., whether it is an independent
contractor or a labor-only contractor.
Petitioner asserts that ACGI, a duly organized corporation primarily
engaged in collection services, is an independent contractor which entered
into a service contract for the collection of petitioners accounts
starting November 30, 1997 until the early part of February 1999.Thus, it has
no employment relationship with private respondents, being employees
of ACGI.
The existence of an employment relationship between petitioner and
private respondents cannot be negated by simply alleging that the latter are
employees of ACGI as an independent contractor, it being crucial
that ACGIs status, whether as labor-only contractor or independent contractor,
be measured in terms of and determined by the criteria set by statute.
The case of De los Santos v. NLRC succinctly enunciates this statutory
criteria
[13]

Job contracting is permissible only if the following conditions are met: 1) the
contractor carries on an independent business and undertakes the contract work on his
own account under his own responsibility according to his own manner and method,

free from the control and direction of his employer or principal in all matters
connected with the performance of the work except as to the results thereof; and 2) the
contractor has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the conduct of
the business.
Labor-only contracting as defined in Section 5, Department Order No. 1802, Rules Implementing Articles 106-109 of the Labor Code refers to an
arrangement where the contractor or subcontractor merely recruits, supplies
or places workers to perform job, work or service for a principal, and any of
the following elements is present:
[14]

(i) The contractor or subcontractor does not have substantial capital or investment
which relates to the job, work or service to be performed and the employees
recruited, supplied or placed by such contractor or subcontractor are performing
activities which are directly related to the main business of the principal; or
(ii) The contractor does not exercise the right to control over the performance of the
work of the contractual employee.

Given the above criteria, we agree with the Labor Arbiter that ACGI was
not an independent contractor.
First, ACGI does not have substantial capitalization or investment in the
form of tools, equipment, machineries, work premises, and other materials, to
qualify as an independent contractor. While it has an authorized capital stock
of P1,000,000.00, only P62,500.00 is actually paid-in, which cannot be
considered substantial capitalization. The 121 collectors subscribed to four
shares each and paid only the amount of P625.00 in order to comply with the
incorporation requirements. Further, private respondents reported daily to the
branch office of the petitioner because ACGI has no office or work
premises. In fact, the corporate address of ACGI was the residence of its
president, Mr. Herminio D. Pea. Moreover, in dealing with the consumers,
private respondents used the receipts and identification cards issued by
petitioner.
[15]

[16]

[17]

Second, the work of the private respondents was directly related to the
principal business or operation of the petitioner. Being in the business of
providing water to the consumers in the East Zone, the collection of the
charges therefor by private respondents for the petitioner can only be
categorized as clearly related to, and in the pursuit of the latters business.
Lastly, ACGI did not carry on an independent business or undertake the
performance of its service contract according to its own manner and method,
free from the control and supervision of its principal, petitioner. Prior to private
respondents alleged employment withACGI, they were already working for

petitioner, subject to its rules and regulations in regard to the manner and
method of performing their tasks. This form of control and supervision never
changed although they were already under the seeming employ
of ACGI. Petitioner issued memoranda regarding the billing methods and
distribution of books to the collectors; it required private respondents to
report daily and to remit their collections on the same day to the branch office
or to deposit them with Bank of the Philippine Islands; it monitored strictly their
attendance as when a collector cannot perform his daily collection, he must
notify petitioner or the branch office in the morning of the day that he will be
absent; and although it was ACGI which ultimately disciplined private
respondents, the penalty to be imposed was dictated by petitioner as shown in
the letters it sent to ACGI specifying the penalties to be meted on the erring
private respondents. These are indications that ACGI was not left alone in
the supervision and control of its alleged employees. Consequently, it can be
concluded that ACGI was not an independent contractor since it did not carry
a distinct business free from the control and supervision of petitioner.
[18]

[19]

Under this factual milieu, there is no doubt that ACGI was engaged in
labor-only contracting, and as such, is considered merely an agent of the
petitioner. In labor-only contracting, the statute creates an employer-employee
relationship for a comprehensive purpose: to prevent a circumvention of labor
laws. The contractor is considered merely an agent of the principal employer
and the latter is responsible to the employees of the labor-only contractor as if
such employees had been directly employed by the principal employer.
Since ACGIis only a labor-only contractor, the workers it supplied should be
considered as employees of the petitioner.
[20]

Even the four-fold test will show that petitioner is the employer of private
respondents. The elements to determine the existence 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 employers power to
control the employees conduct. The most important element is the employers
control of the employees conduct, not only as to the result of the work to be
done, but also as to the means and methods to accomplish it.
[21]

We agree with the Labor Arbiter that in the three stages of private
respondents services with the petitioner, i.e., (1) from August 1,
1997 to August 31, 1997; (2) from September 1, 1997 to November 30, 1997;
and (3) from December 1, 1997 to February 8, 1999, the latter exercised
control and supervision over the formers conduct.
Petitioner contends that the employment of private respondents
from August 1, 1997 to August 30, 1997 was only temporary and done to

accommodate their request to be absorbed since petitioner was still

undergoing a transition period. It was only when its business became settled
that petitioner employed private respondents for a fixed term of three months.
Although petitioner was not obliged to absorb the private respondents, by
engaging their services, paying their wages in the form of commission,
subjecting them to its rules and imposing punishment in case of breach
thereof, and controlling not only the end result but the manner of achieving the
same as well, an employment relationship existed between them.
Notably, private respondents performed activities which were necessary or
desirable to its principal trade or business. Thus, they were regular employees
of petitioner, regardless of whether the engagement was merely an
accommodation of their request, pursuant to Article 280 of the Labor Code
which reads:
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.
As such regular employees, private respondents are entitled to security of
tenure which may not be circumvented by mere stipulation in a subsequent
contract that their employment is one with a fixed period. While this Court has
upheld the legality of fixed-term employment, where from the circumstances it
is apparent that the periods have been imposed to preclude acquisition
of tenurial security by the employee, they should be struck down or
disregarded as contrary to public policy and morals.
[22]

In the case at bar, we find that the term fixed in the subsequent contract
was used to defeat the tenurial security which private respondents already
enjoy. Thus, we concur with the Labor Arbiter, as affirmed by the Court of
Appeals, when it held that:
The next question if whether, with respect to the period, the individual contracts are
valid. Not all contracts of employment fixing a period are invalid. Under Article 280,
the evil sought to be prevented is singled out: agreements entered into precisely to
circumvent security of tenure. It has no application where a fixed period of
employment was agreed upon knowingly and voluntarily by the parties, without any

force, duress or improper pressure being brought upon the employee and absent any
circumstances vitiating his consent, or where it satisfactorily appears that the
employer and employee dealt with each other on more or less terms with no moral
dominance whatever being exercised by the former over the latter. That is the doctrine
in Brent School, Inc. v. Zamora, 181 SCRA 702. The individual contracts in question
were prepared by MWC in the form of the letter addressed to complainants. The
letter-contract is datedSeptember 1, 1997, when complainants were already working
for MWC as collectors. With their employment as their means of survival, there was
no room then for complainants to disagree with the presented letter-contracts. Their
choice then was not to negotiate for the terms of the contract but to lose or not to lose
their employment employment which they already had at that time. The choice is
obvious, as what they did, to sign the ready made letter-contract to retain their
employment, and survive. It is a defiance of the teaching in Brent School, Inc. v.
Zamora if this Office rules that the individual contracts in question are valid, so, in
deference to Brent School ruling, this Office rules they are null and void.
[23]

In view of the foregoing, we hold that an employment relationship exists

between petitioner and private respondents. We now proceed to ascertain
whether private respondents were dismissed in accordance with law.
As private respondents employer, petitioner has the burden of proving that
the dismissal was for a cause allowed under the law and that they were
afforded procedural due process. Petitioner failed to discharge this burden
by substantial evidence as it maintained the defense that it was not the
employer of private respondents. Having established that the schemes
employed by petitioner were devious attempts to defeat the tenurial rights of
private respondents and that it failed to comply with the requirements of
termination under the Labor Code, the dismissal of the private respondent is
tainted with illegality.
[24]

Under Article 279 of the Labor Code, an employee who is unjustly

dismissed from work is entitled to reinstatement without loss of seniority rights
and other privileges, and to his full backwages, inclusive of allowances, and to
his other benefits or their monetary equivalent computed from the time his
compensation was withheld from him up to the time of his actual
reinstatement. However, if reinstatement is no longer possible, the employer
has the alternative of paying the employee his separation pay in lieu of
reinstatement.
[25]

This Court however cannot sustain the award of moral and exemplary
damages in favor of private respondents. Such an award cannot be justified
solely upon the premise that the employer dismissed his employee without
just cause or due process. Additional facts must be pleaded and proved to

warrant the grant of moral damages under the Civil Code. The act of dismissal
must be attended with bad faith, or fraud, or was oppressive to labor or done
in a manner contrary to morals, good customs or public policy and, of course,
that social humiliation, wounded feelings, or grave anxiety resulted
therefrom. Similarly, exemplary damages are recoverable only when the
dismissal was effected in a wanton, oppressive or malevolent manner. Those
circumstances have not been adequately established.
[26]

However, private respondents are entitled to attorneys fees as they were

compelled to litigate with petitioners and incur expenses to enforce and
protect their interests. The award by the Labor Arbiter of P22,250.00 as
attorneys fees to private respondents, being reasonable, is sustained.
[27]

WHEREFORE, in view of the foregoing, the decision of the Court of

Appeals dated November 29, 2002, in CA-G.R. SP No. 67134, reversing the
decision of the National Labor Relations Commission and reinstating the
decision of the Labor Arbiter is AFFIRMED with the MODIFICATION that the
awards of P10,000.00 as moral damages and P5,000.00 as exemplary
damages are DELETED for lack of evidentiary basis.
SO ORDERED.

San Miguel vs Aballa (2005) G.R. 149011

Facts:
Petitioner San Miguel Corporation entered into a one-year contract with the
Sunower Multi-Purpose Cooperative.
Sunower undertook and agreed to perform and provide the company on a non
exclusive basis for aperiod of one year the following: Messengerial, Janitorial,
Shrimp harvesting and Sanitation.Pursuant to the contract, Sunower engaged
private respondents to render services at SMCsBacolod Shrimp Processing Plant.
The contract was renewed and private respondentd continued toperform their tasks.
Later, private respondents led a complaint praying to be declared as
regularemployees of SMC, with claims of recovery of all benets and privileges.
Issue:

Whether or not Sunower is engaged in labor only contracting.

Held:

The test to determine the existence of independent contractorship is whether one

claiming to be anindependent contractor has contracted to do the work according to
his own methods and withoutbeing subject to the control of the employer, except
only as to the results of the work.

In legitimate labor contracting, the law creates an employer-employee relationship

for a limitedpurpose, i.e., to ensure that the employees are paid their wages. The
principal employer becomes jointly and severally
liable with the job contractor, only for the payment of the employees
wageswhenever the contractor fails to pay the same.Other than that, the principal
employer is not responsible for any claim made by the employees.

In labor-only contracting, the statute creates an employer-employee relationship for

acomprehensive purpose: to prevent a circumvention of labor laws. The contractor
is consideredmerely an agent of the principal employer and the latter is responsible
to the employees of thelabor-only contractor as if such employees had been directly
employed by the principal employer.

The following would show that sunower is engaged in labor only contracting: What
appears is thatSunower does not have substantial capitalization or investment in
the form of tools, equipment,machineries, work premises and other materials to
qualify it as an independent contractor. It isgathered that the lot, building,
machineries and all other working tools utilized by privaterespondents in carrying
out their tasks were owned and provided by SMC.

Sunower, during the existence of its service contract with respondent SMC, did not
own a singlemachinery, equipment, or working tool used in the processing plant.
Everything was owned andprovided by respondent SMC. The lot, the building, and
working facilities are owned by respondentSMC.

And from the job description provided by SMC itself, the work assigned to private
respondents wasdirectly related to the aquaculture operations of SMC. Undoubtedly,

the nature of the workperformed by private respondents in shrimp harvesting,

receiving and packing formed an integralpart of the shrimp processing operations of
SMC.

G.R. No. 78261-62 March 8, 1989

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
HON. LABOR ARBITER ARIEL C. SANTOS, PHILIPPINE ASSOCIATION OF FREE LABOR UNIONS
(PAFLU-RMC CHAPTER) and its members, MICHAEL PENALOSA, ET AL., SAMAHANG DIWANG
MANGGAGAWA SA RMC-FFW CHAPTER, and its members, JAIME ARADA, ET AL., respondents.
The Chief Legal Counsel for petitioner DBP.
Pablo B. Castillon for private respondents.
Reynaldo B. Aralar & Associates for the Arada respondents.
Sisenando R. Villaluz, Jr. for individual respondents.

GUTIERREZ, JR., J.:

This petition calls for the interpretation of Article 110 of the Labor Code which gives the workers preferences as
regards wages in case of liquidation or bankruptcy of an employer's business. Petitioner Development Bank of
the Philippines (DBP) maintains the Article 110 does not apply where there has been an extra-judicial
foreclosure proceeding while the respondents claim otherwise. Labor Arbiter Ariel C. Santos sustained the
private respondent's position. Petitioner DBP has now elevated the case to us by way of this petition for
certiorari.
On November 29,1984, in NLRC-NCR Case No. 2517-84 entitled "Philippine Association of Free Labor Unions
(PAFLU-RMC Chapter) and its Members v. Riverside Mills Corporation, et al.", Labor Arbiter Manuel Caday
awarded separation pay, wage and/or living allowance increases and 13th month pay to the individual
complainants who comprise some of the respondents in this case.
On March 18, 1985, Labor Arbiter Teodorico Dogelio likewise awarded separation pay, vacation and sick leave
pay and unpaid increases in the basic wage and allowances to the other private respondents herein in NLRC
Case No. NCR-7-2577-84 entitled "Michael Penalosa, Jose Garcia and Apolinar Ray, et al., v. Riverside Mills
Corporation, et al., and Samahang Diwang Manggagawa sa RMC-FFW Chapter, et al., v. Riverside Mills
Corporation (RMC)." On March 29, 1985, after the judgment had become final and executory, Dogelio issued a
writ of execution directing NLRC Deputy Sheriff Juanita Atienza to collect the total sum of Eighty Five Million
Nine Hundred Sixty One thousand Fifty-Eight & 70/100 Pesos (P85,961,058.70). The Deputy Sheriff, however,
failed to collect the amount so he levied upon personal and real properties of RMC.
On April 25, 1985, a notice of levy on execution of certain real properties was annotated on the certificate of
title filed with the Register of Deeds of Pasig, Metro Manila, where all the said properties are situated.

Meanwhile in the other development which led to this case, petitioner DBP obtained a writ of possession on
June 7, 1985 from the Regional Trial Court (RTC) of Pasig of all the properties of RMC after having extrajudicially foreclosed the same at public auction earlier in 1983. DBP subsequently leased the said properties to
Egret Trading and Manufacturing Corporation, Rosario Textile Mills and General Textile Mills.
The writ of possession prevented the scheduled auction sale of the RMC properties which were levied upon by
the private respondents. As a result, on June 19, 1985, the latter filed an incidental petition with the NLRC to
declare their preference over the levied properties. The petition entitled "PAFLU-RMC Chapter and its
members, Michael Penalosa, et al., and the Samahang Diwang Manggagawa sa RMC-FFW Chapter and its
members v. RMC and DBP, et al." was docketed as NLRC Case No. NCR-7-2577-84. Petitioner DBP filed its
position paper and memorandum in answer to the petition.
On October 31, 1985, Dogelio issued an order recognizing and declaring the respondents' first preference as
regards wages and other benefits due them over and above all earlier encumbrances on the aforesaid
properties/assets of said company, particulary those being asserted by respondent Development Bank of the
Philippines.' (p. 84, Rollo)
The petitioner appealed the order of Dogelio to the NLRC. The latter in turn, set aside the order and remanded
the case to public respondent Labor Arbiter Santos for further proceedings.
Meanwhile, another set of complainants (who are also named as respondents herein) filed, on April 7, 1986, a
complaint for separation pay, underpayment, damages, etc., entitled 'Jaime Arada, et al. v. RMC, DBP, Egret
Trading and Manufacturing Corp., docketed as NLRC Case No. NCR-4-1278-86." This case was subsequently
consolidated with the case pending before respondent Santos. Accordingly, the latter conducted several
hearings where the parties, particulary DBP, General Textile Mills, Inc., and Rosario Textile Mills, Inc., were
given the opportunity to argue their respective theories of the case. Eventually, all the parties agreed that the
case shall be submitted for decision after their filing of positions papers and/or memorandums.
On March 31, 1987, public respondent Santos rendered the questioned decision, the dispositive portion of
which reads:
WHEREFORE, it is hereby declared that all the complainants in the above- entitled cases, as
former employees of respondent Riverside Mills Corporation, enjoy first preference as regards
separation pay, unpaid wages and other benefits due them over and above all earlier
encumbrances on all of the assets/properties of RMC specifically those being asserted by
respondent DBP.
As a consequence of the above declaration, the decision dated March 18, 1983 of the then
Hon. Arbiter Teodorico Dogelio should be immediately enforced against DBP who is hereby
directed to pay all the monetary claims of complainants who were former employees of
respondent RMC.
Anent the Arada case, DBP is hereby directed to pay all the amounts as indicated opposite
the names of complainants listed from page I to page 5 of Annex "A" of complainants'
complaint provided that their names are not among those listed in the Penalosa case.
It is hereby also declared that former employees whose names are not listed in the
complainants' position papers but can prove that they were former employees of RMC prior to
its bankruptcy, should also be paid the same monetary benefits being granted to herein
complainants.
Finally, DBP is hereby ordered to deposit with the National Labor Relations Commission the
proceeds of the sale of the assets of RMC between DBP on one hand and General Textile
Mills, Inc. and/ or Rosario Textile Mills, Inc., on the other hand and that future payment being
made by the latter to the former should be deposited with the National Labor Relations
Commission for proper disposition. (pp. 174-175, Rollo)

Hence, this petition.

Petitioner DBP maintains that the public respondent misinterpreted Article 110 of the Labor Code and Section
10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code in that the said
respondent upheld the existence of the worker's preference over and above earlier encumbrances on the
properties of RMC despite the absence of any bankruptcy or liquidation proceeding instituted against the latter.
The petitioner argues that there must be a judicial declaration, or at the very least, a cognizance by an
appropriate court or administrative agency of bankruptcy or inability of the employer to meet its obligations.
On the other hand, the respondents contend that under both Article 110 and its implementing rule, the claims of
the laborers for unpaid wages and other monetary benefits due them for services rendered prior to bankruptcy
enjoy first preference in the satisfaction of credits against a bankrupt company; that the word "bankruptcy" in
the Labor Code is used in its generic sense, meaning that condition of inability to pay one's debt; and that
Article 110 of the Labor Code is not confined to the situation contemplated in Articles 2236-2245 of the Civil
Code where all the preferred creditors must necessarily be convened and the import of their claims
ascertained.
We apply the rule expressed in Republic v. Peralta (150 SCRA 37 [1988] ), where we stated:
Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in
isolation. Rather, Article 110 must be read in relation to the provisions of the Civil Code
concerning the classification, concurrence and preference of credits, which provisions find
particular application in insolvency proceedings where the claims of all creditors, prefer red or
non-preferred, may be adjudicated in a binding manner. (Barreto v. Villanueva, 1 SCRA 288
[ 1961] ). (pp. 44-45)
In the above quoted case, there was a voluntary insolvency proceeding instituted by the employer. The
respondents, however, contend that since in the case at bar there is only an extra-judicial proceeding, Article
110 is still the only law applicable without regard to the provisions of the Civil Code.
We do not agree with this contention.
Article 110 of the Labor Code and Section 10, Rule VIII, Book III of the Revised Rules and Regulations
Implementing the Labor Code provide:
Article 110. Worker preference in case of bankruptcy in the event of bankruptcy or liquidation
of an employer's business, his workers shall enjoy first preference as regards wages due
them for services rendered during the period prior to the bankruptcy or liquidation, any
provision of law to the contrary notwithstanding. Unpaid wages shall be paid in full before
other creditors may establish any claim to a share in the assets of the employer.
Article 10. Payment of wages in case of bankruptcy. Unpaid wages earned by the employee
before the declaration of bankruptcy or judicial liquidation of the employer's business shall be
given first preference and shall be paid in full before other creditors may establish any claim to
the assets of the employer.
It is quite clear from the provisions that a declaration of bankruptcy or a judicial liquidation must be present
before the worker's preference may be enforced. Thus, Article 110 of the Labor Code and its implementing rule
cannot be invoked by the respondents in this case absent a formal declaration of bankruptcy or a liquidation
order. Following the rule in Republic v. Peralta, supra, to hold that Article 110 is also applicable in extra-judicial
proceedings would be putting the worker in a better position than the State which could only assert its own prior
preference in case of a judicial proceeding. Therefore, as stated earlier, Article 110 must not be viewed in
isolation and must always be reckoned with the provisions of the Civil Code.

There was no issue of judicial vis-a-vis extra-judicial proceedings in the Republic v. Peralta interpretation of
Article 110 but the necessity of a judicial adjudication was pointed out when we explained the impact of Article
110 on the concurrence and preference of credits provided in the Civil Code.
We stated:
We come to the question of what impact Article 110 of the Labor Code has had upon the
complete scheme of classification, concurrence and preference of credits in insolvency set out
in the Civil Code. We believe and so hold that Article 110 of the Labor Code did not sweep
away the overriding preference accorded under the scheme of the Civil Code to tax claims of
the government or any subdivision thereof which constitute a lien upon properties of the
Insolvent. ... It cannot be assumed simpliciter that the legislative authority, by using Article 110
of the words 'first preference' and any provisions of law to the contrary notwithstanding
intended to disrupt the elaborate and symmetrical structure set up in the Civil Code. Neither
can it be assumed casually that Article 110 intended to subsume the sovereign itself within the
term 'other creditors', in stating that 'unpaid wages shall be paid in full before other creditors
may establish any claim to a share in the assets of employer.' Insistent considerations of
public policy prevent us from giving to 'other creditors a linguistically unlimited scope that
would embrace the universe of creditors save only unpaid employees.
Moreover, the reason behind the necessity for a judicial proceeding or a proceeding in rem before the
concurrence and preference of credits may be applied was explained by this Court in the case of Philippine
Savings Bank v. Lantin (124 SCRA 476 [1983] ). We said:
The proceedings in the court below do not partake of the nature of the insolvency proceedings
or settlement of a decedent's estate. The action filed by Ramos was only to collect the unpaid
cost of the construction of the duplex apartment. It is far from being a general liquidation of the
estate of the Tabligan spouses.
Insolvency proceedings and settlement of a decedent's estate are both proceedings in rem
which are binding against the whole world. All persons having interest in the subject matter
involved, whether they were notified or not, are equally bound. Consequently, a liquidation of
similar import or 'other equivalent general liquidation must also necessarily be a proceeding in
rem so that all interested persons whether known to the parties or not may be bound by such
proceeding.
In the case at bar, although the lower court found that 'there were no known creditors other
than the plaintiff and the defendant herein', this can not be conclusive. It will not bar other
creditors in the event they show up and present their claim against the petitioner bank,
claiming that they also have preferred liens against the property involved. Consequently,
Transfer Certificate of Title No. 101864 issued in favor of the bank which is supposed to be
indefeasible would remain constantly unstable and questionable. Such could not have been
the intention of Article 2243 of the Civil Code although it considers claims and credits under
Article 2242 as statutory liens. Neither does the De Barreto case ... .
The claims of all creditors whether preferred or non-preferred, the identification of the preferred ones and the
totality of the employer's asset should be brought into the picture, There can then be an authoritative, fair, and
binding adjudication instead of the piece meal settlement which would result from the questioned decision in
this case.
We, therefore, hold that Labor Arbiter Ariel C. Santos committed grave abuse of discretion in ruling that the
private respondents may enforce their first preference in the satisfaction of their claims over those of the
petitioner in the absence of a declaration of bankruptcy or judicial liquidation of RMC. There is, of course,
nothing in this decision which prevents the respondents from instituting involuntary insolvency or any other
appropriate proceeding against their employer RMC where respondents' claims can be asserted with respect to
their employer's assets.

WHEREFORE, the petition is hereby GRANTED. The questioned decision of the public respondent is
ANNULLED and SET ASIDE. The Temporary Restraining Order we issued on May 20, 1987 enjoining the
enforcement of the questioned decision is made PERMANENT. No costs.
SO ORDERED.

[G.R. No. 120592. March 14, 1997]

TRADERS
ROYAL
BANK
EMPLOYEES
UNIONINDEPENDENT, petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION and EMMANUEL NOEL A. CRUZ, respondents.
DECISION
REGALADO, J.:

Petitioner Traders Royal Bank Employees Union and private respondent

Atty. Emmanuel Noel A. Cruz, head of the E.N.A. Cruz and Associates law
firm, entered into a retainer agreement on February 26, 1987 whereby the
former obligated itself to pay the latter a monthly retainer fee of P3,000.00 in
consideration of the law firms undertaking to render the services enumerated
in their contract. Parenthetically, said retainer agreement was terminated by
the union on April 4, 1990.
[1]

[2]

During the existence of that agreement, petitioner union referred to private

respondent the claims of its members for holiday, mid-year and year-end
bonuses against their employer, Traders Royal Bank (TRB). After the
appropriate complaint was filed by private respondent, the case was certified
by the Secretary of Labor to the National Labor Relations Commission
(NLRC) on March 24, 1987 and docketed as NLRC-NCR Certified Case No.
0466.
[3]

On September 2, 1988, the NLRC rendered a decision in the foregoing

case in favor of the employees, awarding them holiday pay differential, midyear bonus differential, and year-end bonus differential. The NLRC, acting on
a motion for the issuance of a writ of execution filed by private respondent as
counsel for petitioner union, raffled the case to Labor Arbiter Oswald Lorenzo.
[4]

[5]

However, pending the hearing of the application for the writ of execution,
TRB challenged the decision of the NLRC before the Supreme Court. The

Court, in its decision promulgated on August 30, 1990, modified the decision
of the NLRC by deleting the award of mid-year and year-end bonus
differentials while affirming the award of holiday pay differential.
[6]

[7]

The bank voluntarily complied with such final judgment and determined
the holiday pay differential to be in the amount of P175,794.32. Petitioner
never contested the amount thus found by TRB. The latter duly paid its
concerned employees their respective entitlement in said sum through their
payroll.
[8]

[9]

After private respondent received the above decision of the Supreme

Court on September 18, 1990, he notified the petitioner union, the TRB
management and the NLRC of his right to exercise and enforce his attorneys
lien over the award of holiday pay differential through a letter dated October 8,
1990.
[10]

[11]

Thereafter, on July 2, 1991, private respondent filed a motion before Labor

Arbiter Lorenzo for the determination of his attorneys fees, praying that ten
percent (10%) of the total award for holiday pay differential computed by TRB
at P175,794.32, or the amount ofP17,579.43, be declared as his attorneys
fees, and that petitioner union be ordered to pay and remit said amount to
him.
[12]

The TRB management manifested before the labor arbiter that they did not
wish to oppose or comment on private respondents motion as the claim was
directed against the union, while petitioner union filed a comment and
opposition to said motion on July 15, 1991. After considering the position of
the parties, the labor arbiter issued an order on November 26, 1991 granting
the motion of private respondent, as follows:
[13]

[14]

[15]

WHEREFORE, premises considered, it is hereby ordered that the TRADERS ROYAL

BANK EMPLOYEES UNION with offices at Kanlaon Towers, Roxas Boulevard is
hereby ordered (sic) to pay without delay the attorneys fees due the movant law firm,
E.N.A. CRUZ and ASSOCIATES the amount ofP17,574.43 or ten (10%) per cent of
the P175,794.32 awarded by the Supreme Court to the members of the former.
This constrained petitioner to file an appeal with the NLRC on December 27,
1991, seeking a reversal of that order.
[16]

On October 19,
resolution affirming
reconsideration filed
dated May 23, 1995,

1994, the First Division of the NLRC promulgated a

the order of the labor arbiter. The motion for
by petitioner was denied by the NLRC in a resolution
hence the petition at bar.

[18]

[17]

Petitioner maintains that the NLRC committed grave abuse of discretion

amounting to lack of jurisdiction in upholding the award of attorneys fees in
the amount of P17,574.43, or ten percent (10%) of the P175,794.32 granted
as holiday pay differential to its members, in violation of the retainer
agreement; and that the challenged resolution of the NLRC is null and void,
for the reasons hereunder stated.
[19]

Although petitioner union concedes that the NLRC has jurisdiction to

decide claims for attorneys fees, it contends that the award for attorneys fees
should have been incorporated in the main case and not after the Supreme
Court had already reviewed and passed upon the decision of the NLRC. Since
the claim for attorneys fees by private respondent was neither taken up nor
approved by the Supreme Court, no attorneys fees should have been allowed
by the NLRC.
Thus, petitioner posits that the NLRC acted without jurisdiction in making
the award of attorneys fees, as said act constituted a modification of a final
and executory judgment of the Supreme Court which did not award attorneys
fees. It then cited decisions of the Court declaring that a decision which has
become final and executory can no longer be altered or modified even by the
court which rendered the same.
On the other hand, private respondent maintains that his motion to
determine attorneys fees was just an incident of the main case where
petitioner was awarded its money claims. The grant of attorneys fees was the
consequence of his exercise of his attorneys lien. Such lien resulted from and
corresponds to the services he rendered in the action wherein the favorable
judgment was obtained. To include the award of the attorneys fees in the main
case presupposes that the fees will be paid by TRB to the adverse party. All
that the non-inclusion of attorneys fees in the award means is that the
Supreme Court did not order TRB to pay the opposing party attorneys fees in
the concept of damages. He is not therefore precluded from filing his motion
to have his own professional fees adjudicated.
In view of the substance of the arguments submitted by petitioner and
private respondent on this score, it appears necessary to explain and
consequently clarify the nature of the attorneys fees subject of this petition, in
order to dissipate the apparent confusion between and the conflicting views of
the parties.
There are two commonly accepted concepts of attorneys fees, the socalled ordinary and extraordinary. In its ordinary concept, an attorneys fee is
the reasonable compensation paid to a lawyer by his client for the legal
[20]

services he has rendered to the latter. The basis of this compensation is the
fact of his employment by and his agreement with the client.
In its extraordinary concept, an attorneys fee is an indemnity for damages
ordered by the court to be paid by the losing party in a litigation. The basis of
this is any of the cases provided by law where such award can be made, such
as those authorized in Article 2208, Civil Code, and is payable not to the
lawyer but to the client, unless they have agreed that the award shall pertain
to the lawyer as additional compensation or as part thereof.
It is the first type of attorneys fees which private respondent demanded
before the labor arbiter. Also, the present controversy stems from petitioners
apparent misperception that the NLRC has jurisdiction over claims for
attorneys fees only before its judgment is reviewed and ruled upon by the
Supreme Court, and that thereafter the former may no longer entertain claims
for attorneys fees.
It will be noted that no claim for attorneys fees was filed by private
respondent before the NLRC when it acted on the money claims of petitioner,
nor before the Supreme Court when it reviewed the decision of the NLRC. It
was only after the High Tribunal modified the judgment of the NLRC awarding
the differentials that private respondent filed his claim before the NLRC for a
percentage thereof as attorneys fees.
It would obviously have been impossible, if not improper, for the NLRC in
the first instance and for the Supreme Court thereafter to make an award for
attorneys fees when no claim therefor was pending before them. Courts
generally rule only on issues and claims presented to them for
adjudication. Accordingly, when the labor arbiter ordered the payment of
attorneys fees, he did not in any way modify the judgment of the Supreme
Court.
As an adjunctive episode of the action for the recovery of bonus
differentials in NLRC-NCR Certified Case No. 0466, private respondents
present claim for attorneys fees may be filed before the NLRC even though or,
better stated, especially after its earlier decision had been reviewed and
partially affirmed. It is well settled that a claim for attorneys fees may be
asserted either in the very action in which the services of a lawyer had been
rendered or in a separate action.
[21]

With respect to the first situation, the remedy for recovering attorneys fees
as an incident of the main action may be availed of only when something is
due to the client. Attorneys fees cannot be determined until after the main
litigation has been decided and the subject of the recovery is at the disposition
[22]

of the court. The issue over attorneys fees only arises when something has
been recovered from which the fee is to be paid.
[23]

While a claim for attorneys fees may be filed before the judgment is
rendered, the determination as to the propriety of the fees or as to the amount
thereof will have to be held in abeyance until the main case from which the
lawyers claim for attorneys fees may arise has become final. Otherwise, the
determination to be made by the courts will be premature. Of course, a
petition for attorneys fees may be filed before the judgment in favor of the
client is satisfied or the proceeds thereof delivered to the client.
[24]

[25]

It is apparent from the foregoing discussion that a lawyer has two options
as to when to file his claim for professional fees. Hence, private respondent
was well within his rights when he made his claim and waited for the finality of
the judgment for holiday pay differential, instead of filing it ahead of the
awards complete resolution. To declare that a lawyer may file a claim for fees
in the same action only before the judgment is reviewed by a higher tribunal
would deprive him of his aforestated options and render ineffective the
foregoing pronouncements of this Court.
Assailing the rulings of the labor arbiter and the NLRC, petitioner union
insists that it is not guilty of unjust enrichment because all attorneys fees due
to private respondent were covered by the retainer fee of P3,000.00 which it
has been regularly paying to private respondent under their retainer
agreement. To be entitled to the additional attorneys fees as provided in Part
D (Special Billings) of the agreement, it avers that there must be a separate
mutual agreement between the union and the law firm prior to the
performance of the additional services by the latter. Since there was no
agreement as to the payment of the additional attorneys fees, then it is
considered waived.
En contra, private respondent contends that a retainer fee is not the
attorneys fees contemplated for and commensurate to the services he
rendered to petitioner. He asserts that although there was no express
agreement as to the amount of his fees for services rendered in the case for
recovery of differential pay, Article 111 of the Labor Code supplants this
omission by providing for an award of ten percent (10%) of a money judgment
in a labor case as attorneys fees.
It is elementary that an attorney is entitled to have and receive a just and
reasonable compensation for services performed at the special instance and
request of his client. As long as the lawyer was in good faith and honestly
trying to represent and serve the interests of the client, he should have a
reasonable compensation for such services. It will thus be appropriate, at
[26]

this juncture, to determine if private respondent is entitled to an additional

remuneration under the retainer agreement entered into by him and
petitioner.
[27]

The parties subscribed therein to the following stipulations:

xxx
The Law Firm shall handle cases and extend legal services under the
parameters of the following terms and conditions:
A. GENERAL SERVICES
1. Assurance that an Associate of the Law Firm shall be designated and be
available on a day-to-day basis depending on the Unions needs;
2. Legal consultation, advice and render opinion on any actual and/or
anticipatory situation confronting any matter within the clients normal course
of business;
3. Proper documentation and notarization of any or all transactions entered into
by the Union in its day-to-day course of business;
4. Review all contracts, deeds, agreements or any other legal document to
which the union is a party signatory thereto but prepared or caused to be
prepared by any other third party;
5. Represent the Union in any case wherein the Union is a party litigant in any
court of law or quasi-judicial body subject to certain fees as qualified
hereinafter;
6. Lia(i)se with and/or follow-up any pending application or any papers with any
government agency and/or any private institution which is directly related to
any legal matter referred to the Law Firm.

B. SPECIAL LEGAL SERVICES

1. Documentation of any contract and other legal instrument/documents arising
and/or required by your Union which do not fall under the category of its
ordinary course of business activity but requires a special, exhaustive or
detailed study and preparation;
2. Conduct or undertake researches and/or studies on special projects of the
Union;
3. Render active and actual participation or assistance in conference table
negotiations with TRB management or any other third person(s), juridical or
natural, wherein the presence of counsel is not for mere consultation except
CBA negotiations which shall be subject to a specific agreement (pursuant to
PD 1391 and in relation to BP 130 & 227);

4. Preparation of Position Paper(s), Memoranda or any other pleading for and

in behalf of the Union;
5. Prosecution or defense of any case instituted by or against the Union; and,
6. Represent any member of the Union in any proceeding provided that the
particular member must give his/her assent and that prior consent be
granted by the principal officers. Further, the member must conform to the
rules and policies of the Law Firm.

C. FEE STRUCTURE
In consideration of our commitment to render the services enumerated above
when required or necessary, your Union shall pay a monthly retainer fee of
THREE THOUSAND PESOS (PHP 3,000.00), payable in advance on or before
the fifth day of every month.
An Appearance Fee which shall be negotiable on a case-to-case basis.
Any and all Attorneys Fees collected from the adverse party by virtue of a
successful litigation shall belong exclusively to the Law Firm.
It is further understood that the foregoing shall be without prejudice to our
claim for reimbursement of all out-of-pocket expenses covering filing fees,
transportation, publication costs, expenses covering reproduction or
authentication of documents related to any matter referred to the Law Firm or
that which redound to the benefit of the Union.
D. SPECIAL BILLINGS
In the event that the Union avails of the services duly enumerated in Title B, the
Union shall pay the Law Firm an amount mutually agreed upon PRIOR to the
performance of such services. The sum agreed upon shall be based on actual
time and effort spent by the counsel in relation to the importance and
magnitude of the matter referred to by the Union. However, charges may
be WAIVED by the Law Firm if it finds that time and efforts expended on the
particular services are inconsequential but such right of waiver is duly reserved
for the Law Firm.
xxx
The provisions of the above contract are clear and need no further
interpretation; all that is required to be done in the instant controversy is its
application. The P3,000.00 which petitioner pays monthly to private
respondent does not cover the services the latter actually rendered before the

labor arbiter and the NLRC in behalf of the former. As stipulated in Part C of
the agreement, the monthly fee is intended merely as a consideration for the
law firms commitment to render the services enumerated in Part A (General
Services) and Part B (Special Legal Services) of the retainer agreement.
The difference between a compensation for a commitment to render legal
services and a remuneration for legal services actually rendered can better be
appreciated with a discussion of the two kinds of retainer fees a client may
pay his lawyer. These are a general retainer, or a retaining fee, and a special
retainer.
[28]

A general retainer, or retaining fee, is the fee paid to a lawyer to secure his
future services as general counsel for any ordinary legal problem that may
arise in the routinary business of the client and referred to him for legal
action. The future services of the lawyer are secured and committed to the
retaining client. For this, the client pays the lawyer a fixed retainer fee which
could be monthly or otherwise, depending upon their arrangement. The fees
are paid whether or not there are cases referred to the lawyer. The reason for
the remuneration is that the lawyer is deprived of the opportunity of rendering
services for a fee to the opposing party or other parties. In fine, it is a
compensation for lost opportunities.
A special retainer is a fee for a specific case handled or special service
rendered by the lawyer for a client. A client may have several cases
demanding special or individual attention. If for every case there is a separate
and independent contract for attorneys fees, each fee is considered a special
retainer.
As to the first kind of fee, the Court has had the occasion to expound on its
concept in Hilado vs. David in this wise:
[29]

There is in legal practice what is called a retaining fee, the purpose of which stems
from the realization that the attorney is disabled from acting as counsel for the other
side after he has given professional advice to the opposite party, even if he should
decline to perform the contemplated services on behalf of the latter. It is to prevent
undue hardship on the attorney resulting from the rigid observance of the rule that a
separate and independent fee for consultation and advice was conceived and
authorized. A retaining fee is a preliminary fee given to an attorney or counsel to
insure and secure his future services, and induce him to act for the client. It is intended
to remunerate counsel for being deprived, by being retained by one party, of the
opportunity of rendering services to the other and of receiving pay from him, and the
payment of such fee, in the absence of an express understanding to the contrary, is
neither made nor received in payment of the services contemplated; its payment has

no relation to the obligation of the client to pay his attorney for the services for which
he has retained him to perform. (Emphasis supplied).
Evidently, the P3,000.00 monthly fee provided in the retainer agreement
between the union and the law firm refers to a general retainer, or a retaining
fee, as said monthly fee covers only the law firms pledge, or as expressly
stated therein, its commitment to render the legal services enumerated. The
fee is not payment for private respondents execution or performance of the
services listed in the contract, subject to some particular qualifications or
permutations stated there.
Generally speaking, where the employment of an attorney is under an
express valid contract fixing the compensation for the attorney, such contract
is conclusive as to the amount of compensation. We cannot, however, apply
the foregoing rule in the instant petition and treat the fixed fee of P3,000.00 as
full and sufficient consideration for private respondents services, as petitioner
would have it.
[30]

We have already shown that the P3,000.00 is independent and different

from the compensation which private respondent should receive in payment
for his services. While petitioner and private respondent were able to fix a fee
for the latters promise to extend services, they were not able to come into
agreement as to the law firms actual performance of services in favor of the
union. Hence, the retainer agreement cannot control the measure of
remuneration for private respondents services.
We, therefore, cannot favorably consider the suggestion of petitioner that
private respondent had already waived his right to charge additional fees
because of their failure to come to an agreement as to its payment.
Firstly, there is no showing that private respondent unequivocally opted to
waive the additional charges in consonance with Part D of the
agreement. Secondly, the prompt actions taken by private respondent, i.e.,
serving notice of charging lien and filing of motion to determine attorneys fees,
belie any intention on his part to renounce his right to compensation for
prosecuting the labor case instituted by the union. And, lastly, to adopt such
theory of petitioner may frustrate private respondents right to attorneys fees,
as the former may simply and unreasonably refuse to enter into any special
agreement with the latter and conveniently claim later that the law firm had
relinquished its right because of the absence of the same.
The fact that petitioner and private respondent failed to reach a meeting of
the minds with regard to the payment of professional fees for special services

will not absolve the former of civil liability for the corresponding remuneration
therefor in favor of the latter.
Obligations do not emanate only from contracts. One of the sources of
extra-contractual obligations found in our Civil Code is the quasi-contract
premised on the Roman maxim that nemo cum alterius detrimento locupletari
protest. As embodied in our law, certain lawful, voluntary and unilateral acts
give rise to the juridical relation of quasi-contract to the end that no one shall
be unjustly enriched or benefited at the expense of another.
[31]

[32]

A quasi-contract between the parties in the case at bar arose from private
respondents lawful, voluntary and unilateral prosecution of petitioners cause
without awaiting the latters consent and approval. Petitioner cannot deny that
it did benefit from private respondents efforts as the law firm was able to
obtain an award of holiday pay differential in favor of the union. It cannot even
hide behind the cloak of the monthly retainer of P3,000.00 paid to private
respondent because, as demonstrated earlier, private respondents actual
rendition of legal services is not compensable merely by said amount.
Private respondent is entitled to an additional remuneration for pursuing
legal action in the interest of petitioner before the labor arbiter and the NLRC,
on top of the P3,000.00 retainer fee he received monthly from petitioner. The
law firms services are decidedly worth more than such basic fee in the
retainer agreement. Thus, in Part C thereof on Fee Structure, it is even
provided that all attorneys fees collected from the adverse party by virtue of a
successful litigation shall belong exclusively to private respondent, aside from
petitioners liability for appearance fees and reimbursement of the items of
costs and expenses enumerated therein.
A quasi-contract is based on the presumed will or intent of the obligor
dictated by equity and by the principles of absolute justice. Some of these
principles are: (1) It is presumed that a person agrees to that which will benefit
him; (2) Nobody wants to enrich himself unjustly at the expense of another;
and (3) We must do unto others what we want them to do unto us under the
same circumstances.
[33]

As early as 1903, we allowed the payment of reasonable professional fees

to an interpreter, notwithstanding the lack of understanding with his client as to
his remuneration, on the basis of quasi-contract. Hence, it is not necessary
that the parties agree on a definite fee for the special services rendered by
private respondent in order that petitioner may be obligated to pay
compensation to the former. Equity and fair play dictate that petitioner should
pay the same after it accepted, availed itself of, and benefited from private
respondents services.
[34]

We are not unaware of the old ruling that a person who had no knowledge
of, nor consented to, or protested against the lawyers representation may not
be held liable for attorneys fees even though he benefited from the lawyers
services. But this doctrine may not be applied in the present case as
petitioner did not object to private respondents appearance before the NLRC
in the case for differentials.
[35]

Viewed from another aspect, since it is claimed that petitioner obtained

respondents legal services and assistance regarding its claims against the
bank, only they did not enter into a special contract regarding the
compensation therefor, there is at least the innominate contract of facio ut
des (I do that you may give). This rule of law, likewise founded on the
principle against unjust enrichment, would also warrant payment for the
services of private respondent which proved beneficial to petitioners
members.
[36]

In any case, whether there is an agreement or not, the courts can fix a
reasonable compensation which lawyers should receive for their professional
services. However, the value of private respondents legal services should
not be established on the basis of Article 111 of the Labor Code alone. Said
article provides:
[37]

ART. 111. Attorneys fees. - (a) In cases of unlawful withholding of wages the culpable
party may be assessed attorneys fees equivalent to ten percent of the amount of the
wages recovered.
xxx
The implementing provision of the foregoing article further states:
[38]

Sec. 11. Attorneys fees. - Attorneys fees in any judicial or administrative proceedings
for the recovery of wages shall not exceed 10% of the amount awarded. The fees may
be deducted from the total amount due the winning party.
In the first place, the fees mentioned here are the extraordinary attorneys
fees recoverable as indemnity for damages sustained by and payable to the
prevailing part. In the second place, the ten percent (10%) attorneys fees
provided for in Article 111 of the Labor Code and Section 11, Rule VIII, Book
III of the Implementing Rules is the maximum of the award that may thus be
granted. Article 111 thus fixes only the limit on the amount of attorneys fees
the victorious party may recover in any judicial or administrative proceedings
and it does not even prevent the NLRC from fixing an amount lower than the
[39]

ten percent (10%) ceiling prescribed by the article when circumstances

warrant it.
[40]

The measure of compensation for private respondents services as against

his client should properly be addressed by the rule of quantum meruit long
adopted in this jurisdiction. Quantum meruit, meaning as much as he
deserves, is used as the basis for determining the lawyers professional fees in
the absence of a contract, but recoverable by him from his client.
[41]

Where a lawyer is employed without a price for his services being agreed
upon, the courts shall fix the amount on quantum meruit basis. In such a case,
he would be entitled to receive what he merits for his services.
[42]

It is essential for the proper operation of the principle that there is an

acceptance of the benefits by one sought to be charged for the services
rendered under circumstances as reasonably to notify him that the lawyer
performing the task was expecting to be paid compensation therefor. The
doctrine of quantum meruit is a device to prevent undue enrichment based on
the equitable postulate that it is unjust for a person to retain benefit without
paying for it.
[43]

Over the years and through numerous decisions, this Court has laid down
guidelines in ascertaining the real worth of a lawyers services. These factors
are now codified in Rule 20.01, Canon 20 of the Code of Professional
Responsibility and should be considered in fixing a reasonable compensation
for services rendered by a lawyer on the basis of quantum meruit. These
are: (a) the time spent and the extent of services rendered or required; (b) the
novelty and difficulty of the questions involved; (c) the importance of the
subject matter; (d) the skill demanded; (e) the probability of losing other
employment as a result of acceptance of the proffered case; (f) the customary
charges for similar services and the schedule of fees of the IBP chapter to
which the lawyer belongs; (g) the amount involved in the controversy and the
benefits resulting to the client from the services; (h) the contingency or
certainty of compensation; (i) the character of the employment, whether
occasional or established; and (j) the professional standing of the lawyer.
Here, then, is the flaw we find in the award for attorneys fees in favor of
private respondent. Instead of adopting the above guidelines, the labor arbiter
forthwith but erroneously set the amount of attorneys fees on the basis of
Article 111 of the Labor Code. He completely relied on the operation of Article
111 when he fixed the amount of attorneys fees at P17,574.43. Observe the
conclusion stated in his order.
[44]

[45]

xxx

FIRST. Art. 111 of the Labor Code, as amended, clearly declares movants right to a
ten (10%) per cent of the award due its client. In addition, this right to ten (10%) per
cent attorneys fees is supplemented by Sec. 111, Rule VIII, Book III of the Omnibus
Rules Implementing the Labor Code, as amended.
xxx
As already stated, Article 111 of the Labor Code regulates the amount
recoverable as attorneys fees in the nature of damages sustained by and
awarded to the prevailing party. It may not be used therefore, as the lone
standard in fixing the exact amount payable to the lawyer by his client for the
legal services he rendered. Also, while it limits the maximum allowable
amount of attorneys fees, it does not direct the instantaneous and automatic
award of attorneys fees in such maximum limit.
It, therefore, behooves the adjudicator in questions and circumstances
similar to those in the case at bar, involving a conflict between lawyer and
client, to observe the above guidelines in cases calling for the operation of the
principles of quasi-contract and quantum meruit, and to conduct a hearing for
the proper determination of attorneys fees. The criteria found in the Code of
Professional Responsibility are to be considered, and not disregarded, in
assessing the proper amount. Here, the records do not reveal that the parties
were duly heard by the labor arbiter on the matter and for the resolution of
private respondents fees.
It is axiomatic that the reasonableness of attorneys fees is a question of
fact. Ordinarily, therefore, we would have remanded this case for further
reception of evidence as to the extent and value of the services rendered by
private respondent to petitioner. However, so as not to needlessly prolong the
resolution of a comparatively simple controversy, we deem it just and
equitable to fix in the present recourse a reasonable amount of attorneys fees
in favor of private respondent. For that purpose, we have duly taken into
account the accepted guidelines therefor and so much of the pertinent data as
are extant in the records of this case which are assistive in that regard. On
such premises and in the exercise of our sound discretion, we hold that the
amount of P10,000.00 is a reasonable and fair compensation for the legal
services rendered by private respondent to petitioner before the labor arbiter
and the NLRC.
[46]

WHEREFORE, the impugned resolution of respondent National Labor

Relations Commission affirming the order of the labor arbiter is MODIFIED,
and petitioner is hereby ORDERED to pay the amount of TEN THOUSAND

PESOS (P10,000.00) as attorneys fees to private respondent for the latters

legal services rendered to the former.
SO ORDERED.