Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 164856               August 29, 2007

JUANITO A. GARCIA and ALBERTO J. DUMAGO, Petitioners, 

vs.
PHILIPPINE AIRLINES, INC., Respondent.

DECISION

QUISUMBING, J.:

This petition for review assails both the Decision1 dated December 5, 2003 and the
Resolution2 dated April 16, 2004 of the Court of Appeals in CA-G.R. SP No. 69540, which had
annulled the Resolutions3 dated November 26, 2001 and January 28, 2002 of the National Labor
Relations Commission (NLRC) in NLRC Injunction Case No. 0001038-01, and also denied the
motion for reconsideration, respectively.

The antecedent facts of the case are as follows:

Petitioners Alberto J. Dumago and Juanito A. Garcia were employed by respondent Philippine
Airlines, Inc. (PAL) as Aircraft Furnishers Master "C" and Aircraft Inspector, respectively. They were
assigned in the PAL Technical Center.

On July 24, 1995, a combined team of the PAL Security and National Bureau of Investigation (NBI)
Narcotics Operatives raided the Toolroom Section – Plant Equipment Maintenance Division (PEMD)
of the PAL Technical Center. They found petitioners, with four others, near the said section at that
time. When the PAL Security searched the section, they found shabu paraphernalia inside the
company-issued locker of Ronaldo Broas who was also within the vicinity. The six employees were
later brought to the NBI for booking and proper investigation.

On July 26, 1995, a Notice of Administrative Charge 4 was served on petitioners. They were allegedly
"caught in the act of sniffing shabu inside the Toolroom Section," then placed under preventive
suspension and required to submit their written explanation within ten days from receipt of the
notice.

Petitioners vehemently denied the allegations and challenged PAL to show proof that they were
indeed "caught in the act of sniffing shabu." Dumago claimed that he was in the Toolroom Section to
request for an allen wrench to fix the needles of the sewing and zigzagger machines. Garcia averred
he was in the Toolroom Section to inquire where he could take the Trackster’s tire for vulcanizing.

On October 9, 1995, petitioners were dismissed for violation of Chapter II, Section 6, Article 46
(Violation of Law/Government Regulations) and Chapter II, Section 6, Article 48 (Prohibited Drugs)
of the PAL Code of Discipline.5 Both simultaneously filed a case for illegal dismissal and damages.

In the meantime, the Securities and Exchange Commission (SEC) placed PAL under an Interim
Rehabilitation Receiver due to severe financial losses.
On January 11, 1999, the Labor Arbiter rendered a decision 6 in petitioners’ favor:

WHEREFORE, conformably with the foregoing, judgment is hereby rendered finding the
respondents guilty of illegal suspension and illegal dismissal and ordering them to reinstate
complainants to their former position without loss of seniority rights and other privileges.
Respondents are hereby further ordered to pay jointly and severally unto the complainants the
following:

Alberto J. Dumago - P409,500.00 backwages as of 1/10/99

34,125.00 for 13th month pay

Juanito A. Garcia - P1,290,744.00 backwages as of 1/10/99

107,562.00 for 13th month pay

The amounts of P100,000.00 and P50,000.00 to each complainant as and by way of moral and
exemplary damages; and

The sum equivalent to ten percent (10%) of the total award as and for attorneys fees.

Respondents are directed to immediately comply with the reinstatement aspect of this Decision.
However, in the event that reinstatement is no longer feasible, respondent[s] are hereby ordered, in
lieu thereof, to pay unto the complainants their separation pay computed at one month for [e]very
year of service.

SO ORDERED.7

Meanwhile, the SEC replaced the Interim Rehabilitation Receiver with a Permanent Rehabilitation
Receiver.

On appeal, the NLRC reversed the Labor Arbiter’s decision and dismissed the case for lack of
merit.8Reconsideration having been denied, an Entry of Judgment 9 was issued on July 13, 2000.

On October 5, 2000, the Labor Arbiter issued a Writ of Execution 10 commanding the sheriff to
proceed:

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1. To the Office of respondent PAL Building I, Legaspi St., Legaspi Village, Makati City or to
any of its Offices in the Philippines and cause reinstatement of complainants to their former
position and to cause the collection of the amount of [₱]549,309.60 from respondent PAL
representing the backwages of said complainants on the reinstatement aspect;

2. In case you cannot collect from respondent PAL for any reason, you shall levy on the
office equipment and other movables and garnish its deposits with any bank in the
Philippines, subject to the limitation that equivalent amount of such levied movables and/or
the amount garnished in your own judgment, shall be equivalent to [₱]549,309.60. If still
insufficient, levy against immovable properties of PAL not otherwise exempt from execution.

x x x x11
Although PAL filed an Urgent Motion to Quash Writ of Execution, the Labor Arbiter issued a Notice
of Garnishment12 addressed to the President/Manager of the Allied Bank Head Office in Makati City
for the amount of ₱549,309.60.

PAL moved to lift the Notice of Garnishment while petitioners moved for the release of the garnished
amount. PAL opposed petitioners’ motion. It also filed an Urgent Petition for Injunction which the
NLRC resolved as follows:

WHEREFORE, premises considered, the Petition is partially GRANTED. Accordingly, the Writ of
Execution dated October 5, 2000 and related [N]otice of Garnishment [dated October 25, 2000] are
DECLARED valid. However, the instant action is SUSPENDED and REFERRED to the Receiver of
Petitioner PAL for appropriate action.

SO ORDERED.13

PAL appealed to the Court of Appeals on the grounds that: (1) by declaring the writ of execution and
the notice of garnishment valid, the NLRC gave petitioners undue advantage and preference over
PAL’s other creditors and hampered the task of the Permanent Rehabilitation Receiver; and (2)
there was no longer any legal or factual basis to reinstate petitioners as a result of the reversal by
the NLRC of the Labor Arbiter’s decision.

The appellate court ruled that the Labor Arbiter issued the writ of execution and the notice of
garnishment without jurisdiction. Hence, the NLRC erred in upholding its validity. Since PAL was
under receivership, it could not have possibly reinstated petitioners due to retrenchment and cash-
flow constraints. The appellate court declared that a stay of execution may be warranted by the fact
that PAL was under rehabilitation receivership. The dispositive portion of the decision reads:

WHEREFORE, premises considered and in view of the foregoing, the instant petition is
hereby GIVEN DUE COURSE. The assailed November 26, 2001 Resolution, as well as the January
28, 2002 Resolution of public respondent National Labor Relations Commission is
hereby ANNULLED and SET ASIDE for having been issued with grave abuse of discretion
amounting to lack or excess of jurisdiction. Consequently, the Writ of Execution and the Notice of
Garnishment issued by the Labor Arbiter are hereby likewise ANNULLED and SET ASIDE.

SO ORDERED.14

Hence, the instant petition raising a single issue as follows:

WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
PETITIONERS ARE ENTITLED TO THEIR ACCRUED WAGES DURING THE PENDENCY OF
PAL’S APPEAL.15

Simply put, however, there are really two issues for our consideration: (1) Are petitioners entitled to
their wages during the pendency of PAL’s appeal to the NLRC? and (2) In the light of new
developments concerning PAL’s rehabilitation, are petitioners entitled to execution of the Labor
Arbiter’s order of reinstatement even if PAL is under receivership?

We shall first resolve the issue of whether the execution of the Labor Arbiter’s order is legally
possible even if PAL is under receivership.
We note that during the pendency of this case, PAL was placed by the SEC first, under an Interim
Rehabilitation Receiver and finally, under a Permanent Rehabilitation Receiver. The pertinent law on
this matter, Section 5(d) of Presidential Decree (P.D.) No. 902-A, as amended, provides that:

SECTION 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other forms of associations registered with it as
expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to
hear and decide cases involving:

xxxx

d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of

payments in cases where the corporation, partnership or association possesses property to cover all
of its debts but foresees the impossibility of meeting them when they respectively fall due or in cases
where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is
under the [management of a rehabilitation receiver or] Management Committee created pursuant to
this Decree.

The same P.D., in Section 6(c) provides that:

SECTION 6. In order to effectively exercise such jurisdiction, the Commission shall possess the
following powers:

xxxx

c) To appoint one or more receivers of the property, real or personal, which is the subject of the
action pending before the Commission in accordance with the pertinent provisions of the Rules of
Court in such other cases whenever necessary in order to preserve the rights of the parties-litigants
and/or protect the interest of the investing public and creditors:…Provided, finally, That upon
appointment of a management committee, rehabilitation receiver, board or body, pursuant to this
Decree, all actions for claims against corporations, partnerships or associations under management
or receivership pending before any court, tribunal, board or body shall be suspended accordingly.

xxxx

Worth stressing, upon appointment by the SEC of a rehabilitation receiver, all actions for claims
against the corporation pending before any court, tribunal or board shall ipso jure be suspended.
The purpose of the automatic stay of all pending actions for claims is to enable the rehabilitation
receiver to effectively exercise its/his powers free from any judicial or extra-judicial interference that
might unduly hinder or prevent the rescue of the corporation. 16

More importantly, the suspension of all actions for claims against the corporation embraces all
phases of the suit, be it before the trial court or any tribunal or before this Court. 17 No other action
may be taken, including the rendition of judgment during the state of suspension. It must be stressed
that what are automatically stayed or suspended are the proceedings of a suit and not just the
payment of claims during the execution stage after the case had become final and executory. 18

Furthermore, the actions that are suspended cover all claims against the corporation whether for
damages founded on a breach of contract of carriage, labor cases, collection suits or any other
claims of a pecuniary nature.19 No exception in favor of labor claims is mentioned in the law.20 1avvphi1
This Court’s adherence to the above-stated rule has been resolute and steadfast as evidenced by its
oft-repeated application in a plethora of cases involving PAL, the most recent of which is Philippine
Airlines, Inc. v. Zamora.21

Since petitioners’ claim against PAL is a money claim for their wages during the pendency of PAL’s
appeal to the NLRC, the same should have been suspended pending the rehabilitation proceedings.
The Labor Arbiter, the NLRC, as well as the Court of Appeals should have abstained from resolving
petitioners’ case for illegal dismissal and should instead have directed them to lodge their claim
before PAL’s receiver.22

However, to still require petitioners at this time to re-file their labor claim against PAL under the
peculiar circumstances of the case – that their dismissal was eventually held valid with only the
matter of reinstatement pending appeal being the issue – this Court deems it legally expedient to
suspend the proceedings in this case.

WHEREFORE, the instant petition is PARTIALLY GRANTED in that the instant proceedings herein
are SUSPENDED until further notice from this Court. Accordingly, respondent Philippine Airlines,
Inc. is hereby DIRECTED to quarterly update the Court as to the status of its ongoing rehabilitation.
No costs.

SO ORDERED.

LEONARDO A. QUISUMBING
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice

CONCHITA CARPIO MORALES DANTE O. TINGA

Associate Justice Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice