DEVELOPMENT BANK OF THE PHILIPPINES, PETITIONER, VS. HONORABLE NATIONAL LABOR RELATIONS COMMISSION, EDILBERTO SALAYON, RICARDO ARINDUQUE, GLORIA AUREA, MANUEL DIZON, RODOLFO ENC…

Challenged in this petition for certiorari is the validity
of the decision of the National Labor Relations Commission (NLRC for brevity)
dated September 25, 1984 in
NLRC Case No. RAB-III-2-492-82 entitled “Edilberto
Salayon, et al. vs. Development Bank of the Philippines
(DBP for brevity) and Consolidated Sugar Corporation of the Philippines”
which affirmed the decision of the labor arbiter Andres B. Palumbarit
sustaining the complaint for unpaid salaries and wages, allowances and separation pay against petitioner DBP.

The facts as narrated by
the Solicitor General are as follows:

“In 1967, CAREBI secured a loan from petitioner DBP,
constituting a mortgage on its sugar mill-refinery in Botolan,
Zambales.  On July 22, 1977, and upon failure of
CAREBI to pay, DBP instituted a foreclosure sale of the property in which DBP
itself was the highest bidder (Records, Motion for Reconsideration, Annex A; Certificate
of Sale, pp. 000113-23).

After the sale, CAREBI continued to manage and operate the business
until it finally ceased operation on April 30, 1978.  On the same day, CAREBI laid off
respondent-employees then working in the sugar mill-refinery without, however,
paying their separation benefits.

Meantime, Dr. Pacifico E. Marcos, then President of CAREBI, along with four
(4) others, namely:  Marianito
Santos, Jose Z. Osias, Cesar N. Barretto, and Liong Cio Chang, formed another
corporation, the Consolidated Sugar Corporation (CSC for brevity), which in
turn proposed a management contract
with DBP respecting the same sugar
mill-refinery (Letters dated June 1978 and August 8, 1978).

On August 8, 1978, DBP agreed to continue the business under the management and operation of the newly-organized
CSC.  In view thereof, respondent-employees who were previously
laid off were recalled to work (Management Contract, August 8, 1978).

The management contract provided among others, that:

1.            DBP shall undertake to pay the cost
of rehabilitation and repair of the mill and refinery equipment based on CSC’s prepared estimates to be reviewed by DBP;

2.            DBP shall designate a comptroller
and an assistant comptroller to monitor the management and operations of the sugar
mill-refinery and to draw checks covering the operational expenses,
respectively;

3.            DBP shall
approve all monthly budgets and projections on operations of the sugar-mill
refinery;

4.            CSC shall handle
all operational revenues and income.  All
expenses relating to opera­tions shall be deducted therefrom;

5.            Salaries and compensation of the CSC
management group plus a management fee to CSC of P25,000.00
a month shall be funded out of CAREBI’s operations so
that should the net cash balance from CAREBI’s operations
be less than P200,000.00 (equivalent to the management fee for eight month’s
milling period at P25,000.00 per month), then such smaller balance is all that
shall be paid to CSC as management fee. 
Only cash balance in excess of the foregoing shall accrue to DBP;

6.            CSC agrees and binds itself to hold
DBP free and unharmed from any costs, expenses, accountabilities and other liabilities
of any form, kind or character which may arise from the use, management and
operation of the sugar mill-refinery.  (id).

During the operation, DBP, in addition to the foregoing, actually
held and controlled six (6) out
of the eleven (11) seats in the CSC Board of Directors.

On September 23, 1981, or after two years and one month, DBP Board
of Governors, through Resolution No. 3035, resolved and approved the:

“1. 
Termination of the management contract with CSC;

2.   Assumption by DBP the
pay­ment of back salaries and allowances including separation pay of CAREBI employees entitled
thereto.” (Resolution No. 3085)

Consequently, in its letter of September 29, 1981 (received by CSC and respondent
employees on September 5 and 7, respectively), DBP terminated the contract
effective on the following day, September
30, 1981 (Letter dated September 29, 1981)

In November 1981 some 77 employees filed a case against petitioner DBP and respondent CSC, docketed as
NLRC Case No. RB-111-10-238-81 for backwages, ECOLA
(July 1 – Oct. 8, 1981) and separation pay computed from their original
employment with CAREBI.

While the case was pending, DBP, by way of compromise, paid
claimants the collective amount of P164,597.53,
entitling each to an average amount of P2,137.63.  In turn, claimants withdrew the case and
executed the corresponding quitclaim in favor of DBP and CSC.

On February 4, 1982, other 18
employees, different from the previous claimants, filed similar claims against
DBP and CSC (Complaint, February 4, 1982).

CSC and the 18 complainants plus 16 additional claimants (including
the 4 CSC corporate officers) not previously included in the complaint, filed
their respective position papers imputing liability to DBP, all claiming to
have become DBP’s employees upon its acquisition of
the sugar mill-refinery and subsequent continuation of the business under the
management of CSC.

On the other hand, DBP did not file its position paper.” (Rollo pp. 152-155).

On April 19, 1982, Labor Arbiter Andres Palumbarit
rendered a decision the decretal portion of which reads:

“WHEREFORE, premises considered, the complaint is hereby sustained
and respondent DBP is ordered to pay the following:

1.            The amount of
P35,198.68 as allowance from July 1, to Oc­tober 8, 1981 of herein com­plainants;

2.            P170,211.01 as unpaid salaries and wages of herein complainants
from July 1 to October 8, 1981;

3.            P507,260.00
as separation or termination pay of herein complainants for the length of
services rendered by them as indicated in Annex “N” of the
complainants position paper;

4.            The amount corresponding to the 10%
of the allowances and wages combined, constituting as Attorney’s fee pursuant
to Section II of Rule VII Book II of the Implementing Rules and Regulations of
the Labor Code or P20,540.96.” (Ibid.,
p. 20).

On appeal to the NLRC, aforecited decision was affirmed and the appeal dismissed
for lack of merit.

Hence
the instant petition.

Petitioner raised the
following assignments of error:

1.  RESPONDENT COMMISSION
ERRED IN FINDING THAT DBP IS DEEMED TO HAVE STEPPED INTO THE SHOES OF CAREBI
AND ASSUMED ITS LIABILITIES INSOFAR AS THE EMPLOYEES ARE CONCERNED.

2.  RESPONDENT COMMISSION
ERRED IN FINDING THAT THE EMPLOYEES OF CAREBI BECAME EMPLOYEES OF DBP.

3.  RESPONDENT COMMISSION
ERRED IN FINDING THAT THE OPERATIONS OF CAREBI SUGAR MILL-REFINERY COMPLEX
BELONGED TO AND WERE FOR THE ACCOUNT OF DBP.

4.  RESPONDENT COMMISSION
ERRED IN NOT SUSTAINING DBP’S STAND THAT AS PER MANAGEMENT CONTRACT CSC AGREED
TO USE, MANAGE AND OPERATE THE SUGAR MILL-REFINERY COMPLEX AND AGREE TO ABSOLVE
DBP FROM ANY COSTS, EXPENSES, ACCOUNTABILITES AND OTHER LIABILITIES AND THAT
CSC OPERATED THE SUGAR MILL FOR ITS ACCOUNT.

5.  RESPONDENT COMMISSION
ERRED IN FINDING THAT CSC ACTIVITIES WERE LIMITED TO THE OPERATION/MANAGEMENT
OF THE SUGAR MILL-REFINERY COMPLEX OR THAT THERE IS UTTERLY WANT OF PROOF THAT
CSC WAS ENGAGED IN ANY OTHER BUSINESS.

6.  RESPONDENT COMMISSION
ERRED IN CONSIDERING IN THE COMPUTATION OF THE AWARD SERVICES RENDERED BY THE
AWARDEES TO CAREBI (PHIL.) INC.

7.  ASSUMING WITHOUT
ADMITTING THAT THE PRIVATE RESPONDENTS BECAME THE EMPLOYEES OF DBP, THEN IN
THIS CASE THE PROVISIONS OF THE LABOR CODE ARE NOT APPLICABLE IN THIS INSTANT
CASE AND THE LABOR ARBITER AND THE RESPONDENT NLRC HAS NO JURISDICTION OVER THE
PERSONS OF THE PRIVATE RESPONDENTS AND DBP. 
(pp. 290-291, Rollo)

The crux of the matter is
whether or not the NLRC misappreciated
the facts and proceeded with erroneous conclusions of law.

There is no question that
private respondents have not received benefits legally due them.  The question is who between petitioner DBP
and respondent CSC is liable to pay the private respondents.

The Labor Arbiter and the
NLRC found as fact that petitioner DBP and not respondent CSC was the employer
of private respondents.

Petitioner,
however, insists that respondent CSC is private respondents’ employer as they
have been under the direct control and supervision of the said corporation and
that the payment of their salaries were funded out of the CSC’s
operations as embodied in the
management contract.  Moreover, private
respondents are the former employees of the defunct CAREBI (Phil.).  Their subsequent re-hiring undertaken by
respondent CSC does not in any
way bind the petitioner, much less makes it liable for the money claims.

It is well-settled
that the question of whether or not an
employer-employee relationship exists between the parties is a question of fact
and that findings of fact of the NLRC are accorded by this Court not only respect but finality, if supported
by substantial evidence
(Asim et al. v.
Castro, G.R. Nos. 75063-64,June 30, 1988).  (Underscoring supplied)

Contrary to the findings of the labor arbiter and the NLRC, the
following circumstances belie the existence
of an employer-employee relationship between the private respondents and
petitioner DBP:

1.  Upon petitioner DBP’s foreclosure of CAREBI’s
assets and the consequent expiration of their management contract, private
respondent employees’ services were terminated by Carebi
President Pacifico E. Marcos by virtue of a memorandum dated April 29, 1978 (Rollo, p. 90);

2.  Respondent CSC
conformably agreed to use,
manage, and operate the sugar mill-refinery complex at Botolan,
Zambales belonging to petitioner DBP (Annex
“3”, supplemental petition, p. 95, Rollo);

3.  CAREBI (Phil.) Inc.
president Pacifico E. Marcos, who later became
president of respondent CSC personally undertook to
obtain the re-employment of private respondents after cessation of operation of
CAREBI (Phil.) Inc. (Annex “1-A”, Ibid., p. 90);

4.  Respondent CSC is an independent contractor which
has an authorized capital of P20,000,000.00 and
already has an initial paid-up capital f P1,000,000.00; (Annex “2”, Ibid.,
p. 91);

5.  Respondent CSC admittedly
provided the manning requirements of the sugar mill-refinery complex `limited
to only 446 personnel instead of Carebi’s usual force
of 691 or a reduction of 245 men’ (Ibid., p. 93);

6.  The management contract
between petitioner DBP and respondent CSC specifically provided that the `salaries and compensation of the CSC management group plus a management fee to
CSC of P25,000.00 a month shall be funded out of CAREBI’s
operations so that should the net cash balance from CAREBI’s operations be less than P200,000.00 (equivalent to the management
fee for eight month’s milling
period at P25,000.00 per month), then such smaller balance is all that shall be
paid to CSC as management fee.  Only cash
balance in excess of the
foregoing shall accrue to DBP’ (Rollo, pp. 153-154);

7.  The projected Expenses/Fund Requirements for
the months of September & October 1978 of respondent CSC shows that the
latter shall be responsible for the funding of operating expenses of the sugar
mill-refinery complex such as salaries and wages, SSS, medicare,
Employee compensation, and Maternity Contribution, Emergency Allowance (PD 525
& 1123), Miscellaneous & Indirect Expenses, General &
Administrative Expenses and Light and Power (Zambales)
(Rollo, p. 104).

In determining the existence of employer-employee relationship,
the following elements are generally considered, namely:  (1)
the selection and engagement of the employee; (2) the payment of wages; (3)
the power of dismissal; (4) the power to control the employee’s
conduct – although the latter is the most important element (Brotherhood Labor
Unity Movement of the Philippines
v. Zamora, 147 SCRA 49 [1987]; Social Security System v. Court of Appeals, 156 SCRA 383 [1987]; Broadway Motors Inc. v. NLRC, 156 SCRA 522 [1987];
Bautista v. Inciong, 158 SCRA 668 [1988] and Asim et al. v. Castro, supra).

Respondent CSC is an independent contractor which employed the private
respondents for the specific purpose of managing and operating the said sugar
mill-refinery complex.  It was respondent CSC which exercised
the right of control over the conduct of private respondents in the performance
of their functions and petitioner DBP never had a hand over their supervision. 
The right of control test “where the person for whom the
services are performed reserves a right to control not only the end to be
achieved but also the means to be used in reaching such end” belonging to
respondent CSC is determinative of the existence of an employer-employee
relationship (Sevilla vs. Court of Appeals, 160 SCRA
179-180 [1988]).

Absent the power to control the employees with respect to the means and methods by which their work was to be accomplished,
there was no employer-employee relationship between the petitioner DBP and
private respondents.  Hence, there is no
basis for an award of unpaid allowances, salaries and wages and separation pay
against petitioner DBP.  (Continental Marble Corp., et al., vs. NLRC, G.R. No. L-43825, May 9, 1988).

But respondent CSC which is apparently private respondents’
employer is obliged to pay the same.

 Anent the finding of NLRC
that petitioner DBP stepped into the shoes of Carebi
and assumed its liabilities insofar as the employees are concerned, the said
ruling appears implausible since the liabilities incurred by the old owner of
the establishment to his employees
prior to the sale will not be enforceable against the transferee unless the
latter expressly assumed the same, or
the sale was made in bad faith (Fernando vs. Angat
Labor Union 5 SCRA 251 [1962]; Cruz vs.
Philippine Association of Free Labor
Unions (PAFLU) 42 SCRA 77 [1971]), which circumstances are not obtaining in the
case at bar.

PREMISES CONSIDERED, (a) The petition is GRANTED; (b) the
appealed decision of the NLRC is REVERSED and SET ASIDE and (c) the complaint against the petitioner DBP is
DISMISSED.

SO OREDERED.

Melencio-Herrera,
(Chairman), Padilla, Sarmiento, and Regalado, JJ., concur.