10/6/2020 G.R. No.

177498

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Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 177498 January 18, 2012

STOLT-NIELSEN TRANSPORTATION GROUP, INC. AND CHUNG GAI SHIP MANAGEMENT, Petitioners,
vs.
SULPECIO MEDEQUILLO, JR., Respondent.

DECISION

PEREZ, J.:

Before the Court is a Petition for Review on Certiorari1 of the Decision2 of the First Division of the Court of Appeals in
CA-G.R. SP No. 91632 dated 31 January 2007, denying the petition for certiorari filed by Stolt-Nielsen
Transportation Group, Inc. and Chung Gai Ship Management (petitioners) and affirming the Resolution of the
National Labor Relations Commission (NLRC). The dispositive portion of the assailed decision reads:

WHEREFORE, the petition is hereby DENIED. Accordingly, the assailed Decision promulgated on February 28,
2003 and the Resolution dated July 27, 2005 are AFFIRMED.3

The facts as gathered by this Court follow:

On 6 March 1995, Sulpecio Madequillo (respondent) filed a complaint before the Adjudication Office of the
Philippine Overseas Employment Administration (POEA) against the petitioners for illegal dismissal under a first
contract and for failure to deploy under a second contract. In his complaint-affidavit,4 respondent alleged that:

1. On 6 November 1991(First Contract), he was hired by Stolt-Nielsen Marine Services, Inc on behalf of its
principal Chung-Gai Ship Management of Panama as Third Assistant Engineer on board the vessel "Stolt
Aspiration" for a period of nine (9) months;

2. He would be paid with a monthly basic salary of $808.00 and a fixed overtime pay of $404.00 or a total of
$1,212.00 per month during the employment period commencing on 6 November 1991;

3. On 8 November 1991, he joined the vessel MV "Stolt Aspiration";

4. On February 1992 or for nearly three (3) months of rendering service and while the vessel was at Batangas,
he was ordered by the ship’s master to disembark the vessel and repatriated back to Manila for no reason or
explanation;

5. Upon his return to Manila, he immediately proceeded to the petitioner’s office where he was transferred
employment with another vessel named MV "Stolt Pride" under the same terms and conditions of the First
Contract;

6. On 23 April 1992, the Second Contract was noted and approved by the POEA;

7. The POEA, without knowledge that he was not deployed with the vessel, certified the Second Employment
Contract on 18 September 1992.

8. Despite the commencement of the Second Contract on 21 April 1992, petitioners failed to deploy him with the
vessel MV "Stolt Pride";

9. He made a follow-up with the petitioner but the same refused to comply with the Second Employment
Contract.

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10. On 22 December 1994, he demanded for his passport, seaman’s book and other employment documents.
However, he was only allowed to claim the said documents in exchange of his signing a document;

11. He was constrained to sign the document involuntarily because without these documents, he could not seek
employment from other agencies.

He prayed for actual, moral and exemplary damages as well as attorney’s fees for his illegal dismissal and in view of
the Petitioners’ bad faith in not complying with the Second Contract.

The case was transferred to the Labor Arbiter of the DOLE upon the effectivity of the Migrant Workers and Overseas
Filipinos Act of 1995.

The parties were required to submit their respective position papers before the Labor Arbiter. However, petitioners
failed to submit their respective pleadings despite the opportunity given to them.5

On 21 July 2000, Labor Arbiter Vicente R. Layawen rendered a judgment6 finding that the respondent was
constructively dismissed by the petitioners. The dispositive portion reads:

WHEREFORE, premises considered, judgment is hereby rendered, declaring the respondents guilty of
constructively dismissing the complainant by not honoring the employment contract. Accordingly, respondents are
hereby ordered jointly and solidarily to pay complainant the following:

1. $12,537.00 or its peso equivalent at the time of payment.7

The Labor Arbiter found the first contract entered into by and between the complainant and the respondents to have
been novated by the execution of the second contract. In other words, respondents cannot be held liable for the first
contract but are clearly and definitely liable for the breach of the second contract.8 However, he ruled that there was
no substantial evidence to grant the prayer for moral and exemplary damages.9

The petitioners appealed the adverse decision before the National Labor Relations Commission assailing that they
were denied due process, that the respondent cannot be considered as dismissed from employment because he
was not even deployed yet and the monetary award in favor of the respondent was exorbitant and not in accordance
with law.10

On 28 February 2003, the NLRC affirmed with modification the Decision of the Labor Arbiter. The dispositive portion
reads:

WHEREFORE, premises considered, the decision under review is hereby, MODIFIED BY DELETING the award of
overtime pay in the total amount of Three Thousand Six Hundred Thirty Six US Dollars (US $3,636.00).

In all other respects, the assailed decision so stands as, AFFIRMED.11

Before the NLRC, the petitioners assailed that they were not properly notified of the hearings that were conducted
before the Labor Arbiter. They further alleged that after the suspension of proceedings before the POEA, the only
notice they received was a copy of the decision of the Labor Arbiter.12

The NLRC ruled that records showed that attempts to serve the various notices of hearing were made on
petitioners’ counsel on record but these failed on account of their failure to furnish the Office of the Labor Arbiter a
copy of any notice of change of address. There was also no evidence that a service of notice of change of address
was served on the POEA.13

The NLRC upheld the finding of unjustified termination of contract for failure on the part of the petitioners to present
evidence that would justify their non-deployment of the respondent.14 It denied the claim of the petitioners that the
monetary award should be limited only to three (3) months for every year of the unexpired term of the contract. It
ruled that the factual incidents material to the case transpired within 1991-1992 or before the effectivity of Republic
Act No. 8042 or the Migrant Workers and Overseas Filipinos Act of 1995 which provides for such limitation.15

However, the NLRC upheld the reduction of the monetary award with respect to the deletion of the overtime pay due
to the non-deployment of the respondent.16

The Partial Motion for Reconsideration filed by the petitioners was denied by the NLRC in its Resolution dated 27
July 2005.17

The petitioners filed a Petition for Certiorari before the Court of Appeals alleging grave abuse of discretion on the
part of NLRC when it affirmed with modification the ruling of the Labor Arbiter. They prayed that the Decision and
Resolution promulgated by the NLRC be vacated and another one be issued dismissing the complaint of the
respondent.

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Finding no grave abuse of discretion, the Court of Appeals AFFIRMED the Decision of the labor tribunal.

The Court’s Ruling

The following are the assignment of errors presented before this Court:

I.

THE COURT A QUO ERRED IN FINDING THAT THE SECOND CONTRACT NOVATED THE FIRST CONTRACT.

1. THERE WAS NO NOVATION OF THE FIRST CONTRACT BY THE SECOND CONTRACT; THE
ALLEGATION OF ILLEGAL DISMISSAL UNDER THE FIRST CONTRACT MUST BE RESOLVED
SEPARATELY FROM THE ALLEGATION OF FAILURE TO DEPLOY UNDER THE SECOND CONTRACT.

2. THE ALLEGED ILLEGAL DISMISSAL UNDER THE FIRST CONTRACT TRANSPIRED MORE THAN
THREE (3) YEARS AFTER THE CASE WAS FILED AND THEREFORE HIS CASE SHOULD HAVE BEEN
DISMISSED FOR BEING BARRED BY PRESCRIPTION.

II.

THE COURT A QUO ERRED IN RULING THAT THERE WAS CONSTRUCTIVE DISMISSAL UNDER THE
SECOND CONTRACT.

1. IT IS LEGALLY IMPOSSIBLE TO HAVE CONSTRUCTIVE DISMISSAL WHEN THE EMPLOYMENT HAS

NOT YET COMMENCED.

2. ASSUMING THERE WAS OMISSION UNDER THE SECOND CONTRACT, PETITIONERS CAN ONLY BE
FOUND AS HAVING FAILED IN DEPLOYING PRIVATE RESPONDENT BUT WITH VALID REASON.

III.

THE COURT A QUO ERRED IN FAILING TO FIND THAT EVEN ASSUMING THERE WAS BASIS FOR HOLDING
PETITIONER LIABLE FOR "FAILURE TO DEPLOY" RESPONDENT, THE POEA RULES PENALIZES SUCH
OMISSION WITH A MERE "REPRIMAND."18

The petitioners contend that the first employment contract between them and the private respondent is different from
and independent of the second contract subsequently executed upon repatriation of respondent to Manila.

We do not agree.

Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one
which extinguishes or modifies the first, either by changing the object or principal conditions, or, by substituting
another in place of the debtor, or by subrogating a third person in the rights of the creditor. In order for novation to
take place, the concurrence of the following requisites is indispensable:

1. There must be a previous valid obligation,

2. There must be an agreement of the parties concerned to a new contract,

3. There must be the extinguishment of the old contract, and

4. There must be the validity of the new contract.19

In its ruling, the Labor Arbiter clarified that novation had set in between the first and second contract. To quote:

xxx [T]his office would like to make it clear that the first contract entered into by and between the complainant and
the respondents is deemed to have been novated by the execution of the second contract. In other words,
respondents cannot be held liable for the first contract but are clearly and definitely liable for the breach of the
second contract.20

This ruling was later affirmed by the Court of Appeals in its decision ruling that:

Guided by the foregoing legal precepts, it is evident that novation took place in this particular case. The parties
impliedly extinguished the first contract by agreeing to enter into the second contract to placate Medequillo, Jr. who
was unexpectedly dismissed and repatriated to Manila. The second contract would not have been necessary if the
petitioners abided by the terms and conditions of Madequillo, Jr.’s employment under the first contract. The records
also reveal that the 2nd contract extinguished the first contract by changing its object or principal. These contracts
were for overseas employment aboard different vessels. The first contract was for employment aboard the MV "Stolt
Aspiration" while the second contract involved working in another vessel, the MV "Stolt Pride." Petitioners and
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Madequillo, Jr. accepted the terms and conditions of the second contract. Contrary to petitioners’ assertion, the first
contract was a "previous valid contract" since it had not yet been terminated at the time of Medequillo, Jr.’s
repatriation to Manila. The legality of his dismissal had not yet been resolved with finality. Undoubtedly, he was still
employed under the first contract when he negotiated with petitioners on the second contract. As such, the NLRC
correctly ruled that petitioners could only be held liable under the second contract.21

We concur with the finding that there was a novation of the first employment contract.

We reiterate once more and emphasize the ruling in Reyes v. National Labor Relations Commission,22 to wit:

x x x [F]indings of quasi-judicial bodies like the NLRC, and affirmed by the Court of Appeals in due course, are
conclusive on this Court, which is not a trier of facts.

xxxx

x x x Findings of fact of administrative agencies and quasi-judicial bodies, which have acquired expertise
because their jurisdiction is confined to specific matters, are generally accorded not only respect, but
finality when affirmed by the Court of Appeals. Such findings deserve full respect and, without justifiable reason,
ought not to be altered, modified or reversed.(Emphasis supplied)23

With the finding that respondent "was still employed under the first contract when he negotiated with petitioners on
the second contract",24 novation became an unavoidable conclusion.

Equally settled is the rule that factual findings of labor officials, who are deemed to have acquired expertise in
matters within their jurisdiction, are generally accorded not only respect but even finality by the courts when
supported by substantial evidence, i.e., the amount of relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion.25 But these findings are not infallible. When there is a showing that they were
arrived at arbitrarily or in disregard of the evidence on record, they may be examined by the courts.26 In this case,
there was no showing of any arbitrariness on the part of the lower courts in their findings of facts. Hence, we follow
the settled rule.

We need not dwell on the issue of prescription. It was settled by the Court of Appeals with its ruling that recovery of
damages under the first contract was already time-barred. Thus:

Accordingly, the prescriptive period of three (3) years within which Medequillo Jr. may initiate money claims under
the 1st contract commenced on the date of his repatriation. xxx The start of the three (3) year prescriptive period
must therefore be reckoned on February 1992, which by Medequillo Jr.’s own admission was the date of his
repatriation to Manila. It was at this point in time that Medequillo Jr.’s cause of action already accrued under the first
contract. He had until February 1995 to pursue a case for illegal dismissal and damages arising from the 1st
contract. With the filing of his Complaint-Affidavit on March 6, 1995, which was clearly beyond the prescriptive
period, the cause of action under the 1st contract was already time-barred.27

The issue that proceeds from the fact of novation is the consequence of the non-deployment of respondent.

The petitioners argue that under the POEA Contract, actual deployment of the seafarer is a suspensive condition for
the commencement of the employment.28 We agree with petitioners on such point. However, even without actual
deployment, the perfected contract gives rise to obligations on the part of petitioners.

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give
something or to render some service.29 The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order,
or public policy.30

The POEA Standard Employment Contract provides that employment shall commence "upon the actual departure of
the seafarer from the airport or seaport in the port of hire."31 We adhere to the terms and conditions of the contract
so as to credit the valid prior stipulations of the parties before the controversy started. Else, the obligatory force of
every contract will be useless. Parties are bound not only to the fulfillment of what has been expressly stipulated but
also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.32

Thus, even if by the standard contract employment commences only "upon actual departure of the seafarer", this
does not mean that the seafarer has no remedy in case of non-deployment without any valid reason. Parenthetically,
the contention of the petitioners of the alleged poor performance of respondent while on board the first ship MV
"Stolt Aspiration" cannot be sustained to justify the non-deployment, for no evidence to prove the same was
presented.33

We rule that distinction must be made between the perfection of the employment contract and the commencement
of the employer-employee relationship. The perfection of the contract, which in this case coincided with the date of
execution thereof, occurred when petitioner and respondent agreed on the object and the cause, as well as the rest
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of the terms and conditions therein. The commencement of the employer-employee relationship, as earlier
discussed, would have taken place had petitioner been actually deployed from the point of hire. Thus, even before
the start of any employer-employee relationship, contemporaneous with the perfection of the employment contract
was the birth of certain rights and obligations, the breach of which may give rise to a cause of action against the
erring party. Thus, if the reverse had happened, that is the seafarer failed or refused to be deployed as agreed upon,
he would be liable for damages.34

Further, we do not agree with the contention of the petitioners that the penalty is a mere reprimand.

The POEA Rules and Regulations Governing Overseas Employment35 dated 31 May 1991 provides for the
consequence and penalty against in case of non-deployment of the seafarer without any valid reason. It reads:

Section 4. Worker’s Deployment. — An agency shall deploy its recruits within the deployment period as indicated
below:

xxx

b. Thirty (30) calendar days from the date of processing by the administration of the employment contracts of
seafarers.

Failure of the agency to deploy a worker within the prescribed period without valid reasons shall be a cause
for suspension or cancellation of license or fine. In addition, the agency shall return all documents at no
cost to the worker.(Emphasis and underscoring supplied)

The appellate court correctly ruled that the penalty of reprimand36 provided under Rule IV, Part VI of the POEA
Rules and Regulations Governing the Recruitment and Employment of Land-based Overseas Workers is not
applicable in this case. The breach of contract happened on February 1992 and the law applicable at that time was
the 1991 POEA Rules and Regulations Governing Overseas Employment. The penalty for non-deployment as
discussed is suspension or cancellation of license or fine.

Now, the question to be dealt with is how will the seafarer be compensated by reason of the unreasonable non-
deployment of the petitioners?

The POEA Rules Governing the Recruitment and Employment of Seafarers do not provide for the award of
damages to be given in favor of the employees. The claim provided by the same law refers to a valid contractual
claim for compensation or benefits arising from employer-employee relationship or for any personal injury, illness or
death at levels provided for within the terms and conditions of employment of seafarers. However, the absence of
the POEA Rules with regard to the payment of damages to the affected seafarer does not mean that the seafarer is
precluded from claiming the same. The sanctions provided for non-deployment do not end with the suspension or
cancellation of license or fine and the return of all documents at no cost to the worker. As earlier discussed, they do
not forfend a seafarer from instituting an action for damages against the employer or agency which has failed to
deploy him.37

We thus decree the application of Section 10 of Republic Act No. 8042 (Migrant Workers Act) which provides for
money claims by reason of a contract involving Filipino workers for overseas deployment. The law provides:
lavvphil

Sec. 10. Money Claims. – Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National
Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide, within
ninety (90) calendar days after the filing of the complaint, the claims arising out of an employer-employee
relationship or by virtue of any law or contract involving Filipino workers for overseas deployment including claims
for actual, moral, exemplary and other forms of damages. x x x (Underscoring supplied)

Following the law, the claim is still cognizable by the labor arbiters of the NLRC under the second phrase of the
provision.

Applying the rules on actual damages, Article 2199 of the New Civil Code provides that one is entitled to an
adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Respondent is thus
liable to pay petitioner actual damages in the form of the loss of nine (9) months’ worth of salary as provided in the
contract.38 This is but proper because of the non-deployment of respondent without just cause.

WHEREFORE, the appeal is DENIED. The 31 January 2007 Decision of the Court of Appeals in CA-G.R. SP. No.
91632 is hereby AFFIRMED. The Petitioners are hereby ordered to pay Sulpecio Medequillo, Jr., the award of
actual damages equivalent to his salary for nine (9) months as provided by the Second Employment Contract.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice
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WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

MARIA LOURDES P. A. SERENO BIENVENIDO L. REYES

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE*
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.

ANTONIO T. CARPIO
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.

RENATO C. CORONA
Chief Justice

Footnotes
*
Designated as additional member per Special Order No. 1174 dated 9 January 2012.
1
Rule 45, Rule on Civil Procedure.
2
Penned by Associate Justice Mariano C. Del Castillo (now a Member of this Court) with Presiding Justice
Ruben T. Reyes (former Member of this Court) and Associate Justice Arcangelita Romilla Lontok, concurring.
Rollo, pp. 38-54.
3
Id. at 53.
4
Id. at 134-139.
5
Id. at 61.
6
Id. at 59-62.
7
Id. at 62.
8
Id.
9
Id.
10
Id. at 64.
11
Id. at 68.
12
Id. at 64-65.
13
Id. at 65.
14
Id. at 66.
15
Id. at 67.
16
Id.
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17
Id. at 72.
18
Id. at 20-21.
19
Philippine Savings Bank v. Sps. Maňalac, Jr., 496 Phil, 671, 686-687 (2005); Azolla Farms v. Court of
Appeals, 484 Phil. 745, 754-755.
20
Rollo, p. 61.
21
Id. at 45-46.
22
G.R. No. 160233, 8 August 2007, 529 SCRA 487.
23
Id. at 494 and 499.
24
Rollo, p. 46.
25
Prince Transport, Inc. v. Garcia, G.R. No. 167291, 12 January 2011, 639 SCRA 312, 324 citing Philippine
Veterans Bank v. National Labor Relations Commission, G.R. No. 188882, 30 March 2010, 617 SCRA 204.
26
Id. at 324-325 citing Faeldonia v. Tong Yak Groceries, G.R. No. 182499, 2 October 2009, 602 SCRA 677,
684.
27
Rollo, pp. 47-48.
28
Id. at 48.
29
Article 1305, New Civil Code.
30
Article 1306, New Civil Code.
31
Rollo, p. 48.
32
Article 1315, New Civil Code.
33
Rollo, p. 50.
34
Santiago v. CF Sharp Crew Management, Inc., G.R. No. 162419, 10 July 2007, 527 SCRA 165, 176.
35
Section 4, par. (b), Rule II, Book III.
36
Section 1 (C) 4. Failure to deploy a worker within the prescribed period without valid reason:

1st Offense – Reprimand.

37
Santiago v. CF Sharp Crew Management, Inc., Supra note 33 at 176-177.
38
In Legahi v. National Labor Relations Commission, 376 Phil. 557, 566 (1999), we held: Petitioner's
dismissal without a valid cause constitute a breach of contract. Consequently, he should only be paid the
unexpired portion of his employment contract.

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