Kanlaon Construction Enterprises Co., Inc. vs. NLRC

A non-lawyer representative's unauthorized appearance and promise to pay on behalf of a corporate employer cannot bind the corporation, and an offer to compromise made without a special power of attorney is inadmissible as an admission of liability; labor arbiters violate due process by rendering judgment without requiring the submission of position papers after an attempted amicable settlement fails. Because the project engineer lacked written authorization to represent the corporation and a special power of attorney to compromise, his alleged promise to pay could not form the sole basis of judgment, and the arbiters' failure to order the submission of position papers deprived the petitioner of its day in court.

Petitioner Kanlaon Construction Enterprises Co., Inc., a domestic corporation engaged in the construction business, was contracted by the National Steel Corporation in 1988 to construct residential houses in Iligan City. Private respondents were hired as laborers for the project and worked under the supervision of Engineers Paulino Estacio and Mario Dulatre. As the project neared completion in 1989, petitioner terminated the services of private respondents. In 1990, private respondents filed forty-one separate complaints against petitioner and the two engineers before the Sub-Regional Arbitration Branch XII in Iligan City, claiming payment of wage differentials and 13th-month pay.

• Nature: Petition for certiorari seeking the annulment of the NLRC decision and remand of the cases to the Arbitration Branch for retrial on the merits.
• The Project and Complaints: In 1988, Kanlaon Construction was contracted by National Steel Corporation to construct residential houses in Iligan City. Private respondents were hired as laborers and worked under Engineers Paulino Estacio and Mario Dulatre. In 1989, as the project neared completion, petitioner terminated the services of private respondents. In 1990, forty-one private respondents filed separate complaints for wage differentials and 13th-month pay, naming the engineers as co-respondents.
• Service of Summons and Preliminary Conference: Summonses and notices of preliminary conference were served on petitioner through Engineer Estacio in Iligan City. During the preliminary conferences before Labor Arbiters Siao and Palangan, Engineers Estacio and Dulatre appeared. Engineer Estacio admitted petitioner's liability and agreed to pay the claims on June 19, 1990, allegedly waiving the right to file a position paper. Private respondents similarly dispensed with their position papers.
• The Arbiters' Rulings: On June 19, 1990, Engineer Estacio requested more time to settle the claims, which Arbiter Siao denied. On June 21, 1990, Arbiter Siao ordered petitioner to pay, citing the binding nature of oral contracts. On June 29, 1990, Arbiter Palangan issued a similar order closing the case based on Estacio's unfulfilled promise to pay. Neither arbiter required the parties to submit position papers or substantiate the claims with evidence.
• The Appeal: Petitioner appealed to the NLRC, represented by Atty. Arthur Abundiente. The NLRC affirmed the arbiters' orders, ruling that notices were served and petitioner was estopped from disclaiming the authority of its representatives. Atty. Abundiente's appeal brief was verified by himself, not by petitioner, and private respondents alleged he was retained counsel for National Steel Corporation, not petitioner.

• Petitioner argued that the NLRC decision was a nullity for having been issued without jurisdiction and in grave abuse of discretion.
• Petitioner maintained it was deprived of due process when it was adjudged liable without trial on the merits and without its knowledge.
• Petitioner argued there was no valid service of summons.
• Petitioner asserted that Engineers Estacio and Dulatre, as well as Atty. Abundiente, had no authority to appear and represent petitioner before the labor arbiters and the NLRC.
• Petitioner contended that the NLRC erroneously interpreted the principle that it is not strictly bound by technical rules of procedure to justify disregarding due process.
• Petitioner argued there was no legal or actual basis for the NLRC's ruling that petitioner was estopped to disclaim the authority of its alleged representatives.
• Petitioner maintained that the NLRC committed manifest error in relying merely on private respondents' unsubstantiated complaints to hold petitioner liable.

• Respondents, through the Solicitor General, argued that service of summons on Engineer Estacio was valid because he was the project manager with sufficient responsibility and discretion to realize the importance of legal papers and relay them to corporate officers.
• Respondents countered that Engineer Estacio's promise to pay was a unilateral act binding on petitioner.
• Respondents argued that petitioner was estopped from denying the authority of its representatives.

• Procedural Issues:
  • Whether service of summons on Engineer Estacio was valid.
  • Whether Engineers Estacio and Dulatre, and Atty. Arthur Abundiente, had the authority to represent petitioner before the labor arbiters and the NLRC.
  • Whether the labor arbiters violated petitioner's right to due process by rendering judgment without requiring the submission of position papers.
• Substantive Issues:
  • Whether a non-lawyer representative's unauthorized promise to pay can bind a corporate employer.
  • Whether an offer to compromise made during a preliminary conference constitutes an admission of liability.

• Procedural:
  • The Court held that service of summons on Engineer Estacio was valid. Under the Revised Rules of Court, service upon a private domestic corporation may be made on an agent. As the manager who supervised the construction project in Iligan City, Engineer Estacio was sufficiently integrated with the corporation to understand the importance of legal papers and relay them to responsible corporate officers.
  • The Court ruled that Engineers Estacio and Dulatre lacked authority to appear and represent petitioner. Under the NLRC Rules of Procedure, non-lawyers may represent an organization only if they present written proof of authorization, which the engineers failed to do. Atty. Abundiente similarly lacked authority, as he filed the appeal brief without verification from petitioner and without proof of being retained by petitioner.
  • The Court found that the labor arbiters violated petitioner's right to due process by not requiring the submission of position papers. After the alleged promise to pay was not fulfilled, the amicable settlement failed. This failure should have prompted the arbiters to order the parties to file their position papers to ascertain the facts objectively, rather than forthwith rendering judgment on the merits based solely on the unfulfilled promise.
• Substantive:
  • The Court held that the unauthorized appearance and promise to pay by Engineer Estacio could not bind petitioner. Even assuming the engineers were authorized to appear, representatives can only bind their clients on procedural matters. A promise to pay constitutes an offer to compromise, which requires a special power of attorney or express consent under the NLRC Rules of Procedure. The authority to compromise cannot be lightly presumed.
  • The Court ruled that an offer to compromise is not an admission of liability and is inadmissible in evidence against the offeror. The NLRC gravely abused its discretion in affirming the labor arbiters' decisions, which were based on an unauthorized and inadmissible offer to compromise.

• Authority to Bind Party in Labor Cases — Under Section 7, Rule III of the NLRC Rules of Procedure, attorneys and representatives of parties have authority to bind their clients only in procedural matters; they cannot, without a special power of attorney or express consent, enter into a compromise agreement with the opposing party. The Court applied this to hold that Engineer Estacio's promise to pay, being an offer to compromise, could not bind petitioner without special authority.
• Non-Lawyer Appearance in Labor Cases — Under Section 6, Rule III of the NLRC Rules of Procedure, a non-lawyer may appear before the NLRC or Labor Arbiter only if: (a) he represents himself as a party to the case; (b) he represents the organization or its members, with written authorization from them; or (c) he is a duly-accredited member of any legal aid office recognized by the DOJ or IBP. The Court applied this to rule that Engineers Estacio and Dulatre lacked authority to represent the corporate petitioner without written proof.
• Compromise as Not an Admission of Liability — In civil cases, an offer to compromise is not an admission of any liability and is not admissible in evidence against the offeror. The Court applied this doctrine to invalidate the labor arbiters' reliance on Estacio's promise to pay as a basis for judgment.
• Due Process in Labor Proceedings — The right to due process in labor cases is satisfied, at the very least, when the parties are given the opportunity to submit position papers. The relaxation of technical rules of evidence in labor proceedings does not authorize the arbitrary disregard of this fundamental right. The Court applied this to find that the arbiters erred in dispensing with the requirement of position papers after the settlement failed.

• "A non-lawyer may appear before the labor arbiters and the NLRC only if: (a) he represents himself as a party to the case; (b) he represents an organization or its members, with written authorization from them: or (c) he is a duly-accredited member of any legal aid office duly recognized by the Department of Justice or the Integrated Bar of the Philippines in cases referred to by the latter."
• "Attorneys and other representatives of parties shall have authority to bind their clients in all matters of procedure; but they cannot, without a special power of attorney or express consent, enter into a compromise agreement with the opposing party in full or partial discharge of a client's claim."
• "In civil cases, an offer to compromise is not an admission of any liability, and is not admissible in evidence against the offeror. If this rule were otherwise, no attempt to settle litigation could safely be made."
• "The rule that respondent Commission and the Labor Arbiters are not bound by technical rules of evidence and procedure should not be interpreted so as to dispense with the fundamental and essential right of due process. And this right is satisfied, at the very least, when the parties are given the opportunity to submit position papers."

• Philippine National Construction Corporation v. Ferrer-Calleja, 167 SCRA 294 — Followed for the proposition that the Revised Rules of Court may be resorted to in determining the meaning of "authorized representative" or "agent" for service of summons under the NLRC Rules.
• Jag & Haggar Jeans & Sportswear Corp. v. National Labor Relations Commission, 241 SCRA 635 — Followed for the doctrine that the authority to compromise cannot be lightly presumed and must be duly established by evidence.
• Ang Tibay v. Court of Industrial Relations, 69 Phil. 635 — Followed for the principle that the exemption from technical rules of evidence in labor proceedings should not dispense with the fundamental right to due process.
• Pepsi Cola Distributors of the Philippines, Inc. v. National Labor Relations Commission, 247 SCRA 386 — Followed for the rule that due process in labor cases is satisfied when parties are given the opportunity to submit position papers.

• Section 4, Rule IV, NLRC Rules of Procedure — Governs service of notices and summons, providing that where a party is represented by counsel or authorized representative, service shall be made on such counsel or representative. Applied to determine the validity of service on the project engineer.
• Section 13, Rule 14, Revised Rules of Court — Governs service upon private domestic corporations or partnerships, allowing service on the president, manager, secretary, cashier, agent, or any director. Applied to hold that service of summons on Engineer Estacio as an agent/manager was valid.
• Section 6, Rule III, NLRC Rules of Procedure — Governs appearances before the NLRC and labor arbiters, enumerating the exceptions allowing non-lawyers to appear. Applied to establish that the engineers lacked written authorization to represent the corporation.
• Section 7, Rule III, NLRC Rules of Procedure — Limits the authority of attorneys and representatives to bind their clients to procedural matters, requiring a special power of attorney or express consent for compromise agreements. Applied to hold that Estacio's promise to pay could not bind petitioner.
• Section 27, Rule 130, Revised Rules on Evidence — Provides that an offer to compromise is not an admission of liability. Applied to rule that Estacio's promise could not be used as an admission of petitioner's liability.
• Article 221, Labor Code — Mandates labor officials to ascertain facts speedily and objectively without regard to technicalities, in the interest of due process. Applied to emphasize that relaxation of technical rules does not negate due process requirements.
• Section 3, Rule V, NLRC Rules of Procedure — Directs labor arbiters to order parties to simultaneously file verified position papers if amicable settlement fails. Applied to show that the arbiters erred in not requiring position papers before rendering judgment.

Regalado and Torres, Jr., JJ.