Sunace International Management Services, Inc. vs. NLRC

A recruitment agency is not solidarily liable for monetary claims arising from an employment contract extension executed directly between the foreign employer and the overseas worker where the agency did not know of or consent to the extension, and the agency relationship was impliedly revoked by the principal's direct dealings with the worker.

Sunace International Management Services, Inc. is a Philippine corporation engaged in the overseas recruitment business. Through the assistance of Taiwanese broker Edmund Wang, President of Jet Crown International Co., Ltd., Sunace deployed Divina A. Montehermozo to Taiwan as a domestic helper for foreign employer Hang Rui Xiong under a 12-month contract effective February 1, 1997. The legal framework governing the deployment of overseas Filipino workers, including the respective liabilities of recruitment agencies and their foreign principals, forms the backdrop of the dispute.

Sunace International Management Services, Inc., a Philippine corporation, deployed Divina A. Montehermozo to Taiwan as a domestic helper under a 12-month contract effective February 1, 1997. The deployment was arranged with the assistance of Taiwanese broker Edmund Wang, President of Jet Crown International Co., Ltd., for foreign employer Hang Rui Xiong. After the original contract expired on February 1, 1998, Divina continued working for Xiong for two more years under an extended contract, after which she returned to the Philippines on February 4, 2000.

Shortly after her return, on February 14, 2000, Divina filed a complaint before the NLRC against Sunace, one Adelaide Perez, the Taiwanese broker, and the foreign employer, alleging that she was jailed for three months and that she was underpaid. In her Position Paper filed on April 6, 2000, Divina claimed that under both her original one-year contract and the two-year extended contract — which she asserted was with the knowledge and consent of Sunace — amounts representing income tax and savings were deducted from her salary. While the 1997 deductions were refunded, those deducted in 1998 and 1999, totaling NT91,950.00, were not returned to her.

Sunace, through its Proprietor/General Manager Maria Luisa Olarte, filed its Verified Answer and Position Paper on the same date, asserting that Divina was not entitled to a refund of her 24-month savings because she had already taken back her savings and the employer had not deducted any money from her salary, as shown by a facsimile message from Jet Crown International Co., Ltd. Sunace further argued that there was no basis for a tax refund because Divina finished her one-year contract and was not illegally dismissed, that the tax deductions were in compliance with Taiwanese law over which Sunace had no control, and that Divina had no cause of action against Sunace as she had been fully paid. On April 25, 2000, Sunace filed an answer to Divina's Position Paper, alleging that the two-year extension was without its knowledge and consent, and that Divina had executed a Waiver/Quitclaim and Release of Responsibility and an Affidavit of Desistance. Divina filed a two-page reply without refuting Sunace's disclaimer of knowledge of the extension or addressing the Waiver and Affidavit of Desistance.

The Labor Arbiter rejected Sunace's claim that the extension was without its knowledge and consent, finding that Sunace and the Taiwanese broker had not stopped communicating and that Sunace's non-consent had not been categorically established. The Labor Arbiter held that Sunace should have written to POEA about the extension and its objection, and because it did not, it was presumed to have consented and was liable for anything that resulted therefrom. The Labor Arbiter likewise rejected the Waiver/Quitclaim and Affidavit of Desistance for lack of consideration, striking them down as contrary to law, morals, and public policy. The Labor Arbiter accordingly ordered Sunace and its owner to jointly and severally pay Divina NT91,950.00 as refund plus 10% as attorney's fees. The NLRC affirmed this decision on appeal, and the Court of Appeals dismissed Sunace's petition for certiorari, finding that Sunace continually communicated with the foreign employer and, as agent, was bound by the principal's act of extending the contract.

• No Knowledge of or Consent to the Extension: Sunace maintained that Divina's two-year contract extension was executed without its knowledge and consent, and that it therefore had no liability attaching to any claim arising from the extension.
• Waiver/Quitclaim and Affidavit of Desistance: Sunace argued that Divina had executed a Waiver/Quitclaim and Release of Responsibility and an Affidavit of Desistance, which barred her claims.
• Compliance with Taiwanese Tax Law: Sunace contended that the tax deductions from Divina's salary were in compliance with Taiwanese law, over which Sunace had no control, and that the Philippine labor authorities had no jurisdiction to intervene in the sovereign power of taxation of the Taiwanese government.
• No Cause of Action: Sunace asserted that Divina had no cause of action against it for monetary claims because she had been fully paid of all monetary benefits due under her employment contract.
• Misapplication of Imputed Knowledge: On petition before the Supreme Court, Sunace argued that the Court of Appeals misapplied the theory of imputed knowledge, as the knowledge of the agent is imputed to the principal, not the other way around.
• Implied Revocation of Agency: Sunace pointed out that there was an implied revocation of its agency relationship with the foreign principal when, after the termination of the original employment contract, the principal directly negotiated with Divina and entered into a new and separate employment contract.

• Knowledge and Consent to the Extension: Divina claimed that the two-year extended contract was with the knowledge and consent of Sunace, and that the deductions for income tax and savings in 1998 and 1999 were not refunded to her.
• Underpayment and Illegal Deductions: Divina alleged that she was underpaid and that amounts representing income tax and savings were deducted from her salary but not returned, totaling NT91,950.00 for 1998 and 1999.
• Jail Incident: Divina alleged that she was jailed for three months during her employment abroad.

• Knowledge and Consent to Extension: Whether Sunace knew of and consented to the two-year extension of Divina's employment contract.
• Solidary Liability: Whether Sunace is solidarily liable for Divina's monetary claims arising from the extended contract.
• Imputed Knowledge: Whether the theory of imputed knowledge was correctly applied to bind the agent (Sunace) by the acts of the principal (foreign employer).
• Implied Revocation of Agency: Whether the agency relationship between Sunace and the foreign employer was impliedly revoked when the employer directly negotiated with Divina.

• Knowledge and Consent to Extension: No. The sole telefax message in the record, dated February 21, 2000, was from the Taiwanese broker Wang, not the foreign employer Xiong, and merely informed Sunace that Divina had already taken back her savings; it did not establish Sunace's knowledge of or consent to the contract extension.
• Solidary Liability: No. Absent substantial proof that Sunace knew of and consented to the extended contract, it was not privy thereto and could not be held solidarily liable for claims arising therefrom, pursuant to Article 1311 of the Civil Code.
• Imputed Knowledge: No. The theory of imputed knowledge ascribes the knowledge of the agent to the principal, not the other way around; the knowledge of the principal-foreign employer cannot be imputed to its agent Sunace.
• Implied Revocation of Agency: Yes. Article 1924 of the Civil Code applies: the agency was revoked when the principal directly managed the business entrusted to the agent by dealing directly with Divina and entering into a new and separate employment contract.

• Knowledge and Consent to Extension: The Court of Appeals' finding that Sunace continually communicated with the foreign employer was based solely on a February 21, 2000 telefax message from Taiwanese broker Edmund Wang to Sunace. The message stated that Divina had already taken back her savings and that no deduction was made from her salary. It contained nothing about the extension of the contract or Sunace's consent thereto. The communication between Sunace and the broker regarding Divina's allegedly withheld savings did not necessarily mean that Sunace ratified the extension. The message was likely sent to enlighten Sunace, which had been summoned on February 15, 2000 to appear for a mandatory conference following Divina's filing of the complaint on February 14, 2000. There was thus no substantial proof that Sunace knew of and consented to the two-year extension.

• Solidary Liability: Because there was no substantial proof that Sunace knew of and consented to be bound under the two-year employment contract extension, it could not be said to be privy thereto. Under Article 1311 of the Civil Code, contracts take effect only between the parties, their assigns, and heirs. Sunace and its owner therefore could not be held solidarily liable for any of Divina's claims arising from the extension.

• Imputed Knowledge: The Court of Appeals' dictum that "as agent of its foreign principal, [Sunace] cannot profess ignorance of such an extension as obviously, the act of its principal extending [Divina's] employment contract necessarily bound it" was a misapplication of the theory of imputed knowledge. The theory of imputed knowledge ascribes the knowledge of the agent (Sunace) to the principal (employer Xiong), not the other way around. The knowledge of the principal-foreign employer cannot, therefore, be imputed to its agent Sunace. This principle is supported by Rovels Enterprises, Inc. vs. Ocampo and Air France vs. Court of Appeals.

• Implied Revocation of Agency: As Sunace correctly pointed out, there was an implied revocation of its agency relationship with the foreign principal when, after the termination of the original employment contract, the foreign principal directly negotiated with Divina and entered into a new and separate employment contract in Taiwan. Article 1924 of the Civil Code provides that "the agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons." The foreign employer's direct dealings with Divina thus revoked the agency, and Sunace could not be bound by the extended contract. In light of these conclusions, consideration of the validity of the Waiver and Affidavit of Desistance was rendered unnecessary.

• Relativity of Contracts (Article 1311, Civil Code) — Contracts take effect only between the parties, their assigns, and heirs. The Court applied this principle to hold that because Sunace was not a party to the extended contract — having neither known of nor consented to it — it could not be held solidarily liable for claims arising therefrom. A party must be privy to a contract to be bound by its obligations.

• Implied Revocation of Agency (Article 1924, Civil Code) — The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons. The Court held that when the foreign employer directly negotiated with Divina and entered into a new and separate employment contract after the original contract expired, the agency relationship with Sunace was impliedly revoked, releasing Sunace from any obligation arising from the new contract.

• Theory of Imputed Knowledge — The knowledge of the agent is imputed to the principal, not the reverse. The Court clarified that the knowledge of the principal-foreign employer cannot be imputed to its agent (the recruitment agency). The Court of Appeals erred in using this theory to bind Sunace by the foreign employer's act of extending the contract.

• "The theory of imputed knowledge ascribes the knowledge of the agent, Sunace, to the principal, employer Xiong, not the other way around." — This passage articulates the correct direction of imputed knowledge in the agency relationship, correcting the Court of Appeals' misapplication, and is the ratio decidendi on why the agent could not be bound by the principal's knowledge or acts.

• "There being no substantial proof that Sunace knew of and consented to be bound under the 2-year employment contract extension, it cannot be said to be privy thereto. As such, it and its 'owner' cannot be held solidarily liable for any of Divina's claims arising from the 2-year employment extension." — This is the dispositive ratio on solidary liability, tying the relativity of contracts principle to the finding of no knowledge or consent.

• "Furthermore, as Sunace correctly points out, there was an implied revocation of its agency relationship with its foreign principal when, after the termination of the original employment contract, the foreign principal directly negotiated with Divina and entered into a new and separate employment contract in Taiwan." — This passage applies Article 1924 of the Civil Code to the overseas recruitment context, establishing that direct dealings by the foreign employer with the worker revoke the agency.

• Rovels Enterprises, Inc. vs. Ocampo, G.R. No. 136821, October 17, 2002, 391 SCRA 176 — Cited in support of the proposition that the theory of imputed knowledge ascribes the knowledge of the agent to the principal, not the other way around. The Court relied on this case to correct the Court of Appeals' misapplication of the doctrine.
• Air France vs. Court of Appeals, 211 Phil. 601 (1983) — Cited alongside Rovels Enterprises as additional authority on the proper direction of imputed knowledge in the agency relationship.

• Article 1311, Civil Code — Provides that contracts take effect only between the parties, their assigns, and heirs. Applied to hold that Sunace, not being privy to the extended contract, could not be bound by its obligations or held solidarily liable for claims arising therefrom.
• Article 1924, Civil Code — Provides that the agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons. Applied to hold that the foreign employer's direct negotiation and execution of a new employment contract with Divina constituted an implied revocation of Sunace's agency.

Leonardo A. Quisumbing (Chairperson), Antonio T. Carpio, and Dante O. Tinga concurred.