TESDA vs. Abragar

The failure to implead an indispensable party renders all subsequent actions of the court null and void for want of authority to act, and such a void judgment may be attacked at any time, even after it has allegedly become final and executory. The joinder of all indispensable parties is a condition sine qua non for the exercise of judicial power, and a judgment void ab initio is non-existent and thus cannot acquire finality.

The Marble Center (also referred to as the "Marble Training Center" or "Marble Production Training Center") was established pursuant to a Memorandum of Agreement (MOA) executed among the Department of Trade and Industry (DTI), the Provincial Government of Bulacan, the Marble Association of the Philippines (MAP), and the National Manpower and Youth Council (now renamed TESDA). Under the MOA, the parties pooled and shared their resources, facilities, and expertise for the establishment of a functional marble production and training center. The Center operated within the TESDA Compound in Tabang, Guiguinto, Bulacan, and served as a training ground for workers intending to work in the private sector upon completion of training courses under TESDA.

On April 29, 2003, respondent Ernesto Abragar filed a complaint before the Regional Arbitration Branch of the NLRC in San Fernando City, Pampanga for underpayment and non-payment of salaries/wages, service incentive leave, and 13th month pay against Marble Center, with address at TESDA, Guiguinto, Bulacan, and his supervisor, Philip Bronio. An amended complaint was later filed to include constructive dismissal, non-payment of separation pay and retirement pay, and payment of damages and attorney's fees. During the mandatory conference, Bronio appeared as the apparent representative of the Center, but when no amicable settlement was reached, the parties were ordered to file their respective position papers.

In his Position Paper, Abragar described the Center as a corporation organized and existing in accordance with Philippine laws, with address at the TESDA Compound in Tabang, Guiguinto, Bulacan. He claimed that he was hired in September 1997 as a marble operator tasked to cut and trim marbles, until sometime in December 2002 when the Center suddenly cut down his working days from six to twice or thrice a week without giving him his usual salary, and reduced his 13th month pay. Respondent claimed that the reduction of his work schedule and pay amounted to constructive dismissal. The Center and Bronio failed to submit their position paper and were deemed to have waived their right to present evidence.

In a July 30, 2004 Decision, the Labor Arbiter found that Abragar was constructively dismissed and granted his claims, ordering the respondents to pay separation pay of P28,630.00, backwages of P109,174.00, salary differential of P17,492.67, service incentive leave pay of P3,007.50, and 13th month pay of P5,746.00. No appeal was filed within the reglementary period, and Abragar moved for the issuance of a writ of execution. On December 29, 2004, Bronio filed a Motion for Reconsideration insisting that there was no employer-employee relationship between Abragar and the Center, asserting that the Center is a mere cooperative and training center of TESDA under the cooperation of the DTI and the Provincial Government of Bulacan. No action was taken on the motion, so Bronio filed a Petition for Relief from Judgment on January 25, 2005, reiterating that the Center is a non-juridical entity but a mere training facility run by TESDA pursuant to the MOA, and that he was merely an employee and trainor-supervisor of MAP.

The NLRC dismissed the petition for relief from judgment in a June 30, 2006 Resolution, holding that the LA Decision had become final and executory. An Entry of Judgment was issued. The LA thereafter issued a Writ of Execution directing the sheriff to enforce the decision, but the sheriff reported that he and Abragar were denied entry by security into the premises of the Center in the TESDA Compound when they tried to levy on the movable properties. Abragar filed a Motion for Issuance of a Break Open Order, and Bronio filed a Motion to Quash the Writ of Execution on June 14, 2007.

On September 25, 2007, TESDA filed an Appeal Memorandum in Intervention with the NLRC, alleging that (a) the Center is a marble processing facility run by TESDA and a non-juridical entity without capacity to sue or be sued; (b) the Center is a joint undertaking formed pursuant to the MOA; (c) the writ of execution and break-open order, while directed at the Center and Bronio at TESDA, Guiguinto, Bulacan, was actually directed at TESDA; (d) Bronio was the caretaker and supervisor assigned by MAP; and (e) TESDA was never notified nor impleaded in the case. Abragar opposed the intervention, arguing that it should be denied for failure to comply with procedural requirements, that TESDA slept on its right to appeal, and that TESDA would not be affected by the execution. The NLRC granted TESDA's appeal in intervention, vacated the LA Decision, quashed the writ of execution, and remanded the case for further proceedings, citing Article 221 of the Labor Code and Section 218(c) thereof.

The Court of Appeals reversed the NLRC, holding that the failure of the Center and Bronio to perfect their appeal rendered the LA Decision final and executory, and that TESDA should have filed its pleading in intervention before rendition of judgment by the trial court. The appellate court noted that the Revised Rules of Court apply suppletorily to labor cases and provide that a motion to intervene may be filed any time before rendition of judgment.

• Lack of Juridical Personality: Petitioner argued that the Center against whom the labor complaint was filed is not a juridical entity nor authorized by law to sue or be sued, but merely a training and skill development facility operated by TESDA in its premises pursuant to the MOA. Since only natural or juridical persons, or entities authorized by law, may be parties in a civil action, the Center should not have been impleaded as a party to the complaint below.

• Indispensable Parties: Petitioner argued that the parties who created the Center—the MOA Parties—should have been impleaded as party-respondents in the labor complaint as indispensable parties, and that the failure to implead them renders the LA Decision, writ of execution, and break-open order null and void for want of authority, which may be attacked in any way at any time, even when no appeal is taken.

• Belated Claim: Respondent contended that petitioner's claim that the Center is a non-juridical entity with no legal personality to sue or be sued is a belated claim raised for the first time on appeal, and should not be entertained because it would be unjust for a third person to be allowed to circumvent labor laws by claiming that a person or company who acted as an employer is a non-juridical entity which cannot sue or be sued.

• No Indispensable Party: Respondent maintained that petitioner's claim that it is an indispensable party is misleading, pointing out that his claims are borne by the existing employer-employee relationship between the Center and respondent, and that the terms and conditions of the MOA surrounding the creation of the Center are not binding as to him since he was not privy to the same.

• Finality of Judgment: Respondent asserted that petitioner's Appeal Memorandum in Intervention was filed way beyond the period allowed by law and that the LA Decision had already become final and executory.

• Juridical Personality of the Center: Whether the Marble Center has juridical personality and legal capacity to be sued.
• Indispensable Parties: Whether the MOA Parties—TESDA, DTI, the Provincial Government of Bulacan, and MAP—are indispensable parties that should have been impleaded in the labor proceedings.
• Effect of Non-Joinder: Whether the failure to implead the indispensable parties rendered the Labor Arbiter's Decision void and subject to attack at any time, notwithstanding its alleged finality.

• Juridical Personality of the Center: No. The Center has no juridical personality nor is it an entity authorized by law to be a party to any action; it has no legal capacity to sue or be sued and should not have been impleaded as defendant in the case. Sections 1 and 2, Rule 3 of the Rules of Court mandate that only natural or juridical persons, or entities authorized by law, may be parties in a civil action.

• Indispensable Parties: Yes. The MOA Parties are indispensable parties whose interest in the controversy is such that a final adjudication cannot be made in their absence without injuring or affecting their interest. Their legal presence in the proceeding is an absolute necessity, and their inclusion is necessary for the effective and complete resolution of the case.

• Effect of Non-Joinder: Yes. The failure to implead the indispensable parties renders the July 30, 2004 Decision of the LA, writ of execution, and break-open order null and void for want of authority, which may be attacked in any way at any time, even when no appeal is taken. A judgment void ab initio is non-existent and thus cannot acquire finality.

• Juridical Personality of the Center: Sections 1 and 2, Rule 3 of the Rules of Court mandate that only natural or juridical persons, or entities authorized by law may be parties in a civil action, and every action must be prosecuted and defended in the name of the real parties-in-interest. Citing Litonjua Group of Companies vs. Vigan, the Court found that the Litonjua Group of Companies, which was sought to be held solidarity liable for illegal dismissal, was not a legal entity with juridical personality and hence could not be held a party to the suit. Similarly, the Center which respondent seeks to hold liable has no juridical personality nor is it an entity authorized by law to be a party to any action.

• Corporation by Estoppel Not Applicable: The Court considered respondent's argument that it would be unjust to allow a third person to circumvent labor laws by claiming that a person or company who acted as an employer is a non-juridical entity. While the doctrine of corporation by estoppel, codified in Section 20 of the Corporation Code, has been applied to prevent non-existent corporations from raising lack of juridical personality to avoid fulfillment of obligations, the attendant circumstances did not call for its application. A careful review of the records failed to show that the MOA Parties represented that the Center had its own juridical personality in its dealings with respondent or third persons. In fact, the employment contract submitted by respondent in evidence was with MAP Multi-Purpose Cooperative Incorporated.

• Due Process: The Court was not inclined to rule that TESDA and the other parties to the MOA shall be held liable as general partners to respondent's claims without giving them their day in court. It is a basic tenet of due process of law that a person cannot be prejudiced by a ruling rendered in an action or proceeding in which he was not made a party. In the context of administrative proceedings, due process refers to an opportunity to explain one's side or an opportunity to seek reconsideration of the action or ruling complained of. It would be wholly unjust to consider Bronio's appearance in the proceedings below as sufficient compliance with this due process requirement insofar as the MOA Parties are concerned, since the pleadings filed by Bronio were signed only by himself, and the records are devoid of any indication that Bronio was authorized to attend the hearings on behalf of any of the MOA Parties.

• Indispensable Parties: The mandatory rule on joinder of indispensable parties is set forth in Section 7, Rule 3 of the Rules of Court. Indispensable parties are parties whose legal presence in the proceeding is so necessary that the action cannot be finally determined without them because their interests in the matter and in the relief are so bound up with that of the other parties. Applying the test for determining indispensable parties, the Court found that the MOA Parties are indispensable parties as their interest in the controversy is such that a final adjudication cannot be made in their absence without injuring or affecting their interest. Since the Center lacks juridical personality, any judgment in favor of respondent against the Center would have to be enforced against the properties contributed by the MOA Parties. The MOA shows that DTI contributed pre-operating expenses, machinery, and consumables; the Provincial Government of Bulacan allowed the use of its provincial lot; MAP provides supplies and materials; and TESDA is in charge of organizing the conduct of training and job induction programs. The interest of the MOA Parties in the subject matter of the suit and in the relief sought are so inextricably intertwined such that their legal presence as a party to the proceedings is an absolute necessity.

• Consequences of Non-Joinder: There are two consequences of a finding on appeal that indispensable parties have not been joined: first, all subsequent actions of the lower courts are null and void for lack of jurisdiction; second, the case should be remanded to the trial court for the inclusion of indispensable parties. The joinder of all indispensable parties is a condition sine qua non for the exercise of judicial power. The absence of an indispensable party renders all subsequent actions of the court null and void for want of authority to act, not only as to the absent parties but even as to those present. A void judgment is in effect no judgment at all, and all acts performed under it and all claims flowing out of it are void. The judgment is vulnerable to attack even when no appeal has been taken, and does not become final in the sense of depriving a party of his right to question its validity. It is immaterial that petitioner filed the Appeal Memorandum in Intervention after the LA judgment became allegedly final and executory, since a judgment void ab initio is non-existent and thus cannot acquire finality.

• Indispensable Parties — An indispensable party is a party who has an interest in the controversy or subject matter such that a final adjudication cannot be made, in his absence, without injuring or affecting that interest; a party who has not only an interest in the subject matter of the controversy, but also has an interest of such nature that a final decree cannot be made without affecting his interest or leaving the controversy in such a condition that its final determination may be wholly inconsistent with equity and good conscience. A person is not an indispensable party if his interest in the controversy or subject matter is separable from the interest of the other parties, so that it will not necessarily be directly or injuriously affected by a decree which does complete justice between them. The Court applied this test to find that the MOA Parties were indispensable parties because any judgment against the non-juridical Center would have to be enforced against the properties they contributed.

• Void Judgment for Non-Joinder of Indispensable Parties — The joinder of all indispensable parties is a condition sine qua non for the exercise of judicial power. The absence of an indispensable party renders all subsequent actions of the court null and void for want of authority to act, not only as to the absent parties but even as to those present. A void judgment is in effect no judgment at all, and all acts performed under it and all claims flowing out of it are void. The judgment is vulnerable to attack even when no appeal has been taken, and does not become final in the sense of depriving a party of his right to question its validity. The Court applied this doctrine to hold that the LA Decision, writ of execution, and break-open order were void for want of authority and could be attacked at any time.

• Corporation by Estoppel — Under Section 20 of the Corporation Code, all persons who assume to act as a corporation knowing it to be without the authority to do so shall be liable as general partners for all debts, liabilities, and damages incurred or arising as a result thereof. The Court considered this doctrine but found it inapplicable because the records failed to show that the MOA Parties represented that the Center had its own juridical personality in its dealings with respondent or third persons.

• "The joinder of all indispensable parties is a condition sine qua non for the exercise of judicial power. While the failure to implead an indispensable party is not per se a ground for the dismissal of an action, considering that said party may still be added by order of the court, on motion of the party or on its own initiative at any stage of the action and/or such times as are just, it remains essential — as it is jurisdictional — that any indispensable party be impleaded in the proceedings before the court renders judgment." — This passage articulates the jurisdictional nature of the joinder of indispensable parties and the consequences of failing to implead them.

• "The absence of an indispensable party renders all subsequent actions of the court null and void for want of authority to act, not only as to the absent parties but even as to those present." — This states the core consequence of non-joinder of indispensable parties: the nullity of all subsequent court actions.

• "A void judgment is in effect no judgment at all, and all acts performed under it and all claims flowing out of it are void. The judgment is vulnerable to attack even when no appeal has been taken, and does not become final in the sense of depriving a party of his right to question its validity." — This defines the nature of a void judgment and explains why it cannot acquire finality, which was central to the Court's ruling that TESDA's intervention was timely despite the alleged finality of the LA Decision.

• Litonjua Group of Companies vs. Vigan, 412 Phil. 627 (2001) — Controlling precedent cited for the proposition that a group of companies without juridical personality cannot be held a party to a suit for illegal dismissal.

• Aguilar vs. O'Pallick, 715 Phil. 453 (2013) — Cited for the basic tenet of due process that a person cannot be prejudiced by a ruling rendered in an action or proceeding in which he was not made a party.

• Heirs of Dela Corta, Sr. vs. Alag-Pitogo, G.R. No. 226863, February 19, 2020 — Cited for the definition of indispensable parties and the test to determine whether a party is indispensable.

• Regner vs. Logana, 562 Phil. 862, 875-876 (2007) — Cited within the test for determining indispensable parties.

• Florete, Jr. vs. Florete, 778 Phil. 614, 652 (2016) — Cited for the two consequences of a finding on appeal that indispensable parties have not been joined.

• Fernando vs. Paguyo, G.R. No. 237871, September 18, 2019 — Cited for the proposition that the absence of an indispensable party renders all subsequent actions of the court null and void.

• Lingkod Manggagawa sa Rubberworld vs. Rubberworld, 542 Phil. 213 (2007) — Cited for the proposition that a void judgment is vulnerable to attack even when no appeal has been taken.

• Sections 1 and 2, Rule 3, Rules of Court — Provide that only natural or juridical persons, or entities authorized by law may be parties in a civil action, and that every action must be prosecuted in the name of the real party in interest. Applied to hold that the Center, lacking juridical personality, could not be impleaded as a party.

• Section 7, Rule 3, Rules of Court — Mandates the compulsory joinder of indispensable parties, providing that parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants. Applied to require the impleading of the MOA Parties.

• Section 11, Rule 3, Rules of Court — Provides that neither misjoinder nor non-joinder of parties is ground for dismissal of an action, and that parties may be dropped or added by order of the court on motion of any party or on its own initiative at any stage of the action. Cited to show that the failure to implead an indispensable party is not per se a ground for dismissal.

• Article 221, Labor Code — Provides that technical rules are not binding in labor cases and that the LA shall use every and all reasonable means to ascertain the facts in each case speedily and objectively and without regard to technicalities of law or procedure, in the interest of due process. Cited by the NLRC in granting TESDA's appeal in intervention.

• Section 218(c), Labor Code — Empowers the NLRC to direct parties to be joined in or excluded from the proceedings, correct, amend, or waive any error, defect or irregularity, whether in substance or in form. Cited by the NLRC in granting TESDA's appeal in intervention.

• Section 20, Corporation Code — Provides that all persons who assume to act as a corporation knowing it to be without the authority to do so shall be liable as general partners for all debts, liabilities, and damages incurred or arising as a result thereof. Considered but found inapplicable because the MOA Parties did not represent that the Center had juridical personality.

Leonen (Chairperson), Inting, Delos Santos, and J. Lopez, JJ., concurred.