Vigilla vs. Philippine College of Criminology Inc.

A labor-only contractor is solidarily liable with the principal employer for the rightful claims of the employees under Article 106 of the Labor Code; consequently, a valid release, waiver, or quitclaim executed in favor of the labor-only contractor extinguishes the solidary obligation of the principal employer pursuant to Article 1217 of the Civil Code. Furthermore, a corporation whose charter has been revoked may validly enter into agreements to settle its affairs and liabilities beyond the three-year winding up period under Section 122 of the Corporation Code, as the corporation continues as a body corporate for liquidation purposes, and Section 145 preserves all rights and remedies notwithstanding dissolution.

This case involves the dismissal of janitorial and maintenance personnel (janitors, janitresses, and supervisors) of Philippine College of Criminology Inc. (PCCr), a non-stock educational institution. The employees were made to understand that they were employed by Metropolitan Building Maintenance Services, Inc. (MBMSI), a corporation providing janitorial services, despite working directly under the supervision of PCCr's Senior Vice President for Administration, who was also the President of MBMSI. The controversy arose when PCCr discovered that MBMSI's Certificate of Incorporation had been revoked as early as July 2, 2003, prompting PCCr to terminate its contractual relationship with MBMSI and dismiss the employees in 2009. The employees challenged their dismissal and claimed that PCCr was their real employer, while PCCr presented releases, waivers, and quitclaims allegedly executed by the employees in favor of MBMSI to settle their monetary claims.

• The petitioners were janitors, janitresses, and a supervisor in the Maintenance Department of Philippine College of Criminology Inc. (PCCr), working under the supervision of Atty. Florante A. Seril, who was simultaneously PCCr's Senior Vice President for Administration and the President and General Manager of Metropolitan Building Maintenance Services, Inc. (MBMSI).
• Although the petitioners applied directly with PCCr and performed work integral to the school's operations, they were made to understand that they were employees of MBMSI, a corporation engaged in providing janitorial services.
• In 2008, PCCr discovered that MBMSI's Certificate of Incorporation had been revoked as of July 2, 2003, or six years prior to the subsequent events.
• On March 16, 2009, PCCr, through its President Gregory Alan F. Bautista, terminated its relationship with MBMSI due to the revocation, resulting in the dismissal of all maintenance personnel assigned to PCCr, except for Alfonso Bongot who was retired.
• In September 2009, the dismissed employees filed complaints for illegal dismissal, reinstatement, back wages, separation pay, underpayment of salaries, overtime pay, holiday pay, service incentive leave, and 13th month pay against MBMSI, Atty. Seril, PCCr, and Bautista.
• During the proceedings, PCCr submitted releases, waivers, and quitclaims allegedly executed by the complainants on September 11, 2009, in favor of MBMSI, notarized by Atty. Ramil Gabao, purporting to show settlement of claims due to the "closure of the Company brought about by serious financial losses."
• The petitioners initially did not dispute the authenticity of these documents during the proceedings before the Labor Arbiter or in their opposition to the respondents' Memorandum of Appeal; they only denied executing them in their Motion for Reconsideration before the NLRC after the NLRC ruled that the claims were settled.
• The Labor Arbiter found that MBMSI was a labor-only contractor and PCCr was the real employer, but did not rule on the effect of the releases and quitclaims.
• The NLRC and the Court of Appeals found that the releases were duly notarized and valid, and that since MBMSI was solidarily liable with PCCr, the release in favor of MBMSI extinguished the liability of PCCr under Article 1217 of the Civil Code.

• The petitioners denied executing the releases, waivers, and quitclaims, alleging that these were forged by PCCr to evade legal obligations, and that the handwriting in the documents matched that of Reynaldo Chavez, a PCCr employee.
• They argued that MBMSI had no legal personality to enter into the releases as its Certificate of Incorporation had been revoked on July 2, 2003, and the documents were executed in 2009, well beyond the three-year winding up period under Section 122 of the Corporation Code.
• They contended that there was no solidary liability between a labor-only contractor and the principal employer, arguing that under Article 106 of the Labor Code, the principal employer is directly responsible to the workers, not solidarily liable with the contractor.
• They asserted that Articles 109 of the Labor Code and 1217 of the Civil Code did not apply to labor-only contracting situations, and thus the releases in favor of MBMSI could not extinguish PCCr's liability.
• They claimed that the Court of Appeals committed reversible errors in affirming the NLRC decision regarding the quitclaims and in disregarding jurisprudence on quitclaims in labor cases.

• The respondents maintained that the releases, waivers, and quitclaims were valid and binding, having been duly notarized, and that the petitioners failed to substantiate their belated allegations of forgery.
• They argued that even if MBMSI's charter was revoked in 2003, the corporation could still settle its affairs beyond the three-year period under Section 122 of the Corporation Code through trustees or the board acting as trustees by legal implication, citing Premiere Development Bank v. Flores.
• They contended that Section 145 of the Corporation Code provides that no liability incurred by a corporation shall be removed or impaired by its dissolution.
• They argued that a labor-only contractor is solidarily liable with the principal employer under the last paragraph of Article 106 of the Labor Code and relevant DOLE regulations (Department Order No. 18-02 and 18-A), as well as established jurisprudence.
• They asserted that under Article 1217 of the Civil Code, payment or release made by one of the solidary debtors (MBMSI) extinguishes the obligation of the other solidary debtors (PCCr), and thus the quitclaims redounded to PCCr's benefit.

• Procedural:
  • Whether the Supreme Court may review the factual findings of the Court of Appeals and the National Labor Relations Commission regarding the authenticity and due execution of the releases, waivers, and quitclaims in a petition for review on certiorari under Rule 45.
• Substantive Issues:
  • Whether a dissolved corporation whose charter was revoked six years prior may validly enter into releases, waivers, and quitclaims beyond the three-year winding up period under Section 122 of the Corporation Code.
  • Whether a labor-only contractor is solidarily liable with the principal employer for the rightful claims of the employees under Article 106 of the Labor Code.
  • Whether the execution of releases, waivers, and quitclaims in favor of the labor-only contractor extinguishes the solidary liability of the principal employer under Article 1217 of the Civil Code.

• Procedural:
  • The Supreme Court held that it is not a trier of facts and questions of fact are generally not reviewable in petitions under Rule 45. The Court found that the petitioners' challenge to the authenticity of the quitclaims raised factual issues that were properly resolved by the NLRC and the Court of Appeals. The Court affirmed the presumption of regularity attaching to notarized documents and the finding that the petitioners failed to substantiate their allegations of forgery with concrete proof, noting that their denial was an afterthought raised only after the NLRC ruled against them.
• Substantive:
  • The Court held that the releases, waivers, and quitclaims were valid and binding notwithstanding the revocation of MBMSI's Certificate of Incorporation in 2003. Citing Section 122 of the Corporation Code, the Court explained that while the corporation may only act through its officers for three years after dissolution, the conveyance to trustees must be made within this period but there is no time limit for the trustees to complete liquidation. Furthermore, Section 145 preserves all liabilities and rights notwithstanding dissolution. The Court adopted the doctrine in Premiere Development Bank v. Flores that the board of directors may continue as "trustees by legal implication" to complete corporate liquidation even after the three-year period.
  • The Court ruled that a labor-only contractor is solidarily liable with the principal employer. Under the last paragraph of Article 106 of the Labor Code, the labor-only contractor is considered merely an agent of the employer, who becomes responsible to the workers as if they were directly employed. The Court cited DOLE Department Order No. 18-02 (Section 19) and Department Order No. 18-A (Section 27), as well as jurisprudence (Philippine Bank of Communications v. NLRC, San Miguel Corporation v. MAERC Integrated Services, Inc., and 7K Corporation v. NLRC), establishing that the principal is solidarily liable with the labor-only contractor for all the rightful claims of the employees to prevent circumvention of labor laws.
  • The Court held that under Article 1217 of the Civil Code, the release in favor of MBMSI (a solidary debtor) extinguished the entire obligation, including the liability of PCCr (the other solidary debtor). The Court emphasized that in solidary obligations, payment by one debtor benefits all, and the creditor cannot be allowed to collect twice from the solidary debtors.

• Corporate Liquidation Beyond the Three-Year Period — A corporation whose charter has been revoked continues as a body corporate for three years for the purpose of settling and closing its affairs under Section 122 of the Corporation Code. However, if the corporate assets are conveyed to trustees within this period, there is no time limit within which the trustees must complete the liquidation. Even if no trustee is formally appointed, the board of directors may continue as "trustees by legal implication" to complete the liquidation. Section 145 ensures that no liability is removed or impaired by dissolution. In this case, MBMSI, though dissolved in 2003, could validly execute the 2009 releases as part of its winding up process.
• Solidary Liability in Labor-Only Contracting — Under Article 106 of the Labor Code, a labor-only contractor is considered merely an agent of the principal employer, who becomes solidarily liable with the contractor for all rightful claims of the employees. This is distinct from legitimate job contracting where solidary liability is limited to unpaid wages. The solidary liability in labor-only contracting is comprehensive, covering all claims, to prevent circumvention of labor laws.
• Effect of Release in Solidary Obligations — Under Article 1217 of the Civil Code, payment made by one of the solidary debtors extinguishes the obligation as to the others. Consequently, a valid release, waiver, or quitclaim executed in favor of one solidary debtor (the labor-only contractor) extinguishes the liability of the other solidary debtor (the principal employer).
• Presumption of Regularity of Notarized Documents — A notarized document carries the evidentiary weight of prima facie evidence of its due execution and authenticity. Allegations of forgery or lack of voluntariness must be substantiated with concrete proof and cannot be based on mere unsubstantiated allegations.

• "The executed releases, waivers and quitclaims are valid and binding notwithstanding the revocation of MBMSI’s Certificate of Incorporation. The revocation does not result in the termination of its liabilities."
• "As early as 1939, this Court held that, although the time during which the corporation, through its own officers, may conduct the liquidation of its assets and sue and be sued as a corporation is limited to three years from the time the period of dissolution commences, there is no time limit within which the trustees must complete a liquidation placed in their hands."
• "Section 145 of the Corporation Code clearly provides that 'no right or remedy in favor of or against any corporation, its stockholders, members, directors, trustees, or officers, nor any liability incurred by any such corporation, stockholders, members, directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution of said corporation.'"
• "In labor-only contracting, the statute creates an employer-employee relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer. The principal employer therefore becomes solidarily liable with the labor-only contractor for all the rightful claims of the employees."
• "While it is the duty of the courts to prevent the exploitation of employees, it also behooves the courts to protect the sanctity of contracts that do not contravene the law. The law in protecting the rights of the laborer authorizes neither oppression nor self-destruction of the employer."

• Premiere Development Bank v. Flores — Cited as controlling precedent regarding corporate liquidation, holding that trustees may complete liquidation beyond the three-year winding up period, and that the board may act as trustees by legal implication.
• Philippine Bank of Communications v. NLRC — Cited for the doctrine that in labor-only contracting, the principal employer is solidarily liable with the contractor for all the rightful claims of the employees, as the contractor is deemed merely an agent.
• San Miguel Corporation v. MAERC Integrated Services, Inc. — Cited to distinguish between solidary liability in legitimate job contracting (limited to wages) and labor-only contracting (comprehensive), affirming that the principal is solidarily liable for all claims in the latter case.
• 7K Corporation v. NLRC — Cited to reiterate the solidary liability of the principal employer with the labor-only contractor.
• Varorient Shipping Co., Inc. v. NLRC — Cited for the application of Articles 1217 and 1222 of the Civil Code on solidary obligations in labor cases, explaining that payment by one solidary debtor extinguishes the obligation and that defenses available to co-debtors may be availed of to the extent of their share.
• Destreza v. Rinoza-Plazo — Cited to support that notarized documents are admissible despite the failure of the notary public to submit the notarial report, as the swearing and signing are material, not the submission of the report.

• Article 106 of the Labor Code — Defines labor-only contracting and establishes that the contractor is considered merely an agent of the employer, who becomes responsible to the workers as if directly employed.
• Article 109 of the Labor Code — Provides for the solidary liability of the employer or indirect employer with the contractor or subcontractor for violations of the Labor Code.
• Article 1217 of the Civil Code — States that payment made by one of the solidary debtors extinguishes the obligation, which the Court applied to hold that the release in favor of the labor-only contractor extinguished the principal employer's liability.
• Article 1222 of the Civil Code — Provides that a solidary debtor may avail himself of all defenses derived from the nature of the obligation or personal to his co-debtors, but only to the extent of the latter's share.
• Section 122 of the Corporation Code — Provides for the three-year winding up period for dissolved corporations and the authority to convey assets to trustees for liquidation.
• Section 145 of the Corporation Code — Provides that no right, remedy, or liability shall be removed or impaired by the subsequent dissolution of the corporation.
• Section 19 of DOLE Department Order No. 18-02 — Interprets Article 106 of the Labor Code to impose solidary liability on the principal with the contractor for monetary claims.
• Section 27 of DOLE Department Order No. 18-A, Series of 2011 — Reiterates that a finding of labor-only contracting renders the principal jointly and severally liable with the contractor.