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Abella vs NLRC
G. R. No. 71813
Petitioner: Rosalina Perez Abella
Respondents: National Labor Relations Commission and Romeo Quitco et al.
Article III, Section 10


On June 27, 1960, petitioner Rosalina Perez Abella leased a farmland in Monteverde, Negros
Occidental, known as Hacienda Danao-Ramona, for a period of ten years, renewable for another ten
years upon her discretion. In 1970, she renewed her contract for another 10 years. During the existence
of the lease, she employed private respondents Quitco and Dionele. Upon the expiration of the lease,
she terminated private respondents and turned over the hacienda to the owners.

Private respondents filed a complaint against the petitioner at the Ministry of Labor and Employment in
Bacolod City for overtime pay, illegal dismissal, and reinstatement with backwages. The labor arbiter
ruled that the dismissal is warranted by the cessation of business, but granted the private respondents
separation pay.


Whether or not private respondents are entitled to separation pay



Petitioner claims that since her lease agreement already expired, she is not liable for payment of
separation pay. She could also not reinstate the complainants in the farm because the complete
cessation or closure of a business operation is a just cause for employment termination under Article
272 of the Labor Code. On the other hand, the Labor Arbiter invoked Section 15 of BP Bilang 130 in
granting separation pay to the private respondents. Petitioner then contends that the said provision
violates the constitutional guarantee against impairment of obligations and contracts, because when she
leased Hacienda Danao-Ramona on June 27, 1960, neither she nor the lessor contemplated the creation
of the obligation to pay separation pay to workers at the end of the lease.

It should not be overlooked, however, that the prohibition to impair the obligation of contracts is not
absolute and unqualified. In spite of the constitutional prohibition the State continues to possess
authority to safeguard the vital interests of its people.

For not only are existing laws read into contracts in order to fix the obligations as between the parties
but the reservation of essential attributes of sovereign power is also read into contracts as a postulate of
the legal order. All contracts made with reference to any matter that is subject to regulation under the
police power must be understood as made in reference to the possible exercise of that power.

In order to determine whether legislation unconstitutionally impairs contract of obligations, no

unchanging yardstick by which the validity of each statute may be measured or determined has been
Prepared by: Cheza Marie Biliran !1

fashioned. However, the Court noted that every case must be determined upon its own circumstances.
In other words, it is on a case to case basis. Legislation impairing the obligation of contracts can be
exempted when it is: (1) enacted for the promotion of the general welfare of the public, and (2) when
the means adopted must be legitimate.

The Court added that the purpose of Article 284 as amended is to protect the rights of workers whose
employment is terminated because of the closure of establishment and reduction of personnel.

Petition is DISMISSED.

Prepared by: Cheza Marie Biliran !2